Rating upgrade means MS Transverse can tap into new markets, says CEO Paulsson

By Chris Munro

July 1 - (The Insurer) - MS Transverse’s new AM Best A-plus rating is not only “a great headline" and "talking point" but also provides "tangible, specific benefits" that allow the hybrid fronting carrier to tap into new business lines, CEO Dave Paulsson has told Program Manager.

AM Best on June 20 announced it had upgraded MS Transverse’s financial strength rating (FSR) to A-plus from A.

The rating agency said the upgrade, which applies to MS Transverse Specialty Insurance Company, MS Transverse Insurance Company and TRM Specialty Insurance Company, reflected parent Mitsui Sumitomo Insurance Company (MSI)’s support, the fronting carrier’s strong operating performance, and its “favourable business profile and appropriate enterprise risk management".

AM Best said the upgrade also reflects the assignment of full rating enhancement to MS Transverse due to the greater support from ultimate parent MS&AD Insurance Group Holdings, along with the backing of lead insurance-focused entity MSI.

MSI completed its acquisition of Transverse Insurance Group from Virgo Investment Group in early 2023.

Along with the FSR upgrade and XV balance sheet designation, AM Best raised MS Transverse’s long-term issuer credit ratings (ICRs) to aa from a-plus. The outlooks on the long-term ICRs and FSR are stable.

Paulsson said the upgrade benefits MS Transverse in two notable ways.

“Obviously, it's a great headline. It's a great talking point. It helps all the way down to the retail agents who talk about the quality of what it is that we're doing, and it's a signal to the market around our financial strength as well as our business model,” said Paulsson.

“But it actually has some tangible, specific items associated with it as well, such as opening up certain lines of business where you must have an A-plus rating to be credible,” he added.

STRATEGIC SOLUTIONS

Those market segments or lines of business include financial lines and surety.

“Really anywhere where the financial sector or the banking sector has a significant presence, there tends to be requirements that includes a need for an A-plus balance sheet,” Paulsson explained, with mortgages and large corporate real estate two more notable examples.

And while MS Transverse is now looking to make a play in those business lines, Paulsson said the company believes it can also provide what he broadly described as “strategic or tactical solutions that really would not be available to any other fronting carrier”.

“The other groups that have our rating and size category tend to be very large organisations (and) huge market movers. But they’re also not approaching the market the way we have, and certainly not from an MGA-native, program-native environment.

“And to be in that category, that cohort of quality and scale, but at the same time be laser focused on the MGA and program market, we’re very curious about the opportunities that presents.”

Paulsson said MS Transverse’s focus is on those industry areas best suited to its core strengths and competencies.

“It’s amazing now that rating and balance sheet are among those core strengths of our business,” Paulsson said. “So we absolutely intend to use our core strengths to compete in this market and to broaden and open up this market beyond where it is today.”

Paulsson said the rating will also enhance the opportunities for its MGA partners, with the A-plus rating “helping open up a piece of a particular market”.

The XV balance sheet category that MS Transverse now holds also presents further opportunities.

“We're very, very excited about that from an MGA perspective,” Paulsson said.

“What this is going to allow us to do for MGA partners is deliver a broader swath of very high-quality rated markets, many of whom might only access a hybrid fronting opportunity through MS Transverse and no other partner.”

SIDECAR OPPORTUNITIES

MS Transverse has already played an integral role in establishing sidecars to support the programs and MGA market, with the company having provided fronting capacity to AmRisc’s Trouvaille Re platform when the innovative structure launched last year.

There is an expectation such structures will become increasingly prominent in the marketplace, and Paulsson said that, with the higher ratings, MS Transverse is now even better placed to take advantage.

“The investors in those sidecars are not always extremely prolific in the insurance sector, and view the quality of the carrier associated with the deals as a major vote of confidence in the quality of that opportunity,” said Paulsson.

“So effectively, we're able to help our partners raise capital, close these transactions and improve the attractiveness of an opportunity.

“When you have an A-plus, XV rated carrier partner in a sidecar (that gives investors more confidence) than an A-minus, class XII, often PE-owned (entity).”