MSI-Transverse $400mn+ deal highlights booming MGA and fronting sector

Strong demand from (re)insurers to access the buoyant MGA sector continues to be one of the major factors driving surging growth in a program fronting space that now sports more than 20 active players.

Erik Matson Transverse MSI

And two developments in recent weeks have shone a further light on the booming segment, which saw top-line growth of 45 percent to almost $9bn among the top 17 fronting carriers in the US last year based on data compiled by asset manager and research firm Conning.

News in mid-August of the surprise move by Mitsui Sumitomo Insurance (MSI) to buy hybrid fronting carrier Transverse for an initial $400mn sparked a valuation frenzy in the segment, as rivals sought to extrapolate to a multiple of Ebitda and determine what that might mean for their own businesses.

The transaction came five years after Markel’s $919mn acquisition of State National at 16x 2018 earnings – a watershed moment that was the catalyst for a wave of fronting start-ups.

Ledbetters return

Then at the end of the month in an intriguing development it emerged that State National founder and former CEO Terry Ledbetter is returning to the market with a senior management team led by his son Luke Ledbetter to launch Kestrel Group.

Although full details of the platform were not revealed, it will bring AM Best A- rated admitted and E&S capacity supported by capital partners including AmTrust to the programs space.

The start-up said it will serve program managers, MGAs, reinsurers and reinsurance brokers as they look to generate “enhanced efficiencies in the insurance value chain”.

The Ledbetters added that Kestrel would build on the expertise, track record and deep relationships in the industry from their days at State National, where they had focused on the creation of a bridge between distribution and capacity.

And it is in providing that conduit to allow traditional reinsurance capacity, as well as a growing number of alternative capital or ILS players, to access insurance risk that the cohort of fronting vehicles has found significant growth opportunities with bursting deal pipelines.

MSI accesses MGA space

Although MSI has plans for Transverse beyond fronting, it said that the acquisition would generate revenue diversification by accessing the fast-growing specialist MGA, wholesale and other broker-led distribution channels for property, casualty, marine and specialty business.

It provides it with optionality, with the ability to simply take fronting fees on US programs business or retain a material amount of the risk on its balance sheet.

For Transverse the expected upgrade to A+ in line with its prospective parent would put it out on its own in the fronting segment.

That alone could be a catalyst for more meaningful growth and bigger program relationships, supported by a much larger balance sheet at the group level that could allow it to scale up even more rapidly to respond to opportunities.

The combination also points to an intriguing dynamic for MSI and Transverse, with MS Amlin one of the more active reinsurers in the programs space, potentially playing its part as a strategic supporter of its new fronting carrier stablemate in a market where access to guaranteed reinsurance could be a significant advantage and selling point to MGA partners.

Demand and supply factors

The dramatic increase in the number of fronting carriers since State National was acquired by Markel is in part a reflection of investor interest drawn by the high multiples achieved by the seller in the transaction.

But it has also coincided with an explosion of the MGA space itself.


In its recent report on the US MGA sector, Conning said that direct premiums written by MGAs grew by 15.5 percent last year to $56bn, with the total size of the market estimated at $70bn. Sources have estimated the global market to be north of $100bn.

One key driver has been the surge of business flowing into the E&S market, where MGAs play a significant role and accounted for 38 percent of premiums in 2020.

The rise of insurtech has also been a catalyst for growth in the MGA sector, with many of the tech-driven models incorporating a delegated authority structure to write business and distribute product.

Arguably the biggest headlines though have been around the heavy flow of senior underwriting talent from carriers, drawn by what Conning described as the “inherent appeal” of the MGA model in the post-pandemic world.

Flexible business models and the opportunity in many cases to gain greater alignment with the economic performance of an MGA and their own underwriting through equity ownership has been an attractive proposition for underwriters that they typically cannot achieve at a traditional carrier.

There are also a growing number of “plug and play” or turnkey-style MGA platforms that can facilitate a speedy launch for underwriting individuals and teams looking to capitalise on a market opportunity without having to build out their own infrastructure.

Reinsurance conduits

The expansion of the MGA sector has led to greater demand for capacity, and the growing ranks of fronting carriers have been facilitators of that by allowing MGAs to access a large pool of reinsurance capital in addition to the more traditional domestic program insurers and Lloyd’s.

The Conning study noted that despite generally hard market conditions, capacity has not been challenging for MGAs to access because of the surge of fronting carrier entrants.

“A hard market for most lines of business is growing harder, yet capacity to support MGAs is often easier to secure than in previous years due to the efforts of fronting companies to open up global reinsurance markets,” said the report.

That represents a sea change for MGAs, which historically have had to deal with the ebb and flow of opportunistic traditional carrier appetite and a lack of long-term commitment from capital.

“Reinsurers have been increasingly attracted to MGAs and have found an easy means to provide support through a dramatic expansion of the fronting market”

Conning highlights the surge of new entrants to the fronting carrier space

“Structural changes in the E&S value chain recently have reduced this anxiety, opening up capital sources that may prove to be more durable,” said Conning.

It noted that the new generation of hybrid fronting companies has emerged to provide MGA access to both admitted and non-admitted paper supported by panels of reinsurers.

“Reinsurers have been increasingly attracted to MGAs and have found an easy means to provide support through a dramatic expansion of the fronting market,” said the firm.

Part of that attraction lies in the ability of reinsurers to get close to the end client, often through the use of fronting carrier capacity.

Alignment of interest

Another key development in the new breed of fronting carriers has been the emergence of the hybrid model, where insurers retain a portion of the risk on premiums – sometimes up to 20 percent – while maintaining a relatively capital-light model that is attractive to investors.

Speaking to our sister publication Program Manager, William Pitt, director of insurance research and consulting at Conning, said: “That creates an alignment of interest with reinsurers and everyone is quite happy about that. The great news for MGAs is that fronting carriers make it easier [to access capacity].”


Some reinsurers have taken a strategic approach to supporting MGAs by also taking minority investment positions, while an increasing number of MGAs have sought to align themselves with their reinsurance panel by retaining risk through captive vehicles or other structures.

The growth of fronting carriers means that State National, Trisura and Clear Blue all feature in the top five insurers in the US measured by non-affiliated MGA direct written premium.

All in, the trio reported strong direct written premium growth last year, with State National rising 31 percent to $2.85bn, Clear Blue growing 44 percent to $1.08bn and Trisura expanding by two thirds to almost $800mn.