In November, financial services holding company Ambac Financial Group announced its acquisition of majority stakes in All Trans Risk Solutions and Capacity Marine Corporation. The deals added about $60 million of premium to Ambac’s insurance distribution division, Cirrata Group.
But what appears to be a straightforward M&A deal of a holding company acquiring a profitable managing general agent (MGA) is actually Ambac positioning itself for future success. To learn more about the rationale behind this deal, Insurance Business spoke with Ambac president and CEO Claude LeBlanc. LeBlanc discussed the potential of America’s MGA business, what Ambac is looking for in an MGA partner, and his thoughts about the transportation and marine segments.
Can you tell us a bit about Ambac Financial Group and what it does?
Ambac is a financial services holding company focused on the specialty property and casualty insurance market. We have two core operating business segments—a hybrid specialty property and casualty insurance carrier, Everspan, and a specialty insurance distribution platform, Cirrata Group.
Everspan, rated A- (Class VIII) by AM Best, is a specialty program insurer that retains an average of 20% of the risks it underwrites. It currently has 13 MGA program partners.
We also own majority stakes in four MGA/MGU businesses—Xchange Benefits LLC, PenPoint Specialty, All Trans Risk Solutions, and Capacity Marine Corporation. Those four companies comprise our insurance distribution platform, Cirrata Group.
Finally, we have a legacy financial guarantee business that has been in run-off since 2008.
Our strategy is to take advantage of the growing US program market, which doubled in size from 2011 through 2020. There are over 1,000 MGAs in the market, according to a recent report from Conning. And AM Best estimates that premium written through the MGA market in the United States reached $60 billion in 2021, up from $51 billion in 2020.
The MGA segment has become increasingly influential. We expect that trend to continue, and with Everspan and Cirrata we are well positioned to capitalize on the growth in this segment of the specialty insurance market.
Ambac recently acquired majority stakes in All Trans Risk Solutions and Capacity Marine Corporation. What was the decision-making process behind the deals?
I’ll start by saying we are very excited about these acquisitions. All Trans is a 30-year-old specialty transportation MGA and Capacity Marine is a well-established marine and international risk wholesale broker. Both platforms have top industry talent and leadership.
That expertise is what first attracted us to these companies. With any strategic transaction, but particularly one involving niche businesses, our No. 1 consideration is talent. The leadership teams at All Trans and Capacity Marine have decades of experience in the lines of business they underwrite. That expertise is reflected in their overall profitability.
Bob Lull, who is the chairman of both companies and CEO of All Trans, is well known and well regarded in the MGA and broader insurance spaces. He’s an extremely experienced operator in the charter and school bus and wheels categories. The same is true of Matt Simnor, the President of All Trans.
Walter Wynne started Capacity Marine in the 1990s and has been at the helm since then. He has expertise across multitude subsectors within the marine space, as well as broader commercial lines. We see material expansion opportunities for CMC in the current market environment.
The other thing we found very attractive was that both companies have loyal customers and long-standing producers, which speaks to their underwriting profitability and business acumen.
What is the current state of commercial auto insurance in America?
Commercial auto is broad. It includes trucking, taxi, livery, rideshare, coaches—each of which has its own unique risks. If you paint with a broad brush, there has been a lack of success in commercial auto lines. According to AM Best, the combined ratio for the segment has been above 100 in 10 of the last 11 years.
But if you have the right teams with the right underwriting expertise and a demonstrated track record, you can find pockets of profitability.
All Trans, for example, primarily writes coverage for school buses. That’s been a profitable line of business for them. They’re also experts in it. When you combine underwriting expertise with a predictable class of vehicle, the results buck the larger trends.
It’s a similar story with Cover Whale, a trucking MGA we invested in. Unlike a lot of other insurtechs, Cover Whale’s focus from Day 1 was to use technology to, among other things, enhance its underwriting results. To date, that strategy has paid off with strong underwriting results for Cover Whale.
Turning now to marine. What are some of the biggest issues in this sector?
The marine market is experiencing many of the same issues as the property cat market—players leaving the market, rates rising, limits decreasing. Most contents are warehoused near the ports and, as a result, have cat and flood exposure. Until those goods are moved inland, the risks are hard to place.
On the whole, we’re seeing a lot of contraction in the market, particularly on the reinsurance side. Reinsurance contracts are dictating much of what’s happening in marine lines.
On the liability side, prices are going up significantly in the excess market. On the storage side, which is a static risk, carriers have moved away from large limits, which means you need to get five or six underwriters for one policy.
However, we believe there are a number of opportunities in primary marine general liability, excess marine liability and third-party logistics, where you can still achieve good rate on line.
What is Ambac doing to better serve its clients at this time?
Ambac’s job, as a parent company, is to provide our subsidiaries with the tools and technology they need to support their customers. On the distribution side, we offer our MGAs services that most small companies don’t have—IT infrastructure, cybersecurity, and regulatory and accounting support, to name a few. We also offer them a comprehensive technology platform to support their growth, operations, and risk management. Our business services model frees up MGAs to do what they do best—underwriting.
Looking at our subsidiaries, each of our companies—from Everspan to our MGAs—prides itself on adding value to its partnerships and relationships. For example, one area in which Everspan distinguishes itself is claims. Everspan’s head of claims, Marc Karnell, has more than 30 years of claims experience working for some of the largest insurers and reinsurers. The decision to hire a seasoned senior executive to lead claims was strategic. From the outset, Everspan has been committed to making excellent service a hallmark of the company.
