Wednesday, June 19, 2024

Insurance unicorn Wefox warns investors of insolvency risk

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The new British boss of Wefox, one of Europe’s biggest insurance technology companies, has warned investors that it could face collapse within months as it contends with a slew of regulatory and financial challenges.

Sky News has learnt that Wefox believes it could become insolvent by the summer unless it can secure the sale of a number of its loss-making operations.

The parlous state of the company, which was valued at $4.5bn (£3.6bn) in a funding round less than two years ago and whose lenders include Barclays and JP Morgan, makes it the latest giant of Europe’s tech scene to face an existential crisis.

In a memo circulated to shareholders earlier this month – details of which have been obtained by Sky News – Wefox’s new executive chairman and chief executive, Mark Hartigan outlined a bleak scenario in which its holding company “becomes insolvent in August, or potentially even earlier”.

Mr Hartigan, former boss of the UK-based insurance mutual and friendly society LV=, said that the company was engaged in urgent discussions aimed at stemming losses in its Italian unit, as well as closing operations in Germany, selling part of its business in Poland and unwinding a joint venture in Switzerland.

He warned them: “My key deduction is that Italy has been running on systematically false operating assumptions…and is now insolvent without ongoing Group cash support.”

Mr Hartigan also told investors that its liabilities in Germany were “very significant and could introduce a large cash strain on the company”.

Wefox is backed by some of the world’s largest tech investors, including the Abu Dhabi sovereign wealth fund Mubadala, Canada’s Omers Ventures, Target Global and G Squared.

Its British-based shareholders include Chrysalis Investments, the London-listed fund which last month wrote down the value of its stake in Wefox by a third.

Founded in 2015, Wefox sells insurance products through in-house and external insurance brokers, and has frequently boasted of its ambition of revolutionising the insurance industry through the use of technology.

It has nearly 3m customers across its business.

Mr Hartigan took on his new executive role from Julian Teickle, one of the company’s co-founders, who said in a public announcement in March that his transition to become president would allow him to “dedicate more time and energy to my big passion: supporting founders in building up their own ventures”.

In his memo to Wefox investors, Mr Hartigan cited the progress of its restructuring efforts as offering a glimmer of hope to investors that a sustainable reshaped group could emerge from the process.

“The opportunity to rebuild through restructuring and any optionality for the future remains dependent upon reaching [a] sustainable position by balancing cashflows with the timing of our planned disposals,” he wrote.

“The increasing demands on Group cash from country demands to stay solvent, from the Regulatory requirements for upfront carrier capital, from business disruption from increased media leading to partner uncertainty, from the control of cash and increased costs related to the [Revolving Credit Facility], leads me to remain very concerned that this balance will be disrupted.”

Mr Hartigan is also cutting jobs in central functions, having shed 60 roles in recent weeks, with more expected to follow.

In July 2022, Wefox raised a $400m Series D funding round valuing it at $4.5bn, making it one of the largest fintechs in Europe.

That followed a $650m round in May 2021 valuing it at $3bn, reflecting the frothy appetite of investors to back scale-ups regarded as having the potential to become global competitors of genuine scale.

It then secured a further $55m in equity financing and the same amount in debt funding from Barclays and JP Morgan a year ago.

Responding to an enquiry from Sky News, Wefox refused to answer questions about its insolvency warning to shareholders, saying: “Wefox does not comment on rumours or speculation.

“As a general statement, we reiterate what we have said when Mark Hartigan took over as CEO on March 6.

“Supported by the board of directors, in which the most important investors are represented, and together with the current management team, he will lead the company through the next phase of development.

“Following the rapid growth of recent years, this will also involve a consolidation and concentration of Wefox’s international activities.”

The spokesman added: “The simplification of our business model will allow us to save costs and will provide us with the financial flexibility to continue pursuing our ambition of making insurance distribution smarter, more effective, and more efficient through technology.”

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