Insurance unicorn Wefox warns investors about insolvency risk

The European insurer, which has almost three million customers and was valued at US$4.5 billion ($3.6 billion) less than two years ago, has told shareholders that its holding company risks being insolvent by the summer, Sky has learned News.

By means of Mark Kleinman, city editor @MarkKleinmanSky

Thursday May 16, 2024 6:24 PM, UK

The new British boss of Wefox, one of Europe’s largest insurance technology companies, has warned investors it could face a collapse within months as it faces a raft of regulatory and financial challenges.

Sky News has learned that Wefox believes it could go bankrupt by the summer unless it can secure the sale of some of its loss-making businesses.

The dire state of the company, which was valued at US$4.5 billion ($3.6 billion) in a funding round less than two years ago and whose lenders include Barclays and JP Morgan, makes it the latest giant in the European technology world facing an existential crisis. .

In a memo circulated to shareholders earlier this month – details of which were obtained by Sky News – Wefox’s new executive chairman and CEO, Mark Hartigan, outlined a bleak scenario in which the holding company “in August, or possibly even earlier, goes bankrupt”. .

Mr Hartigan, former boss of UK-based insurance company LV=, said the company was engaged in urgent discussions aimed at curbing losses in its Italian unit, as well as closing operations in Germany, with some of its activities in Germany were sold. Poland and the winding down of a joint venture in Switzerland.

He warned them: “My main conclusion is that Italy has relied on systematically false operational assumptions… and is now insolvent without continued financial support from the Group.”

Mr Hartigan also told investors that his commitments in Germany were “very significant and could cause significant cash pressure on the company”.

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

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

Founded in 2015, Wefox sells insurance products through internal and external insurance brokers and has often boasted of its ambition to revolutionize the insurance industry through the use of technology.

It has almost 3 million customers across its business.

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

In his memo to Wefox investors, Mr Hartigan cited the progress of restructuring efforts as a ray of hope for investors that a sustainable, reformed group could emerge from the process.

“The ability to rebuild through restructuring and any options for the future remain dependent on achieving this [a] sustainable position by balancing cash flows with the timing of our planned divestitures,” he wrote.

“The increasing demand for the country’s cash from the country’s demands to remain solvent, from the regulatory requirements for upfront capital, from business disruption from increased media leading to uncertainty among partners, from the control of cash and the higher costs associated with the [Revolving Credit Facility]leads me to remain very concerned that this balance will be upset.”

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

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

That followed a $650 million round in May 2021 that valued it at $3 billion, reflecting investors’ frothy appetite to back scale-ups seen as having the potential to become global competitors of real scale.

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

In response to a query from Sky News, Wefox declined to answer questions about its insolvency warning to shareholders, saying: “Wefox does not comment on rumors or speculation.

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

“Supported by the board of directors, which represents key investors, and together with the current management team, he will lead the company through its next phase of development.

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

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

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