A few days ago, Travelers announced the acquisition of the Cyber InsurTech startup Corvus Insurance. But do you really know the entire story of this American InsurTech? That's what we rediscover together in this new essay.
Furthermore, since the sale price has been made public, this gives us an excellent point of comparison, as cyber insurtech has been the standout theme on the European scene for some time now, which we discuss regularly on LinkedIn.
For French 🇫🇷 speaker, you can listen to that story in my latest podcast:
https://open.spotify.com/episode/3laB4YCazF8eSr5uct8NMP
Corvus Insurance was officially launched in February 2017 in Boston. At that time, it offered an insurance solution for small and medium-sized businesses (TPE/PME). It emphasized its ability to use new data sources, often derived from partnerships, covering various elements such as social networks, mobile phones, connected devices, and more. This allowed them to power their CrowBar platform, open to brokers and risk carriers, to access real-time information related to insurance policies. As you may have understood, at its launch, Corvus Insurance adopted an MGA (Managing General Agent) positioning. The goal was to bring the level of user experience observed in many other industries to commercial insurance.
Very quickly, in March 2018, they announced their first funding round of $4 million from Bain Capital Ventures. It was then that they started exploring cyber insurance.
A few months later, in November 2018, the startup announced another funding round, this time for $10 million. Alongside Bain Capital Ventures, the round was led by two American funds. Once again, the startup highlighted its ability to identify, access, and analyze related datasets to anticipate, if not prevent, claims. At that time, Corvus Insurance remained a generalist and was particularly interested in the agri-food and pharmaceutical industries, both of which used numerous sensors. Cyber insurance was not yet at the core of their project.
During a third round of funding, on the cusp of the pandemic in January 2020, Corvus Insurance announced that it had raised $32 million from Telstra Ventures, an Australian fund, which joined the existing investors who also contributed. While the focus on risk assessment and measurement was confirmed in this round, there was explicit mention of an intention to accelerate, especially in the realm of growing cyber risks. The funds were meant to strengthen teams, particularly in underwriting, product development, and data science, all aimed at providing insurance players with better tools to understand, anticipate, and estimate cyber risks.
To achieve this, the company developed a proprietary algorithm - the Corvus Score - which assesses the vulnerability of its clients' IT infrastructure based on eight measurement points. The result is used not only for determining policy prices but also for recommendations that the startup can provide to its clients. The CrowBar solution, launched at the startup's inception, still serves as a link to brokers, who use it for both underwriting and claims management. To complement their offerings, Corvus Insurance developed an insurance product - Smart Cyber - available in various industries.
However, the real acceleration came a year later. In March 2021, the startup announced a funding round of... $100 million! At the peak of the startup and insurtech ecosystem's excitement, the startup was valued at $750 million on this occasion. And this time, the focus was solely on cyber risk. Corvus Insurance's positioning was crystal clear.
On this occasion, the company shared some key performance indicators (KPIs). Its insurance policies averaged $9,000 per year. As for their client base, it covered a wide range of companies, with annual revenues that could reach up to $2 billion, knowing that the policies covered a maximum of $10 million.
The last figure shared was their premium volume. As is customary, the startup shared an annualized figure, which amounted to $120 million, all achieved in less than four years.
The major investor in this round, Insight Partners, detailed its investment thesis, emphasizing that the cyber threat is relatively recent, and as a result, historical players do not have the competitive advantage they may have in other more standardized lines. Therefore, Corvus Insurance's technological platform and its ability to access and leverage new data are strong differentiating factors that should enable it to invigorate an age-old industry, to quote them!
By the way, this funding round was announced not only in a market frenzy but also during a strong period for the cyber insurtech sector. Just a few months earlier, AtBay had announced a $34 million Series C, while Coalition had secured a $90 million raise!
To wrap up this round of funding, it's worth noting the $15 million extension announced by Corvus in May 2021, during which FTLV and Aquiline entered the cyber startup's capital.
However, not everything is rosy in this burgeoning cyber insurtech industry. Just a few weeks after their last funding round in June 2021, the startup announced a reduction in coverage to $5 million (down from $10 million previously) and no longer considers companies with annual revenues exceeding $100 million (compared to the previous limit of $2 billion). The startup explained this decision was due to reaching the capacity limit set by the risk carriers with whom they worked.
By the way, as a personal aside, I believe this is the primary challenge facing the cyber insurtech industry: risk carriers still remain somewhat cautious, and insurance capacity is limited in the market. For now. The challenge, therefore, is for startups to unlock more capacity, particularly through data and understanding and measuring these growing risks.
Back to Corvus Insurance.
In addition to the capacity challenges, the startup continues its development, which includes several acquisitions. The first occurred in August 2021 when Corvus Insurance acquired Wingman Insurance, which had developed a technology platform for brokers available across all 50 U.S. states, with a particular focus on cyber risk.
A few months later, in early 2022, Corvus Insurance acquired a British company, Tarian Underwriting. Purchased from a fund, Tarian Underwriting specializes in cyber risk and opens new horizons for Corvus, enabling them to access new markets, including the UK, Australia, and the Middle East. This acquisition also grants them access to Lloyd's syndicates, which resonates with the earlier discussion of risk coverage.
While their competitor, Coalition, announced an impressive $250 million funding round, Corvus Insurance expanded its scope by opening an office in Frankfurt, Germany. Beyond the local market, the startup aims to better cover the continental European market, in addition to the UK and its historical presence in the United States. It's worth noting that they plan to strengthen this team with several profiles in March 2023 to better meet market demand, according to their own statements.
At the same time, in August 2022, they announced the replacement of their CEO. The former CEO, who was also the startup's founder, became chairman. This is a classic move in startups and was observed in several European insurtech companies at around the same time. The new CEO had extensive experience in insurance, particularly in underwriting, as he was the Global Head of Underwriting at AIG and had been President of Corvus Insurance for a year. He framed his new position as a response to market changes, even speaking of "InsurTech 2.0." He confirmed the startup's ambition to expand internationally and mentioned new countries beyond the UK and Germany, where they already operate.
The year 2022 concluded with a partnership with Travelers. Presented as a multi-year partnership, this collaboration is intended to accelerate Corvus Insurance's development in Germany and Austria, targeting companies with annual revenues of up to €1 billion.
After a fairly active year in 2022, despite the market environment beginning to tighten, especially regarding InsurTech companies that were losing favor with investors, 2023 got off to a rocky start for Corvus Insurance.
In January, Corvus Insurance announced a reduction of 14% of its workforce. This move obviously resonates with what was observed in many other startups at that time, including within the insurtech sector. This figure aligns with what we ourselves observed in European InsurTech at the same time.
Simultaneously, the company announced a final funding round of $31 million, raised from 14 investors whose identities were not specified. This somewhat under-documented announcement was reported by Fintech Global based on a document from the U.S. Securities and Exchange Commission (SEC).
In March of that year, Corvus Insurance entered into a partnership with the investment bank Nomura with the aim of raising new capital to support its insurance underwriting activities.
In April, the head of insurance left the startup. In June 2023, a new President was appointed. With over twenty years of experience in the insurance industry, he reports directly to the CEO and is responsible for overseeing all insurance-related activities.
In September, Corvus announced the strengthening of its business partnership with Travelers, particularly to target the American market, in addition to the European market covered by the agreement signed the previous year.
Finally, on November 3, 2023, the American insurer Travelers announced the acquisition of Corvus Insurance for a total of $435 million. The press release on this occasion revealed that the startup had exceeded $200 million in insurance premiums sold.
Let's take advantage of these publicly disclosed figures to perform some analyses that could serve as a valuable reference point for insurtech startups currently developing in Europe.
First, we can note that the exit price of $435 million is lower than the valuation announced during the largest funding round in 2021, which valued the startup at $750 million. It's not necessarily a surprise given the significant figures at that time. All funding charts retrospectively reflect the enthusiasm of that era!
Beyond this comparison, two ratios particularly interest me.
On one hand, we have the generated insurance premiums, "over $200 million" according to the press release, compared to the capital raised, a little over $160 million since its inception. The ratio stands at 1.25x. This seems to illustrate the ability to create value, although it's important to remember that in an MGA model, the startup's revenue is only a percentage of these generated premiums.
The other ratio to consider is the exit multiple. By comparing the $200 million in insurance premiums to the purchase price of $435 million, that's a 2.2x ratio. While in private equity, EBITDA multiples are of interest, in the absence of this information, and for startups that are often unprofitable, the premium multiple appears to be a useful point of comparison to keep in mind. It also has the advantage of being easily applicable because many startups share their premium volume, if not on a monthly basis when they raise funds. It is also possible to estimate these figures by considering the number of policies sold (which is more often shared) and the average size of a policy, depending on the insurance product.
Note: Here is Travelers' official PR announcing that M&A deal - https://investor.travelers.com/newsroom/press-releases/news-details/2023/Travelers-to-Acquire-Corvus-Insurance/default.aspx
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