Insurance unicorn Wefox warns investors about insolvency risk | Business News

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

Sky News has learned 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 dire state of the company, which was valued at $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 most recent giant of the European technology scene facing an existential crisis. .

In a memo distributed to shareholders earlier this month – details of which were obtained by Sky News – Wefox’s new executive chairman and chief executive Mark Hartigan described a grim scenario in which his holding company “becomes insolvent in August, or potentially even earlier “. .

Hartigan, former head of UK-based mutual and insurance-friendly LV=, said the company was involved in urgent discussions aimed at stemming losses at its Italian unit as well as winding down operations in Germany by selling part of its business in Poland and the opening of a joint venture in Switzerland.

He warned them: “My main inference is that Italy has been operating on the basis of systematically false operational assumptions… and is now insolvent without the Group’s continued financial support.”

Hartigan also told investors that its responsibilities in Germany were “very significant and could introduce 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.

Its UK-based shareholders include Chrysalis Investments, the London-listed fund which last month reduced 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 frequently boasted about its ambition to revolutionize the insurance industry through the use of technology.

It has almost 3 million customers in its business.

Hartigan took over the 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 greatest passion: supporting founders in building their own enterprises”.

In his memo to Wefox investors, 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 options for the future remains dependent on achieving [a] sustainable position, balancing cash flows with the timing of our planned divestitures,” he wrote.

“The Group’s increasing demands for cash from countries require it to remain solvent, from regulatory requirements for the carrier’s initial capital, from business disruption due to increased media leading to partner uncertainty, from cash control and rising costs related to [Revolving Credit Facility]leads me to remain very concerned about the possibility of this balance being upset.”

Hartigan is also cutting jobs in core functions, having lost 60 positions in recent weeks, with more positions 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.

This followed a $650 million round in May 2021 that valued it at $3 billion, reflecting investors’ buoyant appetite to back expansions seen as having the potential to become global competitors of genuine scale.

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

Responding to a query from Sky News, Wefox refused to answer questions about its insolvency notice 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 6th.

“Supported by the board of directors, where the most important investors are represented, and together with the current management team, he will lead the company in 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 spokesperson added: “Simplifying our business model will enable us to save costs and provide us with the financial flexibility to continue to pursue our ambition of making insurance distribution smarter, more effective and more efficient. through technology.”