A visionary investment?
Masayoshi Son is the possessor of at least two accolades which make his strategic moves worth studying.
He is Japan’s richest man (and self-made at that), having built his first fortune at the tender age of 20 while studying at the University of California.
He also runs the world’s largest – and most successful – tech investor and was an early backer of mega-tech unicorns such as Alibaba, TikTok owner ByteDance, South Korean e-commerce group Coupang and US meal delivery company DoorDash. Earlier this year, SoftBank valued its two tech-focused Vision Funds at a mighty $154bn.
And yesterday, The Insurer revealed SoftBank had made its first direct investment in the specialty end of P&C insurance with its lead position in the $130mn Series B fundraising for Envelop Risk, the UK-Bermuda cyber MGA and modelling firm that was set up less than five years ago.
It is an impressive achievement for the young management team behind Envelop Risk, which includes co-founders Jonathan Spry and Paul Guthrie as well as Ari Chatterjee, the firm’s Bermuda-based head of underwriting.
But it also prompts the question as to whether the transaction marks a significant new insurance direction for SoftBank which, until now, has focused on taking a small number of big positions with retail disruptors such as Lemonade and Ethos in the US and Policybazaar in India (see table below).
The question is certainly relevant to almost all our readers because it was only a few years ago that Son was in advanced talks with Swiss Re to become its largest shareholder with a putative stake of up to $10bn
(Incidentally, Son is probably grateful those talks ended without an agreement – Swiss Re’s stock has yet to fully recover from last year’s Covid-19 mauling and is still below the level it traded at in 2018.)
And as this publication highlighted yesterday, Son’s senior colleagues have previously highlighted that insurance – or, more to the point, disrupting insurance – is prominent on the SoftBank radar.
For example, former Vision Fund deal-maker David Thevenon told Reuters in 2018: “We believe that technology and how data is used, processed and collected is going to transform insurance.
“The nice thing about insurance is that this is so big, it’s not exactly a market where you make one investment and you suddenly have 90 percent market share,” he continued.
Yesterday’s announcement gave some additional colour on the investment and SoftBank’s thinking behind it.
“The financing will facilitate Envelop Risk’s plans to expand its proprietary machine learning and data-driven underwriting activity in London and Bermuda, with hopes to fuel growth into new markets globally and beyond cyber (re)insurance,” the company explained (The Insurer emphasis).
This shows SoftBank sees Envelop Risk as more than simply an opportunity to access the nascent but expanding cyber XoL market. Instead, it is clearly being viewed as a platform to build a presence in other (re)insurance markets underpinned by Envelop’s data and machine learning capabilities.
This is interesting because – until now at least – the specialty/reinsurance end of the global insurance market has shown itself the most resistant to disruption.
For example, while insurtech and fintech innovations have given us genuinely new retail initiatives centred around better ways of process and distribution, the specialty wholesale/reinsurance markets have largely continued to operate unchanged year in, year out.
Indeed, one could make the case that the most significant change to process in the last decade was the Covid-19 remote-working phenomenon, where the industry arguably surprised itself by coping so well with the enforced change in work patterns.
Yes, it is true the insurtech revolution has given traditional reinsurers an opportunity to provide underwriting risk capital directly to new start-ups and thereby access new markets and opportunities. But what it hasn’t led to is a tech revolution in the way traditional reinsurance is, say, placed or priced.
There is, of course, a genuine risk of sententiousness in pointing to one Series B funding for a well-run but small company as a transformational milestone for an entire industry. Nonetheless, there is no question SoftBank is a specialist in financing disruption and P&C reinsurance has yet to face any. So, on that basis alone, it will be interesting to watch how Envelop Risk evolves over the next few years with the support of its new backer…