Last week, this publication reported that cyber InsurTech Cowbell is exploring strategic alternatives including a potential sale of the business.
It’s an unsurprising move following the Corvus-Travelers transaction of last November. Corvus was able to secure a strategic deal with Travelers for $435mn. Since then, InsurTechs that have struggled to raise capital have had a clear precedent to point to in following a similar playbook.
It makes sense for Cowbell to pursue a sale as a possible exit strategy in an increasingly challenging funding environment as VCs pull back, fewer SPAC deals are available and the InsurTech IPO market lies dormant.
In fact, in May 2023 CFO David Junius told this publication that the InsurTech was “marching” towards being ready for the public market by 2025.
Prior to the transaction, Corvus had raised roughly $161mn, according to Crunchbase, with 2022 trailing premium of $240mn. That said, its deal was likely based on its 2023 estimated premium.
Another factor to consider is that the cyber market continues to see rate decreases and cyber InsurTechs are seeing tepid growth compared with years past, possibly leaving selling to a strategic as the best option.
So far, Cowbell has raised around $149mn, according to Crunchbase. The InsurTech last raised capital in the latter half of 2023 with $25mn of equity financing in a Series B-1 round led by 12 new and existing investors including Prosperity7 Ventures.
It raised the capital at “a slightly higher valuation” as it aims to become profitable by 2024, founder and CEO Jack Kudale said.
The announcement came five months after this publication reported that Cowbell was working with JP Morgan on a $100mn to $150mn sidecar to provide additional capacity.
Last month, Insurance Insider US revealed that specialty carrier Skyward Specialty had discontinued its capacity deal with the cyber MGA.
Sources noted that Cowbell’s recent move to lay off employees could be seen as an attempt to size down before a sale, as well as a way of conserving cash to increase runway.
Cowbell is not the only InsurTech to take advantage of the Corvus-Travelers precedent. In the past month or so alone, this publication has reported that trucking MGA Cover Whale is exploring strategic investment options including a minority stake or a full sale of the business.
In addition, InsurTech Koffie is selling part of its commercial auto technology to Acrisure as some employees are expected to move to the brokerage.
Sources agree that others could follow a similar playbook, and M&A talks have increased, and will continue to increase, in frequency. Whether those talks will translate to deals depends on valuation, clearing out existing investors and the willingness of strategics. There are likely to be more willing sellers, but fewer buyers.
Cyber dynamics
Last year saw a decisive softening of the cyber market, following a multi-year correction of pricing and terms.
As this publication has previously reported, competition has been more intense in the high excess layers of programs, but there have also been instances of double-digit reductions on primary layers on US accounts.
Towards the end of last year, sources were already describing the tell-tale signs of an acceleration of rate decline – doubling of line sizes and a clear push for market share amid ambitious internal premium targets.
Sources added that they saw up to 20% rate decreases last year and expect the same for 2024.
Also, at January 1, there was more capacity forthcoming from cyber reinsurers, easing the pressures of a few years ago that resulted from Ransomware Wave One.
A bullish market, plus increased capacity in the system, in theory suggests rate reductions could accelerate significantly this year.
And while softening can still be expected in cyber for 2024, the increasing frequency of attacks in Ransomware Wave Two, faster reaction times, shorter pricing cycles and the need for discipline could slow the speed of decline.
This publication has argued that while the tell-tale signs are in place for a textbook acceleration of pricing decline, this may not be the starting gun for a race to the bottom on price.
Still, Cowbell is one of a cohort of cyber-focused InsurTech MGAs including Coalition, Corvus, At-Bay and Resilience to have launched in recent years, and sources have noted that the space is ripe for consolidation. Cyber rate softening, along with an ongoing funding crunch, could spur the process.
Insurance Insider US provides unparalleled market intelligence on the entire US P&C market – from small commercial and personal lines right through to reinsurance and Bermuda. Redeem your complimentary 14-day trial for more premium content from Insurance Insider US.
Scan here to download the app