Envelop Risk aims for hybrid balance-sheet approach after raising $130m

Envelop Risk, a company that had a managing general agency (MGA) and data driven approach to providing cyber risk analysis and reinsurance underwriting products has raised a significant $130 million Series B financing led by major investor SoftBank and now targets becoming a risk taker as well.

Envelop Risk was launched in 2018 with experienced reinsurance capital markets executive Jonathan Spry at the helm and a mandate to provide data driven cyber risk analysis and reinsurance products, partnering with risk capital providers to back up its writings.

The company has always seen an opportunity to tap into the capital markets and insurance-linked securities (ILS) appetite for new perils, seeing ILS as a likely future source of cyber reinsurance capacity and we understand there has been some activity there to-date.

Now, the company stands on the verge of being able to significantly expand its business and strategy, thanks to a Series B investment of $130 million led by SoftBank Vision Fund 2.

Envelop Risk said it will expand its proprietary machine-learning and data-driven underwriting activity in London and Bermuda thanks to the funding and also aims to fuel additional growth into new markets globally.

On top of this, Envelop Risk sees an opportunity to take its approach to using advanced technology and data to put some understanding around complex risks and underwrite them and apply them to new and emerging categories of risk as well.

Neil Cunha-Gomes, Investor for SoftBank Investment Advisers, is set to join Envelop Risk’s board of directors and the funding transaction is planned to close in October 2021, subject to shareholder approval.

Envelop already offers cyber reinsurance capacity combined with pricing technology, policy wording, and claims support and  partners with cyber technology firms to launch embedded insurance solutions.

The firm has underwritten over $250 million of business since 2018 and claims that its results best industry benchmarks for performance.

While investing to improve its predictive analytics for cyber risk, Envelop also wants to launch new products in adjacent areas of corporate risk over the next year, which will build on its risk production capabilities.

To assist in building capacity for this, Envelop aims to use this capital raise to establish a hybrid balance sheet model, which will allow it to deploy its own risk capital in alignment with existing partners.

That should also assist in attracting more diverse sources of reinsurance risk capital, including from capital market investors who look for alignment with the underwriting team.

Envelop Risk co-founder and CEO, Jonathan Spry, commented on the news, “We are delighted to have reached such a significant milestone in our funding journey. This transaction will allow us to continue our leadership in data-driven specialty (re)insurance underwriting and will be transformational for our business reach and activity. For the first time Envelop Risk will be able to assume positions in risk capital, which gives us greater alignment with our partners. We are all really excited to work with SoftBank Investment Advisers and together meet the huge opportunities that we see present in emerging and complex risk underwriting.”

Paul Guthrie, Co-founder and COO of Envelop added, “We know that all companies of all sizes will eventually safeguard against increased risk through robust cyber insurance policies. Digital systems have reshaped our world, but they are also vulnerable individually, and as integrated networks. Cyber insurance plays a critical protective role. Envelop deploys capital thoughtfully into the cyber insurance ecosystem, providing assurance that mitigation resources are available immediately upon an attack, so organizations can continue to function in the face of these risks.”

Karol Niewiadomski, Senior Investor for SoftBank Investment Advisers, also said, “While companies all over the world are improving their digital preparedness, the cyber threat landscape continues to evolve at a rapid rate. We believe Envelop Risk has developed a proprietary data-driven approach to meet this threat through an enhanced level of protection that directly translates to lower loss ratios. We’re pleased to partner with Envelop Risk in its journey to enable risk capital and provide much needed capacity to the nascent cyber risk market.”

It’s good to see a company like Envelop Risk having success, as the firm is putting technological expertise to work to make risk more understandable to underwrite, while leveraging on business models that help to keep its capacity efficient and distribute risk broadly.

Even with a hybrid approach, the originate to distribute model is likely to continue, with Envelop partnering to bring quality risks to capital providers looking for access to returns from risks such as cyber.

The way Envelop analyses and writes its business, as well as the capital market expertise the company has, make it a prime candidate for being able to launch an ILS fund, or product, to attract third-party investor capital to support its growth.