2 months ago


Incumbent InsurTech

Incumbent InsurTech Strategy (Re)insurance Innovation Survey Value of External Innovation Partners Accelerators/incubators viewed as most valuable external innovation partners Academic Partners/ Scientific Literature 6% 18% 32% 28% 15% Accelerators/Incubators 8% 22% 31% 24% 14% Bankers & VCs 3% 18% 26% 29% 25% External Ideation Consultants 4% 16% 38% 26% 17% Industry Analysts 4% 19% 41% 30% 7% Extremely Valuable Very Moderately Slightly Not at All Valuable Value of Internal Innovation Sources Customers and employees viewed as most valuable internal sources of innovation Competitive Intelligence 17% 38% 28% 14% 2% Corporate Venture Capital 6% 19% 26% 26% 22% Customers 38% 28% 23% 10% 2% Employees 25% 40% 28% 7% 1% Suppliers/Vendors 6% 28% 44% 19% 4% Extremely Valuable Very Moderately Slightly Not at All Valuable Innovation Needs at Insurance Value Chain Functions More than 55% of participants believe each of the following value chain functions is “extremely” or “very” in need of innovation at their company Marketing & Distribution 18% 43% 29% 6% 4% Underwriting 21% 37% 29% 8% 6% Customer Service 16% 48% 26% 10% 1% Claims Management 21% 41% 26% 7% 5% Customer Retention 20% 35% 24% 16% 5% Extremely in Need Very Moderately Slightly Not at All Valuable 41

Transaction Spotlight Guidewire Acquisition of Cyence “21st Century Risks” in Focus Guidewire’s acquisition of cyber risk modeling start-up Cyence, announced in early October, marked one of the largest and highest profile InsurTech investments to date. The US$275 million ($265 million net of $10 million of cash on hand) transaction came hardly over a year after Cyence launched out of stealth after securing a total of $40 million of funding from New Enterprise Associates (NEA), Institutional Venture Partners (IVP) and Dowling Capital Partners. Guidewire expects Cyence to contribute $9 – $11 million in revenue in fiscal year 2018 post purchase price adjustments. Founded in 2014 by data science specialists to serve the P&C industry, Cyence employs a highly technical team of 90+ cloud engineers, data scientists, modelers and P&C experts, primarily based in its San Mateo, CA headquarters. Cyence’s scalable subscription-based data listening and risk analytics solution combines internet-scale data collection, adaptive machine learning and insurance risk modeling to empower P&C insurers to model, underwrite and price “21st century risks,” beginning with cyber. Cyence enables insurers to underwrite new products and improve profitability through accurate pricing, underwriting and reserving. After increasing sales ~60% in 2017, Cyence’s client base now includes more than 30 (re)insurers, brokers, regulators and rating agencies. Going forward, products will be marketed and sold by Guidewire under the Cyence Risk Analytics brand. Transaction Highlights $275 million Total consideration, gross of $10 million of cash on hand ~$130 million Net cash consideration ~1.7 million Shares of newly issued Guidewire stock, including: ~250,000 Shares in the form of deferred equity consideration Guidewire • Addresses key problem insurers face as they seek to underwrite 21st century risks • Aligns with industry platform aspiration through provision of new data-based service • Augments Guidewire’s IP and talent within rapidly evolving field of data science • Strong cultural fit Strategic Rationale Cyence • Integrates Cyence data science and intelligence into core operations • Access to Guidewire’s global reach and scale • Shared mission and focus serving P&C insurers • Strong cultural fit Cyence Approach to 21st Century Risks Data Sources Data Listening & Risk Analytics Application Framework • Public • Open Source Machine Learning Cyber Business Interruption Future Lines of Business • Proprietary Underwriting • Customer • Third Party Data Collection & Curation Risk Modeling Pricing Accumulation Source: Company filings. Quarterly InsurTech Briefing Q4 2017 42

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Adam Spence, MaRs - Business Innovation in Changing Times