Insurtech funding recovered in the second quarter from a Q1 slowdown, but was still more than 50% below Q2 of 2021, according to a new report from Gallagher Re.
Global investment in the insurtech sector was US$2.41 billion in Q2. That's 8.3% greater than the total in Q1, but 50.2% below 2021’s record-breaking second-quarter numbers. Average deal size was up 18.3% over Q1 to US$22.1 million. However, Q2 saw a 7.7% drop in total deal numbers, posting 132 insurtech deals compared to Q1’s 143. The lower Q2 number includes six mega-rounds – four of them in the US – that raised a total of US$948 million.
There were 40 L&H investments worth a total of US$918 million in Q2, and 92 P&C insurtech deals worth a total of US$1.49 billion, according to Gallagher Re. P&C deal flow was down 13.2%, but total investment rose 5.9% from Q1. Average deal size was US$20.73 million. Early-stage insurtech funding totalled US$368 million in Q2, a drop of 44.4% from Q1 and a drop of 26.1% year over year.
An about-average 45.5% of deals benefited US-based insurtechs, while UK ventures saw a big spike, representing 12.1% of total global deals in the second quarter, up four points. Reinsurers made 28 Q2 investments, five fewer than in Q1. Their Series A investments accounted for almost a third of reinsurer deals, the highest since Q2 2020, driven by strategic investments announced as partnerships.
“Global markets have struggled since the beginning of the year, with even the most robust stock valuations taking a beating,” said Dr. Andrew Johnston, global head of insurtech at Gallagher Re. “Insurtechs which are set to deliver growth and profitability over the long term now present confident investors with an excellent opportunity to diversify their portfolios. A number of them will undoubtedly change the face of our industry, or parts of it, and in some cases are already doing so. As markets begin to recover, those insurtechs should rise to the surface with the utmost buoyancy.”
Johnston said that the recent downgrade in company values could lead to M&A and divestitures that would have been unlikely six months ago.
“It has caused some insurtechs to coalesce, and thrown cold water over many other insurtechs that previously considered themselves special or unique,” he said. “In the wake of value realization, certain insurtechs should offload, and certain investors – even certain insurtechs – should acquire. For both sides of the trade, this moment could be seen as an enormous opportunity.”