SG’s insurtech startup CXA Group scouts for buyers for brokerage units in China

CXA founder and CEO Rosaline Chow Koo

Singapore-headquartered insurtech startup CXA Group is looking for buyers for its brokerage businesses in Shanghai and Beijing, as part of a restructure that will see the company shift away from its core operations and cut considerable headcount, according to founder and CEO Rosaline Chow Koo.

CXA is also said to be exploring various exit options, amid difficulties fundraising, even though the startup was open to securing capital at a markedly lower valuation, according to a source familiar with the fundraising process.

Another source told DealStreetAsia that CXA had also approached a special purpose acquisition company to explore a merger possibility, but was rejected owing to its poor financials.

CXA’s brokerage business, which brings home a bulk of the revenue, was dealt a severe blow by the COVID-19 pandemic, pushing the company to pivot to the cloud-based enterprise SaaS business. It has already sold its Singapore and Hong Kong brokerage units to global corporate insurer and employee benefits company Pacific Prime in February.

Chow Koo says it is untrue that CXA had approached a SPAC. She maintains that the company is not ready for exits, yet.

“I’m very focused right now on expanding,” she asserts in an interview. “I’m just releasing cash from my high-capital, low-margin businesses [brokerage] which I think will be hard to grow, because I think the industry has changed.” 

Per its filings with the Accounting and Corporate Regulatory Authority in Singapore, auditor Deloitte & Touche has flagged as material uncertainty CXA’s net current liability of S$36.2 million, and S$37.4 million, at the company and group level respectively. The latter includes $33.7 million in convertible notes that are due this month.

The auditor noted that “the ability of the group to continue as a going concern and fulfill its obligations is dependent on the group’s ability to raise new capital via fundraising through its Series C convertible shares or through other alternative means.”

CXA’s 2020 financial statements have yet to be filed, though the auditor noted that, for the period to September 2020, the company’s gross revenue grew by 18%, and losses before interest, tax, depreciation and amortisation narrowed nearly 50% when compared to 2019.

For FY2019, CXA recorded revenues of S$26.4 million, up 47% from the year before. However, losses for the year were up 70% from the previous year to $29.7 million.

2019 was the year that CXA established its software engineering hub in Vietnam, which it will shut down by April 16, 2021, as it plans to consolidate its technology operations in China. CXA also paid RMB 3.2 million to acquire an insurance agency in Beijing.

Additionally, among the expenses recorded for the year was S$7.8 million paid to ThoughtWorks, CXA’s tech partner on the SaaS platform.

Restructuring post-COVID

Outlining the difficulties the brokerage business encountered during the pandemic that led to the strategic pivot, Chow Koo explains: “Our face-to-face business just stalled, except in China, which got over [the pandemic] fairly quickly. The Hong Kong and Singapore brokerages could not generate revenues.”

In FY2019, some S$2.7 million was recognised from the employee benefits and third-party administration business. Another S$9.6 million came from brokerage income while S$11 million was accounted for as service income, or revenue from arranging health screenings with labs.

Still, the insurance industry is highly regulated, and companies need scale to compete. The insurance brokerage business is dominated by global players, such as Marsh McLennan and Aon, which in 2020 generated revenues of $17.2 billion, and $11.1 billion respectively.

With the divestment of the brokerages Chow Koo says, CXA would not need to raise Series C funding, which it had initiated in September last year.

At that time, Chow Koo recounts, potential investors [strategic global brokers] were more interested in gaining control of the brokerage business rather than investing in the company.

Following the sale of the brokerages in China, CXA’s operations would be significantly slimmer, and ostensibly cut the start-up’s cash burn rate. Chow Koo is bullish that CXA could fetch a higher valuation as a SaaS play.

“My SaaS business, where the insurance companies white label my tech, took off,” she says. “Insurance companies use brokers and agents to sell – those two channels did not work. So finally they have the urgency to digitise. It took a crisis.”

“I don’t need that many people with a SaaS model. I used to have 330 people. Can I do it with 15?” Chow Koo adds. “We’ve built everything already. All I’m changing is the skin.”

The plan is to sell the healthcare platform to banks with insurance arms, as a white-label product. Under this model, CXA gets a variation of one-off implementation fees, per-user licensing fees, and a cut of transaction fees for services sold on the platform. 

CXA is currently in talks with banks and insurance firms in the Philippines, Indonesia, and Vietnam. CXA has already sold its platform to Oversea Chinese Banking Corporation in Singapore; the bank launched HealthPass in June last year. CXA is also working with TokioMarine in Thailand, Chow Koo adds.

Major backers

CXA, founded in 2013 with $5 million from Chow Koo’s own savings, has so far raised about $60 million in equity and debt capital. Chow Koo holds about 39% of the company’s shares.

In May 2019, the company raised $25 million in a convertible round from investors including HSBC, Singtel Innov8, Muang Thai Fuschia Ventures, Humanica, and Heritas Capital’s venture fund. The following year, in May 2020, HSBC and Humanica topped up another $3 million. 

Chow Koo says the company is currently working with convertible noteholders to extend the maturity of the debt, which was already rolled over from September last year to April 26, according to the financial statements. As part of the extension, the interest rate on the debt has also gone up to 12%, from 8% previously. 

One convertible noteholder told DealStreetAsia that it is prepared to roll over the debt, as it remains in its interest, as an institutional bondholder, for CXA to continue operating.

As part of its previous rounds, in February 2017, CXA raised $25 million in a Series B round that valued the company at $100 million. The round was co-led by Singapore-based investors B Capital and EDBI and included US reinsurer RGA. 

The company raised $8 million in a Series A round in 2015 led by NSI Venture, the VC arm of private equity firm Northstar Group, and including investors Openspace Ventures, and BioVeda Capital.

Additional reporting by Kristie Neo.

Editor’s note: This story has been updated to reflect Rosaline Chow Koo’s response that the company has not approached a SPAC.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.