‘Massive blow’ for UK insurtechs averted as key bank is rescued

The bank, which is the 16^th largest in the US, had teetered on the brink of outright collapse, but has now had its UK arm bought for £1 by HSBC.

The bank collapse would have been a ‘massive blow’ for UK insurtechs, said Pikl chairman Stuart Reid, and the rescue was ‘supremely good news’. 

Julian David, CEO of trade association TechUK, agreed that the rescue was ‘good news’, and the UK tech sector continued to remain a ‘place of opportunity’. 

Background to Silicon Valley Bank collapse 

Silicon Valley Bank is one of the largest banks for fintech firms across the world.

As previously reported by sister title Insurance Post, in June 2021 it emerged that SVB had agreed a £5m loan facility for pay-per-mile UK insurtech By Miles.

Personal lines insurtech Lemonade said its exposure to SVB was limited, with only $7,000 (£5,760) held at the bank.

A lot of the money markets have not been open for business, and now slowly they are reopening. Without the rescue, this would have been a massive blow. A lot of people who will had a difficult weekend will be very pleased.

Stuart Reid

Commenting on the bank’s UK arm, SVBUK, the FCA said today: “SVBUK remains authorised by the PRA and FCA. It will operate as normal, and the Bank of England and HM Treasury have confirmed that depositors’ money is safe as a result of the transaction.

“SVBUK customers will continue to have access to the Financial Services Compensation Scheme and Financial Ombudsman Service, and their other consumer rights are unaffected. Customers of SVBUK can contact the bank through their usual channels.”

Funding in a ‘turbulent time’

Reid said the bank’s troubles had a come at a difficult time for insurtechs. A Gallagher Re report in March stated that global insurtech investment fell in the fourth quarter of 2022 to its lowest level since the third quarter of 2020.

Reid said: “I can’t see a downside from the information I have seen so far. At its most basic, it’s to be applauded. Insurtech funding has been quite tough.

“A lot of the money markets have not been open for business, and now slowly they are reopening. Without the rescue, this would have been a massive blow.  A lot of people who will had a difficult weekend will be very pleased.”

David echoed those sentiments, saying the rescue had come at a ‘turbulent time’ for the UK tech sector. 

He said: “It is good news that there is a resolution to the crisis in the tech start-up and scaleup ecosystem brought about by the collapse of Silicon Valley Bank in the US, and the subsequent insolvency of SVB UK.

“The government has produced a solution with the help of the BoE, and has announced that Europe’s largest bank HSBC has acquired SVB UK, and customers of SVB UK will be able to access their deposits and banking services as normal from today.  

[UK tech] remains a place of opportunity and, as the engine of growth for the UK, it has the ability to address the challenges we face in the UK.

Julian David

“It has been a turbulent time for UK tech after a difficult economic backdrop throughout 2022 with companies facing many adjustments to business models. But it also remains a place of opportunity and as the engine of growth for the UK, it has the ability to address the challenges we face in the UK.”

SVB’s troubles

SVB troubles began when the insurtech sector began to cool off and customers started to withdraw their deposits. The bank had invested in long-dated US government bonds, some backed by mortgages.

Interest rates had risen since those bonds were acquired by the bank, meaning those lower-yielding bonds were now loss-making when the bank came to sell them in current market conditions. 

On 8 March, the bank announced a $1.75bn capital raising. Panic followed, with customers rushing to take out deposits. This led to Californian regulators stepping in and shutting down the bank.

US authorities have issued emergency measures to protect customers deposits. Silicon Valley Bank, and another failing bank, Signature Bank, will have all their deposits covered.

US President Joe Biden said Americans should “rest assured that our banking system is safe”.

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