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January 10, 2011

Insurers' Venture Funds Hunting Higher Returns

Jacqueline LeSage Krause, vice president of innovation and corporate venture capital, The Hartford

There are signs that Connecticut’s risk-averse insurance giants are again willing to look at deals in the venture space as they seek to raise return rates on their vast investment pool.

In Connecticut, Aetna Ventures and Hartford Ventures — the corporate venture capital arms of Aetna Inc. and the Hartford Financial Services Group Inc. — have made highly targeted but relatively small investments to date.

Hartford Ventures, which was launched in 2000, was the only insurance venture arm in Connecticut that made an investment last year. The division was among the investors in a $15 million Series C funding secured in September by California-based Coulomb Technologies, manufacturer of charging networks for electric vehicles. Hartford Ventures had previously invested in the firm along with Rho Ventures, Voyager Capital, and Siemens Venture Capital GmbH.

But going forward, according to Jacqueline LeSage Krause, vice president of innovation and corporate venture capital at The Hartford, Hartford Ventures welcomes strategic investment opportunities at firms in Connecticut and across the country. The investment size ranges from $1 million to $3 million, and target areas include telematics, clean tech, and data security.

“We are looking for companies with innovative technologies and business models of interest to the future of The Hartford and the overall insurance and wealth management industries,” says Krause.

That’s a rare insight into what’s usually a closed world.

Aetna, The Hartford and Phoenix declined to comment on their portfolios, including funding size, expected return on investment, targeted exit values and timeframes. An ING spokesman said ING does not invest in venture funds.

“It’s logical for insurance companies to invest a small amount of money in venture capital,” says Jack Plunkett of Plunkett Research.

Nell Newton, insurance analyst at research group Hoover’s, agrees, saying large and stable insurers are taking advantage of the need for capital in areas that will probably benefit them. “Now that their other investments are stabilizing and they’ve had a good 18 months with more income than losses, they’re willing to take these modest risks,” she says.

Through the third quarter of 2010, there were 30 corporate investment deals across the U.S. which includes investments by insurers. Those deals totaled $375 million, just two percent of the $18 billion invested in venture-backed companies during the same period, according to Dow Jones VentureSource.

Globally, Preqin’s Investor Intelligence found that on average, insurance companies seek to allocate 3.7 percent of their total assets toward private equity — the median insurance company in Preqin’s database had assets totaling $17.5 billion.

Aetna’s venture capital investments, for example, amount to less than five percent of its total invested assets. Its venture arm was ranked 49 out of 75 most influential healthcare corporate venturing divisions by Global Corporate Venturing magazine in June of this year. The Phoenix Co. has $209 million in venture capital partnerships — the insurer’s general partner makes investment decisions. To date, these investments amount to just about one percent of its total invested assets.

“Insurance companies must present an utterly conservative image. Those that do have venture capital investments are going to be very quiet about it because they don’t want to be seen as raking risks,” says Hoover’s Newton.

In 2009, Hartford Ventures funded California-based GreenRoad, which specializes in improving driving behavior and fuel economy. In 2007, Aetna Ventures provided strategic financing to California-based Healthline Networks. The Series B financing, totaling $21 million, was led by GE/NBC Universal’s Peacock Equity Fund.

California-based Vericare Management, Inc., a provider of geriatric behavioral health services, and Farmington-based Premise Corp., which was bought out by Eclipsys Corp. of Atlanta, had previously received funding from Aetna Ventures.

In a Vericare press release dated Nov. 29, 2007, Adam Grossman, former managing director of Aetna Ventures, said: “We believe this opportunity fits nicely with our strategy of making targeted investments in companies engaged in improving the quality of healthcare.”

 

 

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