Despite Little Investor Appetite, FOXO Technologies Successfully Lists on the NYSE With A Goal To Change the Life Insurance Industry

Since the mid-1700s, underwriters have been predicting human lifespan and mortality rate to manage the risk associated with providing life insurance.

For more than 200 years, very little changed in regards to how medical underwriters determined longevity risk. That was until the introduction of blood collection in the 1980s when insurance companies grappled with the new issue of AIDS.

But blood (and urine) collection is cumbersome and expensive – needing a licensed medical professional to correctly collect samples.

Saliva tests, on the other hand, are not only less costly but also less invasive. These cost and time savings allow life insurance agents to simply and easily underwrite using a variety of a person’s health factors.

Although life insurance companies have been using saliva tests for years, a new entrant wants to take it to the next level.

FOXO Technologies, a Minneapolis based company looking to modernize the life insurance industry while also providing longevity insights to customers, successfully began trading this week on the New York Stock Exchange (NYSE) under the symbol FOXO.

What is FOXO?

On face value, FOXO Technologies might look like any other company selling life insurance – specifically other InsurTech companies. But brewing underneath the surface, FOXO is working on technology that they believe will help modernize the way the life insurance industry underwrites and sells products.

The company plans on doing this by simplifying the underwriting process with a saliva-based epigenetic test. Epigenetics is the study of how a person’s lifestyle and environment causes changes in the way their genes function. As opposed to genetics, epigenetics can change over time and is impacted by lifestyle factors such as diet, exercise, and smoking.

The company has exclusively licensed epigenetic clocks developed by Steve Horvath of the Horvath Lab at UCLA to inform underwriters and customers about their biological age. Although the jury is still out on how accurate epigenetic clocks are, Steve Horvath’s clocks are some of the most trusted in the industry.

By eliminating the need for invasive blood and urine collections, FOXO will be able to give life insurance providers the ability to accelerate the underwriting process while still gathering a level of medical-based information on the customer.

Note: Although FOXO plans to use epigenetic science through saliva collection in the underwriting process, the company currently is not doing so.

FOXO believes that saliva-based epigenetic testing targets an underserved area of the life insurance market – the sweet spot between accelerated and invasive underwriting.

Source: https://foxotechnologies.com/wp-content/uploads/2022/09/FOXO_Corporate_PresentationPOST_CLOSE09.23.2022.pdf

Where FOXO aims to differentiate itself in the InsurTech industry is by providing insurers “longevity reports” that can be delivered to customers in addition to the sold policy.

When the average person buys life insurance, they aren’t informed of anything in return. They simply go through the underwriting process, find out if they are approved, and are given a policy. Overall, it is quite a dry process without any real information being provided to the customer about how their health is impacting their life insurance policy.

FOXO hopes to change this by not only offering a better underwriting process, but also offering a Longevity Report to help people live healthier. The Longevity Report will include insights into the customer’s biological age as well as epigenetic measures of health measured by an epigenetic clock. FOXO will also provide customers with access to the latest scientific research on longevity and health.

By giving life insurance companies a value-add that can be provided to customers, FOXO believes that they will be able to disrupt the multi-billion dollar InsurTech market.

InsurTech: What It Is and How FOXO Aims To Disrupt 

InsurTech (short for insurance technology) is a term given to companies that are using technology to disrupt the insurance industry. Think of it similar to “fintech” in the financial industry.

The InsurTech market aims to grow market share by solving pain points for potential customers. The stodgy, traditional insurance market leaves a lot to be desired for the more tech-savvy, younger market. Customers today don’t want to go through a long and laborious process to buy insurance. They want to do it in the same way they order an Uber or buy a package from Amazon – with the tap of a finger.

On the backend, InsurTech companies are also using AI/ML and other real time data (such as from wearables) as opposed to statistical models to offer a more competitive insurance offering to customers.

This ease of use has led to a growth of customers which of course leads to an explosion in capital being poured into promising InsurTech startups. According to CB Insights, more than $15.4 billion in capital was funneled into InsurTech startups in 2021.

We’ve also seen InsurTech companies have successful public listings such as Root, Lemonade, Clover, and Hippo. There is even an index to track the public InsurTech market provided by Hudson Structured Capital Management, the HSCM Public InsurTech Index (HPIX).

HPIX ETF stock performance from April 2020 to September 2022

Although the index is down more than 30% since launch, it still represents a large and exciting market that FOXO is looking to tap into…

But that might be easier said than done.

Having a Hard Time

On February 24, 2022, FOXO Technologies announced that they had entered into a business combination agreement with the special purpose acquisition company (SPAC) Delwinds Insurance Acquisition Corp. (DWIN). The combined companies would result in an estimated enterprise value of $369 million, dependent on shareholder approval and the amount of redemptions.

To understand what happened next, you must first understand how SPACs work.

Simply, as opposed to a traditional IPO, SPACs allow for a much faster alternative for companies that want to go public. The model for a SPAC is quite simple: raise money from the public markets, then find a company to acquire.

What company? Well, the SPACs management team (sponsors) doesn’t actually know. They simply have a specified industry they would like to target and focus on finding a company that fits their thesis.

Once the SPAC goes public, the sponsor has a limited amount of time (usually 12-14 months) to find a deal and get it closed. While the sponsor looks for a deal, the money the SPAC raised is placed in a trust fund and invested in treasuries.

Once the SPAC finally does identify a company they would like to acquire, they announce it to the SPACs shareholders and allow them to vote on if they would like to participate in the deal.

If an investor votes yes, they will then own shares in the new company.

If no, they simply get their original investment back.

In this case, the SPAC – Delwinds Insurance Acquisition Corp. (DWIN) – raised $175 million from investors to focus on closing a deal in the “insurtech, traditional insurance and insurance-related products and services industries.” As we explained above, on February 24, 2022, they announced their target, FOXO Technologies.

On September 14, 2022, the SPAC investors approved the merger, but more than 99.5% of the shares were redeemed (re: investors asked for their money back), leaving the combined company with significantly less cash in the bank than expected.

Why? Well, one could easily blame the redemptions on the fact that the entire stock market was spooked after an unexpected inflation print and stock market drop.

Regardless, Delwinds and FOXO had prepared for this by announcing a:

• $10 million backstop
• $22.5 million convertible debenture
• $40 million committed equity facility
• forward purchase agreement (FPA) from Meteora Capital, giving them the right to purchase up to 3,000,000 shares for a period of up to 15 months after the close date at $2.50 per share

Okay, that’s a lot. To put it simply though, all of this adds up to a tumultuous few days in which FOXO and Delwinds had to raise a lot of money on unfavorable terms to the company. Investors, as expected, responded by punishing the company’s share price.

FOXO, as of today, is trading down more than 80% since pre-merger.

To put that in perspective, FOXO now has a market capitalization (~$50 million) that is only a bit above the money raised as a private company ($40 million).

What This Means For FOXO and Other Longevity Companies

A quick look at the companies that make up Spannr’s Longevity Stock Index and there is one glaringly obvious point: There are very few – if any – companies not focused on some form of biotechnology or pharmaceutical research.

With FOXO now public, the sphere of investable longevity companies adds a new and interesting vertical. Although the moonshot death-defying companies that fill the publicly traded market are obviously important, easier to conceptualize business plans, such as FOXOs epigenetic based underwriting, may lead to a more diverse, and larger, group of investors getting involved in the space.

Just invested in my first (post) SPAC company; bought 1,000 shares of $FOXO to dip my toes into the future of epigenetics + insurance. Already up $0.25/share since market close 🤷‍♂️

— marty.com (@martymadrid) September 20, 2022

Going forward, a key question specifically for investors is whether FOXO can penetrate the life insurance market through the marketing around longevity.

Relatively speaking, the global biohacking market – an industry filled with longevity, anti-aging, and healthspan enthusiasts – was valued at $15.42 billion in 2020 and is anticipated to grow at a compound annual growth rate (CAGR) of ~19% for the next several years.

The size of today’s longevity market, compounded with exceptional growth potential gives companies like FOXO a massive pool of prospective health fanatics to market to.

Will FOXO’s unique spin on longevity be enough to capture a sizable share in the life insurance market? We don’t know.

Will FOXO’s stock price increase over time as they begin to deploy epigenetic salvia-based underwriting? Of course, only time will tell.

In the meantime, we’ll be keeping close tabs on all that unfolds in months ahead for FOXO and will evaluate the company to potentially include in our Longevity Stock Index in our next rebalance.