London Innovation Underwriters seeks £300m for Lloyd’s London Bridge 2 strategy

London Innovation Underwriters, the entity established by listed special purpose acquisition company Financials Acquisition Corp, which was launched in 2022 by sector executives William Allen and Andrew Rear, has lowered its targeted equity raise to up to £300 million, to fund its strategy to access the returns of Lloyd’s underwriting via the London Bridge 2 structure.

Financial Acquisition Corp was initially sponsored by FINSAC LLC and had plans to raise £150 million through a listing on the London Stock Exchange (LSE).

It then entered discussions about a deal to launch a £1 billion capacity listed Lloyd’s underwriting investment vehicle, that would use insurance-linked securities (ILS) structure London Bridge 2 PCC Ltd. to deploy institutional capital into the Lloyd’s market.

Next, it revealed a newly formed entity named London Innovation Underwriters, whose strategy was to become a listed operating company deploying funds into the Lloyd’s of London insurance market, through a business combination with Financials Acquisition Corp (FinSac) and a raise of equity capital through a listing of LIU on the Main Market of the London Stock Exchange.

At the time, the target for London Innovation Underwriters (LIU) was to raise sufficient capital to support a book of up to £1 billion of capacity at Lloyd’s.

That was based on the believe that the book of reinsurance would have a capital requirement below 50%, suggesting a capital raise of up to £500 million was required.

Now, in a filing announcing that the business combination is expected to take place on November 15th, with the combination agreement finalised between FinSac and London Innovation Underwriters (LIU), the targeted equity capital raise is now pitched at up to £300 million, with a minimum commitment of £150 million already said secured.

So, at the same 50% capital requirement that could support a book of reinsurance business at Lloyd’s of up to £600 million, which is still sizeable for a new and listed investment vehicle focused on the market.

LIU intends to access Lloyd’s market underwriting returns via London Bridge 2 PCC Ltd., the third party protected cell risk transformation vehicle that enables institutional capital to access the Lloyd’s insurance market.

The goal is to roughly replicate the performance of Lloyd’s by selectively allocating capital to different syndicates in the market, enabling investors to access the returns of Lloyd’s insurance and reinsurance business in an efficient manner, without paying additional fees, or paying other charges that can make accessing Lloyd’s more challenging.

Being a stock exchange listed share, this will be a much simpler investor access point for Lloyd’s underwriting returns than has existed to-date and will also be available to retail investors that find the stock an interesting investment opportunity.

The combination will see FinSac become a subsidiary of LIU, after which the group will look to deploy capital via London Bridge 2 into Lloyd’s, with a target to support three types of syndicates, that they categorise as Core Syndicates, Innovation and Seed Syndicates, and Broad Market Exposure syndicates.

“The Syndicates have been and will be selected by the Enlarged Group with the intention of achieving differentiated exposure to underwriting risks within the Lloyd’s market and diversification,” the company explains.

London Bridge 2 is expected to be the vehicle for the majority of the capital deployment into Lloyd’s, with two routes expected to be used.

First, LIU is in the process of establishing a wholly-owned corporate Lloyd’s Member, LIU Corporate Member Limited, and a related London Bridge 2 cell, so it can participate, as an underwriting Lloyd’s Member, on Syndicates, providing funds at Lloyd’s through reinsurance arrangements between the corporate Lloyd’s Member and an LB2 cell funded by LIU.

Secondly, by setting up more London Bridge 2 cells, LIU will support other reinsurance arrangements through the provision of FAL to a third-party corporate Lloyd’s Member through excess-of-loss or quota share reinsurance arrangements, of by entering into collateralised reinsurance directly with Syndicates.

The company expects to underwrite from the 2024 year of account onwards and sees market conditions as particularly attractive right now, while believing it can offer investors a legacy-free way to access the returns of the Lloyd’s market.

William Allen, Chief Executive Officer of FAC and Executive Director of LIU said, “The board of LIU believe that the current market backdrop presents an opportunity for a wide range of institutional and retail investors to gain capital efficient liquid access and diversified exposure to the Lloyd’s of London insurance market. Supported by its highly experienced management team, LIU will provide investors with access to a diverse portfolio of some of the best performing syndicates the Lloyd’s market offers together with the opportunity to benefit from fast growing risk classes and broader innovation across the market.”

Paul Jardine, Senior Independent Director of the Company added, “The business combination of FAC with LIU and creation of a London Stock Exchange main market listed operating company is intended to offer investors with balanced access to a wide range of syndicates on the Lloyd’s market combined with high standards of corporate governance and transparency. LIU will offer an investment opportunity to investors whilst also supporting continued innovation and growth within the Lloyd’s market.”

They are now asking for shareholders to approve the business combination, with a view to completing that on November 15th and listing on the stock market.

Recall that back in early September at our Artemis London ILS conference, Lloyd’s CFO Burkhard Keese said that London Bridge 2, the Lloyd’s insurance-linked securities (ILS) platform, had a full pipeline and we expect London Innovation Underwriters represents a significant component of that.