Solasta Innovation to offer efficient access to returns from Lloyd’s using London Bridge

A new venture seeks to create an efficient investment access point to the returns of the best-performing Lloyd’s of London syndicates, with start-up Solasta Innovation putting together an experienced team and planning to leverage the London Bridge 2 PCC insurance-linked securities (ILS) structure to channel investor funds to underwriters.

Creating a more efficient Lloyd’s-focused insurance and reinsurance investment strategy has been attempted before, of course, but often over-complicated which has challenged its launch when the necessary scale hasn’t been achieved.

The most recent to attempt this was London Innovation Underwriters, the entity established by listed special purpose acquisition company Financials Acquisition Corp, who failed to raise sufficient capital for the exchange listed fund approach it had taken.

In the case of Solasta Innovation, the strategy is a little different as there isn’t a plan to try and list a company structure to utilise as the vehicle for the venture.

The company told Artemis that it will sell shares to investors in the operating company on a private basis.

We understand this means Solsasta will have an open-ended structure and investors (or shareholders) will have certain voting rights to decide on the strategic direction of the company over-time, including on dividends, capital return, a sale or winding up.

So, this is not an investment fund structure. Rather, it is designed as a company that can provide longer-term, more patient capital with an access point to returns from a managed portfolio of the best underwriting firms in the Lloyd’s marketplace.

The idea is to raise capital that wants to participate in the returns of underwriting at Lloyd’s across market cycles, with London Bridge an efficient conduit to put that capital to work in backing a selected group of syndicates, we understand.

But, akin to the LIU strategy, Solasta Innovation plans to provide its capital to Lloyd’s syndicates through the London Bridge 2 route, which is seen as a more efficient and tax friendly way to do so, without needing to take the investment infrastructure offshore.

Solasta Innovation states on its website that “expertise and efficiency” will drive its investor returns, with the strategy offering “unique and capital-efficient opportunity to invest in top-performing Syndicates at Lloyd’s.”

Further saying, “We provide our shareholders with access to a diversified pool of insurance risks, alongside a carefully managed asset base, which looks to manage downside while capturing significant opportunities in specialist insurance and reinsurance markets.

“Our unique business model delivers capital efficiency resulting in highly attractive returns through a diverse mix of underwriting profits and investment income.”

Through its exposure to insurance and reinsurance underwriting entered into at Lloyd’s Solasta aims to deliver a relatively uncorrelated return to its investors, while investors will benefit from the regulated and reputable nature of the Lloyd’s market as their access point.

The portfolio of risks is expected to be actively managed, with syndicates carefully selected for their performance and the overall strategy designed to optimise profitability and capital efficiency, while reducing volatility at the same time.

In addition, Solasta Innovation promises investors tax advantages, with “a cost and capital-efficient structure with profits at Lloyd’s exempt from UK corporation tax.”

Helping Solasta achieve that is the use of the London Bridge 2 PCC ILS structure as its mechanism to funnel capital into Lloyd’s syndicates.

London Bridge 2 can be used by investment entities as a vehicle that can enter into reinsurance arrangements, largely through the provision of Funds at Lloyd’s to third-party corporate Lloyd’s Member’s, via quota share and excess of loss arrangements, as well as through collateralised reinsurance direct with a Lloyd’s syndicate.

We have learned that provision of Fund’s at Lloyd’s will be the initial focus of the company, but that the flexibility of London Bridge 2 to provide capital in a number of ways is one of the key attractions for Solasta in using the structure.

While delivering on a way to gain direct exposure to Lloyd’s member and syndicate linked underwriting performance, Lloyd’s has always said that London Bridge ILS platform is an efficient alternative route to access underwriting returns from the market, while remaining tax neutral and avoiding some of the expense and regulatory overheads of other access points.

The tax transparency and efficiency offered can be a real draw for investors and a differentiator to some other ways of accessing Lloyd’s market returns, while the regulatory burden of using London Bridge 2 can be lower as well, given the structure is onshore in the UK.

While Solasta is not planning any listing, at this stage, it does have a lot of similarities with the LIU venture that failed to get off the ground and these extend further than just its method of accessing underwriting returns from Lloyd’s.

Solasta Innovation also has one similarity in the team behind it, with industry veteran Paul Jardine, the current Chairman of Chaucer and Asta syndicate, set to be Chairman of Solasta Innovation and having been an independent director of the LIU venture too.

David Morant is co-founder and CEO, and has capital raising experience gained working in financial and insurance investments at Soros, CQS and SAC Capital, as well as earlier in his career working at J.P. Morgan in its Investment Banking Division.

Anoushka Kachelo is co-founder and COO, coming with a strong legal background gained in the investment world, and over 20 years experience as a General Counsel and Corporate Secretary, having worked for some of the largest NYSE-listed shipping companies.

Well-known former insurance equity analyst Ben Cohen will be the Solasta Innovation CIO and CFO. Cohen has more than 25 years of experience as a sell-side insurance analyst, with a focus on Lloyd’s, the UK and European reinsurance markets.

Angus Wilson, a highly-experienced and largely specialty and marine focused underwriter, is the CUO designate at Solasta. He had most recently held senior marine underwriting leadership roles at Ascot and Neon.

The company is now said to be fundraising for a January 1st 2025 launch, with figures in the hundreds of millions cited.

For investors seeking a way to access the returns of Lloyd’s, in a tax efficient manner and with less regulatory overhead, Solasta Innovation appears a viable and potentially attractive option.

Accessing returns from the Lloyd’s and London insurance and reinsurance market is a subject investors are increasingly interested in and while it’s not quite the same, or as uncorrelated as, a direct ILS style investment, we expect private capital provision into Lloyd’s will become increasingly meaningful as companies put together the structures and plumbing to channel investor capital to underwriters in an increasingly efficient manner.

Join us at our upcoming Artemis London 2024 conference where we will have a panel session discussing the ways to access returns from Lloyd’s.