FinSac fails to raise sufficient capital for Lloyd’s market investment 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, is no more, as the initiative failed to secure the investments required and so is winding down the operation.

It’s a blow to the company and also to the Lloyd’s insurance and reinsurance market, as this had made up a significant component of the expected funding pipeline that it anticipated flowing into the market through its insurance-linked securities (ILS) structure London Bridge 2.

Recall that, Financial Acquisition Corp was sponsored by FINSAC LLC and planned 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.

It next 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.

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, so with a capital requirement mooted at below 50%, it suggested a capital raise of up to £500 million was required.

Most recently, the company said that its business combination was expected to take place on November 15th, with the combination agreement finalised between FinSac and London Innovation Underwriters (LIU) and a targeted equity capital raise pitched at up to £300 million, with a minimum commitment of £150 million already said secured at the time.

But it seems the interest in backing this unique vehicle has not been sufficient, as the company is now scrapping its plans for the combination transaction and set to return capital to the original SPAC investors, it said today in a filing.

The business combination agreement between FinSac and LIU has now been terminated, “in light of LIU receiving insufficient commitments, given volatile capital markets,” the company explained today.

Because the company, which is a special purpose acquisition structure, now believes it cannot achieve a business combination by year-end, and does not intend to seek an extension to give it more time to do so, “The Company proposes to cease operations, other than for the purpose of returning funds to Shareholders and conducting an orderly winding up.”

A liquidator will be appointed to administer this winding up, to assist in the return of capital to the original SPAC investors.

Given the target for the capital raise was most recently pitched as $300 million, with half already secured, you might have though this would have been a simple task, given how attractive the returns in reinsurance and in the Lloyd’s market are, right now.

But, the last listed reinsurance investment equity on the London Stock Exchange was, of course, the beleaguered CATCo and you have to wonder whether that shadow hung over this capital raise.

It was also a novel strategy, to use London Bridge 2 PCC to channel capital into Lloyd’s to back underwriting structures there, while sourcing returns from those underwriters.

But, the idea was sound and a simple and liquid way for investors to access a spread return of the Lloyd’s market could have been very attractive, but this time it seems the timing hasn’t worked out.

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 it was expected that London Innovation Underwriters represented a significant component of that.

It’s going to be interesting to see whether others could look to replicate similar, as an investment into a vehicle that provides a spread of the best of the Lloyd’s market’s insurance and reinsurance underwriting performance, should be popular with certain investors at this time.

While the stock exchange listed approach may not have worked, the strategy to create an investment vehicle with exposure to the best of class Lloyd’s underwriters, that would use London Bridge 2 to deploy it capital, seems a sound one. Perhaps one that might work better with a more typical fund structure behind it, to warehouse the raised private market capital and deliver the returns back to investors.