Brit and Amlin also still in the running

Specialist investment manager Pamplona Capital Management is considering financing its bid for Chaucer through a special purpose vehicle (SPV), according to UK reports.

The company, which controls a private equity, hedge fund and fund of hedge funds (a fund that invests in many hedge funds), is run by Alex Knaster, the Russian financier.

The management firm is considering the SPV after finding it difficult to get a consortium of investors together to back the bid. It was not available for comment.

Meanwhile, Brit and Amlin are still in the running to acquire Chaucer. Both reportedly made bids thought to be around the 50-53p mark, valuing Chaucer at about £280m. An analyst said it was logical that Brit and Amlin would try to finance the deal partly with their own stock. However, Pamplona is understood to be trying to make a cash offer around the 48p mark.

Chaucer has admitted discussions are continuing with a number of other parties over a potential sale of the business. The insurer’s statement came after Novae announced last month that it was ending discussions over a possible merger with Chaucer. When it withdrew, Novae said it could not achieve a deal that was in the best interests of its shareholders.

Earlier this year Chaucer increased capacity by issuing shares. It said that £69m of the proceeds would be deposited as funds at Lloyd’s to cover net solvency deficits and to meet capital requirements as a result of fluctuating currency movements.

The remainder would enable Chaucer to increase the capacity of syndicate 1084 to £545m for the 2009 year of account, an increase of £100m or 22% on the 2008 capacity of £445m.

But analysts said Chaucer was still an attractive option. “The valuation of Chaucer is not particularly stretched and [buying Chaucer] gives opportunities to gain greater capacity in a market which is allegedly improving,” said Barrie Cornes, equity research analyst at Panmure Gordon & Co.