Lloyd's insurer raises £50m for 20% stake

Kiln plans to raise nearly £50m in a share deal which hands 20% of the company to US insurer WR Berkley Corporation.

If the deal goes ahead, WR Berkley's subsidiary Berkley Insurance Company will become Kiln's largest shareholder with a 20.1% holding and two seats on Kiln's board.

Kiln originally hoped to raise the money through a placing and open offer, but the plans fell through when its share price rose after it confirmed press reports detailing the scheme.

Its share price rose steadily last week, trading at 57p on Tuesday. However, the Lloyd's insurer reported a pre-tax loss of £15.7m for 2001.

Under UK listing rules, companies cannot place shares at a discount of more than 10% to the prevailing mid-market price.

The largest shareholdings are owned by the company's employee trust (about 20% of the current shares), Rostrum Partnership (about 16%) and Brit Insurance Holdings (about 14%).

The employee trust is not expected to take up its allocation.

WR Berkley will be able to appoint two additional members to the nine-strong board.

Kiln chief executive Edward Creasy said WR Berkley would have limited influence on the Lloyd's vehicle. He said its chief executive and founder, William Berkley, was not about to turn a money tap to open a stream of money for Kiln.

"They will have some influence because you would expect any two non-executives on a board to have some, but they have entered into a relationship agreement which makes it clear that their roles on the board are as non-executives."

Berkley said: "We aren't necessarily interested in owning someone in Lloyd's but in building a long-term strategic relationship. Time will tell what that means."

He described the 20% stake as a "modest investment" and said he had not yet reached a conclusion on whether or not to make a bid for Kiln. Berkley bought a 4.8% stake in Kiln in February.

It also agreed quota share reinsurance deals giving Kiln an extra £86.1m of capacity.

Kiln finance director Roy Butler said up to £4m of the money raised through the rights issue would be used for working capital.

But the lion's share of the rest would be ploughed into Syndicate 510 to increase its underwriting capacity.

How Berkley can help
William Berkley, who founded WR Berkley Corporation in 1967, has a connection with Kiln dating back to 1972 when he did business with founder Robert Kiln.

The Berkley Corporation is a mid-sized commercial lines business with market capitalisation of $1.9bn (£1.3bn) that operates in specialty, alternative markets, regional property, casualty and international cover.

Berkley said: "What we can bring is a way to look at the business from outside the bounds of Lloyd's.

"We already have a 25% quota share on their main syndicate and a 30% quota share on one of their smaller syndicates. So, in addition to our ownership interests, we already share business with them."

Berkley predicted "substantial consolidation" in the London Market and said Kiln's relationship with Berkley would help it become "one of the survivors."

Berkley said: "This isn't the time to raise the most amount of capital at the most attractive price, because the share price isn't that high. But there could be chances going forward."