M&A: how a syndicated-capital hybrid model is pushing boundaries

Mosaic Insurance had unveiled  an additional $41 million in global mergers and acquisition (M&A) capacity when Intelligentinsurer.com met two of its senior team about the firm’s innovative hybrid business model.

With a growing number of industry partners joining the specialty insurer’s syndicated capital ranks, the M&A capacity increase will enable Mosaic to underwrite transactional risks for new trade-capital partners, including HDI Global Specialty, Verto Syndicate 2689, and IQUW Syndicate 1856.

It’s a major milestone for an insurer that was set up only 12 months ago, with plans afoot to increase the $41 million capacity to $50 million very shortly.

As this article went to press, the insurer announced an acceleration of its growth plan with  the acquisition of reinsurer SiriusPoint’s Lloyd’s managing agency, Sirius International. SiriusPoint will also become a strategic investor in Mosaic as part of a larger partnership.

The company name may be new but the team behind it is not so green.

With more than four decades of insurance industry experience under his belt, Chris Brown, executive vice president, syndicated capital management at Mosaic, is clear about his passion for the business.

“Mosaic is a wonderful, exciting opportunity. It is ground-breaking; it is a new model that we’re building here, a hybrid model,” Brown explained.

“We’re very focused on six key, select, specialty lines. We are building partnerships with partners from the insurance world who are fellow Lloyd’s syndicates, other insurance carriers, reinsurance partners, and all of it is being built on the Lloyd’s foundation, leveraging modern technology.”

The six lines of business are M&A; cyber; political risk; financial lines; professional lines; and political violence.

Best of both worlds

Mosaic’s hybrid model offers the best of two existing market models, Brown said, adding: “it is fundamental to our vision”.

It is based on a foundation at Lloyd’s, and the insurer has its own Lloyd’s syndicate, which is capitalised by the firm’s shareholders.

“We, the leaders of the business, are also shareholders. We’ve invested in the business and our investments provide some of the funds at Lloyd’s, and that is what creates the complete alignment with our partners.”

The Lloyd’s structure enables the insurer to have one pot of capital in Lloyd’s, in Lime Street in London, and at the same time to build a global structure with service companies in different parts of the world. Underwriting teams are hired in these locations to operate in the local market.

“We can take our partners to those markets in a subscription structure that enables brokers and their clients to access our capacity locally, but we can build that capacity to be significant without the brokers or their clients having any undue counterparty exposure because it is replicating the Lloyd’s subscription market approach,” Brown explained.

With a number of partners participating in each risk, Mosaic’s Lloyd’s Syndicate 1609 writes a significant share of every risk written in the M&A space. The capacity limits will continue to increase, while the firm’s Lloyd’s syndicate will retain 50 percent of everything that’s written, ensuring a significant alignment between Mosaic’s interests and that of its partners, he said.

“We believe this hybrid model eradicates the frailties of the two traditional approaches: the balance sheet model at one end of the spectrum, and the pure agency model at the other end. We’re somewhere in between.”

With this model, Brown said, the insurer can deliver the complete alignment that is not traditionally present in the agency model. “That enables us to have full underwriting control and claims control, so when our partners and customers deal with Mosaic, they deal with one underwriter but without having the concentration of risk from one counterparty.”

Syndicated capital

Building syndicated capital is core to Mosaic’s strategies, Bill Monat, executive vice president, global head of transactional liability at Mosaic Insurance, explained as he talked about the increase in global M&A capacity.

Like his colleague Brown, Monat has decades of experience in the insurance industry having migrated to the profession 20 years ago from a Chicago law firm. He joined Mosaic in April 2021 and has taken on the task of building out a global underwriting platform for transactional liability products.

“We launched our underwriting practice for transactional liability with the syndicate capacity in July 2021 as there was an immediate demand. There was also an opportunity to enter the market and bring solutions, particularly in the M&A space, to a very robust and active market. We were able to do that very effectively in North America with the syndicate line,” Monat said.

The insurer is continuing to build out its global underwriting platform, and it launched a team in London in November 2021. The firm will be adding offices in Frankfurt, Singapore and Toronto in 2022 to build out that global transactional liability platform, along with the other specialty lines products.

“Having syndicated capital gives us additional flexibility to bring solutions to clients,” he said. “When you initially look at a risk, sometimes it’s not clear how much limit is needed to be deployed and it gives us additional flexibility to provide various options such as a tax insurance policy or some other M&A contingency risk.”

As well as flexibility, the syndicated capital gives the insurer’s syndicated capital partners access to the underwriting team.

“As Chris mentioned, we’re underwriting with our own money so there is a true alignment of interest and that’s really important to the counterparties that we’re dealing with, knowing that they have a party that has control over underwriting and claims. We’re making a significant investment to build out this transaction liability underwriting team,” he added.

Mosaic has hired 21 people in six months. Monat said the hires represent a blend of seasoned underwriters and some key hires from corporate and private equity lawyers, and tax specialists. The plan is to have more than 30 more people, globally, by the end of 2022.

Monat said that the Lloyd’s platform with Mosaic’s syndicate at the core of it provides access to truly global distribution and a global licensing platform with A-rated security. “It’s an excellent model for us to execute on our plan to build out a truly global leading transactional liability practice over the next several years.”

Technology to rejuvenate the market

An innovative hybrid model and strategy needs an innovative technology platform to support it. Brown is quick to highlight the insurer’s partner, DXC Technology. Yes, the same DXC that signed a contract with Lloyd’s and the International Underwriting Association, with support from Lloyd’s Market Association, in January this year to digitise, streamline and fully  automate processing for the Lloyd’s and London Market.

“DXC is our tech partner, and the London Market’s tech partner as well— we’re all on the same journey. The London Market has a history of a couple of attempts at moving the market en masse to a more digitised modern technology that ultimately didn’t succeed. I think the difference this time, from my perspective, is that you’ve got the whole market working together. That’s very exciting,” Brown said.

Mosaic’s tech platform is based on three key pillars that form its digital operating model: data first; automation everywhere; and connectivity.

For data first, the firm has built a data lake to store data using the latest Amazon cloud technology. Under the automation everywhere pillar, it is leveraging technology for intelligent data extraction and robotics for automating manual tasks. And for connectivity, the insurer has built out application programming interfaces to connect all the components of its ecosystem.

Brown added: “This is very relevant for our partners because we’re consigning to history the time when a partner would be chasing for a spreadsheet of risk data and claims data. It just shouldn’t be the way in 2022 and there’s no need for it to be the way, and it won’t be with Mosaic.”

This tech approach is crucial, said Monat, because transaction liability and M&A products are a “unique product line with unique processes and data points”. Traditional platforms used by insurers are not really designed to capture the data or leverage the technology in an effective way, he explained.

Mosaic plans to do things very differently. “The first stage of that is around data: analytics and capturing data and types of data that we feel are important, and being able to access and search that data in real time,” Monat said.

The team is also working on automation so no-one is repetitively entering the same data, and to ensure the captured data is being transferred through the process of the various stages of the underwriting cycle.

“The most interesting aspect is the opportunity to leverage artificial intelligence, and to use smart learning. That’s really where it can give us an advantage very quickly, and M&A moves very quickly. So we’ll be rapidly accessing precedent and different ways things have been done before and giving us ideas and the data to evolve our underwriting.

“We’re very excited about what this technology investment is going to do for us and how it’s going to position us in the marketplace. It is core to what we’re building at Mosaic,” Monat said.

Fundamentally Mosaic’s philosophy is about trying to make sure that the underwriters spend their time assessing the key factors and making the judgement calls, rather than searching for data, trawling around and checking contracts, Brown said, adding that lawyers have been using this technology for a long time.

Future market growth

“Our six core specialty lines were chosen deliberately as lines where we believe the gross written premium growth is likely to exceed normalised gross domestic product growth,” said Brown, explaining the future growth potential.

They’re lines where the risk profile is “high severity, low frequency”, he said, with a “lack of homogenous data”, which require expert judgement to succeed, and where there remains a technical barrier to entry.

“Out of the six lines, the one that offers the most growth opportunity, that is a very strategic line for us, is M&A, closely followed by cyber.”

Monat agreed, adding that the hybrid model gives the insurer the tools to be at the forefront of bringing solutions to the M&A deal community.

“What is core to what we’re building at Mosaic is aligning the syndicate with syndicated capital to give us that ability to grow and meet the demand that’s out there, and achieve our underwriting goals. It’s fundamental to what we’re doing. I’m excited about it because it gives us the platform to go out and execute,” Monat concluded.