REG - R&Q Insurance Hldgs - Results for the half year ended 30 June 2022
05/09/2022 07:00
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RNS Number : 1890Y R&Q Insurance Holdings Ltd 05 September 2022
R&Q Insurance Holdings Ltd
Results for the half year ended 30 June 2022
Strong progress against strategic objectives demonstrated by 112% growth in
recurring Fee Income to a record $53.1 million
5 September 2022
R&Q Insurance Holdings Ltd (AIM: RQIH) ('R&Q' or the 'Group'), the
leading non-life global specialty insurance company focusing on the Program
Management and Legacy Insurance businesses, today announces its results for
the half year ended 30 June 2022.
Strategic and Governance Update
· Raised $130 million via a placing, including a $34 million Firm
Issuance in June followed by a Conditional Issuance and Open Offer for the
remaining $96 million in July (the 'Fundraise'), demonstrating strong
shareholder support for our strategy
· Significant progress made in executing against all 5 pillars of
our 5-year strategy to become a recurring fee-based, capital-lighter business
with increased returns on equity and growing shareholder dividends
· Appointment of Robert Legget as the Senior Independent Director
on 26 August as part of our ongoing plans to enhance our Board composition.
The Board plans to introduce an Independent Non-Executive Chair as soon as
possible with the appointment of further Independent Non-Executive Directors
in due course
H1 2022 Financial Highlights
Program Management
· Gross Written Premium of $807.3 million (H1 2021: $444.8 million,
an 82% increase)
· Fee Income (incl. Tradesman stake) of $44.3 million (H1 2021:
$25.1 million, a 76% increase); Fee Income (excl. Tradesman stake) increased
105%
· Pre-Tax Operating Profit of $23.3 million (H1 2021: $9.9 million,
a 136% increase)
· Pre-Tax Operating Profit Margin of 54.0% (H1 2021: 39.9%, a 14.1
percentage point increase)
Legacy Insurance
· Completed two transactions with Gross Reserves Acquired of $5.3
million (transactions are seasonally active in Q4)
· Reserves Under Management of $386.6 million
· Fee Income of $8.8 million
· Pre-Tax Operating Loss of $26.7 million as the business
transitions to an annual recurring, fee-based revenue model
Group
· Total Fee Income of $53.1 million (H1 2021: $25.1 million, a 112%
increase)
· Pre-Tax Operating Loss of $24.3 million; results impacted by
Legacy Insurance revenue model transition
· An interim dividend for H1 2022 will not be declared; dividend
strategy is to pay out 25 ‒ 50% of Pre-Tax Operating Profit
· Unrealised net investment losses of $88 million; unrealised
investment gains/losses always excluded from Pre-Tax Operating Profit as they
are non-economic and unlikely to be realised due to the high credit quality
fixed income portfolio and the Group's asset-liability management strategy
Operational Highlights
· Continued focus on cost control with Fixed Operating Expenses
increasing only 3% year-over-year at constant foreign exchange rates and down
3% when accounting for foreign exchange movements
· Operational improvement programme underway with c. $10 million of
the total $20 ‒ 25 million investment deployed since 2021, with the
remainder to be incurred in H2 2022 and 2023
· This investment in automation and technology processes is
expected to generate approximately $10 million of recurring annual cost
efficiencies by 2024
Outlook
· Program Management expected to achieve $1.75 billion of Gross
Written Premium in 2022
o Five programs launched post 30 June 2022 expected to generate c. $250
million of annualised Gross Written Premium
o Further pipeline of 13 programs in advanced due diligence totalling an
additional c. $225 million of expected annualised Gross Written Premium
o Fee Income equal to c. 5% of ceded Gross Written Premium
· Legacy Insurance transaction execution continues to have heavy
weighting towards Q4
o Strong pipeline of over $1 billion in gross reserves
o Over $1 billion of capacity in Gibson Re
o Fee Income equal to 4.25% of Reserves Under Management
· R&Q reiterates guidance of achieving in excess of $90 million
Pre-Tax Operating Profit in 2024
Summary Financial Performance (see Notes for definitions)
($m, except where noted) H1 2022 H1 2021 % Change
Program Management
Gross Written Premium 807.3 444.8 82%
Fee Income(1) 44.3 25.1 76%
Pre-Tax Operating Profit 23.3 9.9 136%
Pre-Tax Operating Profit Margin 54.0% 39.9% 14.1 pp
Legacy Insurance
Gross Reserves Acquired(2) 5.3 112.5 (95%)
Reserves Under Management 386.6 0.0 N/A
Fee Income 8.8 0.0 N/A
Pre-Tax Operating (Loss) (26.7) (14.8) 80%
Corporate / Other
Net Unallocated Expenses (6.7) (6.8) (1%)
Interest Expense (14.2) (11.8) 20%
Group
Fee Income 53.1 25.1 112%
Pre-Tax Operating (Loss) (24.3) (23.5) 3%
IFRS (Loss) After Tax (122.4) (36.8) 233%
Operating (Loss) Earnings per Share(3) (8.5)¢ (8.5)¢ 0%
Dividend Per Share -- 2.0p N/A
(1) Includes minority stake in Tradesman Program Managers
(2) Gross of cessions to Gibson Re
(3) On a fully diluted basis
William Spiegel, Executive Chairman of R&Q, commented:
"I am pleased to report another six months of progress against our 5-year
strategy. These results showcase excellent underlying momentum in executing
our 5-pillar strategy as we continue our transformation into a fee-based,
capital-lighter business. This transformation is evidenced by the significant
growth in recurring Fee Income, which has more than doubled from last year and
now represents over 60% of our Gross Operating Income, a proxy for revenue. We
also re-iterate our confidence in achieving in excess of $90 million of
Pre-Tax Operating Profit in 2024. As a result of our strategy, R&Q will
deliver more predictable earnings, with increased returns on equity and
growing sustainable shareholder dividends over time.
Program Management continues to grow strongly with Gross Written Premium up
82%, and a Pre-tax Operating Profit of $23.3 million. We are now seeing the
benefits of increasing scale, as demonstrated by a margin of 54.0% (H1 2021:
39.9%), with our operating leverage expected to drive this higher to c. 70% at
scale. The pipeline in Program Management also remains robust, with the
business on track to deliver its targeted $1.75 billion in Gross Written
Premium for FY 2022. In addition, we continue to explore minority stakes in
Managing General Agents where we provide Program Management services, and have
executed on our second investment after the period close.
It is exciting to see Legacy Insurance generating recurring fees for the first
time under its new reinsurance relationship with Gibson Re. In H1 2021, Fee
Income of nearly $9 million based on Reserves Under Management of $387 million
as of 30 June 2022. As we have previously outlined, this model will enable
Legacy Insurance to significantly increase its return on equity while
materially reducing earnings volatility and capital requirements. While it
will take time for the new structure to mature and scale, and our operating
performance reflects its transition, we remain on track with our objectives
and have a strong pipeline of deal activity in place as we head into Q4 -
historically the most active period for legacy transactions.
The outlook for both Program Management and Legacy Insurance remains highly
favourable, with both well insulated against many of the broader macroeconomic
challenges impacting the wider insurance industry such as rising interest
rates, increasing inflation, hardening (re)insurance pricing and the
Ukraine/Russia conflict. In addition, our recent Fundraise has further
strengthened our capital position, enhanced parent liquidity, and decreased
financial leverage, putting us on a strong financial footing to execute on our
business objectives. Our investment portfolio is well positioned and comprises
high-quality fixed income securities with a duration that is shorter than our
stable, casualty-oriented liabilities. A rising rate environment is unlikely
to require us to realise any mark-to-market unrealised losses on our portfolio
but rather creates attractive reinvestment opportunities at significantly
higher yields.
In addition to the positive progress we are seeing in our two businesses, we
are also underway with implementing extensive improvements in how we operate
as a Group, aimed at making us more efficient and technology-enabled, while
enhancing our governance, culture and risk management. As part of this effort,
we are investing a total of $20 ‒ 25 million, with c. $10 million already
incurred to date, in process automation and technology. We expect this
programme to generate c. $10 million of annual efficiencies by 2024, implying
a payback on the upfront investment in approximately three years.
It would be remiss if I did not comment on the requisition notice from a
minority shareholder and the proposed resolutions to bring back the former
executive chairman. While our sentiments on this situation are documented in
the Circular distributed on 24 August 2022, I wanted to personally thank the
Board, our employees and the shareholders who have provided support to both me
and the strategy that we have laid out and been executing on. Despite this and
a number of other exceptional corporate events in 2022 that have caused some
short-term and unexpected disruption to the business, our focus for the
remainder of the year and beyond is firmly on the continued delivery of our
plan.
In conclusion, the first half of the year has firmly demonstrated our ability
to deliver on our 5-year, 5-pillar strategy of implementing a capital-lighter
business model underpinned by recurring Fee Income. We know there is more work
to do, but I am encouraged by how much we have already accomplished and the
pace at which we are evolving into a less balance sheet intensive business
with more predictable earnings. This is only made possible because of our
talented and committed employees, and I would like to thank them for their
ongoing efforts in helping us to achieve our goals."
Investor presentation
Our shareholders presentation and accompanying video is available on our
website at:
http://www.rqih.com/investors/shareholder-information/investor-presentations
(http://www.rqih.com/investors/shareholder-information/investor-presentations)
Enquiries to:
R&Q Insurance Holdings Ltd. Tel: 020 7780 5850
William Spiegel
Alan Quilter
Tom Solomon
Fenchurch Advisory Partners LLP (Financial Adviser)
Tel: 020 (Tel:020) 7382 2222
Kunal Gandhi
Brendan Perkins
Richard Locke
Tihomir Kerkenezov
Numis Securities Limited (Nominated Advisor & Joint Broker) Tel: 020
7260 1000
Giles Rolls
Charles Farquhar
Barclays Bank PLC (Joint Broker) Tel: 020 7632 2322
Andrew Tusa
Anusuya Nayar Gupta
FTI Consulting Tel: 020 3727 1051
Tom Blackwell
Notes to financials
Pre-Tax Operating Profit is a measure of how the Group's core businesses
performed adjusted for Unearned Program Fee Income, intangibles created in
Legacy Insurance acquisitions, net realised and unrealised investment gains on
fixed income assets, exceptional foreign exchange net gains upon consolidation
and non-core, non-recurring costs.
Operating EPS represents Pre-Tax Operating Profit adjusted for the marginal
tax rate, divided by the average number of diluted shares outstanding in the
period.
Tangible Net Asset Value represents Net Asset Value adjusted for Unearned
Program Fee Income, intangibles created in Legacy Insurance acquisitions, net
unrealised investment gains on fixed income assets and foreign currency
translation reserves.
Gross Operating Income represents Pre-Tax Operating Profit before Fixed
Operating Expenses and Interest Expense.
Fee Income represents Program Fee Income, Fee Income on Reserves Under
Management and our share of earnings from minority stakes in MGAs.
Program Fee Income represents the full fee income from insurance policies
already bound including Unearned Program Fee Income, regardless of the length
of the underlying policy period. We believe Program Fee Income is a more
appropriate measure of the revenue of the business during periods of high
growth, due to a larger than normal gap between written and earned premium.
Unearned Program Fee Income represents the portion of Program Fee Income that
has not yet been earned on an IFRS basis.
Underwriting Income represents net premium earned less net claims costs,
acquisition expenses, claims management costs and premium taxes / levies.
Investment Income represents income on the investment portfolio excluding net
realised and unrealised investment gains on fixed income assets.
Fixed Operating Expenses include employment, legal, accommodation, information
technology, Lloyd's syndicate, and other fixed expenses of ongoing operations,
excluding non-core and exceptional items.
Pre-Tax Operating Profit Margin is our profit margin on Gross Operating
Income.
Gross Reserves Acquired represent Legacy Insurance reserves acquired gross of
reinsurance to Gibson Re.
Reserves Under Management represent reserves ceded to Gibson Re for which
R&Q earns an annual recurring fee of 4.25%.
Chief Financial Officer Review
We are pleased to report our financial results for the half year ended 30 June
2022.
Group
Our Key Performance Indicators (KPIs) transparently measure the underlying
economics of the business and adjust IFRS results to include fully written
Program Fee Income and exclude non-cash intangibles created from acquisitions
in Legacy Insurance, net realised and unrealised investment gains or losses on
fixed income investments, foreign currency translation reserves, non-core
expenses and exceptional items. This provides management and shareholders with
a clearer view of the trends in underlying performance of the business.
Our results for the period reflect the transformation of Legacy Insurance into
an annual recurring fee-based business and hence are not comparable to the
prior year period where we earned upfront, Day-One accounting gains. We expect
the benefits of this transformation to be reflected in the financial results
as we continue to deploy the capital of Gibson Re to reinsure 80% of future
transactions, and Legacy Insurance generates an appropriate amount of Fee
Income to absorb its Fixed Operating Expenses. As a result, our Pre-Tax
Operating Loss was $24.3 million during the current period. Tangible Net Asset
Value was $368.4 million, a 2% increase compared to year-end 2021, primarily
as a result of our Firm Issuance of $34 million in June 2022 (the remaining
Fundraise of $96 million closed in July 2022).
One of our primary objectives is to grow Fee Income. Our Fee Income was $53.1
million, a 112% increase compared to H1 2021, and when annualised, was $106.2
million, and would represent a compounded annual growth rate of 102% over 3
years. Fee Income represented 61% of Gross Operating Income over the trailing
twelve months, an increase of 49 percentage points compared to the business
mix in 2019.
We continue to be very focused on cost control, with Group Fixed Operating
Expenses increasing by only 3% at constant foreign exchange rates and
decreasing by 3% when accounting for foreign exchange movements during the
period. We have incurred approximately $10 million out of our total $20 ‒ 25
million budget for the automation programme. This investment is expected to
deliver approximately $10 million of annual cost efficiencies by 2024 from
process automation and technology upgrades that will create scalability and
operating leverage.
Our IFRS Loss After Tax was $122.4 million during H1 2022 primarily due to $88
million of unrealised net investment losses, which we do not expect will be
realised due to the high credit quality, short duration of our investment
portfolio.
Program Management
Our Program Management business continued to grow rapidly in H1 2022. We had
75 active programs, an increase of 15 programs compared to 30 June 2021, and
Gross Written Premium was $807.3 million, an 82% increase compared to H1 2021.
Our Pre-Tax Operating Profit was $23.3 million, a 136% increase compared to H1
2021. These results are demonstrating the benefits of scale as we earned a
54.0% profit margin, an increase of 14.1 percentage points compared to H1
2021.
The primary driver of Pre-Tax Operating Profit is our Fee Income, which
represents Program Fee Income from written premium ceded to reinsurers and our
40% minority stake in Tradesman Program Managers. Fee Income was $44.3
million, a 76% increase compared to H1 2021, which included $5.2 million from
our minority stake in Tradesman Program Managers. Excluding our stake in
Tradesman, Fee Income increased 105% compared to H1 2021. Underwriting Income
represents our c. 7% retention of Program Management insurance risk. Our
Underwriting Loss was $2.1 million, primarily due to adverse development in UK
motor and the higher cost of reinsurance purchased to minimise earnings
volatility. While our UK motor exposure is very modest across our diversified
book of business, rate increases are coming through the underlying programs,
which should mitigate Underwriting Losses in the future. Our Investment Income
was $1.0 million, a 19% increase compared to H1 2021 primarily driven by
underlying growth in the business. Finally, Fixed Operating Expenses increased
34% compared to H1 2021 due to the expansion of our staff, but grew more
slowly than Gross Operating Income, demonstrating the benefits of scale and
operating leverage.
Legacy Insurance
Our Legacy Insurance business concluded two transactions in the period with
Gross Reserves Acquired of $5.3 million (H1 2021: $112.5 million).
Transactions tend to be seasonally active in the fourth quarter, with H1 2021
an exception due to the timing of closing certain deals that had been
negotiated at year-end 2020. At 30 June 2022, we had Reserves Under
Management, which represent the reserves ceded to Gibson Re, of $386.6 million
compared to none in the prior period. Our Pre-Tax Operating Loss was $26.7
million due to the transformation to an annual recurring fee business, which
is expected to become profitable as Gibson Re, which assumes 80% of legacy
transactions in exchange for 4.25% of annual fees on Reserves Under
Management, is fully deployed by 2024.
With the formation of Gibson Re in Q4 2021, the primary driver of our Pre-Tax
Operating Profit is our Fee Income, which was $8.8 million, compared to none
in H1 2021. Our Underwriting Income represents tangible Day-One gains in
respect of the risk retained on transactions originated during the period as
well as reserve movements of risk retained on transactions closed in prior
years. Note that Day-One gains will not be allowed under future accounting
starting in 2023, which will require higher reserves at transaction close. Our
Underwriting Loss was $3.4 million due to a modest amount of reserve
strengthening. Underwriting Income is not comparable to the prior period due
to reinsuring 80% of transactions to Gibson Re. Our Investment Income was $6.7
million, a 27% decrease compared to H1 2021 due to mark-to-market unrealised
investment losses on equity and loan funds. Finally, our Fixed Operating
Expenses decreased 12% compared to H1 2021, primarily due to expense control
and foreign exchange movement.
Corporate and other
Our Corporate and Other segment includes unallocated operating expenses and
finance costs. Unallocated net operating expenses were $6.7 million,
relatively flat compared to H1 2021. Interest expense was $14.2 million, a 20%
increase compared to H1 2021 due to a higher amount of bank debt, which is
expected to decrease upon receipt of the remaining $96 million Fundraise that
closed in July.
Cash and investments
Our Cash and Investments at 30 June 2022 was $1.6 billion. We produced a book
yield, which excludes net realised and unrealised gains on fixed income
investments, of 1.2%, a decrease of 20 bps compared to H1 2021 due to the
impact of mark-to-market losses on equities and loan funds. Excluding these
losses, our book yield was 1.5%.
We maintain a high-quality and conservative, liquid investment portfolio so
that we can produce consistent cash flows to meet our liability obligations,
while also earning a reasonable risk-adjusted return. 97% of our portfolio was
invested in cash, money market funds, and fixed income investments. Of our
fixed income investments, 98% were rated investment grade. After cash, which
comprised 21% of our portfolio, our largest allocations were to corporate
bonds (39%), government and municipal securities (20%), asset-backed
securities (16%) and equities and funds (3%). While we continue to extend
duration in our portfolio to better match our expected liability cashflows,
our interest rate duration was 2.5 years at 30 June 2022 (compared to duration
on our liabilities of 6 years) primarily as a result of significant cash
balances at 30 June 2022 and 17% of the portfolio invested in floating rate
securities. With the rise in interest rates, we expect to redeploy assets at
attractive market yields; our portfolio market yield, excluding cash, is
currently 4%.
During H1 2022, financial markets witnessed a significant increase in interest
rates resulting in mark-to-market unrealised losses on fixed income assets
across the wider insurance industry. Our investment portfolio incurred
unrealised net investment losses on fixed income investments of $88 million,
which are included in our IFRS results, and represent 5.2% of the total
portfolio, lower than that experienced by publicly-traded peers in the
insurance industry. Given these assets are held in high quality, investment
grade securities with a shorter duration than our stable, casualty-oriented
liabilities, we do not expect to realise these accounting-based losses.
While IFRS does not allow for the discounting of reserves, our group
regulatory financials do and hence the increase in interest rates benefitted
our solvency capital position with the discount rate impact on reserves more
than offsetting the mark to market unrealised losses in our investment
portfolio. Our realised net investment losses were c. $12 million primarily as
a result of the liquidation of securities in exchange for cash in a
Reinsurance-to-Close transaction as required by Lloyd's. Nonetheless, the
increase in interest rates provides attractive reinvestment opportunities for
the Group as our significant cash position is being reinvested.
Capital and liquidity
Our estimated Group Solvency ratio pro forma for the Conditional Issuance and
Open Offer of $96 million that closed in July was well above our target level
of 150%. Our pro forma adjusted debt to capital ratio, which provides for
partial equity credit on our subordinated debt, is 33%, slightly above our
target of 30%. We received pre-emptive waivers of certain financial
covenants from our bank lenders, which were contingent on our Fundraise which
completed in July 2022.
Change in accounting policy beginning in 2023
The Group will be voluntarily changing its basis of accounting from IFRS to
the Generally Accepted Accounting Principles in the United States of America
("US GAAP") and will present its consolidated financial statements in US GAAP
effective 1 January 2023. The reason for this change is due to the meaningful
ongoing costs to conform with IFRS 17, which would place R&Q at a
significant competitive disadvantage in the Legacy Insurance market, where
most of the market participants report under US GAAP. The data requirements
of IFRS 17 for run-off insurance policies and reinsurance contracts drive
implementation costs for both existing and future transactions that are more
than double that required under US GAAP. While there are differences between
IFRS and US GAAP, the change in accounting framework will not alter the
economic-based KPIs that we use to manage the business.
Condensed Consolidated Income Statement
Six months Six months Year
ended 30 June 2022 ended 30 June 2021 ended 31 December 2021
(unaudited) (unaudited) (audited)
Note $m $m $m
Gross written premium 837.3 527.0 1,539.7
Reinsurers' share of gross written premium (764.4) (429.1) (1,463.5)
Net written premium 72.9 97.9 76.2
Change in gross provision for unearned premiums (256.0) (131.3) (279.2)
Change in provision for unearned premiums, reinsurers' share 222.7 131.0 267.0
Net change in provision for unearned premiums (33.3) (0.3) (12.2)
Net earned premium 39.6 97.6 64.0
Earned fee income 32.2 13.9 31.8
Investment income 5 (89.8) 5.4 6.4
Other income 1.2 5.9 6.6
(56.4) 25.2 44.8
Total income 3 (16.8) 122.8 108.8
Gross claims paid (311.3) (228.9) (485.9)
Reinsurers' share of gross claims paid 201.8 106.3 154.2
Net claims paid (109.5) (122.6) (331.7)
Movement in gross technical provisions (123.6) (12.5) (468.6)
Movement in reinsurers' share of technical provisions 194.1 40.5 674.4
Net change in provision for claims 70.5 28.0 205.8
Net insurance claims incurred (39.0) (94.6) (125.9)
Operating expenses (66.7) (81.6) (166.0)
Result of operating activities before goodwill on bargain purchase and (122.5) (53.4) (183.1)
impairment of intangible assets
Goodwill on bargain purchase 0.2 22.7 49.7
Amortisation and impairment of intangible assets (5.1) (6.9) (13.3)
Share of profit of associates 5.2 5.8 11.2
Result of operating activities (122.2) (31.8) (135.5)
Finance costs (14.5) (13.6) (26.5)
Loss from operations before income taxes 3 (136.7) (45.4) (162.0)
Income tax credit 6 14.3 8.6 34.6
Loss for the period (122.4) (36.8) (127.4)
Attributable to equity holders of the parent:-
Attributable to ordinary shareholders (122.4) (36.8) (127.4)
Non-controlling interests - - -
(122.4) (36.8) (127.4)
Earnings per ordinary share from operations: -
Basic 8 (44.3)c (13.7)c (46.9)c
Diluted 8 (44.3)c (13.7)c (46.9)c
The accompanying notes form an integral part of these Condensed Consolidated
Financial Statements.
Condensed Consolidated Statement of Comprehensive Income
Six months ended 30 June 2022 Six months ended 30 June 2021 Year ended 31 December 2021
(unaudited) (unaudited) (audited)
$m $m $m
Other comprehensive income: -
Items that will not be reclassified to profit or loss:
Pension scheme actuarial (losses)/gains (1.0) 0.9 3.1
Deferred tax on pension scheme actuarial losses/(gains) 0.2 0.3
(0.2)
(0.8) 1.2 2.9
Items that may be subsequently reclassified to profit or loss: -
Exchange (losses)/gains on consolidation (33.8) 2.0
(3.3)
Other comprehensive income (34.6) 3.2
(0.4)
Loss for the period (122.4) (36.8) (127.4)
Total comprehensive income for the period (157.0) (33.6) (127.8)
Attributable to: -
Equity holders of the parent (157.0) (33.6) (127.8)
Non-controlling interests - - -
Total comprehensive income for the period (157.0) (33.6) (127.8)
The accompanying notes form an integral part of these Condensed Consolidated
Financial Statements.
Condensed Consolidated Statement of Changes in Equity for the six months ended
30 June 2022
Attributable to equity holders of the Parent
Share Share premium Foreign currency translation reserve Retained earnings Total Non-controlling interests Total
capital
$m $m $m $m $m $m $m
At beginning of period 7.5 288.3 116.4 396.5 - 396.5
(15.7)
Loss for the year - - - (122.4) (122.4) - (122.4)
Other comprehensive income
Exchange losses on consolidation - - - (33.8) - (33.8)
(33.8)
Pension scheme actuarial losses - - - (1.0) - (1.0)
(1.0)
Deferred tax on pension scheme actuarial gains - - - 0.2 0.2 - 0.2
Total other comprehensive income for the period - - (33.8) (0.8) (34.6) - (34.6)
Total comprehensive income for the period - - (33.8) (123.2) (157.0) - (157.0)
Transactions with owners
Issue of shares 0.6 34.5 - - 35.1 - 35.1
At end of period 8.1 322.8 (49.5) (6.8) 274.6 - 274.6
Condensed Consolidated Statement of Changes in Equity for the six months ended
30 June 2021
Attributable to equity holders of the Parent
Share Share premium Convertible debt Treasury share reserve Foreign currency translation reserve Retained earnings Total Non-controlling interests Total
capital
$m $m $m $m $m $m $m $m $m
At beginning of period 6.2 200.9 80.0 (0.2) (24.7) 267.5 529.7 (0.5) 529.2
Functional currency revaluation (0.1) 7.2 7.2 - 12.3 (26.6) - - -
Loss for the period - - - - - (36.8) (36.8) - (36.8)
Other comprehensive income
Exchange gains on consolidation - - - - 2.0 - 2.0 - 2.0
Pension scheme actuarial losses - - - - - 0.9 0.9 - 0.9
Deferred tax on pension scheme actuarial losses - - - - - 0.3 0.3 - 0.3
Total other comprehensive income for the period - - - - 2.0 1.2 3.2 - 3.2
Total comprehensive income for the period - - - - 2.0 (35.6) (33.6) - (33.6)
Transactions with owners
Share based payments - 0.3 - 0.2 - - 0.5 - 0.5
Conversion of convertible debt to ordinary shares 1.4 85.9 (87.2) - - - 0.1 - 0.1
Dividend - (0.8) - - - - (0.8) - (0.8)
Non-controlling interest in subsidiary disposed - - - - - - - 0.5 0.5
At end of period 7.5 293.5 - - (10.4) 205.3 495.9 - 495.9
Condensed Consolidated Statement of Changes in Equity for the year ended 31
December 2021
Attributable to equity holders of the Parent
Share Share premium Convertible debt Treasury share reserve Foreign currency translation reserve Retained earnings Total Non-controlling interests Total
capital
$m $m $m $m $m $m $m $m $m
At beginning of period 6.2 200.9 80.0 (0.2) (24.7) 267.5 529.7 (0.5) 529.2
Functional currency revaluation (0.2) 7.2 7.2 - 12.3 (26.6) (0.1) - (0.1)
Loss for the period - - - - - (127.4) (127.4) - (127.4)
Other comprehensive income
Exchange losses on consolidation - - - - (3.3) - (3.3) - (3.3)
Pension scheme actuarial losses - - - - - 3.1 3.1 - 3.1
Deferred tax on pension scheme actuarial losses - - - - - (0.2) (0.2) - (0.2)
Total other comprehensive income for the period - - - - (3.3) 2.9 (0.4) - (0.4)
Total comprehensive income for the period - - - - (3.3) (124.5) (127.8) - (127.8)
Transactions with owners
Share based payments 0.1 2.6 - 0.2 - - 2.9 - 2.9
Issue of convertible debt 1.4 85.9 (87.2) - - - 0.1 - 0.1
Purchase of own shares - - - - - - - - -
Dividend - (8.3) - - - - (8.3) - (8.3)
Non-controlling interest in subsidiary disposed of - - - - - - - 0.5 0.5
At end of period 7.5 288.3 - - (15.7) 116.4 396.5 - 396.5
The accompanying notes form an integral part of these Condensed Consolidated
Financial Statements.
Condensed Consolidated Statement of Financial Position as at 30 June 2022
30 June 2022 30 June 2021 31 December 2021
Note
(unaudited) (unaudited) (audited)
$m $m $m
Assets
Intangible assets 77.9 82.8 86.2
Investments in associates 21.5 47.7 46.2
Property, plant and equipment 2.0 1.8 2.1
Right of use assets 5.0 5.7 6.1
Investment properties 1.7 1.9 1.8
Financial instruments 1,486.1 1,490.6 1,533.1
Reinsurers' share of insurance liabilities 7 2,387.8 1,376.6 2,105.6
Current tax assets 4.3 - 3.6
Deferred tax assets 32.9 7.9 20.4
Insurance and other receivables 879.7 794.0 1,096.3
Cash and cash equivalents 375.8 224.8 266.3
Total assets 5,274.7 4,033.8 5,167.7
Liabilities
Insurance contract provisions 7 3,437.0 2,616.7 3,207.5
Financial liabilities 391.0 372.1 406.5
Deferred tax liabilities 7.5 13.3 9.0
Insurance and other payables 9 1,155.1 523.8 1,140.1
Current tax liabilities 3.5 3.2 2.4
Pension scheme obligations 6.0 8.8 5.7
Total liabilities 5,000.1 3,537.9 4,771.2
Equity
Share capital 11 8.1 7.4 7.5
Share premium 322.8 293.6 288.3
Foreign currency translation reserve (49.5) (10.4) (15.7)
Retained earnings (6.8) 205.3 116.4
Attributable to equity holders of the parent 274.6 495.9 396.5
Non-controlling interests in subsidiary undertakings - - -
Total equity 274.6 495.9 396.5
Total liabilities and equity 5,274.7 4,033.8 5,167.7
The Condensed Consolidated Financial Statements were approved by the Board of
Directors on 4 September 2022 and were signed on its behalf by:
W L
Spiegel
T S Solomon
The accompanying notes form an integral part of these Condensed Consolidated
Financial Statements.
Condensed Consolidated Cash Flow Statement Six months ended 30 June 2022 Six months ended 30 June 2021 Year ended 31 December 2021
(unaudited) (unaudited) (audited)
$m $m $m
Cash flows from operating activities
Loss for the period (136.7) (36.8) (127.4)
Tax included in consolidated income statement - (8.6) (34.6)
Finance costs 14.5 13.6 26.5
Depreciation and impairments 1.2 0.3 2.9
Share based payments - 0.5 2.8
Share of profits of associates (5.2) (5.7) (11.2)
Profit on divestment - (2.6) (2.6)
Goodwill on bargain purchase (0.2) (22.7) (49.7)
Amortisation and impairment of intangible assets 5.1 6.9 13.3
Fair value loss on financial assets 100.0 6.3 17.7
Contributions to pension scheme (0.5) (0.5) (1.1)
Profit on net assets of pension schemes 0.3 - 0.1
Decrease/(increase) in receivables 219.6 (109.0) (409.5)
Decrease in deposits with ceding undertakings 3.4 160.0 158.7
Increase in payables 16.6 98.0 705.7
Decrease in net insurance technical provisions (37.2) (27.7) (193.5)
Net cash from operating activities 180.9 72.0 98.1
Cash flows to investing activities
Purchase of property, plant and equipment (0.2) (0.1) (0.7)
Sale of financial assets 134.9 61.2 100.8
Purchase of financial assets (245.5) (340.2) (397.6)
Acquisition of subsidiary undertaking (offset by cash acquired) 0.6 41.4 46.7
Distributions from associates 29.9 3.3 10.3
Divestment (offset by cash disposed of) - 3.5 3.5
Net cash used in investing activities (80.3) (230.9) (237.0)
Net cash from financing activities
Repayment of borrowings (9.7) (27.7) (42.0)
New borrowing arrangements 9.1 58.3 121.7
Dividend - - (8.3)
Interest and other finance costs paid (14.5) (13.6) (26.5)
Cancellation of shares - (0.8) -
Receipts from issue of shares 35.1 - -
Net cash from financing activities 20.0 16.2 44.9
Net (decrease)/increase in cash and cash equivalents 120.6 (142.7) (94.0)
Cash and cash equivalents at beginning of period 266.3 363.5 363.5
Foreign exchange movement on cash and cash equivalents (11.1) 4.0 (3.2)
Cash and cash equivalents at end of period 375.8 224.8 266.3
Share of Syndicates' cash restricted funds 37.0 57.8 50.7
Other funds 338.8 167.0 215.6
Cash and cash equivalents at end of period 375.8 224.8 266.3
The accompanying notes form an integral part of these Condensed Consolidated
Financial Statements.
1. Basis of preparation
The Condensed Consolidated Financial Statements have been prepared using
accounting policies consistent with International Financial Reporting
Standards (IFRSs) and in accordance with International Accounting Standard
(IAS) 34 Interim Financial Reporting.
The Condensed Consolidated Financial Statements for the 2022 and 2021 half
years are unaudited but have been subject to review by the Group's auditors.
2. Significant accounting policies
The accounting policies adopted in the preparation of the Condensed
Consolidated Financial Statements are consistent with those followed in the
preparation of the Group's Consolidated Financial Statements for the year
ended 31 December 2021. There have been no amendments to accounting policies
or new International Financial Reporting Standards adopted by the Group.
The Group will be voluntarily changing its basis of accounting from IFRS to
the Generally Accepted Accounting Principles in the United States of America
("US GAAP") and will present its consolidated financial statements in US GAAP
effective 1 January 2023. The reason for this change is due to the
meaningful ongoing costs to conform with IFRS 17, which would place R&Q at
a significant competitive disadvantage in the Legacy Insurance market, where
most of the market participants report under US GAAP. The data requirements
of IFRS 17 for run-off insurance policies and reinsurance contracts drive
implementation costs for both existing and future transactions that are more
than double that required under US GAAP.
3. Segmental information
The Group's segments represent the level at which financial information is
reported to the Board, being the chief operating decision maker as defined in
IFRS 8. The reportable segments have been identified as follows: -
• Program Management - delegates underwriting authority to
Managing General Agents (MGAs) to provide program capacity through its
licensed platforms in the US and Europe
• Legacy Insurance - acquires legacy portfolios and
manages the run-off of claims reserves
• Corporate/Other - primarily includes the holding company
and interest expense on debt
The Group uses alternative performance measures which are described below.
Segmental results for the six months ended 30 June 2022
Note Program Management Legacy Insurance Corporate / Other Total
$m $m $m $m
Underwriting income (i) (2.1) (3.4) - (5.5)
Fee income (ii) 44.3 8.8 - 53.1
Investment income (iii) 1.0 6.7 - 7.7
Gross operating income (iv) 43.2 12.1 - 55.3
Fixed operating expenses (v) (19.9) (38.8) (6.7) (65.4)
Interest expense - - (14.2) (14.2)
Pre-tax operating profit/(loss) (vi) 23.3 (26.7) (20.9) (24.3)
Deduction for unearned program fee revenue (vii) (14.9)
Movement on net intangibles (viii) (4.9)
Net unrealised and realised losses (ix) (100.0)
Non-core and exceptional items (x) (13.0)
Foreign exchange (xi) 20.4
Loss before tax (136.7)
Segment assets as at 30 June 2022 1,694.2 3,398.1 182.4 5,274.7
Segment liabilities as at 30 June 2022 1,618.1 3,102.7 279.3 5,000.1
Segmental results for the six months ended 30 June 2021
Note Program Management Legacy Insurance Corporate / Other Total
$m $m $m $m
Underwriting income (i) (1.2) 20.3 - 19.1
Fee income (ii) 25.1 - - 25.1
Investment income (iii) 0.9 9.2 1.5 11.6
Gross operating income (iv) 24.8 29.5 1.5 55.8
Fixed operating expenses (v) (14.9) (44.3) (8.3) (67.5)
Interest expense - - (11.8) (11.8)
Pre-tax operating profit/(loss) (vi) 9.9 (14.8) (18.6) (23.5)
Deduction for unearned program fee revenue (vii) (5.5)
Movement on net intangibles (viii) (3.3)
Net unrealised and realised losses (ix) (6.5)
Non-core and exceptional items (x) (6.6)
Loss before tax (45.4)
Segment assets as at 30 June 2021 1,170.4 2,683.9 179.5 4,033.8
Segment liabilities as at 30 June 2021 1,105.0 2,121.9 311.0 3,537.9
Segmental results for the year ended 31 December 2021
Note Program Management Legacy Insurance Corporate / Other Total
$m $m $m $m
Underwriting income (i) (1.1) 58.5 - 57.4
Fee income (ii) 56.1 - - 56.1
Investment income (iii) 2.7 19.3 2.8 24.8
Gross operating income (iv) 57.7 77.8 2.8 138.3
Fixed operating expenses (v) (37.1) (83.5) (16.0) (136.6)
Interest expense - - (22.7) (22.7)
Pre-tax operating profit/(loss) (vi) 20.6 (5.7) (35.9) (21.0)
Deduction for unearned program fee revenue (vii) (13.2)
Movement on net intangibles (viii) 2.3
Net unrealised and realised gains/(losses) (ix) (18.4)
Non-core and exceptional items (x) (111.7)
Loss before tax (162.0)
Segment assets as at 31 December 2021 1,039.6 4,113.3 14.8 5,167.7
Segment liabilities as at 31 December 2021 864.1 3,292.2 614.9 4,771.2
Notes:
(i) Underwriting income represents Legacy Insurance
tangible day one gains and reserve development / savings, net of claims costs
and brokerage commissions. Underwriting income also includes Program
Management retained earned premiums, net of claims costs, acquisition costs,
claims handling expenses and premium taxes / levies.
(ii) Fee income comprises program fee income which
represents the fee income from insurance policies already bound (written),
regardless of the amount of premium earned in the financial period, earnings
from minority stakes in MGAs, and legacy insurance fee income earned on
business ceded to Gibson Re.
(iii) Investment income represents income arising on the
investment portfolio excluding net realised and unrealised investment gains or
losses on fixed income assets.
(iv) Gross operating income represents pre-tax operating
profit before fixed operating expenses (v) and interest expense.
(v) Fixed operating expenses include employment, legal,
accommodation, information technology, Lloyd's Syndicate and other fixed
expenses of ongoing operations, excluding non-core and exceptional items.
(vi) Pre-tax operating profit or loss is a measure of how
the Group's core businesses performed adjusted for unearned program fee
income, intangibles created in Legacy acquisitions, net realised and
unrealised investment gains on fixed income assets and exceptional exchange
net gains upon consolidation and non-core, non-recurring costs.
(vii) Unearned program fee income represents the portion of
program fee income (ii) which has not yet been earned on an IFRS basis.
(viii) Movement on net intangibles comprises the aggregate of
intangible assets arising on acquisitions in the period less amortisation on
existing intangible assets charged in the period.
(ix) Realised and unrealised net gains arise on fixed income
assets, which are primarily driven by interest rate movements.
(x) Non-core and exceptional items comprise the result of
entities which are considered non-core or exceptional P&L items.
(xi) Foreign exchange represents translation of net
liabilities denominated in non-US$ currency, which in H1 2022 was material due
to the significant strengthening of the US$ (in H1 2021 this was not material
and was included in operating expenses).
Geographical analysis
As at 30 June 2022
UK North America Europe Total
$m $m $m $m
Gross assets 1,501.1 2,740.6 1,367.0 5,608.7
Intercompany eliminations (123.3) (155.5) (55.3) (334.1)
Segment assets 1,377.8 2,585.1 1,311.7 5,274.6
Gross liabilities 1,387.5 2,704.7 1,242.0 5,334.2
Intercompany eliminations (231.1) (67.8) (35.2) (334.1)
Segment liabilities 1,156.4 2,636.9 1,206.8 5,000.1
External revenue for the six months ended 30 June 2022 (21.4) (36.3) 40.9 (16.8)
Revenue from external customers represents the Group's total consolidated
income, after elimination of internal revenue.
As at 30 June 2021
UK North America Europe Total
$m $m $m $m
Gross assets 1,319.5 1,893.1 1,179.7 4,392.3
Intercompany eliminations (195.0) (98.7) (64.8) (358.5)
Segment assets 1,124.5 1,794.4 1,114.9 4,033.8
Gross liabilities 1,133.7 1,718.9 1,043.7 3,896.3
Intercompany eliminations (253.5) (50.2) (54.8) (358.5)
Segment liabilities 880.2 1,668.7 988.9 3,537.8
External revenue for the six months ended 30 June 2021 21.4 87.8 13.6 122.8
Revenue from external customers represents the Group's total consolidated
income, after elimination of internal revenue.
As at 31 December 2021
UK North America Europe Total
$m $m $m $m
Gross assets 1,716.7 2,418.6 1,331.9 5,467.2
Intercompany eliminations (137.4) (103.5) (58.6) (299.5)
Segment assets 1,579.3 2,315.1 1,273.3 5,167.7
Gross liabilities 1,307.3 2,566.5 1,196.9 5,070.7
Intercompany eliminations (238.3) (12.2) (49.0) (299.5)
Segment liabilities 1,069.0 2,554.3 1,147.9 4,771.2
External revenue for the year ended 31 December 2021 7.9 59.6 41.3 108.8
Revenue from external customers represents the Group's total consolidated
income, after elimination of internal revenue.
4. Fair Value
The following table shows the fair values of financial assets using a
valuation hierarchy; the fair value hierarchy has the following levels: -
Level 1 - Valuations based on quoted prices in active markets for identical
instruments. An active market is a market in which transactions for the
instrument occur with sufficient frequency and volume on an ongoing basis such
that quoted prices reflect prices at which an orderly transaction would take
place between market participants at the measurement date.
Level 2 - Valuations based on quoted prices in markets that are not active or
based on pricing models for which significant inputs can be corroborated by
observable market data.
Level 3 - Valuations based on inputs that are unobservable or for which there
is limited activity against which to measure fair value.
As at 30 June 2022 Level 1 Level 2 Level 3 Total
$m $m $m $m
Government and government agencies 372.8 - - 372.8
Corporate bonds 1,010.0 22.2 - 1,032.2
Equities 19.8 4.4 - 24.2
Investment funds 17.8 20.6 - 38.4
Purchased reinsurance receivables - - 6.5 6.5
Total financial assets measured at fair value 1,420.4 47.2 6.5 1,474.1
As at 30 June 2021 Level 1 Level 2 Level 3 Total
$m $m $m $m
Government and government agencies 316.4 - - 316.4
Corporate bonds 987.2 50.0 - 1,037.2
Equities 12.9 0.3 - 13.2
Investment funds 20.4 84.0 - 104.4
Purchased reinsurance receivables - - 6.4 6.4
Total financial assets measured at fair value 1,336.9 134.3 6.4 1,477.6
As at 31 December 2021 Level 1 Level 2 Level 3 Total
$m $m $m $m
Government and government agencies 330.9 - - 330.9
Corporate bonds 999.0 56.9 - 1,055.9
Equities 11.6 0.3 - 11.9
Investment funds - 112.6 - 112.6
Purchased reinsurance receivables - - 6.6 6.6
Total financial assets measured at fair value 1,341.5 169.8 6.6 1,517.9
The following table shows the movement on Level 3 assets measured at fair
value for the six months ended 30 June 2022 and 2021, and the year ended 31
December 2021: -
Six months ended 30 June 2022 Six months ended 30 June 2021 Year ended 31 December 2021
$m $m $m
Opening balance 6.6 6.4 6.4
Total net gains recognised in the Consolidated Income Statement (0.1) - 0.2
Closing balance 6.5 6.4 6.6
Level 3 investments (purchased reinsurance receivables) have been valued using
detailed models outlining the anticipated timing and amounts of future
receipts.
5. Investment income
Six months ended 30 June 2022 Six months ended 30 June 2021 Year ended 31 December 2021
$m $m $m
Interest income 10.2 11.6 24.1
Realised gains/(losses) on investments (12.0) 2.8 3.8
Unrealised (losses)/gains on investments (88.0) (9.0) (21.5)
(89.8) 5.4 6.4
6. Income tax
Six months ended 30 June 2022 Six months ended 30 June 2021 Year ended 31 December 2021
$m $m $m
Tax credit 14.3 8.6 34.6
The tax credit in the Condensed Consolidated Income Statement is calculated on
an effective tax rate method.
7. Insurance contract provisions and reinsurance balances
Six months ended 30 June 2022 Six months ended 30 June 2021 Year ended 31 December 2021
Gross $m $m $m
Insurance contract provisions at beginning of period 3,207.5 2,402.8 2,402.8
Claims paid (311.3) (228.9) (485.9)
Increase in provisions arising from acquisition and disposal of subsidiary 0.5 38.2 91.1
undertakings and syndicate participations
Increase in provisions arising from acquisition of reinsurance portfolios - 74.3 430.4
Increase in claims provisions 434.9 167.1 524.0
Increase in unearned premium reserve 256.0 131.3 279.3
Net exchange differences (150.6) 31.9 (34.2)
Insurance contract provisions at end of period 3,437.0 2,616.7 3,207.5
Six months ended 30 June 2022 Six months ended 30 June 2021 Year ended 31 December 2021
Reinsurance $m $m $m
Reinsurers' share of insurance contract provisions at beginning of period 2,105.6 1,180.6 1,180.6
Proceeds from commutations and reinsurers' share of gross claims paid (201.8) (106.3) (154.2)
Increase in provisions arising from acquisition and disposal of subsidiary - - 164.2
undertakings and syndicate participations
Increase in provisions arising from acquisition of reinsurance portfolios - - 247.5
Increase in claims provisions 395.9 146.8 416.9
Increase in unearned premium reserve 222.7 131.1 267.0
Net exchange differences (134.6) 24.4 (16.4)
Reinsurers' share of insurance contract provisions at end of period 2,387.8 1,376.6 2,105.6
Six months ended 30 June 2022 Six months ended 30 June 2021 Year ended 31 December 2021
Net $m $m $m
Net claims outstanding at beginning of period 1,101.9 1,222.2 1,222.2
Net claims paid and proceeds from commutations (109.5) (122.6) (331.7)
Increase/(decrease) in provisions arising from acquisition of subsidiary 0.5 38.2 (73.1)
undertakings and syndicate participations
Increase in provisions arising from acquisition of reinsurance portfolios - 74.3 182.9
Increase in claims provisions 39.0 20.3 107.1
Increase in unearned premium reserve 33.3 0.2 12.3
Net exchange differences (16.0) 7.5 (17.8)
Net claims outstanding at end of period 1,049.2 1,240.1 1,101.9
The assumptions used in the estimation of claims provisions relating to
insurance contracts are intended to result in provisions which are sufficient
to settle the net liabilities from insurance contracts.
Provision is made at the reporting date for the estimated ultimate cost of
settling all claims incurred in respect of events and developments up to that
date, whether reported or not. The source of data used as inputs for the
assumptions is primarily internal.
Significant uncertainty exists as to the likely outcome of any claim and the
ultimate costs of completing the run off of the Group's owned insurance
operations.
The Group owns several insurance companies and Syndicate participations in
run-off. Significant uncertainty arises in the quantification of technical
provisions for all insurance entities and Lloyd's Syndicates under the Group's
control due to the long tail nature of the business underwritten by those
entities. The business written by the insurance company subsidiaries
consists in part of long tail liabilities, including asbestos, pollution,
health hazard and other US liability insurance. The claims for this type of
business are typically not settled until several years after policies have
been written. Furthermore, much of the business written by these companies
is reinsurance and retrocession of other insurance companies, which lengthens
the settlement period.
The provisions carried by the Group's owned insurance companies and Syndicate
participations are calculated using a variety of actuarial techniques. The
provisions are calculated and reviewed by the Group's internal actuarial team.
In addition, the Group regularly commissions independent external actuarial
reviews. The use of external advisers provides management with additional
comfort that the Group's internally produced statistics and trends are
consistent with observable market information and other published data.
When preparing these Condensed Consolidated Financial Statements, full
provision is made in the aggregate for all costs of running off the business
of the insurance entities to the extent that the provision exceeds the
estimated future investment return expected to be earned by those entities
deemed to be in run-off. When assessing the amount of any provision to be
made, the future investment income and claims handling expenses and all other
costs of all the insurance company subsidiaries' and syndicates' businesses in
run-off are considered in aggregate. The quantum of the costs of running off
the business and the future investment income has been determined through the
preparation of cash flow forecasts over the anticipated period of the run
offs. The gross costs of running off the business are estimated to be fully
covered by future investment income.
Provisions for outstanding claims and Incurred but Not Reported (IBNR) claims
are initially estimated at a gross level and a separate calculation is carried
out to estimate the size of reinsurance recoveries. Insurance companies and
Syndicate participations within the Group are covered by a variety of treaty,
excess of loss and stop loss reinsurance programs.
8. Earnings per share
Six months Six months Year ended
ended 30 June 2022 ended 30 June 2021 31 December
2021
No. 000's No. 000's No. 000's
Weighted average number of Ordinary shares 276,263.0 267,915.0 271,611.0
Effect of dilutive share options - - -
Weighted average number of Ordinary shares for the purposes 276,263.0 267,915.0 271,611.0
of diluted earnings per share
$m $m $m
Earnings per share for profit from operations (122.4) (36.8) (127.4)
Loss for the period attributable to Ordinary shareholders
Basic earnings per share (44.3)c (13.7)c (46.9)c
Diluted earnings per share (44.3)c (13.7)c (46.9)c
9. Insurance and other payables
Six months ended 30 June 2022 Six months ended 30 June 2021 Year ended
31 December 2021
$m $m $m
Structured liabilities 506.2 516.4 506.2
Structured settlements (506.2) (516.4) (506.2)
- - -
Other creditors 1,155.1 523.8 1,140.1
1,155.1 523.8 1,140.1
Structured Settlements
No new structured settlement arrangements have been entered into during the
period. Some Group subsidiaries have paid for annuities from third party
life insurance companies for the benefit of certain claimants. The
subsidiary company retains the credit risk in the unlikely event that the life
insurance company defaults on its obligations to pay the annuity amounts. In
the event that any of these life insurance companies were unable to meet their
obligations to these annuitants, any remaining liability may fall upon the
respective insurance company subsidiaries. The Directors believe that,
having regard to the quality of the security of the life insurance companies
together with the reinsurance available to the relevant Group insurance
companies, the possibility of a material liability arising in this way is very
unlikely. The life companies will settle the liability directly with the
claimants and no cash will flow through the Group. These annuities have been
shown as reducing the insurance companies' liabilities to reflect the
substance of the transactions and to ensure that the disclosure of the
balances does not detract from the users' ability to understand the Group's
future cash flows.
10. Borrowings
The total amounts owed to credit institutions at 30 June 2022 was $382.0m (30
June 2021: $362.7m, 31 December 2021: $395.9m).
The Group has issued the following debt:
Issuer Principal Rate Maturity
R&Q Insurance Holdings Ltd $70,000k 6.35% above USD LIBOR 2028
R&Q Insurance Holdings Ltd $125,000k 6.75% above USD LIBOR 2033
Accredited Insurance (Europe) Limited €20,000k 6.7% above EURIBOR 2025
Accredited Insurance (Europe) Limited €5,000k 6.7% above EURIBOR 2027
R&Q Re (Bermuda) Limited $20,000k 7.75% above USD LIBOR 2023
The Group's subsidiary, Accredited America Insurance Holding Corporation
provides a full and unconditional guarantee for the payment of principal,
interest and any other amounts due in respect of the $70,000k Notes issued by
R&Q Insurance Holdings Ltd.
11. Issued share capital
Issued share capital as at 30 June 2022 amounted to $8.1m (30 June 2021:
$7.4m, 31 December 2021: $7.5m).
During the period the Group issued 27,425,612 ordinary shares at £1.05 per
share.
12. Guarantees and indemnities in the ordinary course of
business
The Group gives various guarantees in the ordinary course of business.
13. Goodwill
When testing for impairment of goodwill, the recoverable amount of each
relevant cash generating unit is determined based on cash flow projections.
These cash flow projections are based on the financial forecasts approved by
management. Management also consider the current net asset value and
earnings of each cash generating unit.
No changes to the underlying assumptions have been made in the interim review.
14. Business combinations
During the first six months of 2022, the Group made one business combination
of run-off portfolios. The Group's business combination involved a Legacy
Insurance transaction and has been accounted for using the acquisition method
of accounting.
Legacy entities and businesses
The following table shows the fair value of assets and liabilities included in
the Condensed Consolidated Financial Statements at the date of acquisition of
the legacy business:
Intangible assets Other receivables Cash & Other payables Technical provisions Tax Net assets acquired Consideration Goodwill on bargain purchase
investments
$m $m $m $m $m $m $m $m $m
La Vittoria 0.1 - 0.6 - (0.5) - 0.2 - 0.2
0.1 - 0.6 - (0.5) - 0.2 - 0.2
Goodwill on bargain purchase arises when the consideration is less than the
fair value of the net assets acquired. It is calculated after the alignment
of accounting policies and other adjustments to the valuation of assets and
liabilities to reflect their fair value at acquisition.
M&A transactions can arise as legacy business can give rise to onerous
capital and reporting obligations for insurers, even though they no longer
actively participate in such business.
In order to disclose the impact on the Group as if the legacy entity had been
owned for the whole period, assumptions would have to be made about the
Group's ability to manage efficiently the run-off of the legacy liabilities
prior to the acquisition. As a result, and in accordance with IAS 8, the
Directors believe it is not practicable to disclose revenue and profit before
tax as if the entity had been owned for the whole period.
Where significant uncertainties arise in the quantification of the
liabilities, the Directors have estimated the fair value based on the
currently available information and on assumptions which they believe to be
reasonable.
The Group completed the following business combination during 2022:
La Vittoria
On 4 May 2022, Accredited Insurance (Europe) Limited completed the novation
from SCOR SE Rappresentanza Generale Per I'Italia (as legal successor to La
Vittoria Riassicurazioni) ("La Vittoria"), a French domiciled insurance
company, of La Vittoria's participations in the Excess and Casualty
Reinsurance Association ("ECRA") pool. The policies covered property and
casualty risks underwritten from 1973 to 1980.
15. Related party transactions
The following Officers and connected parties were entitled to the following
distributions during the period as follows:
Six months ended 30 June 2022 Six months ended 30 June 2021 Year ended 31 December 2021
$m $m $m
A K Quilter and family
- - 0.1
W L Spiegel
- - 0.2
T S Solomon
- - -
16. Foreign exchange rates
The Group used the following exchange rates to translate foreign currency
assets, liabilities, income and expenses into United States Dollars, being the
Group's presentational currency:
Six months ended 30 June 2022 Six months ended 30 June 20201 Year ended
31 December 2021
Average
UK Sterling 0.77 0.72 0.73
Euro 0.92 0.83 0.84
Spot
UK Sterling 0.82 0.72 0.75
Euro 0.95 0.84 0.88
17. Contingent liability
Attention is drawn to Note 7 which sets out the uncertainties inherent in
assessing outstanding claims reserves in the ordinary course. The Group's
insurance contract provisions include a provision for costs only in respect of
a potential accumulation of claims from a single policyholder in the Group's
Legacy business. The claims involve multiple uncertainties including questions
relating to liability, coverage, incidence, quantum and other legal and
technical issues. Management has concluded that it is not possible to measure
the appropriate reserve for these claims with sufficient reliability. Based on
the documentation made available to date, and expert opinion and legal advice,
management believes that it is not probable that any significant amount,
other than costs, will be payable to settle the claim; however, the ultimate
cost of the claims could be materially higher. In the circumstances, and in
accordance with IAS 37, management has concluded that it is not currently
appropriate to recognize any estimate of the possible outcome but to disclose
the position as a contingent liability.
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