REG - R&Q Insurance Hldgs - Strategic & Trading Update

R&Q Insurance HoldingsAnnouncement

04/04/2023 07:00

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RNS Number : 2372V  R&Q Insurance Holdings Ltd  04 April 2023

R&Q Insurance Holdings Ltd

 

Strategic Initiative to Separate Program Management and Legacy Insurance &
Trading Update

 

4 April 2023

 

R&Q Insurance Holdings Ltd, (AIM-RQIH) ("R&Q" or the "Group"), the
leading non-life global specialty insurance company focusing on Program
Management and Legacy Insurance businesses, announces that the Board of
R&Q is reviewing strategic options to separate its Program Management
business, Accredited, and its Legacy Insurance business. In addition, R&Q
also provides a trading update on the Group's expected operating performance
for the financial year ended 31 December 2022.

 

Strategic Initiative to Separate Accredited and Legacy Insurance

 

R&Q's Program Management business, Accredited, has grown significantly
over the past three years, achieving record Gross Written Premium and Fee
Income (excluding minority stakes in MGAs) of $1.8 billion and $80 million,
respectively, in 2022. It is now one of the largest program managers globally.

 

Accredited relies on an 'A' credit rating to conduct business and historically
relied on the financial strength of the broader Group to obtain its credit
rating. However, given Accredited's current size and scale, R&Q believes
it is in the best interests of R&Q's shareholders for Accredited to stand
on its own. Therefore, the Board of R&Q is reviewing strategic
alternatives to separate Accredited and Legacy Insurance, which will include a
legal reorganisation followed by strategic transactions with third parties to
achieve this objective. R&Q expects the separation will set each of
Accredited and Legacy Insurance on more favourable footing to deliver
profitable growth, each with their own appropriate capital structures.

 

The legal reorganisation is subject to regulatory and lender consents, which
R&Q expects to obtain in Q2 2023.

 

Preliminary FY 2022 Trading Update

 

Based on preliminary and unaudited information, R&Q anticipates that it
will realise a Pre-Tax Operating Profit (Loss) for the financial year ended 31
December 2022 of $(30)-(40) million, comprising $55-60 million in Program
Management, $(55)-(60) million in Legacy Insurance and ~$(35) million in
Corporate and Other, which is primarily interest expense.(1)

 

Program Management

 

Program Management is expected to realise a Pre-Tax Operating Profit of $55-60
million, driven by Gross Written Premium of $1.8 billion and Fee Income
(excluding minority stakes in MGAs) of $80 million, which increased 80% and
78%, respectively, over the prior year. Pre-Tax Operating Profit includes $12
million of earnings from the Group's minority stake in Tradesman Program
Managers, which has subsequently been sold to its controlling shareholder in
Q1 2023.

 

Legacy Insurance

 

Legacy Insurance is expected to realise a Pre-Tax Operating (Loss) of
$(55)-(60) million, driven by fewer transactions completed, with Gross
Reserves Acquired of ~$70 million and net adverse development of ~3-4% of the
Group's net reserves.  We expect Reserves Under Management at year-end 2022
to be ~$400 million (~$1 billion as of January 2023).  Prior to new
accounting rules effective from 1 January 2023, the IFRS accounting regime
allowed "Day-1 gains", which meant that a majority of a transaction's profits
could be recorded upfront upon closing of the transaction. As a result, any
net reserve development after a transaction had closed created heightened
volatility in earnings but did not mean that the underlying returns of the
transaction would not meet expectations when taking into account the Day-1
gain and investment income.

 

Corporate and Other

 

Corporate and Other is expected to be ~$(35) million. This comprises interest
expense on debt, unallocated expenses and foreign exchange impact on
reevaluation of net assets.

 

William Spiegel, Chief Executive Officer, commented:

 

"Our Program Management business, Accredited, has seen remarkable growth in
Gross Written Premium, Fee Income and profitability over the past five years.
Accredited currently partners with MGAs to offer over 80 different insurance
programs and has over 200 reinsurance partnerships. Accredited has grown to
become one of the largest program managers in the world and has the
appropriate size and scale to stand on its own as an independent business. The
Board has concluded that it is in shareholders' best interests to evaluate
strategic options that allow for a separation of Accredited and Legacy
Insurance. This will ensure both Accredited and Legacy Insurance have the
strongest foundations from which to grow.

 

In Legacy Insurance, we continue to focus on transitioning to a fee-based and
capital efficient model and remain confident that this will create a more
profitable, sustainable and valuable business. While in 2022 we didn't
complete as many transactions as in prior years, we maintained prudence in
only pursuing deals that are profitable for both R&Q and Gibson Re.  As
announced on 6 January 2023, we have grown Reserves Under Management to in
excess of $1 billion, starting from zero in the fourth quarter of 2021. While
our Q4 2022 actuarial review process shows a need to strengthen reserves, it
is important to note that the IFRS accounting regime recognised a large
portion of total lifetime earnings at transaction close, which is a
significant part of how we assess the overall profitability of historical
legacy transactions.

 

Due to the planned separation, we expect to announce our final audited results
in June 2023."

 

 1  Financial figures are estimates and therefore dependent on finalising full
year 2022 results. Any reserve strengthening is a significant accounting
estimate that involves management making assumptions and considering future
events that are inherently uncertain. There is a risk that such judgements are
not made in accordance with IFRS and thus there may be material differences
once the auditors/actuaries have undertaken their review as part of the year
end audit process which is yet to be completed.

 

Ends

 

 Enquiries to:

 

R&Q Insurance Holdings Ltd
 William Spiegel                                          Tel: +44 020 7780 5850
 Tom Solomon                                              Tel: +44 020 7780 5850

 Numis Securities Limited (Nominated Adviser, Joint Broker, and Financial
 Adviser)
 Giles Rolls                                              Tel: +44 020 7260 1000
 Charles Farquhar                                         Tel: +44 020 7260 1000

 Barclays Bank PLC (Joint Broker and Financial Adviser)

 Gary Antenberg                                           Tel: +1 212 526 9051

 Nishant Amin                                             Tel: +44 020 7632 2322

 Andrew Tusa                                              Tel: +44 020 7632 2322

 Fenchurch Advisory Partners (Financial Adviser)

 Kunal Gandhi                                             Tel: +44 020 7382 2222

 Brendan Perkins                                          Tel: +44 020 7382 2222

 John Sipp                                                Tel: +1 917 603 2932

 Howden Tiger (Financial Adviser)

 Rob Bredahl                                              Tel: +1 646 685 4937

 Leo Beckham                                              Tel: +44 079 276 4458

 John Stamatis                                            Tel: +1 646 685 4943

 FTI Consulting (Media Relations)                         Tel: +44 020 3727 1051

 Tom Blackwell / Shipra Khanna

Enquiries to:

R&Q Insurance Holdings Ltd
 William Spiegel                                          Tel: +44 020 7780 5850
 Tom Solomon                                              Tel: +44 020 7780 5850

 Numis Securities Limited (Nominated Adviser, Joint Broker, and Financial
 Adviser)
 Giles Rolls                                              Tel: +44 020 7260 1000
 Charles Farquhar                                         Tel: +44 020 7260 1000

 Barclays Bank PLC (Joint Broker and Financial Adviser)

 Gary Antenberg                                           Tel: +1 212 526 9051

 Nishant Amin                                             Tel: +44 020 7632 2322

 Andrew Tusa                                              Tel: +44 020 7632 2322

 Fenchurch Advisory Partners (Financial Adviser)

 Kunal Gandhi                                             Tel: +44 020 7382 2222

 Brendan Perkins                                          Tel: +44 020 7382 2222

 John Sipp                                                Tel: +1 917 603 2932

 Howden Tiger (Financial Adviser)

 Rob Bredahl                                              Tel: +1 646 685 4937

 Leo Beckham                                              Tel: +44 079 276 4458

 John Stamatis                                            Tel: +1 646 685 4943

 FTI Consulting (Media Relations)                         Tel: +44 020 3727 1051

 Tom Blackwell / Shipra Khanna

 

 

 

Notes to Editors:

 

About R&Q

 

R&Q is a global non-life specialty insurance company. We operate two core
businesses: Program Management and Legacy Insurance. Both these businesses are
leaders in their respective markets.

 

Our approach is to deploy our origination and underwriting capabilities,
alongside our licensed and rated carriers in the US, EU, and the UK, to
generate attractive fee returns in Program Management and Legacy Insurance.

 

Legal Entity Identifier (LEI): 2138006K1U38QCGLFC94

 

Website: www.rqih.com (http://www.rqih.com)

 

This announcement contains inside information as stipulated under the UK
market abuse regulation no 596/2014, which is part of English law by virtue of
the European (withdrawal) act 2018, as amended.  On publication of this
announcement via a regulatory information service, this information is
considered to be in the public domain.

 

 

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