REG - Randall & Quilter Ld - Results for the year ended 31 December 2021
13/06/2022 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20220613:nRSM5596Oa&default-theme=true
RNS Number : 5596O Randall & Quilter Inv Hldgs Ltd 13 June 2022
Randall & Quilter Investment Holdings Ltd
Results for the year ended 31 December 2021
13 June 2022
Randall & Quilter Investment 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
audited results for the year ended 31 December 2021.
Strategic Update
· Shareholders did not approve the proposed cash acquisition of
R&Q at 175 pence per share, which included $100 million of committed
capital for R&Q
· R&Q is now focussed on raising at least $100 million via a
placing and up to $8 million via an open offer (the "Fundraise"), which will
be announced today
FY 2021 Financial Highlights
Program Management
· Gross Written Premium of $1.0 billion (2020: $539 million, a 92%
increase)
· Fee Income of $56.1 million (2020: $24.1 million, a 133%
increase)
· Pre-Tax Operating Profit of $20.6 million (2020: $3.4 million, a
506% increase)
· Pre-Tax Operating Profit Margin of 35.7% (2020: 14.3%, a 21.4
percentage point increase)
Legacy Insurance
· Completed 15 transactions with Gross Reserves Acquired of $735
million
· Reserves Under Management of $417 million
· Fee Income of 4.25% or $17.7 million beginning in 2022 as legacy
transactions ceded to Gibson Re were concluded at year-end 2021
· Pre-Tax Operating Loss of $5.7 million due to $29 million of
adverse development and transformation from upfront 'Day-One' Underwriting
Income to annual recurring Fee-Income
Group
· Pre-Tax Operating Loss of $21.0 million results impacted by:
o Legacy Insurance business model transformation
o $29 million of adverse reserve development
· IFRS Loss of $127.4 million; results primarily impacted by a ~$90
million pre-tax, non-cash charge
· A final dividend for FY 2021 will not be declared; from FY 2022
onwards, the dividend strategy will be to payout 25-50% of Pre-Tax Operating
Profit
Outlook
· Program Management expected to achieve $1.75 billion of Gross
Written Premium in 2022
o Q1 2022 Gross Written Premium of $370 million; 92% year-over-year growth
o 76 programs at 31 March 2022 (an increase of 7 programs from 31 December
2021)
· Legacy Insurance transactions continue to have heavy weighting
towards Q4
o Year-to-date two legacy transactions have been completed
o Strong pipeline of activity on which we expect to earn annual recurring
fee income of 4.25% on 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)
Group Results
Income Statement 2021 2020
Pre-Tax Operating (Loss) Profit (21.0) 20.6
Operating (Loss) Earnings per Share(1) (7.5)¢ 7.6¢
IFRS (Loss) Profit After Tax (127.4) 37.7
IFRS (Loss) Earnings Per Share(1) (46.9) ¢ 14.2¢
Dividend Per Share 2.0p 3.8p
Balance Sheet 31 Dec 2021 31 Dec 2020
Tangible Net Asset Value Per Share(1) 130.7¢ 173.3¢
Net Asset Value Per Share(1) 144.0¢ 193.3¢
Business Segment Metrics 2021 2020
Program Management
Gross Written Premium 1,032.8 538.9
Fee Income 56.1 24.1
Pre-Tax Operating Profit 20.6 3.4
Pre-Tax Operating Profit Margin 35.7% 14.3%
Legacy Insurance
Gross Reserves Acquired 735.0 641.5
Reserves Under Management 417.0 0.0
Pre-Tax Operating (Loss) Profit (5.7) 49.0
(1) On a fully diluted basis
William Spiegel, Executive Chairman of R&Q, commented:
"2021 was a significant year for R&Q as we outlined an ambitious Five-Year
Strategy that will see us transform into a fee-based, capital lighter
business. This strategy will deliver higher quality and more predictable
profits in both Legacy Insurance and Program Management, while also enabling
us to better leverage our leading underwriting and origination capabilities.
In turn, this will support our goal to further develop the compelling
opportunities we have identified for these businesses.
We have already taken major strides in delivering against this strategy
including the launch of Gibson Re, ongoing momentum in Program Management and
a number of organisational improvements which will make us more efficient,
strengthen our culture and enhance our risk management. We also have underway
a series of projects as part of our goal to be a more data-driven business.
I am pleased to report continued momentum in our two core businesses. Program
Management is now fully demonstrating its fee earning power, with Pre-tax
Operating Profit increasing nearly fivefold to $21 million, and we expect it
to achieve $1.75 billion of Gross Written Premium this year - one year ahead
of schedule. Legacy Insurance continues to benefit from attractive market
dynamics, completing 15 deals with Gross Reserves Acquired of $735 million.
With the launch of Gibson Re, Legacy Insurance is in the process of moving to
a recurring fee model and at year-end 2021 had Reserves Under Management of
$417 million on which we will earn a 4.25% annual fee, alongside potential
performance fees.
We expect to complete our Fundraise in the coming weeks, and I have been
encouraged by the strong indications of interest we have had from
shareholders. This funding will give us the capital we need to de-lever our
balance sheet and maintain the strong financial profile that is an important
part of our growth. Looking ahead, I remain truly excited by this business.
This can be seen in our reiterated expectation that R&Q will deliver over
$90 million of Pre-Tax Operating Profit in 2024 - a major step change in our
earnings potential. I would like to thank all our employees for their hard
work and our shareholders for their continued support."
Enquiries to:
Randall & Quilter Investment Holdings Ltd. Tel: 020 7780 5850
William Spiegel
Alan Quilter
Tom Solomon
Numis Securities Limited (Nominated Advisor and Joint Broker) Tel: 020 7260
1000
Giles Rolls
Charles Farquhar
Barclays Bank PLC (Joint Broker) Tel: 020 7632 2322
Mark Astaire
Nish Amin
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 and net realised and unrealised investment gains
on fixed income and lease-based assets.
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 and lease-based assets and foreign
translation currency 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 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 and lease-based
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.
Program Fee represents Program Fee Income as a percentage of ceded written
premium.
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%.
Chairman's Statement
I am pleased to present my first full-year results since becoming Executive
Chairman of R&Q in April 2021.
2021 was a significant year for our business as we outlined an ambitious
Five-Year Strategy that will see R&Q transform into a fee-based, capital
lighter business. Critically we believe this strategy will, over time, deliver
higher-quality and more predictable profits in both Legacy Insurance and
Program Management while also enabling us to better leverage our leading
underwriting and origination capabilities to further develop the compelling
opportunities we have identified for both businesses.
The last twelve months have already seen us take major strides in delivering
against this strategy, including: the launch of Gibson Re as a legacy sidecar
reinsurer to R&Q; ongoing momentum in Program Management with growth in
Gross Written Premium (GWP) now expected to be ahead of the target we outlined
last year; and adding a number of talented leaders to our management team. We
have also begun work on a series of internal projects that will help us
deliver on our objective to be a more cohesive, efficient and data-first,
global business. Further supporting this progress are our actions as a
responsible corporate citizen, and as part of this we have outlined our plans
to further develop and implement a clear ESG strategy in 2022.
This was all achieved, once again, against the backdrop of a global pandemic.
While we are now seeing encouraging signs of a world returning to normal,
COVID-19 continues to have an impact on the lives and health of many. I am
hugely proud of how our employees have continued to show resilience,
adaptability, and compassion in the face of these challenges. However, we
remain mindful that significant macroeconomic and political uncertainties
remain. Like everyone, all of us at R&Q have been horrified by what is
taking place in Ukraine and our thoughts are with all those impacted by the
terrible events. In April 2022, R&Q and our employees made a donation to
Save the Children International to support their work providing education,
food, water, and cash grants to Ukrainians.
In late March 2022, we consulted the majority of our shareholders on the
proposed cash acquisition and $100 million injection of capital into R&Q
by Brickell PC Insurance Holdings LLC at 175 pence per share or the
alternative of raising $100 million in new R&Q shares. Given the feedback
from our shareholders and the uncertainty in the capital markets at the time,
we announced on 1 April 2022 that the Board was recommending the cash
acquisition of R&Q. At our Special General Meeting on 25 May 2022, our
shareholders did not approve the acquisition of R&Q. We therefore
announced our intention to raise $100 million by way of a Fundraise to
de-lever our balance sheet and improve our financial profile.
I believe that the overwhelming interest we have received from a large number
of shareholders to support the Fundraise is a strong demonstration of
confidence in our strategy and the future value of the Group.
2021 in review
Our results are examined in more detail in the Chief Financial Officer Review
but in summary, 2021 reflected the strategic repositioning of Legacy Insurance
to become a more fee-based, capital lighter business and the continuation of
strong growth and profitability of our Program Management business.
When setting out our Five-Year Strategy, we were clear that there would be a
temporary reduction in near-term profits as a result of repositioning our
Legacy Insurance business away from upfront 'Day-One' Underwriting Income to
annual recurring Fee Income. Typically, a significant proportion of our Legacy
Insurance acquisitions are closed in the fourth quarter. The successful launch
of Gibson Re in September therefore meant a meaningful percentage of
Underwriting Income was shared with Gibson Re, our reinsurance sidecar, which
reduced R&Q's retained portion of that income in exchange for a contracted
future fee-stream. Our Pre-Tax Operating Profit (PTOP) fell to a loss of $21.0
million, in part due to the shift to a recurring fee based business, as well
as $29 million of adverse development.
However, this number does not capture the contracted fee-stream we will
receive from managing legacy insurance reserves for Gibson Re for multiple
years. At the end of 2021, we had $417 million of Reserves Under Management
(RUM) from four Legacy Insurance transactions; on an annualised basis this
represents $17.7 million of recurring Fee Income, however, this Fee Income is
not included in 2021 PTOP since these transactions were completed at year-end
2021. It is important to note two further benefits from Gibson Re: in order to
complete these four deals, our prior funding model would have required us to
raise ~$100 million of additional capital and assume 100% of the risk on these
transactions. Gibson Re enables us to continue the growth of our Legacy
Insurance business while we transition to become a manager of legacy reserves,
sharing risk and alleviating the constraints that a just-in-time capital
funding model has historically placed on R&Q.
While we made great strides with Gibson Re, I am disappointed to have to
report an extraordinary non-cash, pre-tax charge of ~$90 million. By way of
background, R&Q acquired a company over 15 years ago which has a
reinsurance policy that provides coverage once claim payments reach a certain
level. The reinsurance policy contains an experience refund to the subsidiary
of any residual assets under the reinsurance treaty above and beyond that
needed to pay claims. The experience refund is treated as an asset under IFRS
on the Group's balance sheet based on the amount expected to be realised in
the ordinary course over a 40-year projection period. Recently, claims have
accelerated above expectations, leaving the subsidiary with minimal liquid
assets while still requiring $34 million in future claim payments before it
can access the reinsurance coverage. Management believes it is in the best
interests of shareholders for the subsidiary to commute the reinsurance policy
in order to provide liquidity to meet anticipated claims rather than having
R&Q contribute up to $34 million to this subsidiary over the next two to
three years. The impairment of the asset arises from the early commutation of
this reinsurance contract. It is important to know that this impairment is not
related to our core Legacy Insurance and Program Management businesses nor any
of the Accredited companies. The decision we have taken enables us to move
forward with a cleaner, less volatile business.
Furthermore, in Q4 2021, the Group was required to use meaningful cash
capacity to fund collateral requirements upon certain reserve strengthening in
Lloyd's. Together with the ~$90 million non-cash charge, R&Q requires
capital, which we are seeking to raise by way of a Fundraise..
In 2021, we also embarked upon an exciting efficiency project to automate and
centralise our business processes. This project will allow us to achieve
improved operating leverage as we continue to grow our businesses. We
anticipate one-time investment spending over the next year of ~$20 million in
this project. This initiative is anticipated to yield meaningful cost savings
by FY 2024.
Our Group result reflects a year of evolution towards our future state, and I
am pleased that we have reported underlying progress in both of our
businesses, Program Management and Legacy Insurance. In addition to a number
of strategic milestones, this is showcased by our two primary KPIs: growing
GWP in Program Management and RUM in Legacy Insurance, each leading to growing
Fee Income and highlighting the high quality revenue potential of R&Q.
Program Management
Growth in Program Management continues at pace, with PTOP increasing by 506%
to $21 million. We also saw Pre-Tax Operating Margin improve to 36% as we
started to see the benefits of operating leverage as the business grows to
scale. During 2021, we added 21 new programs and increased Fee Income by 133%
to $56.1 million and we remain excited by the potential opportunities in the
US, UK and Europe. We have put in place an outstanding team of entrepreneurial
leaders in Program Management and, aligned to the continued growing demand we
are seeing from both MGAs and reinsurance capital, believe we will continue to
enjoy accelerated growth in this part of our business. 2021 Fee Income
benefited from the strong growth of Tradesman Program Managers, an MGA in
which we own 40%. Tradesman added $11.1 million to our Fee Income.
Based on our success in growing GWP to over $1 billion in 2021, we believe we
will achieve our previously announced target of $1.75 billion in 2022 rather
than in 2023.
Legacy Insurance
The formation and launch of Gibson Re last September was a landmark moment for
Legacy Insurance, underpinning its transformation into what will become
primarily a recurring fee-based business. Gibson Re is a Bermuda-domiciled
collateralised reinsurer with ~$300 million of third-party capital, which will
allow R&Q to support ~$2 billion of Gross Acquired Reserves. Gibson Re
will reinsure 80% of R&Q's qualifying Legacy transactions for up to three
years, with R&Q retaining 20%, which will promote alignment of interests.
R&Q receives annual recurring fees of 4.25% of RUM for at least six years,
plus potential performance fees.
Our ability to successfully raise capital for Gibson Re from a range of
sophisticated institutional investors is testament to the strength,
track-record, and reputation of our Legacy Insurance franchise. In the last 10
years alone, we have completed over 130 transactions across 38 regulatory
jurisdictions. Crucially, this means we have a highly diverse portfolio with
respect to both the years in which the books we acquired were written and the
classes of business they cover.
While Gibson Re changes the model for Legacy Insurance, what has not changed
is the team's ability to originate and underwrite. In 2021 we completed 15
deals, with $735 million of Gross Reserves Acquired, an increase of 15%
relative to 2020. As already stated, under our old model this activity would
have required a further $100 million of capital.
Of the 15 deals completed in 2021, four were 80% reinsured by Gibson Re. With
RUM of $417 million in our first four months of deployment, we see this as an
excellent achievement. We are also pleased that the Gibson Re transaction was
recognised in the recent Trading Risk Awards as 'Non-Life Transaction of The
Year'. Our pipeline remains strong, and we continue to be a leading player in
small to middle market legacy insurance solutions.
Capital and liquidity framework
Last year we articulated a liquidity and capital framework to help investors
understand the capital intensity of R&Q, particularly regarding Legacy
Insurance. In response we were successful in launching Gibson Re. We also
shared a dividend strategy of paying out 25-50% of PTOP and progressively
growing our dividend from 4 pence per share. In H1 2021, we paid a dividend
of 2 pence per share. Due to the extraordinary non-cash charge and required
Fundraise, we will not pay a final dividend for the 2021 fiscal year. While
we will endeavour to maintain our dividend strategy of paying 25-50% of PTOP,
we believe it is in the best interest of the Group to not have a minimum
dividend of 4 pence per share.
Market and strategy
Last year we set out our ambitious Five-Year Strategy to become a simpler,
fee-orientated capital lighter business. There are five pillars of our
strategy: Increasing Fee Income, Enhancing Transparency, Automating
Processes, Engaging Employees and Acting Responsibly. We have already
discussed the progress on increasing Fee Income with the launch of Gibson Re,
and what this means for our Legacy Insurance business, as well as the
excellent progress against our GWP target for Program Management. I am
encouraged to report that we have already made good progress against the other
pillars.
Enhancing transparency
As part of this strategy, we have defined a clear set of KPIs which capture
the earnings potential of a capital-light R&Q and will enable our
stakeholders to clearly assess our progress. These KPIs are:
· As a Group we focus on Fee Income and PTOP
· In Program Management we focus on GWP, Fee Income and PTOP and
the corresponding Operating Margin
· In Legacy Insurance we focus on RUM, Fee Income and PTOP and the
corresponding Operating Margin
These KPIs reflect the performance of Program Management and Legacy Insurance
as primarily fee-generating businesses, while also capturing their ability to
effectively grow and deliver operating leverage. Furthermore, we have
articulated a capital/liquidity framework, introduced a robust internal
Reserve Committee, enhanced our risk framework and optimised our investment
portfolio based on appropriate asset-liability management.
Automating processes
In the second half of the year, we began work on an efficiency program. This
is a significant organisational change program that will generate significant
recurring annual savings by 2024. This program includes transitioning to a
single group-wide accounting system, a single global Program Management
operating model, moving our data to the cloud and the automation of a number
of manual processes.
This automation will also empower our people, letting them spend greater time
on the complex tasks associated with underwriting and origination where their
skills are most valuable. In practice, automation will allow us to grow our
business without adding incremental costs for certain processes. For example,
we recently implemented a new piece of software that will deliver significant
efficiency for our Actuarial and Finance functions, moving the team from
manual data entry to an automated data feed. The new software is highly
flexible and gives us data visualisation tools that offer better real-time
insights and has increased usability for our underwriters. We are finalising
the automation and centralization of the underlying data to save 200-300 hours
a month and enhance our reporting capabilities. Another area we are
progressing is the use of technology to automate manual processes, including
robotic process automation: we have built and successfully launched our first
robots, and we have begun to review the next set of process automation.
We are also changing how we process and store documents, again moving away
from manual processing, which can be hugely time consuming. We have entered
into a partnership with both a provider of a new document management system
and a technology company specialising in Artificial Intelligence (AI) applied
to documents for classification. This new approach makes it far quicker for
our teams to file, retrieve and upload documents while also enabling us to
automate monthly claims payment workflows - we have scanned and categorised
over 1 million documents in this way.
These examples only represent the start of our efforts to improve processes to
support the growth of the business and leverage AI to help us work smarter.
Our team has identified a number of areas across our business where we can
find similar opportunities to automate reporting processes and document
management. As a business that has historically been run on a more traditional
basis, the potential upside for R&Q is meaningful, both in the greater
efficiency it will create and in the ability to free our people up to focus on
more strategic thinking.
Engaging employees
Another key pillar of our Five-Year Strategy is to Engage our People: we
operate in businesses that require specialist skillsets aligned to
longstanding market relationships. Our culture is one where we aim to motivate
our people to be entrepreneurial and accountable and we are grateful for the
hard work and dedication from all of our people in the past year. I would like
to thank everyone at R&Q for their contribution to our results.
An important focus last year was on putting in place the right leadership team
to support our long-term objectives, and we have been able to enter 2022 with
an outstanding team in place. The exceptional talent we have added is
testament to R&Q's reputation in the market and shared excitement for what
we are building.
In our two core businesses, we added Andy Pinkes as Global CEO of Legacy
Insurance, as well as making a number of senior hires in Program Management
following the appointment of Pat Rastiello as CEO of Accredited America last
year. We now have in place strong management teams for both Legacy Insurance
and Program Management, which enables them to align across geographies and
fully leverage our pan-Atlantic underwriting and origination capabilities.
From a corporate perspective we have also made a number of key hires. This
includes Rob Thomas as Chief Data & Technology Officer as well as further
appointments to support our Regulatory, Compliance and Corporate Development
functions.
We have also spent time updating our workplace environment, offering our
people greater flexibility over how and where they work. In addition, we have
implemented regular Town Halls and other communication efforts across the
Group including health and wellness tips. Not only will this help us motivate
and support current employees, but it will also enable us to attract new
talent to R&Q.
Acting responsibly
Issues such as the ongoing pandemic, the increasing urgency over climate
action, and the wellbeing of our employees are influencing the way we act and
behave as a business. We have taken the first important steps to support us
in continuing to be a successful and sustainable long-term business. During
2021, we engaged with our key stakeholders to understand what is important to
them from an environmental, social and governance (ESG) perspective and to
gain insight into the associated potential impacts on our business, on society
and the environment. The Board and leadership teams have been actively
involved in selecting the material ESG topics that we will be prioritising in
the coming years.
In addition to developing and looking after our people and considering our
purpose, we have collected data on our environmental emissions for the first
time which will provide us with visibility of our carbon footprint. We are
also reviewing our policies, our governance structures and applying the
Principle of Sustainable Insurance to ensure we are embedding ESG across our
business.
2022 will be an important year for us as we look to develop and implement an
ESG strategy which is aligned with and supports our Five-Year Strategy. As we
continue to develop our approach, we will ensure that we continue to involve
and engage our stakeholders, both internal and external.
Market outlook
We talked in detail last year about how R&Q competes in large and growing
markets which enjoy both secular growth and structural protection from the
Property and Casualty cycle. This has not changed, and we continue to be
excited by what we are seeing in both Legacy Insurance and Program Management.
The legacy market, and our addressable market within this, remains highly
attractive as risk carriers continue to proactively manage their capital
positions. The ongoing attractive rating environment for 'live' business has
meant we have seen ongoing strong demand for legacy solutions and expect this
to continue through 2022 and beyond. More fundamentally, legacy has now firmly
established itself as a permanent part of the capital life-cycle within
non-life insurance. With the barriers to entry remaining high, R&Q is
strongly positioned.
The program market is also benefiting from equally attractive market
conditions as talented underwriters continue to establish their own MGAs and
capital providers seek underwriting outperformance. As in the legacy market,
R&Q is enviably positioned: we are a genuinely independent program manager
with a highly rated balance sheet and licences across Europe and the US. We
believe few can match this independence, capital strength and global scale in
terms of licenced platforms.
Chief Financial Officer Review
We are pleased to report our financial results for the year ending 31 December
2021, which are now reported in US dollars.
Group
Our KPIs measure the 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 on fixed income and lease-based assets, foreign currency
translation reserves, non-core expenses and exceptional items. While our
underlying businesses performed well in 2021, our Group operating results were
negatively impacted by reserve development and a non-cash impairment of a
structured reinsurance contract that was previously recognised as an asset.
Pre-Tax Operating Loss was $21.0 million primarily due to adverse reserve
development of $29 million. Tangible Net Asset Value was $359.6 million, a 24%
decrease compared to year-end 2020, primarily as a result of an ~$90 million
non-cash, pre-tax charge. On a fully diluted basis, our Operating Loss Per
Share was 7.5 cents and our Tangible Net Asset Value Per Share was 130.7
cents.
One of our objectives is to grow the relative contribution of Fee Income to
total Gross Operating Income. Our Fee Income was $56.1 million, a 133%
increase compared to 2020 and represented 41% of Gross Operating Income, an
increase of 24 percentage points compared to 2020.
Our IFRS Loss After Tax was $127.4 million during the year and Net Asset Value
was $396.5 million, a 25% decrease compared to year-end 2020 primarily due to
adverse reserve development and an~$90 million non-cash, pre-tax charge. On a
fully diluted basis, our Loss Per Share was 46.9 cents and our Net Asset Value
Per Share was 144.0 cents.
Program Management
Our Program Management business continued to grow rapidly in 2021. We had 69
active programs, an increase of 21 programs compared to 2020 and Gross Written
Premium was $1.0 billion, a 92% increase compared to 2020. Our results are
demonstrating the benefits of scale as we earned a Pre-Tax Operating Profit of
$20.6 million, a 506% increase compared to 2020, representing a 35.7% margin
on Gross Operating Income, an increase of 21.4 percentage points compared to
2020.
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, which increased from 35% in
Q2 2021. Fee Income was $56.1 million, a 133% increase compared to 2020, which
included $11.1 million from our minority stake in Tradesman Program Managers.
The Program Fee averaged 4.7%, an increase of 0.2 percentage points compared
to 2020, and we expect Fee Income to generally grow in line with Gross Written
Premium. Underwriting Income represents our ~7% retention of Program Insurance
risk. Our Underwriting Loss was $1.1 million primarily due to the purchase of
reinsurance to minimise earnings volatility. We expect Underwriting Income to
be roughly break-even as we purchase less reinsurance consistent with our risk
appetite, as well as diversify our business away from programs that consume
such coverage. Our Investment Income was $2.7 million, a slight increase
compared to 2020. Finally, Fixed Operating Expenses increased 83% compared to
2020 due to the expansion of our staff and a higher allocation of corporate
expenses.
Legacy Insurance
Our Legacy Insurance business continued to grow, concluding 15 transactions
with Gross Reserves Acquired of $735 million, an increase of 15% compared to
2020. 2021 was the first year of utilising our Gibson Re sidecar, where we
reinsured 80% of the reserves from four transactions. At year-end 2021, we had
Reserves Under Management of $417 million, which will provide annual recurring
Fee Income of 4.25% or $17.7 million beginning in 2022. Our Pre-Tax Operating
Loss was $5.7 million due the impact of reinsuring upfront Underwriting Income
to Gibson Re as well as adverse reserve development.
Currently, the primary driver of our Pre-Tax Operating Profit is our
Underwriting Income, which represents tangible day one gains on retained
transactions originated during the year as well as claims management of
retained transactions closed in prior years. Underwriting Income was $58.5
million, a 44% decrease compared to 2020 due to ceding Underwriting Income to
Gibson Re and $29 million of adverse reserve development, primarily in our
Lloyd's business. In the future, we expect Fee Income to be the primary driver
of Pre-Tax Operating Profit as we grow our Reserves Under Management. Our
Investment Income was $19.3m, a 15% increase compared to 2020 driven by
acquired assets on transactions. Finally, our Fixed Operating Expenses grew
17% compared to 2020 primarily due to higher corporate allocations.
Corporate and other
Our Corporate and Other segment includes unallocated operating expenses and
finance costs. Unallocated operating expenses were $16.0 million, a 25%
decrease compared to 2020 primarily driven by higher allocations to the two
business segments. Interest expense was $22.7 million, an 89% increase
compared to 2020 due to the issuance of $125 million of subordinated debt in
H2 2020.
Cash and investments
Our Cash and Investments at year-end 2021, excluding funds withheld, was $1.8
billion. We produced a book yield, which excludes net realised and unrealised
gains on fixed income assets, of 1.4%, a decrease of 20 bps compared to 2020
due to the higher weightings toward non-US dollar assets acquired in Legacy
transactions.
We maintain a 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, 97% were rated investment grade. After cash, which comprised 14%
of our portfolio, our largest allocations were to corporate bonds (43%),
government and municipal securities (24%), asset-backed securities (17%) and
equities (3%). We have extended duration in our portfolio to both better match
our expected liability cashflows and to capture additional investment return
as the yield curve has steepened; our interest rate duration was 3.2 years at
year-end 2021 compared to 1.8 years at year-end 2020.
During 2021, financial markets witnessed an increase in interest rates, with
much of the increase occurring in the 4(th) quarter of the year. As a result,
our investment portfolio experienced unrealised net investment losses of $18.4
million which are included in our IFRS results.
Capital and liquidity
Our preliminary Group Solvency ratio was at our target level of 150%, which
represents a decrease of 38 percentage points compared to year-end 2020. Our
adjusted debt to capital ratio, which provides for partial equity credit on
our subordinated debt, was 37%, an increase of 9 percentage points compared to
year end 2020 primarily due to the non-cash, pre-tax charge of ~$90 million.
We have received pre-emptive waivers of certain financial covenants from our
bank lenders until our Fundraise is complete in July 2022.
Randall & Quilter Investment Holdings Ltd.
Consolidated Income Statement
For the year ended 31 December 2021
2021 2020
Note $m $m $m $m
Gross written premiums 1,539.7 991.3
Written premiums ceded to reinsurers (1,463.5) (520.2)
Net written premiums 76.2 471.1
Net change in provision for unearned premiums (12.2) (4.8)
Earned premium, net of reinsurance 64.0 466.3
Earned fee income 6 31.8 18.5
Gross investment income 7 6.4 28.6
Other income 8 6.6 7.4
Total fee, investment and other income 44.8 54.5
Total income 108.8 520.8
Gross claims paid (485.9) (270.7)
Proceeds from commutations and reinsurers' share of gross claims paid 154.2 168.0
Claims paid, net of reinsurance (331.7) (102.7)
Net change in provisions for claims 205.8 (295.1)
Net claims provision increase (125.9) (397.8)
Operating expenses 9 (166.0) (143.4)
Result of operating activities before goodwill on bargain purchase (183.1) (20.4)
Goodwill on bargain purchase 29 49.7 84.2
Amortisation and impairment of intangible assets 15 (13.3) (14.2)
Share of profit of associates 11.2 1.7
Result of operating activities (135.5) 51.3
Finance costs 10 (26.5) (12.6)
(Loss)/profit before income taxes 11 (162.0) 38.7
Income tax credit/(charge) 12 34.6 (1.0)
(Loss)/profit for the year (127.4) 37.7
Attributable to:-
Shareholders of the parent (127.4) 37.8
Non-controlling interests - (0.1)
(127.4) 37.7
The accounting policies and accompanying notes are an integral part of the
Consolidated Financial Statements.
2021 2020
Earnings per share
Basic 13 (46.9)c 17.5c
Diluted 13 (46.9)c 14.2c
Randall & Quilter Investment Holdings Ltd.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2021
2021 2020
$m $m
Other Comprehensive Income:
Items that will not be reclassified to profit or loss:
Pension scheme actuarial gains/(losses) 3.1 (0.7)
Deferred tax on pension scheme actuarial (gains)/losses (0.2) 0.3
2.9 (0.4)
Items that may be subsequently reclassified to profit or loss:
Exchange (losses)/gains on consolidation (3.3) 12.6
Other comprehensive income (0.4) 12.2
(Loss)/profit for the year (127.4) 37.7
Total comprehensive income for the year (127.8) 49.9
Attributable to:
Shareholders of the parent (127.8) 50.0
Non-controlling interests - (0.1)
Total comprehensive income for the year (127.8) 49.9
The accounting policies and accompanying notes are an integral part of the
Consolidated Financial Statements.
Randall & Quilter Investment Holdings Ltd.
Consolidated Statement of Changes in Equity
For the year ended 31 December 2021
Notes Share Share premium Treasury shares Convertible debt Foreign currency translation reserve Retained earnings Sub- total Non-controlling interests Total
capital
$m $m $m $m $m $m $m $m $m
Year ended 31 December 2021
At beginning of year 6.2 200.9 (0.2) 80.0 (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 year - - - - - (127.4) (127.4) - (127.4)
Other comprehensive income
Exchange losses on consolidation - - - - (3.3) - (3.3) - (3.3)
Pension scheme actuarial gains - - - - - 3.1 3.1 - 3.1
Deferred tax on pension scheme actuarial gains - - - - - (0.2) (0.2) - (0.2)
Total other comprehensive income for the year - - - - (3.3) 2.9 (0.4) - (0.4)
Total comprehensive income for the year - - - (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 shares 25 - - - - - - - - -
Issue of convertible debt 1.4 85.9 - (87.2) - - 0.1 - 0.1
Purchase of shares - - - - - - - - -
Dividend 14 - (8.3) - - - - (8.3) - (8.3)
Non-controlling interest in subsidiary disposed - - - - - - - 0.5 0.5
At end of year 7.5 288.3 - - (15.7) 116.4 396.5 - 396.5
Notes Share Share premium Treasury shares Convertible debt Foreign currency translation reserve Retained earnings Sub- total Non-controlling interests Total
capital
$m $m $m $m $m $m $m $m $m
Year ended 31 December 2020
At beginning of year 5.4 178.3 - - (37.2) 230.1 376.6 0.6 377.2
Profit for the year - - - - - 37.8 37.8 - 37.8
Other comprehensive income
Exchange losses on consolidation - - - - 12.5 - 12.5 - 12.5
Pension scheme actuarial losses - - - - - (0.7) (0.7) - (0.7)
Deferred tax on pension scheme actuarial losses - - - - - 0.3 0.3 - 0.3
Total other comprehensive income for the year - - - - 12.5 (0.4) 12.1 - 12.1
Total comprehensive income for the year - - - - 12.5 37.4 49.9 - 49.9
Transactions with owners
Share based payments - 14.8 - - - - 14.8 - 14.8
Issue of shares 25 0.8 19.4 - - - - 20.2 - 20.2
Issue of convertible debt - - - 80.0 - - 80.0 - 80.0
Purchase of own shares - - (0.2) - - - (0.2) - (0.2)
Issue of distribution shares 11.6 (11.6) - - - - - - -
Cancellation of distribution shares 14 (11.6) - - - - - (11.6) - (11.6)
Non-controlling interest in subsidiary disposed of - - - - - - - (1.1) (1.1)
At end of period 6.2 200.9 (0.2) 80.0 (24.7) 267.5 529.7 (0.5) 529.2
The accounting policies and accompanying notes are an integral part of the
Consolidated Financial Statements.
Randall & Quilter Investment Holdings Ltd.
Consolidated Statement of Financial Position
As at 31 December 2021
Company Number 47341 Note 2021 2020
$m $m
Assets
Intangible assets 15 86.2 82.2
Investments in associates 18 46.2 45.4
Property, plant and equipment 16 2.1 2.1
Right of use assets 17 6.1 5.6
Investment properties 18a 1.8 1.8
Financial instruments
- Investments (fair value through profit and loss) 18b 1,511.3 1,171.5
- Deposits with ceding undertakings 4b 21.8 180.4
Reinsurers' share of insurance liabilities 23 2,105.6 1,180.6
Deferred tax assets 24 20.4 5.7
Current tax assets 24 3.6 -
Insurance and other receivables 19 1,096.3 689.6
Cash and cash equivalents 20 266.3 363.5
Total assets 5,167.7 3,728.4
Liabilities
Insurance contract provisions 23 3,207.5 2,402.8
Financial liabilities
- Amounts owed to credit institutions 22 395.9 330.2
- Lease liabilities 22 7.6 6.8
- Deposits received from reinsurers 22 3.0 2.9
Deferred tax liabilities 24 9.0 18.0
Insurance and other payables 21 1,140.1 426.0
Current tax liabilities 24 2.4 2.6
Pension scheme obligations 27 5.7 9.9
Total liabilities 4,771.2 3,199.2
Equity
Share capital 25 7.5 6.2
Share premium 25 288.3 200.9
Convertible debt 25 - 80.0
Treasury share reserve - (0.2)
Foreign currency translation reserve (15.7) (24.7)
Retained earnings 116.4 267.5
Attributable to equity holders of the parent 396.5 529.7
Non-controlling interests in subsidiary undertakings 30 - (0.5)
Total equity 396.5 529.2
Total liabilities and equity 5,167.7 3,728.4
The Consolidated Financial Statements were approved by the Board of Directors
on 12 June 2022 and were signed on its behalf by:
W L Spiegel T S Solomon
The accounting policies and accompanying notes are an integral part of the
Consolidated Financial Statements.
Randall & Quilter Investment Holdings Ltd.
Consolidated Cash Flow Statement
For the year ended 31 December 2021
Cash flows from operating activities 2021 2020
Note $m $m
(Loss)/profit for the year (127.4) 37.7
Tax included in consolidated income statement (34.6) 1.0
Finance costs 10 26.5 12.6
Depreciation and impairment 16 & 17 2.9 3.0
Share based payments 25 2.8 14.8
Share of profits of associates (11.2) (1.7)
Profit on divestment (2.6) (0.7)
Goodwill on bargain purchase 29 (49.7) (84.2)
Amortisation and impairment of intangible assets 15 13.3 14.2
Fair value loss/(gain) on financial assets 17.7 (5.6)
Loss on revaluation of investment property 18 - 0.2
Contributions to pension plan (1.1) (1.0)
Loss on net assets of pension schemes 0.1 0.3
Increase in receivables (409.5) (107.2)
Decrease/(increase) in deposits with ceding undertakings 158.7 (147.2)
Increase in payables 705.7 23.4
(Decrease)/increase in net insurance technical provisions (193.5) 299.8
Net cash from operating activities 98.1 59.4
Cash flows from investing activities
Purchase of property, plant and equipment 16 (0.7) (1.4)
Proceeds from sale of financial assets 100.8 100.3
Purchase of financial assets (397.6) (364.7)
Acquisition of subsidiary undertakings (offset by cash acquired) 46.7 29.3
Divestment (offset by cash disposed of) 3.5 (5.1)
Distributions from associate 10.3 -
Net cash used in investing activities (237.0) (241.6)
Cash flows from financing activities
Repayment of borrowings (42.0) (56.7)
Proceeds from new borrowing arrangements 121.7 186.3
Dividends paid (8.3) -
Interest and other finance costs paid 10 (26.5) (12.6)
Cancellation of shares 14 - (11.6)
Receipts from issue of shares - 19.9
Receipts from issue of convertible debt - 80.0
Purchase of treasury shares - (0.2)
Net cash from financing activities 44.9 205.1
Net increase in cash and cash equivalents (94.0) 22.9
Cash and cash equivalents at beginning of year 363.5 309.4
Exchange (losses)/gains on cash and cash equivalents (3.2) 31.2
Cash and cash equivalents at end of year 20 266.3 363.5
Share of Syndicates' cash restricted funds 50.7 36.4
Other funds 215.6 327.1
Cash and cash equivalents at end of year 266.3 363.5
The accounting policies and accompanying notes are an integral part of the
Consolidated Financial Statements.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2021
1.Corporate information
Randall & Quilter Investment Holdings Ltd. (the "Company") is a company
incorporated in Bermuda and listed on AIM, a sub-market of the London Stock
Exchange. The Company and its subsidiaries (together forming the "Group")
carry on business worldwide as owners and managers of insurance companies,
providing program capacity to managing general agents ("MGAs") and run-off
solutions to the non-life insurance market. The Consolidated Financial
Statements were approved by the Board of Directors on 12 June 2022.
2.Accounting policies
The principal accounting policies adopted in the preparation of these
Consolidated Financial Statements are set out below. These policies have
been consistently applied to all the periods presented, unless otherwise
stated.
a.Basis of preparation
The Consolidated Financial Statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS"), endorsed by the European
Union, International Financial Reporting Interpretations Committee
interpretations and with the Bermuda Companies Act 1981 (as amended).
The Consolidated Financial Statements have been prepared under the historical
cost convention, except that financial assets (including investment property),
financial liabilities (including derivative instruments) and purchased
reinsurance receivables are recorded at fair value through profit and loss.
All amounts are stated in US dollars and millions, unless otherwise stated.
The preparation of the Consolidated Financial Statements in conformity with
IFRS requires the use of estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the Consolidated Financial
Statements and the reported amounts of revenues and expenses during the year
(Note 3). Although these estimates are based on management's best knowledge
of the amount, event or actions, actual results may differ from these
estimates. The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to estimates are recognised in the year when the
revised estimate is made.
New and amended Standards adopted by the Group
In the current year, the Group has applied new IFRSs and amendments to
existing IFRSs issued by the IASB that are mandatory for an accounting period
that begins on or after 1 January 2021.
IFRS 16 Amendments, Leases COVID-19 Related Rent Concessions. Lessees are
provided with an exemption from assessing whether a COVID-19 related rent
concession is a lease modification. The Group has not applied this exemption
and the amendment has not had an impact on the Consolidated Financial
Statements.
IFRS 3 Amendments, Business Combinations. The amendment is aimed at resolving
the difficulties that arise when an entity determines whether it has acquired
a business or a group of assets. The amendments provide further clarity on
what constitutes an acquired business, and this clarification has not impacted
the Group's recognition of acquired business in the year and has not had an
impact on the Consolidated Financial Statements.
IFRS 9, IAS 39 and IFRS 7 Amendments, Interest Rate Benchmark Reform. The
amendments deal specifically with interest rate hedge accounting and is the
first phase of change relating to interest rate benchmark reform and the
replacement of LIBOR. The Group has not been impacted by these amendments for
hedge accounting but has reviewed internal and external contracts where LIBOR
has been the interest rate reference point.
IAS 1 and IAS 8 Amendments, Definition of Material. The amendments clarify the
definition of 'material' and align the definition used in the Conceptual
Framework and the standards themselves. Information is material if omitting,
misstating or obscuring it could reasonably be expected to influence decisions
that the primary users of general purpose financial statements make on the
basis of those financial statements, which provide financial information about
a specific reporting entity. The Financial Statements have been prepared in
accordance of this clarification.
New and amended Standards not yet adopted by the Group
A number of new standards and amendments adopted by the EU, as well as
standards and interpretations issued by the IASB but not yet adopted by the
EU, have not been applied in preparing the Consolidated Financial Statements.
The Group does not plan to adopt these standards early; instead, it will apply
them from their effective dates as determined by their dates of EU
endorsement. The Group continues to review the upcoming IFRS and other
accounting standards to determine their impact.
IFRS 9, Financial Instruments (IASB effective date 1 January 2018) has not
been applied under IFRS 4 Amendment option to defer until IFRS 17 comes into
effect on 1 January 2023.
IFRS 17, Insurance Contracts. (IASB effective date 1 January 2023).
Amendments to IFRS 3 Business Combinations, IAS 16 Property, Plant and
Equipment, IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
(IASB effective date 1 January 2022).
IAS 1 Presentation of Financial Statements Amendments, Classification of
Liabilities as Current or Non-current. (IASB effective date 1 January 2023).
IAS 8 Accounting Policies Amendments, Changes in Accounting Estimates and
Errors. (IASB effective date 1 January 2023).
Of the upcoming accounting standards and amendments, IFRS 9 and IFRS 17 will
result in major changes to accounting for insurance and investment
transactions and on the Company's annual reported results, whilst having no
effects on the fundamental economics of the insurance industry. Impact
analysis in respect of these and other accounting standards continues to be
monitored and project plans are being implemented to deliver the changes to
systems and accounting practices required to meet the effective date of 1
January 2023. A brief overview of these standards and the progress in
implementation is provided below:
IFRS 9, Financial instruments (IASB effective date 1 January 2018) has not
been applied under IFRS 4 Amendment option. IFRS 9 provides a reform of
accounting for financial instruments to supersede IAS 39 Financial
Instruments: Recognition and Measurement. Applying IFRS 9 Financial
Instruments with IFRS 4 Insurance Contracts contained an optional temporary
exemption from applying IFRS 9 for entities whose predominant activity is
issuing contracts within the scope of IFRS 4. The Group meets the
eligibility criteria and has taken advantage of this temporary exemption not
to apply this standard until the effective date of IFRS 17. Workstreams are
being developed to cater for the requirements of IFRS 9, ready for
implementation on 1 January 2023.
IFRS 9 requires all recognised financial assets that are within the scope of
IAS 39 Financial Instruments: Recognition and Measurement to be subsequently
measured at amortised cost or fair value. Under IFRS 9, financial assets that
are held within a business model whose objective is to collect the contractual
cash flows, and that have contractual cash flows that give rise on specified
dates to cash flows that are solely payments of principal and interest on the
principal outstanding are generally measured at amortised cost unless the
entity applies the fair value option. All other financial assets,
including equity investments are measured at their fair values at the end of
subsequent accounting periods. Under IFRS 9, for financial liabilities that
are designated as at fair value through profit or loss, the amount of change
in the fair value of the financial liability that is attributable to changes
in the credit risk of that liability is recognised in other comprehensive
income, unless the recognition of the effects of changes in the liability's
credit risk in other comprehensive income would create or increase an
accounting mismatch in profit or loss. Changes in the fair value
attributable to a financial liability's credit risk are not subsequently
reclassified to profit or loss.
IFRS 17 Insurance Contracts, published in May 2017, addresses recognition,
measurement, presentation and disclosure for insurance contracts. The
measurement approach is based on the following building blocks: (i) a
current, unbiased probability-weighted estimate of future cash flows expected
to arise as the insurer fulfils its contracts; (ii) the effect of the time
value of money; (iii) a risk adjustment that measures the effects of
uncertainty about the amount and timing of future cash flows; and (iv) a
contractual service margin which represents the unearned profit in a contract
(that is recognised in net earnings as the insurer fulfils its performance
obligations under the contracts). Estimates are required to be
re-measured at each reporting date or period end. In addition, a simplified
measurement approach is permitted for short-duration contracts in which the
coverage period is approximately one year or less. The standard is effective
for annual periods beginning on or after 1 January 2023. This new standard
introduces significant changes to the statutory reporting of insurance
entities that prepare financial statements according to IFRS, changing the
presentation and measurement of insurance contracts, including the effect of
technical reserves and reinsurance on the value of insurance contracts. The
effect of changes required to the Group's accounting policies as a result of
implementing the new standard is currently being considered but these
changes can be expected to, among other things, alter the timing of IFRS
profit recognition, costs and distributable reserves and impact the Group's
reported results of operations and financial position.
The Group also has the option to adopt US GAAP as permitted under the AIM
listing rules. The rationale to consider an alternative accounting regime is
primarily based on the cost of implementing certain new IFRS standards and the
impact on the Company's competitive position in each of its business lines.
During 2021, the Group continued to engage with external consultants to carry
out an operational gap analysis and implementation plan. A financial impact
assessment was carried out and a sub-ledger selection process finalised. The
Group has a roadmap in place to mobilise an implementation program which
includes the provision of technical training on the main interpretations of
the standard to all directors and relevant internal stakeholders, as well as
the development of the sub-ledger system in conjunction with an external
service provider and consultancy firm.
b.Selection of accounting policies
Judgement, estimates and assumptions are made by the Directors in selecting
each of the Group's accounting policies. The accounting policies are
selected by the Directors to present Consolidated Financial Statements based
on the most relevant information. In the case of certain accounting
policies, there are different accounting treatments that could be adopted,
each of which would be in compliance with IFRS and would have a significant
influence upon the basis on which the Consolidated Financial Statements are
presented.
In respect of financial instruments, the Group accounting policy is to
designate all financial assets as fair value through profit or loss, including
purchased reinsurance receivables.
c.Consolidation
The Consolidated Financial Statements incorporate the Financial Statements of
the Company, and entities controlled by the Company (its subsidiaries), for
the years ended 31 December 2021 and 2020. Control exists when the Group is
exposed to, or has the right to, variable returns from its involvement with
the entity and has the ability to affect those returns through its power over
the entity. In assessing control, the Group takes into consideration
potential voting rights that are currently exercisable. The acquisition date
is the date on which control is transferred to the acquirer. The financial
results of subsidiaries are included in the Consolidated Financial Statements
from the date that control commences until the date that control ceases.
Losses applicable to the non-controlling interests in a subsidiary are
allocated to the non-controlling interests even if doing so causes
non-controlling interests to have a deficit balance.
The Group uses the acquisition method of accounting to account for business
combinations. The cost of an acquisition is measured as the fair value of
the assets acquired, equity instruments issued and liabilities incurred or
assumed at the date of acquisition. Acquisition-related costs are charged to
the Consolidated Income Statement in the year in which they are incurred.
Certain Group subsidiaries underwrite as corporate members of Lloyd's on
Syndicates managed by Coverys Managing Agency Limited, Asta Managing Agency
Limited, Capita Managing Agency Limited and Vibe Syndicate Management
Limited. In view of the several and direct liability of underwriting members
at Lloyd's for the transactions of Syndicates in which they participate, only
attributable shares of transactions, assets and liabilities of those
Syndicates are included in the Consolidated Financial Statements. The Group
continues to conclude that it remains appropriate to consolidate only its
share of the result of these Syndicates. The Group is the sole provider of
capacity on Syndicate 1110 and Syndicate 5678, and these Consolidated
Financial Statements include 100% of the economic interest in these
Syndicates. For Syndicate 1991, the Group provides 0.04% of the capacity on
the 2018, 2019 and 2020 years of account. For Syndicate 2689, the Group
provides 0.07% of the capacity on the 2021 year of account. These
Consolidated Financial Statements include the Group's relevant share of the
result for those years and attributable assets and liabilities.
Associates are those entities in which the Group has power to exert influence
but which it does not control. Investments in associates are accounted for
using the equity method of accounting. Under this method the investments are
initially measured at cost. Thereafter the Group's share of post-acquisition
profits or losses are recognised in the Consolidated Income Statement and
adjusted against the cost of the investment included in the Consolidated
Statement of Financial Position.
When the Group's share of losses equals or exceeds the carrying amount of the
investment in the associate, the carrying amount is reduced to nil and
recognition for the losses is discontinued except to the extent that the Group
has incurred obligations in respect of the associate. Equity accounting is
discontinued when the Group no longer has significant influence over the
investment.
Inter-company transactions, balances and unrealised gains on transactions
between Group companies are eliminated in preparing the Consolidated Financial
Statements. Unrealised losses are also eliminated unless the transaction
provides evidence of impairment of the asset transferred. Where necessary,
amounts reported by subsidiaries have been adjusted to conform to the Group's
accounting policies. Non-controlling interests represent the portion of profit
or loss and net assets not held by the Group and are presented separately in
the Consolidated Income Statement and Consolidated Statement of Comprehensive
Income and within equity in the Consolidated Statement of Financial Position,
separately from the equity attributable to the shareholders of the parent.
Insurance broking cash, receivables and payables held by subsidiary companies
which act as intermediaries, other than any receivable for fees, commissions
and interest earned on a transaction, are not included in the Group's
Consolidated Statement of Financial Position as the subsidiaries act as agents
for the client in placing the insurable risks of their clients with insurers
and as such are not liable as principals for amounts arising from such
transactions.
d.Going concern
The Consolidated Financial Statements have been prepared on a going concern
basis, which is conditional on the raising of capital by end of July 2022. At
the date of signing these Consolidated Financial Statements, the Group has not
yet completed its raise, which requires shareholder approval. The Group has
received indicative orders from its shareholders to demonstrate that the
capital raise will generate sufficient funding to enable the Group to continue
as a going concern. Assuming the capital raise is completed by end July 2022,
the Group's financial position and forecasts for 2022 and 2023 demonstrate
that it has adequate cash resources to meet its liabilities as they fall due.
The Group has continued to make advances with its strategy, including the
continuation of Legacy Insurance deals and ongoing development of the Program
Management business.
Given these factors, the Directors have a reasonable expectation that the
Group will be able to continue in operational existence for the foreseeable
future. For the purposes of these Consolidated Financial Statements, this is
considered to be a minimum of 12 months from the date on which these financial
statements are signed.
The Group's operations have not been materially impacted by the COVID-19
pandemic and it has continued to operate effectively during the period.
e.Foreign currency translation
Functional and presentational currency
Items included in the Financial Statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates (the "functional currency"). The Consolidated Financial
Statements are presented in US dollars, which is the Group's presentational
currency.
The Group has changed functional and presentation currency from GBP to US
dollars with effect from 1 January 2021. The change in functional currency was
made to reflect the fact that US dollars has become the predominant currency
used in the Company, accounting for a significant part of the Group's cash
flow, cash flow management and financing. The change has been implemented with
prospective effect. The change of presentation currency is applied
retrospectively for comparative figures. Currency translation effects for the
comparative figures arising from the change to the new presentation currency
US dollars, are booked as translation differences within the equity statement.
Comparison figures in the Consolidated Statement of Comprehensive Income have
been re-presented to reflect the average currency rates of transactions in
foreign currencies for the period.
The different components of assets and liabilities in US dollars correspond to
the amount published in the prior year financial statements in GBP translated
at the USD/GBP closing rate applicable at the end of each reporting period.
As such, the change in presentation currency has not impacted the measurement
of assets, liabilities, equity, or any ratios between these components, such
as debt to equity ratios.
Transactions and balances
Transactions in foreign currencies are recorded at the functional currency
rate ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are retranslated at the functional currency
rate of exchange ruling at the end of the reporting period; the resulting
exchange gain or loss is recognised in the Consolidated Income Statement.
Non-monetary items recorded at historical cost in a foreign currency are
translated using the exchange rate as at the date of the initial transaction
and are not subsequently restated.
Group translation
The assets and liabilities of overseas subsidiaries, including associated
goodwill, held in functional currencies other than the Group's presentational
currency are translated at the exchange rate as at the period end date. Income
and expenses are translated at average rates for the period. All resulting
exchange differences are recognised in other comprehensive income and
accumulated in the foreign currency translation reserve in the Consolidated
Statement of Financial Position.
On the disposal of foreign operations, cumulative exchange differences
previously recognised in other comprehensive income are recognised in the
Consolidated Income Statement as part of the gain or loss on disposal.
f.Premiums
Gross written premiums represent premiums on business commencing in the
financial year together with adjustments to premiums written in previous
accounting periods and estimates for premiums from contracts entered into
during the course of the year. Gross written premiums are stated before
deduction of brokerage and commission but net of taxes and duties levied on
premiums.
Unearned premiums
A provision for unearned premiums represents that part of the gross written
premiums that is estimated will be earned in the following financial
periods. It is calculated on a time apportionment basis having regard, where
appropriate, to the incidence of risk. For After the Event policies written
by the Group, premiums remain unearned until the point at which the claims
exposures relating to these policies become crystallised.
Reinsurance premium costs are allocated to financial periods to reflect the
protection arranged in respect of the business written and earned.
Acquisition costs
Acquisition costs, which represent commission and other related direct
underwriting expenses, are deferred over the period in which the related
premiums are earned. Acquisition costs recognised during the period are
recorded in operating expenses in the Consolidated Income Statement.
g.Claims
These include the cost of claims and related expenses paid in the year,
together with changes in the provisions for outstanding claims, including
provisions for claims incurred but not reported and related expenses, together
with any other adjustments to claims from previous years. Where applicable,
deductions are made for salvage and other recoveries. These are shown as net
claims provisions (increase)/release in the Consolidated Income Statement.
h.Insurance contract provisions and reinsurers' share of insurance liabilities
Provisions are made in the insurance company subsidiaries and in the Lloyd's
Syndicates on which the Group participates for the full estimated costs of
claims notified but not settled, including claims handling costs, on the basis
of the best information available, taking account of inflation and latest
trends in court awards. The Directors of the subsidiaries, with the
assistance of run-off managers, independent actuaries and internal actuaries,
have established such provisions on the basis of their own investigations and
their best estimates of insurance payables, in accordance with accounting
standards. Legal advice is taken where appropriate. Deductions are made
for salvage and other recoveries as appropriate.
The provisions for claims incurred but not reported ("IBNR") have been based
on a number of factors including previous experience in claims and settlement
patterns, the nature and amount of business written, inflation and the latest
available information as regards specific and general industry experience and
trends.
A reinsurance asset (reinsurers' share of technical provisions) is recognised
to reflect the amount estimated to be recoverable under the reinsurance
contracts in respect of the outstanding claims reported and IBNR. The amount
recoverable from reinsurers is initially valued on the same basis as the
underlying claims provision. The amount recoverable is reduced when there is
an event arising after the initial recognition that provides objective
evidence that the Group may not receive all amounts due under the contract.
Neither the claims provisions nor the IBNR provisions have been discounted.
The uncertainties which are inherent in the process of estimating are such
that, in the normal course of events, unforeseen or unexpected future
developments may cause the ultimate cost of settling the outstanding
liabilities to differ materially from that estimated. Any differences
between provisions and subsequent settlements are recorded in the Consolidated
Income Statement in the year which they arise.
Having regard to the significant uncertainty inherent in the business of
insurance as explained in Note 3, and in light of the information available,
in the opinion of the Directors the provisions for outstanding claims and IBNR
in the Consolidated Financial Statements are fairly stated.
Provision for future claims handling costs
Provision for future run-off costs relating to the Group's run-off businesses
is made to the extent that the estimate of such costs exceeds the estimated
future investment income expected to be earned by those businesses.
Estimates are made for the anticipated costs of running off the business of
those insurance subsidiaries and the Group's participation in Syndicates which
have insurance businesses in run-off. Where insurance company subsidiaries
have businesses in run-off and underwrite new business, management estimates
the run-off costs and the future investment income relating to the run-off
business. Syndicates are treated as being in run-off for the Consolidated
Financial Statements where they have ceased writing new business and, in the
opinion of management, there is no current probable reinsurer available to
close the relevant syndicate year of account.
Changes in the estimates of such costs and future investment income are
reflected in the year in which the changes in estimates are made.
When assessing the amount of any provision to be made, the future investment
income and claims handling and all other costs of all the insurance company
subsidiaries' and syndicates' businesses in run-off are considered in
aggregate.
The uncertainty inherent in the process of estimating the period of run-off
and the pay-out pattern over that period, the anticipated run-off
administration costs to be incurred over that period and the level of
investment income to be received is such that in the normal course of events
unforeseen or unexpected future developments may cause the ultimate costs of
settling the outstanding liabilities to differ from that previously estimated.
Unexpired risks provision
Provisions for unexpired risks are made where the costs of outstanding claims,
related expense and deferred acquisition costs are expected to exceed the
unearned premium reserve carried forward at the end of the reporting period.
The provision for unexpired risks is calculated separately by reference to
classes of business which are managed together, after taking into account
relevant investment return.
i.Provisions
Provisions, other than insurance provisions, are recognised when the Group has
a present obligation (legal or constructive) as a result of a past event, it
is probable that the Group will be required to settle the obligation, and a
reliable estimate can be made of the amount of the obligation.
Provisions are measured at the present value of the expenditures expected to
be required to settle the obligation, using a pre-tax rate that reflects
current market assessments of the time value of money and the
risks specific to the obligation. The increase in the provision due to the
passage of time is recognised as an interest expense.
j.Structured settlements
Certain of the US insurance company subsidiaries have entered into structured
settlements whereby their liability has been settled by the purchase of
annuities from third party life insurance companies in favour of the
claimants. The subsidiary retains the credit risk in the unlikely event that
the life insurance company defaults on its obligations to pay the annuity
amounts. Provided that the life insurance company continues to meet the
annuity obligations, no further liability will fall on the insurance company
subsidiary. The amounts payable to claimants are recognised in
liabilities. The amount payable to claimants by the third-party life
insurance companies are also shown in liabilities as reducing the Group's
liability to nil.
In the opinion of the Directors, this treatment reflects the substance of the
transaction on the basis that any remaining liability of Group companies under
structured settlements will only arise upon the failure of the relevant
third-party life insurance companies and will be reduced by any available
reinsurance cover.
Should the Directors become aware of a claim arising from a policy holder that
a third-party life insurance company responsible for the payment of an annuity
under a structured settlement may not be in a position to meet its annuity
obligations in full, appropriate provision will be made for any such failure.
Disclosure of the position in relation to structured settlements is shown in
Note 21.
k.Segmental reporting
The Group's business segments are based on the Group's management and internal
reporting structures and represent the level at which financial information is
reported to the Board, being the chief operating decision maker as defined in
IFRS 8.
l.Financial instruments
Financial instruments are recognised in the Consolidated Statement of
Financial Position at such time that the Group becomes a party to the
contractual provisions of the financial instrument. A financial asset is
derecognised when the contractual rights to receive cash flows from the
financial assets expire, or where the financial assets have been transferred,
together with substantially all the risks and rewards of ownership.
Financial liabilities are derecognised if the Group's obligations specified in
the contract expire, are discharged or cancelled.
Financial assets
i) Acquisition
On acquisition of a financial asset, the Group is required under IFRS to
classify the asset into one of the following categories: 'financial assets at
fair value through profit or loss', 'loans and receivables held to maturity'
and 'available for sale'. The Group does not currently hold assets classified
as 'held to maturity' and 'available for sale'.
ii) Financial assets at fair value through profit and loss
All financial assets, other than cash, loans and receivables, are currently
designated as fair value through profit and loss upon initial recognition
because they are managed and their performance is evaluated on a fair value
basis. Information about these financial assets is provided internally on a
fair value basis to the Group's key management. The Group's investment
strategy is to invest and evaluate their performance with reference to their
fair values.
iii) Fair value measurement
When available, the Group measures the fair value of an instrument using
quoted prices in an active market for that instrument.
If a market for a financial instrument is not active, the Group establishes
fair value using a valuation technique. Valuation techniques include using
recent arm's length transactions between knowledgeable, willing parties (if
available) and reference to the current fair value of other instruments that
are substantially the same or discounted cash flow analyses.
Assets and long positions are measured at a bid price; liabilities and short
positions are measured at an asking price. Where the Group has positions with
offsetting risks, mid-market prices are used to measure the offsetting risk
positions and a bid or asking price adjustment is applied only to the net open
position as appropriate. Fair values reflect the credit risk of the instrument
and include adjustments to take account of the credit risk of the Group entity
and counterparty where appropriate. Fair value estimates obtained from models
are adjusted for any other factors, such as liquidity risk or model
uncertainties, to the extent that the Group believes a third-party market
participant would take them into account in pricing a transaction.
Upon initial recognition, attributable transaction costs relating to financial
instruments at fair value through profit or loss are recognised when incurred
in other operating expenses in the Consolidated Income Statement. Financial
assets at fair value through profit or loss are measured at fair value, and
changes therein are recognised in the Consolidated Income Statement. Net
changes in the fair value of financial assets at fair value through profit and
loss exclude interest and dividend income, as these items are accounted for
separately as set out in the investment income section below.
iv) Insurance receivables and payables
Insurance receivables and payables are recognised when due. These include
amounts due to and from agents, brokers and insurance contract holders.
Insurance receivables are classified as 'loans and receivables' as they are
non-derivative financial assets with fixed or determinable payments that are
not quoted on an active market. Insurance receivables are measured at
amortised cost less any provision for impairment. Insurance payables are
stated at amortised cost. Insurance receivables and payables are not
discounted.
v) Investment income
Investment income consists of dividends, interest, realised and unrealised
gains and losses and exchange gains and losses on financial assets at fair
value through profit and loss. The realised gains or losses on disposal
of an investment are the difference between the proceeds and the original cost
of the investment. Unrealised investment gains and losses represent the
difference between the carrying amount at the reporting date, and the carrying
amount at the previous period end or the purchase value during the period.
Financial liabilities
Borrowings
Borrowings are initially recorded at fair value less transaction costs
incurred. Subsequently borrowings are stated at amortised cost and interest
is recognised in the Consolidated Income Statement over the period of the
borrowings.
Senior and subordinated debt
Randall & Quilter Investment Holdings Ltd. and Group subsidiaries have
issued senior and subordinated debt. At Group level this is treated as a
financial liability and interest charges are recognised in the Consolidated
Income Statement.
Derivative financial instruments
Derivatives are initially recognised at fair value on the date on which a
derivative contract is entered into and are subsequently re-measured at their
fair value. The best evidence of fair value of a derivative at initial
recognition is the transaction price. The method of recognising the resulting
fair value gains or losses depends on whether the derivative is designated as
a hedging instrument and, if so, the nature of the item being hedged. Fair
values are obtained from quoted market prices in active markets, recent market
transactions, and valuation techniques which include discounted cash flow
models. All derivatives are carried as assets when fair value is positive
and as liabilities when fair value is negative.
The Group has not designated any derivatives as fair value hedges, cash flow
hedges or net investment hedges.
m. Property, plant and equipment
All assets included within property, plant and equipment ("PPE") are carried
at historical cost less depreciation and assessed for impairment. Depreciation
is calculated to write down the cost less estimated residual value of motor
vehicles, office equipment, IT equipment, freehold property and leasehold
improvements by the straight-line method over their expected useful lives.
The principal rates per annum used for this purpose are:
%
Motor vehicles 25
Office equipment 8 - 50
IT equipment 20 - 25
Freehold property 2
Leasehold improvements Term of lease
The gain or loss arising on the disposal of an item of PPE is determined as
the difference between the sales proceeds and the carrying amount of the asset
and is recognised in the Consolidated Income Statement.
n.Leases
The Group recognises a right-of-use asset and a lease liability at the lease
commencement date. The right-of-use asset is initially measured at cost, which
comprises the initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, plus any initial direct
costs incurred and an estimate of costs to refurbish the underlying asset,
less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line
method from the commencement date to the earlier of the end of the useful life
of the right-of-use asset or the end of the lease term. The estimated useful
lives of right-of-use assets are determined on the same basis as those of
Property, plant and equipment. In addition, the right-of-use asset is reviewed
for impairment losses, if any, and adjusted for certain re-measurements of the
lease liability.
The Group has elected not to recognise right-of-use assets and lease
liabilities for short-term leases that have a lease term of 12 months or less
and leases of low-value assets, including IT equipment. The Group recognises
the lease payments associated with these leases as an expense to the
Consolidated Income Statement on a straight-line basis over the lease term.
Right-of-use assets are disclosed under note 17.
o.Goodwill
The Group uses the acquisition method in accounting for acquisitions. The
difference between the cost of acquisition and the fair value of the Group's
share of the identifiable net assets acquired is capitalised and recorded as
goodwill. If the cost of an acquisition is less than the fair value of the
net assets of the subsidiary acquired the difference is recognised directly in
the Consolidated Income Statement as goodwill on bargain purchase.
Goodwill acquired in a business combination is initially measured at cost,
being the excess of the fair value of the consideration paid for the business
combination over the Group's interest in the net fair value of the
identifiable assets, liabilities and contingent liabilities. Following
initial recognition, goodwill is measured at cost less any accumulated
impairment losses. Goodwill is tested for impairment at the cash generating
unit level, as shown in Note 15, on a biannual basis or if events or changes
in circumstances indicate that the carrying amount may be impaired.
p.Other intangible assets
Intangible assets, other than goodwill, that are acquired separately are
stated at cost less accumulated amortisation and impairment.
Intangible assets acquired in a business combination, and recognised
separately from goodwill, are recognised initially at fair value at the
acquisition date. This includes intangible assets calculated by measuring the
difference between the discounted and undiscounted fair value of net technical
provisions acquired.
Amortisation is charged to operating expenses in the Consolidated Income
Statement as follows:
Purchased IT software 3 - 5 years, on a straight-line basis
On acquisition of insurance companies in run-off Estimated pattern of run-off
On acquisitions - other Useful life, which may be indefinite
Assets that are subject to amortisation are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not
be recoverable. An impairment loss is recognised in the Consolidated Income
Statement to reduce the carrying amount to the recoverable amount.
US insurance authorisation licences
US state insurance authorisation licences acquired in business combinations
are recognised initially at their fair value. The asset is not amortised, as
the Directors consider that economic benefits will accrue to the Group over an
indefinite period due to the long-term stability of the US insurance market.
The licences are tested annually for impairment. This assumption is reviewed
annually to determine whether the asset continues to have an indefinite life.
Costs of acquiring new licences are recognised in the year of acquisition.
Rights to customer contractual relationships
Costs directly attributable to securing the intangible rights to customer
contractual relationships are recognised as an intangible asset where they can
be identified separately and measured reliably, and it is probable that they
will be recovered by directly related future profits. These costs are
amortised on a straight-line basis over the useful economic life which is
deemed to be 15 years and are carried at cost less accumulated amortisation
and impairment losses.
q.Employee Benefits
The Group makes contributions to defined contribution schemes and a defined
benefit scheme.
The pension cost in respect of the defined contribution schemes represents the
amounts payable by the Group for the year. The funds of the schemes are
administered by trustees and are separate from the Group. The Group's
liability is limited to the amount of the contributions.
The defined benefit scheme is funded by contributions from a subsidiary
company and its assets are held in a separate Trustee administered fund.
Pension scheme assets are measured at market value, and liabilities are
measured using the projected unit method and discounted at the current rate of
return on high quality corporate bonds of equivalent term and currency to the
liability.
Current service cost, net interest income or cost and any
curtailments/settlements are charged to the Consolidated Income Statement.
The present value of the defined benefit obligation at the end of the
reporting period less the fair value of plan assets is recognised and
disclosed separately as a net pension liability in the Consolidated Statement
of Financial Position. Surpluses are only recognised up to the aggregate of
any cumulative unrecognised net actuarial gains and past service costs, and
the present value of any economic benefits available in the form of any
refunds or reductions in future contributions.
Subject to the restrictions relating to the recognition of a pension surplus,
all actuarial gains and losses are recognised in full in other comprehensive
income in the period in which they occur.
r.Cash and cash equivalents
For the purposes of the Consolidated Cash Flow Statement, cash and cash
equivalents comprise cash at bank and other short-term highly liquid
investments with a maturity of three months or less from the date of
acquisition, and bank overdrafts which are repayable on demand.
s.Finance costs
Finance costs comprise interest payable and are recognised in the Consolidated
Income Statement in line with the effective interest rate on liabilities.
t.Operating expenses
Operating expenses are accounted for in the Consolidated Income Statement in
the period to which they relate.
Pre-contract costs
Directly attributable pre-contract costs are recognised as an asset when it is
virtually certain that a contract will be obtained and the contract is
expected to result in future net cash inflows in excess of any amounts
recognised as an asset.
Pre-contract costs are charged to the Consolidated Income Statement over the
shorter of the life of the contract or five years.
Onerous contracts
Onerous contract provisions are provided for in circumstances where the Group
has a present legal or constructive obligation as a result of past events to
provide services, the costs of which exceed future income. The costs of
providing the services are projected based on management's assessment of the
contract.
Arrangement fees
Arrangement fees in relation to loan facilities are deducted from the relevant
financial liability and amortised over the period of the facility.
u.Other income
Other income is stated excluding any applicable value added tax and includes
the following items:
Management fees
Management fees are from non-Group customers and are recognised when the right
to such fees is established through a contract and to the extent that the
services concerned have been performed. Billing follows the supply of
service and the consideration is unconditional because only the passage of
time is required before the payment is due.
Purchased reinsurance receivables
The Group accounts for these financial assets at fair value through profit and
loss. Fair value is defined as the price at which an orderly transaction would
take place between market participants at the reporting date and is therefore
an estimate which requires the use of judgement.
Earned fee income
Earned fee income comprises brokerage and profit commission arising from the
placement of insurance contracts. Brokerage is recognised at the inception
date of the policy, or the date of contractual entitlement, if later.
Alterations in brokerage arising from premium adjustments are taken into
account as and when such adjustments are notified. To the extent that the
Group is contractually obliged to provide services after this date, a suitable
proportion of income is deferred and recognised over the life of the relevant
contracts to ensure that revenue appropriately reflects the cost of fulfilling
those obligations. Profit commission is recognised when the right to such
profit commission is established through a contract but only to the extent
that a reliable estimate of the amount due can be made. Such estimates are
made on a prudent basis that reflects the level of uncertainty involved.
v.Share based payments
The Group issues equity settled payments to certain of its employees.
The cost of equity settled transactions with employees is measured by
reference to the fair value at the date at which they are granted and is
recognised as an expense on a straight-line basis over the vesting period.
The fair value is measured using the binomial option pricing method, taking
into account the terms and conditions on which the awards were granted.
w.Current and deferred income tax
Tax on the profit or loss for the year comprises current and deferred tax.
Tax is recognised in the Consolidated Income Statement except to the extent
that it relates to items recognised in other comprehensive income, in which
case it is recognised in the Consolidated Statement of Comprehensive Income.
The current income tax charge is calculated on the basis of the tax laws
enacted or substantively enacted at the end of the reporting period in the
countries where the Company's subsidiaries and associates operate and generate
taxable income.
Deferred tax liabilities are provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the Consolidated Financial
Statements. However, if the deferred tax arises from initial recognition of
an asset or liability in a transaction other than a business combination and
which, at the time of the transaction, affects neither accounting, nor taxable
profit or loss, it is not provided for.
Deferred tax assets are recognised to the extent that it is probable that
future taxable profits will be available against which these temporary
differences can be utilised.
Deferred income tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets against current tax liabilities
and when the deferred income tax assets and liabilities relate to income taxes
levied by the same taxation authority on either the taxable entity or
different taxable entities where there is an intention to settle the balances
on a net basis. Deferred tax assets and liabilities are determined using tax
rates that have been enacted or substantively enacted by the period end date
and are expected to apply when the related deferred tax asset is realised, or
the deferred tax liability is settled.
x.Share capital
Ordinary shares and Preference A and B shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options
are shown in equity as a deduction, net of tax, from the proceeds.
y.Distributions
Distributions payable to the Company's shareholders are recognised as a
liability in the Consolidated Financial Statements in the period in which the
distributions are declared and approved.
3.Estimation techniques, uncertainties and contingencies
Estimates and judgements are continually evaluated, and are based on
historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
Significant uncertainty in technical provisions
Significant uncertainty exists as to the accuracy of the insurance contract
provisions and the reinsurers' share of insurance liabilities established in
the insurance company subsidiaries and the Lloyd's Syndicates on which the
Group participates as shown in the Consolidated Statement of Financial
Position. The ultimate costs of claims and the amounts ultimately recovered
from reinsurers could vary materially from the amounts established at the year
end.
In the event that further information were to become available to the
Directors of an insurance company subsidiary which gave rise to material
additional liabilities, the going concern basis might no longer be appropriate
for that company and adjustments would have to be made to reduce the value of
its assets to their realisable amount, and to provide for any further
liabilities which might arise in that subsidiary. The Group bears no
financial responsibility for any liabilities or obligations of any insurance
company subsidiary in run-off, except as disclosed. Should any insurance
company subsidiary cease to be able to continue as a going concern in the
light of further information becoming available, any loss to the Group would
thus be restricted to the book value of their investment in and amounts due
from that subsidiary and any guarantee liability that may arise.
Claims provisions
The Consolidated Financial Statements include provisions for all outstanding
claims and IBNR, for related reinsurance recoveries and for all costs expected
to be incurred to run-off its liabilities.
The insurance contract provisions including IBNR are based upon actuarial and
other studies of the ultimate cost of liabilities including exposure based and
statistical estimation techniques. There are significant uncertainties
inherent in the estimation of each insurance company subsidiary's and Lloyd's
Syndicate's insurance liabilities and reinsurance recoveries. There are many
assumptions and estimation techniques that may be applied in assessing the
amount of those provisions which individually could have a material impact on
the amounts of liabilities, related reinsurance assets and reported
shareholders' equity funds. Actual experience will often vary from these
assumptions, and any consequential adjustments to amounts previously reported
will be reflected in the results of the year in which they are identified.
Potential adjustments arising in the future could, if adverse in the
aggregate, exceed the amount of shareholders' equity funds of an insurance
company subsidiary.
Independent external actuaries are contracted to provide a Statement of
Actuarial Opinion for the Lloyd's Syndicates on which Group participates. This
statement confirms that, in the opinion of the actuary, the booked reserves
are greater than or equal to their view of best estimate.
In the case of the Group's larger insurance companies, independent external
actuaries provide a view of best estimate reserves and confirm that the held
reserves are within their range of reasonable estimates.
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 many years after policies have been written. Furthermore,
much of the business written by these companies is reinsurance and
retrocession of other insurance companies' business, which lengthens the
settlement period.
Significant delays occur in the notification and settlement of certain claims
and a substantial measure of experience and judgement is involved in making
the assumptions necessary for assessing outstanding liabilities, the ultimate
cost of which cannot be known with certainty at the period end date. The
gross insurance contract provisions and related reinsurers' share of insurance
liabilities are estimated on the basis of information currently available.
Provisions are calculated gross of any reinsurance recoveries. A separate
estimate is made of the amounts that will be recoverable from reinsurers based
upon the gross provisions and having due regard to collectability.
The insurance contract provisions include significant amounts in respect of
notified and potential IBNR claims for long-tail liabilities. The settlement
of most of these claims is not expected to occur for many years, and there is
significant uncertainty as to the timing of such settlements and the amounts
at which they will be settled.
While many claims are clearly covered under policy wordings and are paid
quickly, many other claims are subject to significant disputes, for example
over the terms of a policy and the amount of the claim. The provisions for
disputed claims are based on the view of the Directors of each insurance
company subsidiary as to the expected outcomes of such disputes. Claim types
impacted by such disputes include asbestos, pollution and certain health
hazards and retrocessional reinsurance claims.
Uncertainty is further increased because of the potential for unforeseen
changes in the legal, judicial, technological or social environments, which
may increase or decrease the cost, frequency or reporting of claims, and
because of the potential for new sources or types of claim to emerge.
Asbestos, pollution and health hazard claims
The estimation of the provisions for the ultimate cost of claims for asbestos,
pollution, health hazard and other US liability insurance is subject to a
range of uncertainties that is generally greater than those encountered for
other classes of insurance business. As a result, it is not possible to
determine the future development of asbestos, pollution, health hazard and
other US liability insurance with the same degree of reliability as with other
types of claims. Consequently, traditional techniques for estimating claims
provisions cannot wholly be relied upon. The Group employs further
techniques which utilise, where practical, the exposure to these losses by
contract to determine the claims provisions.
Insurance claims handling expenses
The provision for the cost of handling and settling outstanding claims to
extinction and all other costs of managing the run-off is based on an analysis
of the expected costs to be incurred in run-off activities, incorporating
expected savings from the reduction of transaction volumes over time.
The period of the run-off may be between 5 and 50 years depending upon the
nature of the liabilities within each insurance company subsidiary.
Ultimately, the period of run-off is dependent on the timing and settlement of
claims and the collection of reinsurance recoveries; consequently, similar
uncertainties apply to the assessment of the provision for such costs.
Reinsurance recoveries
Reinsurance recoveries are included in respect of claims outstanding
(including IBNR claims) and claims paid after making provision for
irrecoverable amounts. The reinsurance recoveries on IBNR claims are estimated
based on the recovery rate experienced on notified and paid claims for each
class of business.
The insurance company subsidiaries are exposed to disputes on contracts with
their reinsurers and the possibility of default by reinsurers. In
establishing the provision for non-recovery of reinsurance balances, the
Directors of each insurance company subsidiary consider the financial strength
of each reinsurer, its ability to settle their liabilities as they fall due,
the history of past settlements with the reinsurer, and the Group's own
reserving standards and have regard to legal advice regarding the merits of
any dispute.
Recognition and de-recognition of assets and liabilities in run-off
In the course of the Group's business of managing the run-off of insurers and
brokers, accounting records are initially recognised in the form provided by
previous management. As part of managing run-off the Group carries out
extensive enquiries to clarify the assets and liabilities of the run-off and
to obtain all available and relevant information. Those enquiries may lead
the Group to identify and record additional assets and liabilities relating to
that run-off, or to conclude that previously recognised assets and liabilities
should be increased or no longer exist and should be de-recognised. Where
decisions to de-recognise liabilities are supported by an absence of relevant
information there may remain a remote possibility that a third party may
subsequently provide evidence of its entitlement to such de-recognised
liabilities which may lead to a transfer of economic benefit to settle such
entitlement. The right of a third party to such a settlement will be
recognised in the accounting period in which the position is clarified.
Defined benefit pension scheme
The pension assets and post retirement liabilities are calculated in
accordance with IAS 19. The assets, liabilities and Consolidated Income
Statement charge or credit, calculated in accordance with IAS 19, are
sensitive to the assumptions made, including inflation, interest rate,
investment return and mortality. IAS 19 compares, at a given date, the
current market value of a pension fund's assets with its long-term
liabilities, which are calculated using a discount rate in line with yields on
high quality bonds of suitable duration and currency. As such, the financial
position of a pension fund on this basis is highly sensitive to changes in
bond rates and equity markets.
Litigation, mediation and arbitration
The Group in common with the insurance industry in general, is subject to
litigation, mediation and arbitration, and regulatory, governmental and other
sectorial inquiries in the normal course of its business. The Directors do
not believe that, in the aggregate, current litigation, governmental or
sectorial inquiries and pending or threatened litigation or dispute is likely
to have a material impact on the Group's financial position. However, if the
outcome of any individual dispute differs substantially from expectation,
there could be a material impact on the Group's profit or loss, financial
position or cash flows in the year in which that impact is recognised.
Changes in foreign exchange rates
The Group's Consolidated Financial Statements are prepared in US dollars.
Therefore, fluctuations in exchange rates used to translate other currencies,
particularly the Euro and sterling, into US dollars will impact the reported
Consolidated Statement of Financial Position, results of operations and cash
flows from year to year. These fluctuations in exchange rates will also
impact the US dollar value of the Group's investments and the return on its
investments. Income and expenses are translated into US dollars at average
exchange rates. Monetary assets and liabilities are translated at the
closing exchange rates at the period end date.
Assessment of impairment of intangible assets
Goodwill and US insurance authorisation licences are deemed to have an
indefinite life as they are expected to have a value in use that does not
erode or become obsolete over the course of time. Consequently, they are not
amortised but tested for impairment on a biannual basis or if events or
changes in circumstances indicate that the carrying amount may be
impaired.
The impairment tests involve evaluating the recoverable amount of the Group's
cash generating units and comparing them to the relevant carrying amounts.
The recoverable amount of each cash generating unit is determined based on
cash flow projections. These cash flow projections are based on the
financial budgets approved by management covering a five-year period.
Management also considers the current net asset value and earnings of each
cash generating unit for impairment.
Provisions
Estimates are based on reports provided by recognised specialists as well as
the Group's own internal review. Liabilities may not be settled for many years
and significant judgement is involved in making an assessment of these
liabilities, the period over which they will be settled and, where
appropriate, the discount rate to be applied to assess the present value of
the amounts to be settled.
4.Management of insurance and financial risks
The Group's activities expose it to a variety of insurance and financial
risks. The Board is responsible for managing the Group's exposure to these
risks and, where possible, for introducing controls and procedures that
mitigate the effects of the exposure to risk.
The Group has a Risk and Compliance Committee which is a formal Committee of
the Board. The Committee has responsibility for maintaining the effectiveness
of the Group's Risk Management Framework, systems of internal control, risk
policies and procedures and adherence to risk appetite.
The following describes the Group's exposure to the more significant risks and
the steps management have taken to mitigate their impact from a quantitative
and qualitative perspective.
a. Investment risks (including market risk and interest rate
risk)
The Group has established a dedicated Investment Committee which has taken
over responsibility from the former Group Capital and Investment Committee for
setting and recommending to the Board a strategy for the management of the
Group's investment assets owned or managed by companies within the Group
within an acceptable level of risk as set out in the Group's Risk Management
Framework. The investment of the Group's financial assets, except certain
deposits with ceding undertakings, is managed by external investment managers,
appointed by the Investment Committee. The Investment Committee is
responsible for setting the policy to be followed by the investment
managers. The investment strategy strives to mitigate the impact of interest
rate fluctuation and credit risks and to provide appropriate liquidity, in
addition to monitoring and managing foreign exchange exposures.
The Investment Committee is also responsible for keeping under review the
investment control procedures, monitoring and amending (where appropriate) the
investment policies and oversight of loans and guarantees between Group
companies.
The main objective of the investment policy is to maximise risk adjusted
returns whilst adhering to regulatory and group investment guidelines together
with seeking to optimise the matching of asset and liability cashflows.
The investment allocation (including surplus cash) at 31 December 2021 and
2020 is shown below:
2021 2020
$m $m
Government and government agencies 330.9 311.8
Corporate bonds 1,055.9 778.2
Equities 11.9 7.5
Cash based investment funds 112.6 74.0
Cash and cash equivalents 266.3 363.5
1,777.6 1,535.0
% %
Government and government agencies 18.6 20.3
Corporate bonds 59.4 50.7
Equities 0.7 0.5
Cash based investment funds 2.4 4.8
Cash and cash equivalents 18.9 23.7
100.0 100.0
Corporate bonds include asset backed mortgage obligations totalling $45.1m
(2020: $41.2m).
Based on invested assets at external managers of $1,511.3m as at 31 December
2021 (2020: $1,171.5m), a 1 percentage increase/decrease in market values
would result in an increase/decrease in the profit before income taxes for the
year to 31 December 2021 of $15.1m (2020: $11.7m).
(i) Pricing risk
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.
Level 1 Level 2 Level 3 Total
$m
$m
2021 $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
Cash based investment funds - 112.6 - 112.6
Purchased reinsurance receivables (Note 19) - - 6.6 6.6
Total financial assets measured at fair value 1,341.5 169.8 6.6 1,517.9
Level 1 Level 2 Level $m Total
$m
2020 $m $m
Government and government agencies 311.3 0.5 - 311.8
Corporate bonds 742.4 35.8 - 778.2
Equities 7.2 0.3 - 7.5
Cash based investment funds - 74.0 - 74.0
Purchased reinsurance receivables (Note 19) - - 6.4 6.4
Total financial assets measured at fair value 1,060.9 110.6 6.4 1,177.9
The following table shows the movement on Level 3 assets measured at fair
value:
2021 2020
$m $m
Opening balance 6.4 8.1
Total net gains recognised in the Consolidated Income Statement 0.2 0.5
Disposals - (2.0)
Exchange adjustments - (0.2)
Closing balance 6.6 6.4
Level 3 investments (purchased reinsurance receivables) have been valued using
detailed models outlining the anticipated timing and amounts of future
receipts. The net gains recognised in the Consolidated Income Statement in
other income for the year amounted to $0.2m (2020: $0.5m). The Group
purchased no further reinsurance receivables in 2021 (2020: nil). Short term
delays in the anticipated receipt of these investments will not have a
material impact on their valuation.
There were no transfers between Level 1 and Level 2 investments during the
year under review.
The following shows the maturity dates and interest rate ranges of the Group's
debt securities:
(ii) Liquidity risk
As at 31 December 2021
Maturity date or contractual re-pricing date
Total Less than one year After one After two years but After three years but More than five years
year but less than less than
less than three years five years
two years
$m $m $m $m $m $m
Debt securities 1,499.4 258.0 176.2 172.6 235.4 657.2
Interest rate ranges (coupon-rates)
Less than one year After one After two years but After three years but More than five years
year but less than less than
less than three years five years
two years
% % % % %
Debt securities 0.13 - 8.25 0 - 8.25 0.10 - 7.38 0.13 - 9.75 0.01 - 9.25
As at 31 December 2020
Maturity date or contractual re-pricing date
Total Less than one year After one After two years but After three years but More than five years
year but less than less than
less than three years five years
two years
$m $m $m $m $m $m
Debt securities 1,164.0 226.6 206.4 167.3 162.8 400.9
Interest rate ranges (coupon-rates)
Less than one year After one After two years but After three years but More than five years
year but less than less than
less than three years five years
two years
% % % % %
Debt securities 0.13-10.00 0.13-8.25 0.10-7.88 0.14-9.75 0.37-9.00
The Investment Committee determines, implements and reviews investment
strategies for each entity and for the Group as a whole, having appropriate
regard for the duration characteristics of the liabilities supported by the
investments and the specific liquidity requirements for each entity.
Liquidity risk is also monitored by the Group's financial planning and
treasury function's established cash flow and liquidity management processes.
(iii) Interest rate risk
Fixed income investments represent a significant proportion of the Group's
assets and the Investment Committee continually monitors investment strategy
to minimise the risk of a fall in the portfolio's market value.
The fair value of the Group's investment portfolio of debt and fixed income
securities is normally inversely correlated to movements in market interest
rates. If market interest rates rise, the fair value of the Group's debt and
fixed income investments would tend to fall and vice versa.
Debt and fixed income assets are predominantly invested in high-quality
corporate, government and asset-backed bonds. The investments typically have
relatively short durations and terms to maturity.
The Group is exposed to interest rate risk within the Group's financial
liabilities. This exposure lies predominately with amounts owed to credit
institutions and debentures secured over the assets of the Company and its
subsidiaries.
b.Credit risk
Credit risk arises where counterparties fail to meet their financial
obligations as they fall due. The most significant area where it arises for
the Group is where reinsurers fail to meet their obligations in full as they
fall due. In addition, the Group is exposed to the risk of disputes on
individual claims presented to its reinsurers or in relation to the contracts
entered into with its reinsurers.
The Group guideline is for the reinsurers of program management to meet a
minimum of the AM Best A credit rating or otherwise fully collateralise the
obligation, in order to mitigate counterparty credit risk.
The ratings used in the below analysis are based upon the published rating of
Standard & Poor's or other recognised ratings agency.
As at 31 December 2021
A rated B rated Less than B Other * Exposures of less than $200k Total
$m $m $m $m $m $m
Deposits with ceding undertakings 16.8 0.6 - 4.0 0.4 21.8
Reinsurers' share of insurance liabilities 1,301.3 50.3 - 729.1 24.9 2,105.6
Receivables arising out of reinsurance contracts 367.5 14.2 - 87.8 7.0 476.5
As at 31 December 2020
A rated B rated Less than B Other * Exposures of less than $200k Total
$m $m $m $m $m $m
Deposits with ceding undertakings 130.3 9.1 - 40.4 0.6 180.4
Reinsurers' share of insurance liabilities 852.6 59.6 - 264.4 4.0 1,180.6
Receivables arising out of reinsurance contracts 191.2 13.4 - 59.3 0.9 264.8
* Other includes reinsurers who currently have no credit rating, but for which
the Group endeavours to obtain collateral.
The reinsurers' share of insurance liabilities is based upon a best estimate
given the profile of the insurance provisions outstanding and the related
IBNR. Receivables arising out of reinsurance contracts are included in
insurance and other receivables in the Consolidated Statement of Financial
Position.
The average credit period of receivables arising out of reinsurance contracts
is as follows:
As at 31 December 2021 0-6 months% 6-12 months% 12-24 months% > 24 months
%
Percentage of receivables 93.2 1.2 1.6 4.0
As at 31 December 2020 0-6 months% 6-12 months% 12-24 months% > 24 months%
Percentage of receivables 50.7 8.8 11.0 29.5
Part of the Group's business consists of acquiring debts or companies with
debts, which are normally past due. Any further analysis of these debts is
not meaningful. The Directors monitor these debts closely and make
appropriate provision for impairment.
Financial assets past due but not impaired
As at Neither past due nor impaired Past due Past due more than 90 days Assets that have been impaired $m Carrying value in the balance sheet
31 December 2021 $m 1-90 days $m
$m $m
Deposits with ceding undertakings 19.0 - - 2.8 21.8
Reinsurers' share of insurance liabilities 2,011.2 94.4 2,105.6
Receivables arising out of reinsurance contracts 419.5 - - 57.0 476.5
Financial assets past due but not impaired
As at Neither past due nor impaired Past due Past due more than 90 days Assets that have been impaired $m Carrying value in the balance sheet
31 December 2020 $m 1-90 days $m
$m $m
Deposits with ceding undertakings 180.2 - - 0.2 180.4
Reinsurers' share of insurance liabilities 1,071.1 109.5 1,180.6
Receivables arising out of reinsurance contracts 120.4 0.3 0.3 143.8 264.8
The Directors believe the amounts past due but not impaired, or with no
provisions provided, are recoverable in full. Where no provisions have been
made, the Directors believe that there are no merits for a provision to be
made and amounts are recoverable in full. Where there are merits for a
provision then such provisions are made.
Credit risk is managed by committees established by the Group, Capita Managing
Agency Limited ("Capita"), Vibe Syndicate Management Limited ("Vibe"), Asta
Managing Agency Limited ("Asta") and Coverys Managing Agency Limited
("Coverys"). Capita, Vibe, Asta and Coverys are the Lloyd's Managing Agents
which manage the Syndicates on which the Group participates. Capita, Vibe,
Asta and Coverys have established Syndicate Management Committees in relation
to each managed syndicate and the Group has representation on each of these
committees with the exception of the S1991 and S2689 Committees on which the
Group only has a nominal participation. The committees are responsible for
establishing minimum security levels for all reinsurance purchases by the
managed Syndicates by reference to appropriate rating agencies, for agreeing
maximum concentration levels for individual reinsurers and intermediaries, and
for dealing with any other issue relating to reinsurance assets.
The Group Board had a Group Reinsurance Asset Committee, chaired by a
Non-Executive Director, which met quarterly. Its function was to monitor and
report on the Group's Syndicate and non-Syndicate reinsurance assets and,
where necessary, recommend courses of action to the Group to protect the
asset. The committee was disbanded at the end of 2021 and from 2022 onwards
reinsurance assets will be overseen by the Group Risk and Compliance and Audit
committees, with some responsibilities now residing with management.
There are also a number of Key Risk Indicators pertaining to reinsurance
security and concentration which have been developed under the auspices of the
Group Risk and Compliance Committee and the Capita, Vibe, Asta and Coverys
Risk and Capital Committees, which monitor adherence to predefined risk
appetite and tolerance levels.
c.Currency risk
Currency risk is the risk that the fair value of future cash flows of a
financial instrument will fluctuate because of changes in foreign exchange
rates.
The Group's principal transactions are carried out in US dollars and its
exposure to foreign exchange risk arises primarily with respect to Sterling
and Euros.
The Group's main objective in managing currency risk is to mitigate exposure
to fluctuations in foreign exchange rates. There have been no material
changes in trading currencies during the year under review. The Group
manages this risk by way of matching assets and liabilities by individual
entity. Asset and liability matching is monitored by the Group's financial
planning and treasury functions' established cash flow and liquidity
management processes.
The Group's financial assets are primarily denominated in the same currencies
as its insurance and investment contract liabilities. This mitigates the
foreign currency exchange rate risk for the overseas operations. Thus, the
main foreign exchange risk arises from assets and liabilities denominated in
currencies other than those in which insurance and investment contract
liabilities are expected to be settled. The currency risk is effectively
managed by the Group through derivative financial instruments. Forward
currency contracts are used to eliminate the currency exposure on individual
foreign transactions. The Group will not enter into these forward contracts
until a firm commitment is in place.
The table below summarises the Group's principal assets and liabilities by
major currencies:
31 December 2021 Sterling US dollar Euro Total
$m $m $m $m
Intangible assets 12.5 73.7 - 86.2
Reinsurers' share of insurance liabilities 1,156.5 895.3 53.8 2,105.6
Financial instruments 811.9 697.3 71.8 1,581.0
Insurance receivables 301.4 476.0 1.7 779.1
Cash and cash equivalents 132.9 124.6 8.8 266.3
Insurance liabilities and insurance payables (1,929.9) (2,071.4) (70.1) (4,071.4)
Deferred tax and pension scheme obligations 3.9 (6.0) (0.2) (2.3)
Trade and other (payables)/receivables (453.0) 151.4 (46.4) (348.0)
Total 36.2 340.9 19.4 396.5
31 December 2020 Sterling US dollar Euro Total
$m $m $m $m
Intangible assets 36.2 45.8 0.2 82.2
Reinsurers' share of insurance liabilities 715.7 439.0 25.9 1,180.6
Financial instruments 279.4 1,094.2 25.4 1,399.0
Insurance receivables 294.4 158.7 1.2 454.3
Cash and cash equivalents 180.6 181.5 1.4 363.5
Insurance liabilities and insurance payables (1,431.6) (1,187.8) (53.3) (2,672.7)
Deferred tax and pension scheme obligations (4.1) (23.7) (0.1) (27.9)
Trade and other (payables)/receivables (89.8) (150.3) (9.7) (249.8)
Total (19.2) 557.4 (9.0) 529.2
The analysis that follows is performed for reasonably possible movements in
key variables with all other variables held constant, showing the impact on
profit before tax and equity due to changes in the fair value of currency
sensitive monetary assets and liabilities including insurance contract claim
liabilities. The correlation of variables will have a significant effect in
determining the ultimate impact on market risk, but to demonstrate the impact
due to changes in variables, variables had to be changed on an individual
basis. It should be noted that movements in these variables are non-linear.
31 December 2021 31 December 2020
Currency Changes in variables Impact on profit Impact on equity* Impact on profit Impact on equity*
$m $m $m $m
Euro weakening 10% (3.1) (5.9) 3.0 (0.2)
Sterling weakening 10% (4.8) (27.4) (14.4) (43.7)
Euro strengthening 10% 3.8 7.3 (2.4) 0.2
Sterling strengthening 10% 5.8 33.5 17.6 53.4
* Impact on equity reflects adjustments for tax, where applicable.
d. Capital management
The Group's objectives with respect to capital sufficiency are to maintain
capital at a level that provides a suitable margin over that deemed by the
Group's regulators and supervisors as providing an acceptable level of
policyholder protection, whilst remaining economically viable. The Group is
regulated in Bermuda by the Bermuda Monetary Authority ('BMA'). The BMA
assesses the capital and solvency adequacy of the Group and requires that
sufficient capital is in place to meet the Bermuda Solvency Capital
Requirement ('BSCR'). The BSCR generates a risk-based capital measure by
applying capital factors to capital and solvency return elements, including
investments and other assets, premiums and reserves, operational risk, and
insurer-specific catastrophe exposure measures, in order to establish an
overall measure of capital and surplus for statutory solvency purposes.
The Group maintains a capital level that provides an adequate margin over the
Group's solvency capital requirements whilst maintaining local capital which
meets or exceeds the relevant local minima including, where appropriate, those
relating to maintenance of external credit ratings. This is monitored by way
of a capital sufficiency assessment by the Group Risk and Compliance
Committee.
e.Insurance risk
(i) Program management business
The Group underwrites live business (which is largely reinsured) through a
network of MGAs. This program management business is underwritten in the US by
Accredited Surety and Casualty Inc. ("ASC") and Accredited Speciality
Insurance Company ("ASI"), and in Europe by Accredited Insurance (Europe)
Limited ("AIEL"). Each of these insurance companies are rated A- by AM Best.
The Group is exposed to the risk of its net retention increasing due to
fluctuations in the timing, frequency and severity of insured events.
(ii) Syndicate participations
The Group participates on Syndicates shown below:
Syndicate Year of account Syndicate Capacity Group participation Open / closed
£m £m
2689 2022 71.6 0.1 Open
1991 2020 110.0 - Open
1991 2019 126.8 0.1 Open
1991 2018 126.8 0.1 Open
1110 2020 3.0 3.0 Open
1110 2019 3.0 3.0 Open
1110* 2017 280.0 280.0 Open
5678 2019 122.8 122.8 Closed
5678 2018 114.1 114.1 Closed
* Syndicate 1110 2017 year of account benefits from reinsurance arrangements
in place with New York Marine and General Insurance Company, which protects
the Group from any adverse net claims development.
Syndicates 1110, 1991 and 5678 and 2689 are classified by Lloyd's as run-off
Syndicates and their capacity shown above is reflective of this status.
Syndicate 1110 is the Group's platform for consolidating legacy transactions
at Lloyd's. The capacity of run-off Syndicates does not represent the level of
risk these are able to take on, but is a nominal level set by Lloyd's; they
are able to receive portfolios of risk greater than this nominal capacity.
The Group is exposed to the risk of its Syndicate participation exposures
increasing due to fluctuations in the timing, frequency and severity of
insured events.
(iii) Underwriting risk
Underwriting risk is the primary source of risk in the Group's program
management operations and is reflected in the scope and depth of the risk
appetite and monitoring frameworks implemented in those entities. Individual
operating entities are responsible for establishing a framework for the
acceptance and monitoring of underwriting risk including appropriate
consideration of potential individual and aggregate occurrence exposures,
adequacy of reinsurance coverage and potential geographical and demographic
concentrations of risk exposure.
In the event that potential risk concentrations are identified across
operating entities, appropriate monitoring is developed to manage the overall
Group exposure.
(iv) Reserving risk
Reserving risk represents a significant risk to the Group in terms of both
driving required capital levels and the threat to volatility of earnings.
Reserving risk is managed through the application of an appropriate reserving
approach to both live and run-off portfolios and the performance of extensive
due diligence on new run-off portfolios and acquisitions prior to acceptance.
Reserving exercises undertaken by the in-house actuarial team are supplemented
with both scheduled and ad hoc reviews conducted by external actuaries.
Reserving risk is also mitigated through the use of reinsurance on live
underwriting portfolios and through assuming the inuring reinsurance treaties
in place in respect of acquired run-off acquisitions/portfolios.
Claims development information is disclosed below in order to illustrate the
effect of the uncertainty in the estimation of future claims settlements by
the Group. The tables compare the ultimate claims estimates with the
payments made to date. Details are presented on an aggregate basis and show
the movements on a gross and net basis, and separately identify the effect of
the various acquisitions made by the Group since 1 January 2018. The
analysis of claims development in the Group's run-off insurance entities is as
follows:
Gross Group Entities Entities Entities Entities
entities at acquired by acquired by acquired by acquired by
1 January the Group the Group the Group the Group
2018 during 2018 during 2019 during 2020 during 2021
$m $m $m $m $m
Gross claims at:
1 January/acquisition 522.8 22.5 374.6 938.0 521.5
First year movement (67.6) (10.1) (173.1) 9.2 (10.8)
Second year movement (71.3) (6.0) 30.5 (131.4) -
Third year movement 148.1 2.7 13.0 - -
Fourth year movement (112.5) (2.9) - - -
Gross provision at 31 December 2021 419.5 6.2 245.0 815.8 510.7
Gross claims at:
1 January/acquisition 522.8 22.5 374.6 938.0 521.5
Exchange adjustments 31.3 (8.2) (13.4) 9.3 (0.6)
Payments (196.3) (8.6) (185.3) (135.1) (10.3)
Gross provision at 31 December 2021 (419.5) (6.2) (245.0) (815.8) (510.7)
Deficit to date (61.7) (0.5) (69.1) (3.6) (0.1)
Net Group Entities Entities Entities Entities
entities at acquired by acquired by acquired by acquired by
1 January the Group the Group the Group the Group
2018 during 2018 during 2019 during 2020 during 2021
$m $m $m $m $m
Net claims at :
1 January/acquisition 350.5 21.5 351.6 642.1 109.8
First year movement (51.1) (10.1) (159.9) (6.6) (10.8)
Second year movement (44.7) (5.7) 18.4 (106.7) -
Third year movement 84.9 2.6 15.0 - -
Fourth year movement (155.7) (2.1) - - -
Net provision at 31 December 2021 183.9 6.2 225.1 528.8 99.0
Net claims at:
1 January/acquisition 350.5 21.5 351.6 642.1 109.8
Exchange adjustments (5.5) (8.8) (18.6) 16.1 (0.6)
Payments (186.7) (7.7) (177.7) (119.9) (10.3)
Net position at 31 December 2021 (183.9) (6.2) (225.1) (528.8) (99.0)
(Deficit)/surplus to date (25.6) (1.2) (69.8) 9.5 (0.1)
The above figures include the Group's participation on Lloyd's Syndicates
treated as being in run-off.
Foreign exchange movements shown above are offset by comparable foreign
exchange movements in cash and investments held to meet insurance liabilities.
Additional information regarding movements in claims reserves are disclosed in
note 23.
5.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. For these financials the reporting segments have been realigned to
reflect the Group's core operating businesses. The reportable segments have
been identified as follows:-
•Program Management - delegates underwriting authority to 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 costs and
interest expense on debt
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 (vi) 20.6 (5.7) (35.9) (21.0)
Unearned program fee income (vii) (13.2)
Net intangibles (viii) 2.3
Net unrealised and realised gains/(losses) (18.4)
Non-core and exceptional items (ix) (111.7)
Profit Before Tax (162.0)
Segment assets 1,039.6 4,113.3 14.8 5,167.7
Segment liabilities 864.1 3,292.2 614.9 4,771.2
Segmental results for the year ended 31 December 2020
Note Program Management Legacy Insurance Corporate / Other Total
$m $m $m $m
Underwriting income (i) (3.1) 103.6 - 100.5
Fee income (ii) 24.1 - - 24.1
Investment income (iii) 2.6 16.8 1.4 20.8
Gross Operating Income (iv) 23.6 120.4 1.4 145.4
Fixed operating expenses (v) (20.3) (71.4) (21.1) (112.8)
Interest expense - - (12.0) (12.0)
Pre-Tax Operating Profit (vi) 3.3 49.0 (31.7) 20.6
Unearned program fee income (vii) (4.0)
Net intangibles (viii) 19.9
Net unrealised and realised gains/(losses) 6.8
Non-core and exceptional items (ix) (4.6)
Profit Before Tax 38.7
Segment assets 909.3 2,632.6 186.5 3,728.4
Segment liabilities 853.7 2,021.0 324.5 3,199.2
Our KPIs measure the 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 on fixed income and lease-based assets, foreign currency
translation reserves, non-core expenses and exceptional items. While our
underlying businesses performed well in 2021, our Group operating results were
negatively impacted by reserve development and a non-cash impairment of a
structured reinsurance contract that was previously recognised as an asset.
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 from
insurance policies already bound (written), regardless of the amount of
premium earned in the financial period, and earnings from minority stakes in
MGAs.
(iii) Investment income represents income arising on the
investment portfolio excluding net realised and unrealised investment gains or
losses on fixed income and lease-based 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 is a measure of how the Group's
core businesses performed adjusted for unearned program fee income (vii),
intangibles created in Legacy acquisitions and net realised and unrealised
investment gains on fixed income and lease-based assets.
(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) Non-core and exceptional items comprises the results of
entities which are considered non-core and one-off or exceptional P&L
items.
No income from any one client included within the fee income generated more
than 10% of the total external income.
Geographical analysis
As at 31 December 2021
UK North Europe Total
America
$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
Revenue from external customers 7.9 59.6 41.3 108.8
Revenue from external customers represents the Group's total consolidated
income, after elimination of internal revenue. This has reduced in 2021 from
2020 due the Group ceding qualifying Legacy Insurance revenue to a third-party
legacy sidecar.
As at 31 December 2020
UK North Europe Total
America
$m $m $m $m
Gross assets 1,302.6 1,936.1 867.2 4,105.9
Intercompany eliminations (116.4) (197.2) (63.9) (377.5)
Segment assets 1,186.2 1,738.9 803.3 3,728.4
Gross liabilities 1,083.7 1,737.1 756.0 3,576.8
Intercompany eliminations (155.4) (213.5) (8.6) (377.5)
Segment liabilities 928.3 1,523.6 747.4 3,199.3
Revenue from external customers 160.2 291.9 68.7 520.8
6. Earned fee income
Written fee income for Program Management represents the fee income from
insurance policies written in the period. Earned fee income adjusts written
fee income to reflect the portion of written free income to be earned in the
following financial periods and to recognise the written fee income written in
prior financial periods to be earned in this financial period.
2021 2020
$m $m
Written fee income 45.0 22.5
Unearned fee income (13.2) (4.0)
Earned fee income 31.8 18.5
7.Gross investment income
2021 2020
$m $m
Investment income (excluding realised and unrealised gains and losses) 24.1 23.0
Realised net gains/(losses) on financial assets 3.8 (4.5)
Unrealised (losses)/gains on financial assets (21.5) 10.1
Investment income 6.4 28.6
8.Other income
2021 2020
$m $m
Income from contracts with customers
Management fees 3.0 4.3
Income from other sources
Insurance commissions 0.7 2.6
Gain on sale of subsidiary 2.6 -
Interest expense on pension scheme deficit (0.1) (0.2)
Rental income from investment properties 0.2 0.2
Purchased reinsurance receivables 0.2 0.5
6.6 7.4
Income from contracts with customers is derived from the supply of insurance
and administration related management services to third parties. The Group
derives this income from the transfer of services over time.
9.Operating expenses
2021 2020
$m $m
Expenses of insurance company subsidiaries 58.6 53.0
Expenses of Syndicate participations 24.8 7.4
Employee benefits 59.3 59.7
Other operating expenses 23.3 23.3
166.0 143.4
The expenses of insurance company subsidiaries represent external expenses
borne by subsidiaries of the Group; intragroup charges are removed on
consolidation.
Operating expenses have increased as a result of the organic and acquisitive
growth of the Group's Program Management and Legacy Insurance (including
Syndicate participations) segments.
Auditor remuneration
2021 2020
$m $m
Fees payable to the Group's auditors for the audit of the parent company 0.3 0.2
and its Consolidated Financial Statements
Fees payable for the audit of the Group's subsidiaries by:
- Group auditors 0.9 0.8
- Other auditors 0.8 1.2
Other services under legislative requirements 0.2 0.2
Total 2.2 2.4
The above include the Group's share of the audit fee payable for Syndicate
audits.
10.Finance costs
2021 2020
$m $m
Bank loan and overdraft interest 11.1 3.2
Interest on lease liabilities 0.3 0.2
Subordinated debt interest 15.1 9.2
26.5 12.6
Finance costs have increased in 2021 as a result of the increase in average
drawn Group Bank facility compared to 2020, as well as subordinated debt
interest associated with the $125,000k notes issued in December 2020.
11. Profit before income taxes
Profit before income taxes is stated after charging:
2021 2020
$m $m
Employee benefits (Note 26) 59.3 59.7
Legacy acquisition costs (including aborted transactions) 4.3 4.5
Depreciation and impairment of fixed assets and right-of-use assets (Notes 16 2.9 3.0
& 17)
Short term and low value lease rental expenditure 0.1 0.1
Amortisation of pre contract costs 1.6 1.0
Amortisation and impairment of intangibles (Note 15) 13.3 14.2
12.Income tax charge
a.Analysis of charge in the year
2021 2020
$m $m
Current tax
Current year - -
Adjustments in respect of prior periods 0.3 (2.0)
Foreign tax (7.7) 5.9
(7.4) 3.9
Deferred tax
Current year (27.2) (4.8)
Adjustments in respect of prior periods - 1.9
Income tax (credit)/charge for the year (34.6) 1.0
b.Factors affecting tax charge for the year
The tax assessed differs from the standard rate of corporation tax in the
United Kingdom of 19%. The differences are explained below:
2021 2020
$m $m
(Loss)/profit before income taxes (162.0) 38.8
(Loss)/profit on ordinary activities at the standard rate of corporation tax (30.8) 7.4
in the UK of 19.00% (2020: 19.00%)
Income not taxable for tax purposes (24.1) (26.9)
Expenses not deductible for tax purposes 6.3 3.2
Differences in taxation treatment (1.8) -
Unrelieved tax losses carried forward 20.0 20.0
Utilisation of brought forward losses (0.7) (0.2)
Foreign tax (7.7) 5.9
Tax rate differential 3.9 (8.3)
Adjustments in respect of previous years 0.3 (0.1)
Income tax charge/(credit) for the year (34.6) 1.0
c.Factors that may affect future tax charges
In addition to the recognised deferred tax asset, the Group has other trading
losses of approximately $366.4m (2020: $269.9m) in various Group companies
available to be carried forward against future trading profits of those
companies. The recovery of these losses is uncertain and no deferred tax
asset has been provided in respect of these losses. Should it become
possible to offset these losses against taxable profits in future years, the
Group tax charge in those years will be reduced accordingly.
The Group has available capital losses of $37.9m (2020: $35.3m).
In the Finance Bill 2021, it was announced that the main rate of UK
corporation tax would increase to 25% from April 2023.
13.Earnings and net assets per share
a. Basic earnings per share
Basic earnings per share is calculated by dividing the earnings attributable
to ordinary shareholders by the weighted average number of ordinary shares
outstanding during the year.
Reconciliations of the earnings and weighted average number of shares used in
the calculations are set out below:
2021 2020
$m $m
(Loss)/profit for the year attributable to ordinary shareholders (127.4) 37.8
No. No.
000's 000's
Shares in issue throughout the year 224,284 200,827
Weighted average number of ordinary shares issued in year 47,327 15,199
Weighted average number of ordinary shares 271,611 216,026
Basic earnings per ordinary share (46.9)c 17.5c
b. Diluted earnings per share
Diluted earnings per share is calculated by adjusting the weighted average
number of ordinary shares for conversion of all potentially dilutive ordinary
shares. The Group's earnings per share is diluted by the effects of
outstanding share options.
Reconciliations of the earnings and weighted average number of shares used in
the calculations are set out below:
2021 2020 $m
$m
(Loss)/profit for the year attributable to ordinary shareholders (127.4) 37.8
No. No.
000's 000's
Weighted average number of ordinary shares in issue in the year 271,611 216,026
Dilution effect of convertible shares - 49,772
271,611 265,798
Diluted earnings per ordinary share (46.9)c 14.2c
c.Net asset value per share
2021 2020
$m $m
Net assets attributable to equity shareholders as at 31 December 396.5 529.7
No. No.
000's 000's
Ordinary shares in issue as at 31 December 275,211 224,395
Less: shares held in treasury - (112)
275,211 224,283
Net asset value per ordinary share 144.0c 236.2c
d.Diluted net asset value per share
2021 2020
$m $m
Net assets attributable to equity shareholders as at 31 December 396.5 529.7
No. No.
000's 000's
Ordinary shares in issue as at 31 December 275,211 224,395
Less: shares held in treasury - (112)
Dilution effect of convertible shares - 49,772
275,211 274,055
Diluted net asset value per ordinary share 144.0c 193.3c
14.Distributions
The amounts recognised as distributions to equity holders in the year are:
2021 2020 $m
$m
Dividend 8.3 -
Distribution on cancellation of AD shares - 11.6
Total distributions to shareholders 8.3 11.6
15.Intangible assets
US State licences & customer contracts Arising on acquisition Goodwill Other Total
$m $m $m $m $m
Cost
As at 1 January 2020 8.3 57.5 25.0 0.9 91.7
Exchange adjustments - 2.3 0.1 - 2.4
Acquisition of subsidiaries - 34.1 - - 34.1
Disposals (3.3) (6.1) - - (9.4)
As at 31 December 2020 5.0 87.8 25.1 0.9 118.8
Exchange adjustments - (1.2) (0.2) - (1.4)
Acquisition of subsidiaries - 14.6 3.4 - 18.0
Additions - 0.4 - - 0.4
Disposals - - - (0.7) (0.7)
As at 31 December 2021 5.0 101.6 28.3 0.2 135.1
Amortisation/Impairment
As at 1 January 2020 - 7.9 23.0 0.5 31.4
Exchange adjustments - 0.3 0.1 - 0.4
Charge for the year 3.3 9.9 0.9 0.1 14.2
Disposals (3.3) (6.1) - - (9.4)
As at 31 December 2020 - 12.0 24.0 0.6 36.6
Exchange adjustments - (0.5) - - (0.5)
Charge for the year - 12.7 0.5 0.1 13.3
Disposals - - - (0.5) (0.5)
As at 31 December 2021 - 24.2 24.5 0.2 48.9
Carrying amount
As at 31 December 2021 5.0 77.4 3.8 - 86.2
As at 31 December 2020 5.0 75.8 1.1 0.3 82.2
Goodwill acquired through business combinations has been allocated to the
Legacy insurance business segment, which is also an operating and reportable
segment, for impairment testing.
Intangible assets arising on acquisition are calculated by measuring the
difference between the discounted and undiscounted fair value of net technical
provisions acquired. These intangible assets are amortised over the estimated
pattern of run-off of the net technical provisions.
The recoverable amount is determined based on a value in use calculation using
cash flow projections from financial budgets approved by senior management.
Key assumptions used in value in use calculations
The calculation of value in use is most sensitive to the following
assumptions:-
• Discount rates, which represent the current market assessment of
the risks specific to each cash generating unit, regarding the time value of
money and individual risks of the underlying assets which have not been
incorporated in the cash flow estimates. The pre-tax discount rate applied to
the cash flow projections is 10.0% (2020: 10.0%). The discount rate
calculation is based on the specific circumstances of the Group and its
operating segments and derived from its weighted average cost of capital
("WACC") with uplift for expected increases in interest rates. The WACC takes
into account both debt and equity. The cost of equity is derived from the
expected investment return.
• Growth rate used to extrapolate cash flows beyond the budget
period is based on published industry standards. Cash flows beyond the
four-year period are extrapolated using a 10% growth rate (2020: 10.0%).
The Directors believe that no reasonably foreseeable change in any of the
above key assumptions would require an impairment of the carrying amount of
goodwill.
16.Property, plant and equipment
Computer equipment Office equipment Leasehold improvements Total
$m $m $m $m
Cost
As at 1 January 2020 1.6 1.5 1.6 4.7
Exchange adjustments (0.1) - (0.1) (0.2)
Additions 0.1 1.1 0.2 1.4
Disposals (0.3) (0.3) (0.1) (0.7)
As at 31 December 2020 1.3 2.3 1.6 5.2
Exchange adjustments - - - -
Additions 0.1 - 0.6 0.7
Disposals (0.1) (0.4) - (0.5)
As at 31 December 2021 1.3 1.9 2.2 5.4
Depreciation
As at 1 January 2020 1.4 1.1 0.9 3.4
Exchange adjustments (0.1) - (0.1) (0.2)
Charge for the year 0.2 0.2 0.2 0.6
Disposals (0.3) (0.3) (0.1) (0.7)
As at 31 December 2020 1.2 1.0 0.9 3.1
Exchange adjustments (0.1) - - (0.1)
Charge for the year 0.2 0.3 0.2 0.7
Disposals - (0.4) - (0.4)
As at 31 December 2021 1.3 0.9 1.1 3.3
Carrying amount
As at 31 December 2021 - 1.0 1.1 2.1
As at 31 December 2020 0.1 1.3 0.7 2.1
As at 31 December 2021, the Group had no significant capital commitments
(2020: none). The depreciation charge for the year is included in operating
expenses.
17. Right-of-use assets
Property Office Total
equipment
$m $m $m
Position recognised at 1 January 2020 4.2 - 4.2
Depreciation charge for the year (2.3) (0.1) (2.4)
Additions in the year 3.5 0.2 3.7
Exchange adjustment 0.1 - 0.1
As at 31 December 2020 5.5 0.1 5.6
Depreciation charge for the year (2.1) (0.1) (2.2)
Additions in the year 2.7 - 2.7
As at 31 December 2021 6.1 - 6.1
The cost of leases with a rental period of less than 12 months or with a
contract value of less than £4,000 was $0.1m for the year (2020: $0.1m) and
is reflected within expenses in the Consolidated Income Statement.
18.Investment properties and financial assets
2021 2020
$m $m
a. Investment properties
As at 1 January 1.8 1.9
Decrease in fair value during the year - (0.1)
As at 31 December 1.8 1.8
The investment properties are measured at fair value derived from the
valuation work performed at the balance sheet date by independent property
appraisers.
Rental income from the investment properties for the year was $0.2m (2020:
$0.2m) and is included in Other Income within the Consolidated Income
Statement.
b. Financial instruments
Financial investment assets at fair value through profit or loss (designated
at initial recognition)
2021 2020
$m $m
Equities 11.9 7.5
Debt and fixed interest securities 1,386.8 1,090.0
Cash based investment funds 112.6 74.0
1,511.3 1,171.5
Included in the above amounts are $126.6m (2020: $52.1m) pledged as part of
the Funds at Lloyd's in support of the Group's underwriting activities.
Lloyd's has the right to apply these monies in the event the corporate member
fails to meet its obligations. These monies are not available to meet the
Group's own working capital requirements and can only be released with Lloyd's
permission. Also included in the above amounts are $95.6m (2020: $133.2m) of
funds withheld as collateral for certain of the Group's reinsurance contracts.
c. Shares in subsidiary and associate undertakings
The Company had interests in the following subsidiaries and associates at 31
December 2021:
% of ordinary shares held via:
Country of incorporation/ registration The Company Subsidiary and associate undertakings Overall effective % of share capital held
Name of subsidiary/associate
Distinguished Re Ltd Barbados - 100 100
Oleum Insurance Company Limited Barbados - 100 100
R&Q Bermuda services Limited Bermuda - 100 100
R&Q Re (Bermuda) Limited Bermuda - 100 100
RQLM Limited Bermuda 100 - 100
Sandell Holdings Ltd. Bermuda - 100 100
Tradesman Program Managers, LLC USA - 40 40
R&Q Re (Cayman) Ltd. Cayman Island - 100 100
R&Q Capital No. 1 Limited England and Wales - 100 100
R&Q Capital No. 6 Limited England and Wales - 100 100
R&Q Capital No. 7 Limited England and Wales - 100 100
R&Q Capital No. 8 Limited England and Wales - 100 100
R&Q Central Services Limited England and Wales - 100 100
R&Q Delta Company Limited England and Wales - 100 100
R&Q Eta Company Limited England and Wales - 100 100
R&Q Gamma Company Limited England and Wales - 100 100
Inceptum Insurance Company Limited England and Wales - 100 100
R&Q Insurance Services Limited England and Wales - 100 100
R&Q MGA Limited England and Wales - 100 100
R&Q Munro MA Limited England and Wales - 100 100
R&Q Munro Services Company Limited England and Wales - 100 100
R&Q Oast Limited England and Wales - 100 100
R&Q Overseas Holdings Limited England and Wales - 100 100
R&Q Reinsurance Company (UK) Limited England and Wales - 100 100
R&Quiem Financial Services Limited England and Wales - 100 100
Randall & Quilter Captive Holdings Limited England and Wales - 100 100
Randall & Quilter II Holdings Limited England and Wales - 100 100
Randall & Quilter IS Holdings Limited England and Wales - 100 100
Randall & Quilter Underwriting Management Holdings Limited England and Wales - 100 100
RQIH Limited England and Wales 100 - 100
The World Marine & General Insurance Company PLC England and Wales - 100 100
Vibe Services Management Limited England and Wales - 100 100
Vibe Syndicate Management Limited England and Wales - 100 100
La Licorne Compagnie de Reassurances SA France - 100 100
Capstan Insurance Company Limited Guernsey - 100 100
R&Q Ireland Claims Services Limited # Ireland - 100 100
R&Q Ireland Company Limited by Guarantee # Ireland - 100 100
R&Q Theta Designated Activity Company Ireland - 100 100
Hickson Insurance Limited Isle of Man - 100 100
Pender Mutual Insurance Company Limited Isle of Man - 100 100
R&Q Insurance Management (IOM) Limited Isle of Man - 100 100
Accredited Insurance (Europe) Limited { Malta - 100 100
R&Q Malta Holdings Limited Malta - 100 100
Accredited Bond Agencies Inc. USA - 100 100
Accredited America Insurance Holding Corporation USA - 100 100
Accredited Specialty Insurance Company USA - 100 100
Accredited Surety and Casualty Company, Inc. USA - 100 100
CMAL LLC } USA - - -
Excess and Treaty Management Corporation USA - 100 100
GLOBAL Reinsurance Corporation of America USA - 100 100
GLOBAL U.S. Holdings Incorporated USA - 100 100
Grafton US Holdings Inc. USA - 100 100
ICDC Ltd USA - 100 100
National Legacy Insurance Company USA - 100 100
R&Q Healthcare Interests LLC USA - 100 100
R&Q Reinsurance Company USA - 100 100
R&Q Services Holding Inc USA - 100 100
R&Q Solutions LLC USA - 100 100
Randall & Quilter America Holdings Inc USA - 100 100
Randall & Quilter Healthcare Holdings Inc. USA - 100 100
Randall & Quilter PS Holdings Inc USA - 100 100
Risk Transfer Underwriting Inc. USA - 100 80
Transport Insurance Company USA - 100 100
# has a November year end due to Irish Law Society connection.
{ Has a UK and an Italian Branch
} Membership interest held by R&Q Capital No.1 Limited
19. Insurance and other receivables
2021 2020
$m $m
Receivables arising from direct insurance operations 302.6 189.5
Receivables arising from reinsurance operations 476.5 264.8
Insurance receivables 779.1 454.3
Trade receivables/ Receivables arising from contracts with customers 3.2 3.1
Other receivables 134.3 131.1
Purchased reinsurance receivables 6.6 6.4
Prepayments and accrued income 173.1 94.7
317.2 235.3
Total 1,096.3 689.6
Of the purchased reinsurance receivables balance $6.6m is expected to be
received after 12 months (2020: After 12 months $6.3m).
Included in receivables arising from contracts with customers are amounts due
from customers in relation to the supply of management services which are now
unconditionally due. There are no amounts due from contracts with customers
which are subject to further performance or conditions before settlement.
The Group has retroactive reinsurance policies within R&Q Reinsurance
Company, which have an experience account that provides R&Q Reinsurance
Company with any excess assets that remain with the reinsurer after paying all
claims. The Group recognises the experience account as a structured
reinsurance receivable at the undiscounted best estimate value of excess
investment assets above that needed to pay claims. During 2021, management
determined that it was in the best interest of shareholders to commute one of
the retroactive reinsurance policies within R&Q Reinsurance Company in
order to provide liquidity to pay claims. The commutation of the policy
significantly earlier than had been anticipated has resulted in a full
impairment of the structured reinsurance asset from the 2020 value of $86.8m.
Prepayments and accrued income includes gross deferred acquisition costs which
have increased in accordance with the growth of Program Management.
20.Cash and cash equivalents
2021 2020
$m $m
Cash at bank and in hand 266.3 363.5
Included in cash and cash equivalents is $0.8m (2020: $0.8m) being funds held
in escrow accounts in respect of guarantees provided to the Institute of
London Underwriters. The decrease is due to exchange movements.
In the normal course of business, insurance company subsidiaries will have
deposited funds in respect of certain contracts which can only be released
with the approval of the appropriate regulatory authority.
The carrying amounts disclosed above reasonably approximate their fair values
at the period end date.
21.Insurance and other payables
2021 2020
$m $m
Structured liabilities 506.2 516.4
Structured settlements (506.2) (516.4)
- -
Payables arising from reinsurance operations 751.3 222.0
Payables arising from direct insurance operations 109.7 44.6
Insurance payables 861.0 266.6
Trade payables 4.9 1.9
Other taxation and social security 23.4 14.5
Other payables 135.4 81.1
Accruals and deferred income 115.4 61.9
279.1 159.4
Total 1,140.1 426.0
The carrying amounts disclosed above reasonably approximate their fair values
at the period end date.
Structured Settlements
No new structured settlement arrangements have been entered into during the
year. 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.
22.Financial liabilities
2021 2020
$m $m
Amounts owed to credit institutions 395.9 330.2
Lease liabilities 7.6 6.8
Deposits received from reinsurers 3.0 2.9
406.5 339.9
Amounts due to credit institutions are payable as follows:
2021 2020
$m $m
Less than one year 8.0 69.2
Between one and five years 188.1 42.1
Over five years 199.8 218.9
395.9 330.2
As outlined in Note 31, $153.6m (2020: $85.5m) owed to credit institutions is
secured by debentures over the assets of the Company and several of its
subsidiaries.
The Group has issued the following debt:
Issuer Principal Rate Maturity
Randall & Quilter Investment Holdings Ltd. $70,000k 6.35% above USD LIBOR 2028
Randall & Quilter Investment 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 Holding Corporation provides a full and
unconditional guarantee for the payment of principal, interest and any other
amounts due in respect of the $70.0m Notes issued by Randall & Quilter
Investment Holdings Ltd.
Lease liabilities maturity analysis - contractual undiscounted cash flows
2021 2020
$m $m
Less than one year 2.2 1.9
Between one and five years 5.5 5.2
Over five years 0.2 0.2
Total undiscounted lease liabilities at 31 December 7.9 7.3
Reconciliation of liabilities arising from financing activities
The table below details changes in the Group's liabilities arising from
financing activities, including both cash and non-cash changes. Liabilities
arising from the financing activities are those for which cash flows were, or
future cash flows will be, classified in the Group Consolidated Cash Flow
Statement as cash flows from financing activities.
2021 2020
$m $m
Balance at 1 January 330.2 191.9
Financing cash flows (1) 70.5 138.7
Non-cash exchange adjustment (4.8) (0.4)
Balance at 31 December 395.9 330.2
1) Represents the net cash flows from the repayment of borrowings and the
proceeds from new borrowing arrangements.
23.Insurance contract provisions and reinsurance balances
2021 2020
Program Management Legacy Insurance Total Program Management Legacy Insurance Total
$m $m $m $m $m $m
Gross
Insurance contract provisions at 1 January 682.6 1,720.2 2,402.8 390.9 1,009.5 1,400.4
Claims paid (197.1) (288.8) (485.9) (131.9) (138.7) (270.6)
Increases/(Decreases) in provisions arising from the (disposal)/acquisition of - 91.1 91.1 - 426.1 426.1
subsidiary undertakings and Syndicate participations
Increases in provisions arising from acquisition of reinsurance portfolios - 430.4 430.4 - 368.2 368.2
Increase in claims provisions 459.3 64.7 524.0 307.0 42.1 349.1
Increase/(decrease) in unearned premium reserve 287.9 (8.6) 279.3 100.1 (3.1) 97.0
Net exchange differences (22.3) (11.9) (34.2) 16.5 16.1 32.6
As at 31 December 1,210.4 1,997.1 3,207.5 682.6 1,720.2 2,402.8
Reinsurance
Reinsurers' share of insurance contract provisions at 1 January 653.7 526.9 1,180.6 377.3 238.4 615.7
Proceeds from commutations and reinsurers' share of gross claims paid (182.9) 28.7 (154.2) (122.5) (45.4) (167.9)
Increases/(Decreases) in provisions arising from the (disposal)/acquisition of - 164.2 164.2 - 283.1 283.1
subsidiary undertakings and Syndicate participations
Increases in provisions arising from acquisition of reinsurance portfolios - 247.5 247.5 - 1.4 1.4
Increase in claims provisions 430.5 (13.6) 416.9 290.7 27.4 318.1
Increase/(decrease) in unearned premium reserve 270.7 (3.7) 267.0 92.2 - 92.2
Net exchange differences (20.6) 4.2 (16.4) 16.0 22.0 38.0
As at 31 December 1,151.4 954.2 2,105.6 653.7 526.9 1,180.6
Net
Net insurance contract provisions at 1 January 28.9 1,193.3 1,222.2 13.6 771.1 784.7
Net claims paid (14.2) (317.5) (331.7) (9.4) (93.3) (102.7)
Increases/(Decreases) in provisions arising from the (disposal)/acquisition of - (73.1) (73.1) - 143.0 143.0
subsidiary undertakings and Syndicate participations
Increases in provisions arising from acquisition of reinsurance portfolios - 182.9 182.9 - 366.8 366.8
Increase/(decrease) in claims provisions 28.8 78.3 107.1 16.3 14.7 31.0
Increase/(decrease) in unearned premium reserve 17.2 (4.9) 12.3 7.9 (3.1) 4.8
Net exchange differences (1.7) (16.1) (17.8) 0.5 (5.9) (5.4)
As at 31 December 59.0 1,042.9 1,101.9 28.9 1,193.3 1,222.2
2021 2020
Program Management Legacy Insurance Total Program Management Legacy Insurance Total
$m $m $m $m $m $m
Gross
Claims reserves 600.0 1,996.5 2,596.5 349.9 1,719.7 2,069.6
Unearned premium reserves 610.4 0.6 611.0 332.7 0.5 333.2
As at 31 December 1,210.4 1,997.1 3,207.5 682.6 1,720.2 2,402.8
Reinsurance
Claims reserves 572.4 954.1 1,526.5 336.4 526.9 863.3
Unearned premium reserves 579.0 0.1 579.1 317.3 - 317.3
As at 31 December 1,151.4 954.2 2,105.6 653.7 526.9 1,180.6
Net
Claims reserves 27.6 1,042.4 1,070.0 13.5 1,192.8 1,206.3
Unearned premium reserves 31.4 0.5 31.9 15.4 0.5 15.9
As at 31 December 59.0 1,042.9 1,101.9 28.9 1,193.3 1,222.2
The carrying amounts disclosed above reasonably approximate their fair values
at the period end date.
Assumptions, changes in assumptions and sensitivity
The assumptions used in the estimation of provisions relating to insurance
contracts are intended to result in provisions which are sufficient to settle
the net liabilities from insurance contracts. The amounts presented above
include estimates of future reinsurance recoveries expected to arise on the
settlement of the gross insurance liabilities.
Provision is made at the period end 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.
As detailed in Note 3, significant uncertainty exists as to the likely outcome
of any individual claim and the ultimate costs of completing the run-off of
the Group's insurance operations.
The provisions carried by the Group for its insurance liabilities 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 periodically commissions independent reviews by external actuaries.
The use of external actuaries provides management with additional comfort that
the Group's internally produced statistics and trends are consistent with
observable market information and other published data. Provisions for
outstanding claims and IBNR are initially estimated at a gross level and a
separate calculation is carried out to estimate the size of reinsurance
recoveries. Insurance companies and Syndicates within the Group are covered
by a variety of treaty, excess of loss and stop loss reinsurance programs.
As detailed in Note 2 (h), when preparing these Consolidated Financial
Statements, provision is made for all costs of running off the business of the
insurance company subsidiaries to the extent that these costs exceed the
estimated future investment return expected to be earned by those
subsidiaries. Provision is also made for all costs of running off the
underwriting years for those Syndicates treated as being in run-off on which
the Group participates. 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-off, using
internally prepared budgets and forecasts of expenditure, investment income
and actuarially assessed settlement patterns for the gross provisions. The
gross costs of running off the business are estimated to be fully covered by
the estimated future investment income.
Other than as described above, insurance liabilities are not discounted.
The provisions disclosed in the Consolidated Financial Statements are
sensitive to a variety of factors including:
•Settlement and commutation activity of third-party lead reinsurers
•Development in the status of settlement and commutation negotiations being
entered into by the Group
•The financial strength of the Group's reinsurers and the risk that these
entities could, in time, become insolvent or could otherwise default on
payments
•Future cost inflation of legal and other advisors who assist the Group with
the settlement of claims
•Changes in statute and legal precedent which could particularly impact
provisions for asbestos, pollution and other latent exposures
•Arbitration awards and other legal precedents which could particularly
impact upon the presentation of both inwards and outwards claims on the
Group's exposure to major catastrophe losses
A 1 percent reduction in the net technical provisions would increase net
assets by $11.8m (2020: $12.2m).
24.Current and deferred tax
Current tax
2021 2020 $000
$m $m
Current tax assets 3.6 - -
Current tax liabilities (2.4) (2.6) (2,603)
Net current tax assets/(liabilities) 1.2 (2.6) (2,603)
Deferred tax
Deferred tax is calculated in full on temporary differences under the
liability method using tax rates of 25% for the UK (2020: 19%) and 21% for the
US (2020: 21%).
Deferred tax assets have been recognised in respect of all tax losses and
other temporary differences giving rise to deferred tax assets where it is
probable that these assets will be recovered.
The movements in deferred tax assets and liabilities during the year are shown
below. The movement in deferred tax is recorded in the income tax charge in
the Consolidated Income Statement.
Deferred tax assets and liabilities are only offset where there is a legally
enforceable right of offset and there is an intention to settle the balances
on a net basis.
Deferred tax Deferred Total
assets tax
liabilities
$m $m $m
As at 1 January 2020 5.4 (12.8) (7.4)
Movement in year 0.3 (5.2) (4.9)
As at 31 December 2020 5.7 (18.0) (12.3)
Movement in year 14.7 9.0 23.7
As at 31 December 2021 20.4 (9.0) 11.4
The movement on the deferred tax account is shown below:
Accelerated Trading Pension Other Total
capital losses scheme temporary
allowances deficit differences
$m $m $m $m $m
As at 1 January 2020 (0.1) 20.6 1.7 (29.6) (7.4)
Movement in year - (2.4) 0.2 (2.7) (4.9)
As at 31 December 2020 (0.1) 18.2 1.9 (32.3) (12.3)
Movement in year - 4.4 (0.5) 19.8 23.7
As at 31 December 2021 (0.1) 22.6 1.4 (12.5) 11.4
Movements in the provisions for deferred taxation are disclosed in the
Consolidated Financial Statements as follows:
Exchange Adjustment Deferred tax in Consolidated Income Statement Deferred Tax in Consolidated Statement of Comprehensive Total
Income
$m $m $m $m
Movement in 2020 (8.3) 3.1 0.3 (4.9)
Movement in 2021 1.3 22.6 (0.2) 23.7
The analysis of the deferred tax assets relating to tax losses is as follows:
2021 2022
$m $m
Deferred tax assets - relating to trading losses
Deferred tax assets to be recovered after more than 12 months 5.6 7.8
Deferred tax assets to be recovered within 12 months 17.0 10.4
Deferred tax assets 22.6 18.2
Deferred tax assets are recognised for tax losses carried forward to the
extent that the realisation of the related tax benefit through future taxable
profits is probable.
The Directors have prepared forecasts which indicate that, excluding the
deferred tax asset on the pension scheme deficit, the deferred tax assets will
substantially reverse over the next six years.
The above deferred tax assets arise mainly from temporary differences and
losses arising on the Group's US insurance companies. Under local tax
regulations these losses and other temporary differences are available to
offset against the US subsidiaries' future taxable profits in the Group's US
Insurance Services Division as well as any future taxable results that may
arise in the US insurance companies.
The Group's total deferred tax asset includes $22.6m (2020: $18.2m) in respect
of trading losses carried forward. The tax losses have arisen in individual
legal entities and will be used as future taxable profits arise in those legal
entities. Substantially all of the unused tax losses for which a deferred
tax asset has been recognised arises in the US subgroup.
25.Share capital
Number of shares Ordinary shares Share premium Treasury share reserve Total
$m $m $m $m
At 1 January 2020 195,917,568 5.4 176.7 - 182.1
Issue of ordinary shares 21,578,813 0.8 20.6 - 21.4
Share based payments 6,898,903 - 14.8 - 14.8
Treasury (111,525) - - (0.2) (0.2)
Issue of AD shares 222,563,380 11.6 (11.2) - 0.4
Redemption/Cancellation of AD shares (222,563,380) (11.6) - - (11.6)
At 31 December 2020 224,283,759 6.2 200.9 (0.2) 206.9
Functional currency revaluation - (0.2) 7.2 - 7.0
Issue of ordinary shares 49,772,168 1.4 85.9 - 87.3
Share based payments 1,043,816 0.1 2.6 - 2.7
Treasury 111,525 0.2 0.2
Distribution - - (8.3) - (8.3)
At 31 December 2021 275,211,268 7.5 288.3 - 295.8
In 2020, a Group subsidiary issued 47,609,270 USD0.01 convertible preference
shares for cash consideration. These preference shares converted into
ordinary share capital of the Company upon certain regulatory conditions being
met on 21 January 2021, whereby, the Group issued 49,772,168 ordinary shares
for settlement of the convertible preference shares.
2021 2020
$m $m
Allotted, called up and fully paid
275,211,268 ordinary shares of 2p each 7.4 6.2
(2020: 224,283,759 ordinary shares of 2p each)
1 Preference A Share of £1 - -
1 Preference B Share of £1 - -
7.4 6.2
Included in Equity 2021 2020
$m $m
275,211,268 ordinary shares of 2p each 7.4 6.2
(2020: 224,283,759 ordinary shares of 2p each)
1 Preference A Share of £1 - -
1 Preference B Share of £1 - -
7.4 6.2
Cumulative Redeemable Preference Shares
Preference A and B Shares have rights, inter alia, to receive distributions in
priority to ordinary shares of distributable profits of the Company derived
from certain subsidiaries:
•Preference A Share: one half of all distributions arising from the
Company's investment in R&Q Reinsurance Company up to a maximum of $5.0m.
•Preference B Share: one half of all distributions arising from the
Company's investment in R&Q Reinsurance Company (UK) Limited up to a
maximum of $10.0m.
The Preference A and Preference B Shares have been classified as equity on the
basis that redemption dates are not prescribed in the Memorandum and Articles
of Association and as such there is no contractual obligation to deliver
cash. No distributions have been made since acquisition by either R&Q
Reinsurance Company or R&Q Reinsurance Company (UK) Limited.
Shares issued
During the year the Group did not issue any distribution shares (2020: AD
shares with an aggregate value of $11.6m, which were all cancelled).
26.Employees and Directors
Employee benefit expense for the Group during the year
2021 2020
$m $m
Wages and salaries 46.8 49.2
Social security costs 5.4 4.7
Pension costs 1.8 1.7
Share based payment charge 5.3 4.1
59.3 59.7
Pension costs are recognised in operating expenses in the Consolidated Income
Statement and include $1.8m (2020: $1.7m) in respect of payments to defined
contribution schemes.
2021 2020
Average number of employees Number Number
Program Management 125 71
Legacy Insurance 154 169
Other 16 40
295 280
Remuneration of the Directors and key management
2021 2020
$m $m
Aggregate Director emoluments 11.1 12.3
Aggregate key management emoluments 3.5 4.3
Share based payments - Directors 4.8 3.9
Share based payments - Key management 0.5 0.1
19.9 20.6
Highest paid Director
Aggregate emoluments 6.9 6.7
Key management refers to employees who are Directors of subsidiaries within
the Group but not members of the Group's Board of Directors.
Directors' emoluments
Name Salary Directors' Fees Bonus paid Movement in bonus accrued Share award cost Total
$m $m $m $m $m $m
K E Randall (resigned 31 March 2021) 0.3 - 3.7 - - 4.0
A K Quilter 0.7 - 1.1 0.2 - 2.0
W L Spiegel 1.5 - 1.5 - 3.9 6.9
T S Solomon 0.5 - 1.0 - 0.8 2.3
A H F Campbell - 0.1 - - - 0.1
P A Barnes - 0.1 - - - 0.1
J P Fox - 0.1 - - - 0.1
E M Flanagan - 0.1 - - - 0.1
Bonus payments relating to the reporting year are paid in the following 3
years being 50%, 25% and 25% annually, and reflect the performance of the
Group and the individuals. The costs in the 2021 financial year represent
the amounts paid in 2021 and provision for costs relating to the 2019, 2020
and 2021 reporting years' performance, which will be paid in 2021, 2022 and
2023. The provisions are established on the likelihood of the performance
and service period criteria being met. Where contractual arrangements
supersede the above policy, the contractual arrangements are included.
27.Pension scheme obligations
The Group operates one defined benefit scheme in the UK. The defined benefit
scheme's assets are held in separate trustee administered funds. The pension
cost was assessed by an independent qualified actuary. In the valuation, the
actuary used the projected unit method as the scheme is closed to new
employees. A full actuarial valuation of the scheme is carried out every
three years, with the last valuation completed as at 1 January 2021.
On 2 December 2003, the scheme was closed to future accrual although the
scheme continues to remain in full force and effect for members at that date.
The position and assumptions under IAS 19 as at 31 December 2021 are as
follows.
a. Employee benefit obligations - amount disclosed in the Consolidated
Statement of Financial Position
2021 2020
$m $m
Fair value of plan assets 36.6 37.7
Present value of funded obligations (42.3) (47.7)
Net defined benefit liability (5.7) (10.0)
Related deferred tax asset 1.4 1.9
Net position in the Consolidated Statement of Financial Position (4.3) (8.1)
All actuarial losses are recognised in full in the Consolidated Statement of
Comprehensive Income in the period in which they occur.
b. Movement in the net defined benefit obligation and fair value of plan
assets over the year
Present value of obligation Fair value of plan assets Deficit of funded plan
$m $m $m
As at 31 December 2020 (47.6) 37.7 (9.9)
Interest (expense)/income (0.6) 0.5 (0.1)
(48.2) 38.2 (10.0)
Remeasurements:-
Loss from changes in financial assumptions 2.7 - 2.7
Loss from changes in demographic assumptions (0.1) - (0.1)
Experience gain 0.5 - 0.5
(45.1) 38.2 (6.9)
Employer's contributions - 1.1 1.1
Benefit payments from the plan 2.0 (2.0) -
Currency revaluation 0.8 (0.7) 0.1
As at 31 December 2021 (42.3) 36.6 (5.7)
Present value of obligation Fair value of plan assets Deficit of funded plan
$m $m $m
As at 31 December 2019 (43.5) 34.0 (9.5)
Interest (expense)/income (0.8) 0.7 (0.1)
(44.3) 34.7 (9.6)
Remeasurements:-
Return on plan assets, excluding amounts included in interest expense - 3.3 3.3
Loss from changes in financial assumptions (4.0) - (4.0)
Loss from changes in demographic assumptions (0.2) - (0.2)
Experience gain 0.1 - 0.1
Past service cost - - -
(48.4) 38.0 (10.4)
Employer's contributions - 1.0 1.0
Benefit payments from the plan 2.7 (2.7) -
Currency revaluation (1.9) 1.4 (0.5)
As at 31 December 2020 (47.6) 37.7 (9.9)
c. Significant actuarial assumptions
i) Financial assumptions
2021 2020
Discount rate 1.90% 1.35%
RPI inflation assumption 3.50% 3.00%
CPI inflation assumption 3.20% 2.70%
Pension revaluation in deferment: 2.70% 2.70%
- CPI, maximum 5%
Pension increases in payment: 3.50% 3.00%
- RPI, maximum 5%
ii) Demographic assumptions
Assumed life expectancy in years, on retirement at 60
2021 2020
Retiring today
- Males 26.3 26.2
- Females 29.0 28.7
Retiring in 20 years
- Males 27.8 27.4
- Females 30.5 30.0
d. Sensitivity to assumptions
The results of the IAS 19 valuation at 31 December 2021 are sensitive to the
assumptions adopted.
The sensitivities regarding the principal assumptions used to measure the
Scheme liabilities are set out below:
Assumption Change in assumption Change in liabilities
Discount rate Decrease by 0.5% Increase by 7.4%
Rate of inflation Increase by 0.5% Increase by 1.4%
Life expectancy Increase by 1 year Increase by 3.9%
The above sensitivity analyses are based on a change in assumption while
holding all other assumptions constant. In practice, this is unlikely to
occur, and changes in some of the assumptions may be correlated. The
sensitivity of the defined benefit obligation to significant actuarial
assumptions has been estimated, based on the average age and the normal
retirement age of members and the duration of the Scheme.
e. The major categories of plan assets are as follows
As at 2021 As at 2020
$m $m
Level 1 Level 2 Total Level 1 Level 2 Total
Cash and cash equivalents - 1.6 1.6 - 0.5 0.5
Investment funds:
- equities - 22.7 22.7 - 23.7 23.7
- bonds - 4.0 4.0 - 3.8 3.8
- property - - - - - -
- liability driven - 8.3 8.3 - 9.7 9.7
- 36.6 36.6 - 37.7 37.7
Definitions of Level 1 and Level 2 investments can be found in note 4(a)(i).
f. Contributions and present value of defined benefit obligation
Funding levels are monitored on an annual basis. $1.1m of contributions have
been made directly into the scheme during 2021 (2020: $1.1m). In March 2022,
a recovery plan has been renegotiated and agreed with the Trustees to
eliminate the plan deficit by 31 December 2025. Starting from July 2022,
monthly payments will increase to provide annualised payments of $1.9m, and
further single annual payments of $0.8m will be made, finalising in December
2025.
28.Related party transactions
Transactions with subsidiaries
Transactions between the Group's wholly owned subsidiary undertakings, which
are related parties, have been eliminated on consolidation and accordingly not
disclosed.
Transactions with Directors
The following Directors and connected parties were entitled to the following
distributions during the year:-
2021 2020
$m $m
K E Randall and family - 0.7
A K Quilter and family 0.1 0.2
W L Spiegel 0.2 0.1
T S Solomon - 0.1
Transactions with associate
On 10 September 2020 the Group invested in Tradesman Program Managers, LLC
which is treated as an investment in associate. The Group receives income
through its Program operations as detailed below.
2021 2020
$m $m
Written premium 245.2 133.1
Written commissions 12.2 6.7
Funds due at year end 5.4 0.7
The summarised financial information of the amounts presented in the financial
statements of the associate for the full year of the associate is as follows:
2021 2020
$m $m
Assets 29.0 19.6
Liabilities (33.2) (19.0)
Net assets/(liabilities) (4.2) 0.6
Income for the year 63.5 19.6
Profit for the year 29.4 13.7
29.Business combinations
Business combinations
During the year, the Group made five business combinations of run-off
portfolios and acquired two non-insurance legacy businesses (which were
acquired as part of a single transaction). All of the Group's business
combinations involved Legacy Insurance transactions and have been accounted
for using the acquisition method of accounting.
Legacy entities and businesses
The following table shows the fair value of assets and liabilities (and
consideration where paid) included in the Consolidated Financial Statements at
the date of acquisition of the legacy businesses:
Intangible assets Other receivables Cash & Investments Other payables Technical provisions Tax & deferred tax Net assets acquired Consideration Goodwill on bargain purchase
$m $m $m $m $m $m $m $m $m
EIIDAC 3.1 0.5 64.1 (0.3) (36.2) (0.4) 30.8 9.1 21.6
NYSHPWCT 0.3 - 2.8 - (2.0) - 1.1 - 1.1
Vibe 2.8 2.7 1.6 (0.9) - - 6.3 6.3 -
Oleum - - 1.2 - - - 1.2 0.9 0.4
Saurea 0.4 - 4.1 - (3.5) (0.1) 1.0 - 1.0
UK P&I Club 11.3 - 66.7 - (49.6) (2.8) 25.6 - 25.6
17.9 3.2 140.5 (1.2) (91.3) (3.3) 66.0 16.3 49.7
Gross deal contribution represents the net asset value acquired in excess of
any consideration paid, gross of any transaction expenses or commissions.
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. The long-tail nature
of the liabilities causes significant problems for former owners such as tying
up capital and a lack of specialist staff. As a specialist service provider
and manager, the Group is more efficient at managing such entities and former
owners are prepared to sell at a discount on the fair value of the net assets.
In order to disclose the impact on the Group as though the legacy entities had
been owned the whole year, 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 entities had been owned for the whole year.
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 combinations during 2021:
EIIDAC
On 19 May 2021, the Group announced it had completed the acquisition of the
entire issued share capital of Electric Insurance Ireland DAC ("EIIDAC"), an
Irish domiciled captive insurance company of the General Electric Group.
EIIDAC was incorporated in 2005 and wrote Employer's Liability and General
Liability business between 2007 and 2020. External costs incurred total $124k.
NYSHPWCT
On 13 July 2021, but effective 1 August 2020, Accredited Surety & Casualty
received regulatory approval to assume (novate) the Workers' Compensation
Liability policies of New York State Health Providers Workers Compensation
Trust ("NYSHPWCT"). The policies assumed covered the period from April 1992 to
January 2011.
Vibe
On 21 May 2021, following regulatory approval, the Group completed the
acquisitions of Vibe Syndicate Management Limited ("VSML") and Vibe Services
Management Limited ("Vibe Services"), together "Vibe", thus finalising the
second completion of its purchase of the Vibe Group following the acquisition
of Vibe Corporate Member Limited in December 2020. VSML is regulated as a
Lloyd's Managing Agency for Syndicate 5678. External costs incurred were $49k.
Oleum
On 28 September 2021, following regulatory approval, the Group completed the
acquisition of Oleum Insurance Company Limited ("Oleum"), a Barbados domiciled
captive insurance company of Repsol. Oleum wrote policies covering property,
construction and general liability risks from 1995 to 2015 when it was placed
in run-off. External costs incurred were $62k.
Saurea
On 17 November 2021, Accredited Insurance (Europe) completed the novation of
General Liability and Professional Indemnity policies of Saurea S.A., a
Luxembourg based captive of Saur Group. The policies covered risks
underwritten from 2006 to 2019. External costs incurred were $122k.
UK P&I Club
Effective 7 December 2021, the Group completed the Part VII transfer of the
non-EEA industrial disease liabilities of the United Kingdom Mutual Ship
Assurance Association Limited ("UK P&I Club") to R&Q Gamma Company
Limited. External costs incurred were $110k.
30.Non-controlling interests
The following table shows the Group's non-controlling interests and movements
in the year:-
2021 2020
$m $m
Non-controlling interests
Equity shares in subsidiaries - -
Share of retained earnings - (0.5)
- (0.5)
Movements in the year
Balance at 1 January (0.5) 0.6
Profit for the year attributable to non-controlling interests - (0.1)
Comprehensive profit attributable to non-controlling interests - (0.1)
Changes in non-controlling interest in subsidiaries 0.5 (1.0)
Balance at 31 December - (0.5)
31.Guarantees and indemnities in ordinary course of business
The Group has entered into a guarantee agreement and a debenture arrangement
with its bankers, along with several of its subsidiaries, in respect of the
Group term loan facilities. The total liability to the bank at 31 December
2021 was $153.6m (2020: $85.5m).
The Group also gives various other guarantees in the ordinary course of
business.
32.Foreign exchange rates
The Group used the following exchange rates to translate foreign currency
assets, liabilities, income and expenses into US dollars sterling, being the
Group's presentational currency:-
2021 2020
Average Year end Average Year end
UK Sterling 0.73 0.75 0.78 0.74
Euro 0.84 0.88 0.88 0.82
33.Events after the reporting date
On 1 April 2022, the Group announced that terms had been agreed to recommend
the cash acquisition of the Group as well as $100m of new equity funding by
Brickell PC Insurance Holdings ("Brickell").
On 25 May 2022, the Special General Meeting vote failed to approve the
transaction with Brickell; consequently the Company announced it would embark
on an equity fundraise of $100m via a placing and up to $8m via an open offer,
the fundraise is subject to shareholders' approval and is expected to complete
in mid-July.
34.Contingent liability
Attention is drawn to Notes 2h, 3 and 23 which set 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 are still at an early stage and
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 recognise any
estimate of the possible outcome but to disclose the position as a contingent
liability.
35.Ultimate controlling party
The Directors consider that the Group has no ultimate controlling party.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR SFDFMEEESEDMRecent news on R&Q Insurance Holdings
See all newsREG - R&Q Insurance Hldgs - Update on proposed sale of Accredited
AnnouncementREG - R&Q Insurance Hldgs - Appointment of Non-Executive Directors
AnnouncementREG - R&Q Insurance Hldgs - Update on Trading and Sale of Accredited
AnnouncementREG - R&Q Insurance Hldgs - TR-1: Notification of major holdings
AnnouncementREG - R&Q Insurance Hldgs - Comment on recent press speculation
Announcement