TIDMRQIH
RNS Number : 2372V
R&Q Insurance Holdings Ltd
04 April 2023
R&Q Insurance Holdings Ltd
Strategic Initiative to Separate Program Management and Legacy
Insurance & Trading Update
4 April 2023
R&Q Insurance Holdings Ltd, (AIM-RQIH) ("R&Q" or the
"Group"), the leading non-life global specialty insurance company
focusing on Program Management and Legacy Insurance businesses,
announces that the Board of R&Q is reviewing strategic options
to separate its Program Management business, Accredited, and its
Legacy Insurance business. In addition, R&Q also provides a
trading update on the Group's expected operating performance for
the financial year ended 31 December 2022.
Strategic Initiative to Separate Accredited and Legacy
Insurance
R&Q's Program Management business, Accredited, has grown
significantly over the past three years, achieving record Gross
Written Premium and Fee Income (excluding minority stakes in MGAs)
of $1.8 billion and $80 million, respectively, in 2022. It is now
one of the largest program managers globally.
Accredited relies on an 'A' credit rating to conduct business
and historically relied on the financial strength of the broader
Group to obtain its credit rating. However, given Accredited's
current size and scale, R&Q believes it is in the best
interests of R&Q's shareholders for Accredited to stand on its
own. Therefore, the Board of R&Q is reviewing strategic
alternatives to separate Accredited and Legacy Insurance, which
will include a legal reorganisation followed by strategic
transactions with third parties to achieve this objective. R&Q
expects the separation will set each of Accredited and Legacy
Insurance on more favourable footing to deliver profitable growth,
each with their own appropriate capital structures.
The legal reorganisation is subject to regulatory and lender
consents, which R&Q expects to obtain in Q2 2023.
Preliminary FY 2022 Trading Update
Based on preliminary and unaudited information, R&Q
anticipates that it will realise a Pre-Tax Operating Profit (Loss)
for the financial year ended 31 December 2022 of $(30)-(40)
million, comprising $55-60 million in Program Management,
$(55)-(60) million in Legacy Insurance and $(35) million in
Corporate and Other, which is primarily interest expense. (1)
Program Management
Program Management is expected to realise a Pre-Tax Operating
Profit of $55-60 million, driven by Gross Written Premium of $1.8
billion and Fee Income (excluding minority stakes in MGAs) of $80
million, which increased 80% and 78%, respectively, over the prior
year. Pre-Tax Operating Profit includes $12 million of earnings
from the Group's minority stake in Tradesman Program Managers,
which has subsequently been sold to its controlling shareholder in
Q1 2023.
Legacy Insurance
Legacy Insurance is expected to realise a Pre-Tax Operating
(Loss) of $(55)-(60) million, driven by fewer transactions
completed, with Gross Reserves Acquired of $70 million and net
adverse development of 3-4% of the Group's net reserves. We expect
Reserves Under Management at year-end 2022 to be $400 million ($1
billion as of January 2023). Prior to new accounting rules
effective from 1 January 2023, the IFRS accounting regime allowed
"Day-1 gains", which meant that a majority of a transaction's
profits could be recorded upfront upon closing of the transaction.
As a result, any net reserve development after a transaction had
closed created heightened volatility in earnings but did not mean
that the underlying returns of the transaction would not meet
expectations when taking into account the Day-1 gain and investment
income.
Corporate and Other
Corporate and Other is expected to be $(35) million. This
comprises interest expense on debt, unallocated expenses and
foreign exchange impact on reevaluation of net assets.
William Spiegel , Chief Executive Officer, commented:
"Our Program Management business, Accredited, has seen
remarkable growth in Gross Written Premium, Fee Income and
profitability over the past five years. Accredited currently
partners with MGAs to offer over 80 different insurance programs
and has over 200 reinsurance partnerships. Accredited has grown to
become one of the largest program managers in the world and has the
appropriate size and scale to stand on its own as an independent
business. The Board has concluded that it is in shareholders' best
interests to evaluate strategic options that allow for a separation
of Accredited and Legacy Insurance. This will ensure both
Accredited and Legacy Insurance have the strongest foundations from
which to grow.
In Legacy Insurance, we continue to focus on transitioning to a
fee-based and capital efficient model and remain confident that
this will create a more profitable, sustainable and valuable
business. While in 2022 we didn't complete as many transactions as
in prior years, we maintained prudence in only pursuing deals that
are profitable for both R&Q and Gibson Re. As announced on 6
January 2023, we have grown Reserves Under Management to in excess
of $1 billion, starting from zero in the fourth quarter of 2021.
While our Q4 2022 actuarial review process shows a need to
strengthen reserves, it is important to note that the IFRS
accounting regime recognised a large portion of total lifetime
earnings at transaction close, which is a significant part of how
we assess the overall profitability of historical legacy
transactions.
Due to the planned separation, we expect to announce our final
audited results in June 2023."
[1] Financial figures are estimates and therefore dependent on
finalising full year 2022 results. Any reserve strengthening is a
significant accounting estimate that involves management making
assumptions and considering future events that are inherently
uncertain. There is a risk that such judgements are not made in
accordance with IFRS and thus there may be material differences
once the auditors/actuaries have undertaken their review as part of
the year end audit process which is yet to be completed.
Ends
Enquiries to: R&Q Insurance Holdings Ltd
William Spiegel Tel: +44 020 7780 5850
Tom Solomon Tel: +44 020 7780 5850
Numis Securities Limited (Nominated Adviser, Joint Broker, and Financial
Adviser)
Giles Rolls Tel: +44 020 7260 1000
Charles Farquhar Tel: +44 020 7260 1000
Barclays Bank PLC (Joint Broker and Financial Adviser)
Gary Antenberg Tel: +1 212 526 9051
Nishant Amin Tel: +44 020 7632 2322
Andrew Tusa Tel: +44 020 7632 2322
Fenchurch Advisory Partners (Financial Adviser)
Kunal Gandhi Tel: +44 020 7382 2222
Brendan Perkins Tel: +44 020 7382 2222
John Sipp Tel: +1 917 603 2932
Howden Tiger (Financial Adviser)
Rob Bredahl Tel: +1 646 685 4937
Leo Beckham Tel: +44 079 276 4458
John Stamatis Tel: +1 646 685 4943
FTI Consulting (Media Relations) Tel: +44 020 3727 1051
Tom Blackwell / Shipra Khanna
Notes to Editors:
About R&Q
R&Q is a global non-life specialty insurance company. We
operate two core businesses: Program Management and Legacy
Insurance. Both these businesses are leaders in their respective
markets.
Our approach is to deploy our origination and underwriting
capabilities, alongside our licensed and rated carriers in the US,
EU, and the UK, to generate attractive fee returns in Program
Management and Legacy Insurance.
Legal Entity Identifier (LEI): 2138006K1U38QCGLFC94
Website: www.rqih.com
This announcement contains inside information as stipulated
under the UK market abuse regulation no 596/2014, which is part of
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END
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