TIDMRQIH
RNS Number : 8686Q
R&Q Insurance Holdings Ltd
20 October 2023
This announcement contains inside information
R&Q Insurance Holdings Ltd
Proposed Sale of R&Q's Program Management business,
Accredited, to Onex
for $465 million
20 October 2023
On 4th April 2023, R&Q Insurance Holdings Ltd ("R&Q",
the "Company" or the "Group") announced that it was undertaking a
strategic initiative to separate its legacy insurance business
("R&Q Legacy") and its program management business
("Accredited"). Today R&Q announces that it has entered into a
conditional agreement with funds advised by Onex Corporation (the
"Purchaser" or "Onex" (1) ) to sell 100% of the equity interest in
Randall & Quilter America Holding Inc., the holding company of
Accredited (the "Sale"). Closing of the Sale is conditional on
R&Q shareholder approval, regulatory approval and customary
consents from certain R&Q debt providers.
Key sale highlights
-- Proposed Sale of Accredited for an enterprise value of $465m,
representing an expected equity value of approximately $438
million.
-- Net cash proceeds from the Sale are expected to be
approximately $300 million ( "Expected Net Cash Proceeds").
-- Net cash proceeds available for utilisation immediately on
closing are expected to be between approximately $170 million and
$210 million ( "Available Net Cash Proceeds").
-- The Available Net Cash Proceeds will be entirely used to
facilitate a material de-leveraging of R&Q.
-- The Sale is conditional on the transfer of R&Q's Chief
Executive Officer, William Spiegel, and Chief Financial Officer,
Thomas Solomon to Accredited upon closing.
-- Upon closing of the Sale, Group Non-Executive Chairman Jeff
Hayman will act as Chairman and Interim Chief Executive Officer of
R&Q. The Board will initiate a search to appoint a new Chief
Executive Officer of R&Q at the appropriate time.
-- Upon closing of the Sale, Paul Bradbrook, currently Chief
Accounting Officer of R&Q, will become Chief Financial Officer
of R&Q and a member of the Board of Directors.
Background and Board recommendation
On 4(th) April 2023, the Board announced that it had decided to
explore a full separation and deconsolidation of Accredited and
subsequently ran a sale process to find a suitable partner for its
clients and colleagues and to realise full value for R&Q and
its shareholders. The sale process commenced in April 2023 with an
extensive global outreach to potentially interested parties,
representing a broad range of financial and strategic partners. The
Sale is the outcome of this process.
The Non-Executive Directors unanimously support the Sale and
strongly encourage shareholders to vote in favour of the resolution
to approve the Sale at the Special General Meeting.
The Non-Executive Directors believe the terms of the Sale are in
the best interests of R&Q, its shareholders and its other
stakeholders. The Non-Executive Directors believe that the Sale
represents R&Q's best opportunity to achieve a full separation
and deconsolidation of Accredited from the Group, in order to
enable Accredited to retain a fully independent rating.
In the event that Accredited does not retain a fully independent
rating, the Board is clear in its view that there is a significant
risk that AM Best will downgrade Accredited. Such a downgrade would
have a detrimental impact on Accredited's ability to successfully
operate its business, particularly in the United States where an
'A-' financial strength rating is a minimum requirement from
Accredited's counterparties. The Board therefore believes that a
downgrade would have material implications on R&Q's ability to
continue as a going concern.
Additionally, the Board is of the view that the current
financial leverage of R&Q is unsustainable and if the Sale were
not to proceed and the Available Net Cash Proceeds were not
available to facilitate a material de-leveraging of R&Q,
R&Q may not be able to continue to satisfy or obtain waivers on
the covenant requirements for its existing debt facilities or repay
certain of its debt facilities as they become due. A potential
default or cross-default by R&Q on its existing debt facilities
may lead its lenders to take action to protect their interests by
requiring collateral or enforcing their security over certain
R&Q assets, resulting in a materially worse outcome for R&Q
and its shareholders.
The Sale constitutes a fundamental change of business and under
the AIM Rules for Companies, Rule 15 will apply. The closing of the
Sale is therefore conditional on the approval by a majority of
shareholders at a Special General Meeting. The Special General
Meeting of R&Q's shareholders is expected to take place by the
end of the year.
As Accredited and certain of its subsidiaries are authorised and
regulated entities, the Sale is also conditional on obtaining
customary regulatory approvals. The Sale is also conditional on
customary consents from certain R&Q debt providers. Closing of
the Sale is expected to occur in late Q1 2024 or early Q2 2024.
Future strategy of R&Q
The Sale refocuses R&Q as a legacy insurance business in
Bermuda, Europe, the US and the UK. After the Sale, R&Q will
have a legacy platform with over 150 people across M&A, claims
management, servicing, actuarial and finance functions. In
addition, it will have Reserves Under Management of over $1.1
billion and a strong transaction pipeline. R&Q Legacy will
continue to be an important player in the legacy market.
The Sale will enable the Board to undertake a material
de-leveraging of R&Q which will enhance the business' ability
to execute the Board's existing strategy of transitioning to a
capital efficient and stable recurring fee-based business model.
The Board will also continue to focus on minimising future reserve
volatility as well as driving improved underlying performance of
R&Q through better automation and expense management.
In parallel to executing its organic plan, the Board will also
continue to explore potential transactions to de-risk and reduce
volatility in R&Q Legacy's balance sheet or otherwise maximise
value to stakeholders.
Board and management
The Sale is conditional on the transfer of R&Q's Chief
Executive Officer, William Spiegel, and Chief Financial Officer,
Thomas Solomon, to Accredited upon closing. William's and Thomas'
employment and appointments as Chief Executive Officer, Chief
Financial Officer and as Executive Directors of R&Q and its
subsidiaries will therefore cease on closing of the Sale. William
and Thomas will retain their current positions until closing of the
Sale and are working with the Board to ensure the successful
closing of the Sale and will assist with an orderly transition post
closing.
Upon closing of the Sale, Group Non-Executive Chairman Jeff
Hayman will act as Chairman and Interim Chief Executive Officer of
R&Q. The Board will initiate a search to appoint a new Chief
Executive Officer of R&Q at the appropriate time. In addition,
Paul Bradbrook, currently Chief Accounting Officer of R&Q, will
become Chief Financial Officer of R&Q and a member of the Board
upon closing of the Sale, subject to customary approvals.
All of R&Q's other Non-Executive Directors, Philip Barnes,
Eamonn Flanagan, Jo Fox, Jerome Lande and Robert Legget will
continue in their current roles.
Commenting on the Sale, Jeff Hayman, Chairman of R&Q ,
said:
"The Non-Executive Directors unanimously recommend the sale of
Accredited to Onex. We believe this transaction represents the best
possible outcome for R&Q's stakeholders, enabling R&Q to
realise value for a business we have grown from a standing start in
2017 while allowing Accredited to maintain its essential
independent financial strength rating of 'A-' under new ownership.
Onex has an extensive track record of successfully investing in
businesses across the insurance value chain, making them the ideal
partner for Accredited to continue its growth trajectory as a
leading transatlantic program manager.
The Sale will generate meaningful net cash proceeds which will
facilitate a material de-leveraging of the Group while also
strengthening its liquidity and working capital position, which
will support R&Q's ongoing commitments and requirements.
Furthermore, the Sale will create a simpler and better capitalised
R&Q which will be positioned to continue to execute the
existing strategy of transitioning to a capital efficient and
stable recurring fee-based business model.
R&Q is a longstanding leader in the legacy market, with an
established platform, more than $1.1 billion of Reserves Under
Management and an over 30-year history of executing innovative
transactions. The landmark deal earlier this year to acquire and
professionally manage the non-insurance legacy liabilities of MSA
Safety now means R&Q Legacy earns fees from two distinct but
complementary pools of liabilities: traditional insurance reserves
and corporate non-insurance liabilities. The Sale will allow us to
refocus fully on this business, while our materially de-leveraged
balance sheet, alongside our ability to deploy third-party capital
via Gibson Re, will enable us to pursue our pipeline opportunities
with renewed confidence. While we have more work to do, including
implementing further operational improvements, we now have a clear
pathway towards a sustainably profitable legacy business."
Commenting on the Sale, Adam Cobourn, Managing Director of Onex
Partners, said:
"We are pleased to have the opportunity to establish Accredited
as an independent, market-leading program management platform.
Accredited has all the ingredients for success as a hybrid carrier,
including a talented management team, a well-diversified and
high-quality book of business, strong reinsurer relationships and
robust underwriting and risk management protocols. It will be well
positioned for responsible growth with a strong balance sheet and
backing from Onex Partners. Investing in the insurance industry has
been a core strength for Onex for many years. We look forward to
supporting Accredited's management team in this next phase of
growth."
Enquiries to: R&Q Insurance Holdings Ltd Tel: +44 (0)20 7780 5850
Jeff Hayman
William Spiegel
Tom Solomon
Fenchurch Advisory Partners LLP (Financial Adviser) Tel: +44 (0)20 7382
2222
Kunal Gandhi
Brendan Perkins
John Sipp
Richard Locke
Tihomir Kerkenezov
Barclays Bank PLC (Financial Adviser and Joint Broker) Tel: +44 (0)20
7632 2322
Gary Antenberg
Andrew Tusa
Grant Bickwit
Howden Tiger (Financial Adviser) Tel : +44 (0)20 7398 4888
Rob Bredahl
Leo Beckham
Deutsche Numis (Nominated Adviser and Joint Broker) Tel : +44 (0)20 7260
1000
Charles Farquhar
Giles Rolls
FTI Consulting Tel: +44 (0)20 3727 1051
Tom Blackwell
Proposed Sale of R&Q's Program Management business,
Accredited, to Onex
Introduction
On 4(th) April 2023, R&Q Insurance Holdings Ltd ("R&Q",
the "Company" or the "Group") announced that it was undertaking a
strategic initiative to separate its legacy insurance business
("R&Q Legacy") and its program management business
("Accredited"). Today R&Q announces that it has entered into a
conditional agreement with funds advised by Onex Corporation (the
"Purchaser" or "Onex" [i] ) to sell 100% of the equity interest in
Randall & Quilter America Holding Inc., the holding company of
Accredited (the "Sale") for an enterprise value of $465 million
(the "Purchase Price") which represents an expected equity value of
approximately $438 million, when adjusted for Accredited's existing
debt commitments.
Net cash proceeds from the Sale are expected to be approximately
$300 million after adjusting for a number of Purchaser conditions
of the Sale, including i) the repayment of an existing $46 million
intercompany loan by R&Q to Accredited, ii) an estimated $76
million [ii] equity capital contribution by R&Q into Accredited
so Accredited can satisfy a minimum AM Best capital adequacy ratio
of 44% at closing, and iii) $15 million in transaction costs (the
"Expected Net Cash Proceeds").
Net cash proceeds available for utilisation immediately on
closing are expected to be between approximately $170 million and
$210 million (the "Available Net Cash Proceeds") after allowing for
i) an estimated approximately $40 million to $80 million [iii] of
additional collateral R&Q will be required to hold against
existing legacy insurance exposures retained by Accredited as a
further Purchaser condition of the Sale and ii) an estimated
approximately $50 million [iv] of cash to be retained by R&Q
for its ongoing liquidity and working capital requirements. It is
expected that, over the course of the next few years, the estimated
$40 million to $80 million of collateral in i) above will be
released and available to R&Q as the underlying exposures are
reduced and eliminated.
Following closing of the Sale, the Board intends to use all of
the Available Net Cash Proceeds to facilitate a material
de-leveraging of R&Q while retaining liquidity and working
capital for R&Q's ongoing commitments and requirements. R&Q
will be refocused as a legacy insurance business and will continue
to execute on its transition to a capital efficient and stable
recurring fee-based business model. The Board will also continue to
focus on minimising future reserve volatility as well as driving
improved underlying performance of R&Q through better
automation and expense management.
In parallel to executing its organic plan, the Board will also
continue to explore potential transactions to de-risk and reduce
volatility in R&Q Legacy's balance sheet or otherwise maximise
value to stakeholders.
The Sale is conditional on the transfer of R&Q's Chief
Executive Officer, William Spiegel, and Chief Financial Officer,
Thomas Solomon, to Accredited upon closing. William's and Thomas'
employment and appointments as Chief Executive Officer, Chief
Financial Officer and as Executive Directors of R&Q and its
subsidiaries will therefore cease on closing of the Sale. William
and Thomas will retain their current positions until closing of the
Sale and are working with the Board to ensure the successful
closing of the Sale and will assist with an orderly transition post
closing.
Upon closing of the Sale, Group Non-Executive Chairman Jeff
Hayman will act as Chairman and Interim Chief Executive Officer of
R&Q. Jeff's extensive industry experience makes him well placed
to lead R&Q as Interim Chief Executive Officer. The Board will
initiate a search to appoint a new Chief Executive Officer of
R&Q at the appropriate time.
In addition, Paul Bradbrook, currently Chief Accounting Officer
of R&Q, will become Chief Financial Officer of R&Q and will
be appointed to the Board upon closing of the Sale, subject to
customary approvals . Paul has over 20 years' experience of
financial management within the insurance industry and a deep
understanding of R&Q through his experience as Chief Accounting
Officer which makes him well positioned to act as Chief Financial
Officer.
All of R&Q's other Non-Executive Directors, Philip Barnes,
Eamonn Flanagan, Jo Fox, Jerome Lande and Robert Legget will
continue in their current roles.
1. Background to and strategic rationale for the Sale
R&Q is a global non-life speciality insurance company
currently organised around two principal businesses: a legacy
insurance business (R&Q Legacy) and a program management
business (Accredited).
R&Q Legacy manages small and medium sized non-life legacy
insurance portfolios, providing creative financial solutions to
owners of discontinued insurance and reinsurance business. The
non-life legacy market opportunity is significant and growing, with
total global reserves estimated to be $960 [v] billion in 2022, an
increase of $100 billion (5) from 2021. In 2021, R&Q launched
Gibson Re, a Bermuda-domiciled collateralised reinsurer with
approximately $300 million of long-term, third-party capital that
underpins R&Q Legacy's ability to deploy capital and offer
innovative legacy solutions. The dedicated reinsurance sidecar
reinsures 80% of R&Q Legacy's transactions with R&Q Legacy
retaining 20% of the risk exposure. Following R&Q's landmark
deal earlier this year to acquire and professionally manage the
non-insurance legacy liabilities of MSA Safety, R&Q Legacy now
earns fees from two distinct but complementary pools of
liabilities: traditional insurance reserves and corporate
non-insurance liabilities.
Accredited is a leading program manager, providing A- rated
insurance capacity in the US, UK and Europe. Accredited's US, UK
and EU-regulated insurance companies act as an intermediary between
Managing General Agents ("MGAs") and reinsurers. Accredited has
grown significantly over the last three years achieving Gross
Written Premium and Fee Income of $1.8 billion and $80 million [vi]
, respectively, in the twelve months to 31(st) December 2022, and
$1.1 billion and $46 million, respectively, in the six months to
30(th) June 2023.
As at 30(th) June 2023, the unaudited gross assets and
shareholders' equity of the business subject to the Sale were $4.3
billion [vii] and $243 million (7) , respectively. As at 31(st)
December 2022, the unaudited gross assets and shareholders' equity
of the business subject to the Sale were $3.9 billion (7) and $225
million (7) , respectively. For the financial year ended 31(st)
December 2022, the unaudited statutory loss before tax for the
business subject to the Sale was $(16) million (7) . For the six
months ended 30th June 2023, the unaudited statutory profit before
tax for the business subject to the Sale was $13 million (7) .
R&Q has supported the growth and strategic development of
Accredited since its launch in 2017. Accredited relies on an 'A-'
financial strength rating from AM Best to conduct business and
historically relied on the financial strength of the broader
R&Q group to obtain its financial strength rating. However,
following a review in Q1 2023 the Board concluded that given
Accredited's size and scale it was in the best interests of
R&Q's stakeholders for Accredited to obtain a standalone rating
without influence from the broader R&Q group. An important
factor in obtaining a standalone rating for Accredited was AM
Best's guidance that a full separation and transaction with a third
party which resulted in the deconsolidation of Accredited from the
Group was essential to enable Accredited to obtain a fully
independent rating.
In response to the guidance from AM Best, the Board announced on
4(th) April 2023 a legal reorganisation to separate R&Q Legacy
and Accredited. In addition, the Board announced that it had
decided to explore a full deconsolidation of Accredited and
subsequently ran a sale process to find a suitable partner for its
clients and colleagues and to realise full value for R&Q and
its shareholders. The sale process commenced in April 2023 with an
extensive global outreach to potentially interested parties,
representing a broad range of financial and strategic partners. The
Sale is the outcome of this process.
Alongside this process, the legal reorganisation was completed
in June 2023. As of that date, AM Best recognised Accredited as an
independent rating unit with a financial strength rating of 'A-'.
The rating however, remained under review with negative
implications subject to the sale and deconsolidation of
Accredited.
A strategic transaction committee was formed to provide
governance oversight of the Sale, comprised of the Non-Executive
Directors (comprising all of the directors other than William
Spiegel, Thomas Solomon and Alan Quilter) (the "Non-Executive
Directors"). The Non-Executive Directors consider the Sale to be in
the best interests of R&Q shareholders and that it enables
R&Q to realise value for Accredited. The Sale will facilitate a
material de-leveraging of R&Q and will create a simpler and
better capitalised R&Q Legacy business. R&Q will be
positioned to deliver value to shareholders by continuing to
execute its existing strategy of transitioning to a capital
efficient and stable recurring fee-based business model.
2. Recommendation
The Non-Executive Directors unanimously support the Sale and
believe the terms of the Sale are in the best interests of R&Q,
its shareholders and its other stakeholders. The Non-Executive
Directors believe the Sale provides the most certainty for
Accredited to maintain an independent financial strength rating of
'A-', which is essential to protect its value.
Shareholders should note that if the resolution to approve the
Sale is not approved by shareholders at the Special General
Meeting, the Sale will not proceed. The Non-Executive Directors
believe that the Sale represents R&Q's best opportunity to
achieve a full separation and deconsolidation of Accredited from
the Group and, as noted above, such full separation is necessary to
enable Accredited to retain a fully independent rating. In the
event that Accredited does not retain a fully independent rating,
the Board believes there is a significant risk that AM Best will
downgrade Accredited which would have a detrimental impact on
Accredited's ability to successfully operate its business,
particularly in the United States where an 'A-' financial strength
rating is a minimum requirement from Accredited's counterparties.
Such a downgrade would therefore have material implications on
R&Q's ability to continue as a going concern.
Additionally, the Board believes that the current financial
leverage of R&Q is unsustainable and if the Sale were not to
proceed and the Available Net Cash Proceeds were not available to
facilitate a material de-leveraging of R&Q, R&Q may not be
able to continue to satisfy or obtain waivers on the covenant
requirements for its existing debt facilities or repay certain of
its debt facilities as they become due. A potential default or
cross-default by R&Q on its existing debt facilities may lead
its lenders to take action to protect their interests by requiring
collateral or enforcing their security over certain R&Q assets,
resulting in a materially worse outcome for R&Q and its
shareholders.
R&Q remains in close dialogue with its lending banks,
providers of credit and other financing providers. R&Q will
require support from these parties in relation to renewals or
redemptions due in November and December of this year, ongoing
requests for waivers for potential covenant breaches and for the
necessary approvals and consents required to enable the Sale to
take place.
Accordingly, the Non-Executive Directors strongly encourage
shareholders to vote in favour of the resolution to approve the
Sale at the Special General Meeting.
3. Irrevocable undertakings
The Non-Executive Directors have irrevocably undertaken to vote
or procure votes in favour of the resolution to approve the Sale in
respect of their holdings of R&Q shares, in aggregate,
representing 240,476 outstanding R&Q shares and constituting
approximately 0.1 per cent. of R&Q's issued voting share
capital as at 19 October 2023 (being the latest practicable date
prior to the date of this announcement).
In addition to the irrevocable undertakings from the
Non-Executive Directors, William Spiegel, Thomas Solomon, Alan
Quilter and certain other members of R&Q's management team have
given irrevocable undertakings to vote, or procure votes, in favour
of the resolution to approve the Sale. In aggregate, these
irrevocable undertakings represent, as at 19 October 2023 (being
the latest practicable date prior to the date of this
announcement), 8,059,692 outstanding R&Q shares and constitute
approximately 2.2 per cent. of R&Q's issued voting share
capital.
In addition Scopia Capital Management ("Scopia") has given an
irrevocable undertaking to vote, or procure votes, in favour of the
resolution to approve the Sale. This irrevocable undertaking,
represents, as at 19 October 2023 (being the latest practicable
date prior to the date of this announcement), 30,000,000
outstanding R&Q shares and constitutes approximately 8.0 per
cent. of R&Q's issued voting share capital.
In aggregate, irrevocable undertakings have been given to vote,
or procure votes, in favour of the resolution to approve the Sale
representing, as at 19 October 2023 (being the latest practicable
date prior to the date of this announcement), 38,059,692
outstanding R&Q shares and constituting approximately 10.2 per
cent. of R&Q's issued voting share capital .
Further details of these irrevocable undertakings, including the
circumstances in which they cease to apply, are set out in the
Appendix.
4. Financing of the Purchase Price
In support of Onex's obligation to pay the Purchase Price, Onex
has provided an equity commitment letter up to the full amount of
the purchase price.
In the event that Onex fails to pay the purchase price under the
Sale agreement following the satisfaction of all of the conditions
to closing, R&Q would have the right to enforce the equity
commitment letter for the payment of the Purchase Price.
5. Conditions to closing
The Sale is structured as the sale of the entire issued share
capital of Randall & Quilter America Holding Inc, which is the
holding company of the Accredited business. R&Q Insurance
Holdings Ltd (the "Seller"), will effect the Sale. The Sale
agreement contains certain obligations of R&Q, including the
requirement to hold the Special General Meeting to approve the Sale
as well as other customary conditions.
The Sale constitutes a fundamental change of business and under
the AIM Rules for Companies, Rule 15 will apply. The closing of the
Sale is therefore conditional on the approval by a majority of
shareholders at a Special General Meeting.
As Randall & Quilter America Holding Inc and certain of its
subsidiaries are authorised and regulated entities, the Sale is
also conditional on obtaining regulatory approvals from the Arizona
Department of Insurance, the Florida Office of Insurance
Regulation, the Prudential Regulation Authority, the Malta
Financial Services Authority and US Antitrust authorities.
The Sale is also conditional on customary consents from certain
R&Q debt providers.
As is usual in transactions of this nature, the Sale agreement
sets out the obligations on the parties to obtain the required
approvals, as well as customary representations, warranties,
covenants and indemnities. The transaction documentation also
includes certain transitional services (set out below) to be
provided by R&Q and Accredited for a limited period following
closing. R&Q is exploring customary representation and warranty
insurance to limit any liabilities, but there is no guarantee such
insurance will be placed.
6. Transitional services
Under a transitional services agreement between R&Q and
Accredited to be entered into upon the closing of the Sale (the
"TSA"), each party will provide transitional services to the other
party for limited periods of up to 12 months following closing of
the Sale, with a commitment to provide those services generally at
the same level of service with which they were provided before
closing. The services performed by R&Q for Accredited will
cover the following functions: finance and accounting (including
assistance with Accredited's year-end closings for 2023); legal,
risk, and compliance; human resources; information technology
("IT") and facilities and equipment management. Accredited will
perform for R&Q a more limited set of services covering the
following functions: finance and accounting (including assistance
with R&Q's year-end closings for 2023); finance change
management; legal, risk, and compliance (including UK senior
manager functions); and IT support. In connection with the
continued provision of these services under the TSA, each party
will also assist the other with data and knowledge transfer and
similar migration services. The charges for the services will
reflect the providing party's internal and external costs of
providing the services, without markup. Each party's liability as
provider of a service will be limited to the fees it has received
for such service.
7. Use of proceeds and impact on the pro-forma financial position of remaining R&Q
Given the expected timing of the Sale, R&Q will own
Accredited for the rest of the 2023 financial year and most likely
for a period of 2024. Following closing of the Sale, R&Q will
be refocused as a legacy insurance business, positioned to continue
to execute on its transition to a capital efficient and stable
recurring fee-based business model.
Available Net Cash Proceeds on closing are expected to be
between approximately $170 million and $210 million. Following
closing of the Sale, the Board intends to use the Available Net
Cash Proceeds to facilitate a material de-leveraging of R&Q
while retaining liquidity and working capital for R&Q's ongoing
commitments.
Adjusted for closing of the Sale and subsequent de-leveraging of
R&Q assuming Available Net Cash Proceeds of $170 million (at
the lower end of the expected range), R&Q's current estimated
pro-forma financial position as at 30 June 2023 would be as
follows:
Assets $2.0 billion
Debt $203 million
-------------
Shareholders' Equity $356 million
-------------
Debt to Capital Ratio 36%
-------------
Group Solvency Ratio >200%
-------------
Net Asset Value Per Common Share 80 cents
-------------
Net Asset Value Per Common Share (Diluted) 79 cents
[viii]
-------------
8. Future strategy of R&Q
The Sale refocuses R&Q as a legacy insurance business in
Bermuda, Europe, the US and the UK. After the Sale, R&Q will
have a legacy platform with over 150 people across
M&A/reinsurance solutions, claims management, servicing,
actuarial and finance functions. In addition, it will have Reserves
Under Management of over $1.1 billion and a strong transaction
pipeline. R&Q Legacy will continue to be an important player in
the legacy market.
The Sale will enable the Board to undertake a material
de-leveraging of R&Q which will enhance the business' ability
to execute the Board's existing strategy of transitioning to a
capital efficient and stable recurring fee-based business model.
Gibson Re, R&Q's dedicated sidecar will continue to be a core
component of this transition. R&Q retains 20% of a typical
legacy transaction with the remaining 80% ceded to Gibson Re.
Gibson Re will underpin R&Q's ability to deploy capital and
offer innovative legacy solutions to its clients.
The non-life legacy market is significant and growing, with
total global reserves estimated at $960 billion in 2022, an
increase of $100 billion from the previous year. R&Q has a
strong pipeline, with identified transactions comprising over $0.9
billion of reserves, including three deals in advanced stages with
over $100 million of reserves. Going forward, R&Q will continue
to focus on transactions in the small to medium size range, where
R&Q maintains a competitive advantage, and offering compelling
finality solutions for corporates in the US, UK and Europe. This
follows R&Q's landmark deal earlier this year to invest
alongside Obra Capital to acquire and professionally manage the
non-insurance legacy liabilities of MSA Safety. This strategy,
alongside Gibson Re, will generate fees from two distinct but
complementary pools of liabilities: traditional insurance reserves
and corporate non-insurance liabilities.
From a financial perspective, immediately following the Sale,
R&Q expects to experience run-rate operating losses as it
continues to execute on its transition to a capital efficient and
stable recurring fee-based business model. As part of this
strategy, the Board is focused on making R&Q a more efficient
and scalable business. R&Q has already identified and taken
action on a number of opportunities to reduce expenses, including
simplifying its legal entity structure and rationalising its real
estate footprint. Work is also underway to automate the input of
data received from third party administrators ("TPAs") and move
internal systems to the Cloud. Better use of data is enabling
R&Q to make smarter decisions, more quickly, while more
automated processing is reducing duplication and costs. The
decrease in R&Q Legacy Fixed Operating Expenses to $36 million
for the six months to June 2023 compared to $ 39 million for the
six months to June 2022 is evidence of the results and success this
strategy is already delivering. The Board expects this will create
further operational leverage benefits as R&Q grows Reserves
Under Management. The Board is confident that R&Q has a team
with the right experience to deliver this strategy, and that it
represents the best way to deliver value to shareholders.
In parallel to executing its organic plan, the Board will
continue to explore potential transactions to de-risk and reduce
volatility in R&Q Legacy's balance sheet or otherwise maximise
value to stakeholders.
Board and management
Upon closing of the Sale, Group Non-Executive Chairman Jeff
Hayman will act as Chairman and Interim Chief Executive Officer of
R&Q. Jeff's extensive industry experience makes him well placed
to lead R&Q as interim Chief Executive Officer. He has spent
over 40 years in the insurance industry with long tenures at The
Travelers and AIG, including divisional and global CEO roles. In
addition, Jeff was recently a Board member and committee chair of
Zurich Insurance Group.
The Board will also initiate a search to identify and appoint a
new Chief Executive Officer of R&Q at the appropriate time.
In addition, as outlined above, Paul Bradbrook, currently Chief
Accounting Officer of R&Q, will become Chief Financial Officer
of R&Q.
Andrew Pinkes, Global Legacy Chief Executive Officer, has
informed the Board that he has decided to retire from R&Q by
the end of the year. Andrew came out of retirement and joined
R&Q in 2021 to help drive R&Q's strategic ambitions and to
transition R&Q Legacy to a capital efficient, data-driven and
stable recurring fee-based model. The Board would like to take this
opportunity to thank Andrew for his significant contribution to and
thoughtful leadership of R&Q Legacy. The Board and Andrew have
agreed that upon retirement Andrew will enter into a consultancy
arrangement with R&Q and will become an adviser to R&Q and
the leadership team until closing of the Sale.
As announced on 31(st) March 2023, Alan Quilter, Group Head of
Program Management, will retire from R&Q and the Board of
Directors at the end of the year. The Board and Alan have agreed
that upon retirement Alan will also enter into a consultancy
arrangement with R&Q and will become an adviser to R&Q and
the leadership team following closing of the Sale.
All of R&Q's other Non-Executive Directors, including Philip
Barnes, Eamonn Flanagan, Jo Fox, Jerome Lande and Robert Legget
will be continuing in their current roles.
9. Expected timetable of principal events
A Circular containing further details of the Sale, the
Non-Executive Directors ' recommendation, and the notice of the
Special General Meeting (which will set out the resolution required
to approve the Sale) will be sent to R&Q's shareholders in the
coming weeks. The Special General Meeting of R&Q's shareholders
is expected to take place by the end of the year. Closing of the
Sale is expected to occur in late Q1 2024 or early Q2 2024.
10. Information relating to Onex
Onex is an investor and asset manager that invests capital on
behalf of Onex shareholders and clients across the globe. Formed in
1984, Onex has a long track record of creating value for clients
and shareholders. Onex' two primary businesses are Private Equity
and Credit. In Private Equity, Onex raises funds from third-party
investors, or limited partners, and invest them, along with Onex's
own investing capital, through the funds of their private equity
platforms, Onex Partners and ONCAP. Similarly, in Credit, Onex
raises and invests capital across several private credit, public
credit and public equity strategies. Onex's investors include a
broad range of global clients, including public and private pension
plans, sovereign wealth funds, insurance companies and family
offices. In total, Onex has approximately $50 billion in assets
under management, of which approximately $8 billion is Onex's own
investing capital. With offices in Toronto, New York, New Jersey,
Boston and London, Onex and its experienced management teams are
collectively the largest investors across Onex's platforms.
Important Notices
Barclays Bank PLC, acting through its Investment Bank
("Barclays"), which is authorised by the Prudential Regulation
Authority and regulated in the United Kingdom by the FCA and the
Prudential Regulation Authority, is acting exclusively for R&Q
and no one else in connection with the Sale and will not be
responsible to anyone other than R&Q for providing the
protections afforded to clients of Barclays nor for providing
advice in relation to the Sale or any other matter referred to in
this Announcement.
Fenchurch Advisory Partners LLP ("Fenchurch"), which is
authorised and regulated in the United Kingdom by the FCA, is acted
as joint financial adviser for R&Q and no one else in
connection with the Sale and will not be responsible to anyone
other than R&Q for providing the protections afforded to
clients of Fenchurch nor for providing advice in relation to the
Sale or any other matter referred to in this Announcement.
TigerRisk Capital Markets & Advisory (UK) Limited ("Howden
Tiger Capital Markets & Advisory"), which is authorised and
regulated in the United Kingdom by the FCA, is acting as joint
financial adviser for R&Q and no one else in connection with
the Sale and will not be responsible to anyone other than R&Q
for providing the protections afforded to clients of Howden Tiger
Capital Markets & Advisory nor for providing advice in relation
to the Sale or any other matter referred to in this
Announcement.
Numis Securities Limited ("Numis"), which is authorised and
regulated in the United Kingdom by the FCA, is acting exclusively
for R&Q and no one else in connection with the matters set out
in this announcement and will not regard any other person as its
client in relation to the matters in this announcement and will not
be responsible to anyone other than R&Q for providing the
protections afforded to clients of Numis, nor for providing advice
in relation to any matter referred to herein.
Further Information
This announcement is for information purposes only and is not
intended to and does not constitute, or form any part of, an offer
to sell or an invitation to purchase or subscribe for any
securities or the solicitation of any vote or approval in any
jurisdiction pursuant to the Sale or otherwise, nor shall there be
any sale, issuance or transfer of securities of R&Q in any
jurisdiction in contravention of applicable law. The Sale will be
made solely pursuant to the terms of the Circular, which will
contain the full terms and conditions of the Sale, including
details of how to vote in respect of the Sale and accompanied by
forms of proxy and forms of instruction for use at the Special
General Meeting. Any decision in respect of, or in response to, the
Sale should be made only on the basis of the information in the
Circular. R&Q shareholders are advised to read the Circular and
any other formal documentation published in relation to the Sale
carefully, once it has been published or dispatched.
This announcement has been prepared for the purpose of complying
with Bermuda and English law and the information disclosed may not
be the same as that which would have been disclosed if this
announcement had been prepared in accordance with the laws of
jurisdictions outside the United Kingdom and Bermuda.
This announcement does not constitute a prospectus or prospectus
equivalent document.
Financial information relating to R&Q included in this
announcement and the Circular has been or shall have been prepared
in accordance with accounting standards applicable in the United
States and may not be comparable to financial information of UK
companies or companies whose financial statements are prepared in
accordance with generally accepted accounting principles in the
United Kingdom.
Forward-Looking Statements
This announcement contains forward-looking statements with
respect to R&Q and its industries, that reflect its current
views with respect to future events and financial performance.
Statements that are not historical facts, including statements
about R&Q's beliefs, plans or expectations, are forward-looking
statements. These statements are based on current plans, estimates
and expectations, all of which involve risk and uncertainty.
Statements that include the words "expect," "intend," "plan,"
"believe," "project," "anticipate," "may", "could" or "would" or
similar statements of a future or forward-looking nature identify
forward-looking statements. Actual results may differ materially
from those included in such forward-looking statements and
therefore you should not place undue reliance on them.
A non-exclusive list of the important factors that could cause
actual results to differ materially from those in such
forward-looking statements includes: (a) changes in the size of
claims relating to natural or man-made catastrophe losses due to
the preliminary nature of some reports and estimates of loss and
damage to date; (b) trends in rates for property and casualty
insurance and reinsurance; (c) the timely and full recoverability
of reinsurance placed by R&Q with third parties, or other
amounts due to R&Q; (d) changes in the projected amount of
ceded reinsurance recoverables and the ratings and credit
worthiness of reinsurers; (e) actual loss experience from insured
or reinsured events and the timing of claims payments being faster
or the receipt of reinsurance recoverables being slower than
anticipated; (f) increased competition on the basis of pricing,
capacity, coverage terms or other factors such as the increased
inflow of third party capital into reinsurance markets, which could
harm R&Q's ability to maintain or increase its business volumes
or profitability; (g) greater frequency or severity of claims and
loss activity than R&Q's underwriting, reserving or investment
practices anticipated based on historical experience or industry
data; (h) changes in the global financial markets, including the
effects of inflation on R&Q's business, including on pricing
and reserving, increased government involvement or intervention in
the financial services industry and changes in interest rates,
credit spreads, foreign currency exchange rates and future
volatility in the world's credit, financial and capital markets
that adversely affect the performance and valuation of R&Q's
investments, financing plan and access to such markets or general
financial condition; (i) changes in ratings, rating agency policies
or practices; (j) the potential for changes to methodologies,
estimations and assumptions that underlie the valuation of
R&Q's financial instruments that could result in changes to
investment valuations; (k) changes to R&Q's assessment as to
whether it is more likely than not that it will be required to
sell, or has the intent to sell, available-for-sale debt securities
before their anticipated recovery; (l) the ability of R&Q's
subsidiaries to pay dividends; (m) the potential effect of
legislative or regulatory developments in the jurisdictions in
which R&Q operates, such as those that could impact the
financial markets or increase their respective business costs and
required capital levels, including but not limited to changes in
regulatory capital balances that must be maintained by operating
subsidiaries and governmental actions for the purpose of
stabilising the financial markets; (n) the actual amount of new and
renewal business and acceptance of products and services, including
new products and services and the materialisation of risks related
to such products and services; (o) changes in applicable tax laws,
tax treaties or tax regulations or the interpretation or
enforcement thereof; (p) the effects of mergers, acquisitions,
divestitures and retrocession.
No Profit Forecasts or Estimates
No statement in this announcement is intended as a profit
forecast or estimate of the future financial performance of R&Q
following closing of the Sale for any period unless otherwise
stated. Furthermore, no statement in this announcement should be
interpreted to mean that earnings or earnings per R&Q share for
R&Q for the current or future financial years would necessarily
match or exceed the historical published earnings or earnings per
R&Q share.
APPIX
Irrevocable undertakings
1. Directors' irrevocable undertakings
The following Directors and members of management have
irrevocably undertaken to vote or procure votes in favour of the
resolution to approve the Sale. As at 19 October 2023 (being the
latest practicable date prior to the date of this announcement),
their holdings of R&Q shares are:
Name Total number of Percentage of existing
R&Q shares share capital of
R&Q
William Spiegel 2,746,207 0.735
--------------------------- ----------------------------------
Thomas Solomon 1,223,957 0.327
--------------------------- ----------------------------------
Alan Quilter 2,554,281 0.683
--------------------------- ----------------------------------
Joanne Fox 50,000 0.013
--------------------------- ----------------------------------
Eamonn Flanagan 95,238 0.025
--------------------------- ----------------------------------
Philip Barnes 95,238 0.025
--------------------------- ----------------------------------
Patrick Rastiello 339,625 0.091
--------------------------- ----------------------------------
Andrew Pinkes 735,895 0.197
--------------------------- ----------------------------------
Robert Thomas 219,251 0.059
--------------------------- ----------------------------------
Total 8,059,692 2.156
--------------------------- ----------------------------------
The obligations under these irrevocable undertakings shall lapse
and cease to have effect on and from the following occurrences:
-- this announcement is not released by 1 November 2023 or such
later time or date as the Company may determine;
-- the Sale agreement is terminated in accordance with its terms;
-- the Special General Meeting has been held and the resolution
to approve the Sale voted upon at that Special General Meeting;
and
-- if the undertakings have not lapsed earlier, on 1 April 2024.
Given their impending retirements, Alan Quilter and Andrew
Pinkes are permitted to deal in their R&Q shares. The other
Directors and members of management are, however, precluded from
dealing in their R&Q Shares until their obligations under their
undertakings lapse.
2. Scopia irrevocable undertaking
Scopia has given an irrevocable undertaking to vote, or procure
votes, in favour of the resolution to approve the Sale in respect
of the R&Q Shares it holds from time to time. This irrevocable
undertaking, as at 19 October 2023 (being the latest practicable
date prior to the date of this announcement), represents 30,000,000
outstanding R&Q shares and constitutes approximately 8.0 per
cent. of R&Q's issued voting share capital. Scopia is permitted
to deal in its R&Q shares for the duration of the
undertaking.
The obligations under this irrevocable undertaking shall lapse
and cease to have effect on and from the following occurrences:
-- this announcement is not released by 1 November 2023 or such
later time or date as the Company may determine;
-- the Sale agreement is terminated in accordance with its terms;
-- the Special General Meeting has been held and the resolution
to approve the Sale voted upon at that Special General Meeting;
-- an offer for Accredited made in writing to the Board, which
represents an equity value which may be higher than the equity
value which the Sale represents (such determination of whether the
equity value represented by such offer is higher to be made by
Scopia acting reasonably);the Non-Executive Directors do not make,
withdraw, modify or qualify the Board recommendation; and
-- if the undertaking has not lapsed earlier, on 1 April 2024.
The following footnotes are contained throughout this
announcement:
[i] Funds advised are Onex Partners V LP
[ii] Represents management's estimate based on forecast of
retained earnings through closing and AM Best treatment of
available and required capital under BCAR model
[iii] Represents management's estimate based on forecast of loss
reserves and collateral expected to be in place at closing under
various reinsurance agreements
[iv] Represents management's estimate of working capital
required for 18 months subsequent to closing
[v] As per the PwC 'Global Insurance Run-Off Survey 2022'
[vi] Excluding minority stakes in MGAs
[vii] The principal differences between the statutory financial
information of the Accredited entities subject to the Sale, and the
reported financials for Accredited line of business are in respect
of: (i) the inclusion of R&Q Legacy exposure in the Accredited
entities; (ii) the inclusion of certain central costs to the
Accredited entities that support both program management and
legacy; (iii) the inclusion of EUR25 million of debt in the legal
entities and (iv) investment income in the legal entities
supporting both program management and legacy insurance
[viii] Reflects 73.3 million shares upon conversion of $55
million of preferred equity at 75 cents per share
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END
MSCEAKEEAAADFFA
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