R&Q Weighs Separation of Program Management and Legacy Insurance Businesses
R&Q Insurance Holdings Ltd., the non-life global specialty insurance company that focuses on program management and legacy insurance businesses, announced that the board of R&Q is reviewing strategic options to separate these businesses.
R&Q said its 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.
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Therefore, the board of R&Q is reviewing strategic alternatives to separate Accredited and Legacy Insurance, which will include a legal reorganization 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 favorable footing to deliver profitable growth, each with their own appropriate capital structures.
The legal reorganization is subject to regulatory and lender consents, which R&Q expects to obtain in Q2 2023.
Preliminary FY 2022 Update
Based on preliminary and unaudited information, R&Q anticipates that it will realize a pre-tax operating loss for the financial year ended Dec. 31, 2022 of $30 million-$40 million, comprising a profit of $55 million-$60 million in Program Management and a loss of $55 million-$60 million in Legacy Insurance, and a $35 million loss in Corporate and Other, which is primarily interest expense on debt, unallocated expenses and foreign exchange impact on reevaluation of net assets, according to R&Q.
“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,” commented William Spiegel, R&Q’s chief executive officer.
“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,” he added.
In Legacy Insurance, R&Q continues to focus on transitioning to a fee-based and capital efficient model “and remains confident that this will create a more profitable, sustainable and valuable business,” Spiegel said.
“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,” he continued.
As announced on Jan. 6, 2023, R&Q has grown reserves under management to in excess of $1 billion, Spiegel said.
“While our Q4 2022 actuarial review process shows a need to strengthen reserves, it is important to note that the IFRS accounting regime recognized 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.”
Source: R&Q Insurance Holdings