R&Q to Sell Stake in Obra Joint Venture for $30M, Expects “Significant Pre-Tax Loss”
R&Q Insurance Holdings, (R&Q) the Bermuda-based non-life speciality insurer that focuses on program management and legacy insurance business, announced it has agreed to sell its stake in a joint venture with Obra Capital for $30 million.
At the same time, R&Q revealed it anticipates “a significant pre-tax loss” for 2023, which it blamed on adverse development in its legacy business and “a material increase in corporate costs” related to the planned sale of its program management subsidiary, Accredited. (The date of the release of its 2023 financial results hasn’t yet been announced).
The company’s shares on the London Stock Exchange quickly plummeted by 45% and stayed at that level throughout the day’s trading on Friday.
The R&Q-Obra joint venture was established in 2022 to hold entities with legacy non-insurance corporate liabilities to which R&Q would provide management services,
On Oct. 20, 2023, R&Q announced it had agreed to sell 100% of its equity interest in Randall & Quilter America Holding Inc., the holding company of the Accredited business, to Onex Corp., the Toronto-based private equity company, for a purchase price of $465 million, which will be used to reduce R&Q’s debt load. R&Q expects the sale of Accredited to close in the second half of 2024.
On April 12, 2024, R&Q said the sale will enable the company to undertake a material financial de-leveraging of R&Q and return the capital solvency position back to target levels, “enhancing the business’ ability to execute the board’s existing strategy of transitioning R&Q Legacy to a capital efficient and stable recurring fee-based business model.”
In 2022, R&Q sought to boost its capital position as a result of new accounting standards that became effective in 2023. After a failed purchase of the company by shareholder Brickell PC Insurance Holdings LLC, the company successfully raised capital of up to $60 million in June 2023.
Once the sale of Accredited is completed, R&Q will return to its original focus on legacy insurance acquisitions in Bermuda, Europe, the US and the UK. In December. The company expects R&Q Legacy to be profitable by the end of 2025.
Meanwhile, however, it is seeing adverse reserve development. Providing a trading update for R&Q Legacy, the company expected it to realize adverse development of approximately 23% of the group’s net reserves for the year ending Dec. 31, 2023, which includes $64.2 million of adverse reserve development identified at the half year. “This primarily relates to tail claim development as well as inflation and abuse claim development across the portfolio.”
However, R&Q indicated that there is good news in that R&Q Legacy “is positioned to continue to be an important player in the legacy market.”
“…R&Q will have a legacy platform with over 100 people across M&A/reinsurance solutions, claims management, servicing, actuarial and finance functions. In addition, it will have reserves under management of over $1.0 billion and a strong transaction pipeline,” the company said in a circular published on Dec. 14, 2023.
As for Accredited, R&Q said it expects to recognize gross written premium of $2.1 billion and fee income (excluding minority stakes in MGAs) of $90 million, which increased 17% and 12.5%, respectively, over the prior year.
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