Accredited grows pre-tax operating profit; Legacy Reserves Under Management exceed $1 billion; Legacy results impacted by adverse reserve development
R&Q Insurance Holdings Ltd (AIM: RQIH) ("R&Q" or the "Group"), the leading non-life global specialty insurance company focusing on the Program Management ("Accredited") and Legacy Insurance ("R&Q Legacy") businesses, today announces its results for the half year ended 30 June 2023.
H1 2023 Financial Highlights
Accredited
- Gross Written Premium ("GWP") of $1.1 billion (H1 2022: $0.8 billion, a 34% increase)
- Fee Income of $46.2 million (H1 2022: $39.1 million, an 18% increase)
- Pre-Tax Operating Profit of $28.6 million (H1 2022: $15.4 million, an 86% increase)
- Pre-Tax Operating Profit Margin of 57.0% (H1 2022: 43.6%, a 13.4 percentage point increase)
R&Q Legacy
- Completed MSA Safety transaction involving non-insurance liabilities in an otherwise seasonally quiet market with Gross Reserves Acquired of $695.0 million (H1 2022: $5.3 million)
- Reserves Under Management of $1.1 billion (30 June 2022: $0.4 billion, a 172% increase)
- Fee Income of $9.7 million (H1 2022: $8.8 million, a 10% increase), with MSA Safety carrying a lower fee than Gibson Re on Reserves Under Management due to no tail risk exposure
- Pre-Tax Operating Loss before adverse reserve development of $24.2 million and a loss of $64.2 million including $40.0 million of adverse reserve development primarily from older transactions in Lloyd's
Group
- Total Fee Income of $55.9 million (H1 2022: $47.9 million, a 17% increase)
- Pre-Tax Operating Loss of $18 million prior to R&Q Legacy adverse development and a loss of $58.0 million including the $40.0 million of R&Q Legacy adverse reserve development
Non-Recurring Items
- Non-cash income of $1.8 million primarily associated with net unrealised investment gains net of fair market value impact on legacy reserves
- Extraordinary cash income of $4.1 million
Operational Highlights
- Continued focus on cost control with R&Q Legacy Fixed Operating Expenses decreasing 8% year-over-year
- Operational improvement program in full flight with ~$20 million of the planned total $20 ‒ $25 million investment deployed since 2021, with the remainder to be incurred in H2 2023
- Investment in automation and technology processes is expected to generate significant productivity efficiencies by end of 2024
Outlook
- Focus remains on the separation of R&Q Legacy and Accredited
- Advanced discussions regarding the potential sale of Accredited as announced on 22nd September
- Post period end, Accredited approved five programs with ~$227 million in annualised GWP
- R&Q Legacy has three deals in advanced stages with over $100 million in reserves and an identified pipeline of ~$800 million in reserves
William Spiegel, Chief Executive Officer of R&Q, commented:
“As we said in our 2022 full year results announcement, R&Q is undergoing a multi-year operational turnaround aimed at creating a stronger, sustainable and more efficient business. We are well underway with this program and continued to make good progress in the first half of 2023. A key part of this is to become a simpler and more focused company with a more appropriate capital structure. Separating the ownership of R&Q Legacy and Accredited is an important step in accomplishing this and, as announced on 22 September 2023, we are in advanced discussions with a party regarding the potential sale of Accredited.
"Both Accredited and R&Q Legacy have delivered well against their respective strategic objectives in the first half of 2023.
"Accredited successfully grew GWP, Fee Income and Pre-Tax Operating Profit and continues to be a leading trans-Atlantic program manager, with five further programs approved post this reporting period.
"R&Q Legacy now has Reserves under Management in excess of $1 billion, most notably executing its first corporate liabilities transaction through the formation of our joint venture with Obra to manage the non-insurance legacy exposures of MSA Safety. While H1 is seasonally quieter, R&Q Legacy continues to have an active pipeline with three deals in advanced stages and over $800 million in reserves identified as opportunities. We remain laser-focused on expense discipline in R&Q Legacy and have reduced Fixed Operating Expenses by 8% year-over-year.
"As we detailed when we set out our plan to transition R&Q Legacy to a more capital efficient recurring fee-based model, our earnings needed go through a valley as we implemented this strategy. While we are pleased with how R&Q Legacy is executing against its strategy, we are disappointed to have witnessed further adverse reserve development. Excluding this, we would have reported a Group Pre-Tax Operating Loss of $18 million, an improvement on last year’s equivalent, that highlights Accredited’s continued profitable growth and R&Q Legacy’s increased fee income and strong expense management. We are focused on trying to minimize future reserve volatility as well as driving improved underlying performance of the Group through better automation and expense management.
"Looking ahead, we continue to focus on maximizing value for our shareholders and other stakeholders. Both of our businesses have bright futures, and our strategic objective is to give each the footing it needs to pursue its business model with confidence.”
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