R&Q to split business after leadership revamp for ‘more favourable footing’

Global specialty insurance company  R&Q Insurance Holdings is mulling its strategic options to separate its programme management business, Accredited, and its legacy insurance business,  having recently shuffled its senior leadership to better align its governance structure. The move is part of its efforts to set the business on a “more favourable footing” to deliver profitable growth as it transitions its legacy business to a fee-based and capital efficient model.

Management highlighted that 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 programme 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 said it 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 company said in a statement.

In its trading update, it revealed it anticipates making a pre-tac operating loss for last year of between $30 million and $40 million. It said its programme management business will make a profit of $55 million to $60 million but its legacy business would lose $55 million to $60 million and it would incur a $35 million loss from corporate and other, which is primarily interest expense.

William Spiegel (pictured right), group CEO, commented: “Our Programme 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 programmes and has over 200 reinsurance partnerships. Accredited has grown to become one of the largest programme 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.”

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