R&Q transitions from 'lumpy' to capital-light business model with new sidecar Gibson Re

Randall & Quilter (R&Q) has launched a $300 million Bermuda-domiciled collateralised reinsurer Gibson Re, a key step in its ambition to transform "lumpy" legacy insurance into a more "capital-light" recurring fee-based business model.

The move is a part of the company's five-Year strategy of becoming a “capital efficient, fee-oriented and data driven company”. R&Q is repositioning its business to become an asset manager for legacy insurance business, focusing on its core strengths of insurance origination, underwriting and claims management.

"Gibson Re starts the transformation of R&Q’s Legacy Insurance business from being balance sheet intensive with episodic earnings to a more capital light and predictable, largely recurring fee-based model," said William Spiegel (pictured), executive chairman of the company.

Gibson Re will reinsure 80 percent of all of R&Q’s new qualifying legacy transactions for three years, with R&Q participating in 20 percent to promote alignment of interest.

Gibson Re’s capital will allow R&Q to acquire approximately $2 billion of insurance reserves. R&Q will also receive an annual fee of 4.25 percent on reserves ceded to Gibson Re, plus potential performance fees.

If all of Gibson Re’s capital is deployed by 2023, R&Q expects to generate run-rate fee income of greater than $140 million and pre-tax operating profit of over $90 million.

R&Q will manage Gibson Re for at least six years, and after seven years, it will offer a commutation of the outstanding reserves. The company anticipates raising a new sidecar after three years for ongoing capital support of the legacy insurance business.

"This change reduces our reliance on the capital markets to support our growth," explained Spiegel. "The launch of Gibson Re simplifies our Legacy Insurance revenue model from one with lumpy Underwriting Income and seasonality (historically only ~30 percent of our Legacy Insurance transactions complete in H1 and ~ 70 percent in H2, measured by reserves acquired) to one with a predictable and high-quality recurring Fee Income."

He added: "By reducing the capital intensity of Legacy Insurance, we free up capital to support our previously announced progressive dividend policy and reduce our reliance on the equity markets for additional funding."

Spiegel concluded: "We remain in the enviable position of being market leaders in specialised insurance markets with favorable market conditions and strong competitive moats around our businesses."

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