The slimmed-down Randall & Quilter Investment Holdings Ltd (R&Q) saw its underlying profits climb 38 percent in 2017 while executing a major strategic drive to simplify the business around two core offerings: legacy acquisitions and program management.
The London-listed firm said this morning that pre-tax profits leapt from £8.5mn in 2016 to £23.5mn last year although this also included an extraordinary net gain of £11.8mn from the 2017 sale of its Lloyd’s managing agency, one of two recent major disposals that has seen headcount shrink from 411 to 234 earlier this year as part of its sharpened twin focus.
Shares in R&Q climbed nearly 7 percent following the release of the company’s first quarter results.
In a bullish FY earnings announcement, founding chairman and CEO Ken Randall heralded 2017 as a “year of transformation” for the group and said the group was facing a “pipeline of opportunities”.
After selling off its live Lloyd’s underwriting arm and its insurance services operations (in Q1 2018), R&Q is now centred around its long-standing legacy acquisitions arm and program underwriting management, effectively using its licenced insurance subsidiaries in the US and Europe to front on behalf of MGAs and act as a conduit between them and their (re)insurers.
According to Randall, R&Q made the decision in response to shifting industry dynamics which - in programme management - include the disruption caused by fintech initiatives, Brexit and the market flux caused by the demise or distress of existing program underwriters in both Europe and the US.
“We have listened to our stakeholders and we have carefully watched the changing nature and requirements of the global insurance business”, explained Randall.
“From this we have determined that our focus should be on two core areas that provide strong growth opportunities – arguably two of the strongest growth sectors in the global P&C insurance market - where our expertise and infrastructure gives us a competitive advantage”, he added.
Speaking to re-Insurance.com Randall said that even though the programme business is “very new” the firm was already witnessing “good momentum” in the unit.
“We’re signing up contracts now that will contribute significantly to revenue over the next 12 months,” Randall said.
He explained that these two areas provide shareholders with a combination of steady earning potential from programme partnerships and the prospect of one-off capital gains from legacy acquisitions.
In addition to the gains made on disposals, R&Q raised £65mn from two equity offerings last year and injected these funds into its operating insurance subsidiaries, its admitted US carrier Accredited Surety & Casualty Company, Inc and its European insurer, R&Q Insurance (Malta) Ltd (“Accredited” and “R&Q Malta”). Both now have an AM Best A- financial strength rating follow R&Q Malta’s award earlier this year.
R&Q completed 19 legacy acquisitions in 2017 - against 16 the year earlier - and these also included a return to Lloyd’s RITC transactions, with two deals - Prosight Syndicate 1110 and Hamilton/Sportscover Syndicate 3334 - the company said today.
Randall predicts continued high demand for owners of prior year business to sell on their books to run-off buyers such as R&Q, including the increasingly onerous capital demands caused by regulations such as Solvency II and M&A.
“2017 was the year that R&Q capitalised on its long-standing expertise and infrastructure to demonstrate its superior legacy offering”, he explained.
On the programme side, Accredited closed five new transactions last year while R&Q Malta completed three. They are both targeting a minimum of six new partnerships each in 2018 and Randall predicted their A- ratings and selective approach will pay dividends.
“Unlike some of our competitors, we do not have any direct ‘channel conflicts’ because we do not also participate in direct live underwriting and we select our underwriting partners carefully to ensure we can provide an exclusive service in their area of expertise”, explained Randall.
R&Q said its return on tangible equity grew from 13.5 percent in 2016 to 17.3 percent last year while book value per share excluding goodwill climbed from 107.4p to 120.8p.
Return on invested assets fell, however, from 2.7 percent to 1.6 percent.
After the unexpected departure of CEO-elect Tom Booth in January 2018, Randall said the R&Q Board “continues to focus on ensuring there is a credible long-term succession plan in place for the future leadership of the Business”.
“In summary”, he concluded, “today’s R&Q is a simpler business focussed around two core operations that provide strong long-term growth prospects and complementary earnings patterns.
“We will continue to build on the improved financial performance of the Group in 2017 and look forward to 2018 and beyond with optimism.”