Randall & Quilter Investment Holdings Ltd. (R&Q) has reported a 30% rise in pre-tax operating profit to £10.4 million (USD 13.4mn) for the first half of the year, while the impact of the COVID-19 pandemic on financial markets dented the firm’s investment performance in the period.
Pre-tax operating profit increased from the £8 million (USD 10.3mn) posted in the first half of 2019, while profit before tax fell from £33.1 million (USD 42.6mn) in H1 2019 to £0.6 million (USD 0.8mn) in H1 2020.
According to R&Q, the year-on-year decline in profit before tax is attributable to a reduction in total investment returns, delays in on-boarding new Program Management business, and also by a change in the mix of Legacy transactions.
The company notes that its investment portfolio is comprised almost completely of high-quality fixed-income investments, with just 3% invested in below investment grade bonds, while the portfolio has a duration of 1.7 years. However, as a result of financial market uncertainty and volatility during the early months of the pandemic, R&Q recognised £7.1 million (USD 9.1mn) of net realised and unrealised losses in H1 2020, compared with investment gains of £8.8 million (USD 11.3mn) in H1 2019.
Despite the decline, R&Q says that these investment losses in the first half of 2020 “substantially reversed themselves in the second half of the year.”
Within Program Management, R&Q has reported that contracted premium jumped by 95% year-on-year to USD 925 million, as economic commissions revenue increased by 88% to USD 10.7 million. R&Q has also reported an economic EBITDA gain of $0.8 million in H1 2020, against a loss of $0.3 million in H1 2019.
Overall, R&Q added 10 new programs in the period, which increases the total active programs at period end to 36.
In Legacy, R&Q saw its net reserves acquired spike by 81% to £267 million (USD 344mn) in H1 2020, while operating return on tangible capital of 17.7% represents an improvement on the 14.1% posted a year earlier. Operating return on tangible equity also increased year-on-year to 23.3%. Overall, R&Q completed nine legacy transactions across seven different jurisdictions in the period.
Commenting on the company’s results for the period, Ken Randall, Alan Quilter, and William Spiegel, said: “Our first half 2020 financial results were impacted by Covid-19 due to the already announced reduction in total investment returns, delays in on-boarding new Program Management business and by a change in the mix of Legacy transactions, resulting in Profit Before Tax of £0.6 million. Nonetheless we continued to generate strong operating performance in both Program Management and Legacy translating into Group Pre-Tax Operating Profit of £10.4 million, a 30% increase compared with H1 2019. The Board expects that fiscal year 2020 results will be in line with market expectations…
“We are pleased to announce that the Board has recommended an interim distribution to shareholders of 3.8p per share in cash. We are proud of R&Q’s consistent record of distributions to our shareholders.
“In 2020 we have been active in continuing to build and develop our platform, bolstering our management team and expanding our footprint and capabilities. We recruited a Deputy Executive Chairman, a Group CFO and a CEO of US Excess & Surplus Lines. We also launched our US Excess & Surplus Lines company, set up new branches in the UK and Italy to strengthen our Program Management offering, and raised $100 million of equity for growth, including establishing these initiatives as well as for funding of Legacy transactions.
“Despite unprecedented challenges introduced by Covid-19, we have had minimal disruptions to our operations. Importantly, we are excited by the opportunities available to us in the current market. Covid-19 and other market events have generated significant losses for the insurance industry, creating a “hardening” insurance environment and increasing the demand for our Legacy and Program Management solutions.
“We have a strong balance sheet, expertise, relationships and the track-record to capture the additional growth in front of us. However, as is our tradition, we will be patient and disciplined as we continue to grow our business.”
