Randall & Quilter Investment Holdings Ltd. (R&Q) has announced a pre-tax operating loss of $23.5 million for the first half 2021 against a gain of $12.8 million a year earlier. The firm has also launched Gibson Re, a legacy insurance sidecar vehicle.
According to R&Q, the H1 2021 operating loss is reduced to roughly breakeven when including two signed legacy insurance deals with $23 million of underwriting profit that are expected to close in H2 2021.
Within Programme Management, gross written premiums (GWP) jumped by 80% to $890 million and fee income by 135% to $50 million, when compared with H1 2020. The segment’s pre-tax operating profit of $20 million represents strong growth from the $1.6 million posted a year earlier.
The strong performance of the Programme Management unit has seen R&Q raise the GWP target for full year 2023 to $1.75 billion.
In Legacy Insurance, eight transactions were completed during the first six months of the year, and the segment has a pipeline of more than $1 billion of reserves.
Alongside its H1 2021 financials, R&Q has announced the launch of Gibson Re, a new collateralised reinsurance sidecar with ~$300 million of capital which allows R&Q to support ~$2 billion of reserves.
For the next three years, the new vehicle will reinsure 80% of all of R&Q’s new qualifying legacy transactions, with R&Q participating in 20% to promote alignment of interest.
The company will receive annual recurring fees of 4.25% of the sidecar’s reserves for at least six years, as well as potential performance fees. According to R&Q, Gibson Re will transform its Legacy Insurance into primarily a recurring fee-based business.
By 2023, R&Q expects run-rate group fee income of more than $140 million and group pre-tax operating profit of over $90 million, assuming the Gibson Re collateralised sidecar is fully utilised by 2023.
William Spiegel, Executive Chairman of R&Q, commented: “Over the course of 2021, we have successfully implemented a key component of our Five-Year strategy – developing a more fee-based business. Our announcement of the formation of 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. Gibson Re is a $300 million Bermuda-domiciled collateralised reinsurer owned and funded by sophisticated insurance investors. Our Legacy Insurance business now joins our Program Management business in generating most of its future revenues from annual recurring fees.
“R&Q is repositioning the business to become an asset manager for Legacy Insurance business, focusing on our core strengths of insurance origination, underwriting and claims management. This change reduces our reliance on the capital markets to support our growth. The launch of Gibson Re simplifies our Legacy Insurance revenue model from one with lumpy Underwriting Income and seasonality (historically only ~30% of our Legacy Insurance transactions complete in H1 and ~ 70% in H2, measured by reserves acquired) to one with a predictable and high-quality recurring Fee Income. Importantly, 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.”
“The Board of Randall & Quilter Investment Holdings Ltd. is pleased to confirm that it will pay an interim dividend of 2.0 pence per share on 12 October 2021. The dividend will be paid to shareholders on the register on 24 September 2021, with a corresponding ex-dividend date of 23 September 2021. Moreover, we reiterate our intention to grow the total amount of the annual cash dividend from the fiscal year 2020 level of 4 pence per share, in line with our progressive dividend policy. Given the expected Pre-Tax Operating Profit for fiscal year 2021 will be impacted by the transition to recurring Fee Income, the dividend payout ratio is likely to be significantly above our 25 – 50% range, funded by excess capital created by the establishment of Gibson Re.
“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. To take advantage of these conditions, we are relentlessly pursuing our previously articulated Five-Year strategy of being a “capital efficient, fee-oriented and data driven company”. Inevitably change is difficult and cannot be achieved without engagement and partnership from our employees and of course the support of our Board of Directors and shareholders. As the expression goes: “there is no “I” in team”; business is a team sport and R&Q has an outstanding and motivated team,” he added.