Creating value from captives in runoff
Randall & Quilter, a specialist non-life insurance investor, has almost tripled its profits in 2016, which can be attributed to the 15 legacy transactions completed during the period, as well as further net reserve releases from insurance companies in run-off.
The investment company has had a very active profile in the run-off market, signing over 45 transactions since 2009, with 24 of these involving captives, 15 of which being acquisitions.
Tom Dixon, an M&A analyst for R&Q, previously spoke to Captive International, explaining the rationale behind acquiring all of the captives in run-off.
R&Q made a pre-tax profit of £8.5 million, a big gain on the £2.8 million it made a year earlier. This included a contribution of £7.9 million of net reserve releases in run-off insurance companies though this was lower than the £8.3 million this contributed a year earlier.
The company’s return on equity last year was 13.5 percent, a big increase on 4.4 percent in 2015. Its investment return increased to 2.7 percent compared with 1.1 percent in 2015.
R&Q noted a number of operational highlights from 2016 including the fact that it completed 15 legacy transactions, with especially strong growth in North America; the continued good performance of its UK operations of the Insurance Services Division but widening losses in the US as a result of further investment in the Healthcare initiative.
It also noted the sale of the Synergy book to Plum Underwriting during early 2016, part of the Group’s renewed focus on its core business areas; and it raising $20 million in Tier 2 Capital to fund further legacy growth in North America.
Ken Randall, chairman and chief executive, said: “I am pleased to report that, as indicated in the recent placing announcement, the group traded very well in the second half of 2016 with full year profits ahead of board expectations and significantly higher than the prior year.
“In addition, the balance sheet was boosted by further foreign exchange related gains, partly offset by adverse movements in the IFRS calculation of the pension deficit. Completion of 15 legacy transactions during the year and further net reserve releases from the insurance companies in run-off were the primary drivers.
“This profitable trading means that proposed distributions per share have been increased for the first time since 2012 to 8.6p for the full year, a demonstration of the board’s confidence in the Group’s trading and prospects. The Board proposes a final payment of 5.2p per share due on or around June 8, subject to customary approvals.
“The simplification of the Group’s business model continues, with certain non-core operations identified for disposal. This will enable a renewed focus on our core business areas where we believe there is exciting growth potential, the likes of which we have not seen for some time. These areas include the acquisition/assumption of run-off portfolios and building recurring commission revenue from using our licensed carriers in the US and EU to write niche and profitable books of property and casualty business, largely ceded to highly rated reinsurers.
“The Board has a positive outlook for the current year and was delighted with the support it received from the Group’s shareholders in the recent placing to help fund our growth. The pipeline of potential legacy transactions is outstanding with a diverse range of small to mid-sized opportunities. This is especially the case in North America, where we are reaping the rewards from the expansion of our product offering and stronger distribution.
“The continued growth in virtual insurers such as MGAs, looking for carriers backed with reinsurance or alternative capital is highly supportive of the commission based business model being deployed in Accredited, our A- rated carrier in the US. A similar model is now being finalised in R&Q Insurance Malta, which has the added benefit of having secure EU wide licenses in a post-Brexit world. The pipeline of programs for both carriers is extremely strong with underwriting on a number of these expected to commence in coming months, the financial benefits of which will be particularly notable during 2018 once a full year’s earning pattern is established.”
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R&Q, Results, Run-off, M&A, Bermuda
Creating value from captives in runoff