R&Q Insurance expects large ‘adverse development’ on loss reserves
Bermuda-based London-listed speciality insurance group R&Q Insurance Holdings has said it will report a “significant pre-tax loss for the year.”
While the company said its plans to sell key business divisions were on track, it also warned: “Following extensive internal and external reserve reviews R&Q Legacy is expected to realise adverse development of ~23% of the Group’s net reserves for the year to 31 December 2023.”
These adverse reserve developments, as well as the sale of Accredited, are expected to wipe out any gains.
R&Q announced in October that it had entered into a conditional agreement to sell Accredited, its programme management business, to private equity investment manager Onex Corporation.
On Friday, the group said it was still on track to complete the deal by the year’s second quarter. The group announced that Accredited is expected to recognise gross written premium of $2.1bn (£1.7bn) and fee income of $90m (£72m), up 17 per cent and 12.5 per cent, respectively, over the prior year.
Elsewhere the group said it continued to face issues with R&Q Legacy. Back in December it was revealed that regulator Bermuda Monetary Authority (BMU) put R&Q on hold until it completed a review.
R&Q stated that reserves under management at year-end 2023 are circa $1bn (£800m). However, this would be reduced by circa $670m (£535m) following the sale of corporate liabilities Joint Venture.
The group revealed that it had reached an agreement for asset manager Obra Capital to acquire all of the interests held by R&Q and its affiliates in the Joint Venture between Obra and R&Q.
The terms of the agreement stated that Obra, R&Q Solutions LLC and R&Q Re (Bermuda) would transfer their collective 49 per cent interest in the Joint Venture to Obra.
R&Q received $7m (£5.6m) in fee income in 2023. As consideration, R&Q will receive $27m (£21.6m) in cash from Obra alongside the transfer and delivery of $3m (£2.4m) of preference shares held by Obra in Randall & Quilter PS Holdings.
Commenting on the sale of the joint venture, Jeff Hayman, chairman of R&Q, said: “We are pleased with the strong return on our investment in the Joint Venture, and this agreement is in line with our objective of realising value from within our Legacy Insurance business.”
“Although we believe that the corporate liabilities market continues to represent an attractive long-term opportunity, developing regulations, including potential changes around capital requirements, have reduced the strategic attractiveness of direct equity participation in joint ventures of this type for R&Q.
“However, R&Q’s expertise in the management of long-tail liabilities means that servicing and advisory opportunities will continue to exist in this space and the provision of solutions for corporations seeking to manage such liabilities will continue to represent a large and addressable target market for R&Q Legacy.”
R&Q was trading at 5.09 per share on Thursday, a colossal drop on the 64.5 per share on the same day in 2023.