R&Q expects 'significant' pre-tax loss for 2023
Bermuda-registered R&Q Insurance Holdings has warned that it expects a "significant pre-tax loss” for 2023.
R&Q made the announcement in a trading update released on Friday.
The company also said it still expects the sale of programme manager Accredited to Onex Corporation to take place this quarter after it was delayed while the Bermuda Monetary Authority completed an actuarial review of the reserves R&Q would hold after the sale.
R&Q also said it had struck a $30 million deal to sell its stake in the Obra Capital joint venture.
Based on preliminary and unaudited information, the company said it anticipates a “significant pre-tax loss” for the year 2023, driven primarily by adverse developments in its legacy portfolio and increased corporate costs associated with the Accredited sale.
In its trading update, R&Q projected that Accredited is expected to recognise a gross written premium of $2.1 billion and fee income (excluding minority stakes in MGAs) of $90 million, which increased 17% and 12.5%, respectively, over the prior year.
R&Q said it believes the sale will enable the board to undertake a material financial de-leveraging of R&Q and return the capital solvency position back to target levels, enhancing the business' ability to execute its strategy of transitioning R&Q Legacy to a capital efficient and stable recurring fee-based business model.
R&Q Legacy reserves under management at year-end 2023 are approximately $1 billion, expected to decrease by around $670 million following the sale of the Corporate Liabilities Joint Venture.
The decision to divest its interest in Obra reflects a shift driven by regulatory changes, notably around capital requirements, that have dampened the appeal of direct equity participation in such joint ventures for R&Q, management stated.
Under the terms of the agreement, R&Q Solutions and R&Q Re (Bermuda) will transfer their combined 49% interest in Obra. In return, R&Q will receive a cash payment of $27.0 million from Obra, along with $3 million worth of preference shares held by Obra in Randall & Quilter PS Holdings. The fee income received by R&Q in 2023 was $7 million.
Proceeds from the transaction will be allocated towards a combination of reducing the group's revolving credit facility and bolstering cash reserves in regulated entities, the company said.
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 realizing 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.”
Did you get value from this story? Sign up to our free daily newsletters and get stories like this sent straight to your inbox.
