R&Q reveals plans to spin out programme management business

R&Q announced in a trading update on Tuesday that it was considering separating its programme management business, ‘Accredited’, and its legacy insurance operation.

The AIM-traded company said Accredited had become one of the largest programme managers globally, achieving record gross written premium and fee income in 2022.

Accredited relied on an 'A' credit rating to conduct business, but given its current size and scale, R&Q said it was in the best interests of shareholders for Accredited to stand on its own.

The separation would include a legal reorganisation, followed by strategic transactions with third parties.

R&Q said it expected the separation would set each of Accredited and legacy insurance on a more favourable footing to deliver profitable growth, each with their own appropriate capital structures.

The legal reorganisation would be subject to regulatory and lender consents, which the firm expected to obtain in the second quarter.

Looking at its trading, R&Q said it expected a pre-tax operating loss for 2022 of between $30m and $40m.

The programme management business was expected to realise a pre-tax operating profit of $55m to $60m, while the legacy insurance business was set to realise a pre-tax operating loss of $55m to $60m, driven by fewer completed transactions and net adverse development of the group's net reserves.

R&Q said the corporate and other category was expected to be around $35m into the red, as a result of interest expense on debt, unallocated expenses and a foreign exchange impact on the revaluation of net assets.

“Our programme management business, Accredited, has seen remarkable growth in gross written premium, fee income and profitability over the past five years,” said chief executive officer William Spiegel.

“Accredited currently partners with managing general agents to offer over 80 different insurance programmes, and has over 200 reinsurance partnerships.

“Accredited has grown to become one of the largest programme managers in the world and has the appropriate size and scale to stand on its own as an independent business.”

Spiegel said the board had concluded that it was in the best interests of shareholders to evaluate strategic options that allow for a separation of Accredited and legacy insurance.

“This will ensure both Accredited and legacy insurance have the strongest foundations from which to grow.

“In legacy insurance, we continue to focus on transitioning to a fee-based and capital efficient model and remain confident that this will create a more profitable, sustainable and valuable business.

“While in 2022 we didn't complete as many transactions as in prior years, we maintained prudence in only pursuing deals that are profitable for both R&Q and Gibson Re.”

As the firm announced on 6 January, William Spiegel noted that R&Q had grown reserves under management to in excess of $1bn, starting from zero in the fourth quarter of 2021.

“While our fourth quarter actuarial review process shows a need to strengthen reserves, it is important to note that the IFRS accounting regime recognised a large portion of total lifetime earnings at transaction close, which is a significant part of how we assess the overall profitability of historical legacy transactions.

“Due to the planned separation, we expect to announce our final audited results in June.”

At 0946 BST, shares in R&Q Insurance Holdings were down 7.56% at 65.54p.

Reporting by Josh White for Sharecast.com.