Randall & Quilter achieve record pre-tax operating profit

Growth

Randall & Quilter Investment Holdings Ltd (LON:RQIH), the leading non-life global specialty insurance company focusing on the Program Management and Legacy Insurance businesses, has announced its results for the year ended 31 December 2020.

2020 Highlights

Record Pre-Tax Operating Profit driven by Strong Operating Results Across Business Segments

Accelerated Growth for the Group

  • Record Pre-Tax Operating Profit of £16.0 million, an increase of 102%, reflecting a year of accelerated growth across both business segments
  • Fee Income of £18.8 million, an increase of 89%, representing 17% of Gross Operating Income
  • Operating Earnings per share of 5.9 pence, an increase of 38%
  • Profit Before Tax of £30.2 million, a decrease of 21%, reflecting a reduction in net intangibles due to the mix of Legacy Insurance transactions

Breakthrough Year for Program Management

  • Program Management was profitable for the first time, earning Pre-Tax Operating Profit of $3.4 million, a 14.3% margin, demonstrating the operating leverage benefits of increased scale
  • 18 new programs signed, increasing total programs to 48, driving a 46% increase in Gross Written Premium to $538.9 million; on course to achieve previously announced target of at least $1.5 billion of Gross Written Premium in 2023

Record Year for Legacy Insurance

  • Legacy Insurance had a record year, executing on 19 deals and delivering a 46% increase in Pre-Tax Operating Profit to £38.1 million
  • Business continues to be written at attractive returns with Operating Return on Tangible Equity of 14.8% and a 5-year average return of 20.2%

Capital and Dividend

  • Capital remained strong with a Preliminary Group Solvency Ratio of 202% versus target of 150%
  • Final cash dividend of 0.2 pence per share for a total cash distribution for the year of 4 pence per share
  • Announcing a new progressive dividend policy with a payout ratio of 25%-50% of Pre-Tax Operating Profit, a proxy of cash earnings, reflecting current growth opportunities and a balance of reinvesting and growing dividends; intend to grow annual dividend from 4 pence per share

Franchise and Platform

  • £173 million of capital raised during the year for growth
  • Senior leadership strengthened with key hires including Executive Chairman, Group CFO, CEO of US Program Management and Chief Human Resources Officer
  • Expanded footprint and capabilities by launching US E&S Program Management business
  • Increased exposure to fee-related profits through investment in Tradesman, an MGA to whom we provide Program Management services

Post Period-End Developments

Q1 2021 Update

  • Program Management increased Gross Written Premium by 52% to $185.2 million, and Fee Income by 91% to $9.7 million, compared with Q1 2020; launched 5 new programs increasing active programs to 52 and Contracted Premium to $1.4 billion
  • Legacy Insurance completed one deal and has five more under exclusivity representing approximately £150 million of net reserves; witnessing strong level of activity for a business that is historically busier in second half of the year
  • Tradesman EBITDA increased by ~140% to ~$4.8 million, compared with Q1 2020

Summary Financial Performance (see Notes for definitions)

(£m, except where noted)20202019Y / Y Change
 Group Results   
    
Key Performance Indicators   
Pre-Tax Operating Profit£16.0£8.0102%
Fee Income18.810.089%
Operating Earnings per Share 15.9p4.3p38%
Tangible Net Asset Value Per Share1124.4p125.3p2% 2
Distribution Per Share4.0p3.8p (cash)5%3
 6.1p (non-cash)
IFRS   
Profit Before Tax30.238.1(21)%
Earnings Per Share 111.120.3(45)%
Net Asset Value Per Share 1142.4p147.2p(1)% 
    
Business Segment Metrics   
    
Program Management ($m)   
Contracted Premium1,281.2841.952%
Gross Written Premium538.9368.946%
Pre-Tax Operating Profit3.4(1.8)NM
Pre-Tax Operating Profit Margin14.3%(15.1)%29.3 pct. pts.
    
Legacy Insurance   
Cash and Investments Acquired673.7351.092%
Net Reserves Acquired499.6276.081%
Pre-Tax Operating Profit38.126.146%
Operating Return on Tangible Equity14.8%10.2%4.6 pct. pts.

Commenting on the results for the year, Executive Chairman William Spiegel, said:

“2020 was a challenging year and the pandemic tested the resilience of our employees and our business model. Our team responded with agility and confidence in a dynamic market environment and this was demonstrated by our record 2020 operating results.

Since joining R&Q, I have experienced firsthand the esprit de corps that exists between our employees based across our eight global offices. All our employees contribute to the entrepreneurial and pioneering spirit that R&Q is known for and which we demonstrated once again last year. What our 2020 results demonstrate is that the difficulties of last year – not least the “work from home” phenomenon – did not hamper our ability to deliver on behalf of our clients and ultimately our shareholders. 

I believe 2020 at R&Q can best be described as a year of accelerated growth. Our Legacy Insurance business reported its strongest year ever and our Program Management business, after just four years, became profitable. With both of our businesses profitable, we now have the foundation to continue accelerating our growth and delivering sustainable earnings in the years to come. We also added a complementary business to Program Management when we made a 35% investment in Tradesman Program Managers, one of our core MGA program management partners. This investment increases our exposure to fee-related profits and we anticipate exploring further opportunities to emulate this approach with other MGAs to whom we provide program management services.

Very early in 2020 it was clear to us that the pandemic would result in significant structural changes to our markets, and that this would create highly attractive and accretive opportunities for R&Q. In order to execute on these, we raised £173 million ($225 million) of new capital, which we were able to deploy effectively in both the legacy and program markets.

[1] On a fully diluted basis

2 Includes 3.8 pence cash distribution paid in 2020.

3 Excludes H2 2019 distribution paid by way of bonus shares.

We remain in the enviable position of competing in growing markets that offer us the opportunity to reinvest our capital at high rates of return, creating long term shareholder value. With significant growth opportunities in front of us, our business will continue to consume capital over the near term, particularly our Legacy Insurance business. Over time, however, we expect our Program Management business to create enough free cash flow to make us capital self-sufficient.

While we are in growth mode and remain capital consumptive, we are adopting a progressive cash dividend policy with a payout ratio of between 25% and 50% of our Pre-Tax Operating Profit, the best proxy for cash earnings. While the precise payout percentage may vary year on year, we intend to grow the total amount of the annual cash dividend from the FY 2020 level of 4 pence per share. This dividend policy will allow us the flexibility to carefully balance the allocation of our capital between reinvesting in profitable opportunities, providing an attractive and growing dividend to our shareholders and minimising the need to raise external capital.

2020 was a year like no other we have witnessed in our lifetime and it continues into 2021. Yet, despite all this turmoil, it was a very strong year for R&Q. I would like to personally thank Ken Randall and Alan Quilter, the two founders of R&Q, for having confidence in me and guiding and mentoring me over the past 17 months. I also want to thank all our stakeholders for their unwavering support during these unprecedented times: our shareholders, our customers, our regulators, our rating agencies, our board and most importantly our loyal and dedicated employees. I am so proud of what we achieved in 2020 under trying conditions. I cannot wait to see what we can accomplish over the next few years as the world returns to a more normal state.”

 Investor presentation

Our shareholders presentation together with an overview by William Spiegel and Thomas Solomon is available on our website at:

Investor Presentations

As part of its commitment to open communication with all of its shareholder base, Randall & Quilter will also provide a live presentation and Q&A via the Investor Meet Company platform at 3pm on 24 May 2021. Registration details can be accessed via:

https://www.investormeetcompany.com/randall-quilter-investment-holdings-ltd/register-investor

Questions can be submitted pre-event via the IMC dashboard or at any time during the live presentation via the ‘Ask a Question’ function.

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