# R&Q Insurance Strong progress against strategic objectives, 112% growth in recurring Fee Income to record $53.1 million

- Link: https://www.directorstalkinterviews.com/rq-insurance-strong-progress-against-strategic-objectives-112-growth-in-recurring-fee-income-to-record-53.1-million/4121080770
- Published: 2022-09-05T07:33:31+01:00
- Author: Giles

**R&Q Insurance Holdings Ltd** ([LON:RQIH](https://www.directorstalkinterviews.com/company/randall-quilter/rqih.l)),
the leading non-life global specialty insurance company focusing on the Program 
Management and Legacy Insurance businesses, today announced its results for the 
half year ended 30 June 2022.

**Strategic and Governance Update**

·      Raised $130 million via a placing, including a $34 million Firm Issuance 
in June followed by a Conditional Issuance and Open Offer for the remaining $96 
million in July, demonstrating strong shareholder support for our strategy

·      Significant progress made in executing against all 5 pillars of our 5-year
strategy to become a recurring fee-based, capital-lighter business with increased
returns on equity and growing shareholder dividends

·      Appointment of Robert Legget as the Senior Independent Director on 26 August
as part of our ongoing plans to enhance our Board composition. The Board plans to
introduce an Independent Non-Executive Chair as soon as possible with the appointment
of further Independent Non-Executive Directors in due course

**H1 2022 Financial Highlights**

_Program Management_

·      Gross Written Premium of $807.3 million (H1 2021: $444.8 million, an 82% 
increase)

·      Fee Income (incl. Tradesman stake) of $44.3 million (H1 2021: $25.1 million,
a 76% increase); Fee Income (excl. Tradesman stake) increased 105%

·      Pre-Tax Operating Profit of $23.3 million (H1 2021: $9.9 million, a 136% 
increase)

·      Pre-Tax Operating Profit Margin of 54.0% (H1 2021: 39.9%, a 14.1 percentage
point increase)

_Legacy Insurance_

·      Completed two transactions with Gross Reserves Acquired of $5.3 million (
transactions are seasonally active in Q4)

·      Reserves Under Management of $386.6 million

·      Fee Income of $8.8 million

·      Pre-Tax Operating Loss of $26.7 million as the business transitions to an
annual recurring, fee-based revenue model

_Group_

·      Total Fee Income of $53.1 million (H1 2021: $25.1 million, a 112% increase)

·      Pre-Tax Operating Loss of $24.3 million; results impacted by Legacy Insurance
revenue model transition

·      An interim dividend for H1 2022 will not be declared; dividend strategy is
to pay out 25 ‒ 50% of Pre-Tax Operating Profit

·      Unrealised net investment losses of $88 million; unrealised investment gains/
losses always excluded from Pre-Tax Operating Profit as they are non-economic and
unlikely to be realised due to the high credit quality fixed income portfolio and
the Group’s asset-liability management strategy

**Operational Highlights**

·      Continued focus on cost control with Fixed Operating Expenses increasing 
only 3% year-over-year at constant foreign exchange rates and down 3% when accounting
for foreign exchange movements

·      Operational improvement programme underway with c. $10 million of the total
$20 ‒ 25 million investment deployed since 2021, with the remainder to be incurred
in H2 2022 and 2023

·      This investment in automation and technology processes is expected to generate
approximately $10 million of recurring annual cost efficiencies by 2024

**Outlook**

·      Program Management expected to achieve $1.75 billion of Gross Written Premium
in 2022

o  Five programs launched post 30 June 2022 expected to generate c. $250 million
of annualised Gross Written Premium

o  Further pipeline of 13 programs in advanced due diligence totalling an additional
c. $225 million of expected annualised Gross Written Premium

o  Fee Income equal to c. 5% of ceded Gross Written Premium

·      Legacy Insurance transaction execution continues to have heavy weighting 
towards Q4

o  Strong pipeline of over $1 billion in gross reserves

o  Over $1 billion of capacity in Gibson Re

o  Fee Income equal to 4.25% of Reserves Under Management

·      R&Q reiterates guidance of achieving in excess of $90 million Pre-Tax Operating
Profit in 2024

**Summary Financial Performance (see Notes for definitions)**

| _($m, except where noted)__ _ | **H1 2022** | **H1 2021** | **% Change** | 
| **_Program Management_** |  |  |  | 
| Gross Written Premium | 807.3 | 444.8 | 82% | 
| Fee Income^(1) | 44.3 | 25.1 | 76% | 
| Pre-Tax Operating Profit | 23.3 | 9.9 | 136% | 
| Pre-Tax Operating Profit Margin | 54.0% | 39.9% | 14.1 pp | 
|  |  |  |  | 
| **_Legacy Insurance_** |  |  |  | 
| Gross Reserves Acquired^(2) | 5.3 | 112.5 | (95%) | 
| Reserves Under Management | 386.6 | 0.0 | N/A | 
| Fee Income | 8.8 | 0.0 | N/A | 
| Pre-Tax Operating (Loss) | (26.7) | (14.8) | 80% | 
|  |  |  |  | 
| **_Corporate / Other_** |  |  |  | 
| Net Unallocated Expenses | (6.7) | (6.8) | (1%) | 
| Interest Expense | (14.2) | (11.8) | 20% | 
|  |  |  |  | 
| **_Group_** |  |  |  | 
| Fee Income | 53.1 | 25.1 | 112% | 
| Pre-Tax Operating (Loss) | (24.3) | (23.5) | 3% | 
| IFRS (Loss) After Tax | (122.4) | (36.8) | 233% | 
| Operating (Loss) Earnings per Share^(3) | (8.5)¢ | (8.5)¢ | 0% | 
| Dividend Per Share | — | 2.0p | N/A |

^(1) Includes minority stake in Tradesman Program Managers

^(2) Gross of cessions to Gibson Re

^(3) On a fully diluted basis

**William Spiegel, Executive Chairman of R&Q Insurance, commented:**

“I am pleased to report another six months of progress against our 5-year strategy.
These results showcase excellent underlying momentum in executing our 5-pillar strategy
as we continue our transformation into a fee-based, capital-lighter business. This
transformation is evidenced by the significant growth in recurring Fee Income, which
has more than doubled from last year and now represents over 60% of our Gross Operating
Income, a proxy for revenue. We also re-iterate our confidence in achieving in excess
of $90 million of Pre-Tax Operating Profit in 2024. As a result of our strategy,
R&Q will deliver more predictable earnings, with increased returns on equity and
growing sustainable shareholder dividends over time.

Program Management continues to grow strongly with Gross Written Premium up 82%,
and a Pre-tax Operating Profit of $23.3 million. We are now seeing the benefits 
of increasing scale, as demonstrated by a margin of 54.0% (H1 2021: 39.9%), with
our operating leverage expected to drive this higher to c. 70% at scale. The pipeline
in Program Management also remains robust, with the business on track to deliver
its targeted $1.75 billion in Gross Written Premium for FY 2022. In addition, we
continue to explore minority stakes in Managing General Agents where we provide 
Program Management services, and have executed on our second investment after the
period close.

It is exciting to see Legacy Insurance generating recurring fees for the first time
under its new reinsurance relationship with Gibson Re. In H1 2021, Fee Income of
nearly $9 million based on Reserves Under Management of $387 million as of 30 June
2022. As we have previously outlined, this model will enable Legacy Insurance to
significantly increase its return on equity while materially reducing earnings volatility
and capital requirements. While it will take time for the new structure to mature
and scale, and our operating performance reflects its transition, we remain on track
with our objectives and have a strong pipeline of deal activity in place as we head
into Q4 – historically the most active period for legacy transactions.

The outlook for both Program Management and Legacy Insurance remains highly favourable,
with both well insulated against many of the broader macroeconomic challenges impacting
the wider insurance industry such as rising interest rates, increasing inflation,
hardening (re)insurance pricing and the Ukraine/Russia conflict. In addition, our
recent Fundraise has further strengthened our capital position, enhanced parent 
liquidity, and decreased financial leverage, putting us on a strong financial footing
to execute on our business objectives. Our investment portfolio is well positioned
and comprises high-quality fixed income securities with a duration that is shorter
than our stable, casualty-oriented liabilities. A rising rate environment is unlikely
to require us to realise any mark-to-market unrealised losses on our portfolio but
rather creates attractive reinvestment opportunities at significantly higher yields.

In addition to the positive progress we are seeing in our two businesses, we are
also underway with implementing extensive improvements in how we operate as a Group,
aimed at making us more efficient and technology-enabled, while enhancing our governance,
culture and risk management. As part of this effort, we are investing a total of
$20 ‒ 25 million, with c. $10 million already incurred to date, in process automation
and technology. We expect this programme to generate c. $10 million of annual efficiencies
by 2024, implying a payback on the upfront investment in approximately three years.

It would be remiss if I did not comment on the requisition notice from a minority
shareholder and the proposed resolutions to bring back the former executive chairman.
While our sentiments on this situation are documented in the Circular distributed
on 24 August 2022, I wanted to personally thank the Board, our employees and the
shareholders who have provided support to both me and the strategy that we have 
laid out and been executing on. Despite this and a number of other exceptional corporate
events in 2022 that have caused some short-term and unexpected disruption to the
business, our focus for the remainder of the year and beyond is firmly on the continued
delivery of our plan.

In conclusion, the first half of the year has firmly demonstrated our ability to
deliver on our 5-year, 5-pillar strategy of implementing a capital-lighter business
model underpinned by recurring Fee Income. We know there is more work to do, but
I am encouraged by how much we have already accomplished and the pace at which we
are evolving into a less balance sheet intensive business with more predictable 
earnings. This is only made possible because of our talented and committed employees,
and I would like to thank them for their ongoing efforts in helping us to achieve
our goals.”_

**Investor presentation**

_Our shareholders presentation and accompanying video is available on our website
at:_

_ _[http://www.rqih.com/investors/shareholder-information/investor-presentations](http://www.rqih.com/investors/shareholder-information/investor-presentations)

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