‘One-off’ costs and legacy challenges drive R&Q to hefty 2022 loss
Global specialty insurer R&Q, which has recently completed its separation into two legal entities and is exploring strategic possibilities with third parties, has reported a significant pre-tax loss for 2022, largely attributable to its legacy business and “unexpected one-off” cash charges. Additionally, costs stemming from last year’s “unsuccessful sale of the group and subsequent shareholder activism”, as well as investments in automation, have also contributed to the reported loss.
R&Q posted a $33.3 million pre-tax loss for 2022, which its CEO William Spiegel (pictured) claimed was “larger than expected”. Its programme management business, Accredited, recorded a profit of $55.7 million, while R&Q Legacy turned a loss of $56.6 million in the financial year.
Accredited, which has recently secured an independent financial strength rating of A- from AM Best, grew its gross written premium by 76% to $1.8 billion, and fee income excluding MGA stakes almost doubled to $80 million, up from $44.9 million in 2021.
Its legacy business recorded a one-time $32 million adverse development, primarily from older transactions and reflected the first full year of a transition to a capital efficient annual recurring, fee-based revenue model from a balance sheet intensive, Day-1 gain model.
R&Q Legacy said it had completed four transactions while exercising discipline in a soft market with gross reserves acquired of $68.8 million compared to $735.0 million in 2021.
Reserves under management were $395.6 million, but these rose to more than $1 billion due to an MSA Safety transaction involving non-insurance liabilities that closed in January 2023.
Fee Income was $12.1 million compared to no income in 2021.
The company said it incurred “one off” cash charges of about $50 million primarily associated with $28 million in one-off historic legal matters associated with older legacy transactions and discontinued programmes, $14 million in automation spend which should yield meaningful productivity savings starting in 2024, and $8 million in advisory costs associated with shareholder activism and sale process.
Spiegel expressed his “disappointment” with the headline operating loss while emphasising “significant investment and change” aimed at making R&Q a more modern and capital efficient business.
“We have two great businesses, but they operate in different parts of the insurance ecosystem, require different skillsets and expertise, and have different rating and regulatory needs,” he said. “We are now in a position where each has the scale, maturity, and brand strength to stand on its own. By separating these businesses, we can ensure both have the right level of management focus and appropriate capital structures to achieve their full potential.”
“Turnarounds are difficult; they take time, focus and resilience in the face of both many obstacles and outside scrutiny,” he lamented.
“Looking ahead, we are confident the outlook is strong for Accredited and R&Q Legacy. Both businesses have excellent pipelines and, while we remain highly disciplined, we are confident of growing Gross Written Premium and Reserves Under Management in each business respectively,” Spiegel concluded.
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