R&Q sells Accredited to Onex for $465m citing ‘unsustainable’ leverage
Global specialty insurance company R&Q Insurance Holdings has agreed to sell its programme management business Accredited to private equity investment company Onex for $465 million, citing “unsustainable” financial leverage.
R&Q confirmed in September that it was in talks with Onex. The deal, which requires shareholder and regulatory approval and is expected to close in the first half of 2024, follows a “strategic initiative” R&Q announced in April to separate its run-off business from its ongoing insurance business, which supports programme managers in the US and Europe.
Accredited is a specialty insurance company operating in North America and Europe that provides underwriting capacity to MGAs with support from the global reinsurance market. Accredited operates as a hybrid fronting carrier, retaining a portion of the premium and risk it underwrites while ceding the majority to reinsurance partners. It is the only dedicated hybrid fronting carrier to provide A- rated insurance capacity in each of the US, UK, and EU, with licenses to write admitted business in all 50 US states.
R&Q expects $300 million in net cash proceeds from the sale, with at least $170 million available on closing. The proceeds “will be entirely used to facilitate a material de-leveraging of R&Q,” the company said in a statement.
On closing, William Spiegel, CEO of R&Q, and Thomas Solomon, chief financial officer, will transfer to Accredited and R&Q will seek a new top executive, the statement said.
Adam Cobourn, managing director at Onex Partners, said: “We are pleased to have the opportunity to establish Accredited as an independent, market-leading programme management platform.
“Accredited has all the ingredients for success as a hybrid carrier, including a talented management team, a well-diversified and high-quality book of business, strong reinsurer relationships and robust underwriting and risk management protocols.
“It will be well positioned for responsible growth with a strong balance sheet and backing from Onex Partners. Investing in the insurance industry has been a core strength for Onex for many years. We look forward to supporting Accredited’s management team in this next phase of growth.”
Upon closing of the sale, group non-executive chairman Jeff Hayman will act as chairman and interim chief executive officer of R&Q. The board will initiate a search to appoint a new chief executive officer of R&Q at the appropriate time.
Paul Bradbrook, currently chief accounting officer of R&Q, will become chief financial officer of R&Q and a member of the board of directors.
R&Q’s board said the its current financial leverage is “unsustainable” and if the sale does not proceed and the available net cash proceeds were not available to facilitate a material de-leveraging of R&Q, R&Q may not be able to continue to satisfy or obtain waivers on the covenant requirements for its existing debt facilities or repay certain of its debt facilities as they become due.
“A potential default or cross-default by R&Q on its existing debt facilities may lead its lenders to take action to protect their interests by requiring collateral or enforcing their security over certain R&Q assets, resulting in a materially worse outcome for R&Q and its shareholders,” the company said.
It added: “The sale refocuses R&Q as a legacy insurance business in Bermuda, Europe, the US and the UK. After the Sale, R&Q will have a legacy platform with over 150 people across M&A, claims management, servicing, actuarial and finance functions.
“In addition, it will have reserves under management of over $1.1 billion and a strong transaction pipeline. R&Q Legacy will continue to be an important player in the legacy market.
“The sale will enable the Board to undertake a material de-leveraging of R&Q which will enhance the business' ability to execute the Board's existing strategy of transitioning to a capital efficient and stable recurring fee-based business model. The board will also continue to focus on minimising future reserve volatility as well as driving improved underlying performance of R&Q through better automation and expense management.”
Hayman said: “The non-executive directors unanimously recommend the sale of Accredited to Onex. We believe this transaction represents the best possible outcome for R&Q's stakeholders, enabling R&Q to realise value for a business we have grown from a standing start in 2017 while allowing Accredited to maintain its essential independent financial strength rating of 'A-' under new ownership.
“Onex has an extensive track record of successfully investing in businesses across the insurance value chain, making them the ideal partner for Accredited to continue its growth trajectory as a leading transatlantic programme manager.”
He added: "R&Q is a longstanding leader in the legacy market, with an established platform, more than $1.1 billion of Reserves Under Management and an over 30-year history of executing innovative transactions.
“The landmark deal earlier this year to acquire and professionally manage the non-insurance legacy liabilities of MSA Safety now means R&Q Legacy earns fees from two distinct but complementary pools of liabilities: traditional insurance reserves and corporate non-insurance liabilities.
“The sale will allow us to refocus fully on this business, while our materially de-leveraged balance sheet, alongside our ability to deploy third-party capital via Gibson Re, will enable us to pursue our pipeline opportunities with renewed confidence.
“While we have more work to do, including implementing further operational improvements, we now have a clear pathway towards a sustainably profitable legacy business."
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