TIDMRQIH
RNS Number : 0800O
R&Q Insurance Holdings Ltd
29 September 2023
R&Q Insurance Holdings Ltd
Results for the half year ended 30 June 2023
Accredited grows pre-tax operating profit; Legacy Reserves Under
Management exceed $1 billion; Legacy results impacted by adverse
reserve development
29 September 2023
R&Q Insurance Holdings Ltd (AIM: RQIH) ("R&Q" or the
"Group"), the leading non-life global specialty insurance company
focusing on the Program Management ("Accredited") and Legacy
Insurance ("R&Q Legacy") businesses, today announces its
results for the half year ended 30 June 2023.
H1 2023 Financial Highlights
Accredited
-- Gross Written Premium ("GWP") of $1.1 billion (H1 2022: $0.8 billion, a 34% increase)
-- Fee Income of $46.2 million (H1 2022: $39.1 million, an 18% increase)
-- Pre-Tax Operating Profit of $28.6 million (H1 2022: $15.4 million, an 86% increase)
-- Pre-Tax Operating Profit Margin of 57.0% (H1 2022: 43.6%, a 13.4 percentage point increase)
R&Q Legacy
-- Completed MSA Safety transaction involving non-insurance
liabilities in an otherwise seasonally quiet market with Gross
Reserves Acquired of $695.0 million (H1 2022: $5.3 million)
-- Reserves Under Management of $1.1 billion (30 June 2022: $0.4 billion, a 172% increase)
-- Fee Income of $9.7 million (H1 2022: $8.8 million, a 10%
increase), with MSA Safety carrying a lower fee than Gibson Re on
Reserves Under Management due to no tail risk exposure
-- Pre-Tax Operating Loss before adverse reserve development of
$24.2 million and a loss of $64.2 million including $40.0 million
of adverse reserve development primarily from older transactions in
Lloyd's
Group
-- Total Fee Income of $55.9 million (H1 2022: $47.9 million, a 17% increase)
-- Pre-Tax Operating Loss of $18 million prior to R&Q Legacy
adverse development and a loss of $58.0 million including the $40.0
million of R&Q Legacy adverse reserve development
Non-Recurring Items
-- Non-cash income of $1.8 million primarily associated with net
unrealised investment gains net of fair market value impact on
legacy reserves
-- Extraordinary cash income of $4.1 million
Operational Highlights
-- Continued focus on cost control with R&Q Legacy Fixed
Operating Expenses decreasing 8% year-over-year
-- Operational improvement program in full flight with $20
million of the planned total $20 -- $25 million investment deployed
since 2021, with the remainder to be incurred in H2 2023
-- Investment in automation and technology processes is expected
to generate significant productivity efficiencies by end of
2024
Outlook
-- Focus remains on the separation of R&Q Legacy and Accredited
o Advanced discussions regarding the potential sale of
Accredited as announced on 22nd September
-- Post period end, Accredited approved five programs with $227 million in annualised GWP
-- R&Q Legacy has three deals in advanced stages with over
$100 million in reserves and an identified pipeline of $800 million
in reserves
Summary Financial Performance (see Notes for definitions)
($m, except where noted) H1 2023 H1 2022* % Change
Accredited
Gross Written Premium 1.1b 0.8b 34%
Fee Income [1] 46.2 39.1 18%
Pre-Tax Operating Profit 28.6 15.4 86%
Pre-Tax Operating Profit Margin 57.0% 43.6% 13.4 pp
R&Q Legacy
Gross Reserves Acquired [2] 695.0 5.3 NM
Reserves Under Management 1.1b 0.4b 172%
Fee Income 9.7 8.8 10%
Pre-Tax Operating Loss (64.2) (26.7) 140%
Corporate / Other
Net Unallocated Expenses (6.5) (6.7) (3%)
Interest Expense (15.9) (14.2) 12%
Minority Stake in Tradesman [3] -- 5.2 (100%)
Group
Fee Income 55.9 47.9 17%
Pre-Tax Operating Loss (58.0) (27.0) 115%
US GAAP Loss After Tax (53.1) (2.2) NM
Operating Loss per Share ([4]) (13.9)c (8.9)c 56%
* Restated for change to US GAAP effective in 2023 for
comparison purposes
William Spiegel, Chief Executive Officer of R&Q,
commented:
"As we said in our 2022 full year results announcement, R&Q
is undergoing a multi-year operational turnaround aimed at creating
a stronger, sustainable and more efficient business. We are well
underway with this program and continued to make good progress in
the first half of 2023. A key part of this is to become a simpler
and more focused company with a more appropriate capital structure.
Separating the ownership of R&Q Legacy and Accredited is an
important step in accomplishing this and, as announced on 22
September 2023, we are in advanced discussions with a party
regarding the potential sale of Accredited.
Both Accredited and R&Q Legacy have delivered well against
their respective strategic objectives in the first half of 2023.
Accredited successfully grew GWP, Fee Income and Pre-Tax Operating
Profit and continues to be a leading trans-Atlantic program
manager, with five further programs approved post this reporting
period. R&Q Legacy now has Reserves under Management in excess
of $1 billion, most notably executing its first corporate
liabilities transaction through the formation of our joint venture
with Obra to manage the non-insurance legacy exposures of MSA
Safety. While H1 is seasonally quieter, R&Q Legacy continues to
have an active pipeline with three deals in advanced stages and
over $800 million in reserves identified as opportunities. We
remain laser-focused on expense discipline in R&Q Legacy and
have reduced Fixed Operating Expenses by 8% year-over-year.
As we detailed when we set out our plan to transition R&Q
Legacy to a more capital efficient recurring fee-based model, our
earnings needed go through a valley as we implemented this
strategy. While we are pleased with how R&Q Legacy is executing
against its strategy, we are disappointed to have witnessed further
adverse reserve development. Excluding this, we would have reported
a Group Pre-Tax Operating Loss of $18 million, an improvement on
last year's equivalent, that highlights Accredited's continued
profitable growth and R&Q Legacy's increased fee income and
strong expense management. We are focused on trying to minimize
future reserve volatility as well as driving improved underlying
performance of the Group through better automation and expense
management.
Looking ahead, we continue to focus on maximizing value for our
shareholders and other stakeholders. Both of our businesses have
bright futures, and our strategic objective is to give each the
footing it needs to pursue its business model with confidence."
Enquiries to:
R&Q Insurance Holdings Ltd. Tel: 020 7780 5850
William Spiegel
Tom Solomon
Numis Securities Limited (Nominated Advisor & Joint
Broker) Tel: 020 7260 1000
Giles Rolls
Charles Farquhar
Barclays Bank PLC (Joint Broker) Tel: 020 7632 2322
Andrew Tusa
Anusuya Nayar Gupta
FTI Consulting Tel: 020 3727 1051
Tom Blackwell
Notes to financials
Pre-Tax Operating Profit is a measure of how the Group's core
businesses performed adjusted for Unearned Program Fee Income, fair
market value impact associated with change in discount rate on
Legacy Insurance reserves, net realised and unrealised investment
gains on fixed income assets and non-core, non-recurring costs.
Operating EPS represents Pre-Tax Operating Profit adjusted for
the marginal tax rate, divided by the average number of diluted
shares outstanding in the period.
Gross Operating Income represents Pre-Tax Operating Profit
before Fixed Operating Expenses and Interest Expense
Fee Income represents Program Fee Income and Fee Income on
Reserves Under Management.
Program Fee Income represents the full fee income from insurance
policies already bound including Unearned Program Fee Income,
regardless of the length of the underlying policy period. We
believe Program Fee Income is a more appropriate measure of the
revenue of the business during periods of high growth, due to a
larger than normal gap between written and earned premium.
Unearned Program Fee Income represents the portion of Program
Fee Income that has not yet been earned on a US GAAP basis.
Underwriting Income represents net premium earned less net
claims costs, acquisition expenses, claims management costs,
premium taxes / levies, licensing fees and the cost of excess of
loss coverage to protect the balance sheet.
Investment Income represents income on the investment portfolio
excluding net realised and unrealised investment gains on fixed
income assets.
Fixed Operating Expenses include employment, legal,
accommodation, information technology, Lloyd's syndicate, and other
fixed expenses of ongoing operations, excluding non-core and
exceptional items.
Pre-Tax Operating Profit Margin is R&Q's profit margin on
Gross Operating Income.
Gross Reserves Acquired represent Legacy Insurance reserves and
non-insurance liabilities acquired gross of reinsurance to Gibson
Re.
Reserves Under Management represent insurance reserves ceded to
Gibson Re and non-insurance liabilities for which R&Q earns
annual recurring fees.
Chief Financial Officer Review
We are pleased to report our financial results for the six
months ending 30 June 2023, which is the first period we have
reported our financial results in accordance with US GAAP. US GAAP
has a number of differences from IFRS, namely fair market value
measurement of legacy gross and ceded reserves including a risk
margin, as well as the recognition of unallocated loss adjustment
expenses and current expected credit losses (CECL) on reinsurance
recoverables. Neither US GAAP nor other accounting standards such
as IFRS 17, recognise Day-1 gains in legacy insurance
transactions.
Group
Our Key Performance Indicators ('KPIs") measure the economics of
the business and adjust US GAAP results to include fully written
Program Fee Income and exclude the impact on fair market value of
R&Q Legacy reserves due to changes in discount rates, net
realised and unrealised investment gains and losses on fixed income
assets, non-core expenses and exceptional items.
Our Pre-Tax Operating Loss of $58.0 million was primarily due to
adverse reserve development in R&Q Legacy reserves of $40
million. One of our strategic objectives is to grow our Fee Income,
which was $55.9 million, a 17% increase compared to H1 2022. Net
Asset Value was $252.2 million, a 5% increase compared to year-end
2022, primarily as a result of our $55 million capital raise of
preferred equity being partially offset by adverse reserve
development in R&Q Legacy. On a fully diluted basis, our
Operating Loss Per Share was 13.9 cents and our Net Asset Value Per
Share was 67.3 cents.
Our US GAAP Loss After Tax was $53.0 million impacted by $1.8
million of non-cash income and $4.1 million of extraordinary cash
income before tax. Non-cash income included net unrealised and
realised investment gains on fixed income assets of $3.3 million
net of the impact on fair market value of R&Q Legacy reserves
of $1.5 million due to changes in discount rates. Extraordinary
cash income included a $25.4 million gain on the sale of our 40%
minority stake in Tradesman Program Managers net of an $11.1
million charge associated with an older transaction in Lloyd's that
had carried a debtor on its books since 2017, which was
subsequently written off upon reconciliation, $3.7 million in
automation spend which should yield meaningful productivity savings
starting in 2024, $3.0 million in senior management retention
compensation associated with the separation of Accredited and
R&Q Legacy and the pending strategic options with 3(rd) parties
and $3.5 million in other extraordinary items. On a fully diluted
basis, our US GAAP Loss Per Share was 14.2 cents.
Accredited
Accredited continued to grow rapidly in H1 2023. Our Gross
Written Premium was $1.1 billion, a 34% increase compared to H1
2022. Our results demonstrate the benefits of scale as we earned a
Pre-Tax Operating Profit of $28.6 million, an 86% increase compared
to H1 2022, representing a 57.0% margin on Gross Operating Income,
an increase of 13.4 percentage points compared to H1 2022.
Accredited's Pre-Tax Operating Profit excludes our minority 40%
stake in Tradesman Program Managers, which was sold in H1 2023 and
has been included in Corporate and Other.
The primary driver of Pre-Tax Operating Profit is Fee Income.
Fee Income was $46.2 million, an 18% increase compared to H1 2022.
We expect Fee Income to generally grow in line with Gross Written
Premium, however it is impacted by select programs with minimum
fixed fees until such programs build to scale. Underwriting Income
represents our c.7% retention of Program Insurance risk. Our
Underwriting result was approximately breakeven primarily due to
the purchase of excess of loss reinsurance in order to minimise any
balance sheet volatility as well as a provision for CECL on
reinsurance recoverables. Our Investment Income was $4.7 million, a
370% increase compared to H1 2022 associated with higher
reinvestment rates. Finally, Fixed Operating Expenses were $21.6
million, a 9% increase compared to H1 2022 due to the expansion of
our staff and a higher allocation of corporate expenses.
R&Q Legacy
R&Q Legacy concluded one transaction during the period, MSA
Safety, which included non-insurance liabilities of $695 million,
in an otherwise seasonally quiet period for legacy insurance
transactions. At 30 June 2023, we had Reserves Under Management of
$1.1 billion, a 172% increase compared to 30 June 2022, and during
H1 2023 we reported Fee Income of $9.7 million, a 10% increase
compared to H1 2022. MSA Safety carries a lower fee on Reserves
Under Management than that of our sidecar, Gibson Re due to no tail
risk exposure. We expect Fee Income to become the predominant
driver of Pre-Tax Operating Profit once we fully deploy capital in
Gibson Re. Our Pre-Tax Operating Loss was $62.2 million, which
included $40 million of adverse reserve development (included in
Underwriting Income), primarily from older transactions including
Lloyd's, where we have experienced higher than expected claim
volume emanating from a COVID-related backlog of filings and higher
than expected claims severity. Our Investment Income was $16.4
million, a 144% increase compared to H1 2022 driven by higher
reinvestment yields. Finally, Fixed Operating Expenses were $35.6
million, an 8% decrease compared to H1 2022 due to expense
control.
Corporate and other
Our Corporate and Other segment includes unallocated operating
expenses and interest costs. Unallocated operating expenses were
$6.5 million, a 3% decrease compared to H1 2022 primarily driven by
higher allocations to the two business segments. Interest expense
was $15.9 million, a 12% increase compared to H1 2022 associated
with higher interest rates on floating rate debt. We have
reallocated the $5.2 million of earnings in H1 2022 from our 40%
minority stake in Tradesman from Accredited segment earnings to
Corporate and Other due to the sale of this stake in H1 2023.
Cash and investments
Our Cash and Investments at 30 June 2023, excluding funds
withheld, was $1.5 billion. We produced a book yield, which
excludes net realised and unrealised gains on fixed income assets,
of 2.8%, an increase of 80 bps compared to H1 2022, due to the
higher interest rate environment.
We maintain a conservative, liquid investment portfolio so that
we can produce consistent cash flows to meet our liability
obligations, while also earning a reasonable risk-adjusted return.
96% of our portfolio was invested in cash, money market funds, and
fixed income investments. Of our fixed income investments, 98% were
rated investment-grade. After cash, which comprised 24% of our
portfolio, our largest allocations were to corporate bonds (41%),
government and municipal securities (20%), asset-backed securities
(12%) and equities (3%). We have maintained a duration in our
portfolio of 3 years, shorter than that of our liabilities of 6
years.
During H1 2023, our investment portfolio had cumulative
unrealised net investment losses of $104 million, which are
included in our US GAAP results. Given the high credit quality of
our investment portfolio and the primarily casualty-focused
retained liabilities, we do not expect to realise these
mark-to-market losses other than to rebalance the portfolio for
more attractive reinvestment opportunities, and hence do not
include such movement in our Pre-Tax Operating Profit.
Capital and liquidity
In June 2023, we raised $55 million of preferred equity, which
was used to capitalise R&Q Legacy in order to provide
reinsurance coverage to Accredited under the legal separation that
was required to maintain the AM Best rating as well as for general
corporate purposes. As a result, our Group Solvency ratio at 30
June 2023 was 169%, which is above our target level of 150%. Our
total debt at 30 June 2023 was $333.3 million, which includes a
bank facility as well as subordinated notes. In addition, we have
$188.8 million of unsecured letters of credit that provide security
on assumed reinsurance of legacy exposures, which are guaranteed by
the Group.
CONDENSED CONSOLIDATED BALANCE SHEET
Note 30 June 31 December
2023 2022
----- -------- ------------
ASSETS $m $m
Short-term investments (at fair
value) 5 151.2 113.3
Fixed maturities (at fair value) 5 1,184.5 1,408.8
Debt and fixed maturity securities 5 1,335.7 1,522.1
Equities (at fair value) 5 17.7 22.0
Equity method investments 17.2 22.4
Other investments (at fair value) 5 48.8 32.6
-------- ------------
Total Investments 1,419.4 1,599.1
Cash and cash equivalents 200.5 187.9
Restricted cash and cash equivalents 64.4 133.3
Reinsurance recoverables on paid
and unpaid losses (net of allowance
for expected credit losses 30 June
2023: $13.9m, 31 December 2022:
$10.1m) 7 1,355.1 1,044.7
Reinsurance recoverables on paid
and unpaid losses, at fair value 7 577.5 633.3
Prepaid reinsurance premiums 1,041.6 982.4
Funds withheld receivable 42.6 49.6
Deferred acquisition costs 289.3 229.3
Insurance related and other receivables 845.1 894.7
Goodwill and intangible assets 11.5 11.5
Current and deferred tax assets 6 32.2 39.6
Other assets 22.6 5.9
TOTAL ASSETS 5,901.8 5,811.3
-------- ------------
LIABILITIES
Reserve for losses and loss adjustment
expenses 8 1,482.8 1,133.1
Reserve for losses and loss adjustment
expenses, at fair value 8 1,287.8 1,481.5
Unearned premium reserve 1,114.9 1,034.9
Funds withheld payable 212.3 268.6
Insurance related and other payables 10 1,218.5 1,308.8
Debt obligations 11 333.3 344.9
TOTAL LIABILITIES 5,649.6 5,571.8
-------- ------------
SHAREHOLDERS' EQUITY
Common shares (par value 2p each,
377,395,235 issued and 374,572,864
outstanding) 12 10.0 10.0
Preference shares 12 55.0 -
Additional paid-in-capital 12 402.5 402.5
Accumulated other comprehensive
income 12 (47.1) (57.9)
Accumulated deficit (168.2) (115.1)
TOTAL SHAREHOLDERS' EQUITY 252.2 239.5
-------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY 5,901.8 5,811.3
======== ============
CONDENSED CONSOLIDATED STATEMENT OF INCOME
Note Six months Six months
ended 30 ended 30
June 2023 June 2022
----- ----------- -----------
REVENUES $m $m
Gross premiums written 1,088.8 807.3
Written premiums ceded to reinsurers (992.1) (740.1)
Net premiums written 96.7 67.2
Change in gross provision for unearned
premiums (51.6) (255.8)
Change in provision for unearned premiums,
reinsurers' share 36.4 222.1
Increase in unearned premiums (15.2) (33.7)
-----------
Net premiums earned 81.5 33.5
Fees and other income 55.9 33.4
Net investment income 5 22.0 8.8
Net realised and unrealised gains (losses) 5 3.3 (100.0)
Gain on disposal of associate 25.4 -
TOTAL REVENUES 188.0 (24.3)
----------- -----------
EXPENSES
Net incurred losses and loss adjustment
expenses (120.3) 95.8
Operating expenses (105.9) (71.5)
Interest expense (15.9) (14.3)
Net foreign exchange gains 1.9 7.9
Impairment and amortisation of intangible
assets - (0.1)
TOTAL EXPENSES (240.1) 17.8
----------- -----------
LOSS BEFORE INCOME TAXES (52.1) (6.5)
Income tax charge 6 (1.0) (0.9)
Earnings from equity method investments - 5.2
NET LOSS ATTRIBUTABLE TO R&Q ORDINARY
SHAREHOLDERS (53.1) (2.2)
=========== ===========
Loss per ordinary share attributable to
R&Q Insurance Holdings Ltd: 9 (14.2) (0.8)
Basic and diluted:
Net loss per ordinary share (in cents) 9 (14.2) (0.8)
=========== ===========
Weighted average ordinary shares outstanding:
Basic and diluted 374.8 271.6
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six Months Six Months
Ended Ended
30 June 30 June
2023 2022
----------- -----------
$m $m
NET LOSS FROM OPERATIONS (53.1) (2.2)
Other comprehensive income (loss), net
of income taxes:
Change in currency translation adjustment 3.6 (34.0)
Increase in defined benefit pension liability - (0.7)
Total other comprehensive loss (49.5) (36.9)
----------- -----------
Attributable to:
Shareholders of the parent (49.5) (36.9)
TOTAL COMPREHENSIVE LOSS FOR THE PERIOD (49.5) (36.9)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
30 June 30 June
2023 2022
$m $m
Common shares
Opening balance 10.0 7.5
Issue of shares (transaction with owners) - 0.7
Closing balance 10.0 8.2
-------- --------
Additional paid-in capital
Opening balance 402.5 281.0
Issue of shares (transaction with owners) - 34.5
Closing balance 402.5 315.5
-------- --------
Preference shares
Issue of shares 55.0 -
Closing balance 55.0 -
-------- --------
Accumulated other comprehensive loss
income
Opening balance (58.0) (24.5)
Cumulative translation adjustment 10.9 (44.3)
Pension scheme actuarial losses - (1.0)
Deferred tax on pension scheme actuarial
losses - 0.2
Closing balance (47.1) (69.6)
-------- --------
Retained earnings
Opening balance (115.1) 11.3
Net
loss for the period (53.1) (2.2)
Closing balance (168.2) 9.1
-------- --------
Total shareholders' equity 252.2 263.2
-------- --------
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Six Months Six Months
Ended 30 Ended 30
June 2023 June 2022
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES Note $m $m
Net loss (53.1) (2.2)
Amortisation of intangibles - 7.9
Realised losses on sale of investments 6.5 12.0
Unrealised (gains) losses on investments (9.8) 88.0
Interest paid 20.3 14.3
Earnings from equity method investments (0.9) (5.2)
Changes in operating assets and liabilities:
Reinsurance recoverables on paid and unpaid
losses (net of allowance) (310.4) (188.0)
Reinsurance recoverables on paid and unpaid
losses, at fair value 55.8 (30.8)
Prepaid reinsurance premiums (59.2) (186.3)
Funds withheld receivable 7.0 3.4
Deferred acquisition costs (60.0) (74.2)
Insurance related and other receivables 49.6 71.2
Current and deferred tax assets 7.4 3.7
Other assets (16.7) 1.3
Reserve for losses and loss adjustment
expenses 349.7 203.5
Reserve for losses and loss adjustment
expenses, at fair value (193.7) (115.6)
Unearned premium reserve 80.0 216.7
Funds withheld payable (56.3) (0.4)
Insurance related and other payables (90.3) 154.9
----------- -----------
Net cash from (used in) operating activities (274.1) 174.1
CASH FLOWS FROM INVESTING ACTIVITIES
Sale, distribution, and maturity of securities
at fair value 431.8 487.6
Sale of equities 5.7 6.4
Sale of other investments 1.9 7.2
Acquisition of debt securities, net of
cash acquired (239.3) (492.2)
Acquisition of equity securities, net
of cash acquired (2.0) (16.9)
Acquisition of other investments, net
of cash acquired (14.1) (7.1)
----------- -----------
Net cash from (used in) investing activities 183.9 (15.0)
CASH FLOWS FROM FINANCING ACTIVITIES
Debt obligations repayment (11.6) (13.9)
Interest paid (20.3) (14.3)
Receipt from issuance of shares - 35.2
Preference shares issued 55.0 -
----------- -----------
Net cash from financing activities 30.4 7.0
Effect of foreign exchange 10.8 (45.1)
Net (decrease) increase in cash, restricted
cash and cash equivalents (56.3) 121.0
Cash, restricted cash and cash equivalent,
beginning of the period 321.2 245.3
----------- -----------
Cash, restricted cash and cash equivalent,
end of the period 264.9 366.3
=========== ===========
Reconciliation of cash and restricted
cash reported in the consolidated balance
sheet
Cash and cash equivalents 200.5 152.9
Restricted cash and cash equivalents 64.4 213.4
----------- -----------
Total cash, restricted cash and cash
equivalents 264.9 366.3
=========== ===========
The accounting policies and accompanying notes are an integral
part of these Condensed Consolidated Financial Statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation
R&Q Insurance Holdings Ltd. (the "Company") is incorporated
in Bermuda and listed on AIM, a sub-market of the London Stock
Exchange. The Company and its subsidiaries (together forming the
"Group") carry on business worldwide in two segments: Program
Management, also known as Accredited, where the Group provides
program capacity to managing general agents ("MGAs") and Legacy
Insurance, where the Group provides run-off solutions to the
non-life insurance market.
The Condensed Consolidated Financial Statements have been
prepared using accounting policies consistent with US GAAP and the
unaudited figures have been presented for the six months ended 30
June 2023 and 30 June 2023, as well as the full year ending 31
December 2022. Previous financial statements for the Group were
presented on an IFRS basis and a reconciliation of Equity from IFRS
as presented at 31 December 2022 to USGAAP at 31 December 2022 is
set out below.
The Condensed Consolidated Financial Statements were approved by
the Board of Directors on 28(th) September 2023.
Reconciliation of IFRS equity to US GAAP 31 Dec
equity 2022
--------
$m
IFRS Equity 185.2
Valuation differences attributable to:
Reinsurance recoverables on paid and unpaid
losses 9.5
Reserve for losses and loss adjustment
expenses (21.1)
--------
Net reserves for losses and loss adjustment
expenses (a) (11.6)
Reinsurance recoverables on paid and unpaid
losses, at fair value (42.4)
Reserve for losses and loss adjustment
expenses, at fair value 182.8
--------
Net reserves for losses and loss adjustment
expenses, at fair value (b) 140.4
Goodwill and intangible assets (c) (59.4)
Deferred acquisition costs (d) (1.4)
Insurance related and other payables (e) (3.6)
Deferred tax asset (f) (10.1)
Subtotal 54.3
US GAAP Equity 239.5
(a) This reflects recognition of Unallocated Loss Adjustment
Expenses - ULAE (Net: $1.5m) and recognition of allowance for
current expected credit losses (CECL) on Recoverables on unpaid
losses ($10.1m)
(b) This reflects an increase in net loss reserve (Net: $ 29.3m)
due to not recognising Day 1 Gains formerly allowed under IFRS and
recognition of ULAE (Net: $35.2m) which are offset by fair value
adjustments (Net: $204.9).
(c) This reflects derecognition of intangible assets recognised under IFRS.
(d) This reflects write off of internal deferred acquisition
costs that were permitted to be held on the balance sheet under
IFRS.
(e) This reflects an accrual for 2022 discretionary bonuses paid
in 2023 to non-director senior management. Accrual of discretionary
bonuses is not permitted under IFRS.
(f) This represents the impact on deferred tax arising from the
US GAAP adjustments caused by the change in accounting basis.
2. Significant accounting policies
The principal accounting policies adopted in the preparation of
these Condensed Consolidated Financial Statements are set out
below. These policies have been consistently applied to all the
periods presented, unless otherwise stated.
a. Nature of operations and basis of consolidation
The Company is a holding company owning subsidiaries engaged in
Program Management and Legacy Insurance. Further information
regarding the Group's reportable business segments is contained in
Note 3. Information concerning business acquisitions completed over
the past three years appears in Note 2. The accompanying Condensed
Consolidated Financial Statements include the accounts of the
Company consolidated with the accounts of all subsidiaries and
affiliates in which the Group holds a controlling financial
interest as of the financial statement date. Normally a controlling
financial interest reflects ownership of majority of the voting
interests. Intercompany accounts and transactions have been
eliminated. The Company consolidates entities in which it has a
controlling financial interest based on either the variable
interest entity (VIE) or voting interest model. The Company is
required to first apply the VIE model to determine whether it holds
a variable interest in an entity, and if so, whether the entity is
a VIE. If the Company determines it does not hold a variable
interest in a VIE, it then applies the voting interest model. Under
the voting interest model, the Company consolidates an entity when
it holds a majority voting interest in an entity. The Company
accounts for investments in which it has significant influence but
not a controlling financial interest using the equity method of
accounting.
b. Use of estimates in preparation of financial statements
The Group prepares its Condensed Consolidated Financial
Statements in accordance with accounting principles generally
accepted in the United States ("US GAAP") which requires it to make
estimates and assumptions that affect the reported amounts of
assets and liabilities at the balance sheet date and the reported
amounts of revenues and expenses during the period.
Estimates of unpaid losses and loss adjustment expenses are
subject to considerable estimation error due to the inherent
uncertainty in projecting ultimate claim costs. In addition,
estimates and assumptions associated with the determination of the
fair value of certain financial instruments and evaluation of
goodwill and identifiable intangible assets for impairment require
considerable judgment. Actual results may differ from the estimates
used in preparing the Group's Condensed Consolidated Financial
Statements.
The estimation of unpaid claim liabilities at any given point in
time is subject to a high degree of uncertainty for a number of
reasons. A significant amount of time can elapse between the
assumption of risk, the occurrence of a loss event, the reporting
of the event to an insurance or reinsurance company and the
ultimate payment of the claim for the loss event. Certain estimates
for unpaid claim liabilities involve considerable uncertainty due
to significant coverage litigation and it can be unclear whether
past claims experience will be representative of future claims
experience.
Significant items subject to such estimates and assumptions
include estimated transaction price, including variable
consideration, of the Group's revenue contracts; the useful lives
of fixed assets; allowances for doubtful accounts; deferred tax
assets, fixed assets, investments, notes receivable, lease
liabilities and right-of-use assets, share-based compensation,
reserves for employee benefit obligations, environmental
liabilities, income tax uncertainties, and other contingencies.
c. Cash, restricted cash and cash equivalents
The Group considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents. Cash and cash equivalents include certificates of
deposit with an initial term of less than three months.
Restricted cash consists of funds that are contractually
restricted as to usage or withdrawal due to a contractual agreement
such as cash placed as collateral. The Group has presented
restricted cash separately from cash and cash equivalents in the
Condensed Consolidated Balance Sheet.
d. Short-term investments and fixed maturity investments
Short-term investments comprise investments with a maturity
greater than three months and up to one year from the date of
purchase. Fixed maturities comprise investments with a maturity of
greater than one year from the date of purchase.
Fixed maturities consist of U.S. Treasury, corporate debt, and
equity securities. Fair value election made by the Group requires
all investment securities being carried at fair value. Any change
in the fair value of investment securities is reflected in profit
and loss. Short-term investments comprise investments with original
maturity greater than three months up to one year from the date of
purchase. Fixed maturities comprise investments with a maturity of
greater than one year from the date of purchase.
f. Goodwill and intangible assets
Goodwill represents the excess of the purchase price over the
estimated fair value of net assets acquired in a business
combination. The Group tests goodwill for impairment when there is
a triggering event (e.g. a deterioration in general economic
conditions or in the environment in which the Company
operates).
When impairment indicators are identified, the Group compares
the reporting unit's fair value to its carrying amount, including
goodwill. An impairment loss is recognised as the difference, if
any, between the reporting unit's carrying amount and its fair
value, to the extent the difference does not exceed the total
amount of goodwill allocated to the reporting unit.
Amortisation is charged to operating expenses in the Condensed
Consolidated Statement of Income as follows:
Purchased IT software 3 - 5 years, on a straight-line
basis
Other Useful life, which may be indefinite
Assets that are subject to amortisation are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment loss
is recognised in the Condensed Consolidated Statement of Income to
reduce the carrying amount to the recoverable amount.
Intangible assets are tested for impairment annually, or more
frequently when there is a triggering event. The Group first
performs a qualitative assessment by evaluating all relevant events
and circumstances to determine if it is more likely than not that
the indefinite intangible assets are impaired; this includes
considering any potential effect on significant inputs to
determining the fair value of the indefinite-lived intangible
assets. When it is more likely than not that an indefinite-lived
intangible asset is impaired, then the Group calculates the fair
value of the intangible asset and performs a quantitative
impairment test.
US insurance authorisation licences
US state insurance authorisation licences acquired in business
combinations are recognised initially at their fair value. The
asset is not amortised, as the Directors consider that economic
benefits will accrue to the Group over an indefinite period due to
the long-term stability of the US insurance market. The licences
are tested annually for impairment. This assumption is reviewed
annually to determine whether the asset continues to have an
indefinite life. Costs of acquiring new licences are recognised in
the year of acquisition.
g. Fair value measurements
The Group uses valuation approaches that maximise the use of
observable inputs and minimise the use of unobservable inputs to
the extent possible. The Company determines fair value based on
assumptions that market participants would use in pricing an asset
or liability in the principal or most advantageous market. When
considering market participant assumptions in fair value
measurements, the following fair value hierarchy distinguishes
between observable and unobservable inputs, which are categorised
in one of the following levels (see note 4, Fair Value):
Level 1 inputs: Unadjusted quoted prices in active markets for
identical assets or liabilities accessible to the reporting entity
at the measurement date.
Level 2 inputs: Other than quoted prices included in Level 1
inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the
asset or liability.
Level 3 inputs: Unobservable inputs for the asset or liability
used to measure fair value to the extent that observable inputs are
not available, thereby allowing for situations in which there is
little, if any, market activity for the asset or liability at
measurement date.
h. Fair value option
Under the Fair Value Option Subsections of FASB ASC Subtopic
825-10, Financial Instruments the Group has chosen the irrevocable
option to report certain financial assets and financial liabilities
at fair value on an instrument-by-instrument basis, with changes in
fair value reported in income. Any changes in the fair value of
liabilities resulting from changes in the instrument-specific
credit risk would be reported in other comprehensive income.
j. Commitments and contingencies
Liabilities for loss contingencies arising from claims,
assessments, litigation, fines, and penalties and other sources are
recorded when it is probable that a liability has been incurred and
the amount can be reasonably estimated. Legal costs incurred in
connection with loss contingencies are expensed as incurred.
Recoveries of environmental remediation costs from third parties
that are probable of realisation are separately recorded as assets
and are not offset against the related environmental liability.
Accruals for estimated losses from environmental remediation
obligations generally are recognised no later than completion of
the remedial feasibility study. Such accruals are adjusted as
further information develops or circumstances change. Costs of
expected future expenditure for environment remediation obligations
are not discounted to their present value.
k. Premiums and insurance/reinsurance recoverables
Premiums written are earned on a pro-rata basis over the period
the coverage is provided. Reinsurance premiums are recorded at the
inception of the policy, based upon contractual terms and, for
certain business, estimated based on underlying contracts or from
information provided by insureds and/or brokers. Changes in
reinsurance premium estimates are expected and may result in
adjustments in future periods. Any subsequent differences arising
on such estimates are recorded as premiums written in the period in
which they are earned. Unearned premium reserves represent the
unexpired portion of policy premiums. For retrospectively rated
contracts as well as those contracts whose written premium amounts
are recorded based on premium estimates at inception, changes to
accrued premiums arising from changes to these estimates are
reflected as changes in premiums receivable where appropriate.
Insurance premiums receivables are reported net of an allowance for
expected credit losses as appropriate. The allowance is based upon
the Group's ongoing review of amounts outstanding, historical loss
data, including delinquencies and write-offs, current and
forecasted economic conditions and other relevant factors. However,
the credit risk on insurance premiums receivable is substantially
reduced where the Group can cancel the underlying policy if the
policyholder does not pay the related premium. Amounts recoverable
from reinsurers are estimated in a manner consistent with the
underlying liability for losses and loss adjustment expenses. The
Group reports reinsurance recoverables on paid and unpaid losses
net of an allowance for expected credit losses.
Acquisition costs, which represent commission and other related
direct underwriting expenses, are deferred over the period in which
the related premiums are earned. Acquisition costs recognised
during the period are recorded in operating expenses in the
Condensed Consolidated Statement of Income. Deferred acquisition
costs ("DAC"), included on the Condensed Consolidated Balance
Sheet, are limited to their estimated realisable value by line of
business based on the related unearned premiums, anticipated claims
and claim expenses and anticipated investment income.
Reinsurance coverage is used to limit the Group's individual and
aggregate exposures to risks of losses arising from contracts of
insurance or reinsurance. Reinsurance premiums ceded to reinsurers
are recorded and earned in a manner consistent with that of the
original contracts or policies written and the terms of the
reinsurance agreements. Reinsurance arrangements do not relieve the
insurer of its primary obligation to the policyholder.
l. Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognised for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credits carried forward to future periods. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognised in income in the period that includes the enactment
date. The Group recognises the effect of income tax positions only
if those positions are more likely than not to be sustained.
Recognised income tax positions are measured at the largest amount
which has a greater than 50% likelihood of being realised. Changes
in recognition or measurement are reflected in the period in which
the change in judgment occurs.
m. Other assets
Other assets primarily consist of prepaid assets, fixed assets
and leased assets.
n. Current expected credit losses (CECL)
US GAAP requires an entity to measure and record credit risk
that affects the collectability of reinsurance receivables.
1) An allowance for credit losses - i.e. losses due to the
credit risk of each reinsurer are recognised and estimated under
the expected credit loss model.
2) A separate valuation allowance for the remaining risks -
e.g., dispute risk, litigation risk - is recognised if the loss
associated with those risks is probable and can be reasonably
estimated.
Reinsurance recoverables are reviewed for impairment on a
quarterly basis and are presented net of an allowance for expected
credit losses. A case-specific allowance for expected credit losses
against reinsurance recoverables that the Group deems unlikely to
be collected in full, is estimated based on the Group's analysis of
amounts due, historical delinquencies and write-offs. In addition,
a default analysis is used to estimate an allowance for expected
credit losses on the remainder of the reinsurance recoverables
balance. The principal components of the default analysis are
reinsurance recoverables by reinsurer and default factors applied
to estimate uncollectible amounts based on reinsurers' credit
ratings and the length of collection periods. The default factors
are based on a model developed by a major rating agency. The
default analysis considers both current and forecasted economic
conditions in the determination of the credit loss allowance.
o. Post retirement plans
The Group makes contributions to defined contribution schemes
and a defined benefit scheme.
The pension cost in respect of the defined contribution schemes
represents the amounts payable by the Group for the year. The funds
of the schemes are administered by trustees and are separate from
the Group. The Group's liability is limited to the amount of the
contributions.
The defined benefit scheme is funded by contributions from a
subsidiary company and its assets are held in a separate Trustee
administered fund.
Pension scheme assets are measured at market value, and
liabilities are measured using the projected unit method and
discounted at the current rate of return on high quality corporate
bonds of equivalent term and currency to the liability.
Current service cost, net interest income or cost and any
curtailments/settlements are charged to the Condensed Consolidated
Statement of Income. The present value of the defined benefit
obligation at the end of the reporting period less the fair value
of plan assets is recognised and disclosed separately as a net
pension liability in the Condensed Consolidated Balance Sheet.
Surpluses are only recognised up to the aggregate of any cumulative
unrecognised net actuarial gains and past service costs, and the
present value of any economic benefits available in the form of any
refunds or reductions in future contributions.
p. Earnings per share
Basic earnings per share is based on the weighted average number
of ordinary shares outstanding and excludes potentially dilutive
securities such as restricted shares, restricted share units,
warrants, options and convertible securities.
Diluted earnings per share is based on the weighted average
number of ordinary and ordinary share equivalents outstanding
calculated using the treasury stock method for all potentially
dilutive securities. When the effect of dilutive securities would
be anti-dilutive, these securities are excluded from the
calculation of diluted earnings per share.
q. Claims
These include the cost of claims and related expenses paid in
the year, together with changes in the provisions for outstanding
claims, including provisions for claims incurred but not reported
and related expenses, together with any other adjustments to claims
from previous years. Where applicable, deductions are made for
salvage and other recoveries. These are shown as net claims
provisions (increase)/release in the Condensed Consolidated
Statement of income.
r. Provisions
Provisions, other than insurance provisions, are recognised when
the Group has a present obligation (legal or constructive) as a
result of a past event, it is probable that the Group will be
required to settle the obligation, and a reliable estimate can be
made of the amount of the obligation.
Provisions are measured at the present value of the expenditures
expected to be required to settle the obligation, using a pre-tax
rate that reflects current market assessments of the time value of
money and the risks specific to the obligation. The increase in the
provision due to the passage of time is recognised as an interest
expense.
s. Interest expense
Interest expense comprise interest payable and are recognised in
the Condensed Consolidated Statement of Income in line with the
effective interest rate on liabilities.
t. Funds withheld
The funds withheld receivable reflects deposits with ceding
undertakings and the funds withheld payable reflects deposits
withheld from reinsurers that would otherwise have been remitted to
them. The funds withheld are credited with investment income and
losses paid are deducted. The net investment returns from both
inwards and outwards funds withheld are recognised in net
investment income.
u. Losses and loss adjusting expenses (LAE)
The liability for losses and LAE includes reserves for unpaid
reported losses and losses incurred but not reported ("IBNR"). The
Group establishes reserves for unpaid reported losses and LAE based
on reports from brokers, ceding companies and insureds and these
represent the estimated ultimate cost of events or conditions that
have been reported to or specifically identified. The reserves for
IBNR are established based on actuarially determined estimates of
ultimate losses and LAE. Inherent in the estimate of ultimate
losses and LAE are expected trends in claim severity and frequency,
historical loss experience, industry statistics and other factors
which may vary significantly as claims are settled.
These estimates are reviewed regularly and are subject to the
impact of future changes in the factors noted above as well as
economic conditions including the impact of inflation, legal and
judicial developments, and other projections. Any subsequent
remeasurement of the Group's reserves are recorded in income in the
period in which they become known and reflected as part of the net
increase or reduction in the estimates of ultimate losses included
within net incurred losses and LAE in the Condensed Consolidated
Statement of Income.
3. Segmental information
The Group's segments represent the level at which financial
information is reported to the Board, being the chief operating
decision maker. The reportable segments are as follows: -
-- Program Management - delegates underwriting authority to MGAs
to provide program capacity through its licensed platforms in the
US and Europe
-- Legacy Insurance - acquires legacy portfolios and manages the
run-off of claims reserves
-- Corporate / Other - primarily includes the holding company
costs and interest expense on debt.
Segmental results for the six months ended 30 June 2023
Program Legacy Corporate
Note Management Insurance / Other Total
$m $m $m $m
Underwriting
income (i) (0.7) (54.7) - (55.4)
Fee income (ii) 46.2 9.7 - 55.9
Investment income (iii) 4.7 16.4 0.9 22.0
========================== ================= ======================= ================
Gross operating
income (iv) 50.2 (28.6) 0.9 22.5
========================== ================= ======================= ================
Fixed operating
expenses (v) (21.6) (35.6) (7.4) (64.6)
Interest expense - - (15.9) (15.9)
-------------------------- ----------------- ----------------------- ================
Pre-tax operating
profit/(loss) (vi) 28.6 (64.2) (22.4) (58.0)
========================== ================= ======================= ==================
Unearned program
fee income (vii) 0.0
Change in fair
market
value of
liabilities (viii) (1.5)
Net unrealised
and realised
gains (ix) 3.3
Non-core and
exceptional
items (x) 4.1
----------------
Loss before tax (52.1)
================
Segmental results for the six months ended 30 June 2022
Program Legacy Corporate
Note Management Insurance / Other Total
$m $m $m $m
Underwriting
income (i) (4.8) (3.4) - (8.2)
Fee income (ii) 39.1 8.8 - 47.8
Investment income (iii) 1.0 6.7 0.0 7.7
========================== ================== ======================= ================
Gross operating
income (iv) 35.3 12.1 0.0 47.4
========================== ================== ======================= ================
Fixed operating
expenses (v) (19.9) (38.8) (6.7) (65.4)
Minority stake in
Tradesman (xi) - - 5.2 5.2
Interest expense - - (14.2) (14.2)
-------------------------- ------------------ ----------------------- ================
Pre-tax operating
profit/(loss) (vi) 15.5 (26.7) (14.2) (27.0)
========================== ================== ======================= ================
Unearned program
fee
income (vii) (14.9)
Change in FMV of
liabilities (viii) 102.2
Net unrealised and
realised
losses (ix) (100.0)
Non-core and
exceptional
items (x) (13.0)
----------------
Loss before tax (1.3)
================
The above key performance indicators used by management measure
the economics of the business and adjust US GAAP results to include
fully written Program Fee Income and exclude non-cash intangible
assets created from acquisitions in Legacy Insurance, net realised
and unrealised investment gains on fixed income and lease-based
assets, foreign currency translation reserves, non-core expenses
and exceptional items.
Notes:
(i) Underwriting income represents Legacy Insurance reserve
development / savings, net of claims costs and brokerage
commissions. Underwriting income also includes Program Management
retained earned premiums, net of claims costs, acquisition costs,
claims handling expenses, premium taxes / levies and associated
movement in CECL.
(ii) Fee income comprises program fee income from insurance
policies already bound (written), regardless of the amount of
premium earned in the financial period.
(iii) Investment income represents income arising on the
investment portfolio excluding net realised and unrealised
investment gains or losses on fixed income and lease-based
assets.
(iv) Gross operating income represents pre-tax operating profit
before fixed operating expenses (v) and interest expense.
(v) Fixed operating expenses include employment, legal,
accommodation, information technology, Lloyd's Syndicate and other
fixed expenses of ongoing operations, excluding non-core and
exceptional items.
(vi) Pre-tax operating profit is a measure of how the Group's
core businesses perform adjusted for unearned program fee income
(vii), fair market value movement in Legacy reserves and net
realised and unrealised investment gains on fixed income and
lease-based assets.
(vii) Unearned program fee income represents the portion of
program fee income (ii) which has not yet been earned on an GAAP
basis.
(viii) Movement in fair market value of liabilities relates to
changes in discount rate on legacy insurance reserves and
associated risk margin.
(ix) Realised and unrealised net investment gains comprise
movement in fixed income assets held at fair market value as a
result of changes in interest rates as well as any realised
investment net gains as a result of selling underlying fixed income
securities.
(x) Non-core and exceptional items comprise the results of
entities which are considered non-core and one-off or exceptional
income and expenditure.
(xi) Represents 40% minority stake in Tradesman Program
Managers, which was sold in the first six months of 2023 and
reported under Corporate and other segment.
No income from any one client included within the fee income
generated more than 10% of the total external income.
4. Fair value
(a) Fair value hierarchy
Fair value hierarchy is defined in Note 2(g). At 30 June 2023,
the Group classified its financial instruments measured at fair
value on a recurring basis in the following valuation
hierarchy:
Fair value measurements at reporting date
Quoted prices in active Significant other Significant unobservable Total
markets for identical observable inputs (Level inputs (Level 3) 30 June
assets (Level 1) 2) 2023
$m $m $m $m
Equities 17.7 - - 17.7
Short-term and
Fixed maturity
investments:
U.S.
government
and agency 266.8 10.1 - 276.9
U.K.
government - 53.5 - 53.5
Corporate - 741.9 - 741.9
Municipal - 7.5 - 7.5
Other
government - 65.6 - 65.6
Structured
products - 190.3 - 190.3
Other
investments - - 48.8 48.8
Total
investment
securities 284.5 1,068.9 48.8 1,402.2
Purchased
reinsurance
receivables - - 3.3 3.3
Total 284.5 1068.9 52.1 1,405.5
=========================== =========================== =========================== ========
The Group uses independent pricing sources such as Refinitiv
amongst others to assist in determining the fair value of its
investments; however, management is ultimately responsible for all
fair values presented in the Group's financial statements. This
includes responsibility for monitoring the fair value process,
ensuring objective and reliable valuation practices, and pricing of
assets and liabilities and use of pricing sources. The Group
analyses and reviews the information and prices received from these
sources to ensure that the prices provided represent a reasonable
estimate of fair value. These fair value measurements maximise the
use of observable inputs. However, in situations where there is
little, if any, market activity for the asset or liability at the
measurement date, the fair value measurement reflects the Group's
own judgments about the assumptions that market participants would
use in pricing the asset or liability. Those judgments are
developed by the Group based on the best information available in
the circumstances, including expected cash flows and appropriately
risk adjusted discount rates, available observable and unobservable
inputs.
Equity securities with readily determinable fair values are
measured using quoted market prices at the reporting date
multiplied by the quantity held. The fair values for all securities
in the short-term and fixed maturity investments are obtained or
validated from independent pricing services either directly or
through service providers or investment managers.
(b) Level 3 financial instruments:
At 30 June 2023, the Group holds Level 3 financial instruments
of $3.3m, which includes purchased reinsurance recoverables. The
fair values of these investments are estimated using detailed
models, where applicable. Due to significant unobservable inputs in
these valuations, the Group classifies its fair values as Level 3
within the fair value hierarchy.
The following table provides a summary of quantitative
information regarding the significant unobservable inputs used in
determining the fair value of other investments measured at fair
value on a recurring basis under the Level 3 classification at 30
June 2023:
Level 3 Financial Instruments
Fair Value ($m) Valuation Technique Unobservable Inputs Range (years)
Purchased reinsurance
receivables 3.3 DCF Discount factor used 2
Total - Level 3 investments 3.3
================
The following tables present changes in assets and liabilities
classified in Level 3 (significant unobservable inputs) of the fair
value hierarchy during the periods ended 30 June 2023 and 30 June
2022:
30 June 30 June
2023 2022
$m $m
Opening balance 6.6 6.4
Total net gains recognised in the Condensed
Consolidated Statement of Income - 0.2
Disposals (3.3) -
Exchange adjustments - -
------- -------
Closing balance 3.3 6.6
======= =======
Legacy Insurance segment:
The fair value option has been elected to value the reserves for
unpaid losses and loss adjustment expenses for the Legacy Insurance
segment. The building block approach has been used to estimate the
fair value. The first building block involves estimating the
expected nominal liabilities and their associated cash flows. The
second building block is the amount of discount that should be
associated with those expected liabilities, reflecting the
characteristics of the liability except for the insurance risk. The
third building block involves calculating a risk margin to reflect
the compensation a third party would need to take on those
liabilities at the financial statement date.
Insurance contracts - fair value option
The following table presents a reconciliation of the beginning
and ending balances for all insurance contracts measured at fair
value on a recurring basis using Level 3 inputs during the period
ended 30 June 2023:
Reinsurance
Liability recoverables
for losses on unpaid
and LAE losses Net
---------------------- -------------------------- --------------------
$m $m $m
Fair value at 1 January
2023 1,481.5 633.4 848.1
De-consolidation of
subsidiary (133.2) (12.5) (120.7)
Incurred losses and -
LAE
Change in estimates
of ultimate losses (4.1) (39.0) 34.9
Change in fair value 98.6 76.2 22.4
---------------------- -------------------------- --------------------
Total incurred losses
and LAE 94.6 37.3 57.3
Losses paid (152.8) (79.6) (73.2)
Effect of exchange rate
movements (2.2) (1.0) (1.2)
---------------------- -------------------------- --------------------
Fair value at 30 June
2023 1,287.8 577.5 710.3
The following table presents the components of the net change in
fair value for the period ended 30 June 2023:
Changes in fair value due 30 June 2023
to changes in:
$m
Duration (45.2)
--------------
Yield 7.0
--------------
Risk cost of capital 15.8
--------------
Change in fair value (22.4)
--------------
Below is a summary of the quantitative information regarding the
significant observable and unobservable inputs used in the internal
model to determine fair value on a recurring basis as of 30 June
2023:
Valuation Technique/Source Unobservable (U) and Observable (O) Inputs 30 June 2023
Internal determination Yield (O) A-rated corporate bond yield including
illiquidity premium
-------------------------------------------- ------------------------------------------
Internal determination Credit Spread for non-performance risk (U) 0.2%
-------------------------------------------- ------------------------------------------
Bermuda Monetary Authority Risk Cost of Capital (U) 6%
-------------------------------------------- ------------------------------------------
Internal determination Duration (U) 4.95 years
-------------------------------------------- ------------------------------------------
The fair value of the liability for losses and LAE and
reinsurance recoverables on paid and unpaid losses may increase or
decrease due to changes in the corporate bond rate, the credit
spread for non-performance risk, the risk cost of capital, the
weighted average cost of capital and the estimated payment pattern
as described below:
-- An increase in the yield rate or credit spread for
non-performance risk would result in a decrease in the fair value
of the liability for losses and LAE and reinsurance balances
recoverable on paid and unpaid losses. Conversely, a decrease in
the corporate bond rate or credit spread for non-performance risk
would result in an increase in the fair value of the liability for
losses and LAE and reinsurance recoverables on paid and unpaid
losses.
-- An increase in the weighted average cost of capital would
result in an increase in the fair value of the liability for losses
and LAE and reinsurance recoverables on paid and unpaid losses.
Conversely, a decrease in the weighted average cost of capital
would result in a decrease in the fair value of the liability for
losses and LAE and reinsurance recoverables on paid and unpaid
losses.
-- An increase in the risk cost of capital would result in an
increase in the fair value of the liability for losses and LAE and
reinsurance recoverables on paid and unpaid losses. Conversely, a
decrease in the risk cost of capital would result in a decrease in
the fair value of the liability for losses and LAE and reinsurance
recoverables on paid and unpaid losses.
-- The duration of the liability and recoverable is adjusted
every period to reflect actual net payments during the period and
expected future payments. An acceleration of the estimated payment
pattern, a decrease in duration, would result in an increase in the
fair value of the liability for losses and LAE and reinsurance
balances recoverable on paid and unpaid losses. Conversely, a
deceleration of the estimated payment pattern, an increase in
duration, would result in a decrease in the fair value of the
liability for losses and LAE and reinsurance recoverables on paid
and unpaid losses.
In addition, the estimate of the capital required to support the
liabilities is based upon current industry standards for capital
adequacy. If the required capital per unit of risk increases, then
the fair value of the liability for losses and LAE and reinsurance
recoverables on paid and unpaid losses would increase. Conversely,
a decrease in required capital would result in a decrease in the
fair value of the liability for losses and LAE and reinsurance
recoverables on paid and unpaid losses.
(c) Financial instruments disclosed, but not carried, at fair
value
The fair value of financial instruments accounting guidance also
applies to financial instruments disclosed, but not carried, at
fair value, except for certain financial instruments related to
insurance contracts.
As at 30 June 2023, the carrying values of cash and cash
equivalents (including restricted amounts), accrued investment
income, reinsurance balances receivable, loan to related party and
certain other assets and liabilities approximate their fair values
due to their inherent short duration. As these financial
instruments are not actively traded, the fair values of these
financial instruments are classified as Level 2.
The investments made by direct lending entities are carried at
cost less impairment, if any, which approximates fair value. The
fair value estimates of these investments are not based on
observable market data and, as a result, have been categorised as
Level 3.
The fair values of the Group's long-term debt (as defined in
"Note 11 - Debt Obligations ") is measured at carrying value which
approximates to its fair value. Debt issued by the Group and its
subsidiary, R&Q Re (Bermuda) Ltd, is floating rate debt and as
the credit quality has remained the same since issuance, the
carrying value broadly reflects the fair values of these
instruments. Variable rate plus the margin is reflective of the
term of the debt and also whether it is subordinate or not.
31 December
2022
30 June $m
2023
$m
Amounts owed to credit institutions 333.3 344.9
5. Investments
The Group holds the following investment securities measured at
fair value:
i. Equity and other investments, carried at fair value; and
ii. Portfolio of short-term and fixed maturities investments
carried at fair value.
Equities and other investments
Equity investments include publicly traded common and preferred
stocks, exchange-traded funds and privately held common and
preferred stocks carried at fair value.
The following table summarises the Group's equity investments as
at 30 June 2023 and 31 December 2022:
31 December
30 June 2023 2022
------------- ------------
$m $m
------------- ------------
Publicly traded equity investments
in common and preferred stocks 17.7 22.0
Cash based investment
funds 48.8 32.5
66.5 54.6
============= ============
Short term and fixed maturities investments
The fair values of the underlying asset categories comprising
short-term and fixed maturities investments were as follows as at
30 June 2023 and 31 December 2022:
30 June 31 December
2023 2022
$m $m $m $m $m $m
Short term Fixed Total Short Fixed Total
investments maturities term investments maturities
------------- ------------ -------- ------------------ ------------ --------
U.S. government
and agency 100.9 176.1 277.0 82.0 224.7 306.6
U.K. government 25.9 27.6 53.5 3.6 39.6 43.2
Other government 12.6 53.0 65.6 15.8 81.0 96.9
Municipal - 7.5 7.5
Corporate 3.0 728.8 731.8 6.1 762.4 768.5
Certificate
of deposit 8.8 1.2 10.0 5.8 0.4 6.2
Structured
products - 190.3 190.3 - 300.6 300.7
151.2 1,184.5 1,335.7 113.3 1,408.8 1,522.1
============= ============ ======== ================== ============ ========
Contractual maturities
The contractual maturities of the Group's short-term and fixed
maturity investments, classified as trading and the investments
included are shown below. Actual maturities may differ from
contractual maturities because issuers may have the right to call
or prepay obligations with or without call or prepayment
penalties.
Fair
value
$m
One year or less 63.9
More than one year through
two years 54.2
More than two years through
five years 121.4
More than five years
through ten years 258.8
More than ten years 637.0
Asset backed securities 175.3
Mortgage-Backed Securities
& Others 25.1
1,335.7
========
Credit Ratings Fair value AAA AA rated A rated BBB Non-investment grade Not rated
$m $m $m $m $m $m $m
U.S. government and agency 266.8 266.8 - - - - -
U.K. government 53.5 - 53.5 - - - -
Other government 65.6 45.6 16.2 0.5 2.8 0.5 -
Corporate 741.9 11.9 47.6 372.4 284.9 23.0 2.1
Municipal 7.5 1.3 5.6 0.5 - - -
Asset backed securities 175.3 20.5 44.7 73.7 36.3 0.1 -
Mortgage-backed securities &
others 25.2 11.9 1.3 5.0 5.4 1.6 0
1,335.7 358.0 169.0 452.1 329.4 25.2 2.1
=========== ====== ========= ======== ====== ===================== ==========
Net investment income
Major categories of net investment income for the period ended
30 June 2023 and 30 June 2022 are summarised as follows:
Six months
Six months ended ended 30 June
30 June 2023 2022
----------------- ---------------
$m $m
----------------- ---------------
Gross investment income 23.8 10.2
Less: investment expense (1.8) (1.4)
Net investment income 22.0 8.8
================= ===============
Net realised gains (losses)
on sale:
Total net realised losses
on sale (6.4) (12.4)
----------------- ---------------
Total net unrealised gains/(losses) 9.7 (87.6)
----------------- ---------------
The Group uses trust accounts to collateralise business with its
(re)insurance counterparties and is also required to maintain
investments and cash and cash equivalents on deposit with
regulatory authorities and Lloyd's to support its (re)insurance
operations. The investments and cash and cash equivalents on
deposit are available to settle (re)insurance liabilities.
Collateral generally takes the form of assets held in trust,
letters of credit or funds held. The assets in trust as collateral
are mostly cash and highly rated fixed maturities. The fair values
of these restricted assets were as follows at 30 June 2023 and 31
December 2022:
31 December
30 June 2023 2022
------------- ------------
$m $m
------------- ------------
Fixed income securities
- restricted investments 815.9 942.4
Cash based investment funds - restricted
investments 5.2 9.4
Equities - restricted investments 38.9 20.8
Restricted cash and cash
equivalents 64.4 133.3
Restricted assets - third
party agreements 924.4 1,105.9
------------- ------------
6. I ncome tax - current and deferred taxes
Income tax is charged to net income or in some cases to
accumulated other comprehensive income based on applicable local
tax laws and rates in the reporting period. The Group recognised an
income tax expense of $1.0m for the six months ended 30 June 2023,
compared to an income tax expense of $0.9m for the same period in
2022. The overall tax rate is derived from calculating prevailing
tax rates in the taxable jurisdictions in which the Group operates
restricted through the tax credits available to the Group for
losses incurred in some jurisdictions.
7. Reinsurance
The following tables analyse the total Reinsurance recoverables
on paid and unpaid losses:
As at 30 June 2023
Program Management Legacy Insurance Total
-------------------- ----------------- --------
$m $m $m
-------------------- ----------------- --------
Recoverable from reinsurers on unpaid:
Undiscounted claims provisions and IBNR 1,342.9 693.7 2,036.6
CECL (13.9) - (13.9)
ULAE 26.1 - 26.1
Fair value adjustments - fair value option - (116.2) (116.2)
Total 1,355.1 577.5 1,932.6
=================== ================= ========
Reconciliation to Condensed Consolidated Balance
Sheet:
Reinsurance recoverables on paid and unpaid
losses 1,355.1 - 1,355.1
Reinsurance recoverables on paid and unpaid
losses - fair value option - 577.5 577.5
Total 1,355.1 577.5 1,932.6
=================== ================= ========
As at 31 December 2022
Program Management Legacy Insurance Total
-------------------- ----------------- ---------
$m $m $m
-------------------- ----------------- ---------
Recoverable from reinsurers on unpaid:
Undiscounted claims provisions and IBNR 1,035.1 825.7 1,860.8
CECL (10.1) - (10.1)
ULAE 19.7 - 19.7
Fair value adjustments - fair value option - (192.4) (192.4)
Total 1,044.7 633.3 1,678.0
=================== ================= =========
Reconciliation to Condensed Consolidated
Balance Sheet:
Reinsurance recoverables on paid and unpaid
losses 1,044.7 - 1,044.7
Reinsurance recoverables on paid and unpaid
losses - fair value option - 633.3 633.3
Total 1,044.7 633.3 1,678.0
=================== ================= =========
The fair value adjustments, determined on acquisition of
(re)insurance subsidiaries, are based on the estimated timing of
loss and LAE recoveries and an assumed interest rate equivalent to
a risk-free rate for securities with similar duration to the
acquired reinsurance balances recoverable on paid and unpaid losses
plus a spread for credit risk, and are amortised over the estimated
recovery period, as adjusted for accelerations in timing of
payments because of commutation settlements. The determination of
the fair value adjustments on the retroactive reinsurance contracts
for which the Group has elected to use the fair value option is
described in Note 4 - "Fair value ".
For Program Management, the Group carries reinsurance
recoverables at amortised cost and for Legacy Insurance the Group
carries reinsurance recoverables at fair value for better matching
of the timing of gain/loss recognition on retroactive assumed and
retroactive ceded reserves.
8. Reserve for losses and loss adjustment expenses
The liability for losses and LAE, also referred to as loss
reserves, represents the Group's gross estimates before reinsurance
for unpaid reported losses and includes IBNR for the Legacy and
Program segments using a variety of actuarial methods. The Group
recognises an asset for the portion of the liability that it
expects to recover from reinsurers. LAE reserves include allocated
loss adjustment expenses ("ALAE"), and unallocated loss adjustment
expenses ("ULAE"). ALAE are linked to the settlement of an
individual claim or loss, whereas ULAE are based on the estimate of
future costs to administer the claims. IBNR represents reserves for
loss and LAE that have been incurred but not yet reported. This
includes amounts for unreported claims, development on known claims
and reopened claims.
The Group's loss reserves cover multiple lines of business,
including casualty, workers' compensation, motor and other non-life
lines of business.
The following tables summarise the liability for losses and LAE
by segment and for the Group's other activities.
Program Legacy
At 30 June 2023 Mgt Ins Total
-------------------------------- -------------------------------- --------------------------------
$m $m $m
Undiscounted
reserves 1,454.5 1,566.6 3,021.1
Fair value
adjustments -
fair
value option - (308.5) (308.5)
ULAE 28.3 29.8 58.1
Total 1,482.8 1,287.8 2,770.7
================================ ================================ ================================
Reconciliation
to Condensed
Consolidated
Balance Sheet:
Reserve for
loss and loss
adjustment
expenses 1,482.8 - 1,482.8
Reserve for
loss and loss
adjustment
expenses, at
fair value - 1,287.8 1,287.8
Total 1,482.8 1,287.8 2,770.7
================================ ================================ ================================
31 December Program Legacy
2022 Mgt Ins Total
-------------------------------- -------------------------------- --------------------------------
$m $m $m
Undiscounted
Reserves 1,112.0 1,853.4 2,965.4
Fair value
adjustments -
fair
value option - (407.1) (407.1)
ULAE 21.1 35.2 56.3
Total 1,133.1 1,481.5 2,614.6
================================ ================================ ================================
Reconciliation
to Condensed
Consolidated
Balance Sheet:
Reserve for
loss and loss
adjustment
expenses 1,133.1 - 1,133.1
Reserve for
loss and loss
adjustment
expenses, at
fair value - 1,481.5 1,133.1
Total 1,133.1 1,481.5 2,614.6
================================ ================================ ================================
The table below provides a consolidated reconciliation of the
beginning and ending liability for losses and LAE.
30 June 30 June
2023 2022
---------- --------------------------------
$m $m
Loss and loss adjustment expenses as
at 1 January 2,614.6 2,331.7
Less: reinsurance recoverables (1,678.0) (1,262.6)
Net balance as at 1 January 936.6 1,069.2
Net incurred losses and LAE:
Current period 41.7 13.0
Prior periods 78.6 (108.8)
Total net incurred losses and LAE 120.3 (95.8)
Net paid losses:
Current period (13.0) (20.6)
Prior periods (92.8) (146.8)
Total net paid losses (105.8) (167.4)
Effect of exchange rate movement 7.6 7.0
(Acquisition)Disposal of reserves (120.7) 142.5
Net balance as at 30 June 838.0 955.5
Add back: reinsurance recoverables (2) 1,932.6 1,464.1
Loss and loss adjustment expenses as
at 30 June 2,770.6 2,419.6
========== ================================
Assumptions, changes in assumptions and sensitivity
The assumptions used in the estimation of provisions relating to
insurance contracts are intended to result in provisions which are
sufficient to settle the net liabilities from insurance contracts.
The amounts presented above include estimates of future reinsurance
recoveries expected to arise on the settlement of the gross
insurance liabilities.
Provision is made at the period end date for the estimated
ultimate cost of settling all claims incurred in respect of events
and developments up to that date, whether reported or not.
The provisions carried by the Group for its insurance
liabilities are calculated using a variety of actuarial techniques.
The provisions are calculated and reviewed by the Group's internal
actuarial team; in addition, the Group periodically commissions
independent reviews by external actuaries. The use of external
actuaries provides management with additional comfort that the
Group's internally produced statistics and trends are consistent
with observable market information and other published data.
Provisions for outstanding claims and IBNR are initially estimated
at a gross level and a separate calculation is carried out to
estimate the size of reinsurance recoveries. Insurance companies
and syndicates within the Group are covered by a variety of treaty,
excess of loss and stop loss reinsurance programs.
The provisions disclosed in the Condensed Consolidated Financial
Statements are sensitive to a variety of factors including:
-- Settlement and commutation activity of third-party lead reinsurers
-- Development in the status of settlement and commutation
negotiations being entered into by the Group
-- The financial strength of the Group's reinsurers and the risk
that these entities could, in time, become insolvent or could
otherwise default on payments
-- Future cost inflation of legal and other advisors who assist
the Group with the settlement of claims
-- Changes in statute and legal precedent which could
particularly impact provisions for asbestos, pollution and other
latent exposures
-- Arbitration awards and other legal precedents which could
particularly impact upon the presentation of both inwards and
outwards claims on the Group's exposure to major catastrophe
losses.
9. Earnings per share
a. Basic earnings per share
Basic earnings per share is calculated by dividing the earnings
attributable to ordinary shareholders by the weighted average
number of ordinary shares outstanding during the period.
Reconciliations of the earnings and weighted average number of
shares used in the calculations are set out below:
Six months ended 30 June 2023 Six months ended 30 June 2022
Numerator: (in millions of U.S. dollars, except share
data) $m $m
Earnings per share attributable to ordinary
shareholders:
Net earnings attributable to ordinary shareholders (53.1) (2.2)
Denominator: (in millions of shares)
Weighted-average ordinary shares outstanding - basic
and diluted 374.8 276.3
Earnings per share attributable to ordinary
shareholders:
Basic and diluted:
Net earnings per ordinary share (14.2) (0.8)
At June 30 2023, preference shares were excluded from diluted
earnings per common share because they were anti-dilutive.
10. Insurance and other payables including structured
liabilities
30 June 31 December
2023 2022
$m $m
$m $m
Structured liabilities 504.4 504.4
Structured settlements (504.4) (504.4)
-------- ------------
- -
Insurance related and other payables 1,218.5 1,531.9
-------- ------------
No new structured settlement arrangements have been entered into
during the year. Some group subsidiaries have paid for annuities
from third party life insurance companies for the benefit of
certain claimants. The subsidiary company retains the credit risk
in the unlikely event that the life insurance company defaults on
its obligations to pay the annuity amounts. In the event that any
of these life insurance companies were unable to meet their
obligations to these annuitants, any remaining liability may fall
upon the respective insurance company subsidiaries. The Directors
believe that, having regard to the quality of the security of the
life insurance companies together with the reinsurance available to
the relevant Group insurance companies, the possibility of a
material liability arising in this way is very unlikely. The life
companies will settle the liability directly with the claimants and
no cash will flow through the Group. These annuities have been
shown as reducing the insurance companies' liabilities to reflect
the substance of the transactions and to ensure that the disclosure
of the balances does not detract from the users' ability to
understand the Group's future cash flows.
The carrying amounts disclosed above reasonably approximate
their fair values at the period end date.
11. Debt obligations and credit facilities
The total amounts owed to credit institutions at 30 June 2023
was $333.3m (31 December 2022: $344.9m).
The Group has issued the following debt:
Issuer Principal Rate Maturity
R&Q Insurance Holdings Ltd. $70,000k 6.35% above USD 2028
LIBOR*
R&Q Insurance Holdings Ltd. $125,000k 6.75% above USD 2033
LIBOR**
Accredited Insurance (Europe) EUR20,000k 6.7% above EURIBOR 2025
Limited
Accredited Insurance (Europe) EUR5,000k 6.7% above EURIBOR 2027
Limited
R&Q Re (Bermuda) Limited $20,000k 7.75% above USD 2023
LIBOR
Revolving Credit Facility GBP59,327k Variable Revolving
Bank Term Loan GBP12,500k SONIA - 5 NCCR 2024
LAG
* USD LIBOR Capped at 3.65% through December 2023
** USD LIBOR capped at 2%
The Group's subsidiary, Accredited Holding Corporation, provides
a full and unconditional guarantee for the payment of principal,
interest and any other amounts due in respect of the $70.0m Notes
issued by R&Q Insurance Holdings Ltd.
12. Shareholders' equity
At 30 June 2023, the allotted, called up and fully paid share
capital of the Company is 377,395,235 ordinary shares of 2p each
(30 June 2022: 302,636,880 ordinary shares). Number of outstanding
shares (voting shares) on 30 June 2023 was 374,572,864.
(a) Common stock
Holders of common stock are entitled to one vote per share, and
to receive dividends and, upon liquidation or dissolution, are
entitled to receive all assets available for distribution to
stockholders. The holders have no pre-emptive or other subscription
rights, and there are no redemption or sinking fund provisions with
respect to such shares. Common stock is subordinate to the
preferred stock with respect to dividend rights and rights upon
liquidation, winding up and dissolution of the Company.
(b) Preference shares
In June 2023, the Group issued $55 million of non-voting,
perpetual preferred equity issued through Randall & Quilter PS
Holdings Inc., an indirect wholly owned subsidiary of R&Q, to
investment funds affiliated with one of its largest shareholders,
Scopia Capital Management ("Scopia"). The preferred stock will, in
certain circumstances, be exchangeable at Scopia's election into
new ordinary shares of R&Q at 60.98 pence (representing a 10%
premium to the 20-day volume weighted average price prior to the
date of the Agreement).
13. Commitments, guarantees and contingencies
There are uncertainties inherent in assessing outstanding claims
reserves in the ordinary course. The Group's insurance contract
provisions include a provision for costs only in respect of a
potential accumulation of claims from a single policyholder in the
Group's Legacy business. The claims involve multiple uncertainties
including questions relating to liability, coverage, incidence,
quantum and other legal and technical issues. Management has
concluded that it is not possible to measure the appropriate
reserve for these claims with sufficient reliability. Based on the
documentation made available to date, and expert opinion and legal
advice, management believes that it is not probable that any
significant amount, other than costs, will be payable to settle the
claim; however, the ultimate cost of the claims could be materially
higher. In the circumstances, management has concluded that it is
not currently appropriate to recognise any estimate of the possible
outcome but to disclose the position as a contingent liability.
Liabilities for loss contingencies arising from claims,
assessments, litigation, fines, and penalties and other sources are
recorded when it is probable that a liability has been incurred and
the amount can be reasonably estimated. Legal costs incurred in
connection with loss contingencies are expensed as incurred.
(a) Concentration of credit risk exposures
The Group believes that there are no significant concentrations
of credit risk associated with its cash and cash equivalents, fixed
maturity investments, or other investments. Cash and investments
are managed pursuant to guidelines that follow prudent standards of
diversification and liquidity and limit the allowable holdings of a
single issue and issuers. The Group is also subject to custodial
credit risk on its investments, which is managed by diversifying
the holdings amongst large financial institutions that are highly
regulated.
The Group manages the concentration of credit risk in its
investment portfolio through issuer and sector exposure limitations
and believes it bears minimal credit risk in its cash on
deposit.
The Group's investment portfolio is managed following prudent
standards of diversification and a prudent investment philosophy.
The Group is not exposed to any significant credit concentration
risk on its investments, except for debt securities issued by the
U.S. government and government sponsored enterprises, and other
highly rated non-U.S. sovereign governments' and supranational
organisations' securities. At 30 June 2023, other than the U.S.
government and U.S. government sponsored enterprises, the Group's
fixed maturity investment portfolio did not contain exposure to any
non-U.S. sovereign government or any other issuer that accounted
for more than 10% of the Group's shareholders' equity.
The Group has exposure to credit risk on certain of its assets
pledged to ceding companies under insurance contracts. In addition,
the Group is potentially exposed should any insurance
intermediaries be unable to fulfil their contractual obligations
with respect to payments of balances owed to and by the Group.
Credit risk exists in relation to (re)insurance recoverables on
paid and unpaid losses. The Group remains liable to the extent that
counterparties do not meet their contractual obligations and,
therefore, the Group evaluates and monitors concentration of credit
risk among its (re)insurers. The Group is also subject to credit
risk in relation to funds held by reinsured companies. Under funds
withheld arrangements, the reinsured company has retained funds
that would otherwise have been remitted to the group subsidiaries.
The funds may be placed into trust or subject to other security
arrangements.
(b) Legal proceedings
The Group is involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have
a material adverse effect on the Group's consolidated financial
position, results of operations, or liquidity.
(c) Guarantees
The Group has provided a guarantee of $0.8m to Institute of
London Underwriters. The Group's subsidiary, Accredited Holding
Corporation provides a full and unconditional guarantee for the
payment of principal, interest and any other amounts due in respect
of the $70.0m Notes issued by R&Q Insurance Holdings Ltd. The
Group has entered into a guarantee agreement and a debenture
arrangement with its bankers, along with several of its
subsidiaries, in respect of the Group term loan facilities. The
total liability to the banks at 30 June 2023 was $118.2m (2022:
$103.0m). The Group also gives various other guarantees in the
ordinary course of business.
14. Business combinations
Business combinations
During the six months ended 30 June 2023, the Group did not
acquire any run-off portfolio business and also did not acquire any
non-insurance legacy businesses.
On 24 February 2023, the Group's subsidiary, R&Q Reinsurance
Company, entered into liquidation pursuant to a court order with
the Pennsylvania Department of Insurance and thus this subsidiary
has been deconsolidated from the Group's financial statements for
the period ending 30 June 2023. The deconsolidation of the entity
has no material impact to the income and the net equity value of
the group on a US GAAP basis.
15. Related Party Transactions
Transactions with subsidiaries
Transactions between the Group's wholly owned subsidiary
undertakings, which are related parties, have been eliminated on
consolidation and accordingly not disclosed.
Transactions with Directors
The following Director was entitled to the following
distributions during the six months ended 30 June 2023 and the
twelve months ended 31 December 2022:
Six Months ended 31 December
30 June 2023 2022
$m $m
W L Spiegel 2.3 -
In January 2023, 5,178,524 restricted ordinary shares vested.
These shares were awarded to William Spiegel in January 2020 in
accordance with his remuneration package, together with 235,387
Ordinary Shares, issued as part of the Company's bonus share
distribution. To fund tax liabilities arising from the vesting
William Spiegel sold 2,822,371 Ordinary Shares which, in accordance
with the share award agreement, have been purchased by the Company
and are held in Treasury.
Transactions with the equity-method investee
On 10 September 2022 the Group invested in the New York-based
Managing General Agent TPM Holdings USA, LLC, ('Tradesman') and
Tradesman was treated as the equity method investment. The Group
generated income of $0.9m in the six months ended 30 June 2023
($5.4m six months ended 30 June 2022) from this investment. On 23
February 2023, the Group sold its entire 40% minority holding for a
consideration of $47m and made a gain on sale of $25.4m
Joint venture
The Group acquired, through a newly formed joint venture with
Obra Capital, Inc. ("Obra"), an entity that holds product liability
claims relating to coal dust, asbestos, silica, and other exposures
of MSA Safety Incorporated ("MSA Safety"). MSA Safety contributed
approximately $341 million in cash to the joint venture, in
addition to related insurance assets, and the joint venture
shareholders contributed $35 million.
The Group provides claims and management services and Obra
provides investment management services to the joint venture. The
Group owns 49% of the joint venture, and accounts for its interest
under equity method.
16. Subsequent events
Jerome Lande was appointed as a Non-Executive Director of the
Company on 17 July 2023. Jerome is an experienced board member with
over 20 years of leadership experience as an investor. He currently
serves as Managing Partner and Deputy CIO at Scopia Capital
Management.
The Group has completed a legal reorganisation by separating its
Program Management business, Accredited, and its Legacy Insurance
business. The Group continues to consider strategic transactions
with third parties with respect to a potential sale of
Accredited.
The Group has evaluated subsequent events from the balance sheet
date. Aside from the above events, the Group has determined that
there are no other items to disclose.
([1]) Excludes minority stakes in MGAs
([2]) Gross of cessions to Gibson Re
([3]) Moved to Corporate/Other due to sale of 40% stake in
Tradesman in H1 2023
([4]) On a fully diluted basis and using a 10% margin tax
rate
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
IR SEUFUAEDSEEU
(END) Dow Jones Newswires
September 29, 2023 02:00 ET (06:00 GMT)
R&q Insurance (LSE:RQIH)
Gráfica de Acción Histórica
De Abr 2024 a May 2024
R&q Insurance (LSE:RQIH)
Gráfica de Acción Histórica
De May 2023 a May 2024