R&q Insurance Share Discussion Threads

[simon gordon] 09/12/2022 18:07

"they securitise 90%+ of the risk"

To be more "back of the envelope" precise, the risk on the balance sheet:

-Program: 7% of which they reinsure to collar potential liabilities.

-Legacy: 20%.

Say, they get to $8bn:

-Program: $5bn equals c.$350m of capped risk.

-Legacy: $3bn equals c.$600m risk, probably like BrandyWine it can be capped.

As a blend it gets to around c.12%. Then it all comes back to the quality of the underwriting. BrandyWine is probably RQIH's biggest blow up since they started. Tom Solomon has forensically been through the book and hopefully there are no more UXB's - that's probably the biggest risk in holding the shares.

If they get to $8bn they would be throwing off maybe £164m of cash a year, so any diffuse underwriting problem can be managed easily. Once they get to Gibson II it creates a step change in profitability, in the meantime Program is growing exponentially.

[simon gordon] 09/12/2022 14:55

Specto,

The forecasts look achievable. The two UK agreements for Progam are likely to bring in $600m per anum from 2023+. This year they should hit $1.75bn and they are one year ahead of forecasts for this division. They state that the pipeline is strong. As far as I can see they haven't put a foot wrong with Accredited. The talent pool is being deepened, software automated and the books put on one ledger. They've turned down Tradesman's $200m premium as the reinsurer is not rated. If you look at the 2021 Annual Report you'll see this as one of their key areas of focus.

Legacy and Gibsone RE is being filled, you never know they might fill it in the coming months as it's only been open for deals since September 2021, it's one third full. Seemingly, the market is strong and they shouldn't have a problem filling it. The quicker they fill it the quicker the bleeding stops and profits come in faster, though will only get really firing with Gibson RE II due to fixed overheads. The talent pool is being deepened with a super smart Head of Claims recently starting in America, she came from Markel. Andy Pinkes, the CEO of Legacy, is one of the top people in the field and only started just over a year ago. If you look closely he's building depth and scale.

All that's gone mainly wrong is that the new CFO found BrandyWine. Other than that, the fundamental business has never been stronger. 60p looks extremely good value if they hit the forecasts. From what I see, Program is firing and beating forecasts and Legacy is just starting to gain momentum. Both divisions are in secular growth trends, the earnings are recurring and both are capital light as they securitise 90%+ of the risk. 3.5x 2024 is, to my mind, worth a bet.

I am very bullish on the stock.

[spectoacc] 09/12/2022 14:12

Share price looking like Randall & Quilter (Deceased).

Admire your optimism @simon gordon, with what's gone on at RQIH so far. But not sure I'd put much faith in forecasts.

More interesting down here at least.

Not sure about links to things months old tho - look what the s/p's done since.

[simon gordon] 08/12/2022 21:22

Three interesting videos with some of the top divisional management of the group. The one with Pat Rastiello touched on how paper written by Accredited and placed in the ILS market could eventually end up in the Legacy market after three to five years.

The Insurer - 21/9/22

PM panel: Reinsurance has been “backbone” of MGA growth




The Insurer - 26/9/22:

R&Q’s Corver: Due diligence critical to managing social inflation as urges “buyers beware”




The Insurer - 30/9/22:

Accredited Europe: Growth in fronting space must be “controlled”

[simon gordon] 08/12/2022 16:33

In January the company RNS'd the £1bn five year agreement with First Underwriting.

In May they inked a £2bn six year agreement with Policy Expert without an RNS.

Insurance Age - 31/5/22:

Accredited deal sees QIC exit, Policy Expert confirms

Policy Expert’s capacity deal of up to £2bn over six years with Accredited Insurance will replace its existing arrangement with QIC Europe when the current contract expires, the business has confirmed to Insurance Age.

The home and motor insurtech, part of QMetric Group, revealed the tie-up with A- rated R&Q subsidiary Accredited last week.

According to Policy Expert the move followed a competitive tender process designed to support its future growth plans.

Policy Expert wrote its first home insurance policy in 2011 and expanded into motor in 2019 and recently passed the milestone of one million policyholders.

In 2019 the firm bought Sure Thing rebranding the motor broker as Policy Expert the following year



------

Here's a smaller one from the summer:

Nexus - 22/6/22

Leading independent specialty Managing General Agent Nexus Underwriting has announced the formation of a new division, Nexus Frontier.

Frontier is a new Financial Lines MGA structure for Nexus, where fronted insurance arrangements will be housed in the new division. Nexus will be utilising Accredited Europe as its fronting partner, supported by a panel of blue chip reinsurers. This provides very stable, well-rated insurance capacity for clients and by partnering with Accredited, Nexus will have access to broad territorial licenses, allowing Frontier to meet the needs of both insureds as well as brokers.

Frontier’s initial product offering will focus on Commercial D&O, Commercial PI, Commercial Crime, Financial Institutions D&O, Financial Institutions PI, Financial Intuitions Crime and Pension Trustee Liability. Frontier will be able to adapt and expand quickly into new and existing markets in the future.

Frontier will be located at Box number 358 in the Lloyd's underwriting room. The Lloyd’s box will be manned by the Nexus Frontier team including James Rasmussen, MD of Nexus Frontier, Alex Mobbs, Senior Underwriter and Nexus Co-Founder, and Rebecca Patt, Underwriting Assistant, and marks a first for Nexus at Lloyd’s.

[simon gordon] 07/12/2022 17:29

Back of the envelope calculations:

2023
Profit after tax = £34.1m divided by 378m shares = 9p EPS at 60p = 6.7x P/E

2024
Profit after tax = £66.6m divided by 378m shares = 17.6p EPS at 60p = 3.4x P/E

-If they pay out 25% of 17.6p = 4.4p at 60p = 7.3% yield.

-If they paid out 50% of 17.6p = 8.8p at 60p = 14.7% yield.

Edison have a 6.8p dividend forecast for 2024 = 11.3% yield at 60p.

*Figures worked from Edison note of 18/8/22 with Cable at $1.23 and 10% Bermudian tax rate.

~Post edited to change share count from 392m to 378m.

[simon gordon] 07/12/2022 07:17

Directors Talk - 3/10/22:

R&Q Insurance Holdings Limited (LON:RQIH) overview, investment case and progress presented by William Spiegel (Chairman) and Tom Solomon (CFO).

[sspurt] 06/12/2022 11:44

Early days Specto

[spectoacc] 06/12/2022 11:08

Harwood paid average of 98p? Strewth. Another I once held, Fulcrum (FCRM), been a total fiasco too (they averaged down at 12p).

Unusual to see them getting them wrong.

[simon gordon] 05/12/2022 21:31

Phoenix still got 17.1m shares to offload.

-Brickell PC Insurance Holdings LLC
47,953,868 12.71%
-Slater Investments
44,249,871 11.73%
-Vida Capital Management, LLC
34,218,366 9.07%
-Scopia Capital Management LP
30,000,000 7.95%
-Aberdeen Standard Investments
23,398,047 6.20%
-GLG Partners LP
19,760,679 5.24%
-Gresham House Asset Management Ltd
19,050,008 5.05%
-J O Hambro Capital Management Ltd
18,891,558 5.01%
-Phoenix Asset Management Partners Limited
17,170,885 4.55%
-Hudson Structured Capital Management
15,966,385 4.23%
-Chelverton Asset Management
14,534,910 3.85%
-Harwood Capital Management (Gibraltar) Limited
13,217,501 3.50%

[simon gordon] 05/12/2022 20:51

3800,

The investors who turned down 175p think the share is good value at 175p. The issue now is that Phoenix are getting out and it's a big overhang which is depressing the price. They'll eventually be cleared. The business continues to modernise, grow and become a better quality operation on a bigger scale.

If they get close to 18p in 2024 and it's rated at eight times you get 144p. With the quality of the earnings it probably deserves 12x because there is plenty of growth to go for. 12x = 216p. That EPS figures comes from the Edison note of 18/8/22.

They have big plans to scale the business and are investing heavily in software automation to bring this about. Maybe they can get to $5bn in Program and $3bn in Gibsone RE in 2028. That'd give you $175m profit at Program and maybe $80m at Legacy = $255m minus $35m corporate overheads, giving a pre tax profit of $220m and a tax rate of c.10% in Bermuda. That's a net £164m profit after tax at today's dollar rate. Now that'a all conjecture but shows the potential if all cylinders get firing. That's probably why some turned down 175p and thought about it as a long term investment, not a flip and fill.

[simon gordon] 05/12/2022 18:12

On the quarterly chart the volume is the highest on record. The foundations of the business are in better shape than they've ever been and it's trading at the lowest share price ever.


free stock charts from uk.advfn.com

[simon gordon] 05/12/2022 17:06

RQIH mentioned from four minute mark:

Christopher Mills - 29/6/22

[simon gordon] 05/12/2022 12:51

Turning down the Tradesman paper is a serious sign that the company is being managed with forethought and professionalism. It has made me reconsider the investment case, especially with the share down at 60p and 18p forecast in 2024. All the top team remain in place. Hit jobs from The Insurer / Program Manager actually make the company look more sound. The strategy continues and Program and Legacy are vast markets with plenty of room to grow into. At 3x 2024, if forecasts are hit, the share is discounting a lot of bad news and as they securitise more of the Legacy risk, the share should adjust higher, as risk is reduced and earnings quality improves.

[simon gordon] 04/12/2022 12:04

I've heard from a contact in the insurance industry that the Program Manager and The Insurer articles are factually incorrect. That RQIH had first right of refusal on the paper from Tradesman and turned it down as the risk was too concentrated.

Could do with releasing an official announcement scotching the two media reports as they paint an alarming picture.

[simon gordon] 03/12/2022 20:26

The Insurer - 28/11/22:

Cracks are beginning to emerge in the hybrid fronting carrier space.

Here there has long been a sense that there would be winners and losers in an increasingly crowded market segment where the imperative to grow for some had seen a large number of programs onboarded in a relatively short period of time.

There have also been concerns about over-concentration in program portfolios.

And news revealed by our sister publication The Insurer just before Thanksgiving that Tradesman is moving its flagship construction general liability program from Accredited to Clear Blue highlights the fragility at some of the cohort of fronting carriers that have emerged in recent years.

Prior to the move, New York-based Tradesman is understood to have generated around $325mn of premium in 2022 across its book of programs, the majority of which were written on Accredited paper.

The construction GL program alone is thought to account for over $200mn in annual premium and is growing fast.

Although it is expected to retain other Tradesman programs for now, the loss of its largest single deal in the US is a major blow for R&Q-owned Accredited.

The parent company has been going through its own trials and tribulations of late. Its share price has fallen to an all-time low amid activist investor battles, leading to concerns over a potential capital squeeze.

For the fronting business Accredited that uncertainty is having a tangible impact. There may now be growing fears that other counterparties will look at their relationships more closely, which will further challenge retention of business.

The move shows the potential in a transitioning marketplace for some to prosper as others suffer.

[simon gordon] 03/12/2022 16:24

JO Hambro - 1/12/22:

Whilst expectations for further rate rises have been reducing, all our banks outperformed during the month, with Standard Chartered (+12% relative) in the vanguard, as concerns about the quantum of impairments started to fade a little. We expect this process to continue in the coming months. Elsewhere amongst financials, some of our asset managers recovered somewhat, with Abrdn (+14 relative) and Polar (+7% relative) following a resilient set of results. Insurers were more of a mixed bag – Conduit outperformed by more than 10% as further evidence emerged of a very strong rating environment for catastrophe and casualty writers, but R&Q underperformed by 20% due to a stock overhang. Finally, our three life assurers only modestly outperformed despite the UK Budget confirming a positive reform of the Solvency 2 rules.

[ga_dti] 03/10/2022 10:42

Latest R&Q Insurance CEO & CFO interview: overview, investment case and progress

[simon gordon] 13/9/2022 14:35

Voted to keep William Spiegel.

According to Gary Channon:

-Competence: no.
-Alignment: no.
-Integrity: no.

Looks like this will just decay as Phoenix probably sell out and other disgruntled shareholders consider their positions.

[martindjzz] 01/9/2022 09:21

I had high hopes of this one, but have now exited.

[spectoacc] 26/8/2022 15:40

"We don’t find that William achieves even that level."


Blimey.

[simon gordon] 26/8/2022 15:36

Gary Channon - 25/8/22:

The final factor is integrity, the quality of being honest. Essential in any business we invest in, but incredibly important in a business-like R&Q which is very opaque and where we must rely upon the communication from directors to make our judgements. The weakest form of integrity in our assessment is someone who will not lie to you but will be willing to let you form the wrong view without correcting you. We don’t find that William achieves even that level.

We feel that important and especially negative information is not disclosed when it should be, this makes interpreting the company’s communications extremely difficult for shareholders who need the opposite with a company like R&Q. To illustrate the problem, take the recent statement from the company on 8th August 2022 titled Q2 Programme Management Update. It ended with this paragraph:

"Additionally, despite rising interest rates and volatile financial markets, we note that our investment portfolio is well positioned with our assets significantly shorter in duration than our liabilities and over 95% comprising liquid, investment grade fixed income securities and cash. Our portfolio has not experienced any credit impairments."

How should we interpret this? No prior Programme Management Updates have contained information about the investment portfolio. It seems reassuring, but why draw attention to something like the duration mismatch which is a given as R&Q always expects to commute liabilities before they fall due so the assets need to be shorter than liabilities. Our experience of William Spiegel is to suspect that this statement flags something negative although it doesn’t say so explicitly. We assume it means that the duration of the investment portfolio was extended which would mean given how longer dated bonds have performed that losses have resulted. We don’t know that but we do know that there isn’t really enough information in this communication to make an informed judgement on the matter which it speaks of.


=====

RQIH - 6/9/22:

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. 93% of our investments were rated investment grade, and another 2% of our portfolio was invested in non-rated money market funds. After cash, which comprised 16% of our portfolio, our largest allocations were to corporate bonds (43%), government and municipal securities (20%) and asset-backed securities (18%). Our portfolio remains with a short duration of 2.7 years, yet we are beginning to reinvest longer on the interest rate curve.

[simon gordon] 26/8/2022 08:30

One strong aspect of the Dark Triad personality is low agreeableness: