R&q Insurance Share Discussion Threads

[3800] 20/5/2022 14:39

Wonder when the result will be announced? I know everyone is dissapointed with £1.75 but it may be the best alternative

[simon gordon] 19/5/2022 18:17

afilip,

Yes, a glaring omission.

-----

Meeting's at 2pm tomorrow.

[afilip] 19/5/2022 14:33

No mention of the $100m hole in the balance sheet in that IC article!?

[varies] 19/5/2022 12:40

In the meantime RQIH shares trade at a 30% discount to the cash offer

[simon gordon] 19/5/2022 06:50

Investors Chronicle - 18/5/22:

The holding in danger of falling into private equity’s maw is in insurance specialist Randall & Quilter Investment Holdings (RQIH). This Friday (20 May) R&Q’s shareholders will vote on whether to accept a 175p-per-share cash offer from 777 Partners, a Miami-based private equity house perhaps best known in Europe as the owner of Italy’s oldest football club, the perennially under-achieving Genoa CFC.

Then again 777’s offer, which values R&Q’s equity at £482m, might well fail. R&Q’s second-biggest shareholder, Slater Investments, which owns almost 10 per cent, says it will reject the offer and the share price has responded accordingly. It is back to 140p, the level at which 777 made its move. At a 20 per cent discount to the offer, essentially the market price is saying “Come up with a lot more than 175p or shove off back to Miami”.

There is no getting away from it, 777’s offer is underwhelming. It is at a level R&Q’s shares almost touched in February, is 7 per cent below the 12-month high and 10 per cent lower than October 2019’s all-time high. As such, the directors’ recommendation is redolent of the inadequate offer earlier this year for specialist travel agent Air Partner, another Bearbull holding, which was recommended and blithely waived through by shareholders. In both cases, the offer was below recent highs and – more important – was recommended even though each group’s trading was good and its prospects were better.

As with Air Partner, R&Q’s directors are keen to tell shareholders that 777’s offer “demonstrates the strength of both our business today and the opportunities ahead of us”. In which case, runs the thought, why on Earth are you recommending such an inadequate offer?

Sure, it’s tricky to value R&Q. Partly, that’s a function of how insurance companies operate, generating most of their income upfront and only meeting the associated costs at some indeterminate point in the future, if at all. That is chiefly why insurers are valued in relation to the net assets on their balance sheet; at least that provides hard and fast figures from which to start. Even on that basis, 777’s offer at 1.8 times estimated net tangible assets at the end of 2021 is tight-fisted. A ratio of at least 2.0 times would be more like it.

Meanwhile, R&Q is in the process of transforming itself from a capital-intensive conventional non-life insurer into a capital-light fee-based business. When that’s mostly done, it may be generating $90m (£74m) of operating profit in 2023, which could feed down to 15p of earnings. Rate those earnings at the sort of multiple on which shares in full-service insurance brokers trade – maybe 20 times – and a share price of 300p is within reach. Granted, that’s a top-end value. Even so, it highlights the inadequacy of 777’s offer. Whether enough shareholders will see it that way will soon be known.

[my retirement fund] 18/5/2022 13:12

wow look at this what a sham!

[simon gordon] 17/5/2022 15:22

Vote on Friday. No sign of Brickell upping their offer to placate Slater. JO Hambro reduced on the uncertainty. Nearly 40p upside if the vote goes through. If not will Slater pony up $100m to strengthen the balance sheet or can they get other investors to club together? Is it causing bad blood between BoD and some sharehodlers?

[red ninja] 06/5/2022 14:47

RQIH linked in feed :-

"We are honoured to announce that Gibson Re, R&Q’s legacy insurance sidecar, was awarded ‘Non-life Transaction of the Year’ at the Trading Risk Awards 2022 held at The Savoy last week. The award recognises transactions which break boundaries in risk transfer and is testament to R&Q’s leading Legacy Insurance platform, and the exceptional efforts put in by the entire team.

Huge congratulations to all colleagues who worked towards making this achievement possible, and a massive thank you to Trading Risk for hosting us!"

[red ninja] 01/5/2022 11:28

If the vote fails then we may be looking at a share price crash and a placing at a much lower price to existing fund holders ie like Slaters, maybe Bricknells, and new comers.

That is not going to please PIs. I can't see the funds being wildly happy about it either. Thus, the logical solutions is the funds to come to a deal to get the vote over the line.

Just my thoughts.

[martindjzz] 30/4/2022 17:07

Brickell will not make a better offer if they think enough shareholders are going to vote for the offer on on the table. They might improve their offer if they think 25% or more of the shareholders are going to vote against.

[red ninja] 30/4/2022 11:19

Mmm If there was going to be a better offer wouldn't they would have made it by now ?

The Times article suggested that some of the funds like Slaters were unhappy that they could not participate in the extra funding for RQIH as they do not want to sell out.

Slaters have doubled to 10% and Bricknell although they have 23.2% of RQIH only have 9.9% of the votes. The management/management family also support the bid with 3.31%

Thus, they must have been lobbying the funds to get them on board for this vote. They may have to come to agreement with some funds to let them participate in the new company if that is their price to get the vote over the line.

Just my opinions. DYOR

[alter ego] 29/4/2022 16:41

Just been asked by my broker to accept or decline by noon on 13 May. What happens if I accept and a better offer comes along?

[alter ego] 21/4/2022 12:56

I second that

[geraldus] 21/4/2022 11:20

Let's hope so.I had high in the sky hopes for this one.

[martindjzz] 21/4/2022 10:15

My instinct is that a higher bid will be needed to take it private. As an alternative perhaps 3 or 4 other significant shareholders will agree to participate in a fund raising and keep it listed. PI’s would get diluted no doubt but it might be worth it to have a chance of the long term upside that we believe RQH offers.

[simon gordon] 20/4/2022 07:07

Speed,

Thanks mate!

[speedsgh] 20/4/2022 06:58

City backlash on insurer going private -

A £482 million deal to take the London-listed insurer Randall & Quilter private faces a potential backlash from leading City shareholders...

[simon gordon] 20/4/2022 06:49

Anyone got a sub to the Times and able to post this?

City Backlash on Insurer Going Private

[red ninja] 10/4/2022 20:58

Legacy carrier returns under pressure in ‘frothy’ run-off market
Luke Harrison, Catrin Shi 25 February 2022
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The legacy market is experiencing pressure on returns as it works through a new era of increased deal competition, with new entrants to the space and rising private equity influence.
The pressures come despite renewed interest in the run-off market by sellers, as it starts to shake off a decades-old stigma of legacy deals being associated with failure.

A wave of liabilities is being brought to market both via a greater number of deals and ever-larger deal sizes – with the recent $3.12bn portfolio transfer between Enstar and Aspen a prime example.

Meanwhile, a ground-breaking split reinsurance-to-close transaction announced between RiverStone and MS Amlin yesterday could unlock a fresh wave of run-off liabilities at Lloyd’s.

But as market popularity grows, legacy carriers must juggle incoming demand with heightening pricing competition, in addition to underwriting challenges being caused by social and fiscal inflation.

Sources canvassed by Insurance Insider gave a wide range of estimates of the returns available on legacy deals, ranging from mid-single digits at the most bearish end to high teens at the most optimistic.

However, most coalesced around the 10%-15% range, and sources said this was a definite shift downwards from a few years ago.

“I think people believe they can get 10%-15%, but whether you get 10%-15%, that is a different question,” one practitioner said.

This chimes with the results of PwC’s 2021 run-off survey, in which respondents were asked on their views on pricing of legacy deals.

at what target internal rate feb 25 ID 2022-01.jpg
Evidence of the difficulties faced by the market include the failure of Armour and Axa's decision to wind down its legacy arm – Axa LM – and to sell it off in pieces, as reported by Insurance Insider in July.

Sources identified four major components of the legacy-acquirer business model: investment income, income from acquired liabilities, operational expenses and capital efficiency. These all need to be firing and well managed for optimal success, sources pointed out. At present, investment returns are down and there is pressure on the liability side of the business.

In this vein, improving yields could provide “light at the end of the tunnel” for legacy businesses, although this will take time to feed in to yields.

All of this comes as UK regulators have also started to show increasing interest and involvement in the legacy space. The Prudential Regulation Authority will now implement Section 166 reviews for all non-life transfers with technical provisions of over £100mn ($139mn) and where the scheme will increase the acquirer’s technical provisions by 10% or more.

This increased scrutiny is not unanimously thought of as a hostile move by the regulator – some practitioners say it points to increased maturity of the legacy market – but it adds another source of pressure for carriers and could be interpreted by some as a bear signal on the market.

Not all legacy market executives speaking to Insurance Insider went so far as to describe the current market conditions in run-off as “soft”.

While deal competition is intense – particularly in the mid-size bracket of deals, involving sizes in the low-to-mid hundreds of millions – there is evidence that legacy carriers are willing to walk away from deals which are underpriced, sources pointed out.

Acrisure Re managing director Ben Canagaretna said: “I wouldn’t call the market soft but rather ‘frothy’.

“Players are having to be a bit more thoughtful around what their risk appetite is. For example, being competitive where they can demonstrably add value on claims or they have a better understanding of the risk.”

Another source noted that, although they believed the market to be “soft”, they were seeing an increasing number of deals which haven't made it over the line first time make a return to the market in different “formats”;.

“So that tells me that whilst the soft market is there, there is still discipline.”

Other takeaways from conversations with legacy market participants include:

There is concern that PE-backed legacy carriers will come under increased pressure to deploy capital in the coming years, which will exacerbate competition further

Social inflation is posing a major challenge for legacy acquirers, with some deals unable to get over the line due to reserving issues

The increasing involvement of brokers is altering the deal landscape – with younger underwriting years being included and more, and bigger, deals being brought to market

The increased “legitimacy221; of the legacy market is expected to result in bigger run-off deals becoming more common

A PE-powered market

In recent years there has been a wave of new entrants to the legacy market, which is the primary driver of increased deal competition and returns pressure.

In 2011, the legacy market was not far away from being a duopoly. Enstar and Catalina were the only two names that participated in all sales processes, while Berkshire Hathaway would unevenly participate, or announce the occasional mega deal, whereas the likes of Riverstone and White Mountains were dipping in and out of the market.

However, there are now upwards of 10 players, including eight or nine that can be relied on to compete very consistently for assets.

The legacy market players v2.png
In addition to this, the influx of private equity in the past few years has driven a step-change in the dynamics of the legacy market.

PE involvement has risen both via the acquisition of legacy acquirers and the set-up of sidecars.

Acrisure’s Canagaretna noted that it “made sense” for the legacy players to use sidecars, particularly on larger deals.

“They can scale up their positions whilst generating fee income, thereby increasing their RoE and potential valuations on a future change of control,” he explained.

pe involvement in legacy feb 25 2022 ID v2.PNG
However, given the typical three-to-seven-year investment horizon of private equity, market participants are wary that PE-backed acquirers could face pressure from their investors starting to compete more aggressively for deals as the life cycle of their investment begins to narrow.

Some speculated that this was already happening in the space among players who secured a PE deal two to three years ago.

There is also a question mark around whether new market entrants will be disciplined with their PE capital, or if their desire to grow and hit their PE return targets will cause them to be too “optimistic221; on pricing, sources have suggested.

“There's a complete misunderstanding with this money coming in, that they think they can become another Enstar, which isn’t going to happen,” one more pessimistic source said.

However, more optimistic sources believed that some PE backers were more sophisticated than others, with the “smart” investors refraining from pushing carriers to deploy capital. The fact that some sub-par deals are still being left on the table supports this theory, they stated.

Despite a number of noted concerns, private equity has also brought positives to the legacy market, and could be a contributor to the maturation of the legacy space, some pointed out.

Eleni Iacovides, chief development officer at Compre, said: “I think the availability of larger capital has a lot of positives because it gives the live industry confidence in our balance sheet, and when your client as well as regulators have confidence in your balance sheet, that means that they will be more likely to transact with you.”

Social inflation and the role of brokers

A more recent phenomenon in the legacy market has been the increasing involvement of brokers, acting as intermediaries in a space previously dominated by PwC, KPMG and EY.

And while the market agreed that the brokers had played a major part in selling the role of legacy as a capital-optimisation tool, some also noted how market dynamics have changed with their involvement.

Although the volume of deals in the market has increased, sources have suggested that brokers can also bring poorer deals to market, which are sometimes under-reserved or have unrealistic price expectations.

RiverStone CEO Luke Tanzer said he believed the overall impact of brokers within the legacy market has not been a negative one.

“If you are asking whether I feel that brokers are offering less good business on the premise that better business will follow down the line, then the answer is no I haven’t seen that happening and, in any event, we will assess each opportunity on its own merits.”

Others have highlighted that brokers are also pushing for “greener”; years to be included in some legacy deals, which are exacerbating losses.

“We see portfolios coming to market which also have a larger-than-before percentage of unexpired business and for pure legacy acquirers that that is a challenge,” one source said.

The push to include more recent underwriting years in deals creates an even greater challenge for legacy carriers in navigating the industry-wide pressures of social inflation.

This is particularly acute in US portfolios – legacy's biggest market in terms of opportunity, with $385bn of estimated run-off reserves, according to PwC.

the geographical breakdown ID feb 25 2022-01.jpg
One source highlighted the 2016 and 2017 years as particularly distressed, but also said years as recent as 2020 could be challenging. Others have previously noted that reserving issues are prevalent as far back as 2014.

“If you can't confidently reserve then you can't confidently take it on your balance sheet,” one source pointed out.

Sources in the market have stated that, due to social inflation, legacy deals which had traditionally been big areas of supply for the market have now become “trapped”;, as they are difficult to price, and have “unrealistic” expectations or under-reserving.

“I'm just hopeful that people are just going to turn that stuff down, and it's not going to get done”, one source said.

Others have stated that passing on inflationary costs to clients makes it difficult to get the deal over the line and therefore some carriers some are unwilling to do it.

“It depends how desperate you are to do the deal,” one source noted. “You're not going to predict any inflationary impacts on the clients if you if you want the deal because you're automatically pricing yourself out.”

However, sources also highlighted that not every US casualty portfolio is necessarily subject to social inflation to the same degree, with workers’ comp portfolios highlighted as more benign.

Bigger deals and tackling complexity

A more legitimised market has paved the way for mammoth-sized legacy deals, such as the one last month between Aspen and Enstar, in which Aspen agreed to transfer $3.12bn in prior-year loss reserves covering all business lines for accident years 2019 and prior to the legacy specialist (albeit with relatively low limit purchased).

reported announced legacy deals ID feb 25 2022.png
Darag CEO Tom Booth argued that these mega deals are effectively investment plays by those in the upper echelons of the market.

“The large end of the market, I think rightly, has moved to doing transactions which have got huge amounts of float and are effectively investment plays with little reserve risk.”

Legacy players believe there are only a certain few carriers that are capable of doing a deal of this magnitude, with Enstar, Riverstone and Catalina all noted as being able.

Historically, mega deals were also the domain of Berkshire Hathaway and Swiss Re, although sources have suggested that both carriers appear to have largely been dormant in recent times.

Compre’s Iacovides said: “My view is that you’re not going to see them [mega deals] every day, you're not going to see them every month, they will probably be bilateral because that kind of deal tends to be relationship-based, but I expect more.”

Mory Katz, SVP legacy practice leader at BMS Re, added that his belief was a lot of deals over the next 12 months would get done within the $50mn-$500mn liability range, and thinks “most of the legacy market is very comfortable with that”.

In addition to the Aspen deal, the “legitimised” run-off market has paved the way for a greater number of ADC deals making their way into the legacy market, which historically have been exclusively reserved for the larger reinsurers.

Darag’s Booth believes that if the legacy market is intuitive enough going forward, it should be capable of finding ways to take on unattractive books, rather than leaving certain portfolios untouched.

“When looking at a deal, it may be necessary to cut out parts, and keep the stuff that is a bit more predictable, a bit more mature. I think that’s maybe a way the market can avoid simply leaving deals on the table.

“It may be that there are ways to chop these up, for example having sub-limits on pieces.”

TAGS
LEGACYNEWS
Luke Harrison
Last updated on 28 February 2022

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[simon gordon] 10/4/2022 16:58

Red,

Could you post this one as well? Ta!

Legacy carrier returns under pressure in ‘frothy’ run-off market

[red ninja] 10/4/2022 11:50

Simon,

The article implies legacy deal criteria at R & Q have improved since 2006 and that was certainly the impression in the William Spiegel Voice of Insurance podcast, but time will tell I hope they have kept clear of Asbestos since then.

However, it's clear Bricknell are primarily after the programme management.

[simon gordon] 10/4/2022 11:39

Red,

Thanks!

With all the bearishness enveloping Legacy at R&Q and the general market, without this deal the share would have been hammered into the ground. Glad to see Brickell / 777 taken on the risk.

[red ninja] 10/4/2022 11:22

So there it is asbestos related legacy.

I note :-

"Since that deal, Brandywine has certainly haunted the company and created significant management distraction – legal disputes aside, R&Q was also forced to issue a profit warning in 2014 over deterioration in its US portfolio, which housed the Brandywine exposures."

I am thinking I know why Randall and Quilter have always seemed keen to sell down their shareholdings. I mean Randall sold all his shares when he left.

It also seems R and Q legacy criteria are better these days :-

"There are arguments that Brandywine was a unique and particularly difficult transaction which is not indicative of how R&Q or others approach deals today."

However, legacy industry seems plagued by asbestos :-

"Nevertheless, asbestos is the foundation of the legacy market. Virtually every run-off acquirer today holds asbestos liabilities – and if asbestos claims are deteriorating, then that will be felt across the market."