R&q Insurance Share Discussion Threads

[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 11:42

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

[simon gordon] 13/9/2022 15:35

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 10:21

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

[spectoacc] 26/8/2022 16:40

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


Blimey.

[simon gordon] 26/8/2022 16:36

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 09:30

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

[fred177] 25/8/2022 21:08

what i cant understand why was CFO buying ?

[simon gordon] 25/8/2022 20:32

Phoenix has shown to be a superior investor to Slater.

Maybe that letter will wake them up!

[red ninja] 25/8/2022 20:15

MMm, the letter does seem damming for Spiegel, but it seems hard to square with Slaters backing him, and Quilter sticking with the board.

[simon gordon] 25/8/2022 20:00

Top,

Fascinating letter. What a mess they made in hiring him.

William Spiegel

...From our first dealings with him we realised that he struggled with intelligent capital allocation at a company level. He couldn’t work out the impact of the dilutive capital raise he had just foisted on us. He couldn’t grasp that he needed to understand the value of what he was giving up, not just the return on the capital he was raising. We have other examples and have picked up as part of our research monitoring process other anecdotal evidence of a person who does not have a good grasp of the details. We won’t name sources but if any of them come forward as part of this process then we will share them. The underlying point though is that R&Q is not competently led, this is known internally and by key stakeholders and this is damaging the business which will ultimately have detrimental consequences.

The next factor is alignment, we don’t find William aligned with the interests of R&Q’s shareholders. An example of a misalignment is the management’s action during this latest saga. We had become aware that Brickell’s initial bid for the company was £2.20. The bid was accepted and the very next day, William disclosed to the bidder that the company would be posting a 160m pre-tax loss and needed over 100m of emergency funding in order to prevent breaches of financial covenants and rating downgrades. We can only assume that Brickell did not take this lightly and from what we have observed began to take a far more defensive posture to help the company prevent further damage. Shockingly, the moment the Brickell deal was signed, we believe the executives awarded themselves over $6m of bonuses which were not explicitly disclosed to Brickell.

Furthermore, in the middle of the process of putting the deal to shareholders, a special board meeting was convened to award a new executive pay deal for the coming year despite their already being a heavily pre-negotiated Management Incentive Plan as part of the takeover. We believe Brickell, the acquiring company, asked that this not happen ahead of the deal and yet it was still pushed through and resulted in Brickell suing the company for breach of the agreement and the company making a payment in settlement.

Once the deal failed, the company and its advisors knew that existing shareholders were prepared to put up the entire amount of capital needed. Instead of reaching to engage shareholders and mend fences, William Spiegel set about trying to raise money from third parties at a deeply discounted price that would have diluted existing shareholders as he perceived they did not support him. Meetings were held and it was only with the intervention of Phoenix and other shareholders, and the NOMAD that this process was stopped. He seemed unable to see how these actions were so counter to the interests of existing shareholders.

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.

It is management’s prerogative to make investment mistakes, we do it all the time, but what shareholders deserve is open and honest communication...

[...]

[red ninja] 25/8/2022 19:43

Let's face it Ken was in in charge at the inception of this mess.

[topvest] 25/8/2022 19:35

Phoenix letter out from Gary Shannon. He is a very trustworthy individual with high integrity. The CEO obviously can't be trusted and needs firing ASAP. The letter explains very well how RQIH have been conducting their affairs. No doubt they will come out with an aggressive counter claim, but Gary Shannon has untouchable credentials. Its pretty obvious who is telling the truth in my opinion!

[topvest] 23/8/2022 19:41

Interesting developments. Ken Randall is a much better way forward in my view. Phoenix are normally the sensible shareholder in the room.

[simon gordon] 23/8/2022 15:02

Cheers guys!!

Best thing would be if they could sell Legacy and focus solely on Program. Legacy is killing the share price and balance sheet for not a great return. Whereas Program is firing and capital light.

[martindjzz] 23/8/2022 14:09

Thanks from me too, Simon.