TIDMRQIH
RNS Number : 1890Y
R&Q Insurance Holdings Ltd
05 September 2022
R&Q Insurance Holdings Ltd
Results for the half year ended 30 June 2022
Strong progress against strategic objectives demonstrated by
112% growth in recurring Fee Income to a record $53.1 million
5 September 2022
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 and Legacy Insurance businesses,
today announces its results for the half year ended 30 June
2022.
Strategic and Governance Update
-- Raised $130 million via a placing, including a $34 million
Firm Issuance in June followed by a Conditional Issuance and Open
Offer for the remaining $96 million in July (the 'Fundraise'),
demonstrating strong shareholder support for our strategy
-- Significant progress made in executing against all 5 pillars
of our 5-year strategy to become a recurring fee-based,
capital-lighter business with increased returns on equity and
growing shareholder dividends
-- Appointment of Robert Legget as the Senior Independent
Director on 26 August as part of our ongoing plans to enhance our
Board composition. The Board plans to introduce an Independent
Non-Executive Chair as soon as possible with the appointment of
further Independent Non-Executive Directors in due course
H1 2022 Financial Highlights
Program Management
-- Gross Written Premium of $807.3 million (H1 2021: $444.8 million, an 82% increase)
-- Fee Income (incl. Tradesman stake) of $44.3 million (H1 2021:
$25.1 million, a 76% increase); Fee Income (excl. Tradesman stake)
increased 105%
-- Pre-Tax Operating Profit of $23.3 million (H1 2021: $9.9 million, a 136% increase)
-- Pre-Tax Operating Profit Margin of 54.0% (H1 2021: 39.9%, a 14.1 percentage point increase)
Legacy Insurance
-- Completed two transactions with Gross Reserves Acquired of
$5.3 million (transactions are seasonally active in Q4)
-- Reserves Under Management of $386.6 million
-- Fee Income of $8.8 million
-- Pre-Tax Operating Loss of $26.7 million as the business
transitions to an annual recurring, fee-based revenue model
Group
-- Total Fee Income of $53.1 million (H1 2021: $25.1 million, a 112% increase)
-- Pre-Tax Operating Loss of $24.3 million; results impacted by
Legacy Insurance revenue model transition
-- An interim dividend for H1 2022 will not be declared;
dividend strategy is to pay out 25 -- 50% of Pre-Tax Operating
Profit
-- Unrealised net investment losses of $88 million; unrealised
investment gains/losses always excluded from Pre-Tax Operating
Profit as they are non-economic and unlikely to be realised due to
the high credit quality fixed income portfolio and the Group's
asset-liability management strategy
Operational Highlights
-- Continued focus on cost control with Fixed Operating Expenses
increasing only 3% year-over-year at constant foreign exchange
rates and down 3% when accounting for foreign exchange
movements
-- Operational improvement programme underway with c. $10
million of the total $20 -- 25 million investment deployed since
2021, with the remainder to be incurred in H2 2022 and 2023
-- This investment in automation and technology processes is
expected to generate approximately $10 million of recurring annual
cost efficiencies by 2024
Outlook
-- Program Management expected to achieve $1.75 billion of Gross Written Premium in 2022
o Five programs launched post 30 June 2022 expected to generate
c. $250 million of annualised Gross Written Premium
o Further pipeline of 13 programs in advanced due diligence
totalling an additional c. $225 million of expected annualised
Gross Written Premium
o Fee Income equal to c. 5% of ceded Gross Written Premium
-- Legacy Insurance transaction execution continues to have heavy weighting towards Q4
o Strong pipeline of over $1 billion in gross reserves
o Over $1 billion of capacity in Gibson Re
o Fee Income equal to 4.25% of Reserves Under Management
-- R&Q reiterates guidance of achieving in excess of $90
million Pre-Tax Operating Profit in 2024
Summary Financial Performance (see Notes for definitions)
($m, except where noted) H1 2022 H1 2021 % Change
Program Management
Gross Written Premium 807.3 444.8 82%
Fee Income (1) 44.3 25.1 76%
Pre-Tax Operating Profit 23.3 9.9 136%
Pre-Tax Operating Profit Margin 54.0% 39.9% 14.1 pp
Legacy Insurance
Gross Reserves Acquired (2) 5.3 112.5 (95%)
Reserves Under Management 386.6 0.0 N/A
Fee Income 8.8 0.0 N/A
Pre-Tax Operating (Loss) (26.7) (14.8) 80%
Corporate / Other
Net Unallocated Expenses (6.7) (6.8) (1%)
Interest Expense (14.2) (11.8) 20%
Group
Fee Income 53.1 25.1 112%
Pre-Tax Operating (Loss) (24.3) (23.5) 3%
IFRS (Loss) After Tax (122.4) (36.8) 233%
Operating (Loss) Earnings per
Share (3) (8.5)c (8.5)c 0%
Dividend Per Share -- 2.0p N/A
(1) Includes minority stake in Tradesman Program Managers
(2) Gross of cessions to Gibson Re
(3) On a fully diluted basis
William Spiegel, Executive Chairman of R&Q, commented:
"I am pleased to report another six months of progress against
our 5-year strategy. These results showcase excellent underlying
momentum in executing our 5-pillar strategy as we continue our
transformation into a fee-based, capital-lighter business. This
transformation is evidenced by the significant growth in recurring
Fee Income, which has more than doubled from last year and now
represents over 60% of our Gross Operating Income, a proxy for
revenue. We also re-iterate our confidence in achieving in excess
of $90 million of Pre-Tax Operating Profit in 2024. As a result of
our strategy, R&Q will deliver more predictable earnings, with
increased returns on equity and growing sustainable shareholder
dividends over time.
Program Management continues to grow strongly with Gross Written
Premium up 82%, and a Pre-tax Operating Profit of $23.3 million. We
are now seeing the benefits of increasing scale, as demonstrated by
a margin of 54.0% (H1 2021: 39.9%), with our operating leverage
expected to drive this higher to c. 70% at scale. The pipeline in
Program Management also remains robust, with the business on track
to deliver its targeted $1.75 billion in Gross Written Premium for
FY 2022. In addition, we continue to explore minority stakes in
Managing General Agents where we provide Program Management
services, and have executed on our second investment after the
period close.
It is exciting to see Legacy Insurance generating recurring fees
for the first time under its new reinsurance relationship with
Gibson Re. In H1 2021, Fee Income of nearly $9 million based on
Reserves Under Management of $387 million as of 30 June 2022. As we
have previously outlined, this model will enable Legacy Insurance
to significantly increase its return on equity while materially
reducing earnings volatility and capital requirements. While it
will take time for the new structure to mature and scale, and our
operating performance reflects its transition, we remain on track
with our objectives and have a strong pipeline of deal activity in
place as we head into Q4 - historically the most active period for
legacy transactions.
The outlook for both Program Management and Legacy Insurance
remains highly favourable, with both well insulated against many of
the broader macroeconomic challenges impacting the wider insurance
industry such as rising interest rates, increasing inflation,
hardening (re)insurance pricing and the Ukraine/Russia conflict. In
addition, our recent Fundraise has further strengthened our capital
position, enhanced parent liquidity, and decreased financial
leverage, putting us on a strong financial footing to execute on
our business objectives. Our investment portfolio is well
positioned and comprises high-quality fixed income securities with
a duration that is shorter than our stable, casualty-oriented
liabilities. A rising rate environment is unlikely to require us to
realise any mark-to-market unrealised losses on our portfolio but
rather creates attractive reinvestment opportunities at
significantly higher yields.
In addition to the positive progress we are seeing in our two
businesses, we are also underway with implementing extensive
improvements in how we operate as a Group, aimed at making us more
efficient and technology-enabled, while enhancing our governance,
culture and risk management. As part of this effort, we are
investing a total of $20 -- 25 million, with c. $10 million already
incurred to date, in process automation and technology. We expect
this programme to generate c. $10 million of annual efficiencies by
2024, implying a payback on the upfront investment in approximately
three years.
It would be remiss if I did not comment on the requisition
notice from a minority shareholder and the proposed resolutions to
bring back the former executive chairman. While our sentiments on
this situation are documented in the Circular distributed on 24
August 2022, I wanted to personally thank the Board, our employees
and the shareholders who have provided support to both me and the
strategy that we have laid out and been executing on. Despite this
and a number of other exceptional corporate events in 2022 that
have caused some short-term and unexpected disruption to the
business, our focus for the remainder of the year and beyond is
firmly on the continued delivery of our plan.
In conclusion, the first half of the year has firmly
demonstrated our ability to deliver on our 5-year, 5-pillar
strategy of implementing a capital-lighter business model
underpinned by recurring Fee Income. We know there is more work to
do, but I am encouraged by how much we have already accomplished
and the pace at which we are evolving into a less balance sheet
intensive business with more predictable earnings. This is only
made possible because of our talented and committed employees, and
I would like to thank them for their ongoing efforts in helping us
to achieve our goals."
Investor presentation
Our shareholders presentation and accompanying video is
available on our website at:
http://www.rqih.com/investors/shareholder-information/investor-presentations
Enquiries to:
R&Q Insurance Holdings Ltd. Tel: 020 7780 5850
William Spiegel
Alan Quilter
Tom Solomon
Fenchurch Advisory Partners LLP (Financial Adviser)
Tel: 020 7382 2222
Kunal Gandhi
Brendan Perkins
Richard Locke
Tihomir Kerkenezov
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,
intangibles created in Legacy Insurance acquisitions, net realised
and unrealised investment gains on fixed income assets, exceptional
foreign exchange net gains upon consolidation 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.
Tangible Net Asset Value represents Net Asset Value adjusted for
Unearned Program Fee Income, intangibles created in Legacy
Insurance acquisitions, net unrealised investment gains on fixed
income assets and foreign currency translation reserves.
Gross Operating Income represents Pre-Tax Operating Profit
before Fixed Operating Expenses and Interest Expense.
Fee Income represents Program Fee Income, Fee Income on Reserves
Under Management and our share of earnings from minority stakes in
MGAs.
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 an IFRS basis.
Underwriting Income represents net premium earned less net
claims costs, acquisition expenses, claims management costs and
premium taxes / levies.
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 our profit margin on Gross
Operating Income.
Gross Reserves Acquired represent Legacy Insurance reserves
acquired gross of reinsurance to Gibson Re.
Reserves Under Management represent reserves ceded to Gibson Re
for which R&Q earns an annual recurring fee of 4.25%.
Chief Financial Officer Review
We are pleased to report our financial results for the half year
ended 30 June 2022.
Group
Our Key Performance Indicators (KPIs) transparently measure the
underlying economics of the business and adjust IFRS results to
include fully written Program Fee Income and exclude non-cash
intangibles created from acquisitions in Legacy Insurance, net
realised and unrealised investment gains or losses on fixed income
investments, foreign currency translation reserves, non-core
expenses and exceptional items. This provides management and
shareholders with a clearer view of the trends in underlying
performance of the business.
Our results for the period reflect the transformation of Legacy
Insurance into an annual recurring fee-based business and hence are
not comparable to the prior year period where we earned upfront,
Day-One accounting gains. We expect the benefits of this
transformation to be reflected in the financial results as we
continue to deploy the capital of Gibson Re to reinsure 80% of
future transactions, and Legacy Insurance generates an appropriate
amount of Fee Income to absorb its Fixed Operating Expenses. As a
result, our Pre-Tax Operating Loss was $24.3 million during the
current period. Tangible Net Asset Value was $368.4 million, a 2%
increase compared to year-end 2021, primarily as a result of our
Firm Issuance of $34 million in June 2022 (the remaining Fundraise
of $96 million closed in July 2022).
One of our primary objectives is to grow Fee Income. Our Fee
Income was $53.1 million, a 112% increase compared to H1 2021, and
when annualised, was $106.2 million, and would represent a
compounded annual growth rate of 102% over 3 years. Fee Income
represented 61% of Gross Operating Income over the trailing twelve
months, an increase of 49 percentage points compared to the
business mix in 2019.
We continue to be very focused on cost control, with Group Fixed
Operating Expenses increasing by only 3% at constant foreign
exchange rates and decreasing by 3% when accounting for foreign
exchange movements during the period. We have incurred
approximately $10 million out of our total $20 -- 25 million budget
for the automation programme. This investment is expected to
deliver approximately $10 million of annual cost efficiencies by
2024 from process automation and technology upgrades that will
create scalability and operating leverage.
Our IFRS Loss After Tax was $122.4 million during H1 2022
primarily due to $88 million of unrealised net investment losses,
which we do not expect will be realised due to the high credit
quality, short duration of our investment portfolio.
Program Management
Our Program Management business continued to grow rapidly in H1
2022. We had 75 active programs, an increase of 15 programs
compared to 30 June 2021, and Gross Written Premium was $807.3
million, an 82% increase compared to H1 2021. Our Pre-Tax Operating
Profit was $23.3 million, a 136% increase compared to H1 2021.
These results are demonstrating the benefits of scale as we earned
a 54.0% profit margin, an increase of 14.1 percentage points
compared to H1 2021.
The primary driver of Pre-Tax Operating Profit is our Fee
Income, which represents Program Fee Income from written premium
ceded to reinsurers and our 40% minority stake in Tradesman Program
Managers. Fee Income was $44.3 million, a 76% increase compared to
H1 2021, which included $5.2 million from our minority stake in
Tradesman Program Managers. Excluding our stake in Tradesman, Fee
Income increased 105% compared to H1 2021. Underwriting Income
represents our c. 7% retention of Program Management insurance
risk. Our Underwriting Loss was $2.1 million, primarily due to
adverse development in UK motor and the higher cost of reinsurance
purchased to minimise earnings volatility. While our UK motor
exposure is very modest across our diversified book of business,
rate increases are coming through the underlying programs, which
should mitigate Underwriting Losses in the future. Our Investment
Income was $1.0 million, a 19% increase compared to H1 2021
primarily driven by underlying growth in the business. Finally,
Fixed Operating Expenses increased 34% compared to H1 2021 due to
the expansion of our staff, but grew more slowly than Gross
Operating Income, demonstrating the benefits of scale and operating
leverage.
Legacy Insurance
Our Legacy Insurance business concluded two transactions in the
period with Gross Reserves Acquired of $5.3 million (H1 2021:
$112.5 million). Transactions tend to be seasonally active in the
fourth quarter, with H1 2021 an exception due to the timing of
closing certain deals that had been negotiated at year-end 2020. At
30 June 2022, we had Reserves Under Management, which represent the
reserves ceded to Gibson Re, of $386.6 million compared to none in
the prior period. Our Pre-Tax Operating Loss was $26.7 million due
to the transformation to an annual recurring fee business, which is
expected to become profitable as Gibson Re, which assumes 80% of
legacy transactions in exchange for 4.25% of annual fees on
Reserves Under Management, is fully deployed by 2024.
With the formation of Gibson Re in Q4 2021, the primary driver
of our Pre-Tax Operating Profit is our Fee Income, which was $8.8
million, compared to none in H1 2021. Our Underwriting Income
represents tangible Day-One gains in respect of the risk retained
on transactions originated during the period as well as reserve
movements of risk retained on transactions closed in prior years.
Note that Day-One gains will not be allowed under future accounting
starting in 2023, which will require higher reserves at transaction
close. Our Underwriting Loss was $3.4 million due to a modest
amount of reserve strengthening. Underwriting Income is not
comparable to the prior period due to reinsuring 80% of
transactions to Gibson Re. Our Investment Income was $6.7 million,
a 27% decrease compared to H1 2021 due to mark-to-market unrealised
investment losses on equity and loan funds. Finally, our Fixed
Operating Expenses decreased 12% compared to H1 2021, primarily due
to expense control and foreign exchange movement.
Corporate and other
Our Corporate and Other segment includes unallocated operating
expenses and finance costs. Unallocated net operating expenses were
$6.7 million, relatively flat compared to H1 2021. Interest expense
was $14.2 million, a 20% increase compared to H1 2021 due to a
higher amount of bank debt, which is expected to decrease upon
receipt of the remaining $96 million Fundraise that closed in
July.
Cash and investments
Our Cash and Investments at 30 June 2022 was $1.6 billion. We
produced a book yield, which excludes net realised and unrealised
gains on fixed income investments, of 1.2%, a decrease of 20 bps
compared to H1 2021 due to the impact of mark-to-market losses on
equities and loan funds. Excluding these losses, our book yield was
1.5%.
We maintain a high-quality and 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. 97% 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 21% of our portfolio, our largest allocations were
to corporate bonds (39%), government and municipal securities
(20%), asset-backed securities (16%) and equities and funds (3%).
While we continue to extend duration in our portfolio to better
match our expected liability cashflows, our interest rate duration
was 2.5 years at 30 June 2022 (compared to duration on our
liabilities of 6 years) primarily as a result of significant cash
balances at 30 June 2022 and 17% of the portfolio invested in
floating rate securities. With the rise in interest rates, we
expect to redeploy assets at attractive market yields; our
portfolio market yield, excluding cash, is currently 4%.
During H1 2022, financial markets witnessed a significant
increase in interest rates resulting in mark-to-market unrealised
losses on fixed income assets across the wider insurance industry.
Our investment portfolio incurred unrealised net investment losses
on fixed income investments of $88 million, which are included in
our IFRS results, and represent 5.2% of the total portfolio, lower
than that experienced by publicly-traded peers in the insurance
industry. Given these assets are held in high quality, investment
grade securities with a shorter duration than our stable,
casualty-oriented liabilities, we do not expect to realise these
accounting-based losses. While IFRS does not allow for the
discounting of reserves, our group regulatory financials do and
hence the increase in interest rates benefitted our solvency
capital position with the discount rate impact on reserves more
than offsetting the mark to market unrealised losses in our
investment portfolio. Our realised net investment losses were c.
$12 million primarily as a result of the liquidation of securities
in exchange for cash in a Reinsurance-to-Close transaction as
required by Lloyd's. Nonetheless, the increase in interest rates
provides attractive reinvestment opportunities for the Group as our
significant cash position is being reinvested.
Capital and liquidity
Our estimated Group Solvency ratio pro forma for the Conditional
Issuance and Open Offer of $96 million that closed in July was well
above our target level of 150%. Our pro forma adjusted debt to
capital ratio, which provides for partial equity credit on our
subordinated debt, is 33%, slightly above our target of 30%. We
received pre-emptive waivers of certain financial covenants from
our bank lenders, which were contingent on our Fundraise which
completed in July 2022.
Change in accounting policy beginning in 2023
The Group will be voluntarily changing its basis of accounting
from IFRS to the Generally Accepted Accounting Principles in the
United States of America ("US GAAP") and will present its
consolidated financial statements in US GAAP effective 1 January
2023. The reason for this change is due to the meaningful ongoing
costs to conform with IFRS 17, which would place R&Q at a
significant competitive disadvantage in the Legacy Insurance
market, where most of the market participants report under US GAAP.
The data requirements of IFRS 17 for run-off insurance policies and
reinsurance contracts drive implementation costs for both existing
and future transactions that are more than double that required
under US GAAP. While there are differences between IFRS and US
GAAP, the change in accounting framework will not alter the
economic-based KPIs that we use to manage the business.
Condensed Consolidated Income Statement
Six months Six months Year
ended ended ended 31
30 June 30 June December
2022 2021 2021
(unaudited) (unaudited) (audited)
Note $m $m $m
Gross written premium 837.3 527.0 1,539.7
Reinsurers' share of gross
written
premium (764.4) (429.1) (1,463.5)
--------------------- ---------------------- ----------------------------
Net written premium 72.9 97.9 76.2
--------------------- ---------------------- ----------------------------
Change in gross provision for
unearned
premiums (256.0) (131.3) (279.2)
Change in provision for unearned
premiums,
reinsurers' share 222.7 131.0 267.0
--------------------- ---------------------- ----------------------------
Net change in provision for
unearned
premiums (33.3) (0.3) (12.2)
--------------------- ---------------------- ----------------------------
Net earned premium 39.6 97.6 64.0
--------------------- ---------------------- ----------------------------
Earned fee income 32.2 13.9 31.8
Investment income 5 (89.8) 5.4 6.4
Other income 1.2 5.9 6.6
--------------------- ---------------------- ----------------------------
(56.4) 25.2 44.8
Total income 3 (16.8) 122.8 108.8
Gross claims paid (311.3) (228.9) (485.9)
Reinsurers' share of gross
claims
paid 201.8 106.3 154.2
--------------------- ---------------------- ----------------------------
Net claims paid (109.5) (122.6) (331.7)
--------------------- ---------------------- ----------------------------
Movement in gross technical
provisions (123.6) (12.5) (468.6)
Movement in reinsurers' share of
technical
provisions 194.1 40.5 674.4
--------------------- ---------------------- ----------------------------
Net change in provision for
claims 70.5 28.0 205.8
--------------------- ---------------------- ----------------------------
Net insurance claims incurred (39.0) (94.6) (125.9)
--------------------- ---------------------- ----------------------------
Operating expenses (66.7) (81.6) (166.0)
Result of operating
activities
before goodwill on bargain
purchase
and impairment of intangible
assets (122.5) (53.4) (183.1)
Goodwill on bargain purchase 0.2 22.7 49.7
Amortisation and impairment
of
intangible assets (5.1) (6.9) (13.3)
Share of profit of associates 5.2 5.8 11.2
--------------------- ---------------------- ----------------------------
Result of operating
activities (122.2) (31.8) (135.5)
Finance costs (14.5) (13.6) (26.5)
--------------------- ---------------------- ----------------------------
Loss from operations before
income
taxes 3 (136.7) (45.4) (162.0)
Income tax credit 6 14.3 8.6 34.6
--------------------- ---------------------- ----------------------------
Loss for the period (122.4) (36.8) (127.4)
===================== ====================== ============================
Attributable to equity
holders
of the parent:-
Attributable to ordinary
shareholders (122.4) (36.8) (127.4)
Non-controlling interests - - -
--------------------- ---------------------- ----------------------------
(122.4) (36.8) (127.4)
===================== ====================== ============================
Earnings per ordinary share
from
operations: -
Basic 8 (44.3)c (13.7)c (46.9)c
Diluted 8 (44.3)c (13.7)c (46.9)c
===================== ====================== ============================
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements.
Condensed Consolidated Statement of Comprehensive Income
Six months Six months Year ended
ended 30 ended 30 31 December
June 2022 June 2021 2021
(unaudited) (unaudited) (audited)
$m $m $m
Other comprehensive income: -
Items that will not be reclassified
to profit or loss:
Pension scheme actuarial (losses)/gains (1.0) 0.9 3.1
Deferred tax on pension scheme actuarial
losses/(gains) 0.2 0.3 (0.2)
-------------------- ------------------- ------------------------
(0.8) 1.2 2.9
Items that may be subsequently
reclassified
to profit or loss: -
Exchange (losses)/gains on consolidation (33.8) 2.0 (3.3)
-------------------- ------------------- ------------------------
Other comprehensive income (34.6) 3.2 (0.4)
Loss for the period (122.4) (36.8) (127.4)
Total comprehensive income for
the period (157.0) (33.6) (127.8)
==================== =================== ========================
Attributable to: -
Equity holders of the parent (157.0) (33.6) (127.8)
Non-controlling interests - - -
-------------------- ------------------- ------------------------
Total comprehensive income for
the period (157.0) (33.6) (127.8)
==================== =================== ========================
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements.
Condensed Consolidated Statement of Changes in Equity for the
six months ended 30 June 2022
Attributable to equity holders
of the Parent
------------------ --------------------
Share Share Foreign Retained Total Non-controlling Total
capital premium currency earnings interests
translation
reserve
$m $m $m $m $m $m $m
At beginning of
period 7.5 288.3 (15.7) 116.4 396.5 - 396.5
Loss for the
year - - - (122.4) (122.4) - (122.4)
Other
comprehensive
income
Exchange losses
on
consolidation - - (33.8) - (33.8) - (33.8)
Pension scheme
actuarial
losses - - - (1.0) (1.0) - (1.0)
Deferred tax on
pension scheme
actuarial
gains - - - 0.2 0.2 - 0.2
------------------ -------------------- ------------------------- -------------------------- --------------------- ------------------------- ---------------------
Total other
comprehensive
income for the
period - - (33.8) (0.8) (34.6) - (34.6)
------------------ -------------------- ------------------------- -------------------------- --------------------- ------------------------- ---------------------
Total
comprehensive
income for the
period - - (33.8) (123.2) (157.0) - (157.0)
Transactions
with
owners
Issue of shares 0.6 34.5 - - 35.1 - 35.1
At end of
period 8.1 322.8 (49.5) (6.8) 274.6 - 274.6
================== ==================== ========================= ========================== ===================== ========================= =====================
Condensed Consolidated Statement of Changes in Equity for the
six months ended 30 June 2021
Attributable to equity holders of the Parent
------------------ ----------------------------
Share Share Convertible Treasury Foreign Retained Total Non-controlling Total
capital premium debt share currency earnings interests
reserve translation
reserve
$m $m $m $m $m $m $m $m $m
At beginning of
period 6.2 200.9 80.0 (0.2) (24.7) 267.5 529.7 (0.5) 529.2
Functional currency
revaluation (0.1) 7.2 7.2 - 12.3 (26.6) - - -
Loss for the period - - - - - (36.8) (36.8) - (36.8)
Other
comprehensive
income
Exchange gains
on consolidation - - - - 2.0 - 2.0 - 2.0
Pension scheme
actuarial losses - - - - - 0.9 0.9 - 0.9
Deferred tax on
pension scheme
actuarial losses - - - - - 0.3 0.3 - 0.3
------------------ -------------------- --------------------------- ------------------------- ------------------------- ------------------------- -------------------- ------------------------- --------------------
Total other
comprehensive
income for the
period - - - - 2.0 1.2 3.2 - 3.2
------------------ -------------------- --------------------------- ------------------------- ------------------------- ------------------------- -------------------- ------------------------- --------------------
Total comprehensive
income for the
period - - - - 2.0 (35.6) (33.6) - (33.6)
Transactions with
owners
Share based payments - 0.3 - 0.2 - - 0.5 - 0.5
Conversion of
convertible
debt to ordinary
shares 1.4 85.9 (87.2) - - - 0.1 - 0.1
Dividend - (0.8) - - - - (0.8) - (0.8)
Non-controlling
interest in
subsidiary
disposed - - - - - - - 0.5 0.5
------------------ -------------------- --------------------------- ------------------------- ------------------------- ------------------------- -------------------- ------------------------- --------------------
At end of period 7.5 293.5 - - (10.4) 205.3 495.9 - 495.9
================== ==================== =========================== ========================= ========================= ========================= ==================== ========================= ====================
Condensed Consolidated Statement of Changes in Equity for the
year ended 31 December 2021
Attributable to equity holders of the Parent
------------------ --------------------
Share Share Convertible Treasury Foreign Retained Total Non-controlling Total
capital premium debt share currency earnings interests
reserve translation
reserve
$m $m $m $m $m $m $m $m $m
At beginning of
period 6.2 200.9 80.0 (0.2) (24.7) 267.5 529.7 (0.5) 529.2
Functional
currency
revaluation (0.2) 7.2 7.2 - 12.3 (26.6) (0.1) - (0.1)
Loss for the
period - - - - - (127.4) (127.4) - (127.4)
Other
comprehensive
income
Exchange losses
on consolidation - - - - (3.3) - (3.3) - (3.3)
Pension scheme
actuarial losses - - - - - 3.1 3.1 - 3.1
Deferred tax on
pension scheme
actuarial losses - - - - - (0.2) (0.2) - (0.2)
------------------ -------------------- ------------------------- ------------------------- ------------------------- ------------------------- -------------------- ------------------------- --------------------
Total other
comprehensive
income for the
period - - - - (3.3) 2.9 (0.4) - (0.4)
------------------ -------------------- ------------------------- ------------------------- ------------------------- ------------------------- -------------------- ------------------------- --------------------
Total
comprehensive
income for the
period - - - - (3.3) (124.5) (127.8) - (127.8)
Transactions
with
owners
Share based
payments 0.1 2.6 - 0.2 - - 2.9 - 2.9
Issue of
convertible
debt 1.4 85.9 (87.2) - - - 0.1 - 0.1
Purchase of own - - - - - - - - -
shares
Dividend - (8.3) - - - - (8.3) - (8.3)
Non-controlling
interest in
subsidiary
disposed of - - - - - - - 0.5 0.5
------------------ -------------------- ------------------------- ------------------------- ------------------------- ------------------------- -------------------- ------------------------- --------------------
At end of period 7.5 288.3 - - (15.7) 116.4 396.5 - 396.5
================== ==================== ========================= ========================= ========================= ========================= ==================== ========================= ====================
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements.
Condensed Consolidated Statement of Financial Position as at 30
June 2022
30 June 30 June 31 December
Note 2022 2021 2021
(unaudited) (unaudited) (audited)
$m $m $m
Assets
Intangible assets 77.9 82.8 86.2
Investments in associates 21.5 47.7 46.2
Property, plant and equipment 2.0 1.8 2.1
Right of use assets 5.0 5.7 6.1
Investment properties 1.7 1.9 1.8
Financial instruments 1,486.1 1,490.6 1,533.1
Reinsurers' share of insurance
liabilities 7 2,387.8 1,376.6 2,105.6
Current tax assets 4.3 - 3.6
Deferred tax assets 32.9 7.9 20.4
Insurance and other receivables 879.7 794.0 1,096.3
Cash and cash equivalents 375.8 224.8 266.3
------------------- -------------------- ----------------------
Total assets 5,274.7 4,033.8 5,167.7
=================== ==================== ======================
Liabilities
Insurance contract provisions 7 3,437.0 2,616.7 3,207.5
Financial liabilities 391.0 372.1 406.5
Deferred tax liabilities 7.5 13.3 9.0
Insurance and other payables 9 1,155.1 523.8 1,140.1
Current tax liabilities 3.5 3.2 2.4
Pension scheme obligations 6.0 8.8 5.7
------------------- -------------------- ----------------------
Total liabilities 5,000.1 3,537.9 4,771.2
------------------- -------------------- ----------------------
Equity
Share capital 11 8.1 7.4 7.5
Share premium 322.8 293.6 288.3
Foreign currency translation reserve (49.5) (10.4) (15.7)
Retained earnings (6.8) 205.3 116.4
------------------- -------------------- ----------------------
Attributable to equity holders
of the parent 274.6 495.9 396.5
Non-controlling interests in - - -
subsidiary
undertakings
------------------- -------------------- ----------------------
Total equity 274.6 495.9 396.5
------------------- -------------------- ----------------------
Total liabilities and equity 5,274.7 4,033.8 5,167.7
=================== ==================== ======================
The Condensed Consolidated Financial Statements were approved by
the Board of Directors on 4 September 2022 and were signed on its
behalf by:
W L Spiegel T S Solomon
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements.
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2021
Condensed Consolidated Cash Flow Statement 2022 2021
(unaudited) (unaudited) (audited)
$m $m $m
Cash flows from operating activities
Loss for the period (136.7) (36.8) (127.4)
Tax included in consolidated income
statement - (8.6) (34.6)
Finance costs 14.5 13.6 26.5
Depreciation and impairments 1.2 0.3 2.9
Share based payments - 0.5 2.8
Share of profits of associates (5.2) (5.7) (11.2)
Profit on divestment - (2.6) (2.6)
Goodwill on bargain purchase (0.2) (22.7) (49.7)
Amortisation and impairment of intangible
assets 5.1 6.9 13.3
Fair value loss on financial assets 100.0 6.3 17.7
Contributions to pension scheme (0.5) (0.5) (1.1)
Profit on net assets of pension schemes 0.3 - 0.1
Decrease/(increase) in receivables 219.6 (109.0) (409.5)
Decrease in deposits with ceding undertakings 3.4 160.0 158.7
Increase in payables 16.6 98.0 705.7
Decrease in net insurance technical
provisions (37.2) (27.7) (193.5)
------------------- ------------------- --------------------
Net cash from operating activities 180.9 72.0 98.1
------------------- ------------------- --------------------
Cash flows to investing activities
Purchase of property, plant and equipment (0.2) (0.1) (0.7)
Sale of financial assets 134.9 61.2 100.8
Purchase of financial assets (245.5) (340.2) (397.6)
Acquisition of subsidiary undertaking
(offset by cash acquired) 0.6 41.4 46.7
Distributions from associates 29.9 3.3 10.3
Divestment (offset by cash disposed
of) - 3.5 3.5
------------------- ------------------- --------------------
Net cash used in investing activities (80.3) (230.9) (237.0)
------------------- ------------------- --------------------
Net cash from financing activities
Repayment of borrowings (9.7) (27.7) (42.0)
New borrowing arrangements 9.1 58.3 121.7
Dividend - - (8.3)
Interest and other finance costs paid (14.5) (13.6) (26.5)
Cancellation of shares - (0.8) -
Receipts from issue of shares 35.1 - -
Net cash from financing activities 20.0 16.2 44.9
------------------- ------------------- --------------------
Net (decrease)/increase in cash and
cash equivalents 120.6 (142.7) (94.0)
Cash and cash equivalents at beginning
of period 266.3 363.5 363.5
Foreign exchange movement on cash and
cash equivalents (11.1) 4.0 (3.2)
------------------- ------------------- --------------------
Cash and cash equivalents at end of
period 375.8 224.8 266.3
=================== =================== ====================
Share of Syndicates' cash restricted
funds 37.0 57.8 50.7
Other funds 338.8 167.0 215.6
------------------- ------------------- --------------------
Cash and cash equivalents at end of
period 375.8 224.8 266.3
=================== =================== ====================
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements.
1. Basis of preparation
The Condensed Consolidated Financial Statements have been
prepared using accounting policies consistent with International
Financial Reporting Standards (IFRSs) and in accordance with
International Accounting Standard (IAS) 34 Interim Financial
Reporting.
The Condensed Consolidated Financial Statements for the 2022 and
2021 half years are unaudited but have been subject to review by
the Group's auditors.
2 . Significant accounting policies
The accounting policies adopted in the preparation of the
Condensed Consolidated Financial Statements are consistent with
those followed in the preparation of the Group's Consolidated
Financial Statements for the year ended 31 December 2021. There
have been no amendments to accounting policies or new International
Financial Reporting Standards adopted by the Group.
The Group will be voluntarily changing its basis of accounting
from IFRS to the Generally Accepted Accounting Principles in the
United States of America ("US GAAP") and will present its
consolidated financial statements in US GAAP effective 1 January
2023. The reason for this change is due to the meaningful ongoing
costs to conform with IFRS 17, which would place R&Q at a
significant competitive disadvantage in the Legacy Insurance
market, where most of the market participants report under US GAAP.
The data requirements of IFRS 17 for run-off insurance policies and
reinsurance contracts drive implementation costs for both existing
and future transactions that are more than double that required
under US GAAP.
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 as defined in IFRS 8. The reportable segments have
been identified as follows: -
-- Program Management - delegates underwriting authority to
Managing General Agents (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 and interest expense on debt
The Group uses alternative performance measures which are
described below.
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) (2.1) (3.4) - (5.5)
Fee income (ii) 44.3 8.8 - 53.1
Investment
income (iii) 1.0 6.7 - 7.7
----------------------- ----------------------- ----------------------- --------------------
Gross
operating
income (iv) 43.2 12.1 - 55.3
----------------------- ----------------------- ----------------------- --------------------
Fixed
operating
expenses (v) (19.9) (38.8) (6.7) (65.4)
Interest expense - - (14.2) (14.2)
----------------------- ----------------------- ----------------------- --------------------
Pre-tax
operating
profit/(loss) (vi) 23.3 (26.7) (20.9) (24.3)
----------------------- ----------------------- ----------------------- --------------------
Deduction for
unearned
program fee
revenue (vii) (14.9)
Movement on
net
intangibles (viii) (4.9)
Net unrealised
and realised
losses (ix) (100.0)
Non-core and
exceptional
items (x) (13.0)
Foreign
exchange (xi) 20.4
--------------------
Loss before tax (136.7)
====================
Segment assets as at 30
June 2022 1,694.2 3,398.1 182.4 5,274.7
======================= ======================= ======================= ====================
Segment liabilities as
at 30 June 2022 1,618.1 3,102.7 279.3 5,000.1
======================= ======================= ======================= ====================
Segmental results for the six months ended 30 June 2021
Program Legacy Corporate
Note Management Insurance / Other Total
$m $m $m $m
Underwriting
income (i) (1.2) 20.3 - 19.1
Fee income (ii) 25.1 - - 25.1
Investment
income (iii) 0.9 9.2 1.5 11.6
----------------------- ----------------------- ----------------------- -------------------
Gross
operating
income (iv) 24.8 29.5 1.5 55.8
----------------------- ----------------------- ----------------------- -------------------
Fixed
operating
expenses (v) (14.9) (44.3) (8.3) (67.5)
Interest expense - - (11.8) (11.8)
----------------------- ----------------------- ----------------------- -------------------
Pre-tax
operating
profit/(loss) (vi) 9.9 (14.8) (18.6) (23.5)
----------------------- ----------------------- ----------------------- -------------------
Deduction for
unearned
program fee
revenue (vii) (5.5)
Movement on
net
intangibles (viii) (3.3)
Net unrealised
and realised
losses (ix) (6.5)
Non-core and
exceptional
items (x) (6.6)
-------------------
Loss before tax (45.4)
===================
Segment assets as at 30
June 2021 1,170.4 2,683.9 179.5 4,033.8
======================= ======================= ======================= ===================
Segment liabilities as
at 30 June 2021 1,105.0 2,121.9 311.0 3,537.9
======================= ======================= ======================= ===================
Segmental results for the year ended 31 December 2021
Program Legacy Corporate
Note Management Insurance / Other Total
$m $m $m $m
Underwriting
income (i) (1.1) 58.5 - 57.4
Fee income (ii) 56.1 - - 56.1
Investment
income (iii) 2.7 19.3 2.8 24.8
----------------------- ----------------------- ----------------------- --------------------
Gross operating
income (iv) 57.7 77.8 2.8 138.3
----------------------- ----------------------- ----------------------- --------------------
Fixed operating
expenses (v) (37.1) (83.5) (16.0) (136.6)
Interest expense - - (22.7) (22.7)
----------------------- ----------------------- ----------------------- --------------------
Pre-tax
operating
profit/(loss) (vi) 20.6 (5.7) (35.9) (21.0)
----------------------- ----------------------- ----------------------- --------------------
Deduction for
unearned
program fee
revenue (vii) (13.2)
Movement on net
intangibles (viii) 2.3
Net unrealised
and realised
gains/(losses) (ix) (18.4)
Non-core and
exceptional
items (x) (111.7)
--------------------
Loss before tax (162.0)
====================
Segment assets as at 31
December 2021 1,039.6 4,113.3 14.8 5,167.7
======================= ======================= ======================= ====================
Segment liabilities as
at 31 December 2021 864.1 3,292.2 614.9 4,771.2
======================= ======================= ======================= ====================
Notes:
(i) Underwriting income represents Legacy Insurance tangible day
one gains and 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 and premium taxes /
levies.
(ii) Fee income comprises program fee income which represents
the fee income from insurance policies already bound (written),
regardless of the amount of premium earned in the financial period,
earnings from minority stakes in MGAs, and legacy insurance fee
income earned on business ceded to Gibson Re.
(iii) Investment income represents income arising on the
investment portfolio excluding net realised and unrealised
investment gains or losses on fixed income 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 or loss is a measure of how the
Group's core businesses performed adjusted for unearned program fee
income, intangibles created in Legacy acquisitions, net realised
and unrealised investment gains on fixed income assets and
exceptional exchange net gains upon consolidation and non-core,
non-recurring costs.
(vii) Unearned program fee income represents the portion of
program fee income (ii) which has not yet been earned on an IFRS
basis.
(viii) Movement on net intangibles comprises the aggregate of
intangible assets arising on acquisitions in the period less
amortisation on existing intangible assets charged in the
period.
(ix) Realised and unrealised net gains arise on fixed income
assets, which are primarily driven by interest rate movements.
(x) Non-core and exceptional items comprise the result of
entities which are considered non-core or exceptional P&L
items.
(xi) Foreign exchange represents translation of net liabilities
denominated in non-US$ currency, which in H1 2022 was material due
to the significant strengthening of the US$ (in H1 2021 this was
not material and was included in operating expenses).
Geographical analysis
As at 30 June 2022
UK North America Europe Total
$m $m $m $m
Gross assets 1,501.1 2,740.6 1,367.0 5,608.7
Intercompany eliminations (123.3) (155.5) (55.3) (334.1)
----------------- ----------------- ------------------ -----------------
Segment assets 1,377.8 2,585.1 1,311.7 5,274.6
================= ================= ================== =================
Gross liabilities 1,387.5 2,704.7 1,242.0 5,334.2
Intercompany eliminations (231.1) (67.8) (35.2) (334.1)
----------------- ----------------- ------------------ -----------------
Segment liabilities 1,156.4 2,636.9 1,206.8 5,000.1
================= ================= ================== =================
External revenue for the
six months ended 30 June
2022 (21.4) (36.3) 40.9 (16.8)
================= ================= ================== =================
Revenue from external customers represents the Group's total
consolidated income, after elimination of internal revenue.
As at 30 June 2021
UK North America Europe Total
$m $m $m $m
Gross assets 1,319.5 1,893.1 1,179.7 4,392.3
Intercompany eliminations (195.0) (98.7) (64.8) (358.5)
------------------ ------------------ ------------------ -----------------
Segment assets 1,124.5 1,794.4 1,114.9 4,033.8
================== ================== ================== =================
Gross liabilities 1,133.7 1,718.9 1,043.7 3,896.3
Intercompany eliminations (253.5) (50.2) (54.8) (358.5)
------------------ ------------------ ------------------ -----------------
Segment liabilities 880.2 1,668.7 988.9 3,537.8
================== ================== ================== =================
External revenue for the
six months ended 30 June
2021 21.4 87.8 13.6 122.8
================== ================== ================== =================
Revenue from external customers represents the Group's total
consolidated income, after elimination of internal revenue.
As at 31 December 2021
UK North America Europe Total
$m $m $m $m
Gross assets 1,716.7 2,418.6 1,331.9 5,467.2
Intercompany eliminations (137.4) (103.5) (58.6) (299.5)
------------------- ------------------ ------------------ -----------------
Segment assets 1,579.3 2,315.1 1,273.3 5,167.7
=================== ================== ================== =================
Gross liabilities 1,307.3 2,566.5 1,196.9 5,070.7
Intercompany eliminations (238.3) (12.2) (49.0) (299.5)
------------------- ------------------ ------------------ -----------------
Segment liabilities 1,069.0 2,554.3 1,147.9 4,771.2
=================== ================== ================== =================
External revenue for the
year ended 31 December
2021 7.9 59.6 41.3 108.8
=================== ================== ================== =================
Revenue from external customers represents the Group's total
consolidated income, after elimination of internal revenue.
4 . Fair Value
The following table shows the fair values of financial assets
using a valuation hierarchy; the fair value hierarchy has the
following levels: -
Level 1 - Valuations based on quoted prices in active markets
for identical instruments. An active market is a market in which
transactions for the instrument occur with sufficient frequency and
volume on an ongoing basis such that quoted prices reflect prices
at which an orderly transaction would take place between market
participants at the measurement date.
Level 2 - Valuations based on quoted prices in markets that are
not active or based on pricing models for which significant inputs
can be corroborated by observable market data.
Level 3 - Valuations based on inputs that are unobservable or
for which there is limited activity against which to measure fair
value.
Level Level Level Total
As at 30 June 2022 1 2 3
$m $m $m $m
Government and government
agencies 372.8 - - 372.8
Corporate bonds 1,010.0 22.2 - 1,032.2
Equities 19.8 4.4 - 24.2
Investment funds 17.8 20.6 - 38.4
Purchased reinsurance
receivables - - 6.5 6.5
----------------- -------------- --------------- -----------------
Total financial assets measured
at fair value 1,420.4 47.2 6.5 1,474.1
================= ============== =============== =================
Level Level Level Total
As at 30 June 2021 1 2 3
$m $m $m $m
Government and government
agencies 316.4 - - 316.4
Corporate bonds 987.2 50.0 - 1,037.2
Equities 12.9 0.3 - 13.2
Investment funds 20.4 84.0 - 104.4
Purchased reinsurance
receivables - - 6.4 6.4
----------------- -------------- --------------- -----------------
Total financial assets measured
at fair value 1,336.9 134.3 6.4 1,477.6
================= ============== =============== =================
Level Level Level Total
As at 31 December 2021 1 2 3
$m $m $m $m
Government and government
agencies 330.9 - - 330.9
Corporate bonds 999.0 56.9 - 1,055.9
Equities 11.6 0.3 - 11.9
Investment funds - 112.6 - 112.6
Purchased reinsurance
receivables - - 6.6 6.6
----------------- -------------- --------------- -----------------
Total financial assets measured
at fair value 1,341.5 169.8 6.6 1,517.9
================= ============== =============== =================
The following table shows the movement on Level 3 assets
measured at fair value for the six months ended 30 June 2022 and
2021, and the year ended 31 December 2021: -
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2022 2021 2021
$m $m $m
Opening balance 6.6 6.4 6.4
Total net gains recognised in the Consolidated
Income Statement (0.1) - 0.2
Closing balance 6.5 6.4 6.6
=================== ================ ===================
Level 3 investments (purchased reinsurance receivables) have
been valued using detailed models outlining the anticipated timing
and amounts of future receipts.
5. Investment income
Six months Six months Year ended
ended 30 ended 30 31 December
June 2022 June 2021 2021
$m $m $m
Interest income 10.2 11.6 24.1
Realised gains/(losses) on
investments (12.0) 2.8 3.8
Unrealised (losses)/gains
on investments (88.0) (9.0) (21.5)
------------------------ ------------------------- ---------------------
(89.8) 5.4 6.4
======================== ========================= =====================
6. Income tax
Six months Six months Year ended
ended 30 ended 30 31 December
June 2022 June 2021 2021
$m $m $m
Tax credit 14.3 8.6 34.6
====================== ======================== ======================
The tax credit in the Condensed Consolidated Income Statement is
calculated on an effective tax rate method.
7. Insurance contract provisions and reinsurance balances
Six months
Six months ended Year ended
ended 30 30 June 31 December
June 2022 2021 2021
Gross $m $m $m
Insurance contract provisions at beginning
of period 3,207.5 2,402.8 2,402.8
Claims paid (311.3) (228.9) (485.9)
Increase in provisions arising from
acquisition and disposal of subsidiary
undertakings and syndicate participations 0.5 38.2 91.1
Increase in provisions arising from
acquisition of reinsurance portfolios - 74.3 430.4
Increase in claims provisions 434.9 167.1 524.0
Increase in unearned premium reserve 256.0 131.3 279.3
Net exchange differences (150.6) 31.9 (34.2)
-------------------- ------------------ -------------------
Insurance contract provisions at end
of period 3,437.0 2,616.7 3,207.5
-------------------- ------------------ -------------------
Six months
Six months ended Year ended
ended 30 30 June 31 December
June 2022 2021 2021
Reinsurance $m $m $m
Reinsurers' share of insurance contract
provisions at beginning of period 2,105.6 1,180.6 1,180.6
Proceeds from commutations and reinsurers'
share of gross claims paid (201.8) (106.3) (154.2)
Increase in provisions arising from
acquisition and disposal of subsidiary
undertakings and syndicate participations - - 164.2
Increase in provisions arising from
acquisition of reinsurance portfolios - - 247.5
Increase in claims provisions 395.9 146.8 416.9
Increase in unearned premium reserve 222.7 131.1 267.0
Net exchange differences (134.6) 24.4 (16.4)
--------------------- ----------------- -------------------
Reinsurers' share of insurance contract
provisions at end of period 2,387.8 1,376.6 2,105.6
--------------------- ----------------- -------------------
Six months
Six months ended Year ended
ended 30 30 June 31 December
June 2022 2021 2021
Net $m $m $m
Net claims outstanding at beginning
of period 1,101.9 1,222.2 1,222.2
Net claims paid and proceeds from commutations (109.5) (122.6) (331.7)
Increase/(decrease) in provisions arising
from acquisition of subsidiary undertakings
and syndicate participations 0.5 38.2 (73.1)
Increase in provisions arising from
acquisition of reinsurance portfolios - 74.3 182.9
Increase in claims provisions 39.0 20.3 107.1
Increase in unearned premium reserve 33.3 0.2 12.3
Net exchange differences (16.0) 7.5 (17.8)
--------------------- ----------------- -------------------
Net claims outstanding at end of period 1,049.2 1,240.1 1,101.9
--------------------- ----------------- -------------------
The assumptions used in the estimation of claims provisions
relating to insurance contracts are intended to result in
provisions which are sufficient to settle the net liabilities from
insurance contracts.
Provision is made at the reporting 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
source of data used as inputs for the assumptions is primarily
internal.
Significant uncertainty exists as to the likely outcome of any
claim and the ultimate costs of completing the run off of the
Group's owned insurance operations.
The Group owns several insurance companies and Syndicate
participations in run-off. Significant uncertainty arises in the
quantification of technical provisions for all insurance entities
and Lloyd's Syndicates under the Group's control due to the long
tail nature of the business underwritten by those entities. The
business written by the insurance company subsidiaries consists in
part of long tail liabilities, including asbestos, pollution,
health hazard and other US liability insurance. The claims for this
type of business are typically not settled until several years
after policies have been written. Furthermore, much of the business
written by these companies is reinsurance and retrocession of other
insurance companies, which lengthens the settlement period.
The provisions carried by the Group's owned insurance companies
and Syndicate participations 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
regularly commissions independent external actuarial reviews. The
use of external advisers provides management with additional
comfort that the Group's internally produced statistics and trends
are consistent with observable market information and other
published data.
When preparing these Condensed Consolidated Financial
Statements, full provision is made in the aggregate for all costs
of running off the business of the insurance entities to the extent
that the provision exceeds the estimated future investment return
expected to be earned by those entities deemed to be in run-off.
When assessing the amount of any provision to be made, the future
investment income and claims handling expenses and all other costs
of all the insurance company subsidiaries' and syndicates'
businesses in run-off are considered in aggregate. The quantum of
the costs of running off the business and the future investment
income has been determined through the preparation of cash flow
forecasts over the anticipated period of the run offs. The gross
costs of running off the business are estimated to be fully covered
by future investment income.
Provisions for outstanding claims and Incurred but Not Reported
(IBNR) claims are initially estimated at a gross level and a
separate calculation is carried out to estimate the size of
reinsurance recoveries. Insurance companies and Syndicate
participations within the Group are covered by a variety of treaty,
excess of loss and stop loss reinsurance programs.
8. Earnings per share
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2022 2021 2021
No. 000's No. 000's No. 000's
Weighted average number of Ordinary
shares 276,263.0 267,915.0 271,611.0
Effect of dilutive share options - - -
------------------- ------------------ ---------------------
Weighted average number of Ordinary
shares for the purposes
of diluted earnings per share 276,263.0 267,915.0 271,611.0
=================== ================== =====================
$m $m $m
Earnings per share for profit from
operations
Loss for the period attributable to
Ordinary shareholders (122.4) (36.8) (127.4)
=================== ================== =====================
Basic earnings per share (44.3)c (13.7)c (46.9)c
Diluted earnings per share (44.3)c (13.7)c (46.9)c
=================== ================== =====================
9. Insurance and other payables
Six months Six months Year ended
ended 30 ended 30 31 December
June 2022 June 2021 2021
$m $m $m
Structured liabilities 506.2 516.4 506.2
Structured settlements (506.2) (516.4) (506.2)
------------------- ------------------- -------------------
- - -
Other creditors 1,155.1 523.8 1,140.1
1,155.1 523.8 1,140.1
=================== =================== ===================
Structured Settlements
No new structured settlement arrangements have been entered into
during the period. 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.
10. Borrowings
The total amounts owed to credit institutions at 30 June 2022
was $382.0m (30 June 2021: $362.7m, 31 December 2021: $395.9m).
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
The Group's subsidiary, Accredited America Insurance Holding
Corporation provides a full and unconditional guarantee for the
payment of principal, interest and any other amounts due in respect
of the $70,000k Notes issued by R&Q Insurance Holdings Ltd.
11. Issued share capital
Issued share capital as at 30 June 2022 amounted to $8.1m (30
June 2021: $7.4m, 31 December 2021: $7.5m).
During the period the Group issued 27,425,612 ordinary shares at
GBP1.05 per share.
12. Guarantees and indemnities in the ordinary course of business
The Group gives various guarantees in the ordinary course of
business.
13. Goodwill
When testing for impairment of goodwill, the recoverable amount
of each relevant cash generating unit is determined based on cash
flow projections. These cash flow projections are based on the
financial forecasts approved by management. Management also
consider the current net asset value and earnings of each cash
generating unit.
No changes to the underlying assumptions have been made in the
interim review.
14. Business combinations
During the first six months of 2022, the Group made one business
combination of run-off portfolios. The Group's business combination
involved a Legacy Insurance transaction and has been accounted for
using the acquisition method of accounting.
Legacy entities and businesses
The following table shows the fair value of assets and
liabilities included in the Condensed Consolidated Financial
Statements at the date of acquisition of the legacy business:
Net Goodwill
Intangible Other Cash & Other Technical assets on bargain
assets receivables investments payables provisions Tax acquired Consideration purchase
$m $m $m $m $m $m $m $m $m
La
Vittoria 0.1 - 0.6 - (0.5) - 0.2 - 0.2
0.1 - 0.6 - (0.5) - 0.2 - 0.2
---------------- ----------------- --------------------- ------------- ---------------- ------------- -------------- ---------------------- ----------------
Goodwill on bargain purchase arises when the consideration is
less than the fair value of the net assets acquired. It is
calculated after the alignment of accounting policies and other
adjustments to the valuation of assets and liabilities to reflect
their fair value at acquisition.
M&A transactions can arise as legacy business can give rise
to onerous capital and reporting obligations for insurers, even
though they no longer actively participate in such business.
In order to disclose the impact on the Group as if the legacy
entity had been owned for the whole period, assumptions would have
to be made about the Group's ability to manage efficiently the
run-off of the legacy liabilities prior to the acquisition. As a
result, and in accordance with IAS 8, the Directors believe it is
not practicable to disclose revenue and profit before tax as if the
entity had been owned for the whole period.
Where significant uncertainties arise in the quantification of
the liabilities, the Directors have estimated the fair value based
on the currently available information and on assumptions which
they believe to be reasonable.
The Group completed the following business combination during
2022:
La Vittoria
On 4 May 2022, Accredited Insurance (Europe) Limited completed
the novation from SCOR SE Rappresentanza Generale Per I'Italia (as
legal successor to La Vittoria Riassicurazioni) ("La Vittoria"), a
French domiciled insurance company, of La Vittoria's participations
in the Excess and Casualty Reinsurance Association ("ECRA") pool.
The policies covered property and casualty risks underwritten from
1973 to 1980.
15. Related party transactions
The following Officers and connected parties were entitled to
the following distributions during the period as follows:
Six months ended Six months ended Year ended 31
30 June 2022 30 June 2021 December 2021
$m $m $m
A K
Quilter
and
family - - 0.1
W L
Spiegel - - 0.2
T S - - -
Solomon
16. Foreign exchange rates
The Group used the following exchange rates to translate foreign
currency assets, liabilities, income and expenses into United
States Dollars, being the Group's presentational currency:
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2022 20201 2021
Average
UK Sterling 0.77 0.72 0.73
Euro 0.92 0.83 0.84
---------------- ---------------- ----------------
Spot
UK Sterling 0.82 0.72 0.75
Euro 0.95 0.84 0.88
---------------- ---------------- ----------------
17. Contingent liability
Attention is drawn to Note 7 which sets out the 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, and in accordance with IAS 37, management has
concluded that it is not currently appropriate to recognize any
estimate of the possible outcome but to disclose the position as a
contingent liability.
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END
IR SSLFALEESEFU
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September 05, 2022 02:00 ET (06:00 GMT)
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