R&Q sells Bermuda reinsurer Sandell Re to NY MGA Tradesman; takes 35% stake

Less than a year after acquiring Sandell Re, the legacy and program manager R&Q has sold the Bermudian reinsurer to a US MGA in a transaction that will see the platform continue to be used to underwrite live business while guaranteeing future fronting fees for the London-listed group.

In a pre-market opening announcement this morning, R&Q said it has agreed terms to combine Sandell Re with the New York-based MGA Tradesman Program Managers LLC, receiving a 35 percent stake in the combined group in exchange, subject to approval by the Bermuda Monetary Authority.

The transaction also sees the group book an immediate 40+ percent gain in the value of the reinsurer which was only formally acquired in October 2019.

At the time, R&Q acquired Sandell Re from its hedge fund owner Sandell Asset Management, paying $25mn for a business with year-end total assets of $116.7mn (after $5.6mn of debt write-offs and reserve strengthening post-completion), net reserves of $43mn and one live account, Tradesman.

The 35 percent holding in the combined Sandell Re-Tradesman group is valued at $43.4mn - a significant, albeit paper, profit.

Managed and majority owned by CEO Daniel Hickey Jr, Tradesman is a fast-expanding MGA underwriter of construction-related liability insurance.

In 2019, it posted Ebitda earnings of $8.06mn, a 99 percent increase on the previous year.

 The MGA expects to write $120mn GWP this year and the combined entity’s pro forma 2020 pre-tax earnings are forecast at $17.2mn.

 R&Q’s relationship with Tradesman predates its acquisition of Sandell Re as the group’s US program carrier Accredited Surety & Casualty Inc provides the licenced, fronting paper for the MGA.

In a statement today, Hickey Jr said the combination “aligns the interests of Tradesman and R&Q in the development and growth of Tradesman’s business and programs, Accredited’s US program management business and Sandell Re as one of our reinsurance panel members”.  

He continued: “R&Q, through Accredited Surety & Casualty have been great partners in the growth of our program since inception and we look forward to continued success going forward.”

R&Q co-founder and executive chairman Ken Randall enthusiastically described the deal as “fantastic” for both parties, saying it enables R&Q to obtain a “significant and valuable minority interest in a fast-growing New York based MGA which will be immediately accretive to the Group’s post tax earnings”.

He added that it also secures ongoing program management fees for Accredited of circa $6mn in 2020, reduces the group’s live underwriting exposure and demonstrates R&Q’s “ability to deliver shareholder value through its legacy acquisition strategy with Sandell having been acquired for just $25m in late 2019”.

Randall also said Tradesman further benefits because “it provides access to the expertise and management within the R&Q Group, facilitates participation in the profitable underwriting results from the Tradesman Program and creates alignment with the risk assumed by the reinsurer panel”.

He concluded: “We strongly believe that this partnership with Tradesman and, in due course with other Managing General Agents, will help us to deliver exceptional results for our shareholders, agents and reinsurers.”  

The Insurer Comment:

R&Q is a nimble operator. After all, it spied an opportunity in 2017 to use its infrastructure and licenced platforms to become – three years later – a leading transatlantic program manager on behalf of MGAs and their reinsurers. This was a major departure from its long-established run-off acquisitions and management business and led to a major group restructuring in the process, with the sell-off of a host of non-core operations.

The deal announced today suggests R&Q is willing to build closer ties with its MGA customers which has the advantage of locking in future fees for its program arm and potentially greater alignment on the underwriting risk if its channeled into Sandell Re. It also clearly sees a strategic partnership with Tradesman going forward.

And if – as Randall suggests – the transaction also leads to others, then it suggests Sandell Re could expand its live underwriting rather than be managed to closure, as was assumed to be the case when it was acquired.