Shares in legacy acquirer and program specialist Randall & Quilter (R&Q) are expected to trade upwards today after the group unveiled a near six-fold increase in pre-tax profits for the first half of the year which founder Ken Randall described as “exceptional”.
Boosted by the closing of its largest ever legacy acquisition – the former US reinsurer Gerling Global Re, now Global US Holdings, Inc for $80.5mn – London-listed R&Q’s interim pre-tax profits leapt from £5.5mn in the first half of 2018 to £33.1mn, with earnings per share jumping from 3.6p to 19.2p year-on-year.
In its H1 results statement this morning, Randall said the firm has an “excellent pipeline” of new opportunities in both its core divisions and “full year results for 2019 will be in line with market expectations”.
Although R&Q has long been known as an acquirer of discontinued business, two years ago it entered the expanding program underwriting market, using its AM Best A- rated US and European insurance companies to front on behalf of MGAs and their reinsurers.
Last year, the group’s program division – called Accredited – entered 12 contracts with MGAs the equivalent of $500mn GWP and today R&Q said this has increased to $800mn at the half-year stage and is expected to “grow to more than $1bn” in 2020.
The company added that its European arm continues to benefit from the “retrenchment of a number of former program specialists as a consequence of their weak balance sheets and inferior underwriting standards”.
Program writers that have failed recently include the Danish duo Alpha and Qudos, while a number of unrated Gibraltar businesses have also ceased or retrenched from the market.
“Although there are noteworthy competitors, the quality of the support we provide, our balance sheet strength and market knowledge are proving to be attractive. There are significant barriers to entry and we continue to get a good show of new business opportunities and are able to be selective as to those MGAs we support and the classes of business we underwrite,” explained R&Q.
The group also said its “traditional legacy business continues to thrive” after acquiring five businesses and completing three separate finality reinsurance deals in the first six months of the year. It added that it is “seeing a growing number of larger deal opportunities as the demand for legacy solutions continues to grow”.
R&Q’s firepower for financing transactions is considerably larger after a £103.5mn equity raise in the period, together with a $70mn subordinated debt raise late last year. In addition, the group said it has negotiated “increased borrowing facilities” with its bank and continues to explore sidecar arrangements with third party capital “which may be appropriate for larger size transactions”.
Another large transaction deal is the Bermudian reinsurer Sandell Re, which R&Q agrees terms to acquire recently after shrugging competition from rivals such as Compre. The transaction is due to complete in the second half of the year.
The group’s investment return also improved significantly with an average yield of 2.3 percent vs 0.6 percent a year ago following a decision to dispose of its equity investments and cut back on its investment managers. Its investment float has also grown from £584mn a year earlier to £729mn at the half-year stage.
As the sterling continues to be buffeted by Brexit and political uncertainties, R&Q said its “large concentration of US dollar revenues and net assets provides a good measure of protection in the event of ongoing sterling weakness”.
Finally, Randall welcomed the arrival of former AM Best international head Roger Sellek as co-CEO, together with finance director Alan Quilter.
“Freed of day to day operational responsibly, I shall be focusing on the strategic development and expansion of the Group,” explained Randall who stepped back from being CEO earlier this year.
Net tangible assets per share climbed 13 percent from 117.6p to 133.2p.