AM Best has affirmed the A- financial strength and “a- ” long-term issuer credit ratings (ICR) of R&Q’s Accredited Surety and Casualty Company (ASC) and Accredited Insurance Europe (AIEL) subsidiaries as it highlighted their pivotal role in the group’s growing program business.
In a note, the ratings agency also said it was affirming the “bbb- ” long-term ICR of parent Randall & Quilter Investment Holdings, with a stable outlook on all ratings.
AM Best said the Accredited ratings reflect the consolidated balance sheet strength of R&Q, which it categorizes as “very strong”, as well as the group’s adequate operating performance, neutral business profile and appropriate enterprise risk management.
It said ASC and AIEL are strategically important to and integrated within the R&Q group.
“They are pivotal to the group’s growing program business, providing insurance services to managing general agents (MGAs), and hold essential licences for legacy business in the United States and Europe,” it added.
As previously reported, R&Q has been significantly growing its program fronting business in the US and Europe.
This year GWP at R&Q’s fronting business, Accredited, passed the $1bn milestone.
The London-listed firm signed 10 new programs in H1, taking its live total to 36, with four more added since 1 July, representing ~$200mn of additional contracted premium.
In its half-year earnings this week, R&Q – which earns commissions on GWP written on its capacity in both the EU and US – said its program business arm has now moved into profit on an economic Ebitda basis with H1 2019’s modest loss of $0.3mn moving to a $0.8mn profit.
R&Q has also formed a US E&S company, Accredited Specialty Insurance Company, which will enable Accredited to expand its fronting/program services to the fast-growing $55bn market. The group recently announced the hiring of Aon veteran Pat Rastiello to lead the initiative.
R&Q as a group reported underlying operating earnings up 30 percent in the first half of 2020 to £10.4mn.
In its note affirming R&Q and its members, AM Best said risk-adjusted capitalization as measured by BCAR is considered to be at the strongest level.
It added that while risk-adjusted capitalization is likely to diminish in the medium term as a result of “significant growth plans”, R&Q is expected to maintain its BCAR score at the highest level.
AM Best also highlighted the group’s demonstration of strong financial flexibility in 2020 with its issuance of $20mn in ordinary shares and $80mn in preference shares. The issue was taken up by Hudson Structured Capital Management and existing backer 777 Partners.
And it highlighted “robust” profitability in recent years with a five-year weighted average ROE of 9.9 percent.
“AM Best expects that R&Q’s expertise in closing small, and increasingly medium-sized, run-off deals will enable it to generate a flow of profitable new business over the coming years.
“Offsetting rating factors include execution risk relating to the profitable expansion of R&Q’s program business, which involves the group providing fronting services to MGAs, along with increasing dependence on reinsurance as this business grows,” said the ratings agency.