R&Q announces sale of interest in Joint Venture and update on Accredited sale

R&Q Insurance Holdings (R&Q) has announced it has agreed to sell all the interests held by R&Q and its affiliates in the Joint Venture between Obra and R&Q, Sag Main, to Obra Capital, Inc.

The non-life specialty insurer has also provided trading updates as well as on the sale of its Accredited business to Onex.

Regarding the sale of interest in Sag Main, under the terms of the transaction agreements with Obra, R&Q Solutions LLC and R&Q Re (Bermuda) Ltd. are to transfer their collective 49% interest in the Joint Venture to Obra.

The Joint Venture, Sag Main, was established in 2022 to hold entities with legacy non-insurance corporate liabilities to which R&Q would provide management services.

The fee income received by R&Q in 2023 was $7 million. As consideration, R&Q will receive from Obra cash of $27.0 million alongside the transfer and delivery of $3 million of preference shares held by Obra in Randall & Quilter PS Holdings Inc.

According to the announcement, R&Q plans to use the proceeds obtained from this transaction for a combination of paying down the Group’s Revolving Credit Facility and retaining cash in regulated entities.

Commenting on the sale of the joint venture, Jeff Hayman, Chairman of R&Q, said: “We are pleased with the strong return on our investment in the Joint Venture, and this agreement is in line with our objective of realising value from within our Legacy Insurance business.

“Although we believe that the corporate liabilities market continues to represent an attractive long-term opportunity, developing regulations, including potential changes around capital requirements, have reduced the strategic attractiveness of direct equity participation in joint ventures of this type for R&Q.”

He continued: “However, R&Q’s expertise in the management of long-tail liabilities means that servicing and advisory opportunities will continue to exist in this space and the provision of solutions for corporations seeking to manage such liabilities will continue to represent a large and addressable target market for R&Q Legacy.”

Regarding the sale of Accredited, announced in October 2023, R&Q now expects for the sale to close in the second quarter of 2024.

Last year, the insurer announced it had entered into a conditional agreement with funds advised by Onex Corporation to sell 100% of its equity interest in Randall & Quilter America Holding Inc., the holding company of the Accredited business.

According to R&Q, the sale of Accredited is at an enterprise value of $465 million, which represents an expected equity value of approximately $438 million.

In January 2024 R&Q shareholders had approved the sale of Accredited, which was then expected to finish in the first half of 2024.

“The Sale will enable the Board to undertake a material financial de-leveraging of R&Q and return the capital solvency position back to target levels, enhancing the business’ ability to execute the Board’s existing strategy of transitioning R&Q Legacy to a capital efficient and stable recurring fee-based business model,” and R&Q spokesperson stated.

While shareholder approval has been achieved, R&Q confirms that the sale of Accredited remains conditional on a number of other matters, and has stated that “R&Q continues to work expeditiously towards achieving satisfaction of the conditions to enable that sale to take place.

Regarding its trading update, R&Q has disclosed that its Reserves Under Management at year-end 2023 are circa $1 billion.

This figure is expected to reduce by circa $670 million following the sale of the Corporate Liabilities Joint Venture.

Following extensive internal and external reserve reviews R&Q Legacy is expected to realise adverse development of ~23% of the Group’s net reserves for the year to 31 December 2023, which includes the $64.2 million of adverse reserve development identified at the half year.

This primarily relates to tail claim development as well as inflation and abuse claim development across the portfolio,according to the announcement.

Additionally, Accredited is expected to recognise Gross Written Premium of $2.1 billion and Fee Income (excluding minority stakes in MGAs) of $90 million, which increased 17% and 12.5%, respectively, over the prior year.

R&Q anticipates that it will realise a significant pre-tax loss for the year driven by the adverse development in Legacy and a material increase in corporate costs in relation to the Sale of Accredited, this based on preliminary and unaudited information, the insurer noted.

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