R&Q Insurance Holdings Reports H1 Operating Loss Driven by Adverse Reserve Development
In the first half of 2023, R&Q Insurance Holdings, despite experiencing strong growth in its Accredited business, reported a pre-tax operating loss of $58 million. This loss was primarily due to adverse reserve development in R&Q Legacy reserves, amounting to $40 million. However, the company did achieve a 17% increase in Fee Income, reaching $55.9 million compared to the first half of 2022. Net Asset Value also saw a 5% increase, reaching $252.2 million.
Strong Growth in Accredited Business
R&Q Insurance Holdings’ Accredited business witnessed significant growth in the first half of 2023. Gross Written Premiums reached $1.1 billion, marking a 34% increase compared to the same period last year. The company earned a Pre-Tax Operating Profit of $28.6 million, an 86% increase compared to H1 2022. This represents a 57% margin on Gross Operating Income, a substantial increase of 13.4 percentage points from the previous year.
Adverse Reserve Development Impacting R&Q Legacy
On the other hand, R&Q Legacy faced adverse reserve development, which contributed to the overall operating loss. The Legacy business completed an MSA Safety transaction involving non-insurance liabilities, adding Gross Reserves Acquired of $695 million. However, adverse reserve development, primarily from older transactions including Lloyd’s, resulted in an operating loss of $62.2 million for R&Q Legacy. This loss included the $40 million mentioned earlier.
Strategic Objectives and Capital Structure
R&Q Insurance Holdings had set strategic objectives for the first half of 2023, aiming to grow Fee Income and improve its capital structure. Despite the adverse reserve development, the company made progress towards these goals. The separation of R&Q Legacy and Accredited was highlighted as an important step in simplifying and focusing the business. In fact, R&Q Insurance Holdings is currently in advanced discussions regarding the potential sale of Accredited to further strengthen its capital structure.
Future Outlook and Focus
Looking ahead, R&Q Insurance Holdings remains focused on maximizing value for its shareholders and stakeholders. Both the Accredited and R&Q Legacy businesses have promising futures, and the company aims to provide each with the necessary resources to pursue their respective business models confidently. R&Q Insurance Holdings acknowledges the need to minimize future reserve volatility and improve underlying performance through automation and expense management.
CEO William Spiegel emphasized that R&Q Insurance Holdings is undergoing a multi-year operational turnaround to create a stronger, more sustainable, and efficient business. While adverse reserve development impacted the operating loss, the company is pleased with the progress made in executing its strategy. Spiegel stated that the company remains committed to expense discipline and has reduced Fixed Operating Expenses by 8% year-over-year.
In conclusion, R&Q Insurance Holdings’ operating loss in the first half of 2023 was primarily driven by adverse reserve development in R&Q Legacy reserves. However, the company achieved significant growth in its Accredited business and remains focused on improving its capital structure and overall performance. With strategic objectives in place and ongoing efforts to streamline operations, R&Q Insurance Holdings aims to create a stronger and more efficient business for the future.
“As we said in our 2022 full year results announcement, R&Q is undergoing a multi-year operational turnaround aimed at creating a stronger, sustainable and more efficient business. We are well underway with this program and continued to make good progress in the first half of 2023.” – William Spiegel, CEO of R&Q Insurance Holdings