Randall & Quilter

www.rqih.com TICKER: RQIH     EXCHANGE: L

Randall & Quilter Investment Holdings (R&Q) is a long-established UK and US insurance business led by an experienced team. It is focused on two core strategies: to drive commission income from writing niche books of business using its two licensed UK and US carriers and to grow an industry leading provider of exit solutions for legacy/ run-off insurance assets to vendors in the US, Bermuda and Europe. 


Quality building rapidly
Published: Sep 11 2019

The core strategy to build two complementary divisions and income streams looks well on track. A strong first half was driven by Legacy deals - announced in FY18, which obtained final approval in H1 - and a £16.0m boost from investment income (FY18: £5.0m). That is a reminder that Legacy transactions can be very profitable, but their timing unpredictable. We believe that makes recent rapid growth in Program Management especially important. 
Contracted new Program Management business scaling rapidly 
Program Management’s strong recent growth has built estimated future gross written premiums to approaching $800m pa from contracts secured to date. That effectively creates high-quality regular commission income, which will attain full to speed over the next 12-18 months. That represents a steady, growing revenue base and outlook. 
Interims boosted by Legacy deals completed in the period
Headline figures make good reading although specific Legacy deals are one-off boosts, so not an indication for H2. PBT was £33.1m (H1 18 continuing: £7.8m) and basic EPS 19.2p (H1 18 continuing: 3.6p). There was a 13% increase in NTA/share to 133.2p (H1 18: 117.6p) and a 12.5% return on tangible equity (H1 18: 6.8%).
We have marginally increased our FY19e forecast for better than expected investment returns, although assume an H2 contribution of c £4m. Completion of Legacy deals is also inherently tricky to predict. FY19e includes the $25m acquisition of Sandell Re, which should receive approval from the Bermuda regulator in H2. Previous acquisitions have been delayed, notably the US$80.5m Global Re deal, announced in Sep 2018, which received approval from the New York regulator in May 2019. 
Further Legacy deals await approval
The Legacy division completed five new acquisitions and three reinsurances in H1. The Program Management division launched ten new contracts in the USA and Europe. Both divisions report strong new business pipelines.    
The proposed interim distribution 3.8p/share (H1 2018: 3.6p) paid from capital, so tax-free to UK private investors; a prospective 5.7% yield based on 9.5p/share payment.
Capitalising on opportunity
Published: May 10 2019

FY 2018 saw excellent growth in continuing pre-tax profits to £14.3m, +45%. Underlying results confirm operational progress in line with strategic targets. Investment to date has established two high potential operations. 
The first, Programme Management (PM) continued to grow organically.  Its prospects were buoyed by an upgrade in its A.M. Best rating, a US$70m bond issue in December and a £103.5m equity issue post the year-end. The high rating is key to attracting enquiries from prospective new PM partners. 
The second division, Legacy/run-off secured further acquisitions in FY19. These included Global Re, its largest legacy deal to date, which received regulatory approval post the year-end. 
Both have distinct earnings patterns. PM builds gradually, but new operations incur expenses upfront as they build books of high quality, reproducible earnings. Legacy purchases can be difficult to forecast, particularly timing, but in contrast to PM can contribute to profit on day-one under group ownership. R&Q seeks to buy run-off insurance assets at a discount to book value, book an initial profit, then work acquired portfolios to release revenues over an extended period. 
We expect both divisions to achieve target scale in 2020 and fully contribute from FY21. Our forecast includes a substantial initial contribution from Global Re this year, then progressive growth from PM from FY20. R&Q reports a strong pipeline of PM enquiries and potential legacy acquisitions, and complementary revenues should create a stable revenue base and support a progressive distribution. 
The latter is paid from capital, so the 5.0% prospective yield is tax-free to UK private investors. NAV forecasts reflect a £103.5m equity issue post the year-end and retained earnings, net of dividends. 
We expect patient investors to be well rewarded as the full benefits of R&Q’s investment in its two core divisions become visible over the next 18-24 months. The shares are on undemanding ratings that appear to ignore clear growth opportunities. 
Global Re acquisition on track for H1 2019
Published: Dec 17 2018

Randall & Quilter Investment Holdings Limited (R&Q) is a long-established UK and US insurance business led by an experienced team. 
We have adjusted forecasts to reflect the revised timing of the Global Re acquisition. As the expected completion of a major acquisition has shifted by a few weeks, from late December to early January, it will now benefit H1 2019 not FY18. In all other respects everything remains on track.
Closure does matter, as the acquisition of GLOBAL Reinsurance Corporation of America (Global Re) is the largest transaction legacy/business combination R&Q has undertaken to date. It will acquire Global Re, a New York domiciled reinsurance company in run-off, from AXA for c $80.5m in cash funded from available cash and debt facilities. The price is a small discount to net assets and R&Q expects it to have material impact on its results, based upon its own reserve assessment and anticipated operational synergies.   
The exact timing of legacy deals is inherently difficult to predict, but the group’s track record is strong, completing 34 deals in the last two financial years. It confirmed that the Global Re acquisition remains on track, backed by strong new business pipelines for both further legacy acquisitions and its programme management business in the USA and Europe. Re the latter, R&Q anticipates that by the year end it will have signed contracts with managing general agents expected to generate c $500m pa of future gross written premiums. 
Our forecasts now reflect the shift of the contribution from Global Re into next year. The FY19e multiple is attractive, with the yield well covered and tax-free to UK private investors as a distribution of capital.
Benefitting from refocus on core operations
Published: Oct 09 2018

Randall & Quilter IH (R&Q) is a long-established UK and US insurance business led by an experienced team. It is focused on two core strategies: to drive commission income from writing niche books of business using its two licensed UK and US carriers and to grow an industry leading provider of exit solutions for legacy/ run-off insurance assets to vendors in the US, Bermuda and Europe. 
The interims reveal the early benefits of R&Q’s decision to simplify its business in 2016 and refocus on two core strategic areas. Volumes of new legacy and program management deals are gathering momentum, building complementary revenues and leveraging the group’s core competitive advantages and enabling it to capitalise on industry trends. The rationalisation has created two core divisions and activities. 
A strong first half saw a 40% increase in underlying operating profit (continuing operations) to £7.8m. That reflects growing contributions from legacy purchases, demand for program underwriting services in US and Europe, and a streamlined expense base. Two acquisitions announced with the interims could make a significant impact this year, subject to receipt of regulatory approval before 31 December, or in FY19 if not.  
Both divisions reported encouraging client growth and strong new business pipelines and look well placed to benefit as insurers seek to manage competitive pressures and cope with increased regulation. Additionally, R&Q’s Malta base puts it in a strong position to capitalise upon uncertainty resulting from the Brexit negotiations. 
Our forecasts assume the latest acquisition completes this year, but overall, builds in a 12-18 months delay before new program management business is fully reflected in the bottom line, which relates to accounting. As those factors fall away with scale, operational gearing should take over and drive up margins. Also, bigger floats and rising interest rates may see an up‐tick in investment income. 
A well-covered 4.7% yield (tax-free to UK private investors as a distribution of capital) and PER of 11x discounts early risks and looks attractive relative to upside potential.
Good progress, more to come
Published: Sep 10 2012

R&Q produced sparkling figures for the first half of 2012: the tax-efficient distribution is, as promised, up by 5%, so the net yield at the current price is 7.7%, equivalent to 14.1% gross for a top-rate taxpayer
While Syndicate 3330, was the star turn, all four divisions showed an improvement, both in revenue and profitability
The launch of R&Q's new Lloyd's syndicate for the 2013 Year of Account will provide its live underwriting division with critical mass, guaranteeing sufficient income to cover essential overheads as well as, hopefully, generating a good return on the Funds at Lloyd's
The profitability of the run-off syndicates was even better than I expected and  with some bias towards the second half, I am increasing my forecast for attributable pre-tax to £10.5m and EPS to 18.1p. This leaves the PFER at 6.1x compared to a prospective net yield of 7.7% and the shares undervalued by any measure
Results and acquisition
Published: Apr 23 2012

Randall & Quilter has pursued a buy and build strategy to create a comprehensive range of investment activities and services in the global non-life insurance market: Insurance Investments, Insurance Services, Underwriting Management, and Captives.
Recent results for 2011 are near the top of the range of analysts' forecasts with an impressively good performance by the Insurance Investment and Insurance Services Divisions offsetting disappointment in the new Underwriting Management Division. 
Although the development of new business segments continues to depress short-term profits, profits increased and earnings per share did so significantly (by more than 50%). 
We think the share price level is unreasonable: on either a historic or a prospective basis the yield exceeds the PER and the share price is at a discount to tangible net assets. Our short-term target is 160p, over a 50% premium to the current price.
Portfolio acquisition
Published: Dec 23 2011

Randall & Quilter has pursued a buy and build strategy to create a comprehensive range of investment activities and services in the global non-life insurance market. It is focused on: Insurance Investments, Insurance Services, Underwriting Management, and Captives.
Today they have announced the transfer of the Yacht and Marine Trades portfolio from Talbot Underwriting to their own R&Q Marine Services. The purchase comes at a nominal cost, with R&Q assuming responsibilities for running the existing policies.
Of greater significance is that R&Q has now concluded a number of deals in this space: rapidly building a diversified portfolio of specialist Managing General Agents (MGAs) and proving that they can attract experienced underwriting teams.
Our fair value estimate of 160p is at a premium of 68% to the current share price of 95p; at the latter the yield for the current year is well over 8%, in excess of the 2011 PFER of 6.6x, which should make R&Q attractive, especially to those seeking income


Acquisition of Principle Insurance
Published: Oct 20 2011

Randall & Quilter is a leader in the management of insurance companies and syndicates in run-off and of captive (re)insurers and in negotiating the purchase of companies in run-off.
They have announced, subject to the normal conditions (FSA approval etc.), the acquisition of Principle Insurance Company Ltd. from its parent for £4.275m in cash, a discount of 19% to its latest reported NAV of £5.272m as at 31st December 2010. 
Our fair value estimate of 160p is at a premium of 53% to the current share price of 104.5p; the yield for the current year is 7.8%, (in excess of the PFER of 7.3x), which makes R&Q attractive, especially to income funds.
In fine shape
Published: Sep 08 2011

Randall & Quilter is a leader in the management of insurance companies and syndicates in run-off and of captive (re-)insurers and in negotiating the purchase of companies in run-off.

At first sight results looked disappointing, with a 49% fall in IFRS pbt, although the swing from a heavy tax charge to a small tax credit leaves EPS down only 15%. However, since two exceptional profits in 2010 and two accounting technicalities in the 2011 half-year account for virtually the whole of the fall it does not portend ill for the future.

There is again a tax-efficient distribution, increased by 10.3%, and they expect full-year profits broadly in line with expectations and higher dividends.

Nevertheless the share price has since fallen to 102p, at which level the yield is over 7% and greater than the PFER. We think that this undervalues the group: our fair value target remains 160p, only a modest 5% above NAV.

Competitor run-off
Published: May 13 2011

Randall & Quilter is a leader in the management of insurance companies and syndicates in run-off and of captive (re-)insurers and in negotiating the purchase of companies in run-off.

The group has reported the successful conclusion to its long-drawn out legal dispute with a large American competitor, which has now withdrawn all of its claims, agreed to pay $2m in damages to R&Q, and reimburse the group's legal costs.

We shall revise forecasts upwards for 2011 and 2012 when more information becomes available. The share price has performed well recently, but at 114p continues to be well below our fair value of 160p.

Storming recovery
Published: May 06 2011

Randall & Quilter is a leader in the management of insurance companies and syndicates in run-off and of captive (re-)insurers and in negotiating the purchase of companies in run-off.

They reported pre-tax profits of £7.5m, 2805% higher than the depressed £0.3m in 2009 and slightly better than forecast.

Impressive group profit, despite spending some £3m on building potential sources of future profits, with good performances by both main divisions

The current share price severely undervalues the Group trading at a 25% discount to NAV, a PER just under 9x, PFER less than 8x for 2011 and less than 7x for 2012, historic yield of 6.8% and prospective yield over 7%.

Our fair value share target is increased to 160p

Controlled Risk and Return
Published: Jan 06 2011

We expect it to out-perform the market in the short term but it should not be viewed as a short-term investment. The rewards from its superior claims management and administration skills accrue progressively over a period of years rather than months. So we are more confident about long-term performance which will be less affected by swings in market sentiment or the sterling exchange rate.

The current share price of 91p puts them on a discount of 38% to NAV (and over 10% to net tangible assets), a multiple of 9x current year earnings, and only 6.7x forecast eps for 2011, and a yield of more than 8%. 

Our estimate of a fair price currently and hence our short/medium-term target for the shares is 146p, a 60% premium to the current price, at which level the yield would still be 5%.

New Lloyds Syndicate
Published: Nov 09 2010

Randall & Quilter (R&Q) has expanded into active underwriting for the first time since its formation in 1992. R&Q Managing Agency (RQMA) has received formal approval from Lloyd's to form a new syndicate on behalf of Assuranceforeningen Skuld (Skuld) which will start underwriting this month for policies commencing on 1st January 2011 or subsequently. R&Q should benefit both from management fees and profit commissions payable to RQMA and from underwriting profits from the Group's participation on the syndicate. The shares are on a PFER of just 9x [the reduction in the share capital means that our forecast eps is now 10.07p], a forecast yield is just over 8% and a discount of 38% to NAV. R&Q still looks seriously undervalued.
R&Q to buy units from M&M
Published: Sep 14 2010

Randall & Quilter has agreed, subject of course to regulatory approval, to buy two businesses from Marsh & McLennan, the largest insurance broker in the world, for $10m and $1 respectively. 

The latest acquisition is in line with the policy of creating synergy while extending their range of services. The group is not changing its guidance on pre-tax profits, which implies that the existing business is performing slightly better than had been expected.

For 2011 one should add about £1m before amortisation charges to forecasts, even without any benefit from cross-selling of the wider range of services to clients of RSL and the existing R&Q businesses.

Progressive results
Published: Aug 20 2010

A leader in the management of insurance companies and syndicates in run-off

First half results ahead of expectations with all units performing well

Long term outlook positive with encouraging pipeline of opportunities

Very attractive ratings (9.3x PER, yield of 8.1%, discount to NAV of 38%) leaves shares at least 50% undervalued
Profits in the face of adversity
Published: Apr 29 2010

Despite the unexpected court decision in favour of Equitas, Randall & Quilter (R&Q) achieved a small pre-tax profit in 2009 and maintained the dividend at 7p per share. 

The artificially low rates of interest on risk-free and ultra-low-risk assets in both the UK and USA at the present time have inevitably had an impact on the group's profitability both by lowering the yield on its cash and investments and by increasing competition in its niche, both for acquisitions of insurers in run-off (consequently reducing both the number of acquisitions and the discount to NAV) and for service contracts.

The current share price is at a 23% discount to NAV, the yield is 6.8% historic (7.2% forecast) and the PFER is 9.0x. We think that the price should be at least 145p.

Closure re Equitas
Published: Dec 14 2009

Settlement with Equitas agreed to close dispute

Loss for 2009 now foreseen, but minimal impact on future years

Shares trade below NAV and yield over 6%: fair value seen at 150p vs current 108p

Equitas decision not a disaster
Published: Nov 16 2009

Court decision only a disappointment

Decline in market cap out of proportion: shares now trade below tangible NAV

US deal strategically sound

Published: Sep 07 2009

Market leader in its niche

Better second half foreseen

Undervalued at discount to NAV, and 5.5% yield on shares

Masters of a profitable niche
Published: Jul 20 2009

Exceptional rates of return over time based on superior claims management and administrative skills

Long term creation of value

Limited impact to business model from recessions or natural disasters

In line PER, but significant yield premium leaves shares attractively rated. Fair value seen at 164p, versus current 128p
Strong balance sheet, attractive yield
Published: May 13 2009

Randall & Quilter's reported profits for 2008 at £8.86m were only modestly ahead of our forecast of £8.4m, but the underlying result was significantly better and they announced a final dividend of 2.2p to raise the payout for 2008 to 7p.
Management contract win
Published: Mar 12 2009

The announcement that a management contract for the new syndicate 3330, set up to provide Reinsurance To Close for Syndicate 2 has been awarded to R&Q's Cavell subsidiary is a feather in the group's cap.

The contract is fairly, but not massively, significant in itself (terms are confidential but as Syndicate 2's operating expenses were £1.1m in 2007 it is likely to increase the turnover of R&Q's service division by a little under 5%). It is particularly noteworthy because Advent, who awarded the contract are majority-owned by Fairfax Financial Holdings whose run-off division is one of the largest in the world. This demonstrates that R&Q is regarded highly by other run-off specialists.

Syndicate 2 had open years for 2001 and 2002 because it merged with Advent's 780 for the 2003 YOA so there was no natural successor syndicate to accept a RITC premium for those two years; Syndicate 2 had exposure to the WTC catastrophe and the apportionment of liability for much of the losses still awaits a series of decisions by courts in New York so until Advent set up a special syndicate there was none willing to offer RITC at a premium that Advent felt was fair to the Names.

Cavell Managing Agency was set up in 2003 to manage the run-off of the former GoshawK syndicate 102. This contract award is a significant extension of its activity: Syndicate 2 had two open years with gross technical provisions of £100m (£80m net of RI) at end-2007 compared to £185m gross (£137m net) for syndicate 102. This is Cavell's first contract for a RITC syndicate which could open up a new market sector for the company as there are still a handful of syndicates with open years for the 2001 YOA.

The contract should improve the profitability of R&Q's Insurance Services Division because the gradual shrinking of Syndicate 102 and the various UK companies owned by R&Q as they settle claims creates a margin of spare capacity which can be utilised to manage Syndicate 2.

Reassuring progress
Published: Sep 29 2008

Interim profits slightly above expectations

Free cash further boosted by £11m release from subsidiary

Strategic alliance with Global Re

On new 2009 forecasts, 9.1x PER looks too low, yield over 4% too high

Acquisition of KMS Group
Published: Sep 17 2008

Randall & Quilter announced yesterday the acquisition of the KMS Group of companies for £1.78m cash, a fairly modest 4.1 times historic earnings and a premium of just under £0.5m to latest published figure for net assets.

Impressive maiden results
Published: May 15 2008

Underlying results above expectation

High quality growth company on 2008 PER of only 8.4x
Newly listed expert in non-life insurance run-off
Published: Jan 10 2008

Award winning performer  in niche market

£77m market cap, but fast growing

Exceptional rates of return

Fair value per share  seen at 173p, versus current 137p