REG - R&Q Insurance Hldgs - Results for the half year ended 30 June 2023
29/09/2023 07:00
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RNS Number : 0800O R&Q Insurance Holdings Ltd 29 September 2023
R&Q Insurance Holdings Ltd
Results for the half year ended 30 June 2023
Accredited grows pre-tax operating profit; Legacy Reserves Under Management
exceed $1 billion; Legacy results impacted by adverse reserve development
29 September 2023
R&Q Insurance Holdings Ltd (AIM: RQIH) ("R&Q" or the "Group"), the
leading non-life global specialty insurance company focusing on the Program
Management ("Accredited") and Legacy Insurance ("R&Q Legacy") businesses,
today announces its results for the half year ended 30 June 2023.
H1 2023 Financial Highlights
Accredited
· Gross Written Premium ("GWP") of $1.1 billion (H1 2022: $0.8
billion, a 34% increase)
· Fee Income of $46.2 million (H1 2022: $39.1 million, an 18%
increase)
· Pre-Tax Operating Profit of $28.6 million (H1 2022: $15.4
million, an 86% increase)
· Pre-Tax Operating Profit Margin of 57.0% (H1 2022: 43.6%, a 13.4
percentage point increase)
R&Q Legacy
· Completed MSA Safety transaction involving non-insurance liabilities in
an otherwise seasonally quiet market with Gross Reserves Acquired of $695.0
million (H1 2022: $5.3 million)
· Reserves Under Management of $1.1 billion (30 June 2022: $0.4
billion, a 172% increase)
· Fee Income of $9.7 million (H1 2022: $8.8 million, a 10% increase),
with MSA Safety carrying a lower fee than Gibson Re on Reserves Under
Management due to no tail risk exposure
· Pre-Tax Operating Loss before adverse reserve development of $24.2
million and a loss of $64.2 million including $40.0 million of adverse reserve
development primarily from older transactions in Lloyd's
Group
· Total Fee Income of $55.9 million (H1 2022: $47.9 million, a 17%
increase)
· Pre-Tax Operating Loss of $18 million prior to R&Q Legacy adverse
development and a loss of $58.0 million including the $40.0 million of R&Q
Legacy adverse reserve development
Non-Recurring Items
· Non-cash income of $1.8 million primarily associated with net
unrealised investment gains net of fair market value impact on legacy reserves
· Extraordinary cash income of $4.1 million
Operational Highlights
· Continued focus on cost control with R&Q Legacy Fixed Operating
Expenses decreasing 8% year-over-year
· Operational improvement program in full flight with ~$20 million of
the planned total $20 ‒ $25 million investment deployed since 2021, with the
remainder to be incurred in H2 2023
· Investment in automation and technology processes is expected to
generate significant productivity efficiencies by end of 2024
Outlook
· Focus remains on the separation of R&Q Legacy and Accredited
o Advanced discussions regarding the potential sale of Accredited as
announced on 22nd September
· Post period end, Accredited approved five programs with ~$227
million in annualised GWP
· R&Q Legacy has three deals in advanced stages with over $100
million in reserves and an identified pipeline of ~$800 million in reserves
Summary Financial Performance (see Notes for definitions)
($m, except where noted) H1 2023 H1 2022* % Change
Accredited
Gross Written Premium 1.1b 0.8b 34%
Fee Income 1 (#_ftn1) 46.2 39.1 18%
Pre-Tax Operating Profit 28.6 15.4 86%
Pre-Tax Operating Profit Margin 57.0% 43.6% 13.4 pp
R&Q Legacy
Gross Reserves Acquired 2 (#_ftn2) 695.0 5.3 NM
Reserves Under Management 1.1b 0.4b 172%
Fee Income 9.7 8.8 10%
Pre-Tax Operating Loss (64.2) (26.7) 140%
Corporate / Other
Net Unallocated Expenses (6.5) (6.7) (3%)
Interest Expense (15.9) (14.2) 12%
Minority Stake in Tradesman 3 (#_ftn3) -- 5.2 (100%)
Group
Fee Income 55.9 47.9 17%
Pre-Tax Operating Loss (58.0) (27.0) 115%
US GAAP Loss After Tax (53.1) (2.2) NM
Operating Loss per Share(( 4 (#_ftn4) )) (13.9)¢ (8.9)¢ 56%
* Restated for change to US GAAP effective in 2023 for comparison purposes
William Spiegel, Chief Executive Officer of R&Q, commented:
"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. A key part of this
is to become a simpler and more focused company with a more appropriate
capital structure. Separating the ownership of R&Q Legacy and Accredited
is an important step in accomplishing this and, as announced on 22 September
2023, we are in advanced discussions with a party regarding the potential sale
of Accredited.
Both Accredited and R&Q Legacy have delivered well against their
respective strategic objectives in the first half of 2023. Accredited
successfully grew GWP, Fee Income and Pre-Tax Operating Profit and continues
to be a leading trans-Atlantic program manager, with five further programs
approved post this reporting period. R&Q Legacy now has Reserves under
Management in excess of $1 billion, most notably executing its first corporate
liabilities transaction through the formation of our joint venture with Obra
to manage the non-insurance legacy exposures of MSA Safety. While H1 is
seasonally quieter, R&Q Legacy continues to have an active pipeline with
three deals in advanced stages and over $800 million in reserves identified as
opportunities. We remain laser-focused on expense discipline in R&Q Legacy
and have reduced Fixed Operating Expenses by 8% year-over-year.
As we detailed when we set out our plan to transition R&Q Legacy to a more
capital efficient recurring fee-based model, our earnings needed go through a
valley as we implemented this strategy. While we are pleased with how R&Q
Legacy is executing against its strategy, we are disappointed to have
witnessed further adverse reserve development. Excluding this, we would have
reported a Group Pre-Tax Operating Loss of $18 million, an improvement on last
year's equivalent, that highlights Accredited's continued profitable growth
and R&Q Legacy's increased fee income and strong expense management. We
are focused on trying to minimize future reserve volatility as well as driving
improved underlying performance of the Group through better automation and
expense management.
Looking ahead, we continue to focus on maximizing value for our shareholders
and other stakeholders. Both of our businesses have bright futures, and our
strategic objective is to give each the footing it needs to pursue its
business model with confidence."
Enquiries to:
R&Q Insurance Holdings Ltd. Tel: 020 7780 5850
William Spiegel
Tom Solomon
Numis Securities Limited (Nominated Advisor & Joint Broker) Tel: 020
7260 1000
Giles Rolls
Charles Farquhar
Barclays Bank PLC (Joint Broker) Tel: 020 7632 2322
Andrew Tusa
Anusuya Nayar Gupta
FTI Consulting Tel: 020 3727 1051
Tom Blackwell
Notes to financials
Pre-Tax Operating Profit is a measure of how the Group's core businesses
performed adjusted for Unearned Program Fee Income, fair market value impact
associated with change in discount rate on Legacy Insurance reserves, net
realised and unrealised investment gains on fixed income assets and non-core,
non-recurring costs.
Operating EPS represents Pre-Tax Operating Profit adjusted for the marginal
tax rate, divided by the average number of diluted shares outstanding in the
period.
Gross Operating Income represents Pre-Tax Operating Profit before Fixed
Operating Expenses and Interest Expense
Fee Income represents Program Fee Income and Fee Income on Reserves Under
Management.
Program Fee Income represents the full fee income from insurance policies
already bound including Unearned Program Fee Income, regardless of the length
of the underlying policy period. We believe Program Fee Income is a more
appropriate measure of the revenue of the business during periods of high
growth, due to a larger than normal gap between written and earned premium.
Unearned Program Fee Income represents the portion of Program Fee Income that
has not yet been earned on a US GAAP basis.
Underwriting Income represents net premium earned less net claims costs,
acquisition expenses, claims management costs, premium taxes / levies,
licensing fees and the cost of excess of loss coverage to protect the balance
sheet.
Investment Income represents income on the investment portfolio excluding net
realised and unrealised investment gains on fixed income assets.
Fixed Operating Expenses include employment, legal, accommodation, information
technology, Lloyd's syndicate, and other fixed expenses of ongoing operations,
excluding non-core and exceptional items.
Pre-Tax Operating Profit Margin is R&Q's profit margin on Gross Operating
Income.
Gross Reserves Acquired represent Legacy Insurance reserves and non-insurance
liabilities acquired gross of reinsurance to Gibson Re.
Reserves Under Management represent insurance reserves ceded to Gibson Re and
non-insurance liabilities for which R&Q earns annual recurring fees.
Chief Financial Officer Review
We are pleased to report our financial results for the six months ending 30
June 2023, which is the first period we have reported our financial results in
accordance with US GAAP. US GAAP has a number of differences from IFRS, namely
fair market value measurement of legacy gross and ceded reserves including a
risk margin, as well as the recognition of unallocated loss adjustment
expenses and current expected credit losses (CECL) on reinsurance
recoverables. Neither US GAAP nor other accounting standards such as IFRS
17, recognise Day-1 gains in legacy insurance transactions.
Group
Our Key Performance Indicators ('KPIs") measure the economics of the business
and adjust US GAAP results to include fully written Program Fee Income and
exclude the impact on fair market value of R&Q Legacy reserves due to
changes in discount rates, net realised and unrealised investment gains and
losses on fixed income assets, non-core expenses and exceptional items.
Our Pre-Tax Operating Loss of $58.0 million was primarily due to adverse
reserve development in R&Q Legacy reserves of $40 million. One of our
strategic objectives is to grow our Fee Income, which was $55.9 million, a 17%
increase compared to H1 2022. Net Asset Value was $252.2 million, a 5%
increase compared to year-end 2022, primarily as a result of our $55 million
capital raise of preferred equity being partially offset by adverse reserve
development in R&Q Legacy. On a fully diluted basis, our Operating Loss
Per Share was 13.9 cents and our Net Asset Value Per Share was 67.3 cents.
Our US GAAP Loss After Tax was $53.0 million impacted by $1.8 million of
non-cash income and $4.1 million of extraordinary cash income before tax.
Non-cash income included net unrealised and realised investment gains on fixed
income assets of $3.3 million net of the impact on fair market value of
R&Q Legacy reserves of $1.5 million due to changes in discount rates.
Extraordinary cash income included a $25.4 million gain on the sale of our 40%
minority stake in Tradesman Program Managers net of an $11.1 million charge
associated with an older transaction in Lloyd's that had carried a debtor on
its books since 2017, which was subsequently written off upon reconciliation,
$3.7 million in automation spend which should yield meaningful productivity
savings starting in 2024, $3.0 million in senior management retention
compensation associated with the separation of Accredited and R&Q Legacy
and the pending strategic options with 3(rd) parties and $3.5 million in other
extraordinary items. On a fully diluted basis, our US GAAP Loss Per Share was
14.2 cents.
Accredited
Accredited continued to grow rapidly in H1 2023. Our Gross Written Premium was
$1.1 billion, a 34% increase compared to H1 2022. Our results demonstrate the
benefits of scale as we earned a Pre-Tax Operating Profit of $28.6 million, an
86% increase compared to H1 2022, representing a 57.0% margin on Gross
Operating Income, an increase of 13.4 percentage points compared to H1 2022.
Accredited's Pre-Tax Operating Profit excludes our minority 40% stake in
Tradesman Program Managers, which was sold in H1 2023 and has been included in
Corporate and Other.
The primary driver of Pre-Tax Operating Profit is Fee Income. Fee Income was
$46.2 million, an 18% increase compared to H1 2022. We expect Fee Income to
generally grow in line with Gross Written Premium, however it is impacted by
select programs with minimum fixed fees until such programs build to scale.
Underwriting Income represents our c.7% retention of Program Insurance risk.
Our Underwriting result was approximately breakeven primarily due to the
purchase of excess of loss reinsurance in order to minimise any balance sheet
volatility as well as a provision for CECL on reinsurance recoverables. Our
Investment Income was $4.7 million, a 370% increase compared to H1 2022
associated with higher reinvestment rates. Finally, Fixed Operating Expenses
were $21.6 million, a 9% increase compared to H1 2022 due to the expansion of
our staff and a higher allocation of corporate expenses.
R&Q Legacy
R&Q Legacy concluded one transaction during the period, MSA Safety, which
included non-insurance liabilities of $695 million, in an otherwise seasonally
quiet period for legacy insurance transactions. At 30 June 2023, we had
Reserves Under Management of $1.1 billion, a 172% increase compared to 30 June
2022, and during H1 2023 we reported Fee Income of $9.7 million, a 10%
increase compared to H1 2022. MSA Safety carries a lower fee on Reserves
Under Management than that of our sidecar, Gibson Re due to no tail risk
exposure. We expect Fee Income to become the predominant driver of Pre-Tax
Operating Profit once we fully deploy capital in Gibson Re. Our Pre-Tax
Operating Loss was $62.2 million, which included $40 million of adverse
reserve development (included in Underwriting Income), primarily from older
transactions including Lloyd's, where we have experienced higher than expected
claim volume emanating from a COVID-related backlog of filings and higher than
expected claims severity. Our Investment Income was $16.4 million, a 144%
increase compared to H1 2022 driven by higher reinvestment yields. Finally,
Fixed Operating Expenses were $35.6 million, an 8% decrease compared to H1
2022 due to expense control.
Corporate and other
Our Corporate and Other segment includes unallocated operating expenses and
interest costs. Unallocated operating expenses were $6.5 million, a 3%
decrease compared to H1 2022 primarily driven by higher allocations to the two
business segments. Interest expense was $15.9 million, a 12% increase compared
to H1 2022 associated with higher interest rates on floating rate debt. We
have reallocated the $5.2 million of earnings in H1 2022 from our 40% minority
stake in Tradesman from Accredited segment earnings to Corporate and Other due
to the sale of this stake in H1 2023.
Cash and investments
Our Cash and Investments at 30 June 2023, excluding funds withheld, was $1.5
billion. We produced a book yield, which excludes net realised and unrealised
gains on fixed income assets, of 2.8%, an increase of 80 bps compared to H1
2022, due to the higher interest rate environment.
We maintain a conservative, liquid investment portfolio so that we can produce
consistent cash flows to meet our liability obligations, while also earning a
reasonable risk-adjusted return. 96% of our portfolio was invested in cash,
money market funds, and fixed income investments. Of our fixed income
investments, 98% were rated investment-grade. After cash, which comprised 24%
of our portfolio, our largest allocations were to corporate bonds (41%),
government and municipal securities (20%), asset-backed securities (12%) and
equities (3%). We have maintained a duration in our portfolio of 3 years,
shorter than that of our liabilities of 6 years.
During H1 2023, our investment portfolio had cumulative unrealised net
investment losses of $104 million, which are included in our US GAAP
results. Given the high credit quality of our investment portfolio and the
primarily casualty-focused retained liabilities, we do not expect to realise
these mark-to-market losses other than to rebalance the portfolio for more
attractive reinvestment opportunities, and hence do not include such movement
in our Pre-Tax Operating Profit.
Capital and liquidity
In June 2023, we raised $55 million of preferred equity, which was used to
capitalise R&Q Legacy in order to provide reinsurance coverage to
Accredited under the legal separation that was required to maintain the AM
Best rating as well as for general corporate purposes. As a result, our
Group Solvency ratio at 30 June 2023 was 169%, which is above our target level
of 150%. Our total debt at 30 June 2023 was $333.3 million, which includes a
bank facility as well as subordinated notes. In addition, we have $188.8
million of unsecured letters of credit that provide security on assumed
reinsurance of legacy exposures, which are guaranteed by the Group.
CONDENSED CONSOLIDATED BALANCE SHEET
Note 30 June 2023 31 December 2022
ASSETS $m $m
Short-term investments (at fair value) 5 151.2 113.3
Fixed maturities (at fair value) 5 1,184.5 1,408.8
Debt and fixed maturity securities 5 1,335.7 1,522.1
Equities (at fair value) 5 17.7 22.0
Equity method investments 17.2 22.4
Other investments (at fair value) 5 48.8 32.6
Total Investments 1,419.4 1,599.1
Cash and cash equivalents 200.5 187.9
Restricted cash and cash equivalents 64.4 133.3
Reinsurance recoverables on paid and unpaid losses (net of allowance for 7 1,355.1 1,044.7
expected credit losses 30 June 2023: $13.9m, 31 December 2022: $10.1m)
Reinsurance recoverables on paid and unpaid losses, at fair value 7 577.5 633.3
Prepaid reinsurance premiums 1,041.6 982.4
Funds withheld receivable 42.6 49.6
Deferred acquisition costs 289.3 229.3
Insurance related and other receivables 845.1 894.7
Goodwill and intangible assets 11.5 11.5
Current and deferred tax assets 6 32.2 39.6
Other assets 22.6 5.9
TOTAL ASSETS 5,901.8 5,811.3
LIABILITIES
Reserve for losses and loss adjustment expenses 8 1,482.8 1,133.1
Reserve for losses and loss adjustment expenses, at fair value 8 1,287.8 1,481.5
Unearned premium reserve 1,114.9 1,034.9
Funds withheld payable 212.3 268.6
Insurance related and other payables 10 1,218.5 1,308.8
Debt obligations 11 333.3 344.9
TOTAL LIABILITIES 5,649.6 5,571.8
SHAREHOLDERS' EQUITY
Common shares (par value 2p each, 377,395,235 issued and 374,572,864 12 10.0 10.0
outstanding)
Preference shares 12 55.0 -
Additional paid-in-capital 12 402.5 402.5
Accumulated other comprehensive income 12 (47.1) (57.9)
Accumulated deficit (168.2) (115.1)
TOTAL SHAREHOLDERS' EQUITY 252.2 239.5
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 5,901.8 5,811.3
CONDENSED CONSOLIDATED STATEMENT OF INCOME
Note Six months ended 30 June 2023 Six months ended 30 June 2022
REVENUES $m $m
Gross premiums written 1,088.8 807.3
Written premiums ceded to reinsurers (992.1) (740.1)
Net premiums written 96.7 67.2
Change in gross provision for unearned premiums (51.6) (255.8)
Change in provision for unearned premiums, reinsurers' share 36.4 222.1
Increase in unearned premiums (15.2) (33.7)
Net premiums earned 81.5 33.5
Fees and other income 55.9 33.4
Net investment income 5 22.0 8.8
Net realised and unrealised gains (losses) 5 3.3 (100.0)
Gain on disposal of associate 25.4 -
TOTAL REVENUES 188.0 (24.3)
EXPENSES
Net incurred losses and loss adjustment expenses (120.3) 95.8
Operating expenses (105.9) (71.5)
Interest expense (15.9) (14.3)
Net foreign exchange gains 1.9 7.9
Impairment and amortisation of intangible assets - (0.1)
TOTAL EXPENSES (240.1) 17.8
LOSS BEFORE INCOME TAXES (52.1) (6.5)
Income tax charge 6 (1.0) (0.9)
Earnings from equity method investments - 5.2
NET LOSS ATTRIBUTABLE TO R&Q ORDINARY SHAREHOLDERS (53.1) (2.2)
Loss per ordinary share attributable to R&Q Insurance Holdings Ltd: 9 (14.2) (0.8)
Basic and diluted:
Net loss per ordinary share (in cents) 9 (14.2) (0.8)
Weighted average ordinary shares outstanding:
Basic and diluted 374.8 271.6
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six Months Ended 30 June 2023 Six Months Ended 30 June 2022
$m $m
NET LOSS FROM OPERATIONS (53.1) (2.2)
Other comprehensive income (loss), net of income taxes:
Change in currency translation adjustment 3.6 (34.0)
Increase in defined benefit pension liability - (0.7)
Total other comprehensive loss (49.5) (36.9)
Attributable to:
Shareholders of the parent (49.5) (36.9)
TOTAL COMPREHENSIVE LOSS FOR THE PERIOD (49.5) (36.9)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
30 June 2023 30 June 2022
$m $m
Common shares
Opening balance 10.0 7.5
Issue of shares (transaction with owners) - 0.7
Closing balance 10.0 8.2
Additional paid-in capital
Opening balance 402.5 281.0
Issue of shares (transaction with owners) - 34.5
Closing balance 402.5 315.5
Preference shares
Issue of shares 55.0 -
Closing balance 55.0 -
Accumulated other comprehensive loss income
Opening balance (58.0) (24.5)
Cumulative translation adjustment 10.9 (44.3)
Pension scheme actuarial losses - (1.0)
Deferred tax on pension scheme actuarial losses - 0.2
Closing balance (47.1) (69.6)
Retained earnings
Opening balance (115.1) 11.3
Net (53.1) (2.2)
loss for the period
Closing balance (168.2) 9.1
Total shareholders' equity 252.2 263.2
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Six Months Ended 30 June 2023 Six Months Ended 30 June 2022
CASH FLOWS FROM OPERATING ACTIVITIES Note $m $m
Net loss (53.1) (2.2)
Amortisation of intangibles - 7.9
Realised losses on sale of investments 6.5 12.0
Unrealised (gains) losses on investments (9.8) 88.0
Interest paid 20.3 14.3
Earnings from equity method investments (0.9) (5.2)
Changes in operating assets and liabilities:
Reinsurance recoverables on paid and unpaid losses (net of allowance) (310.4) (188.0)
Reinsurance recoverables on paid and unpaid losses, at fair value 55.8 (30.8)
Prepaid reinsurance premiums (59.2) (186.3)
Funds withheld receivable 7.0 3.4
Deferred acquisition costs (60.0) (74.2)
Insurance related and other receivables 49.6 71.2
Current and deferred tax assets 7.4 3.7
Other assets (16.7) 1.3
Reserve for losses and loss adjustment expenses 349.7 203.5
Reserve for losses and loss adjustment expenses, at fair value (193.7) (115.6)
Unearned premium reserve 80.0 216.7
Funds withheld payable (56.3) (0.4)
Insurance related and other payables (90.3) 154.9
Net cash from (used in) operating activities (274.1) 174.1
CASH FLOWS FROM INVESTING ACTIVITIES
Sale, distribution, and maturity of securities at fair value 431.8 487.6
Sale of equities 5.7 6.4
Sale of other investments 1.9 7.2
Acquisition of debt securities, net of cash acquired (239.3) (492.2)
Acquisition of equity securities, net of cash acquired (2.0) (16.9)
Acquisition of other investments, net of cash acquired (14.1) (7.1)
Net cash from (used in) investing activities 183.9 (15.0)
CASH FLOWS FROM FINANCING ACTIVITIES
Debt obligations repayment (11.6) (13.9)
Interest paid (20.3) (14.3)
Receipt from issuance of shares - 35.2
Preference shares issued 55.0 -
Net cash from financing activities 30.4 7.0
Effect of foreign exchange 10.8 (45.1)
Net (decrease) increase in cash, restricted cash and cash equivalents (56.3) 121.0
Cash, restricted cash and cash equivalent, beginning of the period 321.2 245.3
Cash, restricted cash and cash equivalent, end of the period 264.9 366.3
Reconciliation of cash and restricted cash reported in the consolidated
balance sheet
Cash and cash equivalents 200.5 152.9
Restricted cash and cash equivalents 64.4 213.4
Total cash, restricted cash and cash equivalents 264.9 366.3
The accounting policies and accompanying notes are an integral part of these
Condensed Consolidated Financial Statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation
R&Q Insurance Holdings Ltd. (the "Company") is incorporated in Bermuda and
listed on AIM, a sub-market of the London Stock Exchange. The Company and its
subsidiaries (together forming the "Group") carry on business worldwide in two
segments: Program Management, also known as Accredited, where the Group
provides program capacity to managing general agents ("MGAs") and Legacy
Insurance, where the Group provides run-off solutions to the non-life
insurance market.
The Condensed Consolidated Financial Statements have been prepared using
accounting policies consistent with US GAAP and the unaudited figures have
been presented for the six months ended 30 June 2023 and 30 June 2023, as well
as the full year ending 31 December 2022. Previous financial statements for
the Group were presented on an IFRS basis and a reconciliation of Equity from
IFRS as presented at 31 December 2022 to USGAAP at 31 December 2022 is set out
below.
The Condensed Consolidated Financial Statements were approved by the Board of
Directors on 28(th) September 2023.
Reconciliation of IFRS equity to US GAAP equity 31 Dec 2022
$m
IFRS Equity 185.2
Valuation differences attributable to:
Reinsurance recoverables on paid and unpaid losses 9.5
Reserve for losses and loss adjustment expenses (21.1)
Net reserves for losses and loss adjustment expenses (a) (11.6)
Reinsurance recoverables on paid and unpaid losses, at fair value (42.4)
Reserve for losses and loss adjustment expenses, at fair value 182.8
Net reserves for losses and loss adjustment expenses, at fair value (b) 140.4
Goodwill and intangible assets (c) (59.4)
Deferred acquisition costs (d) (1.4)
Insurance related and other payables (e) (3.6)
Deferred tax asset (f) (10.1)
Subtotal 54.3
US GAAP Equity 239.5
(a) This reflects recognition of Unallocated Loss Adjustment Expenses - ULAE
(Net: $1.5m) and recognition of allowance for current expected credit losses
(CECL) on Recoverables on unpaid losses ($10.1m)
(b) This reflects an increase in net loss reserve (Net: $ 29.3m) due to not
recognising Day 1 Gains formerly allowed under IFRS and recognition of ULAE
(Net: $35.2m) which are offset by fair value adjustments (Net: $204.9).
(c) This reflects derecognition of intangible assets recognised under
IFRS.
(d) This reflects write off of internal deferred acquisition costs that were
permitted to be held on the balance sheet under IFRS.
(e) This reflects an accrual for 2022 discretionary bonuses paid in 2023 to
non-director senior management. Accrual of discretionary bonuses is not
permitted under IFRS.
(f) This represents the impact on deferred tax arising from the US GAAP
adjustments caused by the change in accounting basis.
2. Significant accounting policies
The principal accounting policies adopted in the preparation of these
Condensed Consolidated Financial Statements are set out below. These
policies have been consistently applied to all the periods presented, unless
otherwise stated.
a. Nature of operations and basis of consolidation
The Company is a holding company owning subsidiaries engaged in Program
Management and Legacy Insurance. Further information regarding the Group's
reportable business segments is contained in Note 3. Information concerning
business acquisitions completed over the past three years appears in Note 2.
The accompanying Condensed Consolidated Financial Statements include the
accounts of the Company consolidated with the accounts of all subsidiaries and
affiliates in which the Group holds a controlling financial interest as of the
financial statement date. Normally a controlling financial interest reflects
ownership of majority of the voting interests. Intercompany accounts and
transactions have been eliminated. The Company consolidates entities in which
it has a controlling financial interest based on either the variable interest
entity (VIE) or voting interest model. The Company is required to first apply
the VIE model to determine whether it holds a variable interest in an entity,
and if so, whether the entity is a VIE. If the Company determines it does not
hold a variable interest in a VIE, it then applies the voting interest model.
Under the voting interest model, the Company consolidates an entity when it
holds a majority voting interest in an entity. The Company accounts for
investments in which it has significant influence but not a controlling
financial interest using the equity method of accounting.
b. Use of estimates in preparation of financial statements
The Group prepares its Condensed Consolidated Financial Statements in
accordance with accounting principles generally accepted in the United States
("US GAAP") which requires it to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the balance sheet date and
the reported amounts of revenues and expenses during the period.
Estimates of unpaid losses and loss adjustment expenses are subject to
considerable estimation error due to the inherent uncertainty in projecting
ultimate claim costs. In addition, estimates and assumptions associated with
the determination of the fair value of certain financial instruments and
evaluation of goodwill and identifiable intangible assets for impairment
require considerable judgment. Actual results may differ from the estimates
used in preparing the Group's Condensed Consolidated Financial Statements.
The estimation of unpaid claim liabilities at any given point in time is
subject to a high degree of uncertainty for a number of reasons. A significant
amount of time can elapse between the assumption of risk, the occurrence of a
loss event, the reporting of the event to an insurance or reinsurance company
and the ultimate payment of the claim for the loss event. Certain estimates
for unpaid claim liabilities involve considerable uncertainty due to
significant coverage litigation and it can be unclear whether past claims
experience will be representative of future claims experience.
Significant items subject to such estimates and assumptions include estimated
transaction price, including variable consideration, of the Group's revenue
contracts; the useful lives of fixed assets; allowances for doubtful accounts;
deferred tax assets, fixed assets, investments, notes receivable, lease
liabilities and right-of-use assets, share-based compensation, reserves for
employee benefit obligations, environmental liabilities, income tax
uncertainties, and other contingencies.
c. Cash, restricted cash and cash equivalents
The Group considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Cash and cash
equivalents include certificates of deposit with an initial term of less than
three months.
Restricted cash consists of funds that are contractually restricted as to
usage or withdrawal due to a contractual agreement such as cash placed as
collateral. The Group has presented restricted cash separately from cash and
cash equivalents in the Condensed Consolidated Balance Sheet.
d. Short-term investments and fixed maturity investments
Short-term investments comprise investments with a maturity greater than three
months and up to one year from the date of purchase. Fixed maturities comprise
investments with a maturity of greater than one year from the date of
purchase.
Fixed maturities consist of U.S. Treasury, corporate debt, and equity
securities. Fair value election made by the Group requires all investment
securities being carried at fair value. Any change in the fair value of
investment securities is reflected in profit and loss. Short-term investments
comprise investments with original maturity greater than three months up to
one year from the date of purchase. Fixed maturities comprise investments with
a maturity of greater than one year from the date of purchase.
f. Goodwill and intangible assets
Goodwill represents the excess of the purchase price over the estimated fair
value of net assets acquired in a business combination. The Group tests
goodwill for impairment when there is a triggering event (e.g. a deterioration
in general economic conditions or in the environment in which the Company
operates).
When impairment indicators are identified, the Group compares the reporting
unit's fair value to its carrying amount, including goodwill. An impairment
loss is recognised as the difference, if any, between the reporting unit's
carrying amount and its fair value, to the extent the difference does not
exceed the total amount of goodwill allocated to the reporting unit.
Amortisation is charged to operating expenses in the Condensed Consolidated
Statement of Income as follows:
Purchased IT software 3 - 5 years, on a straight-line basis
Other Useful life, which may be indefinite
Assets that are subject to amortisation are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not
be recoverable. An impairment loss is recognised in the Condensed
Consolidated Statement of Income to reduce the carrying amount to the
recoverable amount.
Intangible assets are tested for impairment annually, or more frequently when
there is a triggering event. The Group first performs a qualitative assessment
by evaluating all relevant events and circumstances to determine if it is more
likely than not that the indefinite intangible assets are impaired; this
includes considering any potential effect on significant inputs to determining
the fair value of the indefinite-lived intangible assets. When it is more
likely than not that an indefinite-lived intangible asset is impaired, then
the Group calculates the fair value of the intangible asset and performs a
quantitative impairment test.
US insurance authorisation licences
US state insurance authorisation licences acquired in business combinations
are recognised initially at their fair value. The asset is not amortised, as
the Directors consider that economic benefits will accrue to the Group over an
indefinite period due to the long-term stability of the US insurance market.
The licences are tested annually for impairment. This assumption is reviewed
annually to determine whether the asset continues to have an indefinite life.
Costs of acquiring new licences are recognised in the year of acquisition.
g. Fair value measurements
The Group uses valuation approaches that maximise the use of observable inputs
and minimise the use of unobservable inputs to the extent possible. The
Company determines fair value based on assumptions that market participants
would use in pricing an asset or liability in the principal or most
advantageous market. When considering market participant assumptions in fair
value measurements, the following fair value hierarchy distinguishes between
observable and unobservable inputs, which are categorised in one of the
following levels (see note 4, Fair Value):
Level 1 inputs: Unadjusted quoted prices in active markets for identical
assets or liabilities accessible to the reporting entity at the measurement
date.
Level 2 inputs: Other than quoted prices included in Level 1 inputs that are
observable for the asset or liability, either directly or indirectly, for
substantially the full term of the asset or liability.
Level 3 inputs: Unobservable inputs for the asset or liability used to measure
fair value to the extent that observable inputs are not available, thereby
allowing for situations in which there is little, if any, market activity for
the asset or liability at measurement date.
h. Fair value option
Under the Fair Value Option Subsections of FASB ASC Subtopic 825-10, Financial
Instruments the Group has chosen the irrevocable option to report certain
financial assets and financial liabilities at fair value on an
instrument-by-instrument basis, with changes in fair value reported in income.
Any changes in the fair value of liabilities resulting from changes in the
instrument-specific credit risk would be reported in other comprehensive
income.
j. Commitments and contingencies
Liabilities for loss contingencies arising from claims, assessments,
litigation, fines, and penalties and other sources are recorded when it is
probable that a liability has been incurred and the amount can be reasonably
estimated. Legal costs incurred in connection with loss contingencies are
expensed as incurred. Recoveries of environmental remediation costs from third
parties that are probable of realisation are separately recorded as assets and
are not offset against the related environmental liability.
Accruals for estimated losses from environmental remediation obligations
generally are recognised no later than completion of the remedial feasibility
study. Such accruals are adjusted as further information develops or
circumstances change. Costs of expected future expenditure for environment
remediation obligations are not discounted to their present value.
k. Premiums and insurance/reinsurance recoverables
Premiums written are earned on a pro-rata basis over the period the coverage
is provided. Reinsurance premiums are recorded at the inception of the policy,
based upon contractual terms and, for certain business, estimated based on
underlying contracts or from information provided by insureds and/or brokers.
Changes in reinsurance premium estimates are expected and may result in
adjustments in future periods. Any subsequent differences arising on such
estimates are recorded as premiums written in the period in which they are
earned. Unearned premium reserves represent the unexpired portion of policy
premiums. For retrospectively rated contracts as well as those contracts whose
written premium amounts are recorded based on premium estimates at inception,
changes to accrued premiums arising from changes to these estimates are
reflected as changes in premiums receivable where appropriate. Insurance
premiums receivables are reported net of an allowance for expected credit
losses as appropriate. The allowance is based upon the Group's ongoing review
of amounts outstanding, historical loss data, including delinquencies and
write-offs, current and forecasted economic conditions and other relevant
factors. However, the credit risk on insurance premiums receivable is
substantially reduced where the Group can cancel the underlying policy if the
policyholder does not pay the related premium. Amounts recoverable from
reinsurers are estimated in a manner consistent with the underlying liability
for losses and loss adjustment expenses. The Group reports reinsurance
recoverables on paid and unpaid losses net of an allowance for expected credit
losses.
Acquisition costs, which represent commission and other related direct
underwriting expenses, are deferred over the period in which the related
premiums are earned. Acquisition costs recognised during the period are
recorded in operating expenses in the Condensed Consolidated Statement of
Income. Deferred acquisition costs ("DAC"), included on the Condensed
Consolidated Balance Sheet, are limited to their estimated realisable value by
line of business based on the related unearned premiums, anticipated claims
and claim expenses and anticipated investment income.
Reinsurance coverage is used to limit the Group's individual and aggregate
exposures to risks of losses arising from contracts of insurance or
reinsurance. Reinsurance premiums ceded to reinsurers are recorded and earned
in a manner consistent with that of the original contracts or policies written
and the terms of the reinsurance agreements. Reinsurance arrangements do not
relieve the insurer of its primary obligation to the policyholder.
l. Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognised for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases and
operating loss and tax credits carried forward to future periods. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognised in income in the period
that includes the enactment date. The Group recognises the effect of income
tax positions only if those positions are more likely than not to be
sustained. Recognised income tax positions are measured at the largest amount
which has a greater than 50% likelihood of being realised. Changes in
recognition or measurement are reflected in the period in which the change in
judgment occurs.
m. Other assets
Other assets primarily consist of prepaid assets, fixed assets and leased
assets.
n. Current expected credit losses (CECL)
US GAAP requires an entity to measure and record credit risk that affects the
collectability of reinsurance receivables.
1) An allowance for credit losses - i.e. losses due to the
credit risk of each reinsurer are recognised and estimated under the expected
credit loss model.
2) A separate valuation allowance for the remaining risks -
e.g., dispute risk, litigation risk - is recognised if the loss associated
with those risks is probable and can be reasonably estimated.
Reinsurance recoverables are reviewed for impairment on a quarterly basis and
are presented net of an allowance for expected credit losses. A case-specific
allowance for expected credit losses against reinsurance recoverables that the
Group deems unlikely to be collected in full, is estimated based on the
Group's analysis of amounts due, historical delinquencies and write-offs. In
addition, a default analysis is used to estimate an allowance for expected
credit losses on the remainder of the reinsurance recoverables balance. The
principal components of the default analysis are reinsurance recoverables by
reinsurer and default factors applied to estimate uncollectible amounts based
on reinsurers' credit ratings and the length of collection periods. The
default factors are based on a model developed by a major rating agency. The
default analysis considers both current and forecasted economic conditions in
the determination of the credit loss allowance.
o. Post retirement plans
The Group makes contributions to defined contribution schemes and a defined
benefit scheme.
The pension cost in respect of the defined contribution schemes represents the
amounts payable by the Group for the year. The funds of the schemes are
administered by trustees and are separate from the Group. The Group's
liability is limited to the amount of the contributions.
The defined benefit scheme is funded by contributions from a subsidiary
company and its assets are held in a separate Trustee administered fund.
Pension scheme assets are measured at market value, and liabilities are
measured using the projected unit method and discounted at the current rate of
return on high quality corporate bonds of equivalent term and currency to the
liability.
Current service cost, net interest income or cost and any
curtailments/settlements are charged to the Condensed Consolidated Statement
of Income. The present value of the defined benefit obligation at the end of
the reporting period less the fair value of plan assets is recognised and
disclosed separately as a net pension liability in the Condensed Consolidated
Balance Sheet. Surpluses are only recognised up to the aggregate of any
cumulative unrecognised net actuarial gains and past service costs, and the
present value of any economic benefits available in the form of any refunds or
reductions in future contributions.
p. Earnings per share
Basic earnings per share is based on the weighted average number of ordinary
shares outstanding and excludes potentially dilutive securities such as
restricted shares, restricted share units, warrants, options and convertible
securities.
Diluted earnings per share is based on the weighted average number of ordinary
and ordinary share equivalents outstanding calculated using the treasury stock
method for all potentially dilutive securities. When the effect of dilutive
securities would be anti-dilutive, these securities are excluded from the
calculation of diluted earnings per share.
q. Claims
These include the cost of claims and related expenses paid in the year,
together with changes in the provisions for outstanding claims, including
provisions for claims incurred but not reported and related expenses, together
with any other adjustments to claims from previous years. Where applicable,
deductions are made for salvage and other recoveries. These are shown as net
claims provisions (increase)/release in the Condensed Consolidated Statement
of income.
r. Provisions
Provisions, other than insurance provisions, are recognised when the Group has
a present obligation (legal or constructive) as a result of a past event, it
is probable that the Group will be required to settle the obligation, and a
reliable estimate can be made of the amount of the obligation.
Provisions are measured at the present value of the expenditures expected to
be required to settle the obligation, using a pre-tax rate that reflects
current market assessments of the time value of money and the risks specific
to the obligation. The increase in the provision due to the passage of time is
recognised as an interest expense.
s. Interest expense
Interest expense comprise interest payable and are recognised in the Condensed
Consolidated Statement of Income in line with the effective interest rate on
liabilities.
t. Funds withheld
The funds withheld receivable reflects deposits with ceding undertakings and
the funds withheld payable reflects deposits withheld from reinsurers that
would otherwise have been remitted to them. The funds withheld are credited
with investment income and losses paid are deducted. The net investment
returns from both inwards and outwards funds withheld are recognised in net
investment income.
u. Losses and loss adjusting expenses (LAE)
The liability for losses and LAE includes reserves for unpaid reported losses
and losses incurred but not reported ("IBNR"). The Group establishes reserves
for unpaid reported losses and LAE based on reports from brokers, ceding
companies and insureds and these represent the estimated ultimate cost of
events or conditions that have been reported to or specifically identified.
The reserves for IBNR are established based on actuarially determined
estimates of ultimate losses and LAE. Inherent in the estimate of ultimate
losses and LAE are expected trends in claim severity and frequency, historical
loss experience, industry statistics and other factors which may vary
significantly as claims are settled.
These estimates are reviewed regularly and are subject to the impact of future
changes in the factors noted above as well as economic conditions including
the impact of inflation, legal and judicial developments, and other
projections. Any subsequent remeasurement of the Group's reserves are recorded
in income in the period in which they become known and reflected as part of
the net increase or reduction in the estimates of ultimate losses included
within net incurred losses and LAE in the Condensed Consolidated Statement of
Income.
3. Segmental information
The Group's segments represent the level at which financial information is
reported to the Board, being the chief operating decision maker. The
reportable segments are as follows: -
• Program Management - delegates underwriting authority to
MGAs to provide program capacity through its licensed platforms in the US and
Europe
• Legacy Insurance - acquires legacy portfolios and
manages the run-off of claims reserves
• Corporate / Other - primarily includes the holding
company costs and interest expense on debt.
Segmental results for the six months ended 30 June 2023
Note Program Management Legacy Insurance Corporate / Other Total
$m $m $m $m
Underwriting income (i) (0.7) (54.7) - (55.4)
Fee income (ii) 46.2 9.7 - 55.9
Investment income (iii) 4.7 16.4 0.9 22.0
Gross operating income (iv) 50.2 (28.6) 0.9 22.5
Fixed operating expenses (v) (21.6) (35.6) (7.4) (64.6)
Interest expense - - (15.9) (15.9)
Pre-tax operating profit/(loss) (vi) 28.6 (64.2) (22.4) (58.0)
Unearned program fee income (vii) 0.0
Change in fair market value of liabilities (viii) (1.5)
Net unrealised and realised gains (ix) 3.3
Non-core and exceptional items (x) 4.1
Loss before tax (52.1)
Segmental results for the six months ended 30 June 2022
Note Program Management Legacy Insurance Corporate / Other Total
$m $m $m $m
Underwriting income (i) (4.8) (3.4) - (8.2)
Fee income (ii) 39.1 8.8 - 47.8
Investment income (iii) 1.0 6.7 0.0 7.7
Gross operating income (iv) 35.3 12.1 0.0 47.4
Fixed operating expenses (v) (19.9) (38.8) (6.7) (65.4)
Minority stake in Tradesman (xi) - - 5.2 5.2
Interest expense - - (14.2) (14.2)
Pre-tax operating profit/(loss) (vi) 15.5 (26.7) (14.2) (27.0)
Unearned program fee income (vii) (14.9)
Change in FMV of liabilities (viii) 102.2
Net unrealised and realised losses (ix) (100.0)
Non-core and exceptional items (x) (13.0)
Loss before tax (1.3)
The above key performance indicators used by management measure the economics
of the business and adjust US GAAP results to include fully written Program
Fee Income and exclude non-cash intangible assets created from acquisitions in
Legacy Insurance, net realised and unrealised investment gains on fixed income
and lease-based assets, foreign currency translation reserves, non-core
expenses and exceptional items.
Notes:
(i) Underwriting income represents Legacy Insurance reserve
development / savings, net of claims costs and brokerage commissions.
Underwriting income also includes Program Management retained earned premiums,
net of claims costs, acquisition costs, claims handling expenses, premium
taxes / levies and associated movement in CECL.
(ii) Fee income comprises program fee income from insurance
policies already bound (written), regardless of the amount of premium earned
in the financial period.
(iii) Investment income represents income arising on the
investment portfolio excluding net realised and unrealised investment gains or
losses on fixed income and lease-based assets.
(iv) Gross operating income represents pre-tax operating profit
before fixed operating expenses (v) and interest expense.
(v) Fixed operating expenses include employment, legal,
accommodation, information technology, Lloyd's Syndicate and other fixed
expenses of ongoing operations, excluding non-core and exceptional items.
(vi) Pre-tax operating profit is a measure of how the Group's core
businesses perform adjusted for unearned program fee income (vii), fair market
value movement in Legacy reserves and net realised and unrealised investment
gains on fixed income and lease-based assets.
(vii) Unearned program fee income represents the portion of program
fee income (ii) which has not yet been earned on an GAAP basis.
(viii) Movement in fair market value of liabilities relates to changes
in discount rate on legacy insurance reserves and associated risk margin.
(ix) Realised and unrealised net investment gains comprise movement
in fixed income assets held at fair market value as a result of changes in
interest rates as well as any realised investment net gains as a result of
selling underlying fixed income securities.
(x) Non-core and exceptional items comprise the results of
entities which are considered non-core and one-off or exceptional income and
expenditure.
(xi) Represents 40% minority stake in Tradesman Program Managers,
which was sold in the first six months of 2023 and reported under Corporate
and other segment.
No income from any one client included within the fee income generated more
than 10% of the total external income.
4. Fair value
(a) Fair value hierarchy
Fair value hierarchy is defined in Note 2(g). At 30 June 2023, the Group
classified its financial instruments measured at fair value on a recurring
basis in the following valuation hierarchy:
Fair value measurements at reporting date
Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Total
30 June 2023
$m $m $m $m
Equities 17.7 - - 17.7
Short-term and Fixed maturity investments:
U.S. government and agency 266.8 10.1 - 276.9
U.K. government - 53.5 - 53.5
Corporate - 741.9 - 741.9
Municipal - 7.5 - 7.5
Other government - 65.6 - 65.6
Structured products - 190.3 - 190.3
Other investments - - 48.8 48.8
Total investment securities 284.5 1,068.9 48.8 1,402.2
Purchased reinsurance receivables - - 3.3 3.3
Total 284.5 1068.9 52.1 1,405.5
The Group uses independent pricing sources such as Refinitiv amongst others to
assist in determining the fair value of its investments; however, management
is ultimately responsible for all fair values presented in the Group's
financial statements. This includes responsibility for monitoring the fair
value process, ensuring objective and reliable valuation practices, and
pricing of assets and liabilities and use of pricing sources. The Group
analyses and reviews the information and prices received from these sources to
ensure that the prices provided represent a reasonable estimate of fair value.
These fair value measurements maximise the use of observable inputs. However,
in situations where there is little, if any, market activity for the asset or
liability at the measurement date, the fair value measurement reflects the
Group's own judgments about the assumptions that market participants would use
in pricing the asset or liability. Those judgments are developed by the Group
based on the best information available in the circumstances, including
expected cash flows and appropriately risk adjusted discount rates, available
observable and unobservable inputs.
Equity securities with readily determinable fair values are measured using
quoted market prices at the reporting date multiplied by the quantity held.
The fair values for all securities in the short-term and fixed maturity
investments are obtained or validated from independent pricing services either
directly or through service providers or investment managers.
(b) Level 3 financial instruments:
At 30 June 2023, the Group holds Level 3 financial instruments of $3.3m, which
includes purchased reinsurance recoverables. The fair values of these
investments are estimated using detailed models, where applicable. Due to
significant unobservable inputs in these valuations, the Group classifies its
fair values as Level 3 within the fair value hierarchy.
The following table provides a summary of quantitative information regarding
the significant unobservable inputs used in determining the fair value of
other investments measured at fair value on a recurring basis under the Level
3 classification at 30 June 2023:
Level 3 Financial Instruments
Fair Value ($m) Valuation Technique Unobservable Inputs Range (years)
Purchased reinsurance receivables 3.3 DCF Discount factor used 2
Total - Level 3 investments 3.3
The following tables present changes in assets and liabilities classified in
Level 3 (significant unobservable inputs) of the fair value hierarchy during
the periods ended 30 June 2023 and 30 June 2022:
30 June 2023 30 June
2022
$m $m
Opening balance 6.6 6.4
Total net gains recognised in the Condensed Consolidated Statement of Income - 0.2
Disposals (3.3) -
Exchange adjustments - -
Closing balance 3.3 6.6
Legacy Insurance segment:
The fair value option has been elected to value the reserves for unpaid losses
and loss adjustment expenses for the Legacy Insurance segment. The building
block approach has been used to estimate the fair value. The first building
block involves estimating the expected nominal liabilities and their
associated cash flows. The second building block is the amount of discount
that should be associated with those expected liabilities, reflecting the
characteristics of the liability except for the insurance risk. The third
building block involves calculating a risk margin to reflect the compensation
a third party would need to take on those liabilities at the financial
statement date.
Insurance contracts - fair value option
The following table presents a reconciliation of the beginning and ending
balances for all insurance contracts measured at fair value on a recurring
basis using Level 3 inputs during the period ended 30 June 2023:
Liability for losses and LAE Reinsurance recoverables on unpaid losses Net
$m $m $m
Fair value at 1 January 2023 1,481.5 633.4 848.1
De-consolidation of subsidiary (133.2) (12.5) (120.7)
Incurred losses and LAE -
Change in estimates of ultimate losses (4.1) (39.0) 34.9
Change in fair value 98.6 76.2 22.4
Total incurred losses and LAE 94.6 37.3 57.3
Losses paid (152.8) (79.6) (73.2)
Effect of exchange rate movements (2.2) (1.0) (1.2)
Fair value at 30 June 2023 1,287.8 577.5 710.3
The following table presents the components of the net change in fair value
for the period ended 30 June 2023:
Changes in fair value due to changes in: 30 June 2023
$m
Duration (45.2)
Yield 7.0
Risk cost of capital 15.8
Change in fair value (22.4)
Below is a summary of the quantitative information regarding the significant
observable and unobservable inputs used in the internal model to determine
fair value on a recurring basis as of 30 June 2023:
Valuation Technique/Source Unobservable (U) and Observable (O) Inputs 30 June 2023
Internal determination Yield (O) A-rated corporate bond yield including illiquidity premium
Internal determination Credit Spread for non-performance risk (U) 0.2%
Bermuda Monetary Authority Risk Cost of Capital (U) 6%
Internal determination Duration (U) 4.95 years
The fair value of the liability for losses and LAE and reinsurance
recoverables on paid and unpaid losses may increase or decrease due to changes
in the corporate bond rate, the credit spread for non-performance risk, the
risk cost of capital, the weighted average cost of capital and the estimated
payment pattern as described below:
• An increase in the yield rate or credit spread for non-performance risk
would result in a decrease in the fair value of the liability for losses and
LAE and reinsurance balances recoverable on paid and unpaid losses.
Conversely, a decrease in the corporate bond rate or credit spread for
non-performance risk would result in an increase in the fair value of the
liability for losses and LAE and reinsurance recoverables on paid and unpaid
losses.
• An increase in the weighted average cost of capital would result in an
increase in the fair value of the liability for losses and LAE and reinsurance
recoverables on paid and unpaid losses. Conversely, a decrease in the weighted
average cost of capital would result in a decrease in the fair value of the
liability for losses and LAE and reinsurance recoverables on paid and unpaid
losses.
• An increase in the risk cost of capital would result in an increase in the
fair value of the liability for losses and LAE and reinsurance recoverables on
paid and unpaid losses. Conversely, a decrease in the risk cost of capital
would result in a decrease in the fair value of the liability for losses and
LAE and reinsurance recoverables on paid and unpaid losses.
• The duration of the liability and recoverable is adjusted every period to
reflect actual net payments during the period and expected future payments. An
acceleration of the estimated payment pattern, a decrease in duration, would
result in an increase in the fair value of the liability for losses and LAE
and reinsurance balances recoverable on paid and unpaid losses. Conversely, a
deceleration of the estimated payment pattern, an increase in duration, would
result in a decrease in the fair value of the liability for losses and LAE and
reinsurance recoverables on paid and unpaid losses.
In addition, the estimate of the capital required to support the liabilities
is based upon current industry standards for capital adequacy. If the required
capital per unit of risk increases, then the fair value of the liability for
losses and LAE and reinsurance recoverables on paid and unpaid losses would
increase. Conversely, a decrease in required capital would result in a
decrease in the fair value of the liability for losses and LAE and reinsurance
recoverables on paid and unpaid losses.
(c) Financial instruments disclosed, but not carried, at fair value
The fair value of financial instruments accounting guidance also applies to
financial instruments disclosed, but not carried, at fair value, except for
certain financial instruments related to insurance contracts.
As at 30 June 2023, the carrying values of cash and cash equivalents
(including restricted amounts), accrued investment income, reinsurance
balances receivable, loan to related party and certain other assets and
liabilities approximate their fair values due to their inherent short
duration. As these financial instruments are not actively traded, the fair
values of these financial instruments are classified as Level 2.
The investments made by direct lending entities are carried at cost less
impairment, if any, which approximates fair value. The fair value estimates of
these investments are not based on observable market data and, as a result,
have been categorised as Level 3.
The fair values of the Group's long-term debt (as defined in "Note 11 - Debt
Obligations ") is measured at carrying value which approximates to its fair
value. Debt issued by the Group and its subsidiary, R&Q Re (Bermuda) Ltd,
is floating rate debt and as the credit quality has remained the same since
issuance, the carrying value broadly reflects the fair values of these
instruments. Variable rate plus the margin is reflective of the term of the
debt and also whether it is subordinate or not.
30 June 2023 31 December 2022
$m $m
Amounts owed to credit institutions 333.3 344.9
5. Investments
The Group holds the following investment securities measured at fair value:
i. Equity and other investments, carried at fair value; and
ii. Portfolio of short-term and fixed maturities investments carried at fair
value.
Equities and other investments
Equity investments include publicly traded common and preferred stocks,
exchange-traded funds and privately held common and preferred stocks carried
at fair value.
The following table summarises the Group's equity investments as at 30 June
2023 and 31 December 2022:
30 June 2023 31 December 2022
$m $m
Publicly traded equity investments in common and preferred stocks 17.7 22.0
Cash based investment funds 48.8 32.5
66.5 54.6
Short term and fixed maturities
investments
The fair values of the underlying asset categories comprising short-term and
fixed maturities investments were as follows as at 30 June 2023 and 31
December 2022:
30 June 2023 31 December 2022
$m $m $m $m $m $m
Short term investments Fixed maturities Total Short term investments Fixed maturities Total
U.S. government and agency 100.9 176.1 277.0 82.0 224.7 306.6
U.K. government 25.9 27.6 53.5 3.6 39.6 43.2
Other government 12.6 53.0 65.6 15.8 81.0 96.9
Municipal - 7.5 7.5
Corporate 3.0 728.8 731.8 6.1 762.4 768.5
Certificate of deposit 8.8 1.2 10.0 5.8 0.4 6.2
Structured products - 190.3 190.3 - 300.6 300.7
151.2 1,184.5 1,335.7 113.3 1,408.8 1,522.1
Contractual
maturities
The contractual maturities of the Group's short-term and fixed maturity
investments, classified as trading and the investments included are shown
below. Actual maturities may differ from contractual maturities because
issuers may have the right to call or prepay obligations with or without call
or prepayment penalties.
Fair value
$m
One year or less 63.9
More than one year through two years 54.2
More than two years through five years 121.4
More than five years through ten years 258.8
More than ten years 637.0
Asset backed securities 175.3
Mortgage-Backed Securities & Others 25.1
1,335.7
Credit Ratings Fair value AAA AA rated A rated BBB Non-investment grade Not rated
$m $m $m $m $m $m $m
U.S. government and agency 266.8 266.8 - - - - -
U.K. government 53.5 - 53.5 - - - -
Other government 65.6 45.6 16.2 0.5 2.8 0.5 -
Corporate 741.9 11.9 47.6 372.4 284.9 23.0 2.1
Municipal 7.5 1.3 5.6 0.5 - - -
Asset backed securities 175.3 20.5 44.7 73.7 36.3 0.1 -
Mortgage-backed securities & others 25.2 11.9 1.3 5.0 5.4 1.6 0
1,335.7 358.0 169.0 452.1 329.4 25.2 2.1
Net investment
income
Major categories of net investment income for the period ended 30 June 2023
and 30 June 2022 are summarised as follows:
Six months ended 30 June 2023 Six months ended 30 June 2022
$m $m
Gross investment income 23.8 10.2
Less: investment expense (1.8) (1.4)
Net investment income 22.0 8.8
Net realised gains (losses) on sale:
Total net realised losses on sale (6.4) (12.4)
Total net unrealised gains/(losses) 9.7 (87.6)
The Group uses trust accounts to collateralise business with its (re)insurance
counterparties and is also required to maintain investments and cash and cash
equivalents on deposit with regulatory authorities and Lloyd's to support its
(re)insurance operations. The investments and cash and cash equivalents on
deposit are available to settle (re)insurance liabilities. Collateral
generally takes the form of assets held in trust, letters of credit or funds
held. The assets in trust as collateral are mostly cash and highly rated fixed
maturities. The fair values of these restricted assets were as follows at 30
June 2023 and 31 December 2022:
30 June 2023 31 December 2022
$m $m
Fixed income securities - restricted investments 815.9 942.4
Cash based investment funds - restricted investments 5.2 9.4
Equities - restricted investments 38.9 20.8
Restricted cash and cash equivalents 64.4 133.3
Restricted assets - third party agreements 924.4 1,105.9
6. Income tax - current and deferred taxes
Income tax is charged to net income or in some cases to accumulated other
comprehensive income based on applicable local tax laws and rates in the
reporting period. The Group recognised an income tax expense of $1.0m for the
six months ended 30 June 2023, compared to an income tax expense of $0.9m for
the same period in 2022. The overall tax rate is derived from calculating
prevailing tax rates in the taxable jurisdictions in which the Group operates
restricted through the tax credits available to the Group for losses incurred
in some jurisdictions.
7. Reinsurance
The following tables analyse the total Reinsurance recoverables on paid and
unpaid losses:
As at 30 June 2023
Program Management Legacy Insurance Total
$m $m $m
Recoverable from reinsurers on unpaid:
Undiscounted claims provisions and IBNR 1,342.9 693.7 2,036.6
CECL (13.9) - (13.9)
ULAE 26.1 - 26.1
Fair value adjustments - fair value option - (116.2) (116.2)
Total 1,355.1 577.5 1,932.6
Reconciliation to Condensed Consolidated Balance Sheet:
Reinsurance recoverables on paid and unpaid losses 1,355.1 - 1,355.1
Reinsurance recoverables on paid and unpaid losses - fair value option
- 577.5 577.5
Total 1,355.1 577.5 1,932.6
As at 31 December 2022
Program Management Legacy Insurance Total
$m $m $m
Recoverable from reinsurers on unpaid:
Undiscounted claims provisions and IBNR 1,035.1 825.7 1,860.8
CECL (10.1) - (10.1)
ULAE 19.7 - 19.7
Fair value adjustments - fair value option - (192.4) (192.4)
Total 1,044.7 633.3 1,678.0
Reconciliation to Condensed Consolidated Balance Sheet:
Reinsurance recoverables on paid and unpaid losses 1,044.7 - 1,044.7
Reinsurance recoverables on paid and unpaid losses - fair value option
- 633.3 633.3
Total 1,044.7 633.3 1,678.0
The fair value adjustments, determined on acquisition of (re)insurance
subsidiaries, are based on the estimated timing of loss and LAE recoveries and
an assumed interest rate equivalent to a risk-free rate for securities with
similar duration to the acquired reinsurance balances recoverable on paid and
unpaid losses plus a spread for credit risk, and are amortised over the
estimated recovery period, as adjusted for accelerations in timing of payments
because of commutation settlements. The determination of the fair value
adjustments on the retroactive reinsurance contracts for which the Group has
elected to use the fair value option is described in Note 4 - "Fair value ".
For Program Management, the Group carries reinsurance recoverables at
amortised cost and for Legacy Insurance the Group carries reinsurance
recoverables at fair value for better matching of the timing of gain/loss
recognition on retroactive assumed and retroactive ceded reserves.
8. Reserve for losses and loss adjustment expenses
The liability for losses and LAE, also referred to as loss reserves,
represents the Group's gross estimates before reinsurance for unpaid reported
losses and includes IBNR for the Legacy and Program segments using a variety
of actuarial methods. The Group recognises an asset for the portion of the
liability that it expects to recover from reinsurers. LAE reserves include
allocated loss adjustment expenses ("ALAE"), and unallocated loss adjustment
expenses ("ULAE"). ALAE are linked to the settlement of an individual claim or
loss, whereas ULAE are based on the estimate of future costs to administer the
claims. IBNR represents reserves for loss and LAE that have been incurred but
not yet reported. This includes amounts for unreported claims, development on
known claims and reopened claims.
The Group's loss reserves cover multiple lines of business, including
casualty, workers' compensation, motor and other non-life lines of business.
The following tables summarise the liability for losses and LAE by segment and
for the Group's other activities.
At 30 June 2023 Program Mgt Legacy Ins Total
$m $m $m
Undiscounted reserves 1,454.5 1,566.6 3,021.1
Fair value adjustments - fair value option - (308.5) (308.5)
ULAE 28.3 29.8 58.1
Total 1,482.8 1,287.8 2,770.7
Reconciliation to Condensed Consolidated Balance Sheet: 1,482.8 - 1,482.8
Reserve for loss and loss adjustment expenses
Reserve for loss and loss adjustment expenses, at fair value - 1,287.8 1,287.8
Total 1,482.8 1,287.8 2,770.7
31 December 2022 Program Mgt Legacy Ins Total
$m $m $m
Undiscounted Reserves 1,112.0 1,853.4 2,965.4
Fair value adjustments - fair value option - (407.1) (407.1)
ULAE 21.1 35.2 56.3
Total 1,133.1 1,481.5 2,614.6
Reconciliation to Condensed Consolidated Balance Sheet: 1,133.1 - 1,133.1
Reserve for loss and loss adjustment expenses
Reserve for loss and loss adjustment expenses, at fair value - 1,481.5 1,133.1
Total 1,133.1 1,481.5 2,614.6
The table below provides a consolidated reconciliation of the beginning and
ending liability for losses and LAE.
30 June 2023 30 June 2022
$m $m
Loss and loss adjustment expenses as at 1 January 2,614.6 2,331.7
Less: reinsurance recoverables (1,678.0) (1,262.6)
Net balance as at 1 January 936.6 1,069.2
Net incurred losses and LAE:
Current period 41.7 13.0
Prior periods 78.6 (108.8)
Total net incurred losses and LAE 120.3 (95.8)
Net paid losses:
Current period (13.0) (20.6)
Prior periods (92.8) (146.8)
Total net paid losses (105.8) (167.4)
Effect of exchange rate movement 7.6 7.0
(Acquisition)Disposal of reserves (120.7) 142.5
Net balance as at 30 June 838.0 955.5
Add back: reinsurance recoverables (2) 1,932.6 1,464.1
Loss and loss adjustment expenses as at 30 June 2,770.6 2,419.6
Assumptions, changes in assumptions and sensitivity
The assumptions used in the estimation of provisions relating to insurance
contracts are intended to result in provisions which are sufficient to settle
the net liabilities from insurance contracts. The amounts presented above
include estimates of future reinsurance recoveries expected to arise on the
settlement of the gross insurance liabilities.
Provision is made at the period end date for the estimated ultimate cost of
settling all claims incurred in respect of events and developments up to that
date, whether reported or not.
The provisions carried by the Group for its insurance liabilities are
calculated using a variety of actuarial techniques. The provisions are
calculated and reviewed by the Group's internal actuarial team; in addition,
the Group periodically commissions independent reviews by external actuaries.
The use of external actuaries provides management with additional comfort that
the Group's internally produced statistics and trends are consistent with
observable market information and other published data. Provisions for
outstanding claims and IBNR are initially estimated at a gross level and a
separate calculation is carried out to estimate the size of reinsurance
recoveries. Insurance companies and syndicates within the Group are covered
by a variety of treaty, excess of loss and stop loss reinsurance programs.
The provisions disclosed in the Condensed Consolidated Financial Statements
are sensitive to a variety of factors including:
• Settlement and commutation activity of third-party lead
reinsurers
• Development in the status of settlement and commutation
negotiations being entered into by the Group
• The financial strength of the Group's reinsurers and the
risk that these entities could, in time, become insolvent or could otherwise
default on payments
• Future cost inflation of legal and other advisors who
assist the Group with the settlement of claims
• Changes in statute and legal precedent which could
particularly impact provisions for asbestos, pollution and other latent
exposures
• Arbitration awards and other legal precedents which
could particularly impact upon the presentation of both inwards and outwards
claims on the Group's exposure to major catastrophe losses.
9. Earnings per share
a. Basic earnings per share
Basic earnings per share is calculated by dividing the earnings attributable
to ordinary shareholders by the weighted average number of ordinary shares
outstanding during the period.
Reconciliations of the earnings and weighted average number of shares used in
the calculations are set out below:
Six months ended 30 June 2023 Six months ended 30 June 2022
Numerator: (in millions of U.S. dollars, except share data) $m $m
Earnings per share attributable to ordinary shareholders:
Net earnings attributable to ordinary shareholders (53.1) (2.2)
Denominator: (in millions of shares)
Weighted-average ordinary shares outstanding - basic and diluted 374.8 276.3
Earnings per share attributable to ordinary shareholders:
Basic and diluted:
Net earnings per ordinary share (14.2) (0.8)
At June 30 2023, preference shares were excluded from diluted earnings per
common share because they were anti-dilutive.
10. Insurance and other payables including structured liabilities
30 June 2023 31 December 2022
$m $m
$m $m
Structured liabilities 504.4 504.4
Structured settlements (504.4) (504.4)
- -
Insurance related and other payables 1,218.5 1,531.9
No new structured settlement arrangements have been entered into during the
year. Some group subsidiaries have paid for annuities from third party life
insurance companies for the benefit of certain claimants. The subsidiary
company retains the credit risk in the unlikely event that the life insurance
company defaults on its obligations to pay the annuity amounts. In the event
that any of these life insurance companies were unable to meet their
obligations to these annuitants, any remaining liability may fall upon the
respective insurance company subsidiaries. The Directors believe that,
having regard to the quality of the security of the life insurance companies
together with the reinsurance available to the relevant Group insurance
companies, the possibility of a material liability arising in this way is very
unlikely. The life companies will settle the liability directly with the
claimants and no cash will flow through the Group. These annuities have been
shown as reducing the insurance companies' liabilities to reflect the
substance of the transactions and to ensure that the disclosure of the
balances does not detract from the users' ability to understand the Group's
future cash flows.
The carrying amounts disclosed above reasonably approximate their fair values
at the period end date.
11. Debt obligations and credit facilities
The total amounts owed to credit institutions at 30 June 2023 was $333.3m (31
December 2022: $344.9m).
The Group has issued the following debt:
Issuer Principal Rate Maturity
R&Q Insurance Holdings Ltd. $70,000k 6.35% above USD LIBOR* 2028
R&Q Insurance Holdings Ltd. $125,000k 6.75% above USD LIBOR** 2033
Accredited Insurance (Europe) Limited €20,000k 6.7% above EURIBOR 2025
Accredited Insurance (Europe) Limited €5,000k 6.7% above EURIBOR 2027
R&Q Re (Bermuda) Limited $20,000k 7.75% above USD LIBOR 2023
Revolving Credit Facility £59,327k Variable Revolving
Bank Term Loan £12,500k SONIA - 5 NCCR LAG 2024
* USD LIBOR Capped at 3.65% through December 2023
** USD LIBOR capped at 2%
The Group's subsidiary, Accredited Holding Corporation, provides a full and
unconditional guarantee for the payment of principal, interest and any other
amounts due in respect of the $70.0m Notes issued by R&Q Insurance
Holdings Ltd.
12. Shareholders' equity
At 30 June 2023, the allotted, called up and fully paid share capital of the
Company is 377,395,235 ordinary shares of 2p each (30 June 2022: 302,636,880
ordinary shares). Number of outstanding shares (voting shares) on 30 June
2023 was 374,572,864.
(a) Common stock
Holders of common stock are entitled to one vote per share, and to receive
dividends and, upon liquidation or dissolution, are entitled to receive all
assets available for distribution to stockholders. The holders have no
pre-emptive or other subscription rights, and there are no redemption or
sinking fund provisions with respect to such shares. Common stock is
subordinate to the preferred stock with respect to dividend rights and rights
upon liquidation, winding up and dissolution of the Company.
(b) Preference shares
In June 2023, the Group issued $55 million of non-voting, perpetual preferred
equity issued through Randall & Quilter PS Holdings Inc., an indirect
wholly owned subsidiary of R&Q, to investment funds affiliated with one of
its largest shareholders, Scopia Capital Management ("Scopia"). The preferred
stock will, in certain circumstances, be exchangeable at Scopia's election
into new ordinary shares of R&Q at 60.98 pence (representing a 10% premium
to the 20-day volume weighted average price prior to the date of the
Agreement).
13. Commitments, guarantees and contingencies
There are uncertainties inherent in assessing outstanding claims reserves in
the ordinary course. The Group's insurance contract provisions include a
provision for costs only in respect of a potential accumulation of claims from
a single policyholder in the Group's Legacy business. The claims involve
multiple uncertainties including questions relating to liability, coverage,
incidence, quantum and other legal and technical issues. Management has
concluded that it is not possible to measure the appropriate reserve for these
claims with sufficient reliability. Based on the documentation made
available to date, and expert opinion and legal advice, management believes
that it is not probable that any significant amount, other than costs, will be
payable to settle the claim; however, the ultimate cost of the claims could
be materially higher. In the circumstances, management has concluded that
it is not currently appropriate to recognise any estimate of the possible
outcome but to disclose the position as a contingent liability.
Liabilities for loss contingencies arising from claims, assessments,
litigation, fines, and penalties and other sources are recorded when it is
probable that a liability has been incurred and the amount can be reasonably
estimated. Legal costs incurred in connection with loss contingencies are
expensed as incurred.
(a) Concentration of credit risk exposures
The Group believes that there are no significant concentrations of credit risk
associated with its cash and cash equivalents, fixed maturity investments, or
other investments. Cash and investments are managed pursuant to guidelines
that follow prudent standards of diversification and liquidity and limit the
allowable holdings of a single issue and issuers. The Group is also subject to
custodial credit risk on its investments, which is managed by diversifying the
holdings amongst large financial institutions that are highly regulated.
The Group manages the concentration of credit risk in its investment portfolio
through issuer and sector exposure limitations and believes it bears minimal
credit risk in its cash on deposit.
The Group's investment portfolio is managed following prudent standards of
diversification and a prudent investment philosophy. The Group is not exposed
to any significant credit concentration risk on its investments, except for
debt securities issued by the U.S. government and government sponsored
enterprises, and other highly rated non-U.S. sovereign governments' and
supranational organisations' securities. At 30 June 2023, other than the U.S.
government and U.S. government sponsored enterprises, the Group's fixed
maturity investment portfolio did not contain exposure to any non-U.S.
sovereign government or any other issuer that accounted for more than 10% of
the Group's shareholders' equity.
The Group has exposure to credit risk on certain of its assets pledged to
ceding companies under insurance contracts. In addition, the Group is
potentially exposed should any insurance intermediaries be unable to fulfil
their contractual obligations with respect to payments of balances owed to and
by the Group. Credit risk exists in relation to (re)insurance recoverables on
paid and unpaid losses. The Group remains liable to the extent that
counterparties do not meet their contractual obligations and, therefore, the
Group evaluates and monitors concentration of credit risk among its
(re)insurers. The Group is also subject to credit risk in relation to funds
held by reinsured companies. Under funds withheld arrangements, the reinsured
company has retained funds that would otherwise have been remitted to the
group subsidiaries. The funds may be placed into trust or subject to other
security arrangements.
(b) Legal proceedings
The Group is involved in various other claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Group's consolidated financial position, results of operations, or liquidity.
(c) Guarantees
The Group has provided a guarantee of $0.8m to Institute of London
Underwriters. The Group's subsidiary, Accredited Holding Corporation provides
a full and unconditional guarantee for the payment of principal, interest and
any other amounts due in respect of the $70.0m Notes issued by R&Q
Insurance Holdings Ltd. The Group has entered into a guarantee agreement and a
debenture arrangement with its bankers, along with several of its
subsidiaries, in respect of the Group term loan facilities. The total
liability to the banks at 30 June 2023 was $118.2m (2022: $103.0m). The Group
also gives various other guarantees in the ordinary course of business.
14. Business combinations
Business combinations
During the six months ended 30 June 2023, the Group did not acquire any
run-off portfolio business and also did not acquire any non-insurance legacy
businesses.
On 24 February 2023, the Group's subsidiary, R&Q Reinsurance Company,
entered into liquidation pursuant to a court order with the Pennsylvania
Department of Insurance and thus this subsidiary has been deconsolidated from
the Group's financial statements for the period ending 30 June 2023. The
deconsolidation of the entity has no material impact to the income and the net
equity value of the group on a US GAAP basis.
15. Related Party Transactions
Transactions with subsidiaries
Transactions between the Group's wholly owned subsidiary undertakings, which
are related parties, have been eliminated on consolidation and accordingly not
disclosed.
Transactions with Directors
The following Director was entitled to the following distributions during the
six months ended 30 June 2023 and the twelve months ended 31 December
2022:
Six Months ended 30 June 2023 31 December 2022
$m $m
W L Spiegel 2.3 -
In January 2023, 5,178,524 restricted ordinary shares vested. These shares
were awarded to William Spiegel in January 2020 in accordance with his
remuneration package, together with 235,387 Ordinary Shares, issued as part of
the Company's bonus share distribution. To fund tax liabilities arising from
the vesting William Spiegel sold 2,822,371 Ordinary Shares which, in
accordance with the share award agreement, have been purchased by the Company
and are held in Treasury.
Transactions with the equity-method investee
On 10 September 2022 the Group invested in the New York-based Managing General
Agent TPM Holdings USA, LLC, ('Tradesman') and Tradesman was treated as the
equity method investment. The Group generated income of $0.9m in the six
months ended 30 June 2023 ($5.4m six months ended 30 June 2022) from this
investment. On 23 February 2023, the Group sold its entire 40% minority
holding for a consideration of $47m and made a gain on sale of $25.4m
Joint venture
The Group acquired, through a newly formed joint venture with Obra Capital,
Inc. ("Obra"), an entity that holds product liability claims relating to coal
dust, asbestos, silica, and other exposures of MSA Safety Incorporated ("MSA
Safety"). MSA Safety contributed approximately $341 million in cash to the
joint venture, in addition to related insurance assets, and the joint venture
shareholders contributed $35 million.
The Group provides claims and management services and Obra provides investment
management services to the joint venture. The Group owns 49% of the joint
venture, and accounts for its interest under equity method.
16. Subsequent events
Jerome Lande was appointed as a Non-Executive Director of the Company on 17
July 2023. Jerome is an experienced board member with over 20 years of
leadership experience as an investor. He currently serves as Managing Partner
and Deputy CIO at Scopia Capital Management.
The Group has completed a legal reorganisation by separating its Program
Management business, Accredited, and its Legacy Insurance business. The Group
continues to consider strategic transactions with third parties with respect
to a potential sale of Accredited.
The Group has evaluated subsequent events from the balance sheet date. Aside
from the above events, the Group has determined that there are no other items
to disclose.
(( 1 (#_ftnref1) )) Excludes minority stakes in MGAs
(( 2 (#_ftnref2) )) Gross of cessions to Gibson Re
(( 3 (#_ftnref3) )) Moved to Corporate/Other due to sale of 40% stake in
Tradesman in H1 2023
(( 4 (#_ftnref4) )) On a fully diluted basis and using a 10% margin tax rate
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