Third-party capital can play a dual role at R&Q, in program business and inheritance


Randall & Quilter (R&Q) Investment Holdings, the investor and program manager specializing in non-life insurance and reinsurance, expects third-party capital to play a role in both program management and in the aspects inherited from its activities.

The company continues to make it clear that access to third-party capital to support its growth is a key ambition and looking at the results, it’s easy to see why investors might be keen to support R&Q.

The company reported half-year pre-tax operating profits up 30%, while within program management R & Q’s contractual premiums increased 95% and on the acquired reserves side increased by 81%.

More importantly perhaps, the program management business generated 88% higher commissions and the historical side saw return on capital and equity increase from the previous year.

Along with the addition of 10 new programs in the first half of the year and nine historic transactions in progress, R&Q is certainly busy, likely benefiting from market conditions right now and has a clear ambition to do more, c This is where third party reinsurance capital comes in.

Of course, it’s not news that R&Q is looking to access alternative capital on the historic side of its business, having already used an element of guaranteed reinsurance in its own program and actively starting to explore side-type structures. cars or ILS to provide capital to help it do more.

On the legacy side, the ambition has been very clear, with executives having previously stated that “Our primary goal for the Legacy business is to add a recurring expense component to its revenue by managing the legacy business on behalf of the legacy business. of third parties. “

Which makes perfect sense, as R&Q can certainly increase its firepower by bringing third-party investors alongside it in legacy deals, helping it access larger deals, while potentially lowering its cost of capital.

But third-party capital is seen as having a dual role to play, both on the program management side and on the legacy side of the business at R&Q, providing greater opportunities for the business to structure something that could work longer term, on the legacy side, and shorter term on the program business side, it seems.

On the traditional business side, the use of capital by third parties continues to be explored, with discussions with investors likely underway.

Now might not be the easiest time to nudge third-party investors, or even ILS funds, into the traditional arena, given the uncertainty about the quality of reserves in many areas of the world. insurance, and given the now significantly firmer insurance and reinsurance market.

The ambition to generate fee income from this business is clear, however, with the company claiming that ultimately bringing in third-party investors with its legacy transaction stream can help improve its own returns. on capital.

Bringing efficient capital into this side of the business in the right structure can certainly reduce the cost of capital for R&Q, making its own firepower more efficient, while generating fee income that improves bottom line. same time.

On the program management side, alternative capital is seen as one of the sources of reinsurance capital that can support the growth of its program activities, under the Accredited brand.

The drive to access high quality underwritten business through managed programs is evident in the ILS market and, at present, can be an additional and often complementary, sometimes diverse, source of risk premiums. to be added to the guaranteed reinsurance portfolio constituted by renewal business.

This is where the dual role comes in, because for R&Q, the same sources of alternative capital can help increase efficiency on both sides of its strategy, benefiting the legacy transaction flow, while also providing reinsurance capital. effective in supporting MGAs and brokers in their program management side works with.

Which also means that if R&Q can successfully leverage third-party capital, it could offer multiple streams and strategies to investors, on the legacy side and the program side and maybe even a combined strategy where shorter-term activities on the side. program can help offset some of the extreme effects of legacy supported wallets.

This is why his ambitions in this area make a lot of sense. Although the business is likely to face the same challenges that everyone else does right now when it comes to raising capital.

But laying the groundwork for a more comprehensive third-party capital strategy will likely pay dividends for R&Q as investor appetite for direct access to insurance-linked returns returns after the pandemic, as has been shown. ‘waiting there.

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