Randall & Quilter – A niche operator with a great future ahead of it

Recent market conditions have been causing companies to look closer at the capital that they have tied up in their captives and considering the disposal of legacy liabilities. Randall & Quilter is there picking up the business that others need to get rid of, and profitably too, writes Mark Watson-Mitchell. 

This is not a case of taking a quick exit because you are scared – in fact, quite the opposite.

An insurance firm is considered to be in run-off when it has stopped issuing new contracts of insurance. It is the handling of its claims as they fall due over the next few years after close-off.

The global run-off market is worth over $800bn – with North America making up about half of the market, the UK and Europe some $300bn and Asia, South America and others the balance.

Headquartered and operating in Bermuda, Randall & Quilter Investment Holdings (LON:RQIH) is the leading non-life global specialty insurance company that focusses on program management and legacy insurance businesses.

The group, which was founded by Ken Randall and Alan Quilter in 1991, has extensive operations in the US and Europe. It is a major provider in the global insurance sector of finality solutions for run-off portfolios and program capacity for managing general agents and their reinsurers.

R&Q has a proven track record over three decades of acquiring discontinued books of non-life business and non-life (re)insurance companies and captives in run-off.

The group owns and manages a portfolio of insurance companies, both active and in run-off.

Its access to capital and the experience of managing run-off enables it to free management and investors from the cost and constraints of handling discontinued business.

Last year the group completed 16 legacy transactions, the biggest of which was the $80.5m acquisition of Global Re.

The group’s second core service is the provision of program management services. It acts as conduits between MGAs and other niche underwriters and their capital providers, such as (re)insurers. It provides the authorised insurance paper enabling insurance entrepreneurs to develop and build their businesses in partnership with their capital providers.

Capitalised at £350m, the group has 223.78m shares in issue of which Phoenix Asset Management Partners are the biggest holder (18.3%). Other large investors in the equity include Premier Miton Fund Managers (9.44%), Brickell Insurance Holdings (8.89%), Invesco Asset Management (7.89%), Standard Life Investments (7.86%), JO Hambro Capital Management (7.76%), Slater Investments (2.16%), and Amati Global Investors (2.12%).

Certain Board members are also significant shareholders including Ken Randall, chairman (5.14%), William Spiegel, deputy chairman (2.43%), and Alan Quilter, chief executive (1.41%).

An important fundraising in late April this year provided the company with a substantial $100m to boost its growth coffers. The fresh money came in from two parties, Brickell Insurance, who put in $80m into special preference shares which give the right to exchange into shares @ 135p each, together with Hudson Structured, who acquired 11.9m new shares @ 135p, giving them 5.6% of the increased equity.

That funding was raised at a propitious time in the group’s expansion plans: “It has become apparent that the market dislocation currently being experienced will only increase demand for the group’s specialist capabilities as the balance sheets of traditional insurance companies come under increased strain. The equity we have secured will enable us to proactively and quickly move to capitalise on these dynamics as the market seeks the solutions R&Q is able to provide.”

Evidence of this declaration has subsequently arisen, with various of the group’s three recently announced deals of captive legacy acquisitions – Texas Department of Insurance, NationsBuilders Insurance Company, and a Vermont-domiciled captive insurer – together with last week’s new program partnership with Massachusetts-based Surround Insurance Agency.

It also agreed to acquire from the BHP Group the resources group’s captive insurer – The World Marine & General Insurance Company.

Recent market conditions have been causing companies to look closer at the capital that they have tied up in their captives and considering the disposal of legacy liabilities. Randall & Quilter is there picking up the business that others need to get rid of, and profitably too.

The year to end-December 2019 saw the group much more than doubling its pre-tax profits to £40.12m (£14.25m), worth 21.4p in basic earnings per share, against 5.8p previously. It ended the year with an increased net asset value of 148.1p per share.

For the current year, estimates suggest only a small fall in profits to £37.2m, with earnings of 16.6p per share.

We will get a much better picture when the group announces its interim results in the middle of next month.

Just a year ago the group’s shares were on the run up from 150p to 216.5p. However, they fell to a low of 105p in late March before the 2019 results were announced in early June and their subsequent recovery to rest around the 156p level.

I see the shares rising back up to test the high scored last year. My short-term target price is 185p.