Randall & Quilter Investment Holdings Ltd Annual Report 2019

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FY2019 Annual Report · Randall & Quilter Investment Holdings Ltd

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RANDALL & QUILTER
INVESTMENT HOLDINGS LTD.
ANNUAL REPORT 2019

DELIVERING ON OUR STRATEGY
DELIVERING GROWTH

We are a unique global speciality
insurance company

Program Management and Legacy insurance
businesses are both well positioned to capitalise
on favourable market dynamics

Strong financial
track record

Market leader
in both Program
Management
and Legacy
businesses

Sizeable opportunity to grow
fee income by managing 3rd
party capital, attracted by
uncorrelated returns

Conservative
investment
strategy

Strong secular
growth in each
business, accelerating
post Covid-19

High barriers
to entry in both
businesses

Growing
fee-based Program
Management business
(similar to an
insurance broker)

Consistent
and high returns
on capital in
Legacy business
(a specialty insurer)

CONTENTS

2019 Highlights

STRATEGIC REPORT

Commentary on the Results for the Year

Report of the Executive Directors

CORPORATE GOVERNANCE

Board of Directors

Governance

Audit Committee Report

Remuneration & Nominations Committee Report

Risk Committee Report

Risk Management

Principal Risks and Uncertainties

Statement of Directors’ Responsibilities

FINANCIAL STATEMENTS

Independent Auditor’s Report

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Statement of Changes in Equity

Consolidated Statement of Financial Position

Consolidated Cash Flow Statement

Notes to the Consolidated Financial Statements

Shareholder Information

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Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

2019 HIGHLIGHTS

Financial, strategic and operational

Group
Financial Highlights

Continuing business PBT

Underlying profit growth of

£40.1m

180%

2019

2018

After-tax Profit

£38.9m

2019

2018

Earnings per share

21.4p

2019

2018

40.1

14.3

38.9

7.8

After-tax profit growth

399%

Investment return

3.6%

21.4

9.2

2019

2018

Net asset value per share

148.1p

Cash and investments

£832.2m

2019

2018

148.1

139.4

2019

2018

3.6

1.2

832.2

638.7

Operational and
post period end
highlights

• Successfully raised £103.5m
of equity in March 2019
• £76.9 million ($100m) of new
equity raised in May 2020 to
fund further growth

• Announced William Spiegel as
Executive Director and Deputy
Group Chairman in January 2020

• Announced Mike Walker as

Head of Legacy Operations in
January 2020

• Announced Tom Solomon as
Executive Director and Chief
Financial Officer in May 2020
• Announced Eamonn Flanagan
as Non-Executive Director in
May 2020

Outlook
• Existing strong pipeline of

opportunities in both Program
Management and Legacy,
enhanced by ‘hard’ market
created by Covid-19

Covid-19
• Limited impact on existing

business and investment portfolio
expected from Covid-19
• Business continuity plan
successfully implemented

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Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Program Management
Financial Highlights

Gross written premium

$369.3m

Premium growth of

147%

2019

2018

369.3

149.4

Economic EBITDA

$1.8m

2019

2018

1.8

(1.9)

Economic commission revenue

Commission growth of

$12.9m

148%

2019

2018

12.9

5.2

Operational

• Actioned a Brexit solution
through the creation of a
UK Branch of our Malta
program insurer.

Legacy
Financial Highlights

Growth in reserves

Operating return on capital

19.6%

(15)

2019

2018

19.6

16.7

31%

2019

2018

All $ shown are US Dollars

Operational

• 16 transactions completed,

including the largest acquisition
to date with the purchase of
Global Re at a cost of $80.5m.

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Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

STRATEGIC
REPORT

Commentary on the Results for the Year

Report of the Executive Directors

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Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Commentary on the Results for the Year

2019 was an outstanding year for R&Q and in 2020
our opportunity set continues to grow.

Ken Randall
Executive Chairman

We are pleased to report that 2019 was a
record year for the Group. Our pre-tax profit
was £40.1 million, our after-tax profit was
£38.9 million and our net asset value per
share (including return to shareholders)
increased by 13% to 148.1p per share.

At £40.1 million, our pre-tax profit was a
Group record and almost three times the
equivalent result in 2018. This was the result
of the continued growth in both our Program
Management and Legacy businesses
as we successfully executed against our
strategy and capitalised on the significant
opportunities in both segments.

Our Legacy business continued to thrive
in 2019 as we completed 16 transactions
including executing on two of the largest
transactions in R&Q’s history. Our 16
transactions contributed £332.2 million
of new cash and investments and £276.2
million of additional net reserves. Moreover,
our Legacy Operations team continued to
achieve claims and reserve savings from
portfolios acquired in prior years, while
our investments returned 3.6% on £832.2
million of cash and investments at year
end. Our investment portfolio continued to
be conservatively managed and at year
end 2019, we maintained a high quality
(90% investment grade) and short average
duration of 1.7 years. In 2019, our Legacy
business generated an operating return on
capital of 19.6% and over the past three years
we are proud to report that our operating
return on capital has averaged 17.6%. We
believe operating return on capital is one of
the most appropriate metrics to measure
the profitability and value of our Legacy
business. In any given year this metric records
the profits on new deals, the reserve changes
from prior year deals and the investment
income (excluding unrealised gains or losses)
associated with our total legacy portfolio.

Since late 2016, we have used our Legacy
business infrastructure to support the growth
of our nascent Program Management
business. Program Management is a fee-
based annual recurring commission revenue
business that is highly scalable. In 2019, our
gross premium written grew by 147%, from
$149.4 million in 2018 to $369.3 million in 2019.
This led to record Economic Commission
Revenue which grew by 148% from $5.2
million in 2018 to $12.9 million in 2019. We are
pleased to report that in 2019, we achieved
a critical milestone as we generated positive
Economic EBITDA of $1.8 million compared
with an Economic EBITDA Loss of $3.8 million
in 2018. We believe Economic Commission
Revenue and Economic EBITDA are two
of the most important metrics measuring
the underlying profitability and value
of our Program Management business.
During periods of high growth, we focus on
economic metrics more than IFRS metrics
because they reflect the economic value of
business already bound, regardless of the
length of the underlying policy period. When
growth in our business levels off, economic
and IFRS figures will converge.

In the first quarter of 2020, our Program
Management business continued to expand
with growth in our existing programs and
the addition of new programs, increasing
gross written premium to $478.4 million (on
an annualised basis), an increase of 30% from
year end 2019. Moreover, in the first quarter
of 2020, our Economic Commission Revenue
grew to $19.6 million (on an annualised
basis), an increase of 51% from year end 2019.
Our Program Management business has
significant built-in growth with its existing
distribution partners with whom we have
secured contracts which are expected to
generate up to $842 million of contracted
premium as of year-end 2019. Program
Management is highly scalable, and with
its current scale largely absorbing its fixed
overhead (on both an Economic and IFRS
basis), we expect a large portion of our future
commissions from new business to show
up as profit in 2020 and beyond.

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Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

2019

2018

49,662
40,125
40,126
38,845
21.4p

1,780,873
832,208
1,072,208
142,693
290,246

3.6%
13.9%
15.9%
124.6p
148.1p
134p
157.5p
9.9p

18,596
14,251
11,693
7,822
5.8p

1,197,573
638,672
699,078
140,243
175,638

1.2%
4.7%
5.4%
123.6p
139.4p
132.6p
148.4p
9.2p

In the first quarter of 2020, Covid-19 shut
down the world economy likely leading to
one of the largest insurance loss events on
record. This large capital event is likely to
accelerate the strong secular growth we
were already seeing in our two specialist
businesses, Program Management and
Legacy, as these businesses become a core
and growing part of the insurance industry.
In order to proactively capitalise on the
‘hard’ market in our two business lines,
in May 2020, we raised $100 million of new
capital. In our Legacy business we are
already witnessing increased opportunities
from insurance companies seeking to free-up
capital by divesting insurance reserves. In our
Program Management business we believe
we will be able to forge new origination
partnerships as existing insurance capacity
may not be able to continue to provide
capital support. Moreover, due to current
market conditions, we are bringing forward
our entry into the US Excess & Surplus (E&S)
Lines Program Management market, a large
addressable market in which we do not
presently compete.

Over the next few years we expect our
Legacy business to continue to provide
strong and consistent operating returns
on capital. Our key goal for the Legacy
business is to add a recurring fee component
to its income by managing legacy business
on behalf of third parties. There is a growing
demand from alternative capital providers,
such as pension funds, sovereign wealth
funds and family offices, for access to the
legacy insurance business we originate
and service. The demand is driven because
insurance liabilities are generally non-
correlated to other securities, such as stocks
and bonds. In our Program Management
business, which is already largely fee-based,
we expect to continue its rapid growth and
benefit from its scalable business model to
drive a large portion of future commission
revenue from new business, straight to the
bottom line. Our goals for the Program
Management business are by 2022/2023 to
have gross written premium of $1.5 billion

£000

Group results

Operating profit (continuing)
Profit before tax (continuing)
Profit before tax
Profit after tax
Earnings per share (basic)

Balance sheet information

Total assets
Cash and investments
Total gross reserves
Amounts owed to credit institutions
Shareholders’ equity

Key statistics

Investment return
Return on equity (average)
Return on tangible equity (average)
Net tangible assets (closing) per share
Net assets value (closing) per share
Net tangible assets (closing) + distribution per share
Net assets (closing) + distribution per share
Distribution per share (including bonus shares)

to $2 billion, to achieve approximately
80% pre-tax margins and to generate
Economic EBITDA in excess of $50 million.
We are excited about the future of both
of our businesses and believe we are well
positioned to achieve our goals.

2019 was an outstanding year for R&Q and
in 2020 our opportunity set continues to
grow. We will continue, as is our tradition,
to be patient and disciplined as we continue
to grow our businesses.

Ken Randall
Executive Chairman

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Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Report of the Executive Directors

Our business has grown consistently year over year, and
we are unique as the only program carrier that has an
AM Best A- credit rating in the US, the UK and Europe.

Ken Randall
Executive Chairman

William Spiegel
Deputy Executive Chairman

Alan Quilter
Chief Executive Officer

revenue earned on gross written premium).
Given the scalability of the Program
Management business, we expect a large
portion of additional commissions from
new business to drop to the bottom line.
Meanwhile, in 2019, our Legacy business
continued to generate high operating
returns on capital. In 2019, our Legacy
business generated an operating return on
capital of 19.6% and over the past three years,
it has produced an average operating return
on capital of 17.6%. We believe operating
return on capital is the most appropriate
metric to measure the profitability and value
of our Legacy business. In any given year this
metric records the profits on new deals, the
reserve changes from prior years’ deals and
the investment income (excluding unrealised
gains or losses) associated with our total
Legacy portfolio.

Program Management
Our Program Management business operates
in the US, the UK and Europe under the
banner of Accredited. We began developing
this business in late 2016 and our first real
year of operation was 2017. We identified
the importance and demand for program
management as we witnessed the growth in
the independent Managing General Agents
(MGA) channel and the increased demand
of reinsurers for premium. At the end of 2019
we produced gross written premium of
$369.3 million, up from $3.9 million in 2016,
and had established ourselves as a leading
program management company.

Our business has grown consistently year
on year, and we are unique as the only
program carrier that has an AM Best A- credit
rating in the US, the UK and Europe. In the US
we are licensed in all 50 states and in the UK/
Europe we are licensed to write all classes of
non-life business. In 2020, we will set up a fully
authorised UK branch to facilitate continued
access to the large UK market, post Brexit.
This branch will get the full benefit of
Accredited Malta’s A- rating from AM Best. In
the US, in 2019, Accredited (US) was upgraded
to an AM Best category IX Financial Strength.
This positive endorsement makes Accredited
one of the highest rated program managers
in the US and positions us well for continued
future success.

Financial Results
2019 was an exceptional year for R&Q both
financially and strategically. Financially,
we had our most profitable year ever,
increasing pre-tax profits by 180% to
£40.1 million, growing earnings per share
by 269% to 21.4p and increasing net assets
per share (including distributions) by 13%
to 148.1p.

Importantly, the strategic benefit of focusing
on two complementary high growth
specialty insurance sectors, Program
Management and Legacy, is becoming clear.
After three years of our Legacy business
infrastructure supporting our rapidly
growing fee-based Program Management
business, in 2019 we achieved an important
milestone as our Program Management
business generated an Economic EBITDA of
$1.8 million. During periods of rapid growth,
we believe Economic EBITDA more accurately
reflects the true underlying earnings power
of our Program Management business than
IFRS EBITDA. Unlike IFRS, Economic EBITDA
reflects the economic value of business
already written, regardless of the length
of the underlying policy period. This result
was produced by a 147% growth in gross
written premium to $369.3 million for the
year ended 2019 and a 148% growth in
Economic Commission Revenue (commission

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Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

We are in the process of preparing our first
application for an IBT into NLIC, with the
business coming from the Excess Casualty
Reinsurance Association (ECRA) pool that
we manage. The ECRA pool, which we
manage exclusively on behalf of the pool
members, comprises $1.4 billion of gross
liabilities and 150 participants, is ideal for
using the IBT process to obtain finality
for the ECRA pool participants.

We continue to see an increase in deal
sizes, which reflects both our increased
scale and the breadth of our platform.
The deal pipeline remains very healthy
and we envisage significant opportunities
arising from the current global Covid-19 crisis
with companies seeking capital efficiency
through the disposal of legacy liabilities.
These include commercial carriers or
syndicates suffering from investment losses
or unexpected claims development, or
cash-strapped industrial and commercial
business owners with trapped capital in
their ‘captive’ insurance subsidiaries.

Legacy Operations
After our Legacy M&A team completes
a transaction, our Legacy Operations
team leverages its considerable collective
experience to drive value. As well as
managing the typical processes necessary
in managing insurance businesses, the
team provides invaluable support to
the M&A team through due diligence,
development of claims strategy and
extracting additional value.

The Legacy Operations team has expertise
in managing post acquisition integration
and implementing strategies after a
transaction is completed. This was illustrated
in 2019 following the early May completion
of the Global Re acquisition, where we
successfully generated significant capital
releases of $6 million in 2019 and $6 million
in early 2020. Further releases from
Global Re are expected in 2020. A similar
result occurred following the acquisition of
Sandell Re, with $5.4 million released soon
after its acquisition. The team consistently
reviews its acquired portfolios, identifying
areas for reserve releases and strengthening,
where appropriate. The Legacy Operations
team is working on several other transfer and
consolidation projects including the Part VII
transfers of the Anglo-French portfolio and
preparing the Part VII process for the UK P&I
Club’s industrial disease exposures. These
benefit from the team’s deep experience
of managing such restructuring processes
effectively and efficiently.

The MGA/broker market in the US, UK and
Europe produces over $100 billion of annual
premium. In all of these jurisdictions, the
independent MGA channel, as a form of
insurance distribution, continues to grow.
This trend is occurring for a number of
reasons. First, insurance product distribution
is becoming increasingly specialised. Second,
underwriters have been leaving insurance
companies to own their own ‘non-regulated’
independent business. Finally, the InsurTech
boom has created a number of new tech-
enabled distribution companies. While not
all of the MGA/broker market is addressable
by the program management market,
the independent MGA channel has been
growing as a percent of the total market.
This is occurring because independent
MGAs seek stability in their insurance
company relationships and working with
a program manager, as opposed to a
competing insurance company, meets that
need. Independent MGAs are finding that
partnering with program managers, as
opposed to competing insurance companies,
provides a powerful way for them to retain
more control over their future growth and
success. A recent example of the trend is
the move by Lloyd’s to cease underwriting
certain classes of business, which has
resulted in underwriters leaving to join
existing MGAs or starting new ones.

The other major trend that is increasing
demand for program managers is that
reinsurers are earning less premium on large
programs that are increasingly retained
by primary insurers. By working with a
program manager, a reinsurer can access
premium directly maintaining a good source
of premium growth. We partner with many
of the world’s largest and most important
reinsurers and are pleased to be working in
collaboration with such high profile partners.

In the fourth quarter of 2016, as we were
just launching our Program Management
business, we had partnerships with two
MGA’s. Over the past three years our business
has grown and we now have 30 MGA
partnerships in seven countries. In 2020,
we expect to add programs in four more
countries. As we have added partnerships we
have also grown the number of business lines
in which we provide coverage. From just two
business lines in 2016, we now offer program
management for 17 different classes of non-
life Property & Casualty business in the US,
UK and Europe and we expect to add more
classes of business in 2020.

Given the size of the market opportunity, we
currently face limited competition, in part
because of the high barriers to entering
the program space. To compete one needs
at least an A- rating, a strong capital base,
licenses and the ability to execute with both
MGA and reinsurance partners. In the US, UK
and Europe there are only a small number of
well-capitalised program managers with the
ratings and financial strength of Accredited.
We believe our A- rating, our strong capital
base and our reputation for robust due
diligence and oversight has given both MGAs
and reinsurers confidence in our business.

As discussed above, in 2020 we are actively
working on the launch of our US E&S Lines
Program Management business. Entering
the E&S market will complete Accredited’s
strategic initiative to be a comprehensive
program management solutions provider
in all its major global markets.

Legacy M&A
Legacy business has been at the core of
the Group for almost 30 years. Over the
last 10 years we have completed 102
transactions in 18 countries (35 different
regulatory jurisdictions) and acquired
£620 million of reserves, making R&Q
a market-leading solutions provider
in the legacy insurance market.

2019 was another busy year. We completed
16 transactions, assumed £276.2 million of
net reserves and delivered a 19.6% operating
return on capital. Deals were executed in
Bermuda, Barbados, Ireland, UK, Sweden and
several US states and included a wide array
of transaction size and structure including:
• the Group’s largest deal, the acquisition

of Global Re, a New York domiciled carrier
which has been in run-off since 2002
• a significant reinsurance deal for two
Joint Power Authorities – Northern
California Regional Liability Excess
Fund and Statewide Association of
Community Colleges

• a large loss portfolio transfer for a

Lloyd’s syndicate.

A significant advantage we possess in the
legacy market is the breadth of our platform.
We offer a full range of solutions to our clients
– we have rated and fully licensed carriers in
the US, UK and Europe, a Class 3 Bermudian
reinsurer, a Bermudian segregated
accounts company, a Lloyd’s platform and
consolidation vehicles in Guernsey, Isle of
Man and Vermont. To broaden our platform
we recently launched National Legacy
Insurance Company (NLIC) in Oklahoma to
benefit from the Insurance Business Transfer
(IBT) legislation recently enacted in that
state. IBT is similar to the Part VII transfer
process that exists in the UK and is an area
where we have extensive experience.

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Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Report of the Executive Directors continued

The future is bright for R&Q. We are a unique global specialty
insurance business that is well positioned for future growth
and profit. We remain market leaders in both of our businesses,
demand for our services is strong and increasing post Covid-19.

Cash and Investments
The investment team works closely with
the Legacy M&A team, assisting with deal
pricing and ensuring that new portfolios
are on-boarded and invested as soon
as possible after a deal closes. The
management of our investment portfolio is
outsourced, and during 2019 we completed
a consolidation of our investment managers,
reducing the number of external managers
to three.

Our investment portfolio performed well
in 2019, generating a net investment return
of 3.6% compared with 1.2% for the year
ended 2018. We earned this higher return
on a larger investment portfolio as our cash
and investments increased to £832.2 million
at year end 2019 from £638.7 million at the
end of 2018. The addition to our investment
portfolio was primarily from the 16 legacy
deals closed during the year as well as the
£103.5 million equity raise in March of 2019.

We maintain a conservative portfolio with
a minimal allocation to equities and other
risk assets. As of year-end 2019, 95% of our
portfolio was rated BBB or better (including
62% in AAA rated securities), the average
duration was 1.7 years, 78% of the portfolio
was US Dollar denominated, the book yield
was 2.21% and the Yield to worst was 1.64%.
An important investment metric is our
investment/equity ratio. This ratio increased
slightly over the year to 2.5x at year end 2019
from 2.4x at year end 2018.

This conservative positioning of the portfolio
helped us weather the market volatility that
resulted from the onset of Covid-19. As of
30 April 2020, the year-to-date performance
of the portfolio, on a mark to market basis,
was a small decline of 1.2%, representing a
loss of £8.2 million, driven by unrealised losses
of £13.4 million, partially offset by realised
gains and income of £5.2 million. We believe
we are well positioned to take advantage
of opportunities generated by the current
Covid-19 crisis, as well as to protect our
balance sheet should there be further
volatility going forward.

External Borrowing
In August 2019, in order to support our
continued growth, we increased our bank
debt facility to £62.5 million, with a five-
year maturity. In addition, we also raised
subordinated debt, which at year end
totalled £89.6 million and matures over
the next three to eight years.

Return to Shareholders
We are pleased to continue our history of
paying a return to shareholders, although
this year, in light of the wider macro
environment and regulatory pressure, our
return will be in the form of ordinary shares.
The Board is recommending an award
to shareholders of 1 ordinary share in the
capital of the Group for every 22 ordinary
shares already held, to be issued on or
around 15 July 2020.

Brexit
It would be remiss not to mention Brexit and
how we have prepared for the UK’s split from
the European Union. Accredited Europe,
which is domiciled in Malta, has written
a considerable volume of UK Program
Management business that it would not
be able to write after Brexit due to the
cessation of the cross-border capabilities
afforded under EU membership. In order
to continue writing UK business, Accredited
has set up freedom of establishment in the
UK, effectively a branch operation under
EU directives, and an application has been
submitted to the PRA for this to become a
fully authorised third country branch. This
branch will get the full benefit of Accredited
Malta’s A- rating from AM Best. Not only will
this enable Accredited to continue to write its
current UK program business, but it provides
opportunities for it to pick up new business
from European program managers that
have decided not to create a UK branch.
With regard to legacy operations, the UK
branch provides the platform for Accredited
to continue to manage its UK legacy liabilities
and utilise its financial strength rating to
provide exit solutions for UK businesses that
would no longer be able to access European
run-off vehicles.

Management Succession and Staffing
As a leadership team we are focused on
addressing management succession.
We continue to recruit and attract
exceptional talent, which is a sign of our
thriving and vibrant business. Our team is
filled with strong young insurance leaders
who are making us more agile, creative
and profitable.

In 2019 and 2020, as part of our succession
planning, we announced that William
Spiegel was joining as Executive Director
and Deputy Group Chairman, Mike Walker
was joining as Head of Legacy Operations
and Tom Solomon was joining as Executive
Director and Chief Financial Officer. William,
Mike and Tom all have considerable
insurance experience in their prior roles
and position us well for the future.

Notwithstanding our ability to recruit new
talent, we want to single out the three
longstanding members of our senior
management team who are stepping back:
Mike Glover, Chief Governance Officer, has
been with us for 17 years and will continue
to provide consultancy services for a period
of time; Pam Hoelsken, President of R&Q
America Holdings Inc., will be retiring in June
after 21 years; and Mark Langridge, who was
previously a board member and Head of
Legacy, will after 13 years at R&Q continue
in a part-time capacity. We want to thank
each of them for their contributions and role
in helping shape R&Q. Mike, Pam and Mark
have each set a standard of professionalism,
ethical behaviour and entrepreneurialism,
and that is part of their legacy.

Like most people around the world, the
lives of all of us at R&Q have been upended
over the last few months. We have had to
quickly change the way we live – working
from home and grappling with the inherent
complexities that have arisen in the ‘new
normal’. We would like to thank all members
of our R&Q family for their unrelenting effort
and dedication during this difficult time. With
all our offices closed, the resilience of the R&Q
team has been tested, and it has passed
with flying colours.

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Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

is currently a balance sheet business and it
exhibits many of the same qualities of the
leading specialty insurance companies –
strong non-cyclical growth with high returns
on capital. Our Program Management
business is a fee business and it shares
many of the same attributes as commercial
insurance brokerage firms – recurring annual
revenue and high pre-tax margins.

Over the next few years we expect our
Legacy business to continue to provide
strong and consistent returns on capital
deployed. Our key goal for the Legacy
business is to add a recurring fee component
to its income by managing legacy business
on behalf of third parties. There is a growing
demand from alternative capital providers,
such as pension funds, sovereign wealth
funds and family offices, for access to the
legacy insurance business we originate
and service. The demand is driven because
insurance liabilities are generally non-
correlated to other securities, such as stocks
and bonds. In our Program Management
business, which is already largely fee-based,
we expect to continue its rapid growth and
benefit from its scalable business model to
drive a large portion of future commission
revenue from new business, straight to the
bottom line. Our goals for the Program
Management business are by 2022/2023 to
have gross written premium of $1.5 billion
to $2 billion, to achieve approximately
80% pre-tax margins and to generate
Economic EBITDA in excess of $50 million.
We are excited about the future of both
of our businesses and believe we are well
positioned to achieve our goals.

Ken Randall
Executive Chairman

William Spiegel
Deputy Executive Chairman

Alan Quilter
Chief Executive Officer

Outlook and Covid-19
Our success in 2019 was generated without
the backdrop of the ‘hard’ market in
both our businesses created by Covid-19.
Covid-19 has sent shock waves through the
insurance market with loss estimates in the
$100 billion range, likely making Covid-19
one of the largest insurance loss events on
record. Unlike a normal industry loss event,
the insured losses from Covid-19 will cut
across many lines. In addition to insured
losses, insurance companies are suffering
investment losses, adding to the magnitude
of the capital losses for the insurance
industry associated with the pandemic.

We believe our businesses are well
positioned to withstand the impact of the
pandemic. The reason for our confidence
is because our existing Legacy books have
limited exposure to unexpired risk, our
Program Management portfolios are largely
reinsured with highly rated counter-parties
(93% of our reinsurance is with carriers
rated A- or better and 90% is with carriers
rated A or better) and our investment
portfolio is conservatively positioned with
a short average duration and a high quality
investment-grade fixed income.

The new environment does of course present
some risks. We face risks from unanticipated
exposure to valid claims in respect of
Covid-19, from delays in completing
transactions, from reduced economic
growth slowing demand for insurance,
from dislocations in the capital markets,
and finally from our regulators and rating
agencies increasing capital requirements for
our industry (as was the case in the lending
industry after the great Financial Crisis).

However, we believe the capital dislocation
in the insurance industry will accelerate the
significant secular growth we were already
seeing in both businesses. It was for this
reason that we raised $100 million of new
capital in May 2020. The opportunities for
growth in each of Program Management
and Legacy businesses are outlined below:
• Program Management:

• Significant embedded growth from
our existing 30 partnerships with
MGAs. As of 31 December 2019, these
MGA partners have told us they
expect premium from their programs
to reach $842 million annually of
which, as of 31 March 2020, $478 million
has been written. We anticipate much
of the remainder to flow in the next
couple of years

• Large pipeline of existing US and

European business totalling $1 billion
of Gross Premium. We continue to
witness increasing demand in all our
markets given our leadership position
and lack of competition in both the US,
UK and European markets

• Increase in our addressable market

by entering the US E&S Lines program
management market in late 2020/
early 2021. The US E&S market had
approximately $40 billion of written
premium in 2019. We will primarily
leverage our existing Program
Management infrastructure to grow
this business

• Growth in our UK Program

Management business, post Brexit, by
creating a UK branch of our European
Program Management company
• Increase our presence in Italy with
the establishment, in June 2020, of
an Italian branch

• Collaboration with strong MGAs, who,
as a direct result of Covid-19, may
find their existing capital providers
facing capital pressure and unable
to support their growth

• Increase in commission revenue as
insurance premiums increase in the
‘hard’ insurance market.

• Legacy:

• Growth in the demand for Legacy is

being driven by the increased pressure
on insurers to seek capital efficiency
from the growing regulatory capital
pressure on reserves

• Growth in demand, particularly

post Covid-19, for exit solutions from
cash-strapped owners of ‘captive’
insurance companies seeking to
free up available liquidity from their
captive subsidiaries. R&Q is already
the market leader in this field
• Increase in the number of legacy
opportunities post Covid-19, as the
reduced capital position of the
industry forces insurance companies
to seek access to the Legacy markets
to fill capital holes

• Opportunity to improve operating

returns on capital, post Covid-19, due
to the excess demand for Legacy
solutions

• Increase the size of the opportunities
upon which we can complete, by
using sidecars and other third-party
partnerships. As a manager of
third-party capital, we would expect
to be paid fees for sourcing and
managing these transactions.

The future is bright for R&Q. We are a unique
global specialty insurance business that is
well-positioned for future growth and profit.
We remain market leaders in both of our
businesses, demand for our services is strong
and increasing post Covid-19 and there
are high barriers to entering our markets.
We are a combination of both a balance
sheet business and a fee-based recurring
commission business. Our Legacy business

12
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

CORPORATE
GOVERNANCE

Board of Directors

Governance

Audit Committee Report

Remuneration & Nominations Committee Report

Risk Committee Report

Risk Management

Principal Risks and Uncertainties

Statement of Directors’ Responsibilities

14
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Board of Directors

There were five regular meetings at which attendance
was 94% in 2019. The Board was flexible and responsive to
business need and attended additional meetings from time
to time during the year.

A Audit Committee

R Remuneration & Nominations Committee Rx Regulatory Committee

Ri Group Risk Committee

Re Reinsurance Asset Committee

C Group Capital & Investment Committee

D Group Disclosure Committee

Ken Randall (72)

Executive Chairman

C D Rx

Alan Quilter (69)
Chief Executive Officer

C D Rx Ri Re

William Spiegel (57)
3
Deputy Executive Chairman

C Rx

Skills & Experience
Ken Randall is the Executive Chairman of
the Randall & Quilter Group, having stepped
back from the position of Chief Executive
after 29 years. He has been a pioneer
in the acquisition and management of
discontinued business.

Ken founded Eastgate Group with
Alan Quilter in the mid-1990s after leaving
the Lloyd’s Market. Over the next eight
years they developed Eastgate into the UK’s
third-party provider of insurance services
with 1,300 employees and a turnover of £80
million per annum. Following the sale of
Eastgate to Capita PLC in November 2000,
Ken and Alan refocused the Randall & Quilter
Group onto the acquisition of non-life legacy
run-off portfolios.

Ken led the Randall & Quilter Group
admission to AIM in 2007 and remains a
significant shareholder. He was the driving
force in the Group’s new strategic focus
in 2017.

Ken has worked in the insurance industry
for more than 45 years. During the early
1980s, Ken was Head of Market Regulation
at Lloyd’s, then a self-regulated institution,
before becoming Chief Executive of a leading
Lloyd’s Insurance Group.

Skills & Experience
Alan Quilter is the co-founder of the Randall &
Quilter Group and the Chief Executive Officer.

A Chartered Accountant, Alan has been
a driving force in the development of the
Randall & Quilter Group, including the
Company’s admission to AIM in 2007.

Alan has worked in the London insurance
market since 1969. Between 1980 and
1987, he headed the Market Financial
Services Group at Lloyd’s before becoming
Managing Director of a specialist investment
management company focused on
investment markets in the UK. Alan joined
Ken Randall as Chief Financial Officer of the
Eastgate Group, the predecessor company
to the Randall & Quilter Group.

Alan has led a number of substantial
equity and debt fundraises for R&Q which
provided the cornerstone for the significant
transformation in R&Q’s strategy. He also
oversaw the successful sale of a number
of non-core operations which realised
substantial funds to fuel its growth.

Skills & Experience
William Spiegel joined R&Q as Executive
Group Deputy Chairman in January 2020.
William has over 30 years’ experience in
the financial services sector with particular
expertise in insurance and reinsurance
services. He joins from the US private
equity firm US Pine Brook where he
was a managing partner and which he
co-founded in 2006. William was responsible
for managing Pine Brook’s financial services
investing activities. He was also a member
of the firm’s Investment Committee and
Management Committee.

A significant part of William’s career has
focused on building and growing insurance
companies in both the US and the UK. He
has, through his work in private equity, been
a founding investor and/or board member
of many successful insurance companies
including Catlin Group, Clear Blue Insurance
Group, Essent Group, Fidelis Insurance, Global
Atlantic Financial Group, Lancashire Group,
Montpelier Re, Narraganset Bay Insurance
and Third Point Reinsurance.

Prior to co-founding Pine Brook, he was
with The Cypress Group from its inception in
1994 until 2006, leading its financial services
and healthcare investing activities. Prior to
Cypress he worked in the Merchant Banking
Group at Lehman Brothers. He has served on
the board of directors of over 20 companies,
including eight publicly traded corporations.
William is currently a member of The Polsky
Council of The University of Chicago Polsky
Center for Entrepreneurship and Innovation,
and its Private Equity Council.

Joanne Fox (56)

Non-Executive Director

A R Ri Re

Alastair Campbell (75)

Non-Executive Director

A R

Philip Barnes (59)
Non- Executive Director

A R Ri

Skills & Experience

Jo Fox is a finance professional with over 30
years’ experience at board and management
levels, having qualified as a Chartered
Accountant with Arthur Andersen in 1990. Jo
has worked in the insurance industry since 1996
when she worked for Liberty Risk Services, and
later with International Insurance Company
of Hannover and Lancashire Insurance. More
recently, Jo was Chair and non-executive
director of R&Q Managing Agency Limited,
which was acquired by Coverys in 2017.

Jo has held five FCA/PRA posts (two European
risk carriers, a London Market Intermediary
and two Lloyd’s Managing Agents). In addition
to her board experience Jo has chaired Audit,
Risk and Capital and Compliance Committees
and was Chair of the IUA Solvency Working
Group from 2014 to 2016.

Skills & Experience
Alastair Campbell qualified as a Chartered
Accountant in 1968 then worked with PKF
Littlejohn LLP, becoming a partner in 1970.
Between 1984 and 1998 he acted as Senior
Partner and Chairman of the firm.

Skills & Experience
Philip Barnes is a Chartered Accountant
and has worked in the insurance industry
for the past 35 years. Philip is the President
of the representative office of the Jardine
Matheson Group of Companies in Bermuda.

During his 40 years as a partner, he acted for
a wide range of commercial entities, mainly
in the service sector. Throughout his career he
has been involved in the London insurance
market and has extensive experience of
advising on acquisitions and disposals,
investigation work and giving advice at
Board level.

Following his retirement in 2010, he has
worked as an independent consultant
and expert witness on accounting
related projects.

A Fellow of the Institute of Chartered
Accountants in England & Wales, Philip
qualified with a national firm of accountants
in the UK before continuing his career
with Deloitte in Bermuda. He then joined
Alexander & Alexander which was
subsequently acquired by the global broker
Aon. During his 25 year career with Aon, Philip
oversaw the growth and development of the
Bermuda office into the leading manager
of captives and reinsurance companies on
the island.

Philip has served on various industry and
Government advisory committees over
the years. He currently holds a number of
non-executive directorships of Bermuda
insurance and reinsurance companies.

Eamonn Flanagan (57)
Non-Executive Director

Eamonn began his career with Royal Insurance, where he
qualified as an actuary, before moving to the capital markets as
Director and Head of European Insurance at a leading investment
bank. Eamonn co-founded Shore Capital Markets, a respected
independent securities business, where he was a director and
senior adviser. He was a highly rated insurance analyst and
received numerous awards in the London insurance market.

Eamonn is to be appointed to the Board in June 2020 and is
also a non-executive director of AJ Bell PLC, a technology driven
investment platform.

Eamonn is a Fellow of the Institute of Actuaries and a Fellow the
Institute of Directors.

16
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Governance

The Board is committed to upholding high standards of
corporate governance, to protect and grow shareholder
value, and to engage with the Group’s stakeholders in
a fair and transparent manner.

Beverley Murphy
Group Company Secretary

Chairman’s Introduction
On behalf of the Board, I am pleased to
present the corporate governance report for
the year ended 31 December 2019. The report
explains how the Board operates and how
corporate governance is addressed at R&Q.
During the year, the Company continued to
follow the Quoted Companies Alliance code
for small & mid-sized companies, which we
believe remains appropriate to the size and
nature of our business. Disclosures required
by the QCA code have been made both in
this Annual Report and on our website.

One of the notable developments in 2019 is
the progress made in succession planning
and towards my own retirement in 2021.
I am delighted that we were able to appoint
William Spiegel as my successor as Group
Chairman, and Jo Fox as non-executive
director, to the Board. These appointments
have made a significant contribution to how
we maintain a balanced and effective board,
as described in more detail on page 18.
I am also looking forward to welcoming
Eamonn Flanagan to his first meeting of the
Board on appointment as non-executive
director and to Tom Solomon who is joining
us as Chief Financial Officer.

We are fully conscious of the ever-
increasing interest from investors and other
stakeholders in a wide range of stewardship
matters including environmental, social and
governance (ESG) issues, reflecting matters
of concern globally in current times. In the
pages that follow, we have described our
ethical values and behaviours and how we
take into account our stakeholder and social
responsibilities in our disclosures against
the QCA Code principles. We are giving
careful thought on how to move forward
with ESG in a way that is appropriate and
meaningful for our staff, our business and all
our stakeholders.

1. Vision and Strategy
The Company’s mission is to deliver on
our core strategy of providing program
management services to Managing General
Agencies and their reinsurers, and of creating
legacy solutions to owners of discontinued
insurance businesses. By focusing on these
high growth markets, we provide our investors
with complementary revenue streams,
regular and stable fee income from program
business and the capital extraction from
managing legacy portfolios. Our mission is
underpinned by our strategic objectives.

The Group’s strategic objectives are:
• to acquire or reinsure run-off insurance
companies and portfolios in the United
States, United Kingdom and European
Union to produce attractive book value
growth and cash returns

• to develop Accredited Surety & Casualty
Company, Inc., our A- rated United States
carrier, into a fronting platform of choice,
generating substantial repeatable
fee income

• to develop Accredited Insurance (Europe)
Limited, our A- rated carrier, into a conduit
for niche European and United Kingdom
Managing General Agency business
to highly rated reinsurers, generating
substantial repeatable fee income.

The key challenges that the Company
faces in the execution of these objectives
include: the identification of suitable pipeline
opportunities in the core areas; the quality of
potential partners; ensuring appropriate due
diligence; timely capital raising, and ongoing
investment in management bench strength
and infrastructure to underpin growth.

These and other risk-related matters are
continually monitored by the Group’s risk
management function which reports
regularly to the Group Board via the Group
Risk Committee.

Ken Randall
Executive Chairman

17
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

There have been a number of board appointment
changes since our last Annual Report and the Board
is now refreshed and in good shape to lead the Group
in the next stages of its development.

In relation to our employees, we have made
significant improvements in reducing the
gender pay gap, the gender bonus gap
and in increasing the proportion of women
receiving an annual bonus in comparison to
the previous year. The mean gender pay gap
reduced significantly from 37.37% to 29.96%.
Although, with fewer than 250 employees at
the relevant date, we were not required to
publish a gender pay report, we have done
so in the interests of full transparency.

Other key resources and relationships
which are important to our business,
and with whom the Group is in frequent
communication, include regulatory
authorities in various jurisdictions and US
States, our joint venture partners, our primary
bank the Royal Bank of Scotland, AM Best,
and our auditors and external legal advisers
to name a few.

Due to the nature of the Group’s businesses,
the Board considers that its impact on the
environment is minimal and of low risk.
However, it seeks to minimise environmental
impact through good practice such as
reducing paper wastage, use of electronic
communications and reducing business
travel by making maximum use of telephone
and video conference arrangements.

The Group and its core businesses continue
to take risk, in order to attain rewards in
an informed and controlled manner. This
translates into having regard to both
potential upside and downside risk, in
the context of the overall Group strategy,
that aims to optimise return on equity and
shareholder value within the Group’s defined
risk appetite.

The overall risk strategy is underpinned by a
number of core risk objectives which set the
boundaries in order to meet the expectations
of capital providers and other stakeholders.

The core objectives of the Group’s Risk
Strategy are as follows:
• protect the capital base by supporting
the implementation of a Solvency II (or
equivalent) compliant framework where
appropriate

• enhance value creation
• support decision making and improve
and maintain transparency and
accountability for risk throughout the
Group by way of comprehensive risk
reporting and control

• protect R&Q’s reputation and brand.

Understanding and Meeting
Shareholder Expectations

Feedback from investors is obtained through
direct interaction with Ken Randall, the
Chairman, and also William Spiegel, the
Deputy Chairman and Alan Quilter, the
Chief Executive Officer. The voting record
at the Company’s general meetings is
monitored and we are pleased that all
resolutions proposed in 2019 were passed
by shareholders. There is regular dialogue
through the medium of the Company’s
corporate brokers, Numis Securities and
Shore Capital, and the Company seeks to
take the pulse of shareholder expectations
and reactions through its retained advisers.

To request a meeting please contact
secretariat@rqih.com

The Company believes that by
communicating its strategic and financial
objectives on a regular basis, shareholder
expectations can be appropriately managed.

3. Stakeholder and Social Responsibilities
We are developing our approach to
environmental, social and governance
responsibilities.

Specific activities we have undertaken include:
• developing fair and equitable employee

practices

• minimising environmental impacts
through recycling and by reducing
reliance on paper documentation in
favour of electronic communications
• collecting and donating workwear and
interview clothing to assist vulnerable,
unemployed and low-income men and
women to get into employment in the
City of London

• involvement in community activities

and encouraging our employees to give
back through volunteering programs
associated with, in particular, the
insurance sector.

The Board is aware of the impact that its
business activities have on the communities
in which the Group’s businesses operate.
The Group’s responsibilities to stakeholders
including staff, suppliers, customers and
wider society are also recognised through
the Group’s policies on, for example, modern
slavery, data protection, whistleblowing and
diversity. As an insurance business, our key
resources are essentially people and capital;
the business model recognises the need for
access to a skilled employee base, access
to skilled intermediaries and a strong
capital position.

18
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Governance continued

Our employees are key to the continued success of our
business and we actively promote their development
and ongoing improvement.

4. Embedding Effective Risk Management
Our approach to risk management and the
principal risks to our business and the actions
we take to mitigate them are set out in pages
32 to 41 of our Annual Report. The Chairman
of the Group Risk Committee has provided a
report on the Committee’s activities during
2019 on pages 30 to 31.

The Group has a mature risk management
framework and function, led by the Chief Risk
Officer who has responsibility for monitoring
and reporting on the Group’s principal risks
together with their mitigation. The Chief Risk
Officer also attends the Board meetings
of the Company and each of its key
operating subsidiaries.

As the Group is entrepreneurial and operates
in a multi-jurisdictional and highly regulated
environment, the Board, via the Group Risk
Committee and the Risk Management
function, has embedded effective risk
management within the Group’s culture,
to underpin and support the execution
of its business strategy.

The Risk Management section on pages
32 to 33 (incorporated into this governance
section by reference) provides an overview
of the Group’s risk management framework,
including a description of what the Board
does to identify, assess and manage risk in
addition to the Group’s principal risks and
uncertainties, and a description of its risk
appetites and its adherence to them.

The Board considers that the controls in
place during 2019 were and continue to be
relevant, proportional and appropriate
for the needs of the Group, and in addition
are sufficiently flexible to evolve with the
changing needs of the business.

The Board has ultimate responsibility for
the Group’s system of risk management
and internal control and has delegated
responsibility for overseeing the
management of risk to the Group Risk
Committee, chaired by an independent
non-executive director. Accordingly,
the Board ensures that the Group’s risk
management framework identifies and
addresses all relevant risks in order to
execute and deliver strategy. This includes
not only the Group and its subsidiary
companies but also its extended business,
including key outsourcers, its supply chains,
and its distribution channels. The Group Risk
Committee provides a report of its activities
to the Board each quarter.

Delivering strategy includes determining the
extent of exposure to the identified risks that
the Group can bear and/or is willing to take
by way of risk tolerance and risk appetite.

As mentioned above, the Group’s approach
to risk management together with its
identified principal risks and uncertainties,
their possible consequences and mitigation
are set out in the Principal Risks &
Uncertainties section. Through the Group Risk
Committee, the Board reviews, evaluates and
prioritises risks to ensure that appropriate
measures are in place to effectively manage
and mitigate those identified, so that the
Group risk taking activity remains within its
stated risk appetite.

5. Board Balance
As at 31 May 2020 the Board comprised three
non-executive directors and three executive
directors. There have been a number of
Board appointment changes since our
last Annual Report and the Board is now
refreshed and in good shape to lead the
Group in the next stages of its development.
With Ken Randall intending to retire from
the Group in 2021, we are continuing with
our succession planning and our search for
further appointees to enhance the breadth,
strength and diversity of the Board.

The Chairman of the Board, Ken Randall,
leads the Board in the determination of
its strategy and in achieving its objectives.
He is not considered to be independent. In
July 2019, Ken stepped back from his role as
Chief Executive Officer as part of initial steps
towards his eventual retirement.

In January 2020, the Board was delighted
to welcome William Spiegel as Deputy
Executive Chairman with the intention that
William will assume the position of Executive
Chairman when Ken steps down. William
is focusing on strategic development and
expansion of the Group and is gradually
taking on more responsibilities from Ken.
William brings many years of expertise in
managing and growing leading UK and US
insurance businesses to the Group as well
as his extensive leadership experience.

In July 2019, Roger Sellek was appointed to
the Board as Joint Chief Executive Officer,
sharing the role with Alan Quilter. Following
his departure in January 2020, Alan Quilter
continues as Chief Executive Officer.

19
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

In May 2019, the Board appointed Jo Fox,
our first female board member. She brings
considerable experience in syndicates and
underwriting business, and Solvency II, as
described in more detail on page 15 and
complements the overall balance of the
Board. Jo is making a positive contribution
to the deliberations of the Board and has
taken on the role of chairing the Group’s
Reinsurance Asset Committee.

In December 2019 Mark Langridge stepped
down from his position as director and
continued in a part-time executive role, and,
after many years of service to R&Q, Michael
Smith also retired as a director. We will soon
welcome Eamonn Flanagan to the Board,
who has considerable experience within
insurance and capital markets, to be our
fourth non-executive director. Tom Solomon,
who is joining us as Chief Financial Officer,
will also be appointed to the Board.

Directors who have been appointed to
the Board have been chosen because of
the skills and experience they offer. With
regard to the non-executive directors, this
includes extensive experience in the fields
of accountancy and insurance. The skills
and experience of each of the directors give
them the ability to constructively challenge
strategy and to scrutinise performance.
The Company has adopted a board diversity
policy which seeks to improve the diversity
amongst its members, including gender
balance, in its future appointments.

The Board considers each of the non-
executive directors to be fully independent.
The Board gives regard to the overall
effectiveness of the contribution made by
each non-executive director and does not
consider a directors’ period of service in
isolation to determine their independence.

The Senior Independent Director is Alastair
Campbell, who took up this appointment in
December 2019, following Michael Smith’s
retirement. His role is to provide a sounding
board for the Chairman, to act as an
intermediary for the other directors where
necessary and to provide an additional
channel for shareholder communication.

All of the executive directors work full time
for the Company. Directors are expected to
attend all meetings of the Board and the
Committees on which they sit, and to devote
sufficient time to the Company’s affairs
to enable them to fulfil their duties. In the
event that directors are unable to attend a
meeting, their comments on papers to be
considered at the meeting will be discussed
in advance with the Chairman so that their
contribution can be included in the wider
board discussion. All of our directors will
stand for re-election at our next AGM.

6. Board Skills and Capabilities
Directors’ details and biographies are on
pages 14 to 15.

We encourage all directors to keep their skills
and knowledge up-to-date and will provide
individual directors with any training they
need. Sessions are held between the Board
and management during which in-depth
presentations covering areas of the Group’s
business are made. In 2019, the Board has
received briefings or training on: the UK
Market Abuse Regulation; the new IFRS17
requirements; cyber risk and security and the
opportunities for technological innovation
to drive business growth. The Company
Secretary provides updates during the year
on any significant developments in legal,
governance and compliance areas.

New directors complete an induction
program tailored to their existing knowledge
and experience.

We have an open and transparent approach
to management information, with the
Chairman and Chief Executive Officer
providing business updates and insights
in their regular reports to the Board. This
ensures that the directors have a thorough
understanding of the Group’s operational
activities, the regulatory environment that
affects the Group, subsidiary company
performance and investor relations.

We recently conducted an analysis of
the skills and experience of the individual
directors on the Board and will use this
information in the consideration of future
Board candidates.

7. Evaluating Board Performance
Having undertaken a board evaluation in
2018, the Board adopted the three actions
to be addressed during 2019. The success in
implementing these actions is reported
in the table below.

The Board decided not to conduct a further
evaluation in 2019, in view of the recent
changes in composition of the Board, to
allow time for the new directors to establish
themselves in their roles, and to allow the
Board to evolve to reflect their combined
skills and experience. The timing of the next
evaluation will be kept under review.

Agreed personal objectives and targets
including financial and non-financial metrics
are set out each year for the executive
directors and performance is measured
against those metrics and overseen by the
Remuneration and Nominations Committee.

20
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Governance continued

Category

Strategy and
management

Approval of the Group’s long-term objectives and commercial strategy; approval of the Group’s annual budgets
and any material changes to them; extension of the Group’s activities into new business or geographic areas;
cessation of the operation of all or any material part of the Group’s business; overseeing the Group’s operations,
the risk management strategy, ensuring competent and prudent management, sound planning, and compliance
with statutory and regulatory obligations.

Structure and capital

Changes relating to the Group’s capital structure; major changes to the Group’s corporate or management
and control structure; changes to the Company’s listing.

Financial reporting
and controls

Approval of the following: annual report and accounts; preliminary announcements of results; significant changes
in accounting policies or practices; treasury policies; material unbudgeted capital or operating expenditure;
declaration or recommendation of shareholder distributions.

Contracts

Contracts of the Company or any subsidiary in the ordinary course of business material strategically or by reason
of size (e.g. bank borrowings and material acquisitions or disposals of fixed assets); contracts not in the ordinary
course of business; major investments.

Communication

Approval of resolutions, circulars, prospectuses and press releases concerning matters decided by the Board.
Ensuring a satisfactory dialogue with shareholders based on the mutual understanding of objectives.

Board membership
and other appointments

Changes to the structure, size and composition of the Board; ensuring adequate succession planning for the Board
and senior management; Board appointments; selection of the Chairman and Chief Executive; appointment of
a senior independent director; membership and chairmanship of the Board committees; continuation in office
of directors; appointment or removal of the Company Secretary; appointment, reappointment or removal of the
external auditor to be put to shareholders for approval.

Remuneration

Approving the remuneration policy for the non-executive directors, Company Secretary and other senior
executives; introduction of new share incentive plans or major changes to existing plans.

Delegation of authority

Establishing board committees and approving their terms of reference. Receiving reports from the Board
committees and their actions. Division of responsibilities between the Chief Executive and other executive officers
which should be clearly established, set out in writing and agreed by the Board.

Corporate Governance

Undertaking any formal and rigorous review of the Board’s own performance, that of its committees and
individual directors, and the division of responsibilities; determining the independence of non-executive directors;
review of the Group’s overall corporate governance arrangements; authorising conflicts of interest where
permitted by the Company’s bye-laws; considering the balance of interests between shareholders, employees,
customers and the community; receiving reports on the views of the Company’s shareholders to ensure they are
communicated to the Board as a whole.

Policies and procedures

Approval of all Group-wide policies including those contained in the Group’s System of Governance document,
which includes, inter alia, policies related to aspects of the Market Abuse Regulation, anti-bribery policy,
whistleblowing policy and health and safety policy.

Miscellaneous

Oversight of the Group’s overall corporate governance arrangements; the prosecution, defence or settlement of
major litigation other than in the ordinary course of business; major changes to the rules of the Group’s pension
scheme or change of trustees or changes in the fund management arrangements; approval of the overall levels of
insurance for the group (including directors’ & officers’ liability insurance); any changes to this schedule of matters
reserved to the Board.

The operation of the Board is documented
in a formal schedule of matters reserved for
its approval, set out above, which was last
reviewed in December 2019.

9. Board Structures and Processes
The Board is responsible for the Group’s
strategy and for its overall management. Our
governance structure is designed to help the
Board lead the Company within a framework
of prudent and effective controls that enable
risk to be assessed and managed. In 2019,
the Board held five regular meetings and
scheduled 13 additional meetings to discuss
specific matters such as the 2019 budget,
fund raising and M&A opportunities.

22
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Governance continued

We promote diversity in our workforce and wholly
support equal opportunities in employment.

The following table sets out the attendance of the Company’s directors at scheduled board & committee meetings during 2019.

Scheduled
Board
Meetings

Audit
Committee

Remuneration
& Nominations
Committee

Risk
Committee

Reinsurance
Asset
Committee

Disclosure
Committee

Capital &
Investment
Committee

Regulatory
Committee

Executive Directors

Ken Randall

Alan Quilter

Mark Langridge
(resigned
13 December 2019)

5/5

3/5

Roger Sellek
(appointed 18 June 2019)

3/3

Non-Executive
Directors

Philip Barnes

Alastair Campbell

Michael Smith
(resigned
6 September 2019)

Joanne Fox
(appointed 3 May 2019)

3/4

2/4

2/2

4/4

1/1

4/4

1/2

3/4

2/3

2/2

5/5

4/4

5/5

4/4

5/5

4/4

3/3

2/2

At each meeting, the Board considers
directors’ conflicts of interest. The Company’s
bye-laws provide for the Board to authorise
any actual or potential conflicts of interest.
The Board is aware of the other interests
and commitments of its directors and
changes to these commitments and interests
are reported by the directors. A review of
directors’ conflicts is conducted annually.

The Board has a schedule of regular
business, financial and operational matters
and each Committee has compiled a
schedule of work to ensure that all areas
for which the Board has responsibility are
addressed and reviewed during the course
of the year.

The Chairman, aided by the Company
Secretary, is responsible for ensuring that
the directors receive accurate and timely
information. The Company Secretary
compiles the Board and Committee papers
which are circulated to the directors prior to
the meetings. The Company Secretary also
ensures that any feedback or suggestions for
improvement on board papers is fed back
to management. The Company Secretary
provides minutes of each meeting and every
director is aware of the right to have concerns
minuted and to seek independent advice at
the Group’s expense where appropriate.

The Board considers that the Group’s
governance framework is appropriate and
in line with its plans for growth. The System
of Governance report, which is approved
by the Board, is submitted to the Bermuda
Monetary Authority on an annual basis.

Board Committees
The Board delegates certain matters to the
Audit, Remuneration & Nominations, Risk,
Reinsurance Asset, Capital & Investment,
Regulatory and Disclosure Committees as
well as to ad hoc committees of the Board
authorised to deal with specific matters
from time to time according to business
need. All Board and Committee members
are provided with sufficient resources to
undertake their duties, including access
to internal and external specialist advice
at the Company’s expense.

The terms of reference of each committee
are available at www.rqih.com/investors/
shareholderinformation/boardcommittees

No independent external advice was sought
by the Board or its Committees during
the period.

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Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Disclosure Committee
The Executive Chairman, the Chief Executive
Officer and the Company Secretary are
the current members of the Disclosure
Committee. The Committee’s purpose is
to review the operation, adequacy and
effectiveness of the Group’s disclosure
procedures and to assist the Board in
fulfilling its responsibilities under the Market
Abuse Regulation, AIM Rules and Disclosure
Guidelines and Transparency Rules. The
Disclosure Committee met formally on four
occasions in 2019. In addition, disclosure
matters and share dealing applications
were reviewed regularly throughout the year.

Regulatory Committee
In 2019, this new committee of the Board was
established to act on behalf of the Board in
relation to regulatory and statutory matters
that require acknowledgment, variation,
approval or submission by the Company to a
competent regulatory body or governmental
agency. It also oversees the regulatory
relationships between local regulatory
authorities and the Company and the
subsidiaries within its Group supervision.

The Regulatory Committee meets to consider
matters within its terms of reference where it
is not practical to convene a full meeting of
the Board or where a response or submission
is required by a Regulator or other statutory
body outside of the normal cycle of meetings.

The members of the Committee are the
executive directors of the Company and the
Chief Governance Officer. The Committee
held one formal meeting in 2019.

10. Communicating with Stakeholders
The Board recognises the importance
of effective communication with its
shareholders. The Group maintains
communication with institutional investors
through individual face-to-face meetings
with executive directors, particularly
following publication of the Group’s interim
and full year results. Private shareholders
have the opportunity to attend the Annual
General Meeting at which questions can be
answered. A range of corporate information
(including copies of investor presentations
and announcements, and an overview of
activities of the Group) is available on the
Group’s website. The Group lists contact
details on its website should shareholders
wish to communicate with the Board, or with
its brokers Numis Securities and Shore Capital.

Reinsurance Asset Committee
The Reinsurance Asset Committee (RAC) is
chaired by Jo Fox and comprises the Chief
Financial Officer, Head of Legacy and the
Head of Claims and Reinsurance.

The RAC monitors and reports on the Group’s
owned insurance company reinsurance
assets and recommends actions to protect
such assets. The RAC also reviews bad
and doubtful debt provisions proposed by
the Group’s owned insurance companies,
the levels of concentration of risk placed
with reinsurance companies/groups and
reinsurance litigation/arbitration and
commutation activity.

The RAC meets at least quarterly and
provides a report on its activities to the
Board. It met four times in 2019.

Capital & Investment Committee
The Group Capital & Investment Committee
(GCIC) comprises the executive directors and
the Chief Actuary. It is chaired by the Chief
Financial Officer.

The GCIC’s primary purpose is to oversee
the Group’s capital management, to
monitor Group Solvency requirements
and the Group’s investment strategy and
implementation. The GCIC also ensures that
the necessary financial, legal, regulatory,
commercial and personnel due diligence
has been undertaken on acquisitions,
portfolio transfers and similar investments
or structures.

The GCIC has a standing agenda for
its quarterly meetings and also meets
frequently to consider M&A transactions and
investment opportunities. During 2019 the
Committee reviewed 49 proposed Program
Management and Legacy transactions,
conducted a review of the Group’s retained
investment managers and proposed a
new Group investment strategy which was
adopted by the Board. It also received
regular presentations from its Investment
Managers on the performance of the R&Q
funds and their views on the market outlook
and future positioning.

Audit Committee
The Audit Committee is chaired by Alastair
Campbell and its other members are Philip
Barnes and Jo Fox. The Audit Committee
has primary responsibility for ensuring that
the financial performance of the Group
is properly measured and reported on.
It receives and reviews reports from the
Group’s management and Auditor relating to
the annual accounts and the accounting and
internal control systems in use throughout
the Group. It also advises the Board on the
appointment of the Auditor, reviews their
fees and discusses the nature, scope and
results of the audit with the Auditor. The Audit
Committee meets at least four times a year
and has unrestricted access to the Group’s
Auditor. The Chief Executive Officer and
Chief Financial Officer attend the committee
meetings by invitation.

The Audit Committee Report on pages 24 to
27 contains more detailed information on the
Committee’s role.

Remuneration & Nominations Committee
The Remuneration & Nominations
Committee (RemCo) has been chaired by
Alastair Campbell since Michael Smith’s
retirement at the end of 2019. Its other
members are Philip Barnes and Jo Fox.
The RemCo reviews the performance
of the executive directors and makes
recommendations relating to their
remuneration and terms of employment.
RemCo also has responsibility for senior
management succession planning. The
Chairman, Deputy Chairman, and the Chief
Executive Officer are invited to attend for
some parts of the committee meetings
where their input is required although they
do not take part in any discussion on their
own benefits and remuneration.

The Remuneration & Nominations
Committee Report on pages 28 to 29
contains more detailed information on
the Committee’s role.

Risk Committee
The Risk Committee is chaired by Philip
Barnes and its other members are Jo Fox,
Alan Quilter and Susan Young, the Chief
Risk Officer. The Chief Governance Officer,
Chief Actuary and the Head of Internal
Audit also attend. The Risk Committee
has responsibility for overseeing the
management of risk across the Group,
and maintaining the effectiveness of the
Group’s risk management framework,
systems of internal control, risk policies and
procedures and adherence to risk appetite.
The Committee meets at least quarterly and
provides a report on its activity to the Board.

The Risk Committee report on pages 30 to 31
contains more detailed information on the
Committee’s role.

24
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Audit Committee Report

I am pleased to present this report on behalf of the Audit Committee.
The report sets out the ways the Committee has discharged its
responsibilities and the significant issues it has considered
during the year.

Alastair Campbell FCA
Chair of the Audit Committee

Responsibilities and Activities during 2019
The principal responsibility of the Committee
is to monitor the integrity of the financial
statements of the Group. In addition, the
Committee reviews the performance
of the external auditors and makes
recommendations to the Board on their
appointment. It is also responsible for the
planning and professional work of the
Internal Audit team, and has oversight of
the systems of internal control established
throughout the Group.

The Committee has an oversight role in
relation to risk management, whistleblowing,
fraud and bribery and corruption.

Financial Statements
The Year Ended 31 December 2018
The Committee reviewed in detail the financial
statements for the year ended 31 December
2018. We were satisfied that they showed
a true and fair view of the profit for the year
and the financial position at that date.

In our review we focused primarily on
the main areas of judgement within the
financial statements:
• we considered the need for impairments
of goodwill and intangibles: we received
a paper from Finance supporting their
view that no impairment was required.
Support was gained for this view from
the fact that the goodwill subsequently
realised in cash from the disposal of the
Insurance Services division was sufficient
to cover the carrying value in the financial
statements

The Committee
The Committee operates under written
terms of reference which were reviewed
and updated in November 2019. A copy
of the current document is disclosed on
the Company’s website at www.rqih.
com/investors/shareholderinformation/
boardcommittees

Philip Barnes and I served on the Committee
for the whole of 2019; Jo Fox was appointed
to the Committee on 3 July 2019. In addition,
Michael Smith was a member until he
stepped down as a director in September
2019. The names, and brief biographical
details of the current members are shown
on pages 14 to 15.

All of the current members of the Committee
are qualified chartered accountants.
Philip Barnes has been fully involved in the
insurance industry largely outside the United
Kingdom, Jo Fox has also spent her career
largely in finance in the insurance industry.
I have spent the great majority of my working
life in professional practice as an auditor
and adviser involved inter alia in the London
insurance market. I believe the members are
well qualified to address the scope of the
Committee as set out in the terms of reference.

The Committee met five times in 2019.

Generally at each meeting, the executive
directors, including the Executive Chairman,
and relevant members of Finance attend
by invitation. In addition, other senior
management attend from time to time to
present specific reports, such as the Chief
Actuary, the Head of Internal Audit, the Chief
Risk Officer, the Head of Tax and the Head of
Information Technology.

The Committee reserves the right to meet
without management present if required.
That did not prove to be necessary in 2019.

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Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

I believe the members are well qualified to
address the scope of the Committee as set
out in the terms of reference.

• we reviewed the evidence to

support the carrying values of claims
reserves and reinsurance recoveries:
we received a detailed presentation
from the Chief Actuary covering the
entities in the Group which carried
the more significant reserves

• we received details from Finance of

the fair values of assets and liabilities
acquired with acquisitions and any
negative goodwill arising. Similarly, we
considered the fair values arising from
legacy reinsurance contracts

• we reviewed the accounting policies
and satisfied ourselves that they are
appropriate for the Group financial
statements

• we received a detailed report from

Finance which supported the decision to
adopt the going concern concept when
preparing the Group financial statements

• we considered a report from the legal

department which set out the legal and
contractual exposures to warranties,
indemnities and guarantees; we
concluded that there was no evidence to
require any provision or specific disclosure
other than as made or stated in the
Group financial statements
• we reviewed further reports from

Finance which supported their view and
treatment of various other matters, such
as the amount of the deferred tax asset
and the adequacy of anticipated future
investment income to offset future run
off costs

• we received a report from the Head of
Internal Audit which confirmed that in
the course of the work of Internal Audit
nothing had come to their attention
to suggest that there had been any
significant breakdown in the system
of internal controls during the year.

Finally, we received a detailed report and
briefing from the external auditor, PKF
Littlejohn LLP (PKF), which set out their
findings from their audit work on the Group
financial statements. Their report included
such matters as their assessment of and
audit approach to the key audit areas, the
significant risk areas and other areas of audit
focus, their work done and their findings,
any changes to their audit plan and their
confirmation that they were independent
in the context of their professional ethics.
They confirmed that they intended to report
in unmodified terms and were satisfied that
the financial statements showed a true
and fair view.

We considered and approved the letter of
representation requested by the auditors
to support the financial statements. We
approved their fees for their audit work
on the 2018 financial statements.

We reviewed PKF’s management letter
following the 2018 audit and approved
management’s responses.

The Interim Results to 30 June 2019
We reviewed in detail the interim financial
statements for the six months ended on
30 June 2019. We were satisfied that they
showed a true and fair view of the result
for the period and of the financial position
on that date.

The nature of our enquiries was similar to
the bullet points set out above. In addition,
we received a detailed report and briefing
from the external auditors which set out
their findings from their review work. They
confirmed that they intended to report in
unmodified terms.

We considered and approved the letter
of representation requested by the auditors
to support the interim financial statements.

The Year Ended 31 December 2019
We received a detailed report and
presentation from the external auditors
on their planning for their audit of the 2019
Group financial statements. We agreed
with them their assessment of the key audit
matters, the significant risk areas and other
areas of audit focus, together with their
planned audit responses. We accepted
their materiality level for their audit. We
approved their letter of engagement
and their estimate of the likely audit fees.
We discussed with PKF their independence
and objectivity and were satisfied by
their assurances.

We also received a report from Finance
setting out their planning for the preparation
of the consolidated financial statements.

IFRS 17
The Committee is monitoring the progress
of the Group towards the introduction
of IFRS 17. The introduction of this Standard
has recently been deferred to 1 January
2023 which provides a little more time for
preparing for this substantial project.
This new accounting standard will have a
major impact on accounting in the insurance
industry and on the Company’s reported
results. A high-level briefing was given to
the Board at its December meeting which
highlighted a number of areas where
important judgements will be required
in the presentation of financial information.

26
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Audit Committee Report continued

Internal Audit enquires into activities and
the operation of internal controls across
the Group both in the UK and overseas.
Copies of each report are seen by the
Chair of the Committee and executive
summaries are forwarded to other members
of the Committee. Copies of the reports or
executive summaries are also issued to the
executive directors as deemed appropriate
by the Chair.

An annual work plan is prepared which
seeks to review all major areas of the Group
every three years. The plan is subject to
variation in the light of events only with the
approval of the Chair. The plan is based on
the principal risk areas of the business, and
is prepared following discussions with senior
management, chairs of the audit committees
throughout the Group and the external
auditors. The 2020 plan and the related
budget was discussed and approved by
the Committee.

Taxation
The Audit Committee has an oversight role
in relation to taxation matters. During the
year we received regular reports from the
Head of Tax on developments in tax law
and practice across the group. Particular
attention has been paid to the requirements
of the Corporate Criminal Offence legislation
to ensure compliance with HMRC guidelines.

External Auditors
The appointment of PKF as external auditor
was last formally considered in 2015 in the
context of a rotation of the audit partner.
Their re-appointment is considered each
year and we recommended to the Board
their re-appointment for the 2019 audit.

We also reviewed the appointments of other
auditors of certain overseas subsidiaries.

PKF attended meetings of the Committee
three times in the year and presented their
audit and review findings and plans as set
out above.

We review the performance of PKF as the
external auditors each year. The review
takes the form of an internal questionnaire
completed by relevant management and
members of the Committee covering all
main areas of the audit. We also received
from PKF details of their own quality control
procedures. In each of the last three years
the result of the review has been satisfactory
with no significant issues raised. Some minor
matters have been discussed with PKF with
a view to their resolution.

The Committee has reviewed its guidelines
in relation to the provision by the external
auditor of non-audit services; the general
principle continues to be that such work
shall be confined to assurance work and
that no other work shall be carried out
unless the fees involved are small or the
work has been approved by the Chair of the
Audit Committee. As shown at Note 9 of the
financial statements the fee income relating
to non-audit services is small.

Internal Audit
The Company operates an Internal Audit
team which is supported by co-source
arrangements where they are justified
by a need for specialist skills in particular
areas. During 2019 the resources of the
team were reviewed in the context of
the audit plan; the budget and the
Committee’s recommendation that, in
view of the expansion of the Group’s
activities, particularly in the United States,
the team should be increased by one
person, was accepted by management
and implemented.

Internal Audit works under a formal, written
Charter and reports to the Committee on
its professional work. The Head of Internal
Audit reports to the Committee four times
each year on its activities and on its progress
against the annual work plan. Within those
reports the Committee receives a status
report of the follow up by management of
Internal Audit recommendations. The Head
of Internal Audit attends meetings of the
Committee as required to present his reports
and answer questions from the Committee
and the Chair regularly meets with him
informally to discuss any issues arising.

27
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

The Committee also received a report from the Chief
Governance Officer which confirmed that no instances
had been reported in 2019 relating to whistleblowing,
fraud or bribery and corruption.

Governance
Internal control systems are the responsibility
of management and are reviewed by the
Risk Committee. The Audit Committee has
an oversight role and received a report
from the Chief Risk Officer on the activities
of the Risk Committee. This confirmed that
it had operated effectively and unfettered
throughout 2019 and had operated within
its terms of reference. There were no issues
or areas where there were significant
shortcomings to be brought to the attention
of this Committee.

The Committee also received a report
from the Chief Governance Officer which
confirmed that no instances had been
reported in 2019 relating to whistleblowing,
fraud or bribery and corruption.

Review of the Committee’s
Own Performance
During 2019 the Committee carried out a
review of its own performance. It scrutinised
the range of matters considered and the
scope of the work done. The conclusions were
favourable. It was felt that the work of the
Committee was appropriate and there were
no recommendations to widen the scope
of the terms of reference or to spend more
or less time on particular areas. There was
felt to be no need to hold a further review in
2020 but that reviews should continue to be
periodic per the Terms of Reference.

Planned Activity During 2020
The current plan for 2020 pays continuing
attention to the developing Program
Management business in order to ensure
and give reassurance that an appropriate
internal control environment is in place and
operating effectively.

In addition, the Committee will continue
to monitor the Group’s financial and
operational plan for the impact of IFRS 17,
which will be effective for the first time for
the Group in its 2023 financial statements.

The Committee will review the financial
statements published during 2020 and will
consider the other areas as set out above.
In particular the Committee will monitor the
impact of Covid-19 on the Group’s business
and its ability to continue as a going concern.

Due to the restrictions imposed as a result of
Covid-19 I will be unable to attend our AGM
in June, however I will be happy to answer
any questions arising from the work of the
Committee at any time.

Alastair Campbell FCA
Chair of the Audit Committee

28
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Remuneration & Nominations
Committee Report

I am pleased to present this report on behalf of the Remuneration
and Nominations Committee. The report sets out the ways the
Committee has discharged its responsibilities and the significant
issues it has considered during the year.

Alastair Campbell FCA
Chair of the Remuneration
and Nominations Committee

The Committee
The Committee operates under written
terms of reference; they were reviewed and
updated in December 2019 and may be seen
on the Company’s website at www.rqih.com/
investors/shareholderinformation/board
committees

Until September 2019 this Committee was
chaired by Michael Smith. When he stepped
down as a director in September 2019 I was
appointed by the Committee as acting chair
pending the appointment of a replacement
independent director. In addition to Michael
and I, two further independent directors
were members being Philip Barnes and,
from 3 July 2019, Jo Fox.

The names and brief biographical details
of the current members of the Committee
are shown on pages 14 to 15 of the Annual
report. I believe the members have a broad
experience of business life, particularly in the
insurance industry, and are well qualified to
address the scope of the Committee’s work
as set out in the terms of reference.

The Committee has five scheduled meetings
each year. In addition, it meets as and when
appropriate, usually on specific matters.

Ken Randall, the Executive Chairman,
attends most meetings by invitation. The
Chief Executive Officer also attends meetings
by invitation when appropriate, as does the
Head of Human Resources.

Aims and Duties of the Committee
The over-arching aim is to act in the best
interests of the Company’s shareholders and
the Group’s employees, clients and, where
appropriate, other stakeholders with whom
it deals such as policyholders, reinsurers
and regulators, whilst having regard to the
relevant legal and regulatory requirements
and to guidance offered by the QCA Code.

Remuneration
The overall objective in relation to
remuneration is to attract, retain and
motivate executive management of the
quality and experience required to run the
Company successfully. This must be done
without paying more than necessary, having
regard to the interests of shareholders and
other stakeholders, the risk appetite of
the Company and its long-term strategic
goals. Generally, a significant proportion of
remuneration should be structured so as
to link rewards to corporate and individual
performance and sound risk management.
Its other objectives are:
• to set the overall remuneration policy
for the executive directors and senior
management. ‘Remuneration’ for this
purpose includes salaries, bonuses,
pension arrangements, compensation
payments, incentive arrangements and
all other means of rewarding employees
of the Company

• to approve the total individual

remuneration package of each executive
director and the Executive Chairman,
and of senior management, in all cases
having regard to the international nature
of the business and local practices and
conditions, and pay and employment
arrangements across the Group

• to review and approve any performance-
related pay or share incentive plans.

Nominations
In relation to nominations, the Committee
keeps under review the structure and
membership of the Board, including
Committees of the Board, and seeks to
ensure effective leadership and succession
in the Board and in the senior management
team. The main aims and duties of the
Committee with regard to nominations
may be summarised as follows:
• to review the structure, size, composition,

skills and experience of the Board,
including its knowledge and diversity,
and keep under review the leadership
and succession needs of the organisation,

29
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

I believe the members have a broad experience of
business life, particularly in the insurance industry,
and are well qualified to address the scope of the
Committee’s work as set out in the terms of reference.

both executive and non-executive, with
a view to the continued ability of the
organisation to compete effectively
in the marketplace

• to make recommendations as to the

reappointment or otherwise of directors
at the annual general meeting, the
continued appointment of directors
having regard to their performance
and abilities, and the appointment of
non-executive directors to Board and
other committees of the Company

• to make recommendations to the Board
concerning candidates to fill Board
vacancies as they arise and specific
Board appointments.

Significant Activities in 2019
In addition to routine matters, the Committee
reviewed its Terms of Reference to ensure
they continue to reflect the nature and style
of the business and comply with relevant
laws and guidance; it also undertook the
following specific activities:

Remuneration
• approved the 2018 bonus arrangements

for executive directors and senior
management. All bonus arrangements
are discretionary and are subject to
the recommendation of the Executive
Chairman and the approval of the
Committee. Performance targets are
agreed with each individual which have
regard to personal, divisional and Group
performance. Maximum bonuses are
generally capped at 100% of salary but in
some cases at 200%. Bonus payments are
phased over three years and are subject
to clawback arrangements, and are
non-pensionable. The Group does not
operate any long-term incentive plan or
share option scheme

• approved the proposals from the

Executive Chairman in the 2019 review
of salaries for executive directors and
senior management.

Nominations
• recommended the appointment of
Jo Fox as a new independent non-
executive director and her appointment
to this Committee, the Audit Committee,
the Risk Committee and to the
Reinsurance Asset Committee. Jo had
previously been a non-executive director
and chair of the Audit Committee of our
former managing agency company and
her skills and experience were already
well known to us

• recommended the appointment of

Roger Sellek as a Director and Joint Chief
Executive Officer and approved the terms
of his employment and his remuneration
• approved and monitored the changes
to the top management structure
effective from July 2019, when Ken Randall
stepped down as Chief Executive Officer
whilst continuing in the role as Executive
Chairman, and Alan Quilter and Roger
Sellek were appointed as Joint Chief
Executive Officers, including approving
their respective job specifications
• recommended the appointment of
William Spiegel as a Director and
Executive Deputy Chairman, and
approved the terms of his employment,
his remuneration and his job specification

• carried out a self-assessment review of
the skills and experience of the Board of
directors. The review indicated that the
Board has good financial and personal
skills, and good all-round experience.
We will be looking to broaden the range
of skills when considering succession and
recruiting additional directors; including
legal and remuneration committee
experience in the non-executive field
and underwriting and program business
skills in the executive field

• monitored progress in the recruitment to
fill various senior management positions.

Priorities for 2020
Specific matters which have been or will
be addressed during 2020 are:
• the recruitment of a new chief financial
officer to take over that role currently
being undertaken by Alan Quilter. The
Committee has recently recommended
to the Board that Tom Solomon should
be appointed to that role

• the recruitment of one or more non-

executive directors. The Committee has
recently recommended to the Board that
Eamonn Flanagan should be appointed
as a non-executive director. He has
extensive experience as an analyst
specialising in the insurance industry
and brings with it an investor’s viewpoint.
More details to be found on page 15
• monitoring the installation and settling

in of the new Deputy Executive Chairman
together with any consequential changes
in senior management responsibilities
• monitoring the effects of the Covid-19
pandemic on the management of the
Group and the steps being taken to
mitigate contingencies and to ensure
a safe working environment.

Due to the restrictions imposed as a result
of Covid-19 I will be unable to attend our AGM
in June, however I will be happy to answer
any questions arising from the work of the
Committee at any time.

Alastair Campbell FCA
Chair of the Remuneration
and Nominations Committee

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Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Risk Committee Report

I am pleased to present the Risk Committee report. Once again, I can
report a productive year for both the Committee and the Group Risk
function as the risk management framework has developed and adapted
alongside the evolving risk profile of the Group.

Philip Barnes
Chair of the Group Risk Committee

Role and Responsibilities
The Risk Committee is principally responsible
for oversight, on behalf of the Board, of the
management of risk across the Group and
its managed operations and for ensuring
that activities are appropriately integrated
and aligned. In pursuance of this objective,
it ensures that all regulatory and reporting
obligations for the management of risk
are met.

In addition, it ensures that the Group’s risk
management framework operates effectively
in embedding risk management throughout
the Group and its extended business. It
identifies and addresses all risks pertinent
to the delivery of the Group’s strategy,
determines relevant appetites and tolerances
for those identified risks, and makes proposals
on risk appetite and tolerance to be put
forward to the Board for approval.

Its responsibilities extend to reviewing
Group level summary risk management
information, to suggesting and approving
modifications and to monitoring the
implementation of any remedial action.
It formally reviews and approves, on behalf
of the Board, appropriate Group-level
policies and approves the associated
processes, procedures, controls and
templates established for the purpose
of risk management and internal control.

New risks are considered on an ongoing
basis, as well as the continuing fitness and
relevance of existing statements. The risk
appetite framework is reviewed annually
for ongoing appropriateness in the context
of the Group’s strategic objectives.

A detailed description of the Group’s
principal risks and uncertainties appears
on pages 34 to 41.

The report sets out the ways the Committee
has discharged its responsibilities and the
significant issues it has considered during
the year.

The Committee
The Committee operates under written
terms of reference which were reviewed
and updated in February 2020. A copy
of the current document is disclosed on
the Company’s website at www.rqih.
com/investors/shareholder information/
boardcommittees

The Committee is made up of two
non-executive directors, myself and
Jo Fox, Alan Quilter and Susan Young.
Alan Quilter, Susan Young and I served
on the Committee for the whole of 2019;
Jo Fox was appointed to the Committee
on 3 July 2019. Where relevant, the names
and brief biographical details of the
current members are shown on pages 14
to 15. All of the Committee members are
qualified professionals with extensive
experience in the insurance sector blending
finance, business, audit, risk management,
governance and executive and
non-executive expertise.

The Committee meetings are also attended
by Ken Randall, the Executive Chairman, the
Chief Governance Officer, the Group Chief
Actuary and the Group Head of Internal
Audit. Other non-members are invited to
attend all or part of any meeting as and
when appropriate.

The Committee meets quarterly and
provides a report on its activity to the Board,
including an overview of its immediate and
upcoming risk management priorities.
Susan Young, Chief Risk Officer, presents
a report which includes a commentary on
the Group’s evolving risk profile, which is
articulated via a suite of risk appetite and
tolerance statements. Each Committee
meeting selects a particular topic as an
area of focus and conducts a ‘deep dive’
into that area from both a strategic and
a risk management perspective.

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Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Each Committee meeting selects a particular topic as an
area of focus and conducts a “deep dive” into that area
from both a strategic and a risk management perspective.

Committee Effectiveness Review
Overall, the Committee considered that
it operated effectively during 2019. The
Committee has considered how best to
benchmark itself against emerging best
practice and will consider the recently
published Risk Coalition guidance, in
conjunction with the requirements of the
QCA Governance Code. A high-level review
against the draft requirements was carried
out as part of the formal consultation
process for the Risk Coalition guidance and
the Committee will look to formalise this in
2020. Structured guidance is expected from
the Risk Coalition shortly.

Planned Activity for 2020
In 2020, the Committee plans to oversee the
further embedding of the emerging risks
process and focus on one identified area at
each meeting, such as climate change and
pandemic risk. We will also be reviewing the
Group’s readiness for the adoption of IFRS 17
and the Group’s processes and procedures
around the management of strategic and
change risk and how this is managed. We will
continue to enhance the Group’s risk appetite
metrics and alignment with the Group’s risk-
based capital models, and later in the year,
will consider, in the context of the current
Covid–19 pandemic, how the principles
outlined in PRA Consultation Paper 29/19 on
Operational Resilience have been applied
across the Group.

Philip Barnes
Chair of the Group Risk Committee

Activities, Significant Issues
and Considerations During 2019
At each meeting, the Committee considered
a report from the Chief Risk Officer with
an update on the principal risks and
uncertainties of the Group, an update on
Group Supervision and regulatory matters
and an update on strategic priorities from
the Chief Executive Officer.

During 2019, the Committee reviewed and
focused on the following topics:
• EU Economic Substance – the Committee
reviewed and monitored the EU Economic
Substance legislation and its applicability
to the Group holding company and
its Bermuda domiciled entities and
operations

• investment and market risk – one of

the Group’s key strategic priorities has
been to investigate the enhancement of
existing yields on its portfolios without
taking undue risk, in the ongoing low yield
environment. The Committee heard how
the overall control environment in this
area had been enhanced and improved
including realignment of investment
managers and reinvestment of
available funds

• emerging risks – the process for
identification, assessment and
monitoring of emerging risks was
formalised during 2019 and the
Committee approved a new framework
for this purpose. We heard the output
from the inaugural Focus Group meeting
covering the identified emerging risks
and their applicability to the Group
• reinsurance counterparty risk – the

Committee reviewed proposals for the
enhancement of the processes for the
assessment, monitoring and reporting
of reinsurance counterparty risk as the
reinsurance asset of the Group becomes
more significant with the onboarding
of new program business.

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Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Risk Management

The Group is entrepreneurial and innovative and hence
the risk management and internal control framework
needs to be dynamic and agile, as well as robust.

Susan Young
Chief Risk Officer

The following overarching
process is adopted.

Overall Responsibility for
Risk Management
The Board and senior management
appreciate that ongoing success depends
upon its collective understanding and
management of the Group’s known risks
and exposures.

The Board has responsibility for ensuring
that the Group has an appropriate and
proportional approach to risk management
and internal control across the Group, and
that this approach is both pervasive to
the Group’s activities and aligned with the
overall corporate strategy.

The risks facing the Group continue to
evolve and increase or decrease in potential
impact and probability of crystallisation
over time. The Group is entrepreneurial and
innovative and hence the risk management
and internal control framework needs to
be dynamic and agile as well as robust.
This requires the management of risk and
uncertainty to be ongoing and iterative
and to be able to respond to the emergence,
development and crystallisation of both
new and existing risks.

The Group is responding to the actual and
potential impacts on its business, both
upside and downside, from the global onset
of the Covid-19 pandemic. The Group’s risk
management framework and reporting
mechanisms have adapted to address
these challenges and this is described in more
detail both in the Report of the Executive
Directors, and later on in this Section.

Risk Management Framework
and Risk Management Function
The Group has a mature risk management
framework and risk function headed by the
Chief Risk Officer.

The Group risk function is responsible
for designing, overseeing, implementing
and improving the risk management
framework. It works closely with Group and
senior management, meeting regularly
with them to monitor existing identified
risks and uncertainties, identify new and
emerging risks and to ensure that there
are appropriate processes and procedures
in place to mitigate these risks. It is also
responsible for monitoring that the business
meets regulatory expectations around
enterprise risk management and reporting
on risk to the Board and the Risk Committee.

Risk
Identification

Own Risk
and Solvency
Assessments

Risk
Governance

Risk
Management
Process

Risk
Reporting

Risk
Owner

Risk
Appetite

Risk
Measurement

Risk
Monitoring

Risk
Mitigation

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Randall & Quilter Investment Holdings Ltd.
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Risk Governance
Risk governance adopts a three lines of defence model
at both Group and individual business unit level

Board of Directors
Group Executive
Committee

First line
The Business
(Risk and
Control
Owners)

Risk
Management

Second line
Direct
Assurance
Compliance,
Legal

Third line
Independent Assurance
(Internal/External Audit,
Independent Review etc.)

Risk Committee
The Risk Committee is a formally constituted
Committee of the Board. A report from the
Risk Committee Chair on its role, governance,
activities, discharging of responsibilities,
self-evaluation and plans for 2020 appears
on pages 30 to 31.

Risk Appetite
The risk appetite framework sets the
boundaries within which risk taking should
remain in order to meet the expectations of
the capital providers and other stakeholders.
For the Group, it is articulated via a series
of quantitative and qualitative statements
covering all defined categories of risk.

Risk appetite reflects the amount of risk
taking, which is acceptable to the Group.
Accordingly, risk appetite refers to the
Group’s attitude to risk taking and whether it
is willing or able to tolerate a high or low level
of exposure to specific risks or risk categories.

Risk tolerance represents the Group’s ability
and willingness to bear risk. When considering
this, factors such as the availability of capital,
ability to raise capital, strength of underlying
operational processes and procedures and
strength of the organisation’s operational
culture are all relevant.

The risk appetite framework, which is set
both at the Group level and for each of the
key business units, is reviewed annually
and/or when there are material changes
to the overall risk profile of the Group or its
business units.

The principal risks and uncertainties on
pages 34 to 41 includes, for each principal
risk, the title and a brief description of the risk,
high level risk appetite statements and key
mitigating actions.

Own Risk and Solvency Assessments
and Equivalents
The own risk and solvency assessment (ORSA)
or equivalent is defined as; “The entirety of
the processes and procedures employed to
identify, assess, monitor, manage, and report
the short and long term risks a firm faces or
may face and to determine the own funds
necessary to ensure that overall solvency
needs are met at all ties.”

The Group’s ORSA and equivalent processes
are well embedded within the individual
business units and at the Group level.
They continue to evolve from the Group’s
established risk management and capital
assessment processes. These processes
comprise the self-evaluation of the risk
mitigation and capital resources needed to
achieve the Group’s strategic objectives on a
current and forward-looking basis, given their
risk profiles.

Internal Control System
The Group’s internal control system
comprises the following key elements:
• documented governance arrangements
continue to evolve along with the overall
business strategy

• strategic planning process setting

priorities for the forthcoming planning
horizon, reviewed by the Board
periodically to ensure the Group is
focusing on its core strengths

• detailed planning/budgeting process

subject to detailed and ongoing oversight
and scrutiny delivering forecasts/targets
for Board review and approval

• management information systems,
including corporate reporting on
financial/operating performance
• a defined risk appetite framework
governing management, control and
oversight of key risks and issues
• overall Group capital adequacy
planning conducted biannually

• compliance arrangements throughout

the Group

• internal audit function providing third
line assurance to the Board via the
Audit Committee following a risk-based,
approved annual Audit Plan, on the
effectiveness of the Group’s internal
controls in respect of key risks identified

• risk management function as

described above.

The Board considers that the controls in
place during 2019 were and continue to
be relevant, proportional and appropriate
for the needs of the Group, and in addition
are sufficiently flexible to evolve with the
changing needs of the business.

A number of the Group’s subsidiaries are
regulated and accordingly are subject to
the relevant degree of local regulatory
oversight. Members of the Board and
senior management regularly meet with
the Group’s various regulatory supervisors,
conducting the relationship in an open
and constructive manner.

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Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Principal Risks and Uncertainties

The Group identifies and assesses the key risks which could have
a potentially significant impact on execution of its strategy.
The Group manages its exposure to those risks by setting
and monitoring a risk appetite framework, described earlier.

The following table highlights the “top ten” risks and uncertainties facing the Group and receiving senior
management attention. This list is not exhaustive and comprises a brief description of those risks and
uncertainties that the Board considers to be the major strategic risks it faces, along with a high-level
statement of its appetite for taking that risk and the main ongoing mitigating actions in place.

Risk
Category

Risk Title/
Description

Risk
Appetite

Mitigating
Action

Strategic

Management of strategic
change and business
development and growth
The Group fails to effectively
manage both the focus on
its core competencies and
simultaneous initiatives as it
develops and grows its key
business activities.

The Group fails to identify
and harness new business
opportunities.

The Group fails to raise the
necessary capital and funds
to finance its business growth.

The Group’s profitability
is impaired following the
establishment or acquisition
of new business.

We have no appetite for any
significant deviation from the
Group’s published strategic plan
as revised from time to time.

We have limited appetite
to expand and develop
the business outside the
accepted core competencies or
established geographical reach.

We have no appetite for
an individual business unit
accepting underwriting risks
that threatens the sustainability
of the individual entity or has
the potential to result in losses
sufficient to create significant
strain on the Group.

• Management of relationships with external
stakeholders involving the Board and
members of the senior management team

• The Board actively reviews budgets,

and current strategic priorities to ensure
that the Group continues to focus on
core strengths

• Active management of cash flow
• Review of each new initiative and

proposed investment in accordance
with its own individual merits and
commensurate with our overall risk or
return objectives, due diligence criteria,
strategic objectives and available
sources of capital

• Establishment of local risk appetites

and tolerances within the context of the
Group’s overall risk appetite

• Regular oversight and review of program
and acquisitions pipeline including an
initial screening process involving senior
management

• Group Capital and Investment

Committee approval.

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Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

The risk appetite framework, which is set both at the
Group level and for each of the key business units, is
reviewed annually and/or when there are material changes
to the overall risk profile of the Group or its business units.

Risk
Category

Risk Title/
Description

Risk
Appetite

Mitigating
Action

Group
Operational

Reputation and stakeholder
management
Events elsewhere within the
Group and individual strategies
may be misaligned with the core
activities of the Group or may
have an adverse effect (notably,
but not restricted to, reputational)
on the organisation.

The Group fails to control and
monitor internal and external
communication, including
regarding its wide range of
different stakeholders.

We have no appetite for any
event leading to a loss in the
organisation’s reputation and
standing (including inter-Group
contagion) including any
capital impact.

We have no appetite for any
negative movements in the
public ratings of any company
within the Group.

• Active process for managing external
communications, including disclosure
committee for any announcements to
the Stock Exchange

• Regular liaison with the rating agencies.

36
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Principal Risks and Uncertainties continued

Risk
Category

Risk Title/
Description

Risk
Appetite

Mitigating
Action

Insurance
Credit

Exposure management
reserving
The Group adopts a reserving
methodology that produces
incorrect reserving.

We have no appetite for
prospective significant
deviations in earnings as a result
of actual, expected or possible
future reserve deterioration and
seek to reserve at a level that
achieves this whilst avoiding the
tax, regulatory and reputational
risks associated with systematic
over-reserving.

Reinsurance counterparty
The Group fails to assess the
quality of its program reinsurers
prior to onboarding or the
reinsurance arrangements fails
to “follow the fortunes” of the
underlying direct insurance
contracts.

The Group fails to monitor the
growing gross underwriting
exposures and reserves
and aggregate exposure to
reinsurers, following the planned
onboarding of new Legacy and
Program Management business.

We have no appetite for
significant deviations in earnings
as a result of reinsurance
counterparty failure as a Group
and additionally, require that
our operating entities develop
processes that are proportional
to their businesses to limit
concentration to individual
counterparties.

Furthermore, we have no appetite
for capital erosion from exposure
to reinsurance counterparty risk
arising from any downgrade of
negative outlook to the Group’s
credit rating.

• Appropriate reserving approach to

existing live and run-off portfolios and the
performance of extensive due diligence on
new run-off portfolios prior to acceptance

• Scheduled and ad hoc reviews and
benchmarking provided by external
actuarial consultancies

• Internal use of best estimate for setting
reserves, having regard to internal and
external advice, and up to-date relevant
information in respect of actual or
anticipated developments

• Use of reinsurance on live underwriting
portfolios and through taking over
inuring reinsurance treaties on acquired
legacy portfolios

• Review of all material identified reserve

portfolios across the Group

• Appropriate monitoring and oversight

of case reserves.

• Integrated framework to assess potential
exposure from new opportunities prior
to onboarding

• Assessment of exposures and

concentrations on inuring treaties during
due diligence

• Active commutation strategy or retroactive

reinsurance on legacy portfolios

• Monitoring of credit ratings, concentration
levels and sufficiency of collateral on live
underwriting reinsurance

• Identification of potentially significant

concentrations of individual counterparties.

Intermediary counterparty
The Group fails to monitor,
assess and control its exposure
to intermediary counterparty
default in respect of its live
program underwriting activities.

We have no appetite for general
intermediary default and
seek an appropriate degree
of quality (as defined by the
relevant Committee) and
diversification in the spread of
intermediaries.

• Operating entities engaged in live

underwriting to develop processes that
are appropriate and proportionate their
business, in order to limit and monitor
concentrations to individual intermediary
counterparties to within acceptable
levels.

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Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Risk
Category

Risk Title/
Description

Risk
Appetite

Mitigating
Action

Liquidity

Management of free funds
The Group fails to implement
adequate control over cash
flow and liquidity leading to
financial shortfalls.

We have no appetite or
tolerance for shortfalls in
liquidity preventing the timely
settlement of liabilities or forcing
the suboptimal sale of assets.

We have no appetite for
breaching our financial
covenants with our bankers.

Strategic
Regulatory, legal
and Group

We will maintain capital
at a level that provides a
suitable margin over that level
deemed by our regulators and
supervisors as providing an
acceptable level of policyholder
protection whilst remaining
economically viable.

Capital and solvency
management
The Group and relevant
subsidiary entities are not
Solvency II (or equivalent,
e.g. Bermuda Monetary
Authority, Malta Financial
Services Authority, Prudential
Regulation Authority or National
Association of Insurance
Commissioners) compliant
in accordance with local
regulatory requirements
and expectations.

• Dedicated Group cash flow, treasury
management and invested assets
capability, providing focused effort
and a tight control regime

• Assessment and setting of Group and
entity liquidity margins not less than
annually, based on projected payment
patterns, reassessed upon the occurrence
of a significant event

• Funding of new deals and transactions
having regard to available sources of
funding and collateral requirements

• Detailed cash flow reporting and

monitoring of adherence to banking
covenants

• Review of banking covenants for

ongoing applicability

• Forward-looking monitoring of the

Group’s cash flow projecting the likely
liquidity position over a twelve-month
planning horizon, embedded into the
cash flow monitoring mechanism

• Active and ongoing seeking of alternative

financing options for deal funding
• Ongoing and proactive liaison and
relationship management with the
Group’s bankers.

• Active management of relationships
with all regulators within whose
jurisdictions the Group and relevant
subsidiary entities operate

• Active involvement of actuarial, risk

management, compliance and internal
audit functions

• Deployment of appropriate sources of
capital to underpin strategic objectives,
commensurate with capacity to take
risk and with prevailing regulatory
stipulations in force

• Maintenance of capital providing

an adequate margin over the Group
Solvency Capital Requirement while
maintaining local capital which meets
or exceeds the relevant local minima.

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Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Principal Risks and Uncertainties continued

Risk
Category

Risk Title/
Description

Risk
Appetite

Mitigating
Action

Market

Investment returns
The Group fails to realise an
adequate or optimal return on
the investment float under its
control or experiences a default
on investments held.

We have no appetite for
incurring a loss on investments
in any one quarter.

We have no appetite for
significant aggregate currency
mismatches in respect of the
Group’s assets and liabilities.

We have no appetite for
speculative currency trades.

We have no appetite for any
major regulatory infringement
or missed deadline.

Regulatory,
legal and Group
Operational

Legislative, economic
and regulatory change
The Group or one of its
subsidiary entities breaches the
legal or regulatory requirements
of jurisdictions in which it
operates.

The Group fails to implement
or adapt to emerging new
regulatory or political or
legislative changes (for example
General Data Protection
Regulations or Modern Slavery).

• Group and subsidiary level investment
committees and guidelines (where
appropriate) and oversight by the
relevant entity board

• Utilisation of intra-group loans between

entities as part of the investment strategy
subject to appropriate controls

• Holding of surplus funds in sterling except
for US entities where surplus funds are
held in US Dollars

• Dedicated Group cash flow, treasury
management and invested assets
function to monitor investment
concentration and returns

• Investments are primarily made in

marketable, investment grade-rated,
short- and intermediate-term securities.
Minimal investment will be made in
fixed-rate long-term maturities

• Asset and liability matching.

• Oversight by the Chief Governance Officer
• Deployment of local expertise where

needed

• Active management of relationships with
all local regulators where the Group has
a presence

• Internal working and steering groups
to analyse, interpret and oversee the
implementation of all emerging
external changes

• Active oversight by Group Risk Committee
• Maintenance and operation of an effective
governance framework that leverages the
expertise of the Group and individual entity
boards and management

• Leverage of specific additional local
regulatory and legal expertise as
and when appropriate.

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Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Risk
Category

Risk Title/
Description

Risk
Appetite

Mitigating
Action

Operational

Operational excellence

Operational – general.

• Identification and assessment of
individual risks and associated
operational controls carried out as
part of the Group risk and control
self-assessment process. This is
conducted at Group and entity levels.

• Development of succession plans

and management training at Group
and operating entity level

• Performance management process

for all staff.

Operational

People
The Group is reliant upon the
knowledge and expertise of
its key directors and staff and
fails to adequately plan for
succession.

We have no appetite for the
loss or prolonged absence of
a key staff member where the
succession plan is insufficient.

We have no appetite for
significant levels of staff turnover
in any one year.

Financial reporting
The Group fails to manage its
expense base.

The Group fails to deploy
appropriate financial and
management reporting
mechanisms to inform key
business decisions.

We have no appetite for any
material errors, omissions
or misstatements within our
financial and management
reporting and operational
management Information
Systems or processes or outputs,
either systemic or ’one-off’.

• Ongoing strategic expense and

cost allocation review

• Robust and reliable financial and

management reporting and forecasting
framework, with appropriate controls
around data, outputs and review and
oversight

• Appropriately skilled and trained staff
• Fit for purpose reporting mechanisms.

Business disruption
The Group suffers a major
business discontinuity event.

We have no appetite for loss of
facilities or failure of key systems
or processes which may cause
significant business disruption.

• Robust business continuity and disaster
recovery plans which are regularly tested.

Outsourcing risk
The Group fails to adequately
control its third-party service
providers.

We have no appetite to enter
into an outsourcing contract
that does not meet the
considerations set out in the
Outsourcing Policy.

• Outsourcing agreements with all material

outsourcers (internal and external

• Outsourcing Policy.

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Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Principal Risks and Uncertainties continued

The operation of the Group’s risk and control
self-assessment process with key functional
risk and control owners continues.

Risk
Category

Risk Title/
Description

Risk
Appetite

Mitigating
Action

Operational

Cyber
The Group fails to properly
protect information
compromising the
confidentiality, availability
or integrity of our data.

The Group fails to keep abreast
of increasing regulatory scrutiny
in this area (for example National
Association of Insurance
Commissioners model law).

We have no appetite for financial
losses, business disruption or
reputational setbacks arising
from a cyber attack.

We have no appetite for
breaches of our information
security policies and procedures.

We have no appetite for any
breaches of any relevant
statutory (Data Protection, US
Health Insurance Portability and
Accountability Act) requirement
in respect of information security
or cyber risk.

• Dedicated Chief Information

Security Officer

• Ongoing development of a fit for

purpose information security governance
structure including corporate information
risk policies, and compliance, where
practical, with relevant International
Organisation for Standardisation
or International Electrotechnical
Commission 27000 series of standards
• Development of security technologies
and processes by deploying new tools
or techniques keeping pace with the
increasing threat from cyber crime
• Appropriate levels of cyber liability

insurance.

We have no appetite or tolerance
for any major tax-related
infringement or missed deadline.

Operational
Regulatory, legal
and Group

Taxation
The Group fails to identify its
tax exposures arising from
emerging UK and overseas
legislation (for example UK
Corporate Criminal Offences
Act, US Foreign Account Tax
Compliance Act) and fails
to implement appropriate
controls and processes to ensure
compliance with all relevant laws.

• Quarterly review with Head of Tax of the
Group’s current tax position and potential
future implications of current and
emerging legislation and developments

• Growth and conduct of the business
having regard to the tax implications
of doing so

• Optimisation of the Group’s

cross-jurisdictional tax position and
maintenance of a credible tax presence
in its various locations.

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Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

The Group continues to monitor its material assets and
liabilities, emerging claims experience, policy wordings
issues and solvency position including appropriate stress
and scenario testing with planned management actions
to respond as required.

The Group continues to monitor its material
assets and liabilities, emerging claims
experience, policy wordings issues and
solvency position including appropriate
stress and scenario testing with planned
management actions to respond as required.

There is regular and ongoing engagement
with key stakeholders including investors,
customers, regulators and other
counterparties.

The individual business areas are in contact
with their counterparties and distribution
channels, such as MGAs and TPAs to ensure
that they have appropriate measures in
place so that the Group is not exposed to any
undue operational risk.

The duration of the pandemic and the
associated restrictions and impact on
operations, staff morale and so forth
remains uncertain. When necessary, the
Group will consider the potential impact
of any new and emerging risk drivers in this
regard. Although there are inevitably some
short-term impacts being experienced in
areas like investment performance, longer
term, the Group’s business is expected to be
positive. This is described in more detail in
the Report of the Executive Directors.

Emerging Risks
Emerging risks are those risks that are
perceived to be potentially significant,
but which may not be fully understood
or controllable. During 2019, the Group
formalised its framework and process for
the identification, assessment and reporting
of emerging risks. A focus group was
established during the year, identifying the
following as the principal emerging risks
potentially impacting the Group:
• changes to trade, tariff and sanctions
(arising from Brexit) impacting revenue
streams, ability to trade in certain
locations and market and asset values

• climate change – weather pattern

changes impacting strategy, investment
decisions and business practices

• political uncertainty – changing business
practices and regulations impacting
strategy execution

• civil instability – increase in disruptive

events

• developing cyber crime – new and faster

evolving cyber attacks

• IT and telecoms outages – increasing

frequency and scale

• interruption to infrastructure (power,

transport etc)

• new and emerging technology – new
opportunities and competition risk
• changing workforce expectations
• global pandemic – see Covid-19
• event driven litigation – securities

class actions.

These are reviewed continually by the risk
management function in conjunction with
a biannual review by the focus group and
overseen by the Group Risk Committee.

Covid-19
The Covid-19 outbreak originated in China
and developed during the early months of
2020. It was designated a pandemic by the
World Health Organisation on 11th March
2020. As outlined in the previous section,
the Group had identified pandemic risk
as part of its emerging risks process and
the escalating risk and its subsequent
crystallisation was recognised at an early
stage in 2020.

Covid-19 is causing macroeconomic
uncertainty and worldwide restrictions
in social movement which are directly
impacting the markets in which the Group
operates. At the time of writing, the Group has
invoked its business continuity plans and all
staff are working remotely until further notice.

The key principal risks and uncertainties of
the Group described earlier, and mitigation
thereof are unchanged. However, the key
drivers and potential short, medium- and
longer-term impacts of the pandemic on the
Group’s risk profile and operations have been
identified and are being regularly monitored.

No breaches in risk appetite have been
noted and none are anticipated arising from
the pandemic.

The operation of the Group’s risk and
control self-assessment process with key
functional risk and control owners continues.
This includes an assessment of whether
the internal control framework in place
remains sufficiently robust to mitigate the
evolving risks in remote working, for example
increased opportunism in the financial and
cyber crime space.

42
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Statement of Directors’
Responsibilities

The Directors are responsible for preparing
the Annual Report and the Financial
Statements in accordance with applicable
law and regulations. AIM rules require the
Directors to prepare consolidated Financial
Statements for each financial year. Under
those rules they have elected to prepare the
Financial Statements in accordance with
International Financial Reporting Standards
as adopted by the EU.

The Financial Statements are required
to give a true and fair view of the state of
affairs of the Group and of the profit or loss
of the Group for the year. In preparing these
Financial Statements, the Directors are
required to:
• select suitable accounting policies and

then apply them consistently

• make judgements and estimates that

are reasonable and prudent

• state whether applicable accounting

standards have been followed, subject to
any material departures disclosed and
explained in the Financial Statements
• prepare the Financial Statements on
the going-concern basis unless it is
inappropriate to presume that the Group
will continue in business.

The Directors are responsible for keeping
proper accounting records which disclose
with reasonable accuracy at any time the
financial position of the Group and to enable
them to ensure that the Financial Statements
comply with the AIM rules. They have general
responsibility for taking such steps as are
reasonably open to them to safeguard
the assets of the Group and to prevent
and detect fraud and other irregularities.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Group’s website.

43
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

FINANCIAL
STATEMENTS

Independent Auditor’s Report

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Statement of Changes in Equity

Consolidated Statement of Financial Position

Consolidated Cash Flow Statement

Notes to the Consolidated Financial Statements

Shareholder Information

44
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Independent auditor’s report to the members
of Randall & Quilter Investment Holdings Ltd

Opinion
We have audited the group financial statements of Randall & Quilter Investment Holdings Ltd (the ‘parent company’) and its subsidiaries
(together the ‘group’) for the year ended 31 December 2019 which comprise the consolidated income statement, consolidated statement of
comprehensive income, the consolidated statement of changes in equity, consolidated statement of financial position and the consolidated
cash flow statement and notes to the financial statements, including a summary of significant accounting policies. The financial reporting
framework that has been applied in their preparation is International Financial Reporting Standards (IFRSs) as adopted by the European Union.

In our opinion, the group financial statements:
• give a true and fair view of the state of the group’s affairs as at 31 December 2019 and its profit for the year then ended; and
• have been properly prepared in accordance with IFRSs as adopted by the European Union.

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the
UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of matter – impact of Covid-19
We draw attention to Note 2 d) of the financial statements, which describes the group’s consideration of the Covid-19 virus outbreak on the
group’s ability to continue as a going concern.

Our opinion is not modified in respect of this matter.

Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
• the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
• the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the
group’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the
financial statements are authorised for issue.

Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. For planning, we
consider materiality to be the magnitude by which misstatements, including omissions, either individually or in aggregate, could reasonably be
expected to influence the economic decisions of users that are taken on the basis of the financial statements. Importantly, misstatements below
this level will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular
circumstances of their occurrence, when evaluating their effect on the financial statements. The application of these key considerations gives rise
to the following level of materiality, the quantum and purpose of which is tabulated below.

Materiality measure

How we determined it

Key considerations and benchmarks

Financial statement materiality

10% of average profit before tax for
the current year and the previous
two years for continuing operations.

In determining our materiality, we have considered
financial benchmarks which we believe to be relevant
to the primary users of the group’s financial statements.
We concluded the profit before tax was the most
relevant benchmark to these users.

We used the average profit before tax for the current
year and previous two years as this benchmark is less
distorted by large changes in the profit before tax year
on year.

Quantum £

2,200,000

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £110,000 as well as differences
below that threshold that, in our view, warranted reporting on qualitative grounds.

We reassessed materiality at the end of the audit and did not find it necessary to revise our planning materiality.

45
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

An overview of the scope of our audit
Our audit approach was developed by obtaining an understanding of the group’s activities, taking into account the geographic structure of the
group, the key subjective judgements made by the directors, for example in respect of significant accounting estimates that involved making
assumptions and considering future events that are inherently uncertain, and the overall control environment.

Based on this understanding we assessed those aspects of the group’s transactions and balances which were most likely to give rise to a
material misstatement and were most susceptible to irregularities including fraud or error. Specifically, we identified what we considered to
be key audit matters and planned our audit approach accordingly.

The group operates in a number of overseas locations. In establishing the overall approach to the group audit, we determined the type of work
that needed be performed by us, as the group auditors, and the auditors of the overseas subsidiaries.

Where the work was performed by auditors of the overseas subsidiaries, we determined the level of involvement we needed as the group
auditors to have in the audit work to be able to conclude whether sufficient and appropriate audit evidence had been obtained as a basis
for our group opinion on the financial statements as a whole. We carried out detailed reviews of the audit work of the material components
in Bermuda, Malta and the United States of America. We also kept in regular communication with those overseas auditors, through discussions
and written instructions.

Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the
current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These
matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the
efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.

Area

Reason

Audit response

Recognition of
program income

The group has entered into a number of new programs in
the year.

Refer to Notes
2 f) and 5 to the
group financial
statements
for disclosures
of related
accounting
policies and
balances.

In accordance with IFRS, the income arising from these
programs should only be recognised as income within
the income statement when the performance conditions
associated with it have been met.

The determination of the performance conditions
associated with such income gives rise to significant
judgements to be exercised by management.

There is a risk that such judgements are not made in
accordance with IFRS and thus the accounting for such
income is materially misstated in the financial statements.

Valuation of
insurance
contract
provisions

Refer to Notes 2
h) and 23 to the
group financial
statements
for disclosures
of related
accounting
policies and
balances.

Total net insurance contract provisions for the year end
31 December 2019 are £600.8 million.

The methodologies and assumptions utilised to develop
insurance contract provisions involve a significant degree
of judgement. The liabilities are based on the estimated
ultimate cost of all claims incurred but not settled at a
given date, whether reported or not. In addition, classes
of business where there is a greater length of time
between initial claim event and settlement (such as
historic asbestosis and environmental pollution classes)
also tend to display greater variability between initial
estimates and final settlements. A range of methods may
be used to determine these provisions.

We focused on this area as the underlying methods include
a number of explicit and implicit assumptions relating to
the expected settlement amounts and settlement patterns
of claims and are subject to complex calculations including
application of management’s judgement which can give
rise to materially different values.

We obtained an understanding and evaluated the design and
implementation of controls that the group has established in relation
to the recognition of the new program income.

We also performed the following procedures:

•
•

Reviewed the underlying program agreements; and

Tested, on a sample basis, whether amounts recognised were
reasonable and appropriately recorded in the correct accounting
period based on the contractual obligations of the insurance
agreements.

Based on the procedures we performed, we observed that the
recognition of the new program income was reasonable and
appropriate based on the requirements of IFRS and the nature of the
underlying agreements.

We evaluated whether the group’s actuarial methodologies
were consistent with those used generally in the industry and with
prior periods.

We also evaluated the governance around the overall group reserving
process, including the scrutiny applied by the Group audit and risk
committee, as well as group level actuarial reviews.

Additionally, we performed the following procedures:

•

Tested, on a sample basis, the underlying data to source
documentation to assess the completeness and accuracy;

Reviewed any significant prior year reserve movements by
reference to any significant adverse market development;

Performed independent re-projections and sensitivity analyses
on selected classes of business and compared our re-projected
claims reserves to those booked by management, and challenged
management to understand any significant differences.

Tested the calculations used in identifying reinsurers’ share of
any claims.

Based on the procedures we performed, we observed that the value of
the insurance contract provisions was reasonable and appropriate.

46
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Independent auditor’s report to the members
of Randall & Quilter Investment Holdings Ltd continued

Key audit matters continued

Area

Reason

Audit response

Accounting for
the acquisitions
made in 2019

The group completed 10 business combinations during
the year end 31 December 2019, giving rise to goodwill on
bargain purchase of £71.3 million.

We evaluated the design and tested the operating effectiveness of
controls that the group established in relation to acquisition accounting.

Refer to Notes 2
c) and 29 to the
group financial
statements
for disclosures
of related
accounting
policies and
balances.

The insurance contract provisions assumed on acquisition
must be discounted in the fair value assessment. This
gives rise to a finite-life intangible asset as a result of
the difference between the discounted fair value of the
insurance contract provisions and the undiscounted
insurance contract provisions measured in accordance
with the group’s accounting policy. The intangible asset
created by this comparison is amortised over the period
of time the insurance contract provisions are expected to
be settled.

Management applies judgement in the accounting
and valuation of the acquired assets and liabilities,
particularly relating to the fair value of the insurance
contract provisions acquired which can give rise to
materially different values of any resulting goodwill
on bargain purchase.

We carried out the following testing:

•

Performed a walkthrough test of the controls in place within
the accounting process to understand management’s process
under IFRS 3.

Read contracts, agreements and board minutes relating to the
acquisitions.

Corroborated management’s assumptions by comparing them
to relevant available information. In particular, we challenged the
discount rates and settlement patterns used to calculate the insurance
contract provisions giving rise to the finite-life intangible asset.

Validated and challenged key inputs and data used in valuation
models by reference to historical data and our expectations.

Assessed the completeness of the identification of the assets
acquired and the appropriateness of the assets’ useful economic
lives using our knowledge of the run-off insurance industry.

Evaluated the adequacy of the business combination disclosures
made in note 29 to the requirements in IFRS 3.

Based on the procedures we performed, we observed that the
methodologies and the assumptions applied were reasonable.

Other information
The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report
thereon. The directors are responsible for the other information. Our opinion on the group financial statements does not cover the other
information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a
material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of
the other information, we are required to report that fact.

We have nothing to report in this regard.

Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the group financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the group financial statements, the directors are responsible for assessing the group’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to
liquidate the group or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at:
http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

47
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Use of our report
This report is made solely to the parent company’s members, as a body, in accordance with our engagement letter. Our audit work has been
undertaken so that we might state to the parent company’s members those matters we are required to state to them in an auditor’s report and
for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the parent company
and the parent company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

The engagement partner on the audit resulting in this independent auditor’s report is Ian Cowan.

PKF Littlejohn LLP
Chartered Accountants and Registered Auditor

15 Westferry Circus
Canary Wharf
London
E14 4HD

31 May 2020

48
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Consolidated Income Statement

For the year ended 31 December 2019

2019

2018

Note

£000

Continuing operations

Gross premiums written

Written premiums ceded to reinsurers

Net written premiums

Change in provision for unearned premiums, gross

Change in provision for unearned premiums, reinsurers’ share

Net change in provision for unearned premiums

Earned premium, net of reinsurance

Gross investment income

Other income

Total income

Gross claims paid

Proceeds from commutations and reinsurers’ share of gross claims paid

Claims paid, net of reinsurance

Movement in gross technical provisions

Movement in reinsurers’ share of technical provisions after adjusting for commutations

Net change in provisions for claims

Net claims provisions decrease/(increase)

Operating expenses

Result of operating activities before goodwill on bargain purchase

Goodwill on bargain purchase

Amortisation and impairment of intangible assets

Result of operating activities

Finance costs

Profit from continuing operations before income taxes

Income tax charge

Profit for the year from continuing operations

Loss for the period from discontinued operations

Profit for the year

Attributable to:

Shareholders of the parent

Non-controlling interests

450,187

(285,033)

(94,315)

103,687

21,993

6,780

(183,438)

111,033

(72,405)

(125,978)

55,227

(70,751)

The accounting policies and accompanying notes are an integral part of the Consolidated Financial Statements

Earnings per ordinary share from continuing and discontinued operations:

Basic

Diluted

Earnings per ordinary share from continuing operations:

Basic

Diluted

Note

183,838

(118,928)

165,154

64,910

(42,044)

40,583

5,430

11,960

(161,360)

106,238

(55,122)

69,579

(3,759)

65,820

9,372

174,526

28,773

203,299

(143,156)

(78,651)

(18,508)

71,332

(3,162)

49,662

(9,537)

40,125

(1,280)

38,845

–

38,845

39,323

(478)

38,845

2019

21.4p

(1,461)

63,449

17,390

80,839

10,698

(77,294)

14,243

5,997

(1,644)

18,596

(4,345)

14,251

(3,946)

10,305

(2,483)

7,822

7,341

481

7,822

2018

5.8p

7.8p

49
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2019

Other comprehensive income:

Items that will not be reclassified to profit or loss:

Pension scheme actuarial (losses)/gains

Deferred tax on pension scheme actuarial (losses)/gains

Items that may be subsequently reclassified to profit or loss:

Exchange (losses)/gains on consolidation

Other comprehensive income

Profit for the year

Total comprehensive income for the year

Attributable to:

Shareholders of the parent

Non-controlling interests

Total comprehensive income for the year

The accounting policies and accompanying notes are an integral part of the Consolidated Financial Statements.

2019

£000

2018

£000

(1,698)

(1,647)

(8,258)

(9,905)

38,845

28,940

29,440

(500)

28,940

4,661

(792)

3,869

8,809

12,678

7,822

20,500

19,985

515

20,500

50
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Consolidated Statement of Changes in Equity

For the year ended 31 December 2019

Share
capital
£000

Share
premium
£000

Notes

Foreign
currency
translation
reserve
£000

Retained
earnings
£000

Non-
controlling
interests
£000

Total
£000

2,520

51,135

9,273

112,710

175,638

Year ended 31 December 2019

At beginning of year

Profit for the year

Other comprehensive income

Exchange losses on consolidation

Pension scheme actuarial losses

Deferred tax on pension scheme actuarial losses

Total other comprehensive income for the year

Total comprehensive income for the year

Transactions with owners

Share based payments

Issue of shares

Issue of AB & AC shares

–

138

1,398

102,047

18,415

(18,415)

–

39,323

(8,236)

–

(8,236)

–

(1,698)

(1,647)

37,676

–

(8,236)

(1,698)

(9,883)

29,440

138

103,445

–

(18,415)

–

Total
£000

175,987

38,845

(8,258)

(1,698)

(9,905)

28,940

138

103,445

–

(18,415)

594

290,689

349

(478)

(22)

–

(22)

(500)

–

594

443

Cancellation of AB & AC shares

(18,415)

Non-controlling interest in subsidiary acquired

–

At end of year

3,918

134,905

1,037

150,386

290,246

Share
capital
£000

Share
premium
£000

Notes

Foreign
currency
translation
reserve
£000

Retained
earnings
£000

Non-
controlling
interests
£000

Total
£000

Year ended 31 December 2018

At beginning of year

Profit for the year

Other comprehensive income

Exchange gains on consolidation

Pension scheme actuarial gains

Deferred tax on pension scheme actuarial gains

Total other comprehensive income for the year

Total comprehensive income for the year

Transactions with owners

Share based payments

Issue of shares

Issue of Z & AA shares

2,517

62,257

–

212

–

11,334

(11,334)

Cancellation of Z & AA shares

(11,334)

–

901

–

8,372

–

8,372

–

101,097

166,772

(166)

166,606

7,341

481

7,822

403

4,661

(792)

4,272

11,613

–

8,775

4,661

(792)

12,644

19,985

212

–

(11,334)

–

515

–

8,809

4,661

(792)

12,678

20,500

212

–

(11,334)

At end of year

2,520

51,135

9,273

112,710

175,638

349

175,987

The accounting policies and accompanying notes are an integral part of the Consolidated Financial Statements.

51
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Consolidated Statement of Financial Position

For the year ended 31 December 2019

Company Number 47341

Assets

Intangible assets

Property, plant and equipment

Right of use assets

Investment properties

Financial instruments

– Investments (fair value through profit and loss)

– Deposits with ceding undertakings

Reinsurers’ share of insurance liabilities

Deferred tax assets

Current tax assets

Insurance and other receivables

Cash and cash equivalents

Total assets

Liabilities

Insurance contract provisions

Financial liabilities

– Amounts owed to credit institutions

– Lease liabilities

– Deposits received from reinsurers

Deferred tax liabilities

Insurance and other payables

Current tax liabilities

Pension scheme obligations

Total liabilities

Equity

Share capital

Share premium

Foreign currency translation reserve

Retained earnings

Attributable to equity holders of the parent

Non-controlling interests in subsidiary undertakings

Total equity

Total liabilities and equity

Notes

18a

18b

2019

£000

46,082

969

3,191

1,480

559,963

19,504

471,412

4,008

1,988

419,535

252,741

1,780,873

2018

£000

19,974

577

–

1,881

395,418

6,331

300,357

3,205

191

232,716

236,923

1,197,573

1,072,208

699,078

142,693

140,243

3,210

1,068

9,465

–

1,139

3,449

253,909

168,488

294

7,337

2,323

6,866

1,490,184

1,021,586

3,918

134,905

1,037

150,386

290,246

443

290,689

1,780,873

2,520

51,135

9,273

112,710

175,638

349

175,987

1,197,573

The Consolidated Financial Statements were approved by the Board of Directors on 31 May 2020 and were signed on its behalf by:

K E Randall

A K Quilter

W Spiegel

The accounting policies and accompanying notes are an integral part of the Consolidated Financial Statements.

52
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Consolidated Cash Flow Statement

For the year ended 31 December 2019

Cash flows from operating activities

Profit for the year

Tax included in consolidated income statement

Finance costs

Depreciation and impairment

Share based payments

Loss on divestment

Goodwill on bargain purchase

Amortisation and impairment of intangible assets

Fair value loss/(gain) on financial assets

Loss on revaluation of investment property

Loss on disposal of property, plant and equipment

Contributions to pension plan

Loss/(profit) on net assets of pension schemes

Increase in receivables

Decrease in deposits with ceding undertakings

Increase in payables

Increase/(decrease) in net insurance technical provisions

Income taxes paid

Net cash used in operating activities

Cash flows from investing activities

Purchase of property, plant and equipment

Proceeds from sale of property, plant and equipment

Purchase of intangible assets

Proceeds from sale of intangible assets

Proceeds from sale of financial assets

Purchase of financial assets

Proceeds from disposal of investment properties

Acquisition of subsidiary undertakings (offset by cash acquired)

Divestment (offset by cash disposed of)

Payments to acquire minority interest

Net cash from/(used in) investing activities

Cash flows from financing activities

Repayment of borrowings

Proceeds from new borrowing arrangements

Interest and other finance costs paid

Cancellation of shares

Receipts from issue of shares

Net cash from financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Exchange(losses)/ gains on cash and cash equivalents

Cash and cash equivalents at end of year

Share of Syndicates’ cash restricted funds

Other funds

Cash and cash equivalents at end of year

Notes

16 & 17

2019

£000

38,845

1,280

9,537

2,242

138

–

(71,332)

3,162

(6,602)

(1,400)

173

(145,830)

1,294

72,220

61,379

(2,330)

(37,095)

(958)

–

(143)

1,952

68,997

(94,364)

361

(1,615)

–

(221)

(25,991)

(34,966)

41,751

(9,537)

(18,415)

103,445

82,278

19,192

236,923

(3,374)

252,741

15,320

237,421

252,741

2018

£000

7,822

3,871

4,345

335

212

215

(5,997)

1,644

5,754

903

–

(479)

(61,734)

343

69,679

(64,359)

–

(37,446)

(189)

(92)

–

69,774

(46,023)

–

(8,972)

13,387

–

27,904

(3,000)

86,170

(4,345)

(11,334)

67,494

57,952

174,502

4,469

236,923

18,150

218,773

236,923

The accounting policies and accompanying notes are an integral part of the Consolidated Financial Statements.

53
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Notes to the Consolidated Financial Statements

For the year ended 31 December 2019

1. Corporate information
Randall & Quilter Investment Holdings Ltd. (the Company) is a company 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 as owners and managers of
insurance companies, live and in run-off, as providers of program capacity, as underwriting managers for active insurers and as participators
in Lloyd’s Syndicates in the non-life insurance market. The Consolidated Financial Statements were approved by the Board of Directors on
31 May 2020.

2. Accounting policies
The principal accounting policies adopted in the preparation of these Consolidated Financial Statements are set out below. These policies have
been consistently applied to all the periods presented, unless otherwise stated.

a. Basis of preparation
The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS), endorsed
by the European Union, International Financial Reporting Interpretations Committee interpretations and with the Bermuda Companies Act 1981
(as amended).

The Consolidated Financial Statements have been prepared under the historical cost convention, except that financial assets (including
investment property), financial liabilities (including derivative instruments) and purchased reinsurance receivables are recorded at fair value
through profit and loss. All amounts are stated in sterling and thousands, unless otherwise stated.

The preparation of the Consolidated Financial Statements in conformity with IFRS requires the use of estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and
expenses during the year (Note 3). Although these estimates are based on management’s best knowledge of the amount, event or actions,
actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
estimates are recognised in the year when the revision is made.

New and amended Standards adopted by the Group
In the current year, the Group has applied new IFRSs and amendments to IFRSs issued by the IASB that are mandatory for an accounting period
that begins on or after 1 January 2019.

IFRS 16, Leases. (IASB effective date 1 January 2019). IFRS 16 specifies how to recognise, measure and disclose leases. The Standard replaces IAS 17
Leases and Related Interpretations. The Standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities
for all leases unless the lease term is 12 months or less or the underlying asset has a low value. The rental charge in previous Consolidated Income
Statements for leases has been replaced in the 2019 reporting year with a depreciation charge for the lease assets and an interest expense for
the lease liabilities. Under the Standard the Group has adopted the retrospective modified approach and therefore the comparatives are not
restated and continue to be reported under IAS 17 and IFRIC 4.

The right-of-use asset recognised in the Consolidated Statement of Financial Position at 31 December 2019 is £3,191k. This asset has given rise
to a depreciation charge of £1,776k for the year ending 31 December 2019 and the cost is included in operating expenses in the Consolidated
Income Statement.

The lease liability is included within Financial liabilities in the Consolidated Statement of Financial Position at 31 December 2019 and amounts
to £3,210k. The unwinding of the liability for the year ending 31 December 2019 has created an interest cost of £148k which is included in Finance
Costs in the Consolidated Income Statement.

IAS 19 Amendments, Plan Amendment, curtailment or settlement. (IASB effective date 1 January 2019). If a defined benefit pension plan
amendment, curtailment or settlement occurs, it is now mandatory that the current service cost and the net interest for the period after the
re-measurement are determined using the assumptions used for the re-measurement. The amendments had no impact on the Consolidated
Financial Statements.

IAS 28 Amendments, Long-term interests in Associates and Joint Ventures Sale or contribution of assets between an investor and its associate
or joint venture. (IASB effective date 1 January 2019) The amendment outlines how to apply, with certain limited exceptions, the equity method to
investments in associates and joint ventures. The amendments had no impact on the Consolidated Financial Statements.

IFRS 2015 - 2017 improvement cycle (IASB effective date 1 January 2019). The improvement cycle brought clarification on specific technical points
in the following Standards, which due to the content and narrow scope had no impact on the Consolidated Financial Statements:

IFRS 3 Business Combinations and IFRS 11 Joint Arrangements. The amendments to IFRS 3 clarify that when an entity obtains control of a business
that is a joint operation, it re-measures previously held interests in that business. The amendments to IFRS 11 clarify that when an entity obtains
joint control of a business that is a joint operation, the entity does not re-measure previously held interests in that business.

IAS 12 Income Taxes. The amendments clarify the requirements to recognise the income tax consequences of dividends where the transactions or
events that generated distributable profits are recognised.

54
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Notes to the Consolidated Financial Statements continued

For the year ended 31 December 2019

2. Accounting policies continued
a. Basis of preparation continued
IAS 23 Borrowing Costs. The amendments clarify that if any specific borrowing remains outstanding after the related asset is ready for its
intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalisation rate on
general borrowings.

New and amended Standards not yet adopted by the Group
A number of new standards and amendments adopted by the EU, as well as standards and interpretations issued by the IASB but not yet
adopted by the EU, have not been applied in preparing the Consolidated Financial Statements.

The Group does not plan to adopt these standards early; instead it will apply them from their effective dates as determined by their dates of EU
endorsement. The Group continues to review the upcoming standards to determine their impact.

IFRS 9, Financial instruments (IASB effective date 1 January 2018) has not been applied under IFRS 4 Amendment option to defer until IFRS 17
comes into effect on 1 January 2023.

IFRS 17, Insurance Contracts. (IASB effective date 1 January 2023)

IFRS 9, IAS 39 and IFRS 7 Amendments, Interest rate benchmark reform. (IASB effective date 1 January 2020)

IAS 1 and IAS 8 Amendments, Definition of material. (IASB effective date 1 January 2020)

IFRS 3 Amendments, Business combinations. (IASB effective date 1 January 2020)

Of the upcoming accounting standards and amendments, the Group anticipates that IFRS 9 and IFRS 17 will have the most material impact to
the Consolidated Financial Statements’ presentation and disclosures. The accounting developments and implementation timelines of these
standards are being closely monitored and the impacts of the Standards themselves are being reviewed. Full impact analysis in respect of these
standards is in the process of being completed. A brief overview of these standards is provided below:

IFRS 9, Financial instruments (IASB effective date 1 January 2018) has not been applied under IFRS 4 Amendment option. IFRS 9 provides a
reform of financial instruments accounting to supersede IAS 39 Financial Instruments: Recognition and Measurement. The Standard contains
the requirements for a) the classification and measurement of financial instruments; b) a new impairment methodology and c) general hedge
accounting. IFRS 4 Amendment, Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts contained an optional temporary
exemption from applying IFRS 9 for entities whose predominant activity is issuing contracts within the scope of IFRS 4. The Group meets the
eligibility criteria and has taken advantage of this temporary exemption not to apply this standard until the effective date of IFRS 17.

IFRS 17 was issued in May 2017. It will replace IFRS 4 on accounting for insurance contracts and has an effective date of 1 January 2023. The Group
expects to adopt the new Standard on this date. Under the IFRS 17 model, insurance contract liabilities will be calculated as the present value
of future insurance cash flows with a provision for risk. The discount rate will reflect current interest rates. If the present value of future cash flows
produces a gain at the time a contract is issued the model also requires a ‘contractual service margin’ to offset the day 1 gain. The contractual
service margin will amortise over the life of the contract. There will also be a new income statement presentation for insurance contracts,
including a revised definition of revenue, and extensive disclosure requirements.

The Group has implemented an IFRS 17 project to plan and develop the required systems and procedural changes. The initial gap analysis
comparing the existing systems and data to those required to meet the Standard was completed in November 2019, focusing on the Accredited
Insurance Europe Ltd operations as a pilot. Development of procedure and systems changes is expected to be in place by 31 December 2020,
with testing taking place in 2021. The project has provided early insight on the potential impact on the Consolidated Financial Statements
by comparing key transactions using existing accounting treatment to a restated position under IFRS 17. This confirmed the most significant
financial impacts will be the deferral of risk premiums on reinsurance contracts and goodwill gains on business combinations acquired after the
effective date, the discounting of risk adjusted insurance and reinsurance liabilities and assets, and the inclusion of future claims handling and
directly attributable expense cash flows in the insurance liabilities for all business.

b. Selection of accounting policies
Judgement, estimates and assumptions are made by the Directors in selecting each Group accounting policy. The accounting policies are
selected by the Directors to present Consolidated Financial Statements that they consider provide the most relevant information. In the case of
certain accounting policies, there are different accounting treatments that could be adopted, each of which would be in compliance with IFRS
and would have a significant influence upon the basis on which the Consolidated Financial Statements are presented.

In respect of financial instruments, the Group accounting policy is to designate all financial assets as fair value through profit or loss, including
purchased reinsurance receivables.

c. Consolidation
The Consolidated Financial Statements incorporate the Financial Statements of the Company, and entities controlled by the Company (its
subsidiaries), for the years ended 31 December 2019 and 2018. Control exists when the Group is exposed to, or has the right to, variable returns
from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group
takes into consideration potential voting rights that are currently exercisable. The acquisition date is the date on which control is transferred to
the acquirer. The financial results of subsidiaries are included in the Consolidated Financial Statements from the date that control commences
until the date that control ceases. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests
even if doing so causes non-controlling interests to have a deficit balance.

55
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

The Group uses the acquisition method of accounting to account for business combinations. The cost of an acquisition is measured as the fair
value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of acquisition directly attributable to the
acquisition. Acquisition-related costs are charged to the Consolidated Income Statement in the year in which they are incurred.

Certain Group subsidiaries underwrite as corporate members of Lloyd’s on Syndicates managed by Coverys Managing Agency Limited and Capita
Managing Agency Limited. In view of the several and direct liability of underwriting members at Lloyd’s for the transactions of Syndicates in which
they participate, only attributable shares of transactions, assets and liabilities of those Syndicates are included in the Consolidated Financial
Statements. The Group continues to conclude that it remains appropriate to consolidate only its share of the result of these Syndicates. The Group
is the sole provider of capacity on Syndicate 1110, and these Consolidated Financial Statements include 100.00% of the economic interest in this
Syndicate. For Syndicate 1991, the Group provides 24.21% of the capacity on the 2017 year of account, and 0.04% on the 2018 and 2019 years of account.
For Syndicate 3330, the Group provides 100.00% of the capacity on the 2017 year of account and 10% on the 2018 year of account. These Consolidated
Financial Statements include the Group’s relevant share of the result for those years and attributable assets and liabilities.

Associates are those entities in which the Group has power to exert influence but which it does not control. Investments in associates are
accounted for using the equity method of accounting. Under this method the investments are initially measured at cost. Thereafter the Group’s
share of post-acquisition profits or losses are recognised in the Consolidated Income Statement and adjusted against the cost of the investment
included in the Consolidated Statement of Financial Position.

When the Group’s share of losses equals or exceeds the carrying amount of the investment in the associate, the carrying amount is reduced to nil
and recognition for the losses is discontinued except to the extent that the Group has incurred obligations in respect of the associate.

Equity accounting is discontinued when the Group no longer has significant influence over the investment.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated in preparing the
Consolidated Financial Statements. Unrealised losses are also eliminated unless the transaction provides evidence of impairment of the
asset transferred. Where necessary, amounts reported by subsidiaries have been adjusted to conform to the Group’s accounting policies.
Non-controlling interests represent the portion of profit or loss and net assets not held by the Group and are presented separately in the
Consolidated Income Statement and Consolidated Statement of Comprehensive Income and within equity in the Consolidated Statement
of Financial Position, separately from the equity attributable to the shareholders of the parent.

Insurance broking cash, receivables and payables held by subsidiary companies which act as intermediaries, other than any receivable for
fees, commissions and interest earned on a transaction, are not included in the Group’s Consolidated Statement of Financial Position as the
subsidiaries act as agents for the client in placing the insurable risks of their clients with insurers and as such are not liable as principals for
amounts arising from such transactions.

d. Going concern
The Consolidated Financial Statements have been prepared on a going-concern basis. At the date of signing these Consolidated Financial
Statements, the Group’s financial position and forecasts for 2020 and 2021 demonstrate that it has adequate cash resources to meet its
liabilities as they fall due. The Group has continued to make advances with its strategy, including the continuation of legacy deals and ongoing
development of the Program management business.

On the 29 April 2020 the Group announced new capital of £80.3m (US$100m), to further strengthen the Group’s financial resources and provide
additional funds to capitalise on opportunities in its Legacy and Program management businesses.

Covid-19 impact
The Board has considered the potential impact of the recent Covid-19 pandemic and believes that it will have a limited impact on the Group’s existing
business. Significant work has been performed by the Group, which confirmed the ability of the Group and its subsidiaries to continue to operate as
going concerns. Regulated entities within the Group have performed stress tests to assess going-concern capabilities under various scenarios, which
has confirmed the adequacy of their capital bases and ability to continue to meet regulatory capital requirements under these scenarios.

Impact on Legacy business
Whilst some delays in completing new legacy deals may be experienced, it is believed that the impact of the pandemic on the wider insurance
industry will provide future opportunity for the Group.

The Group’s existing legacy books have limited exposure to unexpired risks. Given the scale of insurance risk underwritten, diversification across
different classes of insurance and levels of highly rated reinsurance protection available in the insurance company subsidiaries; the Group is well
protected against the likelihood of any significant future claims.

56
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Notes to the Consolidated Financial Statements continued

For the year ended 31 December 2019

2. Accounting policies continued
d. Going concern continued
Impact on Program business
Growth in program premiums may slow with lower levels of economic and business activity anticipated during 2020, however the rapid increase in
program premiums written in 2019 will result in significantly increased levels of earned premiums and commissions being achieved during 2020.

Impact on investment portfolios
The Group has a defensive positioning in its portfolio with 92% of invested assets currently held in BBB or better. As a result, the Group has only
seen a 1.2% unrealised loss on the investment portfolio for the period from 1 January 2020 to 30 April 2020.

Impact on operations
The Group has moved to protect staff by closing all offices in accordance with government guidelines in the countries in which it operates.
Group staff and systems have adapted well to remote working with no significant degrading of operations and performance.

Given these factors, the Directors have a reasonable expectation that the Group will be able to continue in operational existence for the
foreseeable future. For the purposes of these Consolidated Financial Statements, this is considered to be a minimum of 12 months from the
signing date.

e. Foreign currency translation
Functional and presentational currency
Items included in the Financial Statements of each of the Group’s entities are measured using the currency of the primary economic environment
in which the entity operates (the ‘functional currency’). The Consolidated Financial Statements are presented in sterling, which is the Group’s
presentational currency.

Transactions and balances
Transactions in foreign currencies are recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the end of the reporting
period; the resulting exchange gain or loss is recognised in the Consolidated Income Statement. Non-monetary items recorded at historical cost
in a foreign currency are translated using the exchange rate as at the date of the initial transaction and are not subsequently restated.

Group translation
The assets and liabilities of overseas subsidiaries, including associated goodwill, held in functional currencies other than the Group’s
presentational currency are translated at the exchange rate as at the period end date. Income and expenses are translated at average rates
for the period. All resulting exchange differences are recognised in other comprehensive income and accumulated in the foreign currency
translation reserve in the Consolidated Statement of Financial Position.

On the disposal of foreign operations, cumulative exchange differences previously recognised in other comprehensive income are recognised in
the Consolidated Income Statement as part of the gain or loss on disposal.

f. Premiums
Gross premiums written represent premiums on business commencing in the financial year together with adjustments to premiums written in
previous accounting periods and estimates for premiums from contracts entered into during the course of the year. Gross premiums written are
stated before deduction of brokerage and commission but net of taxes and duties levied on premiums.

Unearned premiums
A provision for unearned premiums represents that part of the gross premiums written that is estimated will be earned in the following financial
periods. It is calculated on a time apportionment basis having regard, where appropriate, to the incidence of risk. For After the Event (ATE) policies
written by the Group, premiums remain unearned until the point at which the claims exposures relating to these policies become crystallised.

Reinsurance premium costs are allocated to financial periods to reflect the protection arranged in respect of the business written and earned.

Acquisition costs
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 Consolidated Income Statement.

g. 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 (increased)/released in the
Consolidated Income Statement.

h. Insurance contract provisions and reinsurers’ share of insurance liabilities
Provisions are made in the insurance company subsidiaries and in the Lloyd’s Syndicates on which the Group participates for the full estimated
costs of claims notified but not settled, including claims handling costs, on the basis of the best information available, taking account of inflation
and latest trends in court awards. The Directors of the subsidiaries, with the assistance of run-off managers, independent actuaries and internal
actuaries, have established such provisions on the basis of their own investigations and their best estimates of insurance payables, in accordance
with accounting standards. Legal advice is taken where appropriate. Deductions are made for salvage and other recoveries as appropriate.

57
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

The provisions for claims incurred but not reported (IBNR) have been based on a number of factors including previous experience in claims and
settlement patterns, the nature and amount of business written, inflation and the latest available information as regards specific and general
industry experience and trends.

A reinsurance asset (reinsurers’ share of technical provisions) is recognised to reflect the amount estimated to be recoverable under the
reinsurance contracts in respect of the outstanding claims reported and IBNR. The amount recoverable from reinsurers is initially valued on the
same basis as the underlying claims provision. The amount recoverable is reduced when there is an event arising after the initial recognition that
provides objective evidence that the Group may not receive all amounts due under the contract.

Neither the outstanding claims nor the provisions for IBNR has been discounted.

The uncertainties which are inherent in the process of estimating are such that, in the normal course of events, unforeseen or unexpected
future developments may cause the ultimate cost of settling the outstanding liabilities to differ materially from that estimated. Any differences
between provisions and subsequent settlements are recorded in the Consolidated Income Statement in the year which they arise.

Having regard to the significant uncertainty inherent in the business of insurance as explained in Note 3, and in light of the information available,
in the opinion of the Directors the provisions for outstanding claims and IBNR in the Consolidated Financial Statements are fairly stated.

Provision for future claims handling costs
Provision for future run-off costs relating to the Group’s run-off businesses is made to the extent that the estimate of such costs exceeds the
estimated future investment income expected to be earned by those businesses.

Estimates are made for the anticipated costs of running off the business of those insurance subsidiaries and the Group’s participation in
Syndicates which have insurance businesses in run-off. Where insurance company subsidiaries have businesses in run-off and underwrite new
business, management estimates the run-off costs and the future investment income relating to the run-off business. Syndicates are treated as
being in run-off for the Consolidated Financial Statements where they have ceased writing new business and, in the opinion of management,
there is no current probable reinsurer available to close the relevant syndicate year of account.

Changes in the estimates of such costs and future investment income are reflected in the year in which the estimates are made.

When assessing the amount of any provision to be made, the future investment income and claims handling and all other costs of all the
insurance company subsidiaries’ and syndicates’ businesses in run-off are considered in aggregate.

The uncertainty inherent in the process of estimating the period of run-off and the pay-out pattern over that period, the anticipated run-off
administration costs to be incurred over that period and the level of investment income to be received is such that in the normal course of
events unforeseen or unexpected future developments may cause the ultimate costs of settling the outstanding liabilities to differ from that
previously estimated.

Unexpired risks provision
Provisions for unexpired risks are made where the costs of outstanding claims, related expense and deferred acquisition costs are expected
to exceed the unearned premium provision carried forward at the end of the reporting period. The provision for unexpired risks is calculated
separately by reference to classes of business which are managed together, after taking into account relevant investment return.

i. 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.

j. Structured settlements
Certain of the US insurance company subsidiaries have entered into structured settlements whereby their liability has been settled by the
purchase of annuities from third party life insurance companies in favour of the claimants. The subsidiary retains the credit risk in the unlikely
event that the life insurance company defaults on its obligations to pay the annuity amounts. Provided that the life insurance company continues
to meet the annuity obligations, no further liability will fall on the insurance company subsidiary. The amounts payable to claimants are
recognised in liabilities. The amount payable to claimants by the third party life insurance companies are also shown in liabilities as reducing the
Group’s liability to nil.

In the opinion of the Directors, this treatment reflects the substance of the transaction on the basis that any remaining liability of Group
companies under structured settlements will only arise upon the failure of the relevant third party life insurance companies and will be reduced
by any available reinsurance cover.

Should the Directors become aware of a claim arising from a policy holder that a third party life insurance company responsible for the payment
of an annuity under a structured settlement may not be in a position to meet its annuity obligations in full, appropriate provision will be made for
any such failure.

Disclosure of the position in relation to structured settlements is shown in Note 21.

58
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Notes to the Consolidated Financial Statements continued

For the year ended 31 December 2019

2. Accounting policies continued
k. Segmental reporting
The Group’s business segments are based on the Group’s management and internal reporting structures and represent the level at which
financial information is reported to the Board, being the chief operating decision maker as defined in IFRS 8.

l. Financial instruments
Financial instruments are recognised in the Consolidated Statement of Financial Position at such time that the Group becomes a party to the
contractual provisions of the financial instrument. A financial asset is derecognised when the contractual rights to receive cash flows from the
financial assets expire, or where the financial assets have been transferred, together with substantially all the risks and rewards of ownership.
Financial liabilities are derecognised if the Group’s obligations specified in the contract expire, are discharged or cancelled.

Financial assets
i) Acquisition
On acquisition of a financial asset, the Group is required under IFRS to classify the asset into one of the following categories: ‘financial assets
at fair value through profit and loss’, ‘loans and receivables held to maturity’ and ‘available for sale’. The Group does not currently hold assets
classified as ‘held to maturity’ and ‘available for sale’.

ii) Financial assets at fair value through profit and loss
All financial assets, other than cash, loans and receivables, are currently designated as fair value through profit and loss upon initial recognition
because they are managed and their performance is evaluated on a fair value basis. Information about these financial assets is provided
internally on a fair value basis to the Group’s key management. The Group’s investment strategy is to invest and evaluate their performance with
reference to their fair values.

iii) Fair value measurement
When available, the Group measures the fair value of an instrument using quoted prices in an active market for that instrument.

If a market for a financial instrument is not active, the Group establishes fair value using a valuation technique. Valuation techniques include
using recent arm’s length transactions between knowledgeable, willing parties (if available) and reference to the current fair value of other
instruments that are substantially the same or discounted cash flow analyses.

Assets and long positions are measured at a bid price; liabilities and short positions are measured at an asking price. Where the Group has
positions with offsetting risks, mid-market prices are used to measure the offsetting risk positions and a bid or asking price adjustment is applied
only to the net open position as appropriate. Fair values reflect the credit risk of the instrument and include adjustments to take account of
the credit risk of the Group entity and counterparty where appropriate. Fair value estimates obtained from models are adjusted for any other
factors, such as liquidity risk or model uncertainties, to the extent that the Group believes a third party market participant would take them into
account in pricing a transaction.

Upon initial recognition, attributable transaction costs relating to financial instruments at fair value through profit or loss are recognised when
incurred in other operating expenses in the Consolidated Income Statement. Financial assets at fair value through profit and loss are measured
at fair value, and changes therein are recognised in the Consolidated Income Statement. Net changes in the fair value of financial assets at fair
value through profit and loss exclude interest and dividend income, as these items are accounted for separately as set out in the investment
income section below.

iv) Insurance receivables and payables
Insurance receivables and payables are recognised when due. These include amounts due to and from agents, brokers and insurance contract
holders. Insurance receivables are classified as ‘loans and receivables’ as they are non-derivative financial assets with fixed or determinable
payments that are not quoted on an active market. Insurance receivables are measured at amortised cost less any provision for impairment.
Insurance payables are stated at amortised cost.

v) Investment income
Investment income consists of dividends, interest, realised and unrealised gains and losses and exchange gains and losses on financial assets
at fair value through profit and loss. The realised gains or losses on disposal of an investment are the difference between the proceeds and the
original cost of the investment. Unrealised investment gains and losses represent the difference between the carrying amount at the reporting
date, and the carrying amount at the previous period end or the purchase value during the period.

Financial liabilities
Borrowings
Borrowings are initially recorded at fair value less transaction costs incurred. Subsequently borrowings are stated at amortised cost and interest
is recognised in the Consolidated Income Statement over the period of the borrowings.

59
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Senior and subordinated debt
Randall & Quilter Investment Holdings Ltd. and Group subsidiaries have issued senior and subordinated debt. At Group level this is treated
as a financial liability and interest charges are recognised in the Consolidated Income Statement.

Derivative financial instruments
Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at
their fair value. The best evidence of fair value of a derivative at initial recognition is the transaction price. The method of recognising the resulting
fair value gains or losses depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being
hedged. Fair values are obtained from quoted market prices in active markets, recent market transactions, and valuation techniques which
include discounted cash flow models. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.

The Group has not designated any derivatives as fair value hedges, cash flow hedges or net investment hedges.

m. Property, plant and equipment
All assets included within property, plant and equipment (PPE) are carried at historical cost less depreciation and assessed for impairment.
Depreciation is calculated to write down the cost less estimated residual value of motor vehicles, office equipment, IT equipment, freehold
property and leasehold improvements by the straight-line method over their expected useful lives.

The principal rates per annum used for this purpose are:

Motor vehicles
Office equipment
IT equipment
Freehold property
Leasehold improvements

25
8–50
20–25
2
Term of lease

The gain or loss arising on the disposal of an item of PPE is determined as the difference between the sales proceeds and the carrying amount
of the asset and is recognised in the Consolidated Income Statement.

n. Leases
The Group has applied IFRS 16 using the modified retrospective approach and therefore the comparative information has not been restated and
continues to be reported under IAS 17 and IFRIC.

The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at
cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus
any initial direct costs incurred and an estimate of costs to refurbish the underlying asset, less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the
useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis
as those of property, plant and equipment. In addition, the right-of-use asset is reviewed for impairment losses, if any, and adjusted for certain
re-measurements of the lease liability.

The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less
and leases of low-value assets, including IT equipment. The Group recognises the lease payments associated with these leases as an expense to
the Consolidated Income Statement on a straight-line basis over the lease term.

Right-of-use assets are disclosed under note 17.

o. Goodwill
The Group uses the acquisition method in accounting for acquisitions. The difference between the cost of acquisition and the fair value of the
Group’s share of the identifiable net assets acquired is capitalised and recorded as goodwill. If the cost of an acquisition is less than the fair
value of the net assets of the subsidiary acquired the difference is recognised directly in the Consolidated Income Statement as goodwill on
bargain purchase.

Goodwill acquired in a business combination is initially measured at cost, being the excess of the fair value of the consideration paid for the
business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial
recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment at the cash generating unit
level, as shown in Note 15, on a biannual basis or if events or changes in circumstances indicate that the carrying amount may be impaired.

60
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Notes to the Consolidated Financial Statements continued

For the year ended 31 December 2019

2. Accounting policies continued
p. Other intangible assets
Intangible assets, other than goodwill, that are acquired separately are stated at cost less accumulated amortisation and impairment.

Intangible assets acquired in a business combination, and recognised separately from goodwill, are recognised initially at fair value at the
acquisition date.

Amortisation is charged to operating expenses in the Consolidated Income Statement as follows:

Purchased IT software
On acquisition of insurance companies in run-off
On acquisitions – other

3–5 years, on a straight-line basis
Estimated pattern of run-off
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 Consolidated Income Statement to reduce the carrying amount to the
recoverable amount.

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.

Rights to customer contractual relationships
Costs directly attributable to securing the intangible rights to customer contractual relationships are recognised as an intangible asset where
they can be identified separately and measured reliably, and it is probable that they will be recovered by directly related future profits. These
costs are amortised on a straight-line basis over the useful economic life which is deemed to be 15 years and are carried at cost less accumulated
amortisation and impairment losses.

q. Employee Benefits
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 Consolidated Income Statement. 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 Consolidated Statement of Financial Position. 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.

Subject to the restrictions relating to the recognition of a pension surplus, all actuarial gains and losses are recognised in full in other
comprehensive income in the period in which they occur.

r. Cash and cash equivalents
For the purposes of the Consolidated Cash Flow Statement, cash and cash equivalents comprise cash at bank and other short-term highly liquid
investments with a maturity of three months or less from the date of acquisition, and bank overdrafts which are repayable on demand.

s. Finance costs
Finance costs comprise interest payable and are recognised in the Consolidated Income Statement in line with the effective interest rate
on liabilities.

61
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

t. Operating expenses
Operating expenses are accounted for in the Consolidated Income Statement in the period to which they relate.

Pre-contract costs
Directly attributable pre-contract costs are recognised as an asset when it is virtually certain that a contract will be obtained and the contract
is expected to result in future net cash inflows in excess of any amounts recognised as an asset.

Pre-contract costs are charged to the Consolidated Income Statement over the shorter of the life of the contract or five years.

Onerous contracts
Onerous contract provisions are provided for in circumstances where the Group has a present legal or constructive obligation as a result of past
events to provide services, the costs of which exceed future income. The costs of providing the services are projected based on management’s
assessment of the contract.

Arrangement fees
Arrangement fees in relation to loan facilities are deducted from the relevant financial liability and amortised over the period of the facility.

u. Other income
Other income is stated excluding any applicable value added tax and includes the following items:

Management fees
Management fees are from non-Group customers and are recognised when the right to such fees is established through a contract and to the
extent that the services concerned have been performed. Billing follows the supply of service and the consideration is unconditional because
only the passage of time is required before the payment is due.

Purchased reinsurance receivables
The Group accounts for these financial assets at fair value through profit and loss. Fair value is defined as the price at which an orderly
transaction would take place between market participants at the reporting date and is therefore an estimate which requires the use of
judgement.

Insurance commissions from Managing General Agencies
Insurance commissions comprise brokerage and profit commission arising from the placement of insurance contracts. Brokerage is recognised
at the inception date of the policy, or the date of contractual entitlement, if later. Alterations in brokerage arising from premium adjustments are
taken into account as and when such adjustments are notified. To the extent that the Group is contractually obliged to provide services after
this date, a suitable proportion of income is deferred and recognised over the life of the relevant contracts to ensure that revenue appropriately
reflects the cost of fulfilling those obligations. Profit commission is recognised when the right to such profit commission is established through
a contract but only to the extent that a reliable estimate of the amount due can be made. Such estimates are made on a prudent basis that
reflects the level of uncertainty involved.

v. Share-based payments
The Group issues equity settled payments to certain of its employees.

The cost of equity settled transactions with employees is measured by reference to the fair value at the date at which they are granted and is
recognised as an expense on a straight-line basis over the vesting period. The fair value is measured using the binomial option pricing method,
taking into account the terms and conditions on which the awards were granted.

62
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Notes to the Consolidated Financial Statements continued

For the year ended 31 December 2019

2. Accounting policies continued
w. Current and deferred income tax
Tax on the profit or loss for the year comprises current and deferred tax.

Tax is recognised in the Consolidated Income Statement except to the extent that it relates to items recognised in other comprehensive income,
in which case it is recognised in the Consolidated Statement of Comprehensive Income.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in
the countries where the Company’s subsidiaries and associates operate and generate taxable income.

Deferred tax liabilities are provided in full, using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the Consolidated Financial Statements. However, if the deferred tax arises from initial recognition of an
asset or liability in a transaction other than a business combination and which, at the time of the transaction, affects neither accounting, nor
taxable profit or loss, it is not provided for.

Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which these temporary
differences can be utilised.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax
liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the
taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. Deferred tax assets and liabilities
are determined using tax rates that have been enacted or substantively enacted by the period end date and are expected to apply when the
related deferred tax asset is realised, or the deferred tax liability is settled.

x. Share capital
Ordinary shares and Preference A and B shares are classified as equity. Incremental costs directly attributable to the issue of new shares or
options are shown in equity as a deduction, net of tax, from the proceeds.

y. Distributions
Distributions payable to the Company’s shareholders are recognised as a liability in the Consolidated Financial Statements in the period in which
the distributions are declared and approved.

3. Estimation techniques, uncertainties and contingencies
Estimates and judgements are continually evaluated, and are based on historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.

Significant uncertainty in technical provisions
Significant uncertainty exists as to the accuracy of the insurance contract provisions and the reinsurers’ share of insurance liabilities established
in the insurance company subsidiaries and the Lloyd’s Syndicates on which the Group participates as shown in the Consolidated Statement of
Financial Position. The ultimate costs of claims and the amounts ultimately recovered from reinsurers could vary materially from the amounts
established at the year end.

In the event that further information were to become available to the Directors of an insurance company subsidiary which gave rise to material
additional liabilities, the going concern basis might no longer be appropriate for that company and adjustments would have to be made to
reduce the value of its assets to their realisable amount, and to provide for any further liabilities which might arise in that subsidiary. The Group
bears no financial responsibility for any liabilities or obligations of any insurance company subsidiary in run-off, except as disclosed. Should any
insurance company subsidiary cease to be able to continue as a going concern in the light of further information becoming available, any loss
to the Group would thus be restricted to the book value of their investment in and amounts due from that subsidiary and any guarantee liability
that may arise.

Claims provisions
The Consolidated Financial Statements include provisions for all outstanding claims and IBNR, for related reinsurance recoveries and for all costs
expected to be incurred to run-off its liabilities.

The insurance contract provisions including IBNR are based upon actuarial and other studies of the ultimate cost of liabilities including
exposure based and statistical estimation techniques. There are significant uncertainties inherent in the estimation of each insurance company
subsidiary’s and Lloyd’s Syndicate’s insurance liabilities and reinsurance recoveries. There are many assumptions and estimation techniques that
may be applied in assessing the amount of those provisions which individually could have a material impact on the amounts of liabilities, related
reinsurance assets and reported shareholders’ equity funds. Actual experience will often vary from these assumptions, and any consequential
adjustments to amounts previously reported will be reflected in the results of the year in which they are identified. Potential adjustments arising
in the future could, if adverse in the aggregate, exceed the amount of shareholders’ equity funds of an insurance company subsidiary.

Independent external actuaries are contracted to provide a Statement of Actuarial Opinion for the Lloyd’s Syndicates that the Group participates
on. This statement confirms that, in the opinion of the actuary, the booked reserves are greater than or equal to their view of best estimate.

63
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

In the case of the Group’s larger insurance companies, independent external actuaries provide a view of best estimate reserves and confirm that
the held reserves are within their range of acceptable estimates.

The business written by the insurance company subsidiaries consists in part of long-tail liabilities, including asbestos, pollution, health hazard
and other US liability insurance. The claims for this type of business are typically not settled until many years after policies have been written.
Furthermore, much of the business written by these companies is reinsurance and retrocession of other insurance companies’ business, which
lengthens the settlement period.

Significant delays occur in the notification and settlement of certain claims and a substantial measure of experience and judgement is involved
in making the assumptions necessary for assessing outstanding liabilities, the ultimate cost of which cannot be known with certainty at the
period end date. The gross insurance contract provisions and related reinsurers’ share of insurance liabilities are estimated on the basis of
information currently available. Provisions are calculated gross of any reinsurance recoveries. A separate estimate is made of the amounts that
will be recoverable from reinsurers based upon the gross provisions and having due regard to collectability.

The insurance contract provisions include significant amounts in respect of notified and potential IBNR claims for long-tail liabilities. The
settlement of most of these claims is not expected to occur for many years, and there is significant uncertainty as to the timing of such
settlements and the amounts at which they will be settled.

While many claims are clearly covered under policy wordings and are paid quickly, many other claims are subject to significant disputes, for
example over the terms of a policy and the amount of the claim. The provisions for disputed claims are based on the view of the Directors of each
insurance company subsidiary as to the expected outcomes of such disputes. Claim types impacted by such disputes include asbestos, pollution
and certain health hazards and retrocessional reinsurance claims.

Uncertainty is further increased because of the potential for unforeseen changes in the legal, judicial, technological or social environments, which
may increase or decrease the cost, frequency or reporting of claims, and because of the potential for new sources or types of claim to emerge.

Asbestos, pollution and health hazard claims
The estimation of the provisions for the ultimate cost of claims for asbestos, pollution, health hazard and other US liability insurance is subject
to a range of uncertainties that is generally greater than those encountered for other classes of insurance business. As a result it is not possible
to determine the future development of asbestos, pollution, health hazard and other US liability insurance with the same degree of reliability
as with other types of claims. Consequently, traditional techniques for estimating claims provisions cannot wholly be relied upon. The Group
employs further techniques which utilise, where practical, the exposure to these losses by contract to determine the claims provisions.

Insurance claims handling expenses
The provision for the cost of handling and settling outstanding claims to extinction and all other costs of managing the run-off is based on
an analysis of the expected costs to be incurred in run-off activities, incorporating expected savings from the reduction of transaction volumes
over time.

The period of the run-off may be between 5 and 50 years depending upon the nature of the liabilities within each insurance company subsidiary.
Ultimately, the period of run-off is dependent on the timing and settlement of claims and the collection of reinsurance recoveries; consequently
similar uncertainties apply to the assessment of the provision for such costs.

Reinsurance recoveries
Reinsurance recoveries are included in respect of claims outstanding (including IBNR claims) and claims paid after making provision for
irrecoverable amounts.

The reinsurance recoveries on IBNR claims are estimated based on the recovery rate experienced on notified and paid claims for each class
of business.

The insurance company subsidiaries are exposed to disputes on contracts with their reinsurers and the possibility of default by reinsurers. In
establishing the provision for non-recovery of reinsurance balances, the Directors of each insurance company subsidiary consider the financial
strength of each reinsurer, its ability to settle their liabilities as they fall due, the history of past settlements with the reinsurer, and the Group’s own
reserving standards and have regard to legal advice regarding the merits of any dispute.

Recognition and derecognition of assets and liabilities in run-off
In the course of the Group’s business of managing the run-off of insurers and brokers, accounting records are initially recognised in the form
provided by previous management. As part of managing run-off the Group carries out extensive enquiries to clarify the assets and liabilities of
the run-off and to obtain all available and relevant information. Those enquiries may lead the Group to identify and record additional assets and
liabilities relating to that run-off, or to conclude that previously recognised assets and liabilities should be increased or no longer exist and should
be derecognised. Where decisions to derecognise liabilities are supported by an absence of relevant information there may remain a remote
possibility that a third party may subsequently provide evidence of its entitlement to such derecognised liabilities which may lead to a transfer
of economic benefit to settle such entitlement. The right of a third party to such a settlement will be recognised in the accounting period in which
the position is clarified.

64
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Notes to the Consolidated Financial Statements continued

For the year ended 31 December 2019

3. Estimation techniques, uncertainties and contingencies continued
Defined benefit pension scheme
The pension assets and post retirement liabilities are calculated in accordance with IAS 19. The assets, liabilities and Consolidated Income
Statement charge or credit, calculated in accordance with IAS 19, are sensitive to the assumptions made, including inflation, interest rate,
investment return and mortality. IAS 19 compares, at a given date, the current market value of a pension fund’s assets with its long-term liabilities,
which are calculated using a discount rate in line with yields on high quality bonds of suitable duration and currency. As such, the financial
position of a pension fund on this basis is highly sensitive to changes in bond rates and equity markets.

Litigation, mediation and arbitration
The Group in common with the insurance industry in general, is subject to litigation, mediation and arbitration, and regulatory, governmental
and other sectorial inquiries in the normal course of its business. The Directors do not believe that, in the aggregate, current litigation,
governmental or sectorial inquiries and pending or threatened litigation or dispute is likely to have a material impact on the Group’s financial
position. However, if the outcome of any individual dispute differs substantially from expectation, there could be a material impact on the
Group’s profit or loss, financial position or cash flows in the year in which that impact is recognised.

Changes in foreign exchange rates
The Group’s Consolidated Financial Statements are prepared in sterling. Therefore, fluctuations in exchange rates used to translate other
currencies, particularly the Euro and US dollar, into sterling will impact the reported Consolidated Statement of Financial Position, results of
operations and cash flows from year to year. These fluctuations in exchange rates will also impact the sterling value of the Group’s investments
and the return on its investments. Income and expenses are translated into sterling at average exchange rates. Monetary assets and liabilities
are translated at the closing exchange rates at the period end date.

Assessment of impairment of intangible assets
Goodwill and US insurance authorisation licences are deemed to have an indefinite life as they are expected to have a value in use that does
not erode or become obsolete over the course of time. Consequently, they are not amortised but tested for impairment on a biannual basis
or if events or changes in circumstances indicate that the carrying amount may be impaired.

The impairment tests involve evaluating the recoverable amount of the Group’s cash generating units and comparing them to the relevant
carrying amounts. The recoverable amount of each cash generating unit is determined based on cash flow projections. These cash flow
projections are based on the financial budgets approved by management covering a five year period. Management also consider the current
net asset value and earnings of each cash generating unit for impairment.

Provisions
Estimates are based on reports provided by recognised specialists as well as the Group’s own internal review. Liabilities may not be settled for
many years and significant judgement is involved in making an assessment of these liabilities, the period over which they will be settled and
where appropriate the discount rate to be applied to assess the present value of the amounts to be settled.

4. Management of insurance and financial risks
The Group’s activities expose it to a variety of insurance and financial risks. The Board is responsible for managing the Group’s exposure to these
risks and, where possible, for introducing controls and procedures that mitigate the effects of the exposure to risk.

The Group has a Risk Committee which is a formal Committee of the Board. The Committee has responsibility for maintaining the effectiveness
of the Group’s Risk Management Framework, systems of internal control, risk policies and procedures and adherence to risk appetite.

The following describes the Group’s exposure to the more significant risks and the steps management have taken to mitigate their impact from
a quantitative and qualitative perspective.

a. Investment risks (including market risk and interest rate risk
The Group has a Capital and Investment Committee which is responsible, inter alia, for setting and recommending to the Board an investment
strategy for the management of the Group’s assets owned or managed by companies within the Group. The investment of the Group’s financial
assets, except certain deposits with ceding undertakings, is managed by external investment managers, appointed by the Group Capital and
Investment Committee. The Group Capital and Investment Committee is responsible for setting the policy to be followed by the investment
managers. The investment strategy strives to mitigate the impact of interest rate fluctuation and credit risks and to provide appropriate liquidity,
in addition to monitoring and managing foreign exchange exposures.

The Group Capital and Investment Committee is also responsible for keeping under review the investment control procedures, monitoring and
amending (where appropriate) the investment policies and oversight, monitoring Group cash flow, oversight of all banking and other financial
commitments and covenants across the Group, as well as any regulatory requirements in relation to Group solvency.

The main objective of the investment policy is to maximise return whilst maintaining and protecting the principal value of funds under management.

65
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

2019

£000

188,030

345,296

10,991

15,646

252,741

812,704

23.1

42.5

1.4

1.9

31.1

2018

£000

63,228

202,424

24,369

105,397

236,923

632,341

10.0

32.0

3.8

16.7

37.5

100.0

The investment allocation (including surplus cash) at 31 December 2019 and 2018 is shown below:

Government and government agencies

Corporate bonds

Equities

Cash-based investment funds

Cash and cash equivalents

Government and government agencies

Corporate bonds

Equities

Cash-based investment funds

Cash and cash equivalents

Corporate bonds include asset backed mortgage obligations totalling £10,914k (2018: £6,833k).

Based on invested assets at external managers of £559,963k as at 31 December 2019 (2018: £395,418k), a 1 percentage increase/decrease in
market values would result in an increase/decrease in the profit before income taxes for the year to 31 December 2019 of £5,600k (2018: £3,954k).

(i) Pricing risk
The following table shows the fair values of financial assets using a valuation hierarchy; the fair value hierarchy has the following levels:

Level 1 – Valuations based on quoted prices in active markets for identical instruments. An active market is a market in which transactions for the
instrument occur with sufficient frequency and volume on an ongoing basis such that quoted prices reflect prices at which an orderly transaction
would take place between market participants at the measurement date.

Level 2 – Valuations based on quoted prices in markets that are not active or based on pricing models for which significant inputs can be
corroborated by observable market data.

Level 3 – Valuations based on inputs that are unobservable or for which there is limited activity against which to measure fair value.

2019

Government and government agencies

Corporate bonds

Equities

Cash-based investment funds

Purchased reinsurance receivables (Note 19)

Total financial assets measured at fair value

2018

Government and government agencies

Corporate bonds

Equities

Cash-based investment funds

Purchased reinsurance receivables (Note 19)

Total financial assets measured at fair value

Level 1
£000

180,970

342,538

10,991

–

534,499

Level 1
£000

58,954

200,416

24,369

105,397

–

389,136

Level 2
£000

7,060

2,758

–

15,646

–

25,464

Level 2
£000

4,274

2,008

–

6,282

Level 3
£000

–

5,969

Level 3
£000

–

3,393

Total
£000

188,030

345,296

10,991

15,646

5,969

565,932

Total
£000

63,228

202,424

24,369

105,397

3,393

398,811

66
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Notes to the Consolidated Financial Statements continued

For the year ended 31 December 2019

4. Management of insurance and financial risks continued
a. Investment risks (including market risk and interest rate risk) continued
(i) Pricing risk continued
The following table shows the movement on Level 3 assets measured at fair value:

Opening balance

Total net (losses)/gains recognised in the Consolidated Income Statement

Acquisitions

Disposals

Exchange adjustments

Closing balance

2019

£000

3,393

(93)

3,528

(692)

(167)

5,969

2018

£000

3,750

–

(614)

181

3,393

Level 3 investments (purchased reinsurance receivables) have been valued using detailed models outlining the anticipated timing and amounts
of future receipts. The net losses recognised in the Consolidated Income Statement in other income for the year amounted to £93k (2018: gains
£76k). The Group purchased further reinsurance receivables in 2019 of £3,528k (2018: Nil). Short-term delays in the anticipated receipt of these
investments will not have a material impact on their valuation.

There were no transfers between Level 1 and Level 2 investments during the year under review.

The following shows the maturity dates and interest rate ranges of the Group’s debt securities:

(ii) Liquidity risk
As at 31 December 2019
Maturity date or contractual re-pricing date

Total
£000

Less than one year
£000

After one year but
less than two years
£000

After two years but
less than three years
£000

After three years but
less than five years
£000

More than five years
£000

Debt securities

548,971

88,991

91,961

82,285

75,953

209,781

Interest rate ranges (coupon-rates)

Debt securities

0.38–8.75

2.38

1.38–2.50

1.50–5.51

3.15–6.88

Less than one year
%

After one year but
less than two years
%

After two years but
less than three years
%

After three years but
less than five years
%

More than five years
%

As at 31 December 2018
Maturity date or contractual re-pricing date

Total
£000

Less than one year
£000

After one year but
less than two years
£000

After two years but
less than three years
£000

After three years but
less than five years
£000

More than five years
£000

Debt securities

371,049

113,657

81,507

51,758

94,029

30,098

Interest rate ranges (coupon-rates)

Less than one year
%

After one year but
less than two years
%

After two years but
less than three years
%

After three years but
less than five years
%

More than five years
%

Debt securities

0.59–5.87

0.40–4.74

1.80–4.89

1.89–5.14

0.05–3.63

Liquidity risk is managed by the Group Capital and Investment Committee who monitor the cash position of each entity and for the Group as
a whole on a regular basis to ensure that sufficient funds are available to meet liabilities as they fall due. Liquidity risk is also monitored by the
Group’s financial planning and treasury function’s established cash flow and liquidity management processes.

67
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

iii) Interest rate risk
Fixed income investments represent a significant proportion of the Group’s assets and the Group Capital and Investment Committee continually
monitors investment strategy to minimise the risk of a fall in the portfolio’s market value.

The fair value of the Group’s investment portfolio of debt and fixed income securities is normally inversely correlated to movements in market
interest rates. If market interest rates rise, the fair value of the Group’s debt and fixed income investments would tend to fall and vice versa.

Debt and fixed income assets are predominantly invested in high-quality corporate, government and asset-backed bonds. The investments
typically have relatively short durations and terms to maturity.

The Group is exposed to interest rate risk within the Group’s financial liabilities. This exposure lies predominately with amounts owed to credit
institutions and debentures secured over the assets of the Company and its subsidiaries.

b. Credit risk
Credit risk arises where counterparties fail to meet their financial obligations as they fall due. The most significant area where it arises for the
Group is where reinsurers fail to meet their obligations in full as they fall due. In addition, the Group is exposed to the risk of disputes on individual
claims presented to its reinsurers or in relation to the contracts entered into with its reinsurers.

The ratings used in the below analysis are based upon the published rating of Standard & Poor’s or other recognised ratings agency.

As at 31 December 2019

Deposits with ceding undertakings

Reinsurers’ share of insurance liabilities

Receivables arising out of reinsurance contracts

As at 31 December 2018

Deposits with ceding undertakings

Reinsurers’ share of insurance liabilities

Receivables arising out of reinsurance contracts

A rated
£000

10,811

374,482

141,715

A rated
£000

3,014

231,381

57,319

B rated
£000

Less than B
£000

183

5,705

1,805

B rated
£000

299

4,048

4,742

–

Less than B
£000

–

Other*
£000

2,539

35,038

18,112

Other*
£000

1,287

39,686

9,970

Exposures of
less than £200k
£000

5,971

56,187

50,602

Exposures of
less than £200k
£000

1,731

25,242

25,275

Total
£000

19,504

471,412

212,234

Total
£000

6,331

300,357

97,306

* Other includes reinsurers who currently have no credit rating.

The reinsurers’ share of insurance liabilities is based upon a best estimate given the profile of the insurance provisions outstanding and the
related IBNR. Receivables arising out of reinsurance contracts are included in insurance and other receivables in the Consolidated Statement of
Financial Position.

The average credit period of receivables arising out of reinsurance contracts is as follows:

As at 31 December 2019

Percentage of receivables

As at 31 December 2018

Percentage of receivables

0–6
months
%

6–12
months
%

12–24
months
%

> 24
months
%

47.4

8.5

12.2

31.9

0–6
months
%

6–12
months
%

12–24
months
%

> 24
months
%

64.9

5.0

8.3

21.8

Part of the Group’s business consists of acquiring debts or companies with debts, which are normally past due. Any further analysis of these
debts is not meaningful. The Directors monitor these debts closely and make appropriate provision for impairment.

68
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Notes to the Consolidated Financial Statements continued

For the year ended 31 December 2019

4. Management of insurance and financial risks continued
b. Credit risk continued

Financial assets past
due but not impaired

As at 31 December 2019

Deposits with ceding undertakings

Reinsurers’ share of insurance liabilities

Receivables arising out of reinsurance contracts

Neither past due
nor impaired
£000

Past due
1–90 days
£000

Past due more
than 90 days
£000

Assets that have
been impaired
£000

Carrying value in
the balance sheet
£000

19,150

431,785

120,666

–

235

–

208

354

39,627

91,125

19,504

471,412

212,234

Financial assets past
due but not impaired

As at 31 December 2018

Deposits with ceding undertakings

Reinsurers’ share of insurance liabilities

Receivables arising out of reinsurance contracts

Neither past due
nor impaired
£000

Past due
1–90 days
£000

Past due more
than 90 days
£000

Assets that have
been impaired
£000

Carrying value in
the balance sheet
£000

5,877

238,682

80,589

–

235

–

288

454

61,675

16,194

6,331

300,357

97,306

The Directors believe the amounts past due but not impaired are recoverable in full.

Credit risk is managed by committees established by the Group, Coverys Managing Agency Limited (Coverys) and Capita PLC (Capita).

The Group Board has a Group Reinsurance Asset Committee, chaired by a Non-Executive Director, which meets quarterly. Its function is to
monitor and report on the Group’s Syndicate and non-Syndicate reinsurance assets and, where necessary, recommend courses of action to the
Group to protect the asset.

Coverys and Capita are the Lloyd’s Managing Agents which manage the Syndicates on which the Group participates. Coverys and Capita
have established Syndicate Management Committees in relation to each managed syndicate and the Group has representation on each of
these committees with the exception of the S1991 Committee on which the Group now only has a nominal participation. The committees are
responsible for establishing minimum security levels for all reinsurance purchases by the managed Syndicates by reference to appropriate rating
agencies for agreeing maximum concentration levels for individual reinsurers and intermediaries, and for dealing with any other issue relating to
reinsurance assets.

There are also a number of Key Risk Indicators pertaining to reinsurance security and concentration which have been developed under the
auspices of the Group Risk Committee and the Coverys and Capita Risk and Capital Committees, which monitor adherence to predefined risk
appetite and tolerance levels.

c. Currency risk
Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

The Group’s principal transactions are carried out in sterling and its exposure to foreign exchange risk arises primarily with respect to US Dollar
and Euros. This is the same as in the previous year.

The Group’s main objective in managing currency risk is to mitigate exposure to fluctuations in foreign exchange rates. There have been no
material changes in trading currencies during the year under review. The Group manages this risk by way of matching assets and liabilities by
individual entity. Asset and liability matching is monitored by the Group’s financial planning and treasury functions’ established cash flow and
liquidity management processes.

The Group’s financial assets are primarily denominated in the same currencies as its insurance and investment contract liabilities. This mitigates
the foreign currency exchange rate risk for the overseas operations. Thus, the main foreign exchange risk arises from assets and liabilities
denominated in currencies other than those in which insurance and investment contract liabilities are expected to be settled. The currency risk
is effectively managed by the Group through derivative financial instruments. Forward currency contracts are used to eliminate the currency
exposure on individual foreign transactions. The Group will not enter into these forward contracts until a firm commitment is in place.

69
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

The table below summarises the Group’s principal assets and liabilities by major currencies:

31 December 2019

Intangible assets

Reinsurers’ share of insurance liabilities

Financial instruments

Insurance receivables

Cash and cash equivalents

Insurance liabilities and insurance payables

Deferred tax and pension scheme obligations

Trade and other (payables)/receivables

Total

31 December 2018

Intangible assets

Reinsurers’ share of insurance liabilities

Financial instruments

Insurance receivables

Cash and cash equivalents

Insurance liabilities and insurance payables

Deferred tax and pension scheme obligations

Trade and other (payables)/receivables

Total

Sterling
£000

US Dollar
£000

1,426

44,501

234,180

215,358

17,298

545,972

178,512

99,092

143,159

151,796

Euro
£000

155

21,874

17,676

942

1,853

(495,642)

(720,133)

(42,299)

768

(29,208)

(17,450)

(73,133)

6,426

290,070

Sterling
£000

12,495

US Dollar
£000

7,331

132,807

135,495

67,812

67,019

307,562

95,047

130,839

102,794

(120)

(6,331)

(6,250)

Euro
£000

148

32,055

28,256

2,636

3,280

(270,060)

(415,514)

(59,211)

1,680

(11,637)

(358)

(157,674)

(29,845)

(7,360)

(15,082)

191,233

(554)

Other
£000

–

Other
£000

–

Total
£000

46,082

471,412

580,946

322,613

252,741

(1,258,074)

(16,802)

(108,672)

290,246

Total
£000

19,974

300,357

403,630

164,702

236,923

(744,785)

(10,315)

(194,848)

175,638

The analysis that follows is performed for reasonably possible movements in key variables with all other variables held constant, showing the
impact on profit before tax and equity due to changes in the fair value of currency sensitive monetary assets and liabilities including insurance
contract claim liabilities. The correlation of variables will have a significant effect in determining the ultimate impact on market risk, but to
demonstrate the impact due to changes in variables, variables had to be changed on an individual basis. It should be noted that movements
in these variables are non–linear.

Euro weakening

US Dollar weakening

Euro strengthening

US Dollar strengthening

31 December 2019

31 December 2018

Impact on
profit
£000

101

4,209

(122)

(5,144)

Impact on
equity*
£000

105

(28,965)

(127)

35,402

Impact on
profit
£000

Impact on
equity*
£000

958

(1,645)

(1,176)

1,342

(17,385)

(62)

21,248

Changes in
variables

10%

* Impact on equity reflects adjustments for tax, where applicable.

d. Capital management
The Group’s objectives with respect to capital sufficiency are to maintain capital at a level that provides a suitable margin over that deemed by
the Group’s regulators and supervisors as providing an acceptable level of policyholder protection, whilst remaining economically viable. The
Group is regulated in Bermuda by the Bermuda Monetary Authority (BMA). The BMA assesses the capital and solvency adequacy of the Group
and requires that sufficient capital is in place to meet the Bermuda Solvency Capital Requirement (BSCR). The BSCR generates a risk-based
capital measure by applying capital factors to capital and solvency return elements, including investments and other assets, premiums and
reserves, operational risk, and insurer-specific catastrophe exposure measures, in order to establish an overall measure of capital and surplus
for statutory solvency purposes.

The Group maintains a capital level that provides an adequate margin over the Group’s solvency capital requirements whilst maintaining
local capital which meets or exceeds the relevant local minima including, where appropriate, those relating to maintenance of external ratings.
This is monitored by way of a capital sufficiency assessment by the Group Risk Committee.

70
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Notes to the Consolidated Financial Statements continued

For the year ended 31 December 2019

4. Management of insurance and financial risks continued
e. Insurance risk
(i) Program management business
The Group underwrites live business through a network of Managing General Agents (which is largely reinsured). This program underwriting
business, is underwritten in the US by Accredited Surety and Casualty Inc. and in Europe by Accredited Insurance (Europe) Limited, both being AM
Best A- credit rated risk carriers.

The Group guideline is for program underwriting business reinsurers to meet a minimum of the AM Best A credit rating, in order to mitigate risk
and provide a high quality reinsurance security.

(ii) Syndicate participations
The Group participates on Syndicates shown below:

Syndicate

1991

1110

1110*

3330

Year of
account

Syndicate
Capacity £000

Group
participation
£000

Open/closed

2020

2019

2018

2017

2019

2017

2018

2017

126,750

3,000

30,687

3,000

280,000

3,000

3,500

300

3,500

Open

Closed

Open

Closed

* Syndicate 1110 2017 year of account benefits from reinsurance arrangements in place with New York Marine and General Insurance Company, which protects the Group from
any adverse net claims development.

Syndicates 1110 and 3330 are classified by Lloyd’s as run-off Syndicates and their capacity shown above is reflective of this status with Syndicate 1110 now the Group’s platform
for legacy transactions at Lloyd’s. The capacity of run-off Syndicates does not represent the level of risk these are able to take on, this is a nominal level set by Lloyd’s, they are
able to receive portfolios of risk greater than this nominal capacity.

(iii) Underwriting risk
Underwriting risk is the primary source of risk in the Group’s live underwriting operations and is reflected in the scope and depth of the risk
appetite and monitoring frameworks implemented in those entities. Individual operating entities are responsible for establishing a framework
for the acceptance and monitoring of underwriting risk including appropriate consideration of potential individual and aggregate occurrence
exposures, adequacy of reinsurance coverage and potential geographical and demographic concentrations of risk exposure.

In the event that potential risk concentrations are identified across operating entities, appropriate monitoring is developed to manage the
overall Group exposure..

(iv) Reserving risk
Reserving risk represents a significant risk to the Group in terms of both driving required capital levels and the threat to volatility of earnings.

Reserving risk is managed through the application of an appropriate reserving approach to both live and run-off portfolios and the
performance of extensive due diligence on new run-off portfolios and acquisitions prior to acceptance. Reserving exercises undertaken
by the in-house actuarial team are supplemented with both scheduled and ad hoc reviews conducted by external actuaries.

Reserving risk is also mitigated through the use of reinsurance on live underwriting portfolios and through assuming the inuring reinsurance
treaties in place in respect of acquired run-off acquisitions/portfolios.

Claims development information is disclosed below in order to illustrate the effect of the uncertainty in the estimation of future claims
settlements by the Group. The tables compare the ultimate claims estimates with the payments made to date. Details are presented on
an aggregate basis and show the movements on a gross and net basis, and separately identify the effect of the various acquisitions made
by the Group since 1 January 2016.

71
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

The analysis of claims development in the Group’s run-off insurance entities is as follows:

Gross

Gross claims at:

1 January/acquisition

First year movement

Second year movement

Third year movement

Fourth year movement

Gross provision at 31 December 2019

Gross claims at:

1 January/acquisition

Exchange adjustments

Payments

Gross provision at 31 December 2019

(Deficit)/surplus to date

Net

Net claims at :

1 January/acquisition

First year movement

Second year movement

Third year movement

Fourth year movement

Net provision at 31 December 2018

Net claims at :

1 January/acquisition

Exchange adjustments

Payments

Net position at 31 December 2018

Surplus/(deficit) to date

Group entities at
1 January 2016
£000

Entities acquired
by the Group
during 2016
£000

Entities acquired
by the Group
during 2017
£000

Entities acquired
by the Group
during 2018
£000

Entities acquired
by the Group
during 2019
£000

452,199

51,718

(78,669)

(36,051)

(49,561)

339,636

452,199

52,537

(272,586)

(339,636)

(107,486)

107,121

(2,793)

(26,891)

(18,423)

(15,804)

270,945

(43,749)

(63,559)

(27,341)

16,842

(1,091)

(7,293)

293,422

(30,262)

43,210

136,296

8,458

263,160

107,121

2,287

(50,582)

(43,210)

15,616

270,945

(2,506)

(132,607)

(136,296)

(465)

16,842

(5,939)

(2,358)

(8,458)

293,422

(11,895)

(13,613)

(263,160)

4,754

Group entities at
1 January 2016
£000

Entities acquired
by the Group
during 2016
£000

Entities acquired
by the Group
during 2017
£000

Entities acquired
by the Group
during 2018
£000

Entities acquired
by the Group
during 2019
£000

273,672

90,270

(44,595)

(14,186)

(31,502)

273,659

273,672

45,399

(10,384)

(273,659)

35,028

42,540

(1,171)

(14,444)

(1,591)

(5,003)

20,331

42,540

(202)

(28,222)

(20,331)

(6,215)

198,513

(45,734)

(69,592)

(27,516)

16,120

(874)

(6,980)

288,141

(25,098)

55,671

8,266

263,043

198,513

(14,420)

(97,407)

(55,671)

31,015

16,120

(5,830)

(2,298)

(8,266)

(274)

288,141

(11,472)

(12,977)

(263,043)

649

The above figures include the Group’s participation on Lloyd’s Syndicates treated as being in run-off.

Foreign exchange movements shown above are offset by comparable foreign exchange movements in cash and investments held to meet
insurance liabilities.

Additional information regarding movements in claims reserves are disclosed in note 23.

72
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Notes to the Consolidated Financial Statements continued

For the year ended 31 December 2019

5. Segmental information
The Group’s segments represent the level at which financial information is reported to the Board, being the chief operating decision maker as
defined in IFRS 8. For these financials we have realigned the reporting segments to reflect the Group’s core operating businesses. The reportable
segments have been identified as follows:-
• Program – the Group delegates underwriting authority to MGAs to provide program capacity through its licensed platforms in the US

and Europe

• Legacy – acquires legacy portfolios and insurance debt and provides capital support to the Group’s managed Lloyd’s Syndicates
• Other – primarily includes the holding company and other non- core subsidiaries which fall outside of the segments above.

Segmental results for continuing operations for the year ended 31 December 2019

Earned premium, net of reinsurance

Gross investment income

External income

Internal income

Total income

Claims paid, net of reinsurance

Net change in provision for claims

Net insurance claims (increased)/released

Operating expenses

Result of operating activities before goodwill on bargain purchase

Goodwill on bargain purchase

Amortisation and impairment of intangible assets

Result of operating activities

Finance costs

Profit/(loss) on ordinary activities before income taxes

Income tax (charge)/credit

Profit/(loss) for the period

Non-controlling interests

Attributable to shareholders of parent

Segment assets

Segment liabilities

Program
£000

6,099

4,603

–

Legacy
£000

168,427

22,699

–

10,703

191,184

(2,831)

(3,444)

(6,275)

(6,325)

(1,897)

–

(1,897)

(309)

(2,206)

(353)

(2,559)

–

(2,559)

(69,390)

(65,533)

(134,923)

(58,548)

(2,287)

71,332

(2,579)

66,466

(8,906)

57,560

(10,734)

46,826

515

47,541

412,130

1,586,860

Other
£000

–

7,918

6,721

27,046

41,685

(183)

(1,775)

(1,958)

(40,824)

(1,097)

–

(583)

(1,680)

(13,549)

(15,229)

9,807

(5,422)

(37)

(5,459)

93,420

318,011

1,092,670

391,040

Consolidation
adjustments
£000

Total
£000

–

174,526

(13,227)

–

(27,046)

(40,273)

–

27,046

(13,227)

–

(13,227)

13,227

–

21,993

6,780

–

203,299

(72,404)

(70,752)

(143,156)

(78,651)

(18,508)

71,332

(3,162)

49,662

(9,537)

40,125

(1,280)

38,845

478

39,323

(311,537)

1,780,873

1,490,184

73
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Segmental results for continuing operations for the year ended 31 December 2018

Program
£000

1,424

1,267

–

2,691

(644)

(1,280)

(1,924)

(2,455)

(1,688)

–

(1,688)

(306)

(1,994)

Gross

Earned premium, net of reinsurance

Gross investment income

External income

Internal income

Total income

Claims paid, net of reinsurance

Net change in provision for claims

Net insurance claims (increased)/released

Operating expenses

Result of operating activities before goodwill on bargain purchase

Goodwill on bargain purchase

Amortisation and impairment of intangible assets

Result of operating activities

Finance costs

Profit/(loss) on ordinary activities before income taxes

Income tax (charge)/credit

Profit/(loss) for the period

Non-controlling interests

Attributable to shareholders of parent

Segment assets

Segment liabilities

Legacy
£000

56,253

3,351

1,830

2,062

63,496

(54,478)

67,100

12,622

Other
£000

5,772

16,205

10,130

15,160

47,267

–

Consolidation
adjustments
£000

–

(15,393)

–

(17,222)

(32,615)

–

(50,053)

(42,008)

17,222

26,065

5,640

(1,597)

30,108

(6,132)

23,976

201

(10,266)

(1,793)

–

(1,793)

13,710

(300)

13,410

287,218

1,049,220

5,259

(15,393)

357

(47)

–

5,569

(15,393)

(13,300)

(7,731)

6,119

(1,612)

(181)

(1,793)

218,293

15,393

–

224,229

711,292

443,223

(357,158)

1,197,573

1,021,586

Total
£000

63,449

5,430

11,960

–

80,839

(55,122)

65,820

10,698

(77,294)

14,243

5,997

(1,644)

18,596

(4,345)

14,251

(3,946)

10,305

(481)

9,824

Internal income includes fees payable by the insurance companies to the Insurance Services Division in the period. These are contractually
committed on an arm’s length basis.

No income from any one client included within the external income generated more than 10% of the total external income.

74
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Notes to the Consolidated Financial Statements continued

For the year ended 31 December 2019

5. Segmental information continued
Geographical analysis

As at 31 December 2019

Gross assets

Intercompany eliminations

Segment assets

Gross liabilities

Intercompany eliminations

Segment liabilities

Revenue from external customers

As at 31 December 2018

Gross assets

Intercompany eliminations

Segment assets

Gross liabilities

Intercompany eliminations

Segment liabilities

Revenue from external customers

UK
£000

North
America
£000

Europe
£000

Total
£000

460,617

1,153,071

478,722

2,092,410

(128,640)

(132,124)

(50,773)

(311,537)

331,977

293,176

1,020,947

1,097,367

(55,826)

(250,150)

237,350

84,860

847,217

101,989

427,949

1,780,873

411,178

(5,561)

1,801,721

(311,537)

405,617

1,490,184

16,450

203,299

UK
£000

463,918

(131,425)

332,493

332,349

(105,813)

226,536

43,192

North
America
£000

813,038

(169,314)

643,724

834,004

(246,587)

587,417

28,871

Europe
£000

277,775

(56,419)

221,356

212,391

(4,758)

207,633

8,776

Total
£000

1,554,731

(357,158)

1,197,573

1,378,744

(357,158)

1,021,586

80,839

6. Discontinued operations and disposal groups
The sale of Insurance Services and Captive Management Companies
On 13 January 2018 the Group completed the sale of its Insurance Services and Captive Management Companies (ISD) to Davies Group, a
leading operations management, consultancy and digital solutions provider. The transaction involved the sale of the entire share capital of JMD
Specialist Insurance Services Group Limited and its subsidiaries, R&Quiem Limited, John Heath & Company Limited and AM Associates Insurance
Services Limited as well as Randall & Quilter Bermuda Holdings Limited and its Quest subsidiaries. The sale is presented within the Consolidated
Financial Statements as a discontinued operation as it represented the sale of a major line of business within the Group.

Profit for the year from discontinued operations

Other income

Operating expenses

Profit before tax

Income tax charge

Operating loss

Disposal proceeds

Net assets of disposal group

Loss on discontinued activities

Income tax charge on discontinued activities

Loss on discontinued activities

Loss for the period

2019

£000

–

2018

£000

(183)

(2,310)

(2,493)

225

(2,268)

17,216

(17,431)

(215)

–

(2,483)

75
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Cash flows for the year from discontinued operations

Net cash inflows/(outflows) from operating activities

Investing activities

Net cash inflows

The major classes of assets and liabilities forming the ISD disposal group were as follows:

Assets

Intangible assets

Property, plant and equipment

Other financial investments

Insurance and other receivables

Cash and cash equivalents

Liabilities

Insurance and other payables

Current tax liabilities

Total net assets of the disposal group

No impairment losses were recognised on the reclassification of these operations as held for sale, or at the point of sale.

7. Gross investment income

Continuing operations

Investment income

Realised net gains on financial assets

Unrealised gains/(losses) on financial assets

8. Other income

Continuing operations

Income from contracts with customers

Management fees

Income from other sources

Insurance commissions

Interest expense on pension scheme deficit

Rental income from investment properties

Purchased reinsurance receivables

2019

£000

–

2018

£000

(404)

16,511

16,107

ISD On disposal
13 January
2018

£000

14,408

151

2,940

705

18,266

835

–

835

17,431

2018

£000

11,184

800

(6,554)

5,430

2018

£000

2019

£000

15,391

4,581

2,021

21,993

2019

£000

4,082

8,444

2,923

(173)

(93)

6,780

3,547

(270)

163

11,960

Income from contracts with customers is derived from the supply of insurance and administration related management services to third parties.
The Group derives this income from the transfer of services over time.

Rental income includes revenue from property previously used for the Group’s own use but subsequently reclassified in January 2018 as an
investment property following the sale of the ISD business.

76
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Notes to the Consolidated Financial Statements continued

For the year ended 31 December 2019

9. Operating expenses

Continuing operations

Expenses of insurance company subsidiaries

Expenses of syndicate participations

Employee benefits

Other operating expenses

2019

£000

15,654

9,344

41,867

11,786

78,651

The expenses of insurance company subsidiaries represent external expenses borne by subsidiaries of the Group; intragroup charges
are removed on consolidation.

Auditor remuneration

Fees payable to the Group’s auditors for the audit of the parent company and its Consolidated Financial Statements

Fees payable for the audit of the Group’s subsidiaries by:

– Group auditors

– Other auditors

Other services under legislative requirements

Total

The above include the Group’s share of the audit fee payable for Syndicates 1110 and 3330 audits.

10. Finance costs

Continuing operations

Bank loan and overdraft interest

Interest on lease liabilities

Subordinated debt interest

11. Profit from continuing operations before income taxes
Profit from continuing operations before income taxes is stated after charging:

Employee benefits (Note 26)

Legacy acquisition costs (including aborted transactions)

Depreciation and impairment of fixed assets and right-of-use assets (Note 16 & 17)

Short-term and low value lease rental expenditure

Amortisation of pre contract costs

Amortisation and impairment of intangibles (Note 15)

2018

£000

11,957

20,190

28,568

16,579

77,294

2018

£000

138

534

322

133

1,127

2018

£000

1,346

–

2,999

4,345

2019

£000

153

504

647

131

1,435

2019

£000

4,455

147

4,935

9,537

2019

£000

2018

£000

40,856

28,568

3,169

2,242

425

3,162

760

335

1,296

171

1,644

77
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

12. Income tax charge
Continuing operations

a. Analysis of charge in the year

Current tax

Current year

Adjustments in respect of prior periods

Foreign tax

Deferred tax

Current year

Adjustments in respect of prior periods

Foreign tax

Income tax charge for the year

2019

£000

–

3,870

(6,176)

(2,306)

4,389

1,672

(2,475)

1,280

b. Factors affecting tax charge for the year
The tax assessed differs from the standard rate of corporation tax in the United Kingdom of 19%. The differences are explained below:

Profit on continuing operations before income taxes

Profit on ordinary activities at the standard rate of corporation tax in the UK of 19.00% (2018: 19.00%)

2019

£000

40,125

7,624

2018

£000

–

(806)

(766)

4,777

(65)

–

3,946

2018

£000

14,251

2,708

Income not taxable for tax purposes

Expenses not deductible for tax purposes

Deferred tax not recognised on capital allowances

Differences in taxation treatment

Unrelieved tax losses carried forward

Utilisation of brought forward losses

Deferred tax not recognised on foreign tax pool

Foreign tax

Tax rate differential

Adjustments in respect of previous years

Income tax charge for the year

(14,950)

(2,070)

1,740

4,478

6,631

(72)

303

(8,651)

(1,408)

5,542

1,280

1,396

(1,717)

3,129

(181)

–

(806)

1,462

(25)

3,946

The 2018 comparatives have been re-presented according to the above categorisations for reference.

c. Factors that may affect future tax charges
In addition to the recognised deferred tax asset, the Group has other trading losses of approximately £118,263k (2018: £109,552k) in various Group
companies available to be carried forward against future trading profits of those companies. The recovery of these losses is uncertain and no
deferred tax asset has been provided in respect of these losses. Should it become possible to offset these losses against taxable profits in future
years, the Group tax charge in those years will be reduced accordingly.

The Group has available capital losses of £27,514k (2018: £27,976k).

In the Finance Bill 2015, it was announced that the main rate of UK corporation tax would reduce to 19% from 1 April 2017 and to 18% from April
2020. The Bill was substantively enacted on 26 October 2015. In March 2016, it was announced that there would be a further reduction to 17% from
1 April 2020. The Finance Bill 2016 was substantively enacted on 6 September 2016. The Group’s 2019 results are taxed at 19%. In March 2020 the UK
Corporation tax rate was increased from 17% to 19% from 1 April 2020.

78
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Notes to the Consolidated Financial Statements continued

For the year ended 31 December 2019

13. Earnings and net assets 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 year.

Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below:

Profit for the year attributable to ordinary shareholders from:

Continued operations

Discontinued operations

Shares in issue throughout the year

Weighted average number of ordinary shares issued in year

Weighted average number of ordinary shares

Basic earnings per ordinary share for:

Continued operations

Discontinued operations

2019

£000

39,323

–

No.
000’s

125,984

57,469

183,453

21.4p

–

2018

£000

9,824

(2,483)

No.
000’s

125,876

125,908

7.8p

(2.0p)

b. Diluted earnings per share
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares for conversion of all potentially dilutive
ordinary shares. The Group’s earnings per share is diluted by the effects of outstanding share options.

Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below:

Profit/(loss) for the year attributable to ordinary shareholders

Continued operations

Discontinued operations

Weighted average number of ordinary shares issued in year

Dilution effect of options

Diluted earnings per ordinary share:

Continued operations

Discontinued operations

c. Net asset value per share

Net assets attributable to equity shareholders as at 31 December

Ordinary shares in issue as at 31 December

Less: shares held in treasury

Net asset value per ordinary share

2019

£000

39,323

–

No.
000’s

2018

£000

9,824

(2,483)

No.
000’s

183,453

125,908

–

183,453

125,908

21.4p

–

2019

£000

290,246

No.
000’s

195,918

–

195,918

148.1p

7.8p

(2.0p)

2018

£000

175,638

No.
000’s

125,984

–

125,984

139.4p

79
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

14. Distributions
The amounts recognised as distributions to equity holders in the year are:

Distribution on cancellation of AB (2018: Z) shares

Distribution on cancellation of AC (2018: AA) shares

Total distributions to shareholders

15. Intangible assets

2019

£000

10,971

7,444

18,415

2018

£000

6,798

4,536

11,334

US state
licences &
customer
contracts
£000

Arising on
acquisition
£000

Goodwill
£000

Other
£000

Total
£000

Cost

As at 1 January 2018

Exchange adjustments

Acquisition of subsidiaries

Additions

Disposals

As at 31 December 2018

Exchange adjustments

Acquisition of subsidiaries

Additions

Disposals

As at 31 December 2019

Amortisation/impairment

As at 1 January 2018

Exchange adjustments

Charge for the year

As at 31 December 2018

Exchange adjustments

Charge for the year

Disposals

As at 31 December 2019

Carrying amount

As at 31 December 2019

As at 31 December 2018

6,321

356

–

6,677

(291)

2,654

–

(2,703)

6,337

516

172

727

(6)

(751)

–

14,741

428

1,049

–

16,218

(897)

28,683

–

18,869

951

–

(913)

18,907

(578)

–

819

–

44,004

19,148

2,138

108

1,409

3,655

(153)

2,579

–

6,081

16,728

909

–

17,637

(530)

474

–

17,581

1,567

1,270

6,337

5,950

37,923

12,563

448

40,379

–

(1)

542

(1)

–

143

(23)

661

285

351

(1)

(23)

406

255

191

1,738

1,049

(914)

42,344

(1,767)

31,337

962

(2,726)

70,150

19,667

1,059

1,644

22,370

(690)

3,162

(774)

24,068

46,082

19,974

Goodwill acquired through business combinations has been allocated to the Legacy cash generating unit, which is also an operating
and reportable segment, for impairment testing.

The recoverable amount of this cash generating unit is determined based on a value in use calculation using cash flow projections
from financial budgets approved by senior management.

80
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Notes to the Consolidated Financial Statements continued

For the year ended 31 December 2019

15. Intangible assets continued
Key assumptions used in value in use calculations
The calculation of value in use for the units is most sensitive to the following assumptions:
• Discount rates, which represent the current market assessment of the risks specific to each cash generating unit, regarding the time value of
money and individual risks of the underlying assets which have not been incorporated in the cash flow estimates. The pre-tax discount rate
applied to the cash flow projections is 10.0% (2018: 10.0%). The discount rate calculation is based on the specific circumstances of the Group
and its operating segments and derived from its weighted average cost of capital (WACC) with uplift for expected increases in interest rates.
The WACC takes into account both debt and equity. The cost of equity is derived from the expected investment return.

• Growth rate used to extrapolate cash flows beyond the budget period is based on published industry standards. Cash flows beyond the

four-year period are extrapolated using a 10% growth rate (2018: 10.0%).

The Directors believe that no foreseeable change in any of the above key assumptions would require an impairment of the carrying amount
of goodwill.

16. Property, plant and equipment

Cost

As at 1 January 2018

Exchange adjustments

Additions

Disposals

Acquisition of subsidiaries

Reclassification of property to investment property

As at 31 December 2018

Exchange adjustments

Additions

Disposals

As at 31 December 2019

Depreciation

As at 1 January 2018

Exchange adjustments

Charge for the year

Disposals

Acquisition of subsidiaries

Reclassification of property to investment property

As at 31 December 2018

Exchange adjustments

Charge for the year

Disposals

As at 31 December 2019

Carrying amount

As at 31 December 2019

As at 31 December 2018

Computer
equipment
£000

Motor
vehicles
£000

Office
equipment
£000

Leasehold
improvements
£000

Freehold
Property
£000

1,495

136

(302)

152

–

1,566

(42)

218

(563)

1,179

1,318

170

(283)

101

–

1,386

(39)

274

(560)

1,061

118

180

–

(1)

(40)

–

(40)

–

1,386

(141)

–

1,314

(12)

261

(491)

1,072

1,116

101

(141)

–

1,100

(11)

104

(406)

787

285

214

698

–

778

(48)

461

(10)

1,181

463

–

595

(42)

(9)

630

551

183

2,621

–

(2,621)

–

268

–

(268)

–

£000

6,239

183

189

(443)

152

(2,621)

3,699

(103)

958

(1,104)

3,450

3,204

174

335

(424)

101

(268)

3,122

(92)

466

(1,015)

2,481

969

577

As at 31 December 2019, the Group had no significant capital commitments (2018: none). The depreciation charge for the year is included in
operating expenses.

In January 2018 property previously used for the Group’s own use was reclassified as an investment property following the sale of ISD business
and the subsequent change in use.

81
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

17. Right-of-use assets

Position recognised at 1 January 2019 under IFRS 16

Deprecation charge for the year

Exchange adjustment

As at 31 December 2019

Property
£000

5,048

(1,771)

(94)

3,183

Office
equipment
£000

(5)

–

Total
£000

5,061

(1,776)

(93)

3,191

The cost of leases with a rental period of less than 12 months or with a contract value of less than £4,000 was £57k for the year and is reflected
within expenses in the Consolidated Income Statement.

18. Investment properties and financial assets
a. Investment properties

As at 1 January

Reclassification of property to investment property

Exchange adjustment

Decrease in fair value during the year

Disposal

As at 31 December

2019

£000

1,881

–

(40)

(361)

1,480

2018

£000

426

2,353

(903)

–

1,881

The investment properties are measured at fair value derived from the valuation work performed at the balance sheet date by independent
property valuers.

In January 2018 a property previously used for the Group’s own use was reclassified as an investment property following the sale of ISD business
and the subsequent change in use.

Rental income from the investment properties for the year was £163k (2018: £163k) and is included in Other Income within the Consolidated
Income Statement.

b. Financial investment assets at fair value through profit or loss (designated at initial recognition)

Equities

Debt and fixed interest securities

Cash-based investment funds

2019

£000

10,991

533,326

15,646

559,963

2018

£000

24,369

265,652

105,397

395,418

Included in the above amounts are £18,660k (2018: £23,046k) pledged as part of the Funds at Lloyd’s in support of the Group’s underwriting
activities in 2019. Lloyd’s has the right to apply these monies in the event the corporate member fails to meet its obligations. These monies are not
available to meet the Group’s own working capital requirements and can only be released with Lloyd’s permission. Also included in the above
amounts are £90,100k (2018: £84,015k) of funds withheld as collateral for certain of the Group’s reinsurance contracts.

82
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Notes to the Consolidated Financial Statements continued

For the year ended 31 December 2019

18. Investment properties and financial assets continued
c. Shares in subsidiary and associate undertakings
The Company had interests in the following subsidiaries at 31 December 2019:

Name of subsidiaries/associate

Distinguished Re Ltd.
Berda Developments Limited
R&Q Bermuda (SAC) Limited
R&Q Quest (SAC) Limited
R&Q Quest Insurance Limited
R&Q Re (Bermuda) Limited
RQLM Limited
Sandell Holdings Ltd.
Sandell Re Ltd.
R&Q Risk Services Canada Limited
Randall & Quilter Canada Holdings Limited
R&Q Quest Management Services (Cayman) Limited
Callidus Solutions Ltd.
R&Q Alpha Insurance Company SE
R&Q Beta Insurance Company SE
R&Q Capital No. 1 Limited
R&Q Capital No. 6 Limited
R&Q Capital No. 7 Limited
R&Q Central Services Limited
R&Q Commercial Risk Services Limited
R&Q Delta Company Limited
R&Q Epsilon Insurance Company SE <
R&Q Eta Company Limited
R&Q Gamma Company Limited
R&Q Insurance Services Limited
R&Q MGA Limited
R&Q Munro MA Limited
R&Q Munro Services Company Limited
R&Q Oast Limited
R&Q Reinsurance Company (UK) Limited
R&Quiem Financial Services Limited
Randall & Quilter Captive Holdings Limited
Randall & Quilter II Holdings Limited
Randall & Quilter IS Holdings Limited
Randall & Quilter Underwriting Management Holdings Limited
RQIH Limited
Trilogy Managing General Agents Limited*
La Licorne Compagnie de Reassurances SA
R&Q Insurance Management (Gibraltar) Limited +
Capstan Insurance Company Limited
R&Q Ireland Claims Services Limited #
R&Q Ireland Company Limited by Guarantee #
Hickson Insurance Limited
Pender Mutual Insurance Company Limited
R&Q Insurance Management (IOM) Limited
Accredited Insurance (Europe) Limited
FNF Title Company Limited ^
R&Q Insurance (Europe) Limited
R&Q Malta Holdings Limited
Accredited Bond Agencies Inc.
Accredited Group Agency Inc.
Accredited Holding Corporation
Accredited Surety and Casualty Company, Inc.
Excess and Treaty Management Corporation
GLOBAL Reinsurance Company

% of ordinary shares held via:

Country of
incorporation/
registration

The Company

Subsidiary
and associate
undertakings

Overall effective % of
share capital held

Barbados
Bermuda
Bermuda
Bermuda
Bermuda
Bermuda
Bermuda
Bermuda
Bermuda
Canada
Canada
Cayman Island
England and Wales
Malta
Malta
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
France
Gibraltar
Guernsey
Ireland
Ireland
Isle of Man
Isle of Man
Isle of Man
Malta
Malta
Malta
Malta
USA
USA
USA
USA
USA
USA

–
–
–
–
–
–
100
–
–
–
–
–
–
100
100
–
–
–
–
–
100
–
–
100
–
–
–
–
–
–
–
–
–
–
–
100
–
–
–
–
–
–
–
–
–
–
100
–
–
–
–
–
–
–
–

100
100
100
100
100
100
–
100
100
100
100
100
51
–
–
100
100
100
100
100
–
100
100
–
100
100
100
100
100
100
100
100
100
100
100
–
80
100
100
100
100
100
100
100
100
100
–
100
100
100
100
100
100
100
100

100
100
100
100
100
100
100
100
100
100
100
100
51
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
80
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

83
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Principal activity and name of subsidiaries/associate

Grafton US Holdings Inc.~
ICDC Ltd.
LBL Acquisitions, LLC >
National Legacy Insurance Company
R&Q Healthcare Interests LLC
R&Q Quest PCC, LLC
R&Q Reinsurance Company
R&Q RI Insurance Company
R&Q Services Holding Inc.
R&Q Solutions LLC
Randall & Quilter America Holdings Inc.
Randall & Quilter Healthcare Holdings Inc.
Randall & Quilter PS Holdings Inc.
Requiem America Inc.
Risk Transfer Underwriting Inc.
RSI Solutions International Inc.
Syndicated Services Company Inc.
Transport Insurance Company

% of ordinary shares held via:

Country of
incorporation/
registration

The Company

Subsidiary
and associate
undertakings

Overall effective % of
share capital held

USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

80
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

80
100
60
100
100
100
100
100
100
100
100
100
100
100
80
100
100
100

# has a November year end due to Irish Law Society connection.

* Trilogy Managing General Agents Limited was sold to Resolution Underwriting Holdings Limited on 20 February 2020

+ In liquidation

^ In liquidation

~ Randall & Quilter America Holdings Inc increased its shareholding in Grafton US Holdings Inc. to 80% by acquiring 20% issued share capital held by Paul Dassenko

> Dissolved 19 March 2020

< Redomiciled to Malta 16 March 2020

19. Insurance and other receivables

Receivables arising from direct insurance operations

Receivables arising from reinsurance operations

Insurance receivables

Trade receivables/ Receivables arising from contracts with customers

Other receivables

Purchased reinsurance receivables

Prepayments and accrued income

Total

2019

£000

110,379

212,234

322,613

4,097

49,933

5,969

36,923

96,922

419,535

2018

£000

67,396

97,306

164,702

5,416

32,085

3,393

27,120

68,014

232,716

Included in purchased reinsurance receivables is £1,513k (2018: £2,922k) which is expected to be received within 12 months. The remainder of the
balance is expected to be received after 12 months.

Included in receivables arising from contracts with customers are amounts due from customers in relation to the supply of management services
which are now unconditionally due. There are no amounts due from contracts with customers which are subject to further performance or
conditions before settlement.

Since 2015 the Group has entered into retroactive reinsurance contracts as an integral component of its strategy to actively seek commutations
of the original ceded Reinsurance Program in respect of R&Q Re US. To date, the Group has received cash proceeds in excess of $190,000k from
the R&Q Re commutations strategy. The Group retains oversight and custody of the premiums and investment thereof.

Included in receivables arising from reinsurance operations is £78,100k (2018: £64,000k) in respect of amounts due under certain structured
reinsurance contracts which are expected to be received after 12 months. The increase arises due to the effect of the commutations strategy,
realised investment gains and 2019 USA interest rate rises which have enhanced the amounts recoverable under the policies. The movement of
£14,100k (2018: £36,500k) has been included in the £111,033k shown as proceeds from commutations and reinsurers’ share of claims paid in the
Consolidated Income Statement.

84
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Notes to the Consolidated Financial Statements continued

For the year ended 31 December 2019

19. Insurance and other receivables continued
The Group retains the right to recover any surplus assets (experience accounts) remaining when the reinsurance reaches its natural expiry or is
terminated by the Group. The estimated value of the experience accounts is reported within receivables arising from reinsurance operations. The
valuation of the experience account is sensitive to movements in investment returns; any subsequent movement will be charged or credited to
the Consolidated Income Statement in the year in which it arises. An increase or reduction in returns of 0.25% would result in a movement of 0.8%
in total Group assets.

The carrying amounts disclosed above reasonably approximate their fair values at the period end date.

20. Cash and cash equivalents

Cash at bank and in hand

2019

£000

2018

£000

252,741

236,923

Included in cash and cash equivalents is £574k (2018: £581k) being funds held in escrow accounts in respect of guarantees provided to the
Institute of London Underwriters. The decrease is due to exchange movements.

In the normal course of business, insurance company subsidiaries will have deposited funds in respect of certain contracts which can only
be released with the approval of the appropriate regulatory authority.

The carrying amounts disclosed above reasonably approximate their fair values at the period end date.

21. Insurance and other payables

Structured liabilities

Structured settlements

Payables arising from reinsurance operations

Payables arising from direct insurance operations

Insurance payables

Trade payables

Other taxation and social security

Other payables

Accruals and deferred income

Total

2019

£000

400,910

(400,910)

–

118,528

66,271

184,799

2,259

1,633

38,138

27,080

69,110

253,909

2018

£000

425,657

(425,657)

–

41,048

3,522

44,570

1,839

4,674

105,543

11,862

123,918

168,488

The carrying amounts disclosed above reasonably approximate their fair values at the period end date.

Structured Settlements
No new structured settlement arrangements have been entered into during the year. The movement in these structured liabilities during the
period is primarily due to exchange movements. 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.

85
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

2019

£000

142,693

3,210

145,903

2019

£000

37,651

15,500

89,542

142,693

2018

£000

140,243

–

140,243

2018

£000

34,966

14,500

90,777

140,243

22. Financial liabilities

Amounts owed to credit institutions

Lease liabilities

Amounts due to credit institutions are payable as follows:

Less than one year

Between one to five years

Over five years

As outlined in Note 31, £55,141k (2018: £46,300k) owed to credit institutions is secured by debentures over the assets of the Company and several
of its subsidiaries.

The Group has issued the following debt:

Issuer

Randall & Quilter Investment Holdings Ltd.

Accredited Insurance (Europe) Limited

R&Q Re (Bermuda) Limited

Principal

$70,000k

€20,000k

€5,000k

$20,000k

Rate

Maturity

6.35% above USD LIBOR

6.7% above EURIBOR

7.75% above USD LIBOR

2028

2025

2027

2023

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 Notes issued by Randall & Quilter Investments Holding Ltd.

Lease liabilities maturity analysis – contractual undiscounted cash flows

Less than one year

Between one to five years

Over five years

Total undiscounted lease liabilities at 31 December

2019

£000

1,069

2,058

356

3,483

Reconciliation of liabilities arising from financing activities
The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non-cash changes. Liabilities
arising from the financing activities are those for which cash flows were, or future cash flows will be, classified in the Group Consolidated Cash
Flows Statement as cash flows from financing activities.

Balance at 1 January

Financing cash flows *

Non-cash exchange adjustment

Balance at 31 December

* Represents the net cash flows from the repayment of borrowings and the proceeds from new borrowing arrangements.

2019

£000

140,243

6,785

(4,335)

142,693

2018

£000

55,889

83,170

1,184

140,243

86
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Notes to the Consolidated Financial Statements continued

For the year ended 31 December 2019

23. Insurance contract provisions and reinsurance balances

Gross

Insurance contract provisions at 1 January

107,304

591,774

699,078

23,717

698,818

722,535

Claims paid

(52,996)

(130,442)

(183,438)

(17,635)

(143,725)

(161,360)

2019

2018

Program
£000

Run-off
£000

Total
£000

Program
£000

Run-off
£000

Total
£000

Increases/(decreases) in provisions arising from the (disposal)/acquisition
of subsidiary undertakings and Syndicate participations

Increases in provisions arising from acquisition of reinsurance portfolios

Increase in claims provisions

Increase/(decrease) in unearned premium reserve

–

174,551

132,234

144,051

33,131

107,608

(13,293)

177,182

94,315

–

51,740

(26,282)

11,936

28,105

11,936

79,845

42,044

46,443

(4,399)

Net exchange differences

As at 31 December

Reinsurance

(6,694)

(15,020)

(21,714)

3,039

27,321

30,360

299,271

772,935

1,072,208

107,304

591,774

699,078

Reinsurers’ share of insurance contract provisions at 1 January

101,946

198,411

300,357

23,178

230,304

253,482

Proceeds from commutations and reinsurers’ share of gross claims paid

(50,165)

(60,868)

(111,033)

(16,992)

(89,246)

(106,238)

Increases/(decreases) in provisions arising from the (disposal)/acquisition
of subsidiary undertakings and Syndicate participations

Increases in provisions arising from acquisition of reinsurance portfolios

Increase in claims provisions

Increase/(decrease) in unearned premium reserve

Net exchange differences

As at 31 December

Net

–

18,644

–

(1,440)

722

137,775

28,485

166,260

104,255

(4,889)

(568)

(1,614)

103,687

(6,503)

49,816

45,242

51,941

101,757

(4,659)

40,583

702

10,789

11,491

288,922

182,490

471,412

101,946

198,411

300,357

Net insurance contract provisions at 1 January

5,358

393,363

398,721

539

468,514

469,053

Net claims paid

(2,831)

(69,574)

(72,405)

(643)

(54,479)

(55,122)

Increases/(decreases) in provisions arising from the (disposal)/acquisition
of subsidiary undertakings and Syndicate participations

Increases in provisions arising from acquisition of reinsurance portfolios

Increase/(decrease) in claims provisions

Increase/(decrease) in unearned premium reserve

Net exchange differences

As at 31 December

155,907

132,234

4,646

10,922

–

6,276

3,353

(12,725)

(1,805)

(13,406)

(9,372)

(15,211)

–

1,924

1,201

2,337

(24,842)

11,214

(23,836)

(21,912)

260

1,461

16,532

18,869

10,351

590,445

600,796

5,358

393,363

398,721

87
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Gross

Claims reserves

2019

2018

Program
£000

Run-off
£000

Total
£000

Program
£000

Run-off
£000

Total
£000

128,286

745,425

873,711

41,575

576,929

618,504

Unearned premiums reserves

170,987

27,510

198,497

65,729

14,845

80,574

As at 31 December

Reinsurance

Claims reserves

Unearned premiums reserves

As at 31 December

Net

Claims reserves

Unearned premiums reserves

As at 31 December

299,273

772,935

1,072,208

107,304

591,774

699,078

123,404

182,256

305,660

165,518

234

165,752

39,709

62,237

197,758

237,467

653

62,890

288,922

182,490

471,412

101,946

198,411

300,357

4,882

5,469

563,169

568,051

27,276

32,745

1,866

3,492

379,171

381,037

14,192

17,684

10,351

590,445

600,796

5,358

393,363

398,721

The carrying amounts disclosed above reasonably approximate their fair values at the period end date.

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, including £90,100k (2018: £84,015k) in respect of the structured reinsurance contract
collateralised by the funds withheld disclosed in Note 18 (b).

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.

As detailed in Note 3, significant uncertainty exists as to the likely outcome of any individual claim and the ultimate costs of completing the
run-off of the Group’s insurance operations.

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.

As detailed in Note 2 (h), when preparing these Consolidated Financial Statements, provision is made for all costs of running off the business
of the insurance company subsidiaries to the extent that these costs exceed the estimated future investment return expected to be earned by
those subsidiaries. Provision is also made for all costs of running off the underwriting years for those Syndicates treated as being in run-off on
which the Group participates. The quantum of the costs of running off the business and the future investment income has been determined
through the preparation of cash flow forecasts over the anticipated period of the run-off, using internally prepared budgets and forecasts of
expenditure, investment income and actuarially assessed settlement patterns for the gross provisions. The gross costs of running off the business
are estimated to be fully covered by the estimated future investment income.

The provisions disclosed in the 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

A 1 percent reduction in the net technical provisions would increase net assets by £6,008k (2018: £3,987k).

88
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Notes to the Consolidated Financial Statements continued

For the year ended 31 December 2019

24. Current and deferred tax
Current tax

Current tax assets

Current tax liabilities

Net current tax assets/(liabilities)

2019

£000

1,988

(294)

1,694

2018

£000

191

(2,323)

(2,132)

Deferred tax
Deferred tax is calculated in full on temporary differences under the liability method using tax rates of 17% for the UK (2018: 17%) and 21% for the US
(2018: 21%).

Deferred tax assets have been recognised in respect of all tax losses and other temporary differences giving rise to deferred tax assets where it is
probable that these assets will be recovered.

The movements in deferred tax assets and liabilities during the year are shown below. The movement in deferred tax is recorded in the income
tax charge in the Consolidated Income Statement.

Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances
on a net basis.

As at 1 January 2018

Movement in year

As at 31 December 2018

Movement in year

As at 31 December 2019

The movement on the deferred tax account is shown below:

Deferred
tax assets
£000

Deferred
tax liabilities
£000

10,907

(7,702)

3,205

803

4,008

(6,890)

3,441

(3,449)

(6,016)

(9,465)

As at 1 January 2018

Movement in year

As at 31 December 2018

Movement in year

As at 31 December 2019

Accelerated
capital allowances
£000

Trading losses
£000

Pension
scheme deficit
£000

Other temporary
differences
£000

(39)

–

(39)

(38)

4,251

5,780

10,031

5,129

15,160

1,906

(739)

1,167

1,247

(2,101)

(9,302)

(11,403)

(10,424)

(21,827)

Movements in the provisions for deferred taxation are disclosed in the Consolidated Financial Statements as follows:

Movement in 2018

Movement in 2019

Deferred tax in
Consolidated
Income
Statement
£000

(4,712)

(3,586)

Deferred tax in
Consolidated
Statement of
Comprehensive
Income
£000

(792)

Exchange
adjustment
£000

1,243

(1,678)

Total
£000

4,017

(4,261)

(244)

(5,213)

(5,457)

Total
£000

4,017

(4,261)

(244)

(5,214)

(5,458)

Total
£000

(4,261)

(5,213)

89
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

The analysis of the deferred tax assets relating to tax losses is as follows:

Deferred tax assets – relating to trading losses

Deferred tax assets to be recovered after more than 12 months

Deferred tax assets to be recovered within 12 months

Deferred tax assets

2019

£000

11,038

4,122

15,160

2018

£000

7,533

2,498

10,031

Deferred tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through future
taxable profits is probable.

The Directors have prepared forecasts which indicate that, excluding the deferred tax asset on the pension scheme deficit, the deferred tax
assets will substantially reverse over the next six years.

The above deferred tax assets arise mainly from temporary differences and losses arising on the Group’s US insurance companies. Under local
tax regulations these losses and other temporary differences are available to offset against the US subsidiaries’ future taxable profits in the
Group’s US Insurance Services Division as well as any future taxable results that may arise in the US insurance companies.

The Group’s total deferred tax asset includes £15,160k (2018: £10,031k) in respect of trading losses carried forward. The tax losses have arisen in
individual legal entities and will be used as future taxable profits arise in those legal entities. Substantially all of the unused tax losses for which
a deferred tax asset has been recognised arises in the US subgroup.

25. Share capital

At 1 January 2018

Issue of ordinary shares

Issue of Z-AA shares

Redemption/cancellation of Z-AA shares

At 31 December 2018

Issue of ordinary shares

Share-based payments

Issue of AB-AC shares

Redemption/cancellation of AB-AC shares

At 31 December 2019

Number
of shares

Ordinary shares
£000

Share premium
£000

125,876,620

107,660

251,874,994

(251,874,994)

125,984,280

69,858,915

74,373

391,835,136

(391,835,136)

195,917,568

2,517

11,334

(11,334)

2,520

1,396

18,415

(18,415)

3,918

62,257

212

(11,334)

–

51,135

102,047

138

(18,415)

–

134,905

Total
£000

64,774

215

–

(11,334)

53,655

103,443

140

–

(18,415)

138,823

On 6 March 2019 the Group issued 69,858,915 of ordinary shares at 153p raising approximately £103.4m.

Allotted, called up and fully paid

195,917,568 ordinary shares of 2p each (2018: 125,984,280 ordinary shares of 2p each)

3,918,350

2,520,686

2019

2018

1 Preference A Share of £1

1 Preference B Share of £1

Included in equity

3,918.350

2,520,688

2019

2018

195,917,568 ordinary shares of 2p each (2018: 125,984,280 ordinary shares of 2p each)

3,918,350

2,520,686

1 Preference A Share of £1

1 Preference B Share of £1

3,918,350

2,520,688

90
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Notes to the Consolidated Financial Statements continued

For the year ended 31 December 2019

25. Share capital continued
Cumulative Redeemable Preference Shares
Preference A and B Shares have rights, inter alia, to receive distributions in priority to ordinary shares of distributable profits of the Company derived
from certain subsidiaries:
• Preference A Share: one half of all distributions arising from the Company’s investment in R&Q Reinsurance Company up to a maximum of

$5,000k.

• Preference B Share: one half of all distributions arising from the Company’s investment in R&Q Reinsurance Company (UK) Limited up to a

maximum of $10,000k.

The Preference A and Preference B Shares have been classified as equity on the basis that redemption dates are not prescribed in the
Memorandum and Articles of Association and as such there is no contractual obligation to deliver cash. No distributions have been made since
acquisition by either R&Q Reinsurance Company or R&Q Reinsurance Company (UK) Limited.

Shares issued
During the year the Group issued AB and AC shares (with an aggregate value of £18,415k) (2018: Z and AA shares (with an aggregate value of
£11,334k) which were all cancelled.

26. Employees and Directors
Employee benefit expense for the Group during the year

Wages and salaries

Social security costs

Pension costs

Share-based payment charge

Continuing operations

Discontinued operations

2019

£000

35,987

3,767

1,102

–

40,856

–

2018

£000

24,374

2,968

1,014

212

28,568

–

Pension costs are recognised in operating expenses in the Consolidated Income Statement and include £1,102k (2018: £1,014k) in respect of payments
to defined contribution schemes.

Average number of employees

Program

Legacy

Other

Total number of employees at 31 December 2019 was 252 (2018: 276).

Remuneration of the Directors and key management

Aggregate Director emoluments

Aggregate key management emoluments

Share-based payments – Directors

Share-based payments – Key management

Director pension contributions

Key management pension contributions

Highest paid Director

Aggregate emoluments

2019

2018

Number

110

259

2019

£000

5,368

2,061

–

169

–

115

107

269

2018

£000

2,658

1,961

–

169

–

7,608

4,826

2,477

1,029

Key management refers to employees who are Directors of subsidiaries within the Group but not members of the Group’s Board of Directors.

91
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Directors’ emoluments

K E Randall

A K Quilter

A H F Campbell

P A Barnes

J P Fox (appointed as a Director 3 May 2019)

M A Langridge (resigned as a Director 13 December 2019)

M G Smith (resigned as a Director 6 September 2019)

Dr R Sellek (appointed as a Director 18 June 2019 and resigned 14 January 2020)

K E Randall, Dr R Sellek and P A Barnes have been remunerated in US Dollars.

Salary
£000

Bonus paid
£000

Bonus
accrued
£000

766

519

380

150

217

459

150

–

341

–

1,252

730

–

206

–

Total
£000

2,477

1,399

927

150

217

Total
$000

3,227

–

100

–

284

During the year, a bonus incentive scheme was introduced for Executive Directors and members of the Key Management team. Bonus payments
relating to a reporting year are paid in the following three years being 50%, 25% and 25% annually, and reflect the performance of the Group
and the individuals. The costs in the 2019 financial year represent the amounts paid in 2019 and provision for costs relating to the 2018 and 2019
reporting years performance, which will be paid in 2020, 2021 and 2022. The provisions are established on a likelihood of the performance and
service period criteria being met.

27. Pension scheme obligations
The Group operates one defined benefit scheme in the UK. The defined benefit scheme’s assets are held in separate trustee administered funds.
The pension cost was assessed by an independent qualified actuary. In the valuation, the actuary used the projected unit method as the scheme
is closed to new employees. A full actuarial valuation of the scheme is carried out every three years.

On 2 December 2003, the scheme was closed to future accrual although the scheme continues to remain in full force and effect for members at
that date.

a. Employee benefit obligations – amount disclosed in the Consolidated Statement of Financial Position

Fair value of plan assets

Present value of funded obligations

Net defined benefit liability

Related deferred tax asset

Net position in the Consolidated Statement of Financial Position

2019

£000

26,003

(33,340)

(7,337)

1,247

(6,090)

2018

£000

23,571

(30,437)

(6,866)

1,167

(5,699)

All actuarial (losses)/gains are recognised in full in the Consolidated Statement of Comprehensive Income in the period in which they occur.

92
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Notes to the Consolidated Financial Statements continued

For the year ended 31 December 2019

27. Pension scheme obligations continued
b. Movement in the net defined benefit obligation and fair value of plan assets over the year

As at 31 December 2018

Interest (expense)/income

Remeasurements:

Return on plan assets, excluding amounts included in interest expense

Gain from changes in financial assumptions

Gain from changes in demographic assumptions

Gain from new valuation data

Experience loss

Loss on curtailments

Liabilities extinguished on settlements

Employer’s contributions

Benefit payments from the plan

As at 31 December 2019

As at 31 December 2017

Interest (expense)/income

Remeasurements:

Return on plan assets, excluding amounts included in interest expense

Gain from changes in financial assumptions

Gain from changes in demographic assumptions

Gain from new valuation data

Experience loss

Loss on curtailments

Liabilities extinguished on settlements

Employer’s contributions

Benefit payments from the plan

As at 31 December 2018

Present value
of obligation
£000

Fair value of
plan assets
£000

Deficit of
funded plan
£000

(30,437)

(838)

(31,275)

–

(3,642)

554

–

(34,363)

–

1,023

(33,340)

23,571

665

24,236

1,390

–

25,626

1,400

(1,023)

26,003

(6,866)

(173)

(7,039)

1,390

(3,642)

554

–

(8,737)

1,400

–

(7,337)

Present value
of obligation
£000

Fair value of
plan assets
£000

Net defined
benefit liability
£000

(36,493)

(861)

(37,354)

–

2,207

1,732

1,790

(88)

(121)

159

(31,675)

–

1,238

(30,437)

25,279

591

25,870

(980)

–

24,890

(81)

(1,238)

23,571

(11,214)

(270)

(11,484)

(980)

2,207

1,732

1,790

(88)

(121)

159

(6,785)

(81)

–

(6,866)

93
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

2019

2.0%

3.2%

2.4%

3.2%

2019

26.0

28.1

27.6

29.7

2018

2.8%

3.3%

2.5%

3.3%

2018

26.6

28.6

28.1

30.2

c. Significant actuarial assumptions
i) Financial assumptions

Discount rate

RPI inflation assumption

CPI inflation assumption

Pension revaluation in deferment:

– CPI, maximum 5%

Pension increases in payment:

– RPI, maximum 5%

ii) Demographic assumptions
Assumed life expectancy in years, on retirement at 60

Assumed life expectancy in years, on retirement at 60

Retiring today

– Males

– Females

Retiring in 20 years

– Males

– Females

d. Sensitivity to assumptions
The results of the IAS 19 valuation at 31 December 2019 are sensitive to the assumptions adopted.

The sensitivities regarding the principal assumptions used to measure the Scheme liabilities are set out below:

Assumption

Discount rate

Rate of inflation

Life expectancy

Change in assumption

Decrease by 0.5%

Increase by 0.5%

Increase by 1 year

Change in liabilities

Increase by 8%

Increase by 1%

Increase by 3%

The above sensitivity analyses are based on a change in assumption while holding all other assumptions constant. In practice, this is unlikely
to occur, and changes in some of the assumptions may be correlated. The sensitivity of the defined benefit obligation to significant actuarial
assumptions has been estimated, based on the average age and the normal retirement age of members and the duration of the Scheme.

e. The major categories of plan assets are as follows

Cash and cash equivalents

Investment funds:

– equities

– bonds

– property

– LDI

Level 2

921

16,350

2,950

–

5,782

2019
£000
Total

921

16,350

2,950

–

5,782

26,003

Level 1

–

Level 1

–

Level 2

257

14,480

5,962

–

2,872

23,571

2018
£000
Total

257

14,480

5,962

–

2,872

23,571

Definitions of level 1 and Level 2 investments can be found in note 4(a)(i).

94
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Notes to the Consolidated Financial Statements continued

For the year ended 31 December 2019

27. Pension scheme obligations continued
f. Contributions and present value of defined benefit obligation
Funding levels are monitored on an annual basis. As at 31 December 2019 £nil (2018: £1,400k) was held in Escrow by the Group depending on the
outcome of the next triennial valuation. £1,400k contributions have been made directly into the scheme during 2019 (2018: nil). A recovery plan has
been agreed with the Trustees to reduce the plan deficit starting from 1 January 2020. £795k will be contributed to the plan assets each year for
6 years, ending in 2025.

28. 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 Directors and connected parties received distributions during the year as follows:

K E Randall and family

A K Quilter and family

M G Smith

2019

£000

1,222

328

2018

£000

1,440

375

Transactions with key management service provider.
With effect from 1 July 2016 some of the Group compliance services have been provided by a Group subsidiary, Callidus Solutions Limited, of
which 49% of the share capital is owned by the Chief Governance Officer

Fees charged for compliance services

Fees payable to service provider at end of year

2019

£000

284

2018

£000

207

95
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

29. Business combinations and divestments
Business combinations
The Group made 10 business combinations during 2019, all of which involve legacy transactions and have been accounted for using the
acquisition method of accounting.

Legacy entities and businesses
The following table shows the fair value of assets and liabilities (and consideration where paid) included in the Consolidated Financial
Statements at the date of acquisition of the legacy businesses:

Intangible
assets
£000

Other
receivables
£000

Cash and
investments
£000

Other
payables
£000

Technical
provisions
£000

Tax and
deferred tax
£000

Net assets
acquired
£000

Consideration
£000

Gross deal
contribution
£000

NNIS

WCIC

Presidio

LTT

–

100

787

822

–

3,233

3,235

1,112

764

(156)

(32)

–

(13)

(790)

(1,030)

(474)

–

(5)

Global Holdings

20,997

4,776

150,669

(1,838)

(66,187)

(1,300)

Sandell Holdings

Churchill

Blossom

Lansen

7,585

732

–

Distinguished Re

1,908

34,155

61,878

(8,309)

(55,203)

–

6,628

257

383

–

(6,085)

(87)

–

15,297

(38)

(14,049)

–

3,851

3,235

182

300

107,117

40,106

1,275

170

383

3,118

3,071

2,278

–

62,422

20,251

–

383

31,337

40,540

243,456

(10,373)

(143,918)

(1,305)

159,737

88,405

780

957

182

300

44,695

19,855

1,275

170

383

2,735

71,332

In all instances, goodwill on bargain purchase was recorded on the transactions. Goodwill on bargain purchase arises when the consideration
is less than the fair value of the net assets acquired. It is calculated after the alignment of accounting policies and other adjustments to the
valuation of assets and liabilities to reflect their fair value at acquisition. The long-tail nature of the liabilities causes significant problems for
former owners such as tying up capital and a lack of specialist staff. As a specialist service provider and manager, the Group is more efficient at
managing such entities and former owners are prepared to sell at a discount on the fair value of the net assets.

In order to disclose the impact on the Group as though the legacy entities had been owned the whole year, assumptions would have to be made
about the Group’s ability to manage efficiently the run-off of the legacy liabilities prior to the acquisition. As a result, and in accordance with IAS 8,
the Directors believe it is not practicable to disclose revenue and profit before tax as if the entities had been owned for the whole year.

Where significant uncertainties arise in the quantification of the liabilities, the Directors have estimated the fair value based on the currently
available information and on assumptions which they believe to be reasonable.

The Group completed the following business combinations during 2019:

NNIS
On 28 February 2019, the Group completed the acquisition of the entire issued ordinary shares of Nationale-Nederlanden Internationale
Schadeverzekering SE (NNIS), a UK domiciled insurance company which was previously part of the N.N. Group N.V. in the Netherlands. NNIS
participated on the 1996 and prior underwriting years of the Dutch Aviation Pool which wrote Aviation Hull and Liability policies. External costs
incurred were £7k.

WCIC
On 29 March 2019, the Group completed the acquisition of the entire issued ordinary shares of Western Captive Insurance Company DAC (WCIC),
an Irish domiciled captive insurance company of the Coffey Group. WCIC provided employer’s liability, general liability and public liability policies
from 2007 to 2011, and, at the date of acquisition, had one remaining open claim. External costs incurred were £50k.

Presidio
On 31 March 2019, the Group novated the property, general liability, auto liability and workers’ compensation policies of Presidio Insurance
Limited, a Cayman domiciled group captive, to its Travelers cell within R&Q Quest (SAC) Limited. The novated policies covered the period from
31 December 2003 to 28 February 2010. External costs incurred were £17k.

LTT
On 30 April 2019, the Group completed the assumption of liabilities from The Logistics Trust of Texas (LTT), a self-insured trust in run-off since 2014
which was taken over by the Texas Self-Insurance Group Guaranty Fund in 2016. LTT provided workers’ compensation policies from 2006 to 2014.
External costs incurred were £43k.

96
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Notes to the Consolidated Financial Statements continued

For the year ended 31 December 2019

29. Business combinations and divestments continued
Global U.S. Holdings Incorporated
On 3 May 2019 the Group completed the acquisition of GLOBAL U.S. Holdings Inc. for a consideration of $80.5m from AXA DBIO, SCA, a subsidiary
of investment funds managed by AXA Liabilities Managers SAS (‘AXA LM’). External costs incurred were £181k.

GLOBAL U.S. Holdings Incorporated is the 100% parent of GLOBAL Reinsurance Corporation of America (‘Global Re US’). Global Re US is a New
York domiciled insurance company in run-off that underwrote predominantly property and casualty pro-rata treaties and facultative business
for regional and specialty insurance companies on non-standard automobile, multi-peril and general liability lines in the US.

Sandell Holdings Ltd (Provisional)
On 7 October 2019, the Group completed the acquisition of Sandell Holdings Ltd and its subsidiary, Sandell Re Ltd, a Bermudian Class 3A
segregated accounts company. Sandell Re participated on various reinsurance contracts from 2015 and continuing. External costs incurred
were £45k. The fair value included is provisional in respect of the other payables only, which includes an amount of $4.2m (£3.2m) which remains
subject to further review.

Churchill
On 23 October 2019, the Group completed the novation of Churchill Casualty Ltd’s (Churchill) policies to its Travelers segregated account in R&Q
Bermuda (SAC) Ltd. Churchill was a Cayman domiciled captive with policies, which were fronted by Zurich, providing Workers’ Compensation,
General Liability and Auto Liability coverage from 2001 to 2011. External costs incurred were £107k.

Blossom
On 19 December 2019, the Group completed the novation of the Workers’ Compensation policies of Blossom to Accredited Surety and Casualty
Company Inc. Blossom was a self-insurer which had been providing services to people with disabilities in the Philadelphia area, but which has
subsequently ceased business. The policies transferring relate to the 2007 to 2018 years. External costs incurred were £38k.

Lansen
On 30 December 2019, Accredited Insurance (Europe) Limited completed the novation of Lansen’s aviation hull & liability policies. Lansen was a
Swedish based captive insurer of Saab which participated on these policies from 1996 to 2008.

Distinguished Re
On 31 December 2019, the Group completed the acquisition of Distinguished Re, a Barbados based insurance company in run-off. Distinguished
Re participated on US Umbrella policies underwritten by Great American from 2008 to 2017.

30. Non-controlling interests
The following table shows the Group’s non-controlling interests and movements in the year:

31 December 2019

Non-controlling interests

Equity shares in subsidiaries

Share of retained earnings

Share of other reserves

Movements in the year

Balance at 1 January

Profit for the year attributable to non-controlling interests

Exchange adjustments

Comprehensive profit attributable to non-controlling interests

Changes in non-controlling interest in subsidiaries

Balance at 31 December

2019

£000

380

443

349

(478)

(22)

(500)

594

443

2018

£000

282

349

(166)

481

515

–

349

31. Guarantees and indemnities in ordinary course of business
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 bank at 31 December 2019 was £55,141k (2018: £46,300k).

The Group has given various customary warranties and indemnities in connection with the disposals of RQMA and various ISD entities
(to Coverys and Davies respectively).

The Group also gives various guarantees in the ordinary course of business.

97
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

32. Foreign exchange rates
The Group used the following exchange rates to translate foreign currency assets, liabilities, income and expenses into sterling, being the Group’s
presentational currency:

US Dollar

Euro

2019

2018

Average

Year end

Average

Year end

1.28

1.14

1.31

1.17

1.34

1.13

1.27

1.11

33. Events after the reporting date
On 13 January 2020, the Group announced Mr W Spiegel as Executive Director and Deputy Group Chairman.

As part of his remuneration package, Mr Spiegel has been awarded 5,178,524 restricted ordinary shares at a price of 2p per share. The award
represented 2.64% of the shares in issue.

The shares will not vest until 10 January 2023, being the third anniversary of the date of hire subject to Mr Spiegel’s continued employment with
the Company. Vesting of the award will be accelerated if Mr Spiegel’s employment is terminated prior to the third anniversary by the Company
without cause or by Mr Spiegel for good reason or if a change in control of the Company occurs. Mr Spiegel will forfeit the shares if the Company
terminates his employment for cause prior to vesting or if he terminates without good reason.

On 27 January 2020 the Group completed the acquisition of Vigneron Insurance Company, Inc., a Montana captive insurer purchased from a
wholly owned private investment holding company with diverse holdings in a variety of industries, real estate, marketable securities and
other investments.

On 20 February 2020 Trilogy Managing General Agents Limited was sold to Resolution Underwriting Holdings Limited.

On 14 April 2020 the Group completed the acquisition of ICI Insurance Company Limited, a Company incorporated in the Cayman Islands in 2003
and licensed as a Class B (i) Insurer.

On 29 April 2020 the Group announced £80.3m ($100m) of new equity investment by way of:
• a $80m subscription by Brickell Insurance Holdings LLC, an investment vehicle controlled by 777 Partners, for a new series of preferred stock
issued by Randall & Quilter PS Holdings Inc., an indirect wholly owned subsidiary of the Group, which are exchangeable (subject to certain
terms and conditions) for ordinary shares in the capital of the Company at a price of £1.35 per Ordinary Share.

• a $20m subscription by funds managed by Hudson Structured Capital Management Ltd. for 11,902,318 new Ordinary Shares at a price of £1.35

per Subscription Share.

Covid-19 impact
Accounting policy note 2 (d) Going Concern provides details of the potential impact of Covid-19 to the Group.

34. Ultimate controlling party
The Directors consider that the Group has no ultimate controlling party.

98
Randall & Quilter Investment Holdings Ltd.
Annual Report 2019

Shareholder Information

Auditors
PKF Littlejohn LLP
15 Westferry Circus
Canary Wharf
London
E14 4HD

Secretary
Beverley Murphy

Registered Office
Clarendon House
2 Church Street
Hamilton
HM11
Bermuda

Registered Number
47341

Bankers
The Royal Bank of Scotland plc
280 Bishopsgate
London
EC2M 4RB

PRINCIPAL WORLDWIDE OFFICE LOCATIONS

Bermuda Office

Malta Office

Head Office
FB Perry Building
40 Church Street
PO Box HM 2062
Hamilton

UK Offices

London
71 Fenchurch Street
London EC3M 4BS

US Offices

New York
340 Madison Avenue
Suite 1911
New York NY 10173

Pieta
Skyway Offices
177/179 Marina Street
Pieta PTA 9042
Malta

Norwich
Floor 3, Lawrence House
5 St Andrews Hill
Norwich NR2 1AD

Philadelphia
2 Logan Square
100 North 18th Street
Suite 600
Philadelphia PA 19103

Orlando
4798 New Broad Street
Suite 200
Orlando FL 32814

Atlanta
3565 Piedmont Road
Piedmont Center
Building 4
Suite 550
Atlanta
Georgia GA 30305

RANDALL & QUILTER
INVESTMENT HOLDINGS LTD.

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