RANDALL & QUILTER
INVESTMENT HOLDINGS LTD..
ANNUAL REPORT 2020
ACCELERATED
GROWTH
WE ARE A UNIQUE
GLOBAL SPECIALITY
INSURANCE COMPANY
Our vision is to become a more efficient, fee orientated and
data-driven company focused on our core strengths of insurance
origination, underwriting and claims management.
Strong balance
sheet and
financial track
record
Sizeable
opportunity to
grow fee income
by managing
third-party
capital
7
8
6
Conservative
investment
strategy
Market leader
in both Program
Management
and Legacy
businesses
1
5
Growing
fee-based
Program
Management
business
Strong secular
growth in each
business
2
4
3
High barriers
to entry in both
businesses
Robust returns
on tangible
equity in Legacy
business
CONTENTS
4
2020 Highlights
STRATEGIC
REPORT
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2020 A year in Review
10 Market and Strategy
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14
16
20
23
25
Impact of Covid-19
Sustainability
Financial Review
Principal Risks and Uncertainties
Emerging Risks
Covid-19
CORPORATE
GOVERNANCE
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Board of Directors
30 Governance
FINANCIAL
STATEMENTS
36
40
42
44
46
48
52
53
54
55
56
57
Audit Committee Report
Remuneration & Nominations Committee Report
Risk Committee Report
Risk Management
Statement of Directors’ Responsibilities
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
101
Shareholder Information
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2020 HIGHLIGHTS
Record pre-tax operating
profit driven by strong
operating results across
business segments
Group
Financial Highlights
Pre-tax operating profit
£16.0m
£8.0m
2019
£16.0m
+102%
2020
Fee income
£18.8m
£10.0m
2019
£18.8m
+88%
2020
Operating earnings per share
5.9 pence
4.3 pence
5.9 pence
+38%
2019
2020
Operational highlights
• Accelerated growth for the Group
• Fee income represents 17% of gross operating income
• £173m of capital raised during the year
• Senior leadership strengthened with key hires including
Executive Chairman, Group CFO, CEO of US Program
Business and Chief Human Resources Officer.
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Program Management
Financial Highlights
Legacy Insurance
Financial Highlights
Gross written premium
$538.9m
$368.9m
$538.9m
+46%
2019
2020
Pre-tax operating profit
$3.4m
$(1.8)m
2019
$3.4m
2020
Operational highlights
• Breakthrough year with Program Management profitable
for the first time generating a 14% margin , demonstrating
the benefits of increased scale
• Expanded footprint and capabilities by launching
US E&S platform
• 18 new programs signed, increasing total programs to 48
• On course to achieve previously announced target of at
least $1.5bn of gross written premium in 2023
• Increased exposure to fee-related profits through
investment in Tradesman, an MGA to whom we provide
Program Management services.
Pre-tax operating profit
£38.1m
£26.1m
2019
£38.1m
+46%
2020
Operating return on tangible equity
14.8%
10.2%
2019
14.8%
+4.6%
age points
2020
Operational highlights
• Record year, executing on 19 deals with acquired assets
of £674m and acquired net reserves of £500m,
a growth of 92% and 81% respectively
• Allocated average tangible equity of £212m
• 20.2% return on tangible equity on average over past
five years.
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STRATEGIC
REPORT
8
2020 A year in Review
10 Market and Strategy
13
14
16
Impact of Covid-19
Sustainability
Financial Review
20 Principal Risks and Uncertainties
23
Emerging Risks
25 Covid-19
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Annual Report 2020
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2020: A YEAR IN REVIEW
2020 is a year that will live in the memory for a long time. The
pandemic and its consequences tested our employees, customers,
operations, business model and strategy, just as it did for all
companies operating in the global insurance markets.
• Our Program Management business had
a breakthrough year with an increase of
18 programs and robust growth of 89%
in fee income and 46% in gross written
premium, to USD24.1m and USD538.9m,
respectively. Most exciting of all is that this
business, which we began just four years
ago, became profitable for the first time
generating a pre-tax operating profit of
USD3.4m.
With both of our businesses profitable,
we now have the foundation to continue
accelerating our growth and delivering
sustainable and growing earnings in the
years to come. I think it is also important to
note that in 2020 we added a complementary
business to Program Management when
we made a minority investment in one of
our core program partners. This investment
increases our exposure to fee-related profits,
while locking in the associated program
management business.
There are three tried and tested responses
to the unexpected difficulties we witnessed
in 2020: one, do nothing and hope it will all
blow away; two, hunker down, preserve
cash and retrench; or, three, use the changed
circumstances to think and do differently,
accelerate change and seize the opportunity.
R&Q decided from an early stage in the
pandemic to get on the front foot and
embrace the third approach. We did this
in a number of ways.
Very early in 2020, it was clear to us that
the pandemic would result in significant
structural changes to our markets, and create
highly attractive and accretive opportunities
for R&Q. In order to execute on these
opportunities, we took the decision to raise
USD100m (GBP81m) of new equity in April,
being one of the first listed (re)insurers in either
the US or Europe to raise capital following
the initial Covid-19 shock. We followed our
equity raise with a USD125m (GBP92m)
subordinated debt issue. In total, we raised
USD225m (GBP173m) of capital in 2020 – an
extraordinary achievement for a group of
our size and testament to the confidence our
investors have in our business and strategy.
We utilised this capital to accelerate the
growth opportunities we identified in both
the legacy and program markets by injecting
it into our operating companies in Bermuda,
the US and Europe and for acquisitions.
Specifically, Legacy Insurance used GBP145m
to support new transactions, Program
Management used GBP20m to build out its
new US platform and our UK branch and we
paid a cash distribution to our shareholders
of GBP8.5m.
The growth we achieved in 2020 was quite
extraordinary. In our Program Management
business, we increased gross written premium
by 46%, fee income by 89% and the number
of programs by 60%, to 48. Our contracted
premium, the gross written premium we
expect to achieve from our MGAs when they
achieve scale, ended the year at USD1.3bn,
an increase of 52%. We remain on course to
achieve our previously announced target of
at least USD1.5bn of gross written premium
in 2023.
We also continued to enjoy success in Legacy
Insurance, as we have consistently for 30
years. In 2020 we completed 19 legacy deals
with strong global counter-parties such as
Allianz, QBE and Renaissance Reinsurance.
These transactions added GBP674m of
acquired cash and investment assets and
GBP500m of insurance net reserves, a
growth of 92% and 81%, respectively over
2019. Our activity in 2020 shows how far the
industry has come from the historic view
of legacy transactions being primarily
driven by challenged insurance portfolios
to one of tailored and creative solutions for
capital management.
Our People
What our 2020 results demonstrate is that
the consequences of last year – not least the
Working from Home (WFH) phenomenon –
did not hamper our ability to deliver on behalf
of our clients and ultimately our shareholders.
Our staff of 280 coped admirably and I
have the utmost confidence that they will
continue to do so this year. Right from the
beginning we put the welfare of our staff
first and swiftly implemented best practices
around protecting their physical and mental
William Spiegel
Executive Chairman
I am pleased, therefore, to report that we
navigated the challenges posed by Covid-19
well, demonstrating the durability and
resilience of R&Q and the quality of our
people. In particular, the clarity of our model
and strategy, built around two specialty
businesses in fast-growing insurance sectors,
meant that we were able to respond with
agility and confidence in a dynamic market
environment. This is proven by the excellent
results we have reported for 2020.
Accelerated Growth
Our results are examined in more detail
in the Financial Review but, in summary,
2020 was a year of accelerated growth.
Our pre-tax operating profit grew 102% to
a record GBP16.0m and operating earnings
per share grew 40% to 6 pence.
Looking at the key performance metrics
for our two core businesses highlights the
excellent underlying returns and growth
being generated.
• Our Legacy Insurance business recorded
its strongest year ever, executing on 19
deals and delivering a pre-tax operating
profit of GBP38.1m, an increase of
46% compared to 2019. These results
translated into a strong operating return
on tangible equity of 14.8% (five-year
average of 20.2%).
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health while also ensuring they had the
right support and infrastructure to continue
their valuable work. We did not furlough any
of our employees; indeed we continued to
hire talent. Nor did we avail ourselves of any
government support in the areas in which
we operate.
We also moved to strengthen our senior
leadership team making sure our platform
had the right talent to accelerate growth.
This was an important priority and we
delivered on this with a number of high
calibre appointments. These included
Tom Solomon as our new Chief Financial
Officer, Pat Rastiello, an established leader
in the North American program market, as
Chief Executive Officer of our US Program
Management division, Michele Briggs as
Chief Human Resource Officer, at a time
when this function is increasingly strategically
important, and Ben Masel as Head of
Corporate Development.
Strategic Developments
Since joining R&Q, I have also experienced
firsthand the esprit de corps that exists
between our employees, who are based
across eight global offices. All our employees
contribute to the entrepreneurial and
pioneering spirit that R&Q is known for and
which we demonstrated once again last
year. A good example was our US Legacy
Insurance team, supported by colleagues
in London, who worked closely with the
Insurance Commissioner of Oklahoma to
pioneer, and receive approval, to undertake
the first insurance business transfer from a
third party under the State’s new legislation.
An insurance business transfer allows owners
of discontinued US P&C business to gain
true finality by fully transferring policies to
an assuming legacy insurer. The experience
gained by working closely with the Oklahoma
insurance commissioner’s office positions
R&Q well to deliver more US legacy business
in the future.
We also achieved a notable ‘first’ in our
Program Management division in 2020 with
the launch of our new Excess & Surplus lines
insurance company. We are now the only
operator in the global program market to
offer program management services in the
US (both admitted and non-admitted) and
Europe. This allows us to create important
strategic relationships with trans-Atlantic
insurance distribution partners while also
increasing demand from the reinsurance
community to support our distribution clients.
R&Q’s reputation for being nimble and
entrepreneurial was demonstrated with
another ‘first’ last year, acquiring a 35% stake in
one of our important Program Management
clients, New York-based MGA, Tradesman
Program Managers (Tradesman) in exchange
for a holding in our Bermuda reinsurer, Sandell
Re. Our stake in Tradesman was increased to
40% in early 2021 in exchange for our residual
holding in Sandell Re.
This arrangement was notable for two reasons.
First, it was a tremendous deal economically
for R&Q shareholders relative to the initial
acquisition cost of Sandell Re. Second, it
also created future strategic value for R&Q
inherent in a much closer relationship with a
growing and dynamic MGA. This transaction
allows Tradesman, with the security of our
partnership, to have confidence to grow their
business, while for R&Q it creates an additional
capital-light and recurring fee stream. In
2020, Tradesman generated earnings before
interest, depreciation and amortisation of
USD13m, a 61% growth over 2019. We may see
opportunities to emulate this approach with
other MGAs to whom we provide program
management services.
Dividends
In respect of our 2020 year-end results we are
pleased to propose a final cash dividend of
GBP0.5m or 0.2 pence per share for a total
distribution for the year of 4 pence per share.
This represents a 5% increase on the cash
distribution paid for FY 2019 of 3.8 pence per
share (the final 2019 distribution of 6.1 pence
per share was paid in non-cash bonus shares)
and reflects a payout ratio of 56% of pre-tax
operating profit. The dividend will be paid on
24 June 2021. The ex-dividend date is
3 June 2021 and the record date is 4 June 2021.
We appreciate the importance to our
shareholders of a consistent dividend policy.
We think it is important to have a policy
that allows for an appropriate balance of
reinvestment in our business and dividends
to shareholders, as well as one that minimises
the need to raise external capital. We are in
the enviable position of competing in growing
markets that offer us the opportunity to
reinvest our capital at high rates of return,
creating long-term shareholder value. The
growth in the Legacy Insurance business may
require external capital in the short term until
our Program Management business creates
enough free cash flow to support this need.
During this period, while we are in growth
mode and remain capital consumptive, we
will adopt a progressive cash dividend policy
with a payout ratio between 25% and 50% of
our pre-tax operating profit, the best proxy
for cash earnings. This policy will allow us the
flexibility to carefully balance the allocation of
our capital between reinvesting in profitable
opportunities and in providing an attractive
and growing dividend to our shareholders.
While the precise payout percentage may
vary year-on-year, we intend to grow the
annual cash dividend from the FY2020 level
of 4 pence per share.
Conclusion
In summary, 2020 was a year like no other
we have witnessed in our lifetime and it
continues into 2021. We have lived through
lockdowns, school closings, travel restrictions,
social unrest, mass vaccinations and
unprecedented fiscal stimulus. Yet, despite
all this turmoil, it was a year of ‘firsts’ for R&Q.
I would like to personally thank Ken Randall
and Alan Quilter, the two founders of R&Q,
for having confidence in me and guiding
and mentoring me over the past 17 months.
I also want to thank all our stakeholders
for their unwavering support during these
unprecedented times: our shareholders, our
customers, our regulators, our rating agencies,
our board and most importantly our loyal and
dedicated employees. I am so proud of what
we achieved in 2020 under trying conditions.
I cannot wait to see what we can accomplish
over the next few years as the world returns
to a more normal state.
KEN RANDALL
Ken Randall retired on the 31 March 2021
and while he is never one for fanfare I
felt it important to share a few thoughts.
As co-founder of R&Q, Ken has not only
been pivotal in building the company
that we are today but has also played
a significant role in the careers of many
people including mine. His direction,
energy and vision have been key to
the growth and development of R&Q
over the last 30 years and he retires
having helped create what R&Q is
today – a truly unique company with
a market value of nearly GBP500m,
280 employees in eight offices around
the world and compelling propositions
in both legacy and program
management businesses.
From a personal perspective, I’ve known
Ken for many years and it is a real
honour to succeed him as Executive
Chairman. As I look ahead, I could not
be more excited about the future of R&Q
and what I believe can be achieved.
The whole of R&Q wishes Ken the best in
retirement. He certainly won’t be an easy
act to follow but, and forgive the pun, he
could not have left a better legacy.
William Spiegel
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MARKET AND STRATEGY
Over the past 17 months I have had many conversations with shareholders and
potential investors, and I am encouraged by the consistent view that R&Q has two
impressive core businesses with great potential for continued long-term growth;
however, it is clear from these conversations many investors still feel we can do
more to make our business model less complicated and more transparent.
In this section, I would like to demystify
our business with the view that the more
management and shareholders speak
the same language, the easier it will be to
achieve our collective goals.
What We Do
R&Q is a specialty insurance company
focusing on two growing businesses – Legacy
Insurance and Program Management. We
have a clearly defined vision to be a leader
in each of our high-growth markets, both of
which are fundamental components of the
P&C insurance ecosystem.
Legacy Insurance
R&Q’s Legacy Insurance business provides
creative financial solutions to owners of
discontinued insurance and reinsurance
business and has been at the heart of the
R&Q Group for nearly 30 years. Legacy is now
an integral part of the insurance market,
providing capital management solutions
for global insurance companies. R&Q is one
of the most well-established and reputable
players within the legacy insurance industry.
R&Q prices transactions to generate a
minimum of a 15% return on investment over
the life of a transaction (IRR). R&Q applies a
portfolio approach to its Legacy Insurance
business to ensure diversification, and since
2009, has completed over 100 transactions
across 35 regulatory jurisdictions in
18 countries. I am pleased to report that over
the past five years we have delivered an
average operating return on tangible equity,
a proxy for IRR, of 20%, significantly above our
cost of capital.
Program Management
R&Q’s Program Management business
generates recurring fees by using its licensed
and rated insurance companies to act
as a conduit between capital providers
(reinsurers), and independent insurance
distributors or MGAs. We market our
Program Management business under the
Accredited brand, and each of our entities
in the US and Europe are rated A- (Excellent)
by A.M. Best for financial strength, making
R&Q the only dedicated program partner to
provide A- rated insurance capacity on both
sides of the Atlantic. The insurance risk in the
Program Management business is assumed
by the reinsurer unless we decide to or are
required to retain a portion. As at year-end
2020, R&Q retained circa 6% of the insurance
risk on our programs and where we assume
insurance risk, we generally purchase
reinsurance protection.
Program Management generates a stream
of stable and recurring fees by charging
approximately 5% of annual gross written
premium on each program assumed by
reinsurers. Given our established platform
and licenses, this business is highly scalable
with significant potential for operating
leverage and requires minimal capital to
grow since it bears little of the insurance
risk (after taking account the reinsurance
protection from our highly-rated or
well-collateralised reinsurance partners.).
Our Program Management business is only
four years old and in 2020 made its first profit.
We anticipate our Program Management
business will generate gross written premium
of at least USD1.5bn by 2023, by which time
it will be at scale and we believe generating
significant free cash flow. We will also
continue to assess minority investments
in strategic program partners, such as our
investment in Tradesman, which increases
our exposure to fee-related profits.
Of course, our business is not without risk.
In Legacy Insurance the key concern is
claims developing worse than expected. We
mitigate this through portfolio diversification;
some transactions will perform better, some
worse, but on average we generate returns in
excess of our target of a 15% IRR. The Program
Management business faces a different set
of issues; will reinsurers support our MGAs;
will our reinsurers decline to pay claims or
fail; and will our MGAs produce the expected
volume? These potential issues are lessened
by having a diversified portfolio of programs
and reinsurers. Focusing on diversification
is an important element of our strategy,
and it does not simply refer to the number
of transactions/programs but also the
diversification by geography, risk type,
clients and vintage year.
Our Profit Model
We earn gross operating income (income
before fixed costs) from three sources:
underwriting income (69% in 2020); fee
income (17% in 2020); and investment income
(14% in 2020).
Underwriting Income
Underwriting income is derived primarily
from our Legacy Insurance business
associated with the acquisition or
reinsurance of a run-off book of (re)insurance
at a discount and the settling of insurance
claims for less than they were acquired. Our
Program Management business generates
a modest amount of underwriting income
on the insurance risk it retains net of stop-loss
coverage that is purchased.
Fee Income
Fee income is derived primarily from our
Program Management business associated
with circa 5% commission we earn on gross
written premium assumed by reinsurers. We
also earn distributable income on our minority
stake in the earnings of MGAs (currently 40%
in Tradesman). While Legacy Insurance does
not currently generate fee income, we continue
to explore alternative capital vehicles that
would add fee income from originating and
managing legacy transactions.
Investment Income
Investment income comes primarily from
our Legacy Insurance business associated
with the investment of reserves and required
capital. These investments comprise
primarily high-grade fixed income securities.
We also earn investment income on the
retained premium and required capital
of Program Management.
Our Growing Markets
R&Q competes in large and growing
markets which enjoy both secular growth
and structural protection from the P&C cycle.
Our markets should witness steady growth
over the years to come.
Legacy Insurance
The legacy market continues to expand and
in 2021 grew by 9% to USD864bn in reserves of
discontinued (re)insurance policies. However,
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the size of the market is not relevant, it is the
size of our addressable market – meaning,
will the owners of these legacy reserves
transact?
Since the credit crisis of 2007-2008, there has
been a significant shift in the behaviour of
insurance companies which have recognised
the relevance of the legacy insurance industry
in helping manage capital, thereby increasing
our addressable market. This has occurred
for a number of reasons: the low interest rate
environment has reduced the profitability of
many insurance lines; the higher regulatory
capital requirements, including Solvency II;
the evolution of third-party managed capital;
the emergence of new techniques to transfer
liabilities, including insurance business
transfers; and an increasingly sophisticated
understanding of capital management
by insurance and reinsurance companies.
As a consequence, exiting discontinued
businesses or business lines is now an
integral method for (re)insurance companies
to strategically manage their capital. We
expect the dislocation from the pandemic,
the anticipated hardening of premium prices
and the desire for insurers to swiftly exit under-
performing business lines to continue to fuel
the growth in the addressable legacy market.
Program Management
The program market is also benefiting
from permanent structural change that is
increasing demand for insurance fronting
services. First, we are witnessing ongoing
growth in the number of independent MGAs
(i.e. not affiliated with an insurance company)
as this form of distribution becomes the
platform of choice for entrepreneurial
underwriters. Second, we have seen a
proliferation of reinsurance capacity
searching for direct access to premiums
generated by strong underwriting teams.
To put this structural change in perspective,
the unaffiliated MGA count grew by circa
44% from 2014-2019 while reinsurance capital
grew by 51% over the period 2014-2020.
Program managers, by providing their
insurance licences, sit at the intersection of
MGAs and capital providers. We estimate
the US and European MGA market is now
at least USD100bn in annual gross written
premium (the US is estimated at USD60bn)
and growing. Importantly, we believe
the independent program managers
(i.e. program managers that are not also
writing live insurance) still control less
than 10% of this market, which creates
an enormous opportunity to grow share.
We see independent MGAs increasingly
choosing to align with independent program
managers because of the conflict-free nature
of the relationship. Independent program
managers, such as ourselves, have one job –
to provide MGAs access to capital providers
via their insurance licences, allowing them to
grow their business. We therefore expect the
independent program providers to witness
significant market share growth over the
medium term.
Our Competitive Positioning
Large, growing and profitable markets
will inevitably attract competition, and we
have seen more competitors in recent years.
However, because R&Q operates in highly
regulated markets, there are significant
barriers to entry. To compete in our markets
requires balance sheet strength, appropriate
ratings, regulatory approvals, licences
(preferably across multiple geographies),
access to capital and most importantly
established operating platforms and highly
specialised talent. The investments we have
made in our platform – and the expertise
and experience we have accumulated –
makes it very difficult for others to compete
with the breadth of resources we can provide
our clients.
Program Management
Since we currently manage in excess of more
than 48 programs, more than most in the
industry, we have credibility with MGAs and
reinsurers, which engenders more business.
Furthermore, R&Q’s ability to move programs
between the US E&S or admitted markets
or to assist MGAs across the UK and Europe
enhances our reputation as a solution
provider to our clients.
Legacy Insurance
The breadth of our platform allows us to
optimise the solutions we offer our clients
– we can provide rated and fully licensed
solutions in the US and Europe as well as
capabilities in Bermuda, Cayman, Barbados,
Isle of Man as well as Lloyd’s.
Much of our competition is backed by
private equity, and since I come from that
background, I appreciate its discipline.
However, private equity backed companies
typically have a high cost of capital and
a short time before exit. Unlike these
competitors, R&Q, as a public company with
permanent capital, is able to assure its clients
of its long-term commitment to the market.
Our Strategic Vision
Our long-term business vision is where we
want to move R&Q over the next five years.
Simply stated, our vision is to become a
more capital-efficient, fee-oriented and
data-driven company focused on our core
strengths of originating, underwriting
and claims management in the insurance
industry. This vision recognises that to
continue to be a leader in our core markets,
we need to focus on four key initiatives:
• Increasing our recurring
fee-based income;
• Automating our manual processes;
• Harnessing our data; and
• Engaging our employees
Fee-Based Income
While we currently generate recurring fee
income from our Program Management and
MGA investment, we believe the future of
our Legacy Insurance business is to manage
legacy insurance risk for a recurring fee on
behalf of third parties who do not have direct
access to this asset class. P&C insurance
risks are ripe for securitising in a similar way
to mortgages, credit cards and auto loans.
Admittedly, progress has been slow and
thus far largely focused on catastrophe
reinsurance risk but it is inevitable this will
occur more broadly over time. When it
does, it will place greater focus and value
on companies with a proven track record
in originating, underwriting and managing
insurance claims. This endeavour will diversify
our sources of funding, reduce our capital
issuances, increase our excess capital and
enhance financial flexibility. Furthermore, fee
income should garner a higher valuation and
lower cost of capital in the public markets
than underwriting and investment income.
Automation
There are many manual and repetitive tasks
in the insurance businesses that should be
automated by ‘digital workers’. Automating
these tasks allows human workers to do
what humans do best – think! This emerging
field of automation improves the efficiency,
productivity and therefore happiness of
an employee base. To put this in context,
according to McKinsey, approximately
60% of all jobs have 30% of tasks that can
be automated. Applying automation to
our business will us allow us to scale in
a sustainable manner as we automate
workflow processes such as MGA audits,
contract wordings and certain aspects
of diligence. We are beginning to engage
with the leading players in this area.
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CONTINUED
Data
There is a growing awareness that – ‘Every
company is a data company’; whether it
is a restaurant, an airline or an insurance
company, the uniqueness of a company is
its ‘own data’ and how it uses that data to
better understand its markets and improve
its decision making. R&Q is no different
and we are starting the cultural journey
of defining ourselves as a ‘data company
competing in program management and
legacy insurance’. Our goal is to proactively
use our own data to enhance, for example,
our claims decision making and legacy
acquisition pricing, by leveraging machine
learning and artificial intelligence as part of
our core competencies.
Engaging our Employees
R&Q will continue to be an enterprise that
is engaged and focused on the needs of its
employees and we will support the spirit
of entrepreneurialism that has been at the
heart of R&Q for 30 years. We will continue
to evolve our culture to one of increased
accountability and transparency creating
a strong link with our strategic vision.
Our Capital and Liquidity Framework
Given the profitable growth opportunities we
have and the capital and liquidity required
to achieve this growth, we have developed
a capital and liquidity framework for the
Group. This framework seeks to balance
the attractive returns from reinvesting in
our business with the provision of growing
dividends to our shareholders, while
maintaining appropriate financial metrics
with respect to our capital, liquidity and
financial leverage. We set out the four key
pillars of this framework below:
Capital
Our Legacy Insurance business is the primary
consumer of capital. In general, we require
capital of circa 40% of net reserves to cover
unforeseen events in claims and investment
risks. Program Management is predominately
capital light, but given the importance of
credit ratings, consumes capital of circa 10%
of gross written premium. Our objective is
to maintain not only appropriate levels of
capital in our regulated subsidiaries, but to
also maintain a BMA solvency ratio for the
Group of at least 150%. We deem capital
above 150% as excess capital.
Liquidity
Our Legacy Insurance business consumes
cash when we acquire companies or post
collateral on reinsurance transactions.
Furthermore, we utilise cash for strategic
endeavours, to fund unallocated costs and
interest expense at the parent company
and of course pay shareholder dividends.
Even if we have excess capital, this does
not imply we have excess liquidity. Our
objective is to maintain an appropriate level
of liquidity, including any undrawn revolving
credit lines, at the parent to cover our
expected fixed charges.
Financial Leverage
Our credit ratings are critical for both of our
businesses and our capital structure needs
to maintain an appropriate mix of debt
and equity. We desire to maintain adjusted
financial leverage of no more than 30% of
capital, which gives partial equity credit to
our subordinated debt.
Dividend
Our dividend policy is the final element of
our capital and liquidity framework. The
payment of a dividend reduces both our
capital and liquidity, but we acknowledge
it is very important to many of our
shareholders. Our dividend policy is based
on allowing for an appropriate balance of
reinvestment and growing dividends, as
well as one that minimises the need to raise
external capital. While we are in growth
mode we believe it is in the best interests of
the Group to create long-term shareholder
value by using our internally generated
capital to invest at high rates of return (in
excess of our cost of capital) to build our
future and scale our business. While we
remain capital consumptive, we will adopt
a progressive cash dividend policy with a
payout ratio of between 25% and 50% of
our pre-tax operating profit, the best proxy
for cash earnings. This policy will allow
us the flexibility to carefully balance the
allocation of our capital between reinvesting
in profitable opportunities and providing
an attractive and growing dividend to our
shareholders. While the precise payout
percentage may vary year-on-year, we
intend to grow the annual cash dividend
from the FY2020 level of 4 pence per share.
Conclusion
R&Q is in an enviable position of being a
leader in two businesses that are enjoying
strong secular growth. Our vision for R&Q
is to become a more capital efficient,
fee-oriented and data-driven insurance
company focused on its core strengths
of originating, underwriting and claims
management. The good news is that R&Q –
as we demonstrated last year – is extremely
well-positioned. The future R&Q is one of
evolution, not revolution.
Thank you for supporting us as we move
R&Q to the next stage of its development.
STRATEGIC
REPORT
CORPORATE
GOVERNANCE
FINANCIAL
STATEMENTS
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IMPACT OF COVID-19
IN 2020 AND BEYOND
Due to the Covid-19 pandemic, 2020 is a
year that will live long in the memory and
its legacy will continue to linger in 2021.
The impact of the pandemic tested our
employees, operations, business model
and strategy, much as it did all companies
operating in the global insurance markets.
However, the manner in which we responded
and rose to the challenge demonstrates the
resilience of Randall & Quilter and the quality
of our people.
Built around two specialist businesses in
complementary, fast-growing insurance
markets, it was the clarity of our model, and
strength of our strategy that enabled us to
respond with agility, speed, and confidence
to a dynamic market environment. Clearly
illustrated by the excellent results we have
reported for 2020.
First, our people
Most significantly, our results demonstrated
that the Working from Home (WFH)
phenomenon did not hinder our ability
to deliver on behalf of our clients and
shareholders. Did WFH actually help? While
it’s too early to accurately say, a greater
uptake in electronic communications
certainly led to more flexible working
arrangements that appear to have been
particularly productive.
From the very beginning of the pandemic,
we put the welfare of our staff first and
swiftly implemented best practices around
protecting their physical and mental health,
while also ensuring they had the right
support and infrastructure to continue their
valuable work. It’s also notable that we did
not furlough any of our employees.
The new normal: Continuing to protect
our people and our processes
If some form of WFH is here to stay, it’s
imperative that we monitor our staff’s
mental and physical well-being and
ensure that remote working isn’t having a
detrimental effect on their long-term health.
Equally, we need to protect our business
and ensure the ongoing pandemic never
breaches regulatory requirements or leads
to reputational risk, financial crime, or any
market disruption.
Essentially, we need to maintain business
as usual while continuing to manage the
ongoing risk of Covid-19, which means
monitoring the behaviour and spread of the
virus. We must also see beyond the current
situation and plan for what a return to work
will actually look like. Indeed, there may well
be new challenges down the road, but the
positivity with which our staff responded in
2020 gives us the utmost confidence that
2021 will turn out to be another successful
year for Randall & Quilter.
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STRATEGIC
REPORT
CORPORATE
GOVERNANCE
FINANCIAL
STATEMENTS
SUSTAINABILITY
Long before the Covid-19 pandemic began changing the world, our industry had
been focused on Environmental, Social, and Governance (ESG) concerns with
many of us integrating sustainability into our core businesses; incorporating ESG
considerations into our processes and plans for the future.
For Randall & Quilter, the pandemic highlighted the importance of
sustainability to our model. Despite the difficulties of a tough twelve
months, we have continued to deliver our core strategies, meeting the
needs and expectations of our stakeholders and society as a whole.
ENVIRONMENTAL
The environmental aspect of ESG continues
to attract huge focus as companies
explore new ways to tackle the crisis. It is
also the most complex area of ESG with
environmental concerns covering a wide
range of different topics, from climate
change to waste reduction.
At Randall & Quilter, we continue to make
a number of advances. The completion of
our office remodel in early 2020 allowed
us to leverage greener products in lighting
fixtures and heating elements, while working
remotely during lockdowns in the pandemic
significantly reduced paper consumption.
In terms of lessening our carbon footprint, a
greater uptake in electronic communications
led to more flexible working arrangements,
less global travel and the end of regular daily
commutes for many of our employees.
Personal recognition
Climate change and related matters are of
great interest to our employees and our risk
practice. Through both industry and practice
groups, we are proud to have an employee
recognised for her efforts in 2020 as a
volunteer Committee member of the Institute
of Risk Management Climate Change
Special Interest Group, and also as a thought
leader in the specialist area of ‘flood’. In fact,
at last February’s launch of the CIRA Property
Flood Resilience Code of Practice Guidelines,
our Chief Risk Officer was invited to speak at
the Environment Agency/Chartered Institute
of Water and Environmental Management
Flood and Coastline Conference to be held
in June 2021.
GOVERNANCE
The term governance often conjures up
images of regulations and board meetings
and when placed alongside environmental
and social is often overlooked. It’s somehow
seen as less engaging. However, good
corporate governance is vital to a company’s
lasting success. Businesses that are well
governed can point to strong management
guiding their decision making and a long-
term focus to explain their achievements.
Similar to other forward-thinking companies,
at Randall & Quilter, environmental, social
and governance, frequently overlap. As a
good business we can demonstrate strong
governance is allied to high standards
of social responsibility. Take gender, for
example. 36% of our senior management
team are female leaders. While 45% of all
our employees in the UK are women.
45% of all
our employees
are women
36%
of our senior
management
team are
female leaders
On environmental matters, companies
like our own that are building for a greener
tomorrow generally have brighter futures.
80% of the furniture in our London office
refresh was reused and the remaining
20% recycled.
We’re only too aware of the impact
our activities have on the communities
in which we operate. As a Group, we
recognise our responsibilities to all our
stakeholders, including employees, suppliers,
customers and, indeed, society as a whole.
Responsibilities we address through our
policies on modern slavery, data protection,
whistleblowing, and diversity.
Equally, we have a responsibility to those
resources and relationships that are key to
our business, including regulatory authorities
in various jurisdictions and states in the
US, our joint venture partners, the National
Westminster Bank, AM Best, and our auditors
and external legal advisers.
In terms of sustainability, 2020 has
clearly demonstrated that we are a
growth company, one that is expanding
responsibly by recognising the importance
of Environmental, Social, and Governance
issues. We also understand that while
separate, these three issues are often
one and the same and we look forward
to further improving our performance
on each throughout 2021 and beyond.
STRATEGIC
REPORT
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GOVERNANCE
FINANCIAL
STATEMENTS
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Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
SOCIAL
As important to us as the environmental
side of ESG are questions surrounding how
companies treat their own people and
the societies in which they operate. Often
harder to define than environmental or
governance, social is an area that needs
to be given greater consideration with
companies now expected to meet certain
social standards; standards that include
maintaining fair labour practices, ensuring
consumer protection, and acting in
shareholders’ interests.
Profits that come at
any social cost are
not acceptable.
259
280
global
headcount
in 2019
global
headcount
in 2020
Indeed, in light of the last year and the
wide-ranging social implications of the
pandemic, it can be argued that there
has been a real switch of emphasis from
the Environmental to the Social.
At Randall & Quilter, we are more
committed than ever to ensuring
high levels of corporate and social
responsibility. Our employees are
central to our continued success and
we actively promote their development
and ongoing improvement. Significantly,
our workforce continues to grow with
our global headcount rising from 259
in 2019, to 280 in 2020.
2020 Global headcount rises to 280
We’ve long championed diversity and
wholly support equal opportunities in
employment with our recruitment, training,
and promotion processes all conducted on
a non-discriminatory basis. Our strength as
an employer is reflected in our low turnover
rate: 2020 overall turnover rate: 7.93%; 2020
overall voluntary turnover rate: 3.79%
Important advances have also been
made in reducing the gender pay gap,
the gender bonus gap, and increasing the
proportion of women receiving an annual
bonus in comparison to last year.
2020 Overall
Turnover Rate:
7.93%
2020 Overall
Voluntary
Turnover Rate:
3.79%
10 ACHIEVEMENTS IN 2020
1.
0 employees were furloughed in 2020
as a result of the pandemic
2. USD50,000 donated to charities in the
communities which we operate
3. Employee engagement continued
throughout the pandemic
4. Employees volunteered to help support
local community needs making
financial and food donations
5. Employees continued completing
certifications and exams
6. Managers participated in a Global
Management Development
Program to inspire more effective
communication and leadership
7. 14 key talents were sponsored to attend
a one-week external training course at
Tiger Risk University focusing on Insurance
Fundamentals or Advanced Skills
8. Online global regulatory and compliance
training was implemented in 2020 with
an emphasis on Diversity, Ethics & Values,
and Modern Slavery
9. Plans are in place to continue enhanced
learning opportunities both virtually
and online
10. Executive coaching for top tier talent
will continue as we look to build on
the success of our senior management
and board.
$50,000
donated to
charities in the
communities
which we operate
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Randall & Quilter Investment Holdings Ltd.
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STRATEGIC
REPORT
CORPORATE
GOVERNANCE
FINANCIAL
STATEMENTS
FINANCIAL REVIEW
We are pleased to report strong operating results
demonstrating the resilience of the business model.
Our key performance indicators measure the
economics of the business and adjust IFRS
metrics to include fully written program fee
revenue and exclude non-cash intangibles
created from acquisitions in Legacy
Insurance, net realised and unrealised
investment gains on fixed income and
lease-based assets, and foreign currency
translation reserves. Pre-tax operating
profits was GBP16.0m, a 102% increase
compared to 2019, driven by a record
year of transactions in Legacy Insurance
and a debut profitable year in Program
Management. Tangible net asset value was
GBP340.8m, a 39% increase compared to
year-end 2019, primarily as a result of our
GBP81.0m (USD100m) equity raise in H1
2020. On a fully diluted basis, our operating
earnings per share was 5.9 pence, an
increase of 38% compared to 2019, and our
tangible net asset value per share was 124.4
pence, and upon including the 3.8 pence per
share cash distribution paid in the year, is
a 2% increase compared to year-end 2019.
One of our objectives is to grow the relative
contribution of fee income to total gross
operating income. Our fee income was
GBP18.8m, an 89% increase compared to
2019 and represented 17% of gross operating
income before fixed operating expenses, an
increase of 5 percentage points compared
to 2019.
Our IFRS results include the impact of
intangibles created from acquisitions in
Legacy Insurance as well as mark-to-market
movements in our fixed income investment
portfolio and foreign currency translation
reserves associated with changes in interest
and exchange rates, respectively, and
exclude unearned program fee revenue.
Profit before tax was GBP30.2m, a 21%
decrease compared to 2019 primarily due
to a mix of Legacy Insurance acquisitions
in 2019 that created significant non-cash
intangibles. Our net asset value was
GBP390.3m, a 35% increase compared to
year-end 2019 primarily as a result of our
GBP81m (USD100m) equity raise in H1 2020.
14%
14%
Tom Solomon
Group Chief Financial Officer
GROUP RESULTS
£16.0m
2020
£8.0m
2019
17%
12%
2020
69%
2019
74%
Pre-Tax Operating Profit
5.9p
2020
4.3p
2019
Operating Earnings Per Share
Underwriting income
Fee income
Investment income
STRATEGIC
REPORT
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GOVERNANCE
FINANCIAL
STATEMENTS
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Randall & Quilter Investment Holdings Ltd.
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Our Program Management business
continued to grow rapidly in 2020.
We had 48 active programs, an increase
of 18 programs compared to 2019...”
On a fully diluted basis, our earnings per
share was 11.1 pence, a decrease of 45%
compared to 2019 and our net asset value
per share was 142.4 pence, which upon
including the 3.8 pence per share cash
distribution paid in 2020, was a 1% decrease
compared to year-end 2019.
Program Management
Our Program Management business
continued to grow rapidly in 2020. We had 48
active programs, an increase of 18 programs
compared to 2019, our contracted premium
was USD1.3bn, a 52% increase compared
to 2019 and our gross written premium was
USD538.9m, a 46% increase compared to
2019. Our results are beginning to show the
benefits of scale and the operational leverage
this will bring, as we earned a positive pre-tax
operating profit of USD3.4m, representing
a 14.3% margin on gross operating income,
compared with a loss in 2019.
The primary driver of pre-tax operating profit
is our fee income, which represents program
fee revenue from written premium ceded
to reinsurers and our 35% minority stake in
tradesman (USD13m of earnings before
interest, tax, depreciation and amortisation)
effective in Q3 2020, which has subsequently
been increased to 40% in Q1 2021. Fee income
was USD24.1m, an 89% increase compared
to 2019. The program fee averaged 4.5%, and
increase of 0.9 percentage points compared
to 2019, and we expect fee income to grow in
line with gross written premium. Underwriting
income represents our circa 6% retention
of program risk. Our underwriting income
generated a USD3.0m loss primarily due to
the purchase of stop-loss coverage, costing
circa USD4m to minimise claims volatility,
a 14% decrease compared to the loss in
2019. We expect underwriting income to be
profitable as we diversify our business away
from programs such as motor. Our investment
income was USD2.5m, roughly flat compared
to 2019. Finally, fixed operating expenses
increased 49% compared to 2019 due to
the expansion of our staff particularly in the
US with the establishment of our Excess &
Surplus platform.
PROGRAM MANAGEMENT RESULTS
$1,281m
2020
$842m
2019
$539m
2020
$369m
2019
Contracted Premium
Gross Written Premium
$3.4m
2020
14.3%
2020
$(1.8)m
2019
(15.1)%
2019
Pre-Tax Operating Profit
Pre-Tax Operating Profit Margin
Legacy Insurance
Our Legacy Insurance business continued
to thrive and grow. We had a record year,
concluding 19 transactions with cash and
investments of GBP674m and net reserves
of GBP500m, an increase of 92% and 81%
respectively compared to 2019. Our pre-tax
operating profit was GBP38.1m, a 46%
increase compared to 2019. The primary
driver of pre-tax operating profit is our
underwriting income, which represents
tangible day one gains on transactions
originated during the year and claims
management of transactions closed in
prior years. Underwriting income was
GBP80.7m, a 22% increase compared to 2019.
Our investment income was GBP13.1m, a
36% increase compared to 2019 driven by
acquired assets on transactions.
Finally, our fixed operating expenses grew
12% compared to 2019 primarily due to
syndicate costs associated with transactions
we executed in the Lloyd’s market.
We remain disciplined in our focus on pricing
and risk and target returns of at least 15% in
our transactions. Our operating return on
tangible equity, based on allocated average
operating tangible equity of GBP212m, was
14.8%. When evaluating the performance
of our Legacy Insurance business, we also
focus on operating return on tangible
equity over time. We are pleased that our
five-year operating return on tangible equity
was 20.2%, a testament to our disciplined
approach to underwriting.
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STRATEGIC
REPORT
CORPORATE
GOVERNANCE
FINANCIAL
STATEMENTS
FINANCIAL REVIEW CONTINUED
LEGACY INSURANCE RESULTS
INVESTMENT PORTFOLIO BY CREDIT RATING
£674m
2020
£500m
2020
£351m
2019
£276m
2019
Acquired Assets
Acquired Reserves
£38.1m
2020
£26.1m
2019
14.8%
2020
10.2%
2019
Pre-Tax Operating Profit
Operating Return on Tangible Equity
Corporate and Other
Our corporate and other segment includes
investment income on excess capital,
unallocated operating expenses and finance
costs. Pre-tax operating profit was a loss of
GBP(24.7)m, a 48% increase compared to
2019 primarily driven by an increase in fixed
operating expenses associated with senior
management hires and higher interest
expense associated with the issuance of
GBP92m (USD125m) of subordinated debt
in H2 2020.
Cash and Investments
Our cash and investments, excluding funds
withheld and off-balance sheet trusts, was
GBP1,068m. We produced a book yield, which
excludes net realised and unrealised gains on
fixed income and lease-based assests, of 1.6%,
a decrease of 40 bps compared to 2019 due to
the impact of low interest rates experienced
globally. The two-year US Treasury yield
averaged 0.39% in 2020 compared to 2% in 2019.
We maintain a conservative, liquid investment
portfolio so that we can produce consistent
cash flows to meet our liability obligations,
while also earning a reasonable risk-adjusted
return. 92% of our investments were rated
investment grade, and another 4% of our
portfolio was invested in non-rated money
market funds. After cash, which comprised 25%
of our portfolio, our largest allocations were
to corporate bonds (37%), government and
municipal securities (23%) and asset-backed
securities (14%). Given the steepening in the
yield curve, we have maintained a short
duration portfolio of 1.8 years.
During 2020, financial markets witnessed
heightened volatility arising out of Covid-19
concerns. Nonetheless, our investment
portfolio did not suffer any defaults and
rather incurred net realised and unrealised
gains of GBP5.2m, and our total investment
return when including these mark-to-market
movements, was 2.2%.
AAA/Cash: 50%
BBB: 16%
AA: 8%
A: 18%
BB or lower: 4%
Not rated: 4%
INVESTMENT PORTFOLIO BY ASSET CLASS
Cash: 25%
Corporates: 37%
Gov’t & Muni’s: 23%
ABS: 14%
Equity: 1%
STRATEGIC
REPORT
CORPORATE
GOVERNANCE
FINANCIAL
STATEMENTS
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Randall & Quilter Investment Holdings Ltd.
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We maintain a conservative, liquid
investment portfolio so that we can
produce consistent cash flows to meet
our liability obligations, while also earning
a reasonable risk-adjusted return.”
Capital and Liquidity
As a result of our GBP81m (USD100m) equity
raise in H1 2020 and GBP92m (USD125m)
subordinated debt raise in H2 2020, we
strengthened our balance sheet. We utilised
the GBP173m capital raise toward Legacy
Insurance transactions (circa GBP145m),
investment in our Program Management
E&S business (circa GBP20m) and a cash
distribution to our shareholders (GBP8.5m).
Our preliminary group solvency ratio is very
strong at 202%, an increase of 25 percentage
points compared to year-end 2019, and above
our target of 150%, implying excess capital
of GBP111m. Our adjusted debt to capital,
which provides for partial equity credit on our
subordinated debt, was 28%, a decrease of
2 percentage points compared to year-end
2019, and below our target of 30%. We entered
into a new bank facility in H2 2020 to enhance
parent company liquidity. Our capital, liquidity
and financial leverage have to be aligned as
we execute against our business strategy.
Change to Financial Reporting Currency
We have been reporting our financial results
in pounds sterling since our public listing in
2007. As we have grown, our asset mix has
become increasingly US dollar denominated,
with 72% of our investment assets at year-
end 2020 in US dollars. This creates volatility
in foreign currency translation in both
our income statement and statement of
comprehensive income. Therefore we have
determined that starting in 2021, we will
report our financial results in US dollars.
28%
2020
30%
2019
202%
2020
Preliminary
177%
2019
Adjusted Debt to Capital Ratio
Group Solvency Ratio
Notes
• Pre-tax operating profit is a measure of how
our core businesses performed adjusted for
unearned program fee revenue, intangibles
created in Legacy Insurance acquisitions and
net realised and unrealised investment gains
on fixed income assets.
• Tangible net asset value represents net asset
value adjusted for unearned program fee
revenue, intangibles created in Legacy Insurance
acquisitions, net unrealised investment gains
on fixed income and lease-based assets and
foreign translation currency reserves.
• Gross operating income represents
pre-tax operating profit before fixed
operating expenses.
• Fee income represents program fee revenue
and our share of earnings from minority stakes
in MGAs (Associate).
• Underwriting income represents net premium
earned less net claims costs, acquisitions
expenses, claims management costs and
premium taxes / levies.
• Investment income represents income arising
on the investment portfolio excluding net
realised and unrealised investment gains on
fixed income and lease-based assets.
• Fixed operating expenses include employment,
legal, accommodation, information technology,
Lloyd’s syndicate and other fixed expenses.
• Cash and investments exclude funds
withheld trusts for which we do not earn
investment income.
• Contracted premium for Program
Management is the gross premium that our
existing distribution partners believe their
programs will generate over a period of time.
We expect a significant portion of contracted
premium to become gross written premium.
• Program fee revenue represents the full fee
revenue from insurance policies already
bound including unearned program fee
revenue, regardless of the length of the
underlying policy period (earned). We believe
program fee revenue is a more appropriate
measure of the revenue of the business during
periods of high growth, due to a larger than
normal gap between gross written and gross
earned (IFRS) premium.
• Unearned program fee revenue represents
the portion of program fee revenue that has
not yet earned on an IFRS basis.
• Program fee represents program fee
revenue as a percentage of written premium
ceded to reinsurers.
• Pre-tax operating profit margin for Program
Management is our profit margin on gross
operating Income.
• Average operating tangible equity for
Legacy Insurance is based on the Group’s
target solvency capital models and includes
allocated debt.
• Operating return on tangible equity for
Legacy Insurance includes allocated interest
expense and has been annualised for interim
reporting periods.
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STRATEGIC
REPORT
CORPORATE
GOVERNANCE
FINANCIAL
STATEMENTS
PRINCIPAL RISKS
AND UNCERTAINTIES
The principal risk and uncertainties facing
the Group follow below. The list comprises
a brief description of those risks and
uncertainties, along with a high-level
statement of appetite for taking that risk
and the ongoing mitigating action.
1.
Management of Strategic Change &
Business Development & Growth
The Group fails to manage both the focus
on its core competencies and simultaneous
initiatives as it develops and grows.
Risk Appetite
We have limited appetite to develop
the business outside the accepted
core competencies or established
geographical reach.
We have no appetite for any significant
deviation from the Group’s strategy or for an
individual business unit accepting risks that
threatens either its own sustainability or has
the potential to result in losses sufficient to
create significant strain on the Group.
Mitigating Actions
• Management of relationships with
external stakeholders involving the Board
and senior management team
• Board review of budgets, and
current strategic priorities to ensure
that the Group continues to focus
on core strengths
• Management of cash flow
• Review of each new initiative/ proposed
investment in accordance with its own
individual merits and commensurate
with overall risk or return objectives, due
diligence criteria, strategic objectives,
and available sources of capital
• Local risk appetites and tolerances
aligned with the Group’s overall
risk appetite
• Regular oversight and review of program
and legacy pipeline including initial
screening processes and relevant
Committee and/or Board approval.
2.
Reputation & Stakeholder
Management
Events within the Group may have an
adverse effect (notably, but not restricted
to, reputational) on the organisation.
Risk Appetite
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, or for any
negative movements in the public ratings
of any company within the Group.
Mitigating Actions
• Established process for monitoring and
managing external communications,
including disclosure committee
for announcements to the London
Stock Exchange
• Regular liaison with the rating agencies.
3. Exposure Management – Reserving
The Group adopts a methodology that
produces incorrect reserving.
Risk Appetite
We have no appetite for prospective
significant deviations in earnings as a
result of actual, expected, or possible
reserve deterioration and seek to reserve
at a level that achieves this whilst avoiding
any regulatory, legal, accounting, tax,
reputational or other risks associated
with systematic over-reserving.
Mitigating Actions
• Appropriate reserving approach to
existing live and run-off portfolios and
extensive due diligence on new legacy
portfolios prior to acceptance
• Scheduled and ad hoc reviews and
benchmarking provided by external
actuarial consultancies
• Internal use of best estimate for setting
reserves, considering internal and external
advice, and up-to-date information on
actual or anticipated developments
• Use of reinsurance on live underwriting
portfolios and through assuming
inuring reinsurance treaties on acquired
legacy portfolios
• Review of all material reserve portfolios
across the Group and appropriate
monitoring and oversight of case reserves.
4. Exposure Management
– Reinsurance Counterparty
The Group fails to assess the quality of its
program reinsurers prior to onboarding
or the reinsurance arrangements fail to
‘follow the fortunes’ of the underlying direct
insurance contracts.
The Group fails to monitor its growing gross
underwriting exposures, and reserves and
aggregate exposure to reinsurers, following
the planned onboarding of new business.
Risk Appetite
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 proportional
processes to limit concentration to
individual counterparties. We have
no appetite for capital erosion from
reinsurance counterparty risk arising from
any downgrade or negative outlook to the
Group’s credit rating.
Mitigating Actions
• 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, and collateral
on live underwriting reinsurance
• Identification of potentially significant
concentrations of individual
counterparties.
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The Group identifies and manages its
exposure to its principal risks by setting,
and maintaining adherence to, a risk
appetite framework.”
5. Exposure Management
– Intermediary Counterparty
The Group fails to monitor, assess, and control
its exposure to intermediary counterparty
default in respect of its live program
underwriting activities.
Risk Appetite
We have no appetite for general
intermediary default and seek
an appropriate degree of quality
and diversification in the spread
of intermediaries.
Mitigating Actions
• Operating entities engaged in live
underwriting are expected to develop
appropriate and proportionate
processes in order to limit and monitor
concentrations to individual intermediary
counterparties to within acceptable levels.
6. Capital & 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.
Risk Appetite
We will maintain capital at a level providing
a suitable margin over that level deemed
by our regulators and supervisors as an
acceptable level of policyholder protection
whilst remaining economically viable.
Mitigating Action
• Management of relationships with all
regulators within whose jurisdictions the
Group and its subsidiaries operate
• Active and ongoing involvement of all
relevant control functions
• Deployment of appropriate sources of
capital to underpin strategic objectives,
commensurate with capacity to take
risk and having regard to 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.
7. Regulatory Risk
(i) Legislative, economic, and
regulatory change
The Group fails to implement or adapt to
emerging new regulatory or political or
legislative changes.
Risk Appetite
We have no appetite for any major
regulatory infringement or missed deadline.
Mitigating Action
• Oversight by the Group Head
of Governance
• Deployment of local expertise
where needed
• Management of relationships with
all local regulators
• Internal working and steering groups
to analyse, interpret and oversee
the implementation of all emerging
regulatory changes
• Maintenance and operation of an
effective governance framework
leveraging the expertise of the Group and
individual entity boards and management
• Leverage of specific additional
local regulatory and legal expertise
where appropriate.
(ii) Taxation
The Group fails to identify its tax exposures
arising from emerging UK and overseas
legislation and fails to implement
appropriate controls and processes to
ensure compliance with all relevant laws.
Risk Appetite
We have no appetite or tolerance for
any major tax-related infringement
or missed deadline.
Mitigating Action
• Quarterly review with Head of Group
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.
8. Operational Risk
(i) People
The Group is reliant upon the knowledge and
expertise of its key directors and staff and
fails to adequately plan for succession.
Risk Appetite
We have no appetite for the loss or
prolonged absence of a key staff member
where the succession plan is insufficient;
or for significant levels of staff turnover
in any one year.
Mitigating Action
• Development of succession plans and
management training across the Group
• Performance management process for
all staff.
(ii) Business Disruption
The Group suffers a major business
discontinuity event.
Risk Appetite
We have no appetite for loss of facilities or
failure of key systems or processes which
may cause significant business disruption,
including cyber-attack.
Mitigating Actions
• Robust, regularly tested business
continuity and disaster recovery plans
• Development of security technologies
and processes by deploying new tools
or techniques keeping pace with the
increasing threat from cyber crime.
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(iii) Cyber
The Group fails to properly protect its
IT systems and infrastructure and its
proprietary information compromising the
confidentiality, availability, or integrity of
its data, or to keep abreast of increasing
regulatory scrutiny in this area.
Risk Appetite
We have no appetite for financial losses,
business disruption or reputational
setbacks arising from a cyber-attack. We
have no appetite for any breaches of any
relevant statutory requirement in respect
of information security or cyber risk, or for
breaches of our information security policies
and procedures.
Mitigating Actions
• See business disruption
• Dedicated Chief Information
Security Officer
• Fit for purpose information security
governance structure and compliance,
where practical, with relevant International
Organisation for Standardisation or
International Electrotechnical Commission
27000 series of standards
• Cyber liability insurance.
(iv) Outsourcing
The Group fails to adequately control its
third-party service providers.
Risk Appetite
We have no appetite to enter into an
outsourcing contract that does not meet the
considerations set out in the Outsourcing Policy.
Mitigating Actions
• Outsourcing agreements with all material
outsourcers (internal and external)
• Outsourcing Policy.
(v) 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.
Risk Appetite
We have no appetite for any material
errors, omissions or misstatements within
our financial and management reporting
and operational management information
systems, processes, or outputs.
Mitigating Action
• 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.
9. Liquidity Risk
The Group fails to implement adequate
control over cash flow and liquidity leading
to financial shortfalls.
Risk Appetite
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.
Mitigating Actions
• 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 at least 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
• 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 banker.
10. Market & Investment Risk
The Group fails to realise an adequate
or optimal return on the investment float
under its control or experiences a default on
investments held.
Risk Appetite
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.
Mitigating Actions
• 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, and investment
grade-rated, securities
• Asset, liability, and duration matching.
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EMERGING RISKS
Emerging risks are those risks that are
perceived to be potentially significant,
but which may not be fully understood
or controllable.
During 2020, the Group continued to embed
its framework and processes for the
identification, assessment (initial and ongoing),
monitoring and reporting of emerging risks.
The Group risk management function reviews
the emerging risks landscape continually by
way of ongoing dialogue with the business
heads, horizon scanning, attendance at
external webinars and events and consultation
of relevant thought leadership papers.
The emerging risks focus group continued to
meet in 2020 and to report its conclusions to
the Group Risk Committee. Where relevant,
the findings of the focus group are cascaded
down to the operating subsidiaries.
The universe of emerging risks is reviewed
continually for ongoing completeness and
currency. During 2020, the Group considered
the following emerging risks.
1. Trade, Tariffs & Sanctions
Changes to trade, tariffs & sanctions affect
market and asset values
Potential Impact
Loss on investments and/ or revenue streams;
Inability to trade in certain geographical
locations or with certain third parties.
Focus in 2020
Unchanged. Although Brexit is no longer
a discrete emerging risk, there remained
uncertainty around the shape of the final
trade deal. The Group’s Brexit working party
now considers such issues as they arise.
2. Climate Change
Aside from effects of changes in weather
patterns, climate change may impact
strategy, investment decisions etc.
Potential Impact
Climate change may lead to change in
business practices with new regulations
and public opinion influencing how we do
business and who we do business with.
Focus in 2020
Increased. See section on Sustainability
for further details of how the Group is
addressing this.
5. Developing Cyber
New and evolving cyber attacks
Potential Impact
Continuing risk of data loss, theft of
intellectual property or financial loss
as a result of increasingly sophisticated
cyber techniques.
Focus in 2020
Increased. Cyber capability and
sophistication continued to increase
exponentially and the backdrop of the
pandemic/remote working has provided
increased motivation and opportunity.
3. Political Uncertainty
Changing business practices and regulations
which may impact strategy
6. IT & Telecom outages
Large scale outages impact the Group’s
operational resilience
Potential Impact
Inability to execute strategy due to changing
business practices and regulations.
Focus in 2020
Unchanged. Continued to monitor in the
context of the ongoing pandemic.
Potential Impact
Significant downtime and potential loss
of data resulting in loss of revenue and
potential reputational damage.
Focus in 2020
Increased. See Developing Cyber.
4. Civil Instability
Disenfranchised people leading to protests/
cyber-attacks causing disruption
7. Interruption to Infrastructure
Major disruption to Infrastructure
such as power and transport
Potential Impact
Financial and/or operational impact from
disruptive events caused by civil unrest due
to political instability, negative economic
growth etc.
Focus in 2020
Increased. The potential for civil unrest
remains strong given actual events in 2020
and early 2021.
Potential Impact
Inability to carry out business as usual
resulting in loss of revenue and potential
reputational damage.
Focus in 2020
Increased. See Developing Cyber.
8. New & Emerging Technology
Introduction to new technology e.g. Block Chain,
Artificial Intelligence, and Internet of Things
Potential Impact
Impacts could be positive and negative.
Focus in 2020
Unchanged. Continue to monitor.
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EMERGING RISKS
CONTINUED
Changing Expectation of the Workforce
9.
Expectation of the workforce is changing
Potential Impact
The workplace and benefits package may
not be attractive enough to attract talent,
nor sufficiently adaptive to the evolving
workforce demographic.
Focus in 2020
Increased. The demand for flexible working
longer term is becoming increasingly likely.
The Group is reviewing the pandemic’s
impact on both the business and individuals
and is compiling a longer-term framework
to consider employee health, workforce
resilience and working practices.
10. Pandemic
A large scale epidemic similar to Spanish Flu
Potential Impact
A large-scale pandemic may reduce
operational effectiveness due to staff illness;
staff inability to attend work; loss of key staff;
inability to complete key transactions.
Focus in 2020
Increased. Emerging elements include
the evolving nature of the Covid-19 virus
including variants, continuing and in some
cases potentially open-ended restrictions in
social movement and the potential impact of
‘long Covid’. The longer-term macroeconomic
fallout remains uncertain.
11. Event-driven Litigation
Increasing risk of the level of securities class
action filings with claims against Directors
and Officers
Potential Impact
Directors and Officers may be faced with a
lawsuit ranging from matters such as breach
of GDPR, pollution and contracts.
Focus in 2020
Increased. This was on an upward trend prior
to the pandemic but the ensuing economic
downturn is likely to see an uptick in claims
against Directors and Officers, and against
Errors and Omissions policies.
12. Increased Regulatory Scrutiny
Intensifying scrutiny of regulators globally
Potential Impact
Organisations are required to provide more
governance, risk & compliance oversight.
Focus in 2020
New risk. The Group’s multi-jurisdictional
presence and an increased focus on a variety
of issues such as cyber, climate change,
conduct risk etc. highlights the need for a
proactive and forward-looking approach.
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Randall & Quilter Investment Holdings Ltd.
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COVID-19
While the principal risks and uncertainties of
the Group have remained the same, during
2020, the oversight, management and
reporting of those risks was adapted to focus
on the specific risk drivers arising from the
pandemic insofar as they impacted the Group.
This recognised ten interrelated themes.
There have been no material breaches of
the Group’s risk appetite arising from the
pandemic and none are expected. The
specific risk drivers, were, and continue
to be, as follows:
Regulatory Risk – the Group or one of
its component parts breaches legal or
regulatory requirements of jurisdictions
in which it operates, due to Covid-19.
Reputational Risk – the risk that the Group
or one of its business units is associated with
ongoing lawsuits regarding denial of claims.
Market Disruption – (related to the risk
above) the Group may be adversely
impacted by developing claims experience
arising from the pandemic, as well as the risk
of Covid-19 exclusions on renewal.
Financial and Cyber Crime – financial
and cyber criminals will seek and exploit
potential weaknesses in any checks and
balances which may arise from working
remotely, amplified in the remote working
environment.
Recovery Strategy – the Group does not
develop an appropriate recovery strategy
for the eventual return to work and as part of
this process does not define the ‘new normal’
and share experiences and lessons learned
from the Covid-19 experience.
Business Development and Growth – the
Group fails to progress its business pipeline
to the closure and onboarding stage due to
slowdown of these processes, and the risk
that the Group fails to identify new business
opportunities from the inability to travel
and meet new potential counterparties.
People Risk – staff wellbeing and productivity
may be compromised by medium- and
long-term remote working, with longer
terms impacts being attrition and fatigue.
Financial Risk – the Group’s performance
and financial strength may be impaired by
a fall in investment performance, liquidity
and cash flow, capital adequacy and
counterparty vulnerability/failure as a
result of Covid-19.
Operational Risk – the Group may be subject
to a greater degree of operational risk
through its people, processes, systems, and
supply chains/distribution channels during
Covid-19 and that the Group prioritises the
management of Covid-19 to the detriment
of business as usual.
Macroeconomic and External Factors –
events outside the control of the Group
develop in a manner which is unforeseen
and to which the Group fails to respond (for
example, behaviour and spread of the virus,
worse than predicted economic downturn
or government policy).
The oversight, management and reporting of
the Group’s principal risks and uncertainties
was adapted to focus on the specific risk
drivers arising from the pandemic.”
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CORPORATE
GOVERNANCE
28 Board of Directors
30 Governance
36 Audit Committee Report
40 Remuneration & Nominations Committee Report
42 Risk Committee Report
44 Risk Management
46 Statement of Directors’ Responsibilities
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BOARD OF DIRECTORS
William Spiegel (58)
Executive Chairman
Alan Quilter (70)
Chief Executive Officer
Tom Solomon (51)
Chief Financial Officer
C D Rx IC
C D Ri Re Rx
C Rx
Skills & Experience
Alan Quilter is the co-founder
of the Randall & Quilter Group
and the Chief Executive Officer.
Skills & Experience
Tom Solomon joined R&Q as
Group Chief Financial Officer
in August 2020.
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.
Tom has over 25 years of
experience in the financial
services industry. Prior to joining
Randall & Quilter, he was a
managing director at Bank of
America Securities and head of
insurance investment banking
for the Americas. Prior to joining
Bank of America Securities,
he worked at Citigroup in
investment banking covering
the insurance industry. Before
joining Citigroup, Tom worked
as a consulting actuary for
PricewaterhouseCoopers.
Tom holds a B.S. in Mathematics
from the University of Michigan
and an M.B.A. from Columbia
University. He is also a member
of the Society of Actuaries.
Skills & Experience
William Spiegel is the Executive
Group Chairman and joined R&Q
in January 2020. William has
over 30 years of experience in
the financial services sector with
particular expertise in insurance
and insurance services. He
joined R&Q from the U.S. private
equity firm Pine Brook where he
was a managing partner and
which he co-founded in 2006
A significant part of William’s
career has focused on building
and growing insurance
companies in both the US, the
UK and Bermuda. William has
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.
William has served on the
Board of Directors of over 25
companies, including eight
publicly traded corporations.
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A
Audit Committee
IC
Investment Committee
Ri
Group Risk Committee
C
Group Capital & Investment
Committee
R
Remuneration &
Nominations Committee
Rx Regulatory Committee
D
Group Disclosure Committee
Re Reinsurance Asset
Committee
Joanne Fox (57)
Non-Executive Director
Philip Barnes (60)
Non-Executive Director
Alastair Campbell (76)
Non-Executive Director
Eamonn Flanagan (58)
Non-Executive Director
A R Ri Re
A IC R Ri
A R
A IC R
Skills & Experience
Jo Fox is a finance professional
with over 25 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. She has held several
non-executive posts for global
risk carriers and intermediaries
operating within Lloyd’s and the
London Market.
As part of her board roles, Jo has
chaired Audit, Risk, Capital and
Compliance committees and
was Chair of the IUA Solvency
Working Group from 2014 to 2016.
More recently, Jo was Chair and
non-executive director of R&Q
Managing Agency Limited, which
was acquired by Coverys in 2017.
Skills & Experience
Philip Barnes is a Chartered
Accountant and has worked
in the insurance industry for
the past 36 years. Philip is the
President of the representative
office of the Jardine Matheson
Group of Companies in
Bermuda.
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.
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.
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.
Skills & Experience
Eamonn is a Fellow of the Institute
of Actuaries, having qualified at
Royal Insurance, before moving
to the capital markets where
he was director and head of
European insurance at a leading
investment bank. He co-founded
Shore Capital Markets, a securities
business, where he was a director
and top-rated analyst, receiving
a number of awards in the
London insurance market.
As an analyst, Eamonn gained
considerable experience of
analysing the business and
financial models of companies
across the insurance world,
observing how they responded to
changes in regulation, accounting
standards and strategic focus,
whilst, at the same time, delivering
good and appropriate outcomes
for customers.
Eamonn is a non-executive
director of AJ Bell, a technology
driven investment platform, and
chairs its Audit Committee and
Disclosure Committee. Eamonn
is also a non-executive Director
of Chesnara, a FTSE main market
listed life assurer.
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GOVERNANCE
I am pleased to present, on behalf of the Board,
my first corporate governance report.
We will be holding our Annual General
Meeting on 21 June 2021. At the time of
writing it remains uncertain whether the UK
Government’s restrictions and guidance on
public gatherings will allow shareholders
to attend in person; in order to facilitate as
much engagement with our shareholders
as possible I will be delighted to respond
to questions submitted in advance and
would encourage their participation in this
way. Information on how to do this will be
published in the Notice of Annual General
Meeting and on our website.
Further details of how the Board has
discharged its corporate governance
responsibilities are set out in this report.
William Spiegel
Executive Chairman
21 May 2021
Chairman’s Introduction
In this part of the report we describe
governance at R&Q and the principal
activities of the Board and its committees
during the 2020 financial year. As Chairman, I
am responsible for leading the Board and its
governance of the Group in the determination
of its strategy and in achieving its objectives.
I am responsible for organising the business
of the Board, ensuring its effectiveness and
setting its agenda, and for the effective
communication with our investors.
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.
Since the last report the Board has undergone
significant change, most notably with the
retirement of Ken Randall at the end of March
2021. Succession plans around this event have
been in place for some time and in 2020 we
appointed three new directors, including
myself, and I am delighted with the strength
and breadth of skills we have as a team.
Last year we reported on how we were
planning to advance our approach to
environmental, social and governance
matters. The Board agreed to adopt the
UN Principles for Sustainable Insurance, as
being appropriate to the business and nature
of the Group and we are proceeding with
developing an ESG framework. Our actions
and progress on sustainability are reported
on pages 14 to 15 of this Annual Report.
1. Vision and Strategy
The Group is a leading non-life global
specialty insurance company focusing on
the Program Management and Legacy
Insurance businesses. We are market leaders
in our target markets, both of which are
experiencing strong secular growth. Our
businesses have become key components
of the global insurance market and have
high barriers to entry which protects
our competitive position. Our Program
Management business is a balance sheet
light recurring revenue business that charges
annual fees for allowing insurance distribution
to access its licences to connect with global
reinsurers. The Program Management
business plays an important role supporting
the growth of independent insurance
distribution. The Legacy Insurance business
is a balance sheet business that earns high
returns on capital deployed by acquiring or
reinsuring already expired insurance risk,
and managing off the exposure. The Legacy
Insurance business provides an important
form of capital management for existing
insurance carriers. The Group leverages its
core strengths in origination, underwriting
and claims management to compete in
the marketplace. The Group’s success is
a result of the entrepreneurial spirit of its
employees, supported by a culture that
prioritises initiative and responsibility
to our stakeholders.
The key challenges that the Company
faces in the execution of its strategy include:
the identification of suitable pipeline
opportunities in both core areas; the quality
of potential partners; ensuring appropriate
due diligence; appropriate returns on its
investment portfolio; timely capital raising,
and ongoing investment in bench strength
and infrastructure to underpin its 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.
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Feedback from investors is obtained
through direct interaction with William
Spiegel, the Executive Chairman, Alan
Quilter, the Chief Executive Officer and
Tom Solomon our Chief Financial Officer.”
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. As part of
its risk management framework, the Group
has an established and embedded emerging
risks process. This process is forward looking
and considers risks which are perceived to be
potentially significant, but which may not be
fully understood or controllable. The process
also recognises that there are emerging
elements of crystallised risks. One such
example is pandemic risk, identified as an
emerging risk pre-Covid-19. Accordingly, this
continues to appear on the emerging risks
radar owing to its ongoing unfolding nature
and associated uncertainty. This enables
the Group to proactively manage its known
and potential risks and uncertainties and the
interrelatedness between them.
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
2.
Understanding and Meeting
Shareholder Expectations
Feedback from investors is obtained through
direct interaction with William Spiegel, the
Executive Chairman, Alan Quilter, the Chief
Executive Officer and Tom Solomon our
Chief Financial Officer. The voting record
at the Company’s general meetings is
monitored and we are pleased that all
resolutions proposed in 2020 were passed
by shareholders. There is regular dialogue
through the medium of the Company’s
corporate brokers, Barclays and Numis
Securities, and the Company seeks to take
the pulse of shareholder expectations and
reactions through its retained advisers.
Following a review process in early 2021 we
appointed Barclays to assist us in the next
stage of our global development. Our primary
investors were offered the opportunity of
meeting with William Spiegel following his
appointment early in 2020 in order to establish
direct and open communication. In addition,
William Spiegel met with shareholders after
the release of the Group’s 2019 and half year
2020 results.
Due to the impact of Covid-19 related
Government measures which were in place
at the time of our AGM in July 2020 and the
additional shareholder meetings held in May
and October 2020, to restrict social gatherings
in the interests of safety, these were held as
closed meetings, with the presence in person
of only sufficient members to form a quorum,
with shareholders strongly encouraged to
submit their votes by proxy in advance of
the meeting. The executive directors made
themselves available at a series of remotely
held roadshows and individual sessions to
ensure all questions and matters of interest
raised by shareholders were fully addressed.
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
The Board has determined that the UN
Principles for Sustainable Insurance provide
an appropriate framework for the Group’s
approach to ESG. While our progress on
sustainability is in its early stages, our actions
so far are reported on pages 14 to 15. 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. Since the onset of the Covid-19
pandemic in March 2020, the Board has
received an update and discussed the impact
of Covid-19 on its staff at each of its meetings
to ensure that appropriate steps have been
taken to ensure their wellbeing.
R&Q is an equal opportunity employer and
does not tolerate discrimination of any kind
in any area of employment or corporate
life. All decisions relating to recruitment,
assessment, remuneration and promotion
are based on the ability of the individual
to do the job, without consideration to
race, age, gender, sexual orientation,
disability, beliefs, background (except as
relevant to the requirements of a position,
such as educational qualifications or prior
employment experience) or nationality.
R&Q strives to be a responsible employer.
Achieving this means creating a workplace
that supports and fosters diversity and equal
opportunities for all employees by supporting
professional development, engagement
events and activities that foster teamwork
collaboration and employee recognition.
32
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
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STATEMENTS
GOVERNANCE CONTINUED
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 National Westminster Bank, AM Best,
and our auditors and external legal advisers
to name a few. During 2020 we have had
frequent engagement with our lenders in
relation to optimising the Group’s principal
finance facilities.
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.
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
20 to 22 of our Annual Report. The Chairman
of the Group Risk Committee has provided
a report on the Committee’s activities during
2020 on pages 42 to 43.
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 needs to ensure 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.
The Group has a mature risk management
framework, 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 receives the papers submitted
to the Board meetings of the Company
and each of its key operating subsidiaries.
As the Group operates in an entrepreneurial,
multi-jurisdictional and highly-regulated
environment, the Board, via the 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 44 to
45 (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. The Group’s principal
risks and uncertainties, and a description of its
risk appetites and its adherence to them are
described in the Strategic Report on pages 20
to 24. In the Risk Management section, while the
principal risks and uncertainties for the Group
remain unchanged, the management and
oversight thereof has been focussed through
the lens of those identified inherent principal
risks and uncertainties particularly germane
to the business during Covid-19 as described
on page 25.
The Board considers that the controls in place
during 2020 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.
5. Board Balance
As at 19 May 2021 the Board comprises four
non-executive directors and three executive
directors. The notable change since our last
report is the retirement of Ken Randall as
a director and Executive Chairman of the
Company. Ken retired from R&Q on 31 March
2021 and William Spiegel succeeded to the
position as envisaged on his appointment
as Deputy Chairman in January 2020. As
Chairman of the Board, William Spiegel
leads the Board in the determination of
its strategy and in achieving its objectives.
As an executive director, he is not considered
to be independent.
In addition, we had two new board
appointments during the year, Eamonn
Flanagan as a non-executive director in June
2020, and Tom Solomon, Chief Financial Officer,
who joined the Board in November 2020 as the
Chief Financial Officer enabling Alan Quilter to
focus on his role as Chief Executive Officer. We
will continue to address board succession in
anticipation of future retirements.
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 actuarial,
accountancy governance 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 director’s period of service in
isolation to determine their independence.
The Senior Independent Director is Alastair
Campbell. 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.
STRATEGIC
REPORT
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GOVERNANCE
FINANCIAL
STATEMENTS
33
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
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 28 to 29.
We encourage all directors to keep their
skills and knowledge up-to-date; they are
asked to confirm annually whether they
would benefit from any relevant training.
The Company Secretary provides updates
during the year on significant developments
in legal, governance and compliance areas.
New directors complete a tailored induction
program to provide them with an in depth
understanding of the business and how it
operates and training is provided as required
in each case. In 2020 we provided a bespoke
training session (delivered as a webinar) on
the duties and responsibilities of directors,
attended by the key directors and senior
managers across the Group.
We have an open and transparent approach
to management information, with the
Executive Chairman, Chief Executive Officer
and Chief Financial 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.
7. Evaluating Board Performance
The Board did not conduct a formal
evaluation of its performance in 2020 in view
of the significant changes in its composition.
An externally evaluated performance review
will be conducted during 2021. The diverse
range of skills and leadership experience of
the non-executive directors enables them
to monitor the performance of the executive
directors and provide constructive challenge
and support to them. 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.
8. Our Values and Behaviours
We are committed to ensuring high standards
of corporate and social responsibility. Our
employees are key to the continued success
of our business and we actively promote their
development and ongoing improvement.
We promote diversity in our workforce
and wholly support equal opportunities
in employment. Our recruitment, training
and promotion processes are all done
on a non-discriminatory basis.
Our ethical values of fitness and propriety,
consistent with our business model, are
reflected in our System of Governance and
detailed in Group-wide policies including
matters such as dignity at work, health and
well-being, modern slavery, anti-bribery and
whistleblowing. The System of Governance
document explains that the Group continues
to simplify and streamline its business model
to promote a completely open culture where
we share ideals and are open in passing
information up and down through the Group.
The Group accepts that the business model
only works with a strong ‘centre’. This centre
sets the rules and then delegates their
implementation to its subsidiaries (whose
boards must include appropriate numbers
of group managers and technical specialists)
but must also operate global governance
processes to ensure that systems and
philosophy are being consistently adopted
throughout the Group.
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 2020, the Board held five full meetings and
scheduled eleven additional meetings to
discuss specific matters such as fund raising
and M&A opportunities.
The decisions which can only be made
by the Board are clearly defined in
a formal schedule of matters reserved for
its approval. This includes changes to the
Group strategy, acquisitions and disposals
of a material size and nature, the Group’s
risk management strategy and approval
of the Group-wide policies and corporate
governance arrangements.
The full schedule of matters reserved for the
Board is available on the Company’s website
at www.rqih.com/investors/shareholder-
information.
The Board regularly reviews the
appropriateness of its committee structure
from a governance and business perspective.
In 2021, following such a review, the GCIC
was replaced by a dedicated Investment
Committee with delegated responsibility for
delivery of the Group’s investment strategy.
Where appropriate, the key activities of the
GCIC will be assumed by the Board to complete
the governance framework. A non-decision
making Transaction Advisory Group has been
formed to provide advice across the Group
functions in relation to program management
and legacy transactions and delivery of the
Group’s business strategy.
34
Randall & Quilter Investment Holdings Ltd.
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GOVERNANCE
FINANCIAL
STATEMENTS
GOVERNANCE CONTINUED
The following table sets out the attendance of the Company’s directors at board and committee meetings during 2020.
Board
Meetings
Audit
Committee
Remuneration
& Nominations
Committee
Risk
Committee
Reinsurance
Asset
Committee
Disclosure
Committee
Capital &
Investment
Committee
Regulatory
Committee
Executive Directors
Ken Randall
(resigned 31 March 2021)
Alan Quilter
William Spiegel
Tom Solomon
(appointed
1 November 2020)
Non-Executive
Directors
Philip Barnes
Alastair Campbell
Eamonn Flanagan
(appointed 1 June 2020)
Joanne Fox
16/16
16/16
16/16
3/3
16/16
16/16
7/8
16/16
5/5
5/5
2/2
5/5
4/4
4/4
2/2
4/4
18/18
18/18
4/4
4/4
3/4
1/1
1/1
1/1
1/1
4/4
1/1
4/4
4/4
4/4
4/4
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,
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/
shareholder-information
No independent external advice was sought by
the Board or its Committees during the period.
STRATEGIC
REPORT
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GOVERNANCE
FINANCIAL
STATEMENTS
35
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Audit Committee
The Audit Committee is chaired by Alastair
Campbell and its other members are Philip
Barnes, Eamonn Flanagan 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 Executive Chairman, Chief
Executive Officer and Chief Financial Officer
attend the committee meetings by invitation.
The Audit Committee Report on page 36
contains more detailed information on the
Committee’s role.
Remuneration & Nominations Committee
The Remuneration & Nominations Committee
(RemCo) is chaired by Alastair Campbell. Its
other members are Philip Barnes, Eamonn
Flanagan 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
Committee meets at least four times a year.
The Executive Chairman and the Chief Human
Resources Officer are routinely invited to attend
although they do not take part in any discussion
on their own benefits and remuneration.
The Remuneration & Nominations Committee
Report on page 40 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 and the Chief
Executive Officer. The Chief Risk Officer, the
Head of Governance, 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 Executive
Chairman and Chief Executive Officer attend
the Committee’s meetings by invitation.
The Risk Committee report on pages 42 to 43
contains more detailed information on the
Committee’s role and activities during 2020.
Reinsurance Asset Committee
The Reinsurance Asset Committee (RAC) is
chaired by Jo Fox and comprises the Chief
Executive Officer, Chief Financial Officer 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 2020.
Capital & Investment Committee
During 2020 the Group Capital & Investment
Committee (GCIC) comprised the Executive
Chairman, the Chief Executive Officer, the Chief
Financial Officer and the Chief Actuary. It was
chaired by the Chief Executive Officer.
The GCIC’s primary purpose was to oversee
the Group’s capital management, to monitor
Group Solvency requirements and the Group’s
investment strategy and implementation.
The GCIC also ensured that the necessary
financial, legal, regulatory, commercial and
personnel due diligence had been undertaken
on acquisitions, portfolio transfers and similar
investments or structures.
The GCIC had a standing agenda for its
quarterly meetings and also met frequently
to consider M&A transactions and new
program and investment opportunities.
During 2020 the Committee reviewed 41
proposed program management and legacy
transactions. Regular presentations were
given by the Group’s appointed Investment
Managers on the performance of the R&Q
funds and their views on the market outlook
and future positioning.
The Capital & Investment Committee was
disbanded on 30 April 2021.
Disclosure Committee
The Executive Chairman, the Chief Executive
Officer and the Group General Counsel 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 on eighteen
occasions in 2020. In addition, disclosure
matters and share dealing applications
were reviewed regularly throughout the year.
A larger than usual number of meetings were
held in 2020 to ensure careful monitoring for
disclosures that might be required due to the
impact of Covid-19.
Regulatory Committee
The Regulatory Committee acts 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 purpose of the Regulatory Committee is 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, William
Spiegel, Alan Quilter and Tom Solomon,
and the Group Head of Governance. The
Committee held one formal meeting in 2020.
Investment Committee
The Investment Committee was established
in May 2021 as a reflection of the increased
scale and importance of the Group’s
investment portfolios to the business model.
The Committee’s key purpose is to determine,
implement and review an investment
strategy to deliver the Group’s agreed
investment objectives.
The Investment Committee is chaired by
Eamonn Flanagan and its other members are
Philip Barnes and the Executive Chairman,
William Spiegel. The Chief Financial Officer,
Chief Executive Officer, Chief Risk Officer and
the head of investments within the finance
function, may also attend by invitation. The
Committee will meet at least four times a year.
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 Barclays Bank. In 2020, due to Covid-19
restrictions, in person meetings with investors
were replaced by meetings held using
teleconference facilities.
36
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
FINANCIAL
STATEMENTS
CORPORATE
GOVERNANCE
FINANCIAL
STATEMENTS
AUDIT COMMITTEE REPORT
Alastair Campbell FCA
Chair of the Audit Committee
The Committee
The Committee operates under written
terms of reference which were reviewed
and updated in January 2021. A copy of
the current document is disclosed on
the Company’s website at www.rqih.
com/investors/shareholderinformation/
boardcommittees
Philip Barnes, Jo Fox and I served on the
Committee for the whole of 2020; Eamonn
Flanagan was appointed to the Committee
in October 2020. The names, and brief
biographical details of the current members
are shown on pages 28 to 29.
Three of the four 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.
Eamonn Flanagan qualified as an actuary
and has spent many years analysing the
published reports of insurers. 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 2020.
Generally, at each meeting the executive
directors 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 Group Head of Governance
and the Head of Group Tax.
The Committee reserves the right to meet
without management present if required.
That did not prove to be necessary in 2020.
Responsibilities and Activities during 2020
The principal responsibility of the Committee
is to monitor the integrity of the published
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 function, and has oversight of
the systems of internal control established
throughout the Group.
The Committee also has an oversight role in
relation to risk management, whistleblowing,
fraud and bribery and corruption.
Financial Statements
The Year Ended 31 December 2019
The Committee monitored the difficulties
arising as a result of the Covid-19 pandemic
experienced by Finance on the production
of the 2019 financial statements and by the
external auditors in completing their audit.
While there was a delay of approximately
one month in finalising matters, there were
no areas where we felt that insufficient
review work had been carried out.
We reviewed in detail the 2019 financial
statements. 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
• 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
FINANCIAL
STATEMENTS
CORPORATE
GOVERNANCE
FINANCIAL
STATEMENTS
37
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
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 2020 and had operated
within its terms of reference.”
• 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,
including specific reference to the
implications from the Covid-19 pandemic
• 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 their agreement with the
adoption of the going concern basis of
accounting for the financial statements.
They further 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 external
auditors to support their audit opinion.
We approved their fees for their audit
work on the 2019 financial statements.
We reviewed PKF’s management letter
following the 2019 audit and approved
management’s responses.
The Interim Results to 30 June 2020
The interim financial statements were also
delayed by approximately one month as
a result of the Covid-19 pandemic. With the
experience gained on the 2019 financial
statements the production and audit work
proceeded more smoothly and we were
again satisfied that all areas experienced
sufficient review work.
We reviewed in detail the interim financial
statements. 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. We again paid
close attention to the going concern position
in the light of the developing Covid-19
position and received a detailed paper
from Finance supporting the decision to
apply the going concern concept when
preparing the financial statements.
In addition, we received a detailed report
and briefing from the external auditors
which set out their findings from their review
work. They confirmed their agreement to the
adoption of the going concern concept in
the preparation of the financial statements.
They further confirmed that they intended
to report in unmodified terms.
We considered and approved the letter
of representation requested by the external
auditors to support their review. We
approved PKF’s fees for their review work
on the interim financial statements.
The Year Ended 31 December 2020
We received a detailed report and
presentation from the external auditors
on their planning for their audit of the 2020
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 2020 consolidated financial statements.
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Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
FINANCIAL
STATEMENTS
CORPORATE
GOVERNANCE
FINANCIAL
STATEMENTS
AUDIT COMMITTEE REPORT CONTINUED
IFRS 17
The Committee continued to monitor
the progress of the Group towards the
introduction of IFRS 17. As I noted in the 2019
Annual Report, while having no effects on
the fundamental economics of the insurance
industry, this new accounting standard
will result in major changes to accounting
for insurance transactions and on the
Company’s annual reported results. The
Committee heard from the Chief Financial
Officer on the progress of the numerous
workstreams currently reviewing different
areas of the new standard and its impact on
the Group financial statements. This review
and monitoring will continue through 2021.
Taxation
The Audit Committee has an oversight role
in relation to taxation matters. During the
year we received regular reports from the
Head of Group Tax on developments in
tax law and practice across the Group. The
Group operates in numerous jurisdictions
and particular attention is paid to ensuring
proper reporting arrangements are in place
to meet the Group’s obligations.
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. The
partner responsible for the audit since then
stood down under the rotation rules after
the 2019 audit and we had intended to carry
out a tender for the appointment during
2020 as part of our annual review; however
in the light of the difficulties presented by
Covid-19 we decided to recommend the
re-appointment of PKF working under their
proposed new audit partner.
We also reviewed the appointments of other
auditors of certain overseas subsidiaries;
no changes were found to be necessary.
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 keeps under review 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.
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.
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 2021 plan and the related
budget was discussed and approved
by the Committee.
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 2020 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 Group Head of Governance which
confirmed that no instances had been
reported in 2020 relating to whistleblowing,
fraud or bribery and corruption.
FINANCIAL
STATEMENTS
CORPORATE
GOVERNANCE
FINANCIAL
STATEMENTS
39
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
The Committee will also continue to review
the other areas as set out above.
Due to Covid-19, it is currently looking unlikely
that I will be able to meet our shareholders
at the AGM in June, however I will be pleased
to answer any questions arising from the
work of the Committee, at any time.
Alastair Campbell FCA
Chair of the Audit Committee
Review of the Committee’s
Own Performance
During 2020 the Committee carried out an
internal review of its own performance. It
scrutinised the range of matters considered
in the context of its Terms of Reference 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 were some minor suggestions for
improvements which we are taking forward;
however there were no matters for concern.
To ensure that the Committee continues to
satisfy its responsibilities as a committee
of the Board through up-to-date skills and
knowledge, the Committee members and
its principal attendees benefitted from
an externally provided training session on
effective audit committees. This included
the particular role of audit committees in
financial services, what makes an effective
audit committee and current issues for the
Committee to be aware of such as Covid-19
impacts and external audit and financial
reporting reform.
Planned Activity During 2021
Specific matters which are or are likely
to be considered during 2021 include:
The Committee will continue to pay close
attention to the published financial
statements of the Group and to the control
environment in the rapidly developing
program business.
In particular, the Committee will carry out a
detailed study considering the comparative
merits of International Financial Reporting
Standards (including in particular IFRS 17)
and alternative accounting frameworks as
the basis for reporting the Group’s trading
and financial results.
In January 2021 the Committee contracted
for an external review of the Internal Audit
function. The report showed that the function
complied fully with regulatory requirements
and scored highly on the assessments
carried out by the reviewers. A number of
recommendations were made for the future
development of Internal Audit which are
currently under review.
The Committee will continue to pay
close attention to the published
financial statements of the Group
and to the control environment in the
rapidly developing program business.”
40
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
FINANCIAL
STATEMENTS
CORPORATE
GOVERNANCE
FINANCIAL
STATEMENTS
REMUNERATION & NOMINATIONS
COMMITTEE REPORT
Alastair Campbell FCA
Chair of the Remuneration
and Nominations Committee
The Committee
The Committee operates under written
terms of reference which may be seen on
the Company’s website at www.rqih.com/
investors/shareholderinformation/board
committees
I was appointed by the Committee as acting
chair in September 2019; I continued in that
role during 2020, and through the planned
changes in the Executive Board at the end
of March 2021 in the interests of stability
and continuity. I have agreed to continue
while the succession arrangements for
non-executive directors referred to under
Priorities for 2021 below are confirmed.
Two further independent directors were
members throughout 2020, being Philip
Barnes and Jo Fox. In addition, Eamonn
Flanagan was appointed to the Committee
in July 2020.
The names and brief biographical details
of the current members of the Committee
are shown on pages 28 to 29 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.
During 2020, Ken Randall, the Executive
Chairman, William Spiegel, the Deputy
Executive Chairman, and Alan Quilter, the
Chief Executive Officer, attended most
meetings by invitation.
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
nomination 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, both
executive and non-executive, with a view
to the continued ability of the organisation
to compete effectively in the marketplace
FINANCIAL
STATEMENTS
CORPORATE
GOVERNANCE
FINANCIAL
STATEMENTS
41
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
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.”
• a review of the skills present in the
current non-executive directors to
ensure we have the specific skills
and experience to support the future
development of the Group
• a review of the current bonus
arrangements.
Review of the Committee’s Own
Performance
In the fourth quarter of 2020 the Committee
carried out a self-assessment review of
its performance. The conclusions were
favourable. There were some minor matters
raised which will be addressed in 2021.
The members and regular attendees
attended a training session in November.
The session covered matters such as
building and maintaining an effective
board, remuneration issues, monitoring the
Committee’s effectiveness, and changes in
UK requirements, and explored practices and
pitfalls for remuneration committees and how
to avoid them. It also considered trends and
principles that regulators and stakeholders
expect to be applied in the UK.
I will be happy to answer any questions arising
from the work of the Committee.
Alastair Campbell FCA
Chair of the Remuneration
and Nominations Committee
• 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 2020
In addition to the routine matters set out
above, 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
• we approved the 2019 bonus
arrangements for executive directors
and senior management. All bonus
arrangements are discretionary and are
subject to the recommendation of the
Executive Chairman or the Chief Executive
Officer respectively 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
• we approved the proposals from the
Executive Chairman and Chief Executive
Officer respectively in respect of the
2020 review of salaries for executive
directors and senior management
• we requested and considered a
report from Human Resources setting
out the pension and termination
arrangements for senior management
and executive directors
• we received a report from advising
solicitors on developments in
employment law.
Nominations
• we recommended the appointment of
Eamonn Flanagan as a new independent
non-executive director and his
appointment to this Committee and
the Audit Committee
• we recommended the appointment
of Thomas Solomon as Chief Financial
Officer and approved the terms of his
employment, his remuneration and
his job specification
• we continued to monitor the transition
arrangements from Ken Randall to
William Spiegel as Executive Chair,
including the progress of the handover
plan and related matters
• we monitored progress in the
recruitment to fill various senior
management positions
• we considered the succession
plans among senior management
in key positions.
Priorities for 2021
Specific matters which have been or are
likely to be addressed by the Committee
during 2021 include:
• the continued monitoring of the
arrangements for the transition from Ken
Randall to William Spiegel as Executive
Chair, together with any consequential
changes in senior management
responsibilities and reporting lines
• the succession arrangements for
non-executive and other directors
over the next two to three years in
the light of current guidance
• the progress of the Board in
implementing its Environmental, Social
and Governance policies, including
diversity and inclusion
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Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
FINANCIAL
STATEMENTS
CORPORATE
GOVERNANCE
FINANCIAL
STATEMENTS
RISK COMMITTEE REPORT
Philip Barnes
Chair of the Group Risk Committee
This report sets out the ways in which
the Committee has discharged its
responsibilities and the significant issues it
has considered during the year under review.
The Committee
The Committee continues to operate under
its written terms of reference which are
reviewed and updated annually. The most
recent review took place at the Committee
meeting in February 2021. A copy of the
current document is disclosed on the
Company’s website at www.rqih/investors/
shareholderpresentation/boardcommittees
During 2020, the Committee comprised
myself and Jo Fox, both non-executive
directors, Alan Quilter, Chief Executive
officer and the Chief Risk Officer. All four
Committee members served for the whole
of 2020. The biographical details and
names of the current members are shown
on pages 28 to 29. All 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.
During 2020, the Committee meetings
were also attended by the Executive
Chairman, Deputy 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. The
Chief Risk Officer presents a report including
a commentary on the Group’ s evolving
risk profile as articulated by 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’ from both a strategic and risk
management perspective.
Roles and Responsibilities
The Group Risk Committee is principally
responsible for the 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.
Additionally, the Committee 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
risk 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. The
Committee 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 risk appetite
statements. The risk appetite framework
is reviewed at least annually for ongoing
appropriateness in the context of the
Group’s strategic objectives.
A detailed description of the Group’s
principal risk and uncertainties, its identified
emerging risks and the management of its
risks and uncertainties in the context of
Covid–19 appears on pages 20 to 25.
FINANCIAL
STATEMENTS
CORPORATE
GOVERNANCE
FINANCIAL
STATEMENTS
43
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
The Committee ensures that the
Group’s risk management framework
operates effectively in embedding risk
management throughout the Group
and its extended business.”
The Committee and the Group Risk Function
will address any inconsistencies arising out
of this review during 2021 in conjunction with
a planned review by the Group Internal
Audit function.
Planned Activity for 2021
In 2021, the Committee plans to review its
composition, structure, and membership. It
will also review with the Executive Directors
the Group’s top risks for ongoing currency
against the Group’s strategic plan. Emerging
elements of climate change, pandemic risk
and cyber risk will continue to be reviewed
and monitored, as will the Group’s overall
operational resilience as we emerge from
the Covid-19 pandemic. The Committee will
also review and monitor the macroeconomic
fallout including market and investment risk
and the potential impact of negative
interest rates.
The Group’s risk appetite framework will
undergo its annual review and in particular
enhancement of risk metrics to further
alignment with the Group’s risk-based
capital models.
Philip Barnes
Chair of the Group Risk Committee
Activities, Significant Issues
and Considerations during 2020
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. Although the
underlying principal risks and uncertainties
remain unchanged, management and
oversight of these risks has during 2020 been
conducted largely through the lens of the
Covid-19 pandemic as it has unfolded.
This shaped and formed risk reporting
to the Board.
The Committee standard agenda also
contains an update on Group Supervision
and related regulatory matters and an
update on strategic priorities from the
Chief Executive Officer.
During 2020, the Committee reviewed
and focussed on the following topics:
• Covid-19 – At each of its meetings
during 2020, the Committee reviewed
and monitored the ongoing pandemic
and its impact on the Group from a risk
perspective and how these risks are being
managed in terms of the operational
and physical impact on the business.
This included the increased risk of cyber
and financial crime, staff wellbeing,
the issues arising out of the FCA test
case on business interruption and also
the impact on business development.
Although business execution saw some
deceleration initially through remote
working, the pandemic has not had a
significant negative impact.
• Climate Change – The Group’s Emerging
Risks Focus group (which reports to
the Group Risk Committee) met twice
during the year and climate change
is an identified key emerging risk. The
Committee acknowledged that the
effects of climate change are potentially
far reaching in addition to the intensifying
regulatory scrutiny in many jurisdictions.
The sustainability section on pages 14 to
15 has more details of the Group’s activity
in this area.
• Program Performance – As an area
of significant growth for the Group,
the Committee commissioned greater
focus and scrutiny and the development
of forward-looking metrics with an
emphasis on tracking growth of actual
premium written by its MGAs.
• IFRS 17 – The Committee heard an update
from the project manager on the Group’s
preparations for IFRS 17, including how the
risks associated with the new standard
(project, commercial and business as
usual) are being addressed.
• Brexit – The Committee maintained
a watching brief on the Group’s Brexit
readiness and in particular the progress
of the Third Country Branch application
to the Prudential Regulatory Authority for
Accredited Insurance (Europe) Limited.
• Meeting of Group Risk Committee
Chairs – The Group Risk Committee
Chair, the Chief Risk Officer and the
respective Chairs of the subsidiary Risk
Committees met in November 2020. This
is considered good practice in groups
and provided an opportunity to meet,
share information and to ensure that all
risk committees are working towards
the adoption of common approaches to
risk management and the governance
thereof across the Group.
Committee Effectiveness Review
Overall, the Committee considered that it
operated effectively during 2020. However,
the Committee considers on an ongoing
basis how best to benchmark itself against
emerging best practice and to this end, has
compared its composition, structure, and
operation, along with that of the Group
Risk Management Function, against the
Risk Coalition principles-based guidance
published in December 2020. Other
Corporate Governance standards and
guidelines, for example the QCA Governance
Code, are also taken into account. A
high-level review against the Rick Coalition
guidance was conducted in late 2020.
44
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
STRATEGIC
REPORT
CORPORATE
GOVERNANCE
FINANCIAL
STATEMENTS
RISK MANAGEMENT
Covid-19 has tested the rigour of the Group’s risk
management framework and control environment
and its ability to adapt, respond and evolve.
Overall Responsibility for
Risk Management
The Board and senior management continue
to appreciate that the ongoing success
depends in its collective understanding and
management of the Group’s known risks
and exposures. At no time has this been
brought into clearer relief than during 2020.
The Board has responsibility for ensuring
that the Group has an appropriate and
proportional approach to risk management
across the Group, and that this approach
is both generic 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 continues to be entrepreneurial
and innovative, in spite of, and in many
respects because of, the challenges of 2020.
Covid-19 has tested the rigour of the Group’s
risk management framework and control
environment and its ability to adapt, respond
and evolve. Both the risk management
framework and the control environment have
responded well to the challenges posed.
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 the Board 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
monitor these risks. It is also responsible
for monitoring that the business meets
regulatory expectations around enterprise
risk management and reporting in risk to the
Board and the Group Risk Committee.
Group Risk Committee
The Group Risk Committee is a formally
constituted Committee of the Board. A report
from the Group Risk Committee Chair on its
role, governance, activities, discharging of
responsibilities, self-evaluation and plans
for 2021 appears on pages 42 to 43.
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 risk 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 culture are all relevant.
The risk appetite framework, which is set at
both 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 and or its
business units.
The principal risks and uncertainties within the
Strategic Report on pages 20 to 22 includes,
for each principal risk, the title and a brief
description of the risks, high level risk appetite
statements and key mitigating actions.
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 2020 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.
STRATEGIC
REPORT
CORPORATE
GOVERNANCE
FINANCIAL
STATEMENTS
45
Randall & Quilter Investment Holdings Ltd.
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Risk
Identification
Own Risk
and Solvency
Assessments
Risk
Owner
Risk
Governance
RISK
MANAGEMENT
PROCESS
Risk
Appetite
Risk
Reporting
Risk
Measurement
Risk
Monitoring
Risk
Mitigation
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 Appetite Framework –
Objective Setting, Budgets,
Targets and Tolerances
Business
Planning
Process –
Targets and
Tolerances
ORSA
PROCESS
Capital
Assessment
and Planning
Process – Capital
Allocation and
Management
Risk Appetite Framework –
Objective Setting, Budgets,
Targets and Tolerances
The management of risk
and uncertainty is ongoing
and iterative and the
following overarching
process is adopted.
The Group’s risk management
framework and reporting
mechanisms have, while
remaining fundamentally
unchanged, adapted during
2020, to address the ongoing
challenges, and this is described
in more detail both in the
Strategic Report and later
on in this section.
Risk Governance
Risk governance within the
Group continues to adopt
a three lines of defence
model at both Group and
indivisible business unit/
entity level, as depicted
in the diagram.
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
times.’ The report produced
as part of this process can be
described as the ‘shop window’
of the business planning,
capital setting and risk
assessment process.
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. The
ORSA process can be depicted
diagrammatically as shown.
46
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
FINANCIAL
STATEMENTS
CORPORATE
GOVERNANCE
FINANCIAL
STATEMENTS
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.
47
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
FINANCIAL
STATEMENTS
48
Independent Auditor’s Report
52 Consolidated Income Statement
53
54
55
Consolidated Statement of
Comprehensive Income
Consolidated Statement of
Changes in Equity
Consolidated Statement of
Financial Position
56 Consolidated Cash Flow Statement
57
Notes to the Consolidated
Financial Statements
101 Shareholder Information
48
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
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 2020 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 2020 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.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the director’s use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. Our evaluation of the directors’ assessment of the company’s ability to continue to adopt the going concern
basis of accounting included:
• We confirmed our understanding of management’s going concern assessment process and also engaged with management to ensure all
key factors were considered in their assessment.
• We obtained management’s going concern assessment, including the cash forecast for the going concern period. We also verified credit
facilities available to the group. The group has modelled various scenarios in their cash forecasts in order to incorporate unexpected changes
to the forecasted liquidity of the group.
• We have reviewed the factors and assumptions included in the cash forecast. We considered the appropriateness of the methods used to
calculate the cash forecasts and determined that the methods utilised were appropriate to be able to make an assessment for the group.
• We reviewed the group’s going concern disclosures included in the annual report in order to assess that the disclosures were appropriate
and in conformity with the reporting standards.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the group’s ability to continue as a going concern for a period of at least twelve months from when
the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
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
Quantum GBP
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.
2,900,000
(2019:
2,200,000)
We use a different level of materiality (‘performance materiality’) to determine the extent of our testing for the audit of the financial statements.
Performance materiality is based on the audit materiality as adjusted for the judgements made as to the entity risk and our evaluation of the
specific risk of each audit area having regard to the internal control environment. This was set at £2,175,000 (2019: £1,650,000).
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.
49
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £145,000 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.
Our approach to the 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) we identified, including
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.
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.
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.
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.
Total net insurance contract provisions for the year end
31 December 2020 are £900.5m.
We evaluated whether the group’s actuarial methodologies were
consistent with those used generally in the industry and with prior periods.
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 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.
50
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Independent auditor’s report to the members
of Randall & Quilter Investment Holdings Ltd continued
Key audit matters continued
Area
Reason
Accounting for
the acquisitions
made in 2020
The group completed 12 business combinations during
the year end 31 December 2020, giving rise to goodwill
on bargain purchase of £65.5m.
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.
Audit response
We evaluated the design and tested the operating effectiveness of
controls that the group established in relation to acquisition accounting.
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.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,
outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable
of detecting irregularities, including fraud is detailed below:
• We obtained an understanding of the group and the insurance sector in which it operates to identify laws and regulations that could
reasonably be expected to have a direct effect on the financial statements. We obtained our understanding in this regard through discussions
with management, industry research and the application of our cumulative audit knowledge and experience of the insurance sector.
51
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
• We determined the principal laws and regulations relevant to the company in this regard to be those that relate to the financial reporting
framework. Our considerations of other laws and regulations that may have a material effect on the financial statements included the
prudential and supervisory requirements of the regulatory bodies across the group.
• We designed our audit procedures to ensure the audit team considered whether there were any indications of non-compliance by the
company with those laws and regulations. These procedures included, but were not limited to, making enquiries of management and those
responsible for legal and compliance matters. We also reviewed the correspondence between the company and regulatory bodies and
reviewed the minutes of the Board and papers provided to the Audit Committee to identify any indications of non-compliance.
• Any instances of non-compliance with laws and regulations were communicated by/to components and considered in our audit approach,
if applicable.
• We also identified possible risks of material misstatement of the financial statements due to fraud. We considered in addition to the
no-rebuttable presumption of a risk of fraud arising from management override of controls, that there was potential for management
bias in the reporting of events and transactions in the financial statements relating to the valuation of the insurance contract provisions.
To address this, we challenged the assumptions and judgements made by management when auditing this significant accounting estimate.
• As in all of our audits, we addressed the risk of fraud arising from management override of controls by performing audit procedures which
included, but were not limited to, the testing of journals and reviewing accounting estimates for evidence of bias and evaluating the business
rationale of any significant transactions that are unusual or outside the normal course of business.
Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material
misstatement in the financial statements or non-compliance with regulation. This risk increases the more that compliance with a law or
regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to become aware of
instances of non-compliance. The risk is also greater regarding irregularities occurring due to fraud rather than error, as fraud involves intentional
concealment, forgery, collusion, omission or misrepresentation.
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.
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 Carmine Papa.
PKF Littlejohn LLP
Chartered Accountants and Registered Auditor
15 Westferry Circus
Canary Wharf
London
E14 4HD
21 May 2021
52
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Consolidated Income Statement
For the year ended 31 December 2020
2020
2019
Note
£000
£000
£000
£000
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
Program fee revenue (earned)
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 provision increase
Operating expenses
Result of operating activities before goodwill on bargain purchase
Goodwill on bargain purchase
Amortisation and impairment of intangible assets
Share of profit of associates
Result of operating activities
Finance costs
Profit before income taxes
Income tax charge
Profit for the year
Attributable to:
Shareholders of the parent
Non-controlling interests
772,051
(405,170)
(75,556)
71,843
6
7
8
14,438
22,243
5,729
(210,764)
130,804
(79,960)
(347,870)
118,056
(229,814)
9
29
15
10
11
12
The accounting policies and accompanying notes are an integral part of the Consolidated Financial Statements.
Earnings per share:
Basic
Diluted
Note
13
13
restated
450,187
(285,033)
366,881
165,154
(94,315)
103,687
7,241
21,993
6,780
(183,438)
111,033
(72,405)
(125,978)
55,227
(70,751)
(3,713)
363,168
42,410
405,578
(309,774)
(111,580)
(15,776)
65,469
(11,047)
1,314
39,960
(9,776)
30,184
(798)
29,386
29,447
(61)
29,386
2020
13.6p
11.1p
9,372
174,526
36,014
210,540
(143,156)
(85,892)
(18,508)
69,307
(3,162)
–
47,637
(9,537)
38,100
(1,280)
36,820
37,298
(478)
36,820
2019
20.3p
20.3p
53
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2020
Other comprehensive income:
Items that will not be reclassified to profit or loss:
Pension scheme actuarial losses
Deferred tax on pension scheme actuarial losses
Items that may be subsequently reclassified to profit or loss:
Exchange losses 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.
2020
£000
(583)
258
(325)
(10,284)
(10,609)
29,386
18,777
18,828
(51)
18,777
2019
£000
(1,698)
51
(1,647)
(8,147)
(9,794)
36,820
27,026
27,526
(500)
27,026
54
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Consolidated Statement of Changes in Equity
For the year ended 31 December 2020
Share
capital
£000
Share
premium
£000
Treasury
shares
£000
Convertible
debt £000
Notes
Foreign
currency
translation
reserve
£000
Retained
earnings
£000
Non-
controlling
interests
£000
Total
£000
Total
£000
Year ended 31 December 2020
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 convertible debt
Purchase of shares
Issue of AD shares
3,918
134,905
–
–
–
–
–
–
–
–
–
–
–
–
–
11,345
25
570
15,637
–
–
–
–
8,523
(8,523)
Cancellation of AD shares
14
(8,523)
Non-controlling interest in subsidiary disposed
–
–
–
–
–
–
–
–
–
–
–
–
(150)
–
–
–
–
–
–
–
–
–
–
64,273
–
–
–
–
1,148
148,361
288,332
443
288,775
–
29,447
29,447
(61)
29,386
(10,294)
–
(10,294)
10
(10,284)
–
–
(583)
(583)
258
258
–
–
(583)
258
(10,294)
(325)
(10,619)
10
(10,609)
(10,294)
29,122
18,828
(51)
18,777
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11,345
16,207
64,273
(150)
–
–
–
–
–
–
11,345
16,207
64,273
(150)
–
(8,523)
–
(8,523)
–
(769)
(769)
At end of year
4,488
153,364
(150)
64,273
(9,146)
177,483
390,312
(377)
389,935
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
Year ended 31 December 2019 restated
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 AB & AC shares
–
–
–
–
–
–
2
–
–
–
–
–
–
138
25
1,396
102,047
18,415
(18,415)
–
(8,125)
–
–
(8,125)
(8,125)
–
–
–
–
–
112,710
37,298
175,638
37,298
–
(1,698)
51
(1,647)
35,651
–
–
–
–
–
(8,125)
(1,698)
51
(9,772)
27,526
140
103,443
–
(18,415)
–
Cancellation of AB & AC shares
14
(18,415)
Non-controlling interest in subsidiary acquired
–
–
–
At end of year
3,918
134,905
1,148
148,361
288,332
The accounting policies and accompanying notes are an integral part of the Consolidated Financial Statements.
Total
£000
175,987
36,820
(8,147)
(1,698)
51
(9,794)
27,026
140
103,443
–
(18,415)
594
288,775
349
(478)
(22)
–
–
(22)
(500)
–
–
–
–
594
443
55
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Consolidated Statement of Financial Position
For the year ended 31 December 2020
Company Number 47341
Assets
Intangible assets
Investments in associates
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
Convertible debt
Treasury share reserve
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
15
18
16
17
18a
18b
4b
23
24
24
19
20
23
22
22
24
21
24
27
25
25
25
30
2020
£000
60,577
33,387
1,533
4,141
1,350
863,142
132,947
869,888
4,227
–
508,122
267,829
2019
£000
restated
46,082
–
969
3,191
1,480
559,963
19,504
471,412
4,008
1,988
419,535
252,741
2,747,143
1,780,873
1,770,402
1,072,208
243,350
142,693
4,979
2,105
13,259
313,871
1,918
7,324
3,210
1,068
9,465
255,823
294
7,337
2,357,208
1,492,098
4,488
153,364
64,273
(150)
(9,146)
177,483
390,312
(377)
389,935
2,747,143
3,918
134,905
–
–
1,148
148,361
288,332
443
288,775
1,780,873
The Consolidated Financial Statements were approved by the Board of Directors on 21 May 2021 and were signed on its behalf by:
W L Spiegel
A K Quilter
T S Solomon
The accounting policies and accompanying notes are an integral part of the Consolidated Financial Statements.
56
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Consolidated Cash Flow Statement
For the year ended 31 December 2020
Cash flows from operating activities
Profit for the year
Tax included in consolidated income statement
Finance costs
Depreciation and impairment
Share based payments
Share of profits of associates
Profit on divestment
Goodwill on bargain purchase
Amortisation and impairment of intangible assets
Fair value gain on financial assets
Loss on revaluation of investment property
Loss on disposal of property, plant and equipment
Contributions to pension plan
Loss on net assets of pension schemes
Increase in receivables
(Increase)/decrease in deposits with ceding undertakings
Increase in payables
Increase in net insurance technical provisions
Income taxes paid
Net cash from/(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 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
Receipts from issue of convertible debt
Purchase of treasury shares
Net cash from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Exchange losses 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
10
16 & 17
25
29
15
18
16
16
15
18
10
14
20
2020
£000
29,386
798
9,776
2,337
11,345
(1,314)
(532)
(65,469)
11,047
(4,361)
130
4
(795)
199
(83,511)
(114,614)
17,953
233,527
–
45,906
(1,039)
9
(16)
–
78,106
(284,058)
–
22,801
(4,009)
–
2019
£000
restated
36,820
1,280
9,537
2,242
138
–
–
(69,307)
3,162
(6,602)
40
89
(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)
(188,206)
(25,991)
(44,138)
145,101
(9,776)
(8,523)
16,207
64,273
(150)
162,994
20,694
252,741
(5,606)
267,829
26,852
240,977
267,829
(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
The accounting policies and accompanying notes are an integral part of the Consolidated Financial Statements.
57
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Notes to the Consolidated Financial Statements
For the year ended 31 December 2020
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 21 May 2021.
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.
These Consolidated Financial Statements have been restated for a prior year adjustment relating to the finalisation of the fair value review of the
2019 acquisition of Sandell Re, which was reported as provisional, and has been adjusted in accordance with IFRS3. The impact of this is a reduction
in the 2019 profit after tax of GBP2,025k.
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 2020.
IFRS 16 Amendments, Leases Covid-19 Related Rent Concessions. Lessees are provided with an exemption from assessing whether a Covid-19-
related rent concession is a lease modification. The Group has not applied this exemption and the amendment has not had an impact on the
Consolidated Financial Statements.
IFRS 3 Amendments, Business Combinations. The amendment is aimed at resolving the difficulties that arise when an entity determines
whether it has acquired a business or a group of assets. The amendments provide further clarity on what constitutes an acquired business,
and this clarification has not impacted the Group’s recognition of acquired business in the year and has not had an impact on the Consolidated
Financial Statements.
IFRS 9, IAS 39 and IFRS 7 Amendments, Interest Rate Benchmark Reform. The amendments deal specifically with interest rate hedge accounting and
is the first phase of change relating to interest rate benchmark reform and the replacement of LIBOR. The Group has not been impacted by these
amendments for hedge accounting but is undergoing review of internal and external contracts where LIBOR has been the interest rate reference
point, ready for phase 2 which is effective 1 January 2021.
IAS 1 and IAS 8 Amendments, Definition of Material. The amendments clarify the definition of ‘material’ and align the definition used in the
Conceptual Framework and the standards themselves. Information is material if omitting, misstating or obscuring it could reasonably be expected
to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide
financial information about a specific reporting entity. The Financial Statements have been prepared in accordance of this clarification.
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 Phase 2. (IASB effective date 1 January 2021).
Amendments to IFRS 3 Business Combinations, IAS 16 Property, Plant and Equipment, IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
(IASB effective date 1 January 2022).
58
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2020
2. Accounting policies continued
a. Basis of preparation continued
IAS 1 Presentation of Financial Statements Amendments, Classification of Liabilities as Current or Non-current. (IASB effective date 1 January 2023).
IAS 8 Accounting Policies Amendments, Changes in Accounting Estimates and Errors. (IASB effective date 1 January 2023).
Of the upcoming accounting standards and amendments, IFRS 9 and IFRS 17 will result in major changes to accounting for insurance and investment
transactions and on the Company’s annual reported results, whilst having no effects on the fundamental economics of the insurance industry.
Impact analysis in respect of these standards continues to be monitored and project plans are being implemented to deliver the changes to
systems and accounting practices required to meet the effective date of 1 January 2023. A brief overview of these standards and the progress in
implementation 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 accounting for financial instruments to supersede IAS 39 Financial Instruments: Recognition and Measurement. 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. Workstreams within the IFRS 17 Project are being developed to cater for the requirements
of IFRS 9, ready for implementation on 1 January 2023.
IFRS 9 requires all recognised financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement to be
subsequently measured at amortised cost or fair value. Under IFRS 9, financial assets that are held within a business model whose objective is to
collect the contractual cash flows, and that have contractual cash flows that give rise on specified dates to cash flows that are solely payments
of principal and interest on the principal outstanding are generally measured at amortised cost unless the entity applies the fair value option. All
other financial assets, including equity investments are measured at their fair values at the end of subsequent accounting periods. Under IFRS 9, for
financial liabilities that are designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability that is
attributable to changes in the credit risk of that liability is recognised in other comprehensive income, unless the recognition of the effects of changes
in the liability’s credit risk in other comprehensive income would create or increase an accounting mismatch in profit or loss. Changes in the fair value
attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss.
IFRS 17 Insurance Contracts, published in May 2017, addresses recognition, measurement, presentation and disclosure for insurance contracts.
The measurement approach is based on the following building blocks: (i) a current, unbiased probability-weighted estimate of future cash flows
expected to arise as the insurer fulfils its contracts; (ii) the effect of the time value of money; (iii) a risk adjustment that measures the effects of
uncertainty about the amount and timing of future cash flows; and (iv) a contractual service margin which represents the unearned profit in a
contract (that is recognised in net earnings as the insurer fulfils its performance obligations under the contracts). Estimates are required to be
re-measured each reporting period. In addition, a simplified measurement approach is permitted for short-duration contracts in which the
coverage period is approximately one year or less. The standard is effective for annual periods beginning on or after 1 January 2023. This new
standard introduces significant changes to the statutory reporting of insurance entities that prepare financial statements according to IFRS,
changing the presentation and measurement of insurance contracts, including the effect of technical reserves and reinsurance on the value of
insurance contracts. The effect of changes required to the Group’s accounting policies as a result of implementing the new standard is currently
being considered but these changes can be expected to, among other things, alter the timing of IFRS profit recognition, costs and distributable
reserves and impact the Group’s reported results of operations and financial position.
During 2019, the Group engaged with external consultants to carry out an operational gap analysis and implementation plan. In 2020 a financial
impact assessment was carried out and a sub-ledger selection process finalised. The Group has a roadmap in place to mobilise an implementation
program in 2021 which will include the provision of technical training on the main interpretations of the standard to all directors and relevant internal
stakeholders, as well as the development of the sub-ledger system in conjunction with an external service provider and consultancy firm.
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 2020 and 2019. 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.
59
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
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, Capita
Managing Agency Limited and Vibe Syndicate Management 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 Syndicate 5678, and these Consolidated Financial
Statements include 100% of the economic interest in these Syndicates. For Syndicate 1991, the Group provides 0.4% of the capacity on the 2018, 2019
and 2020 years of account. For Syndicate 3330, the Group provides 10% of the capacity 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 2021 and 2022 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.
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.
The Group’s operations have not been materially impacted by the COVID-19 pandemic and it has continued to operate effectively during the period.
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 GBP, 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.
60
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2020
2. Accounting policies continued
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.
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.
61
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
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.
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.
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Annual Report 2020
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2020
2. Accounting policies continued
l. Financial instruments continued
iii) Fair value measurement continued
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. Insurance receivables and payables are not discounted.
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.
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
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Annual Report 2020
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.
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. This includes intangibles assets calculated by measuring the difference between the discounted and undiscounted fair value
of net technical provisions acquired.
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.
64
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2020
2. Accounting policies continued
q. Employee Benefits continued
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.
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.
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Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
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.
66
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Annual Report 2020
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2020
3. Estimation techniques, uncertainties and contingencies continued
Claims provisions continued
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 de-recognition 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 de-recognised.
Where decisions to de-recognise 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 de-recognised 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.
67
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Annual Report 2020
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 GBP. Therefore, fluctuations in exchange rates used to translate other currencies,
particularly the Euro and US Dollar, into GBP 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 GBP 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 established a dedicated Investment Committee which has taken over responsibility from the former Group Capital and Investment
Committee for setting and recommending to the Board a strategy for the management of the Group’s investment assets owned or managed by
companies within the Group within an acceptable level of risk as set out in the Group’s Risk Management Framework. The investment of the Group’s
financial assets, except certain deposits with ceding undertakings, is managed by external investment managers, appointed by the Investment
Committee. The 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 Investment Committee is also responsible for keeping under review the investment control procedures, monitoring and amending (where
appropriate) the investment policies and oversight and reviewing the making of loans and guarantees between Group companies.
The main objective of the investment policy is to maximise return whilst maintaining and protecting the principal value of funds under management.
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Annual Report 2020
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2020
4. Management of insurance and financial risks continued
a. Investment risks (including market risk and interest rate risk) continued
The investment allocation (including surplus cash) at 31 December 2020 and 2019 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
2020
£000
229,753
573,383
5,502
54,504
267,829
1,130,971
%
20.3
50.7
0.5
4.8
23.7
2019
£000
188,030
345,296
10,991
15,646
252,741
812,704
%
23.1
42.5
1.4
1.9
31.1
100.0
100.0
Corporate bonds include asset backed mortgage obligations totalling GBP30,356k (2019: GBP10,914k).
Based on invested assets at external managers of GBP863,142k as at 31 December 2020 (2019: GBP559,963k), 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 2020 of GBP8,631k (2019: GBP5,600k).
(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.
2020
Government and government agencies
Corporate bonds
Equities
Cash-based investment funds
Purchased reinsurance receivables (Note 19)
Total financial assets measured at 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
Level 1
£000
229,401
547,035
5,282
–
–
Level 2
£000
352
26,348
220
54,504
–
781,718
81,424
Level 1
£000
180,970
342,538
10,991
–
–
534,499
Level 2
£000
7,060
2,758
–
15,646
–
25,464
Level 3
£000
–
–
–
–
4,652
4,652
Level 3
£000
–
–
–
–
5,969
5,969
Total
£000
229,753
573,383
5,502
54,504
4,652
867,794
Total
£000
188,030
345,296
10,991
15,646
5,969
565,932
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Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
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 gains/(losses) recognised in the Consolidated Income Statement
Acquisitions
Disposals
Exchange adjustments
Closing balance
2020
£000
5,969
351
–
(1,506)
(162)
4,652
2019
£000
3,393
(93)
3,528
(692)
(167)
5,969
Level 3 investments (purchased reinsurance receivables) have been valued using detailed models outlining the anticipated timing and
amounts of future receipts. The net gains recognised in the Consolidated Income Statement in other income for the year amounted to GBP351k
(2019: losses GBP93k). The Group purchased no further reinsurance receivables in 2020 (2019: GBP3,528k). 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 2020
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
857,640
166,940
152,052
123,273
119,974
295,401
Interest rate ranges (coupon-rates)
Debt securities
0.13-10.00
0.13-8.25
0.10-7.88
0.14-9.75
0.37-9.00
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 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)
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
0.38-8.75
2.38
1.38-2.50
1.50-5.51
3.15-6.88
Liquidity risk is managed by the 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.
70
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Annual Report 2020
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2020
4. Management of insurance and financial risks continued
a. Investment risks (including market risk and interest rate risk) continued
iii) Interest rate risk
Fixed income investments represent a significant proportion of the Group’s assets and the 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 2020
Deposits with ceding undertakings
Reinsurers’ share of insurance liabilities
Receivables arising out of reinsurance contracts
As at 31 December 2019
Deposits with ceding undertakings
Reinsurers’ share of insurance liabilities
Receivables arising out of reinsurance contracts
A rated
£000
96,010
628,203
140,890
A rated
£000
10,811
374,482
141,715
B rated
£000
6,716
43,946
9,856
Less than B
£000
–
–
–
B rated
£000
Less than B
£000
183
5,705
1,805
–
–
–
Exposures of
less than
GBP200k
£000
450
2,947
661
Exposures of
less than
GBP200k
£000
5,971
56,187
50,602
Other*
£000
29,771
194,792
43,687
Other*
£000
2,539
35,038
18,112
Total
£000
132,947
869,888
195,094
Total
£000
19,504
471,412
212,234
* 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 2020
Percentage of receivables
As at 31 December 2019
Percentage of receivables
0–6
months
%
6–12
months
%
12–24
months
%
> 24
months
%
50.7
8.8
11.0
29.5
0–6
months
%
6–12
months
%
12–24
months
%
> 24
months
%
47.4
8.5
12.2
31.9
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.
71
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4. Management of insurance and financial risks continued
b. Credit risk continued
Financial assets past
due but not impaired
As at 31 December 2020
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
132,793
789,231
88,689
–
–
238
–
–
211
154
80,657
105,956
132,947
869,888
195,094
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
The Directors believe the amounts past due but not impaired are recoverable in full.
Credit risk is managed by committees established by the Group, Capita Managing Agency Limited (Capita), Vibe Syndicate Management
Limited (Vibe) and Coverys Managing Agency Limited (Coverys).
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.
Capita, Vibe and Coverys are the Lloyd’s Managing Agents which manage the Syndicates on which the Group participates. Capita, Vibe and
Coverys 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 Capita, Vibe and Coverys 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 GBP 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.
72
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2020
4. Management of insurance and financial risks continued
c. Currency risk continued
The table below summarises the Group’s principal assets and liabilities by major currencies:
31 December 2020
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 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
Sterling
£000
26,666
527,336
205,889
216,900
133,048
(1,054,791)
(3,036)
(66,163)
(14,151)
Sterling
£000
1,426
234,180
17,298
178,512
99,092
US Dollar
£000
33,780
323,498
806,189
116,908
133,719
(874,817)
(17,439)
(110,775)
411,063
US Dollar
£000
44,501
215,358
545,972
143,159
151,796
Euro
£000
131
19,054
18,748
953
1,062
Total
£000
60,577
869,888
1,030,826
334,761
267,829
(39,302)
(1,968,910)
(108)
(7,138)
(6,600)
Euro
£000
155
21,874
17,676
942
1,853
(20,583)
(184,076)
390,312
Total
£000
46,082
471,412
580,946
322,613
252,741
(495,642)
(720,133)
(42,299)
(1,258,074)
768
(29,208)
6,426
(17,450)
(75,047)
288,156
(120)
(6,331)
(6,250)
(16,802)
(110,586)
288,332
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 2020
31 December 2019
Changes in
variables
Impact on
profit
£000
Impact on
equity*
£000
Impact on
profit
£000
10%
10%
10%
10%
1,480
6,781
(1,811)
(8,289)
(149)
(37,225)
181
45,497
101
4,209
(122)
(5,144)
Impact on
equity*
£000
105
(28,965)
(127)
35,402
* 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.
.
73
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
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 Accredited Speciality Insurance Company, and in Europe by
Accredited Insurance (Europe) Limited, the Companies 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
2689
1991
1991
1991
1110
1110
1110*
5678
5678
3330
Year of
account
Syndicate
Capacity £000
Group
participation
£000
Open/closed
2021
2020
2019
2018
2020
2019
2017
2019
2018
2018
70,700
110,000
126,750
126,750
3,000
3,000
280,000
122,800
114,100
3,000
50
43
50
50
3,000
3,000
280,000
122,800
114,100
300
Open
Open
Open
Closed
Open
Open
Open
Open
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, 1991, 5678 and 3330 are classified by Lloyd’s as run-off Syndicates and their capacity shown above is reflective of this status. Syndicate 1110 is 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 2017.
74
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2020
4. Management of insurance and financial risks continued
e. Insurance risk
(iv) Reserving risk continued
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 2020
Gross claims at:
1 January/acquisition
Exchange adjustments
Payments
Gross provision at 31 December 2020
(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 2020
Net claims at :
1 January/acquisition
Exchange adjustments
Payments
Net position at 31 December 2020
Surplus/(deficit) to date
Group entities at
1 January 2017
£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
Entities acquired
by the Group
during 2020
£000
553,726
(82,104)
(59,235)
(47,365)
(83,600)
281,422
553,726
(772)
(303,077)
(281,422)
(31,545)
270,945
(43,749)
(63,559)
(27,341)
(25,800)
110,496
270,945
(21,477)
(164,109)
(110,496)
(25,137)
16,842
(1,091)
(7,293)
(1,729)
293,422
(30,261)
(92,233)
730,511
(32,635)
6,729
170,927
697,876
16,842
(6,132)
(4,095)
(6,729)
(114)
293,422
(19,728)
(110,455)
(170,928)
(7,689)
730,511
(22,771)
(3,487)
(697,876)
6,377
Group entities at
1 January 2017
£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
Entities acquired
by the Group
during 2020
£000
350,994
(35,259)
(20,026)
(18,790)
(64,366)
212,553
350,994
6,013
(176,541)
(212,553)
(32,088)
198,513
(45,734)
(69,592)
(27,516)
(18,046)
37,625
198,513
(26,802)
(113,043)
(37,625)
21,042
16,120
(1,653)
(6,980)
(1,382)
275,466
(25,098)
(95,588)
499,559
(31,868)
6,104
154,781
468,190
16,120
(6,617)
(4,022)
(6,104)
(623)
275,466
(23,250)
(108,226)
(154,781)
(10,790)
499,559
(13,855)
(3,487)
(468,190)
14,026
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.
75
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
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 the reporting segments have been realigned to reflect the Group’s core operating businesses.
The reportable segments have been identified as follows:-
• Program Management – the Group delegates underwriting authority to MGAs to provide program capacity through its licensed platforms
in the US and Europe
• Legacy Insurance – acquires legacy portfolios and insurance debt and provides capital support to the Group’s managed Lloyd’s Syndicates
• Corporate / Other – primarily includes the holding company and other non- core subsidiaries which fall outside of the segments above
Segmental results for the year ended 31 December 2020
Underwriting income
Fee income
Investment income
Gross Operating Income
Fixed operating expenses
Interest expense
Pre-Tax Operating Profit
Unearned program fee revenue
Net intangibles
Net unrealised and realised gains/(losses)
Non-core and exceptional items
Profit Before Tax
Segment assets
Segment liabilities
Note
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
Program
Management
£000
(2,365)
18,808
1,983
18,426
(15,795)
–
2,631
(3,111)
–
(296)
–
(776)
Legacy
Insurance
£000
80,650
–
13,092
93,742
(55,621)
–
Corporate/
Other
£000
–
–
1,093
1,093
(16,409)
(9,392)
38,121
(24,708)
–
15,479
5,568
–
59,168
–
–
–
(3,500)
28,208
137,428
239,107
Total
£000
78,285
18,808
16,168
113,261
(87,825)
(9,392)
16,044
(3,111)
15,479
5,272
(3,500)
30,184
2,747,143
2,357,208
669,950
1,939,764
629,050
1,489,050
76
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2020
5. Segmental information continued
Segmental results for the year ended 31 December 2019
Underwriting income
Fee income
Investment income
Gross Operating Income
Fixed operating expenses
Interest expense
Pre-Tax Operating Profit
Unearned program fee revenue
Net intangibles
Net unrealised and realised gains/(losses)
Non-core and exceptional items
Profit Before Tax
Segment assets
Segment liabilities
Notes:
Note
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
Program
Management
£000
Legacy
Insurance
£000
Corporate/
Other
£000
(2,766)
66,300
9,976
1,975
9,185
–
9,600
75,900
(10,568)
(49,820)
–
–
–
821
821
(8,624)
(8,937)
–
(1,383)
(2,766)
–
2,272
–
(1,877)
441,444
429,144
26,080
(16,740)
–
28,754
7,283
–
62,117
1,215,626
908,299
–
–
–
(5,400)
(22,140)
123,803
154,655
Total
£000
63,534
9,976
12,396
85,906
(69,012)
(8,937)
7,957
(2,766)
28,754
9,555
(5,400)
38,100
1,780,873
1,492,098
(i)
Underwriting Income represents Legacy Insurance tangible day one gains and reserve development/savings, net of claims costs and brokerage commissions.
Underwriting income also includes Program Management retained earned premiums, net of claims costs, acquisition costs, claims handling expenses and premium
taxes/levies.
(ii) Fee Income represents Program Fee Revenue (ix) and earnings from minority stakes in MGAs.
(iii)
Investment Income represents income arising on the investment portfolio excluding net realised and unrealised investment gains on fixed income and leased-based assets.
(iv) Gross Operating Income represents Pre-Tax Operating Profit before fixed operating expenses (v).
(v)
Fixed operating expenses includes employment, legal, accommodation, information technology, Lloyd’s Syndicate and other fixed expenses of ongoing operations,
excluding non-core and exceptional items.
(vi)
Pre-Tax Operating Profit is a measure of how the Group core businesses performed adjusted for unearned program fee revenue, intangibles created in Legacy acquisitions
and net realised and unrealised investment gains on fixed income and lease-based assets.
(vii) Unearned program fee revenue represents the portion of program fee revenue (ix) which has not yet been earned on an IFRS basis.
(viii) Net intangibles is the aggregate movement of intangible assets arising on acquisitions in the year less the amortisation costs of existing intangible assets in the year.
(ix)
Program fee revenue represents the fee revenue from insurance policies already bound (written), regardless of the length of the underlying policy period (earned).
The Board believe Program fee revenue is a more appropriate measure of the revenue of the business during periods of high growth, due to a larger than normal gap
between gross written and gross earned premium.
No income from any one client included within the fee income generated more than 10% of the total external income.
.
77
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
UK
£000
959,793
(85,746)
874,047
798,450
(114,520)
683,930
124,791
UK
£000
460,617
(128,640)
331,977
293,176
(55,826)
237,350
84,860
North
America
£000
1,426,541
(145,282)
1,281,259
1,279,899
(157,308)
1,122,591
227,263
North
America
£000
1,153,071
(132,124)
1,020,947
1,099,281
(250,150)
849,131
105,955
Europe
£000
Total
£000
638,954
3,025,288
(47,117)
591,837
557,004
(6,317)
550,687
53,524
Europe
£000
478,722
(50,773)
427,949
411,178
(5,561)
(278,145)
2,747,143
2,635,353
(278,145)
2,357,208
405,578
Total
£000
2,092,410
(311,537)
1,780,873
1,803,635
(311,537)
405,617
1,492,098
19,725
210,540
5. Segmental information continued
Geographical analysis
As at 31 December 2020
Gross assets
Intercompany eliminations
Segment assets
Gross liabilities
Intercompany eliminations
Segment liabilities
Revenue from external customers
As at 31 December 2019
Gross assets
Intercompany eliminations
Segment assets
Gross liabilities
Intercompany eliminations
Segment liabilities
Revenue from external customers
6. Program fee revenue
Program fees are reinsurance overriding commissions earned on quota share treaties which reinsure the Program business underwritten by
Accredited Insurance (Europe) Limited in Europe, and Accredited Surety & Casualty Company Inc. in the USA.
Program fee revenue for Program Management represents the commission revenue from insurance policies already bound (written), regardless
of the length of the underlying policy period (earned).
Program fee revenue
Unearned Program fee revenue
Program fee revenue (earned)
2020
£000
17,467
(3,111)
14,356
2019
£000
9,976
(2,766)
7,210
78
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2020
7. Gross investment income
Investment income
Realised net (losses)/gains on financial assets
Unrealised gains on financial assets
8. Other income
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
2020
£000
17,882
(3,536)
7,897
22,243
2020
£000
2019
£000
15,391
4,581
2,021
21,993
2019
£000
3,355
4,082
2,000
(140)
163
351
5,729
2,923
(173)
41
(93)
6,780
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.
9. Operating expenses
Continuing operations
Expenses of insurance company subsidiaries
Expenses of syndicate participations
Employee benefits
Other operating expenses
2020
£000
41,306
5,774
46,456
18,044
111,580
The expenses of insurance company subsidiaries represent external expenses borne by subsidiaries of the Group; intragroup charges
are removed on consolidation.
Operating expenses have increased as a result of the organic and acquisitive growth of the Group’s Program Management and Legacy
Insurance segments in 2019 and 2020.
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 syndicate 1110 and 3330 audits.
2020
£000
168
654
891
150
1,863
2019
£000
22,895
9,344
40,856
12,797
85,892
2019
£000
153
504
815
131
1,603
79
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
2020
£000
2,515
128
7,133
9,776
2020
£000
2019
£000
4,455
147
4,935
9,537
2019
£000
46,456
40,856
3,504
2,337
93
809
11,047
2020
£000
–
(1,545)
4,598
3,053
(3,759)
1,504
–
798
3,169
2,242
57
425
3,162
2019
£000
–
3,870
(6,176)
(2,306)
4,389
1,672
(2,475)
1,280
10. Finance costs
Continuing operations
Bank loan and overdraft interest
Interest on lease liabilities
Subordinated debt interest
11. Profit before income taxes
Profit 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)
12. Income tax charge
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
80
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2020
12. Income tax charge continued
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 before income taxes
Profit on ordinary activities at the standard rate of corporation tax in the UK of 19.00% (2019: 19.00%)
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
2020
£000
30,184
5,735
(20,916)
2,494
(31)
(28)
15,565
(150)
–
4,598
(6,428)
(41)
798
2019
£000
38,100
7,239
(14,565)
1,740
43
4,478
6,631
(72)
303
(8,651)
(1,408)
5,542
1,280
c. Factors that may affect future tax charges
In addition to the recognised deferred tax asset, the Group has other trading losses of approximately GBP210,214k (2019: GBP118,263k) 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 GBP27,514k (2019: GBP27,514k).
In the Finance Bill 2021, it was announced that the main rate of UK corporation tax would increase to 25% from April 2023.
The Group’s 2020 results are taxed at 19%.
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:
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:
2020
£000
29,447
No.
000’s
200,827
15,199
216,026
13.6p
2019
£000
37,298
No.
000’s
125,984
57,469
183,453
20.3p
81
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
13. Earnings and net assets per share continued
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
Weighted average number of ordinary shares issued in year
Dilution effect of options
Diluted earnings per ordinary share:
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
d. Diluted 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
Dilution effect of convertible shares
Net asset value per ordinary share
2020
£000
29,447
No.
000’s
216,026
49,772
265,798
11.1p
2020
£000
390,312
No.
000’s
224,395
(112)
224,283
174.0p
2020
£000
390,312
No.
000’s
224,395
(112)
49,772
274,055
142.4p
2019
£000
37,298
No.
000’s
183,453
–
183,453
20.3p
2019
£000
288,332
No.
000’s
195,918
–
195,918
147.2p
2019
£000
288,332
No.
000’s
195,918
–
–
195,918
147.2p
82
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2020
14. Distributions
The amounts recognised as distributions to equity holders in the year are:
Bonus share award (2019: distribution on cancellation of AB shares)
Distribution on cancellation of AD (2019: AC) shares
Total distributions to shareholders
2019 final distribution was completed by a bonus share award of 1 for every 22 shares held.
2020
£000
–
8,523
8,523
2019
£000
10,971
7,444
18,415
15. Intangible assets
Cost
As at 1 January 2019
Exchange adjustments
Acquisition of subsidiaries
Additions
Disposals
As at 31 December 2019
Exchange adjustments
Acquisition of subsidiaries
Additions
Disposals
As at 31 December 2020
Amortisation/impairment
As at 1 January 2019
Exchange adjustments
Charge for the year
Disposals
As at 31 December 2019
Exchange adjustments
Charge for the year
Disposals
As at 31 December 2020
Carrying amount
As at 31 December 2020
As at 31 December 2019
US state
licences &
customer
contracts
£000
Arising on
acquisition
£000
Goodwill
£000
Other
£000
Total
£000
6,677
(291)
2,654
–
(2,703)
6,337
(81)
–
–
(2,573)
3,683
727
(6)
30
(751)
–
(1)
2,574
(2,573)
–
3,683
6,337
16,218
(897)
28,683
–
–
44,004
(1,065)
26,526
–
(4,780)
64,685
3,655
(153)
2,579
–
6,081
(165)
7,681
(4,780)
8,817
55,868
37,923
18,907
(578)
–
819
–
19,148
(682)
–
–
–
18,466
17,637
(530)
474
–
17,581
(662)
714
–
17,633
833
1,567
542
(1)
–
143
(23)
661
(2)
–
16
–
675
351
(1)
79
(23)
406
(2)
78
–
482
193
255
42,344
(1,767)
31,337
962
(2,726)
70,150
(1,830)
26,526
16
(7,353)
87,509
22,370
(690)
3,162
(774)
24,068
(830)
11,047
(7,353)
26,932
60,577
46,082
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.
Intangible assets arising on acquisition are calculated by measuring the difference between the discounted and undiscounted fair value of net
technical provisions acquired. These intangible assets are amortised over the estimated pattern of run-off of the net technical provisions.
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.
83
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
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% (2019: 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 (2019: 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 2019
Exchange adjustments
Additions
Disposals
As at 31 December 2019
Exchange adjustments
Additions
Disposals
As at 31 December 2020
Depreciation
As at 1 January 2019
Exchange adjustments
Charge for the year
Disposals
As at 31 December 2019
Exchange adjustments
Charge for the year
Disposals
As at 31 December 2020
Carrying amount
As at 31 December 2020
As at 31 December 2019
Computer
equipment
£000
Motor
vehicles
£000
Office
equipment
£000
Leasehold
improvements
£000
1,566
(42)
218
(563)
1,179
(40)
89
(184)
1,044
1,386
(39)
274
(560)
1,061
(37)
145
(180)
989
55
118
41
(1)
18
(40)
18
–
–
–
18
41
–
2
(40)
3
–
4
–
7
11
15
1,314
(12)
261
(491)
1,072
(11)
778
(238)
1,601
1,100
(11)
104
(406)
787
(2)
176
(231)
730
871
285
778
(48)
461
(10)
1,181
(70)
172
(77)
1,206
595
(42)
86
(9)
630
(53)
108
(75)
610
596
551
£000
3,699
(103)
958
(1,104)
3,450
(121)
1,039
(499)
3,869
3,122
(92)
466
(1,015)
2,481
(92)
433
(486)
2,336
1,533
969
As at 31 December 2020, the Group had no significant capital commitments (2019: none). The depreciation charge for the year is included
in operating expenses.
84
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2020
17. Right-of-use assets
Position recognised at 1 January 2019 under IFRS 16
Depreciation charge for the year
Exchange adjustment
As at 31 December 2019
Depreciation charge for the year
Additions in the year
Exchange adjustment
As at 31 December 2020
Property
£000
Office
equipment
£000
5,048
(1,771)
(94)
3,183
(1,839)
2,729
(62)
4,011
13
(5)
–
8
(65)
187
–
130
The cost of leases with a rental period of less than 12 months or with a contract value of less than GBP4,000 was GBP93k for the year
(2019: GBP57k) and is reflected within expenses in the Consolidated Income Statement.
18. Investment properties and financial assets
a. Investment properties
As at 1 January
Decrease in fair value during the year
Disposal
As at 31 December
2020
£000
1,480
(130)
–
1,350
Total
£000
5,061
(1,776)
(94)
3,191
(1,904)
2,916
(62)
4,141
2019
£000
1,881
(40)
(361)
1,480
The investment properties are measured at fair value derived from the valuation work performed at the balance sheet date by independent
property valuers.
Rental income from the investment properties for the year was GBP163k (2019: GBP163k) 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
2020
£000
5,502
803,136
54,504
863,142
2019
£000
10,991
533,326
15,646
559,963
Included in the above amounts are GBP38,388k (2019: GBP18,660k) pledged as part of the Funds at Lloyd’s in support of the Group’s underwriting
activities. 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 GBP98,131k (2019: GBP90,100k) of funds withheld as collateral for certain of the Group’s reinsurance contracts.
85
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
c. Shares in subsidiary and associate undertakings
The Company had interests in the following subsidiaries and associates at 31 December 2020:
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.
Tradesman Program Managers, LLC
Sandell Re Ltd. ^
Mondi Reinsurance Ltd*
R&Q Quest Management Services (Cayman) Limited
Marillac Insurance Company, Ltd
R&Q Re (Cayman) 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 Capital No. 8 Limited @
R&Q Central Services Limited
R&Q Commercial Risk Services Limited /
R&Q Delta Company Limited
R&Q Eta Company Limited
R&Q Gamma Company Limited
Inceptum Insurance 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 Overseas Holdings 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
The World Marine & General Insurance Company PLC
La Licorne Compagnie de Reassurances SA
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 {
R&Q Epsilon Insurance Company SE [
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.
Accredited Speciality Insurance Company
CMAL LLC }
% 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
USA
Bermuda
Bermuda
Cayman Island
Cayman Island
Cayman Island
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
England and Wales
England and Wales
France
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
35
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
–
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
35
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
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
86
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2020
18. Investment properties and financial assets continued
c. Shares in subsidiary and associate undertakings continued
Principal activity and name of subsidiaries/associate
Excess and Treaty Management Corporation
GLOBAL Reinsurance Corporation of America
GLOBAL U.S. Holdings Incorporated
Grafton US Holdings Inc.~
ICDC Ltd
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
Risk Transfer Underwriting Inc.
RSI Solutions International Inc
Transport Insurance Company
# has a November year end due to Irish Law Society connection.
* Merged into R&Q Re (Bermuda) Ltd. on 31 December 2020
+ Sold to Quest Bermuda Holdings Limited on 28 January 2021
^ Sold to Tradesman Program Managers LLC
% 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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
100
100
100
100
80
100
100
~ Randall & Quilter America Holdings Inc increased its shareholding in Grafton US Holdings Inc. to 100% by acquiring the remaining 20% issued share capital on 31 July 2020
- Merged into Accredited Insurance (Europe) Limited on 30 March 2021
/ Sold to Stride Limited on 23 April 2021
{ Has a UK and an Italian Branch
} Membership interest held by R&Q Capital No.1 Limited
[ Redomiciled to Malta on 16 March 2020
@Renamed on 6 May 2021. The Company was previously named Vibe Corporate Member Limited
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
2020
£000
139,667
195,094
334,761
2,298
96,587
4,652
69,824
173,361
2019
£000
110,379
212,234
322,613
4,097
49,933
5,969
36,923
96,922
508,122
419,535
The purchased reinsurance receivables balance is expected to be received after 12 months (2019: before 12 months GBP1,513k: after 12 months
GBP4,456k).
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 USD190,000k
from the R&Q Re commutations strategy. The Group retains oversight and custody of the premiums and investment thereof.
87
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Included in receivables arising from reinsurance operations is GBP63,932k (2019: GBP57,075k) 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 USA interest rate rises which have enhanced the amounts recoverable under the policies. The movement of
GBP11,049k (2019: GBP14,100k) has been included in the GBP130,804k (2019: GBP111,033k) shown as proceeds from commutations and reinsurers’
share of claims paid in the Consolidated Income Statement.
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
0.4% in total Group assets.
The carrying amounts disclosed above reasonably approximate their fair values at the period end date.
Prepayments and accrued income includes gross deferred acquisition costs which have increased in accordance with the growth of
Program Management.
20. Cash and cash equivalents
Cash at bank and in hand
2020
£000
2019
£000
267,829
252,741
Included in cash and cash equivalents is GBP553k (2019: GBP574k) 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
2020
£000
380,484
(380,484)
–
163,565
32,838
196,403
1,378
10,678
59,752
45,660
117,468
313,871
2019
£000
400,910
(400,910)
–
118,528
66,271
184,799
2,259
1,633
40,052
27,080
71,024
255,823
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.
88
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2020
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
2020
£000
243,350
4,979
248,329
2020
£000
51,000
31,022
161,328
2019
£000
142,693
3,210
145,903
2019
£000
37,651
15,500
89,542
243,350
142,693
As outlined in Note 31, GBP63,000k (2019: GBP55,141k) 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
Principal
Rate
Maturity
Randall & Quilter Investment Holdings Ltd.
USD70,000k
6.35% above USD LIBOR
Randall & Quilter Investment Holdings Ltd.
USD125,000k
6.75% above USD LIBOR
Accredited Insurance (Europe) Limited
Accredited Insurance (Europe) Limited
R&Q Re (Bermuda) Limited
EUR20,000k
EUR5,000k
6.7% above EURIBOR
6.7% above EURIBOR
USD20,000k
7.75% above USD LIBOR
2028
2033
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 USD70,000k 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
2020
£000
1,375
3,801
142
5,318
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.
2020
£000
142,693
100,963
(306)
243,350
2019
£000
140,243
6,785
(4,335)
142,693
89
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
23. Insurance contract provisions and reinsurance balances
2020
2019
Program
Management
£000
Legacy
Insurance
£000
Program
Management
£000
Total
£000
Legacy
Insurance
£000
Total
£000
Gross
Insurance contract provisions at 1 January
299,273
772,935
1,072,208
107,304
591,774
699,078
Claims paid
(102,754)
(108,010)
(210,764)
(52,996)
(130,442)
(183,438)
Increases/(decreases) in provisions arising from the (disposal)/
acquisition of subsidiary undertakings and Syndicate participations
Increases in provisions arising from acquisition of reinsurance portfolios
–
–
331,885
331,885
286,750
286,750
–
–
174,551
174,551
132,234
132,234
Increase in claims provisions
239,116
32,768
271,884
144,051
33,131
77,986
(2,430)
(10,669)
(46,448)
75,556
(57,117)
107,608
(13,293)
(6,694)
(15,020)
(21,714)
502,952
1,267,450
1,770,402
299,273
772,935
1,072,208
177,182
94,315
Increase/(decrease) in unearned premium reserve
Net exchange differences
As at 31 December
Reinsurance
Reinsurers’ share of insurance contract provisions at 1 January
288,922
182,490
471,412
101,946
198,411
300,357
Proceeds from commutations and reinsurers’ share of gross claims paid
(95,425)
(35,379)
(130,804)
(50,165)
(60,868)
(111,033)
Increases/(decreases) in provisions arising from the (disposal)/
acquisition of subsidiary undertakings and Syndicate participations
Increases in provisions arising from acquisition of reinsurance portfolios
–
–
220,458
220,458
1,092
1,092
–
–
18,644
18,644
–
–
Increase in claims provisions
226,408
21,360
247,768
137,775
28,485
166,260
Increase/(decrease) in unearned premium reserve
71,842
1
71,843
104,255
(10,055)
(1,826)
(11,881)
(4,889)
481,692
388,196
869,888
288,922
182,490
471,412
(568)
(1,614)
103,687
(6,503)
Net exchange differences
As at 31 December
Net
Net insurance contract provisions at 1 January
10,351
590,445
600,796
5,358
393,363
398,721
Net claims paid
(7,329)
(72,631)
(79,960)
(2,831)
(69,574)
(72,405)
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
–
–
111,427
111,427
285,658
285,658
12,708
6,144
11,408
(2,431)
24,116
3,713
–
–
6,276
3,353
155,907
155,907
132,234
132,234
4,646
10,922
(12,725)
(9,372)
(15,211)
(614)
(44,622)
(45,236)
(1,805)
(13,406)
21,260
879,254
900,514
10,351
590,445
600,796
90
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2020
23. Insurance contract provisions and reinsurance balances continued
Gross
Claims reserves
Unearned premiums reserves
As at 31 December
Reinsurance
Claims reserves
Unearned premiums reserves
As at 31 December
Net
Claims reserves
Unearned premiums reserves
As at 31 December
Program
Management
£000
2020
Legacy
Insurance
£000
Program
Management
£000
Total
£000
2019
Legacy
Insurance
£000
Total
£000
257,847
1,267,085
1,524,932
245,105
365
245,470
128,286
170,987
745,425
27,510
873,711
198,497
502,952
1,267,450
1,770,402
299,273
772,935
1,072,208
247,903
233,789
388,196
636,099
123,404
182,256
305,660
–
233,789
165,518
234
481,692
388,196
869,888
288,922
182,490
165,752
471,412
9,944
11,316
878,889
888,833
365
11,681
4,882
5,469
563,169
568,051
27,276
32,745
21,260
879,254
900,514
10,351
590,445
600,796
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 GBP63,932k (2019: GBP57,075k) 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.
Other than as described above, insurance liabilities are not discounted.
91
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
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 GBP9,005k (2019: GBP6,008k).
24. Current and deferred tax
Current tax
Current tax assets
Current tax liabilities
Net current tax assets/(liabilities)
2020
£000
–
(1,918)
(1,918)
2019
£000
1,988
(294)
1,694
Deferred tax
Deferred tax is calculated in full on temporary differences under the liability method using tax rates of 19% for the UK (2019: 17%) and 21% for the US
(2019: 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 2019
Movement in year
As at 31 December 2019
Movement in year
As at 31 December 2020
The movement on the deferred tax account is shown below:
Deferred
tax assets
£000
Deferred
tax liabilities
£000
3,205
803
4,008
219
4,227
(3,449)
(6,016)
(9,465)
(3,794)
(13,259)
As at 1 January 2019
Movement in year
As at 31 December 2019
Movement in year
As at 31 December 2020
Accelerated
capital allowances
£000
Trading losses
£000
Pension
scheme deficit
£000
Other temporary
differences
£000
(39)
1
(38)
–
(38)
10,031
5,129
15,160
(1,781)
13,379
1,167
80
1,247
144
1,391
(11,403)
(10,423)
(21,826)
(1,938)
(23,765)
Total
£000
(244)
(5,213)
(5,457)
(3,575)
(9,032)
Total
£000
(244)
(5,213)
(5,457)
(3,575)
(9,032)
92
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2020
24. Current and deferred tax continued
Deferred tax
Movements in the provisions for deferred taxation are disclosed in the Consolidated Financial Statements as follows:
Movement in 2019
Movement in 2020
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
Exchange
adjustment
£000
(1,678)
(6,088)
Deferred tax in
Consolidated
Income
Statement
£000
(3,586)
2,255
Deferred tax in
Consolidated
Statement of
Comprehensive
Income
£000
51
258
2020
£000
5,767
7,612
13,379
Total
£000
(5,213)
(3,575)
2019
£000
11,038
4,122
15,160
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 GBP13,379k (2019: GBP15,160k) 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 2019
Issue of ordinary shares
Share based payments
Issue of AB-AC shares
Redemption/cancellation of AB-AC shares
At 31 December 2019
Issue of ordinary shares
Share-based payments
Treasury
Issue of AD shares
Redemption/cancellation of AD shares
At 31 December 2020
Number
of shares
Ordinary shares
£000
Share premium
£000
Treasury share
reserve
£000
125,984,280
69,858,915
74,373
391,835,136
(391,835,136)
195,917,568
21,578,813
6,898,903
(111,525)
222,563,380
(222,563,380)
224,283,759
2,520
1,396
2
18,415
(18,415)
3,918
570
–
–
8,523
(8,523)
4,488
51,135
102,047
138
(18,415)
–
134,905
15,637
11,345
–
(8,523)
–
153,364
–
–
–
–
–
–
–
–
(150)
–
–
(150)
Total
£000
53,655
103,443
140
–
(18,415)
138,823
16,207
11,345
(150)
–
(8,523)
157,702
During the year, the Group issued 11,902,318 ordinary shares at GBP1.35 per share.
During the year, a Group subsidiary issued 47,609,270 USD0.01 convertible preference shares for cash consideration of USD80,000k. These preference
shares converted into ordinary share capital of the Company upon certain regulatory conditions being met on 21 January 2021. The convertible
preference share are entirely accounted for within equity in accordance with IAS 32 as the conversion to ordinary share capital is at a fixed amount.
93
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
In the year, the Group commenced a share repurchase programme and purchased 111,525 of its ordinary shares for total consideration of
GBP150k. These ordinary shares are held in treasury.
Allotted, called up and fully paid
224,283,759 ordinary shares of 2 pence each (2019: 195,917,568 ordinary shares of 2 pence each)
4,487,904
3,918,350
2020
GBP
2019
GBP
1 Preference A Share of GBP1
1 Preference B Share of GBP1
Included in equity
1
1
1
1
4,487,906
3,918,352
2020
GBP
2019
GBP
224,283,759 ordinary shares of 2 pence each (2019: 195,917,568 ordinary shares of 2 pence each)
4,487,904
3,918,350
1 Preference A Share of GBP1
1 Preference B Share of GBP1
1
1
1
1
4,487,906
3,918,352
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 USD5,000k.
• 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 USD10,000k.
• 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 AD shares (with an aggregate value of GBP8,523k) (2019: AB and AC shares (with an aggregate value of
GBP18,415k) 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
2020
£000
38,297
3,657
1,303
3,199
2019
£000
35,987
3,767
1,102
–
46,456
40,856
Pension costs are recognised in operating expenses in the Consolidated Income Statement and include GBP1,303k (2019: GBP1,102k) in respect
of payments to defined contribution schemes.
94
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2020
26. Employees and Directors continued
Average number of employees
Program
Legacy
Other
Remuneration of the Directors and key management
Aggregate Director emoluments
Aggregate key management emoluments
Share-based payments – Directors
Share-based payments – Key management
Key management pension contributions
Highest paid Director
Aggregate emoluments
2020
2019
Number
Number
71
169
40
280
2020
£000
9,565
3,318
3,019
65
–
55
167
37
259
2019
£000
5,368
2,061
–
169
10
15,967
7,608
5,234
2,447
Key management refers to employees who are Directors of subsidiaries within the Group but not members of the Group’s Board of Directors.
Directors’ emoluments
K E Randall (resigned 31 March 2021)
A K Quilter
W L Spiegel (appointed 10 January 2020)
T S Solomon (appointed 2 November 2020)
A H F Campbell
P A Barnes
J P Fox
E M Flanagan (appointed 1 June 2020)
Dr R Sellek (resigned 14 January 2020)
Salary
£000
Bonus paid
£000
Bonus
accrued
£000
Share award
cost
£000
769
525
1,124
147
101
88
87
49
498
1000
600
166
23
–
–
–
–
–
2,538
927
1,153
769
–
–
–
–
–
–
–
2,791
228
–
–
–
–
–
Total
£000
4,307
2,052
5,234
1,167
101
88
87
49
498
Total
USD000
5,600
–
6,805
1,517
–
115
–
–
648
W L Spiegel, T S Solomon, K E Randall, Dr R Sellek and P A Barnes have been remunerated in US dollars.
Bonus payments relating to the reporting year are paid in the following 3 years being 50%, 25% and 25% annually, and reflect the performance
of the Group and the individuals. The costs in the 2020 financial year represent the amounts paid in 2020 and provision for costs relating to
the 2018, 2019 and 2020 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. Where contractual arrangements supersede the above policy the contractual
arrangements are included.
During the year share awards were granted to W L Spiegel and T S Solomon, the shares are held in Escrow and have a three-year vesting period.
The costs of issue are charged over the vesting period.
95
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
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
2020
£000
27,811
(35,135)
(7,324)
1,392
(5,932)
2019
£000
26,003
(33,340)
(7,337)
1,247
(6,090)
All actuarial losses are recognised in full in the Consolidated Statement of Comprehensive Income in the period in which they occur.
b. Movement in the net defined benefit obligation and fair value of plan assets over the year
As at 31 December 2019
Interest (expense)/income
Remeasurements:-
Return on plan assets, excluding amounts included in interest expense
Loss from changes in financial assumptions
Loss from changes in demographic assumptions
Gain from new valuation data
Experience gain
Loss on curtailments
Past service cost
Employer’s contributions
Benefit payments from the plan
As at 31 December 2020
Present value
of obligation
£000
Fair value of
plan assets
£000
Deficit of
funded plan
£000
(33,340)
(647)
(33,987)
–
(3,115)
(127)
–
86
(23)
(36)
(37,202)
–
2,067
(35,135)
26,003
507
26,510
2,573
–
–
–
–
–
–
29,083
795
(2,067)
27,811
(7,337)
(140)
(7,477)
2,573
(3,115)
(127)
–
86
(23)
(36)
(8,119)
795
–
(7,324)
96
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2020
27. Pension scheme obligations continued
b. Movement in the net defined benefit obligation and fair value of plan assets over the year
Present value
of obligation
£000
Fair value of
plan assets
£000
Deficit of
funded plan
£000
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
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
(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
2020
1.35%
3.0%
2.7%
2.7%
3.0%
2020
26.2
28.7
27.4
30.0
(6,866)
(173)
(7,039)
1,390
(3,642)
554
–
–
–
–
(8,737)
1,400
–
(7,337)
2019
2.0%
3.2%
2.4%
2.4%
3.2%
2019
26.0
28.1
27.6
29.7
97
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
d. Sensitivity to assumptions
The results of the IAS 19 valuation at 31 December 2020 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 8.0%
Increase by 1.4%
Increase by 3.9%
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
– liability driven
Level 1
–
–
–
–
–
–
Level 2
368
17,527
2,805
–
7,111
27,811
2020
£000
Total
368
17,527
2,805
–
7,111
27,811
Level 2
921
16,350
2,950
–
5,782
2019
£000
Total
921
16,350
2,950
–
5,782
26,003
26,003
Level 1
–
–
–
–
–
–
Definitions of Level 1 and Level 2 investments can be found in note 4(a)(i).
f. Contributions and present value of defined benefit obligation
Funding levels are monitored on an annual basis. GBP795k contributions have been made directly into the scheme during 2020 (2019: GBP1,400k).
A recovery plan has been agreed with the Trustees to reduce the plan deficit starting from 1 January 2020. GBP795k 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 were entitled to the following distributions during the year:-
K E Randall and family
A K Quilter and family
W L Spiegel
T S Solomon
M G Smith
2020
£000
499
119
64
46
–
2019
£000
1,222
328
–
–
5
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Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2020
28. Related party transactions continued
Transactions with associate
On 10 September 2020 the Group invested in Tradesman Program Managers, LLC which is treated as an investment in associate. The Group
receives income through its Program operations as detailed below.
Written premium
Commissions
Funds due at year end
2020
£000
103,677
25,303
512
The summarised financial information of the amounts presented in the financial statements of the associate for the full year of the associate
is as follows:
Assets
Liabilities
Net assests
Revenue for the year
Profit for the year
2020
£000
14,464
14,025
439
14,457
10,097
29. Business combinations
Business combinations
The Group made 12 business combinations during 2020, 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
Vigneron
Anglo French
ICIICL
Citadel
Premier Temps
TAEP
Nations Builders
Vibe
Marillac
Mondi Re
Inceptum
WMG
103
1,304
103
4
40
512
444
17,924
1,630
780
3,658
24
–
–
–
3
–
–
390
1,479
5,670
9,705
1,042
615
3,465
8,264
–
–
–
(64)
–
–
(984)
(1,041)
(5,670)
(2,342)
(33)
(402)
(2,998)
(5,291)
–
–
–
(2)
–
(125)
541
1,304
7,466
950
253
854
–
–
5,213
740
–
–
541
1,304
2,253
210
253
854
–
2,823
1,382
1,441
80,784
168,314
(23,893)
(174,746)
(3,405)
64,978
20,500
44,478
928
–
973
41
19,115
15,419
20,364
12,908
(381)
(13,873)
–
(221)
(52)
(5,427)
(7,654)
(94)
–
–
(695)
(5)
7,419
10,772
16,425
12,822
26,526
83,119
266,360
(25,595)
(219,571)
(4,232)
126,607
1,721
8,277
12,100
11,205
61,138
5,698
2,495
4,325
1,617
65,469
Gross deal contribution represents the net asset value acquired in excess of any consideration paid, gross of any transaction expenses or
commissions.
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.
99
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
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 2020:
Vigneron
On 22 January 2020, ICDC Ltd completed the acquisition of the entire issued ordinary shares of Vigneron Insurance Company Inc (Vigneron),
a Montana, USA domiciled captive insurance company. Vigneron provided workers’ compensation, auto and general liability coverage to
affiliates from 2004 to 2018.
Anglo French
Effective 5 March 2020, the Group completed the Part VII transfer of policies underwritten by Anglo French Insurance Company Limited
on or prior to 31 December 1969 to R&Q Gamma Company Limited. External costs incurred were GBP400k.
ICIICL
On 9 April 2020, RQIIH completed the acquisition of the entire issued share capital of ICI Insurance Company Limited (ICIICL), a Cayman
domiciled captive insurance company. ICIICL’s remaining liabilities relate to general liability and workers’ compensation claims arising from
policies written from 1974 to 2009. External costs incurred were GBP32k.
Citadel
On 16 June 2020, ICDC Ltd completed the acquisition of the entire issued ordinary shares of Citadel Assurance Company (Citadel), a Vermont,
USA domiciled captive insurance company. Citadel provided workers’ compensation, auto and general liability coverage from 2002 to 2015.
External costs incurred were GBP12k. The Company subsequently merged into ICDC Ltd on 15 October 2020.
Premier Temps
On 1 September 2020, the Group completed the novation of policies from three Bermuda segregated cells, collectively known as Premier Temps,
to a 100% owned segregated cell within R&Q Quest (SAC) limited. The policies provided for workers’ compensation coverage for 2006-2008.
TAEP
On 30 September 2020, the Group completed the novation of policies from The Texas Alliance of Energy Works Compensation Self-Insured Group
Trust (TAEP) to Accredited Surety & Casualty Company, Inc (ASC). The policies provided workers’ compensation coverage from 2005 to 2011.
Nations Builders
On 31 July 2020, the ICDC Ltd completed the acquisition of NationsBuilders Insurance Company (Nations Builders), a Washington D.C. domiciled
captive insurance company. Nations Builders provided commercial auto liability, general liability and workers’ compensation coverage from
2006 to 2019.
Vibe
On 23 December 2020, the Group completed the acquisition of Vibe Corporate Member Limited (Vibe). Vibe is the sole member of Syndicate 5678,
which ceased underwriting at the end of 2019 and was placed into run-off. Syndicate 5678 was established in 2007 to underwrite legacy business
and completed 22 Reinsurance to close contracts (RITCs) which cover years 1993 to 2003. The Group has also agreed, subject to regulatory
approval, to acquire Vibe Services Management Limited and Vibe Syndicate Management Limited. External costs incurred were GBP235k.
The Company was subsequently renamed R&Q Capital No. 8 Limited on 6 May 2021.
Marillac
On 23 December 2020, the Group completed the acquisition of Marillac Insurance Company, Ltd (Marillac), a Cayman domiciled captive
insurance company. Marillac provided workers’ compensation and professional and general liability coverage to its parent from 2002 to 2020.
External costs incurred were GBP45k.
Mondi Re
On 29 December 2020, the Group completed the acquisition of Mondi Reinsurance, Ltd (Mondi), a Bermuda domiciled captive insurance
company. Mondi provided freight forwarder’s liability and commercial general liability covered from 2004 to 2019. Subsequent to the acquisition,
on 31 December 2020, Mondi was merged into R&Q Re (Bermuda) Ltd with R&Q Re (Bermuda) Ltd being the surviving entity.
Inceptum
On 31 December 2020, the Group completed the acquisition of Inceptum Insurance Company Limited (Inceptum), an insurance company
domiciled in England & Wales. Inceptum provided UK motor coverage from 1996 to 2009 when it was placed into run-off. External costs incurred
were GBP78k.
100
Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2020
29. Business combinations continued
WMG
On 31 December 2020, the Group completed the acquisition of The World Marine & General Insurance Plc (WMG), an insurance company
domiciled in England & Wales, from BHP Group Limited. From 1987 to 2001 WMG operated as a captive insurer and wrote a mix of property and
casualty business on both a direct and reinsurance basis. WMG also has some historical exposures from 1973 to 1982 and a pre-1973 book which
is fully indemnified.
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
2020
£000
3
(380)
–
(377)
443
(61)
10
(51)
(769)
(377)
2019
£000
3
380
60
443
349
(478)
(22)
(500)
594
443
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 2020 was GBP63,000k (2019: GBP55,141k).
The Group also gives various other guarantees in the ordinary course of business.
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:
USD
EUR
2020
2019
Average
Year end
Average
Year end
1.28
1.13
1.36
1.11
1.28
1.14
1.31
1.17
33. Events after the reporting date
As disclosed in note 25, 47,609,270 USD0.01 convertible preference shares issued by a Group subsidiary converted into ordinary share capital of
the Company on 21 January 2021.
On 31 March 2021, K E Randall retired from his role as Executive Chairman with W L Spiegel succeeding him in the role. Mr Randall also stepped
down as a Director of the Company on the same date.
On 23 April 2021 R&Q Commercial Risk Services Limited was sold to Stride Limited.
On 13 May 2021, Randall & Quilter II Holdings Limited completed the acquisition of Electric Insurance Ireland Designated Activity Company,
an insurance undertaking incorporated in Ireland.
34. Ultimate controlling party
The Directors consider that the Group has no ultimate controlling party.
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Randall & Quilter Investment Holdings Ltd.
Annual Report 2020
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
250 West 55th Street
25th Floor
New York NY 10019
Orlando
4798 New Broad Street
Suite 200
Orlando FL 32814
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
Atlanta
3565 Piedmont Road
Piedmont Center
Building 4
Suite 550
Atlanta
Georgia GA 30305
RANDALL & QUILTER
INVESTMENT HOLDINGS LTD.
rqih.com