RANDALL & QUILTER
INVESTMENT HOLDINGS LTD.
ANNUAL REPORT 2021
The theme of this year’s Annual Report is Evolving, Building and Growing to reflect
the journey we are on to achieve the ambitions of our Five-Year Strategy, which will
see us transform into a fee-based, capital lighter business. This strategy will see
us deliver higher-quality and more predictable profits in both Legacy Insurance
and Program Management, while also leveraging our leading underwriting and
origination capabilities to pursue the exciting opportunities we have identified for
both businesses – and for R&Q as a whole.
In the pages to come, you will learn about the progress we have already made and
our plans for the future as we continue to take steps to become a successful and
sustainable business, acting for the benefit of all our stakeholders.
Evolving
Building
Growing
Contents
Strategic
report
Corporate
governance
Financial
statements
4
Business highlights from 2021
8
10
12
14
16
20
22
Chairman’s statement
2021 in review
Market and strategy
Business model
Financial review
Risk management
Principal risks and uncertainties
25 Working responsibly
30
32
38
42
45
48
50
52
56
57
58
59
60
61
Board of Directors
Corporate governance statement
Audit Committee report
Remuneration & Nominations Committee report
Risk & Compliance Committee report
Investment Committee report
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
4
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Business highlights from 2021
2021 was a significant year of change for the business as we launched
a new strategy, started the modernization of the business, continued
to evolve our culture, and strengthened our processes and how we do
business. Key highlights are outlined below:
Increasing fee income and launching
our five-year strategy
Engaging employees
Expanding our talent mix across the organization:
» Brought in new talent to our Data and Analytics team
» Added underwriters in our growing Program Management
business in the US
» Boosted Claims and Operations capabilities and expertise in both
Program Management and Legacy Insurance organizations
» Integrated the talent of the VIBE syndicate, gaining deep expertise
in the Lloyd’s legacy insurance market
Increasing our engagement with employees:
» Supported our people and managers in driving the focus areas
of the Five-Year Strategy
›
Increased levels of transparency on results, performance and
business objectives
›
Enhanced discipline around expense management and
capital management
» Supported the evolution of our culture
›
›
›
›
Introduced changes to ways of working to create a more
contemporary, future-focused and agile organization
Shifted workplaces towards hybrid and flexibility
Encouraged a one R&Q mindset, collaboration and
empowerment at all levels
Created robust feedback loops via surveys and
executive-led forums
Transitioned to a capital lighter recurring fee business:
» Raised ~USD300 million for Gibson Re, moving our Legacy
Insurance business to a balance sheet lighter and recurring
fee-oriented business:
›
Reducing future Group equity requirements and potential
shareholder dilution
›
›
Reducing volatility of earnings associated with new
Legacy deals
Reducing future economic volatility associated with older,
non-core Legacy Insurance subsidiaries
» Diversified our Program Management partnerships, which now
constitute 81 MGAs, allowing us to drive additional recurring
fee-based revenue
Outlined our value proposition for investors:
» Refined Key Performance Indicators (KPIs) for the business to
better explain our underlying earnings and earnings drivers
» Articulated a liquidity and capital framework for the business to
provide transparency into how our business operates
» Rebased and redefined our dividend policy to be aligned with the
growth and capital requirements of the business
» Refined our investment strategy and narrowed the asset and
liability duration gap, improving returns and required capital, while
reducing reinvestment risk
» Listed on OTCQX (the top-tier over-the-counter marketplace for US
trading of foreign listed issuers) to improve liquidity in our shares
and make access by US-based investors easier
» Changed our Articles of Association to add certain protections
for shareholders
Strengthened our leadership team:
» Continued to build the management team with key new leaders
such as:
› CEO of Global Legacy
› Chief Data & Technology Officer
› US Head of Compliance and Regulatory Affairs
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
5
Automating processes and
harnessing data
Acting responsibly
» Began to focus on and implement efficiency plans for
operations, allowing us to scale our businesses with enhanced
operating leverage:
›
Moved from a regional approach to a global Program
Management Operations Team, on a single unified platform
›
›
›
›
›
›
Transitioning from several local general ledgers to a single,
Group-wide general ledger
Implemented ten automation initiatives, including robotics
Designed our Cloud infrastructure
Augmented our Risk Management Framework adding new,
more granular measures
Developed an internal model to risk score external
reinsurance partners
Digitized and classified over one million paper documents from
old legacy insurance deals
Prioritizing our approach to ESG
» Completed an organizational assessment of ESG
» Held educational and training workshops with the Board and
Leadership team
» Completed a qualitative and quantitative ESG materiality
assessment with our stakeholders to understand our priorities
» Gained greater visibility of our carbon footprint
» Launching a bottom-up development of our purpose and values
Randall & Quilter Investment Holdings Ltd.
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Annual Report 2021
7
7
Strategic
report
8
10
Chairman’s statement
2021 in review
12 Market and strategy
14
16
20
22
Business model
Financial review
Risk management
Principal risks and uncertainties
25 Working responsibly
8
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Chairman’s statement
I’m pleased to present my first full-year results since becoming
Executive Chairman of R&Q in April last year.
William Spiegel
Executive Chairman
impacted by the terrible events. In April 2022,
R&Q and our employees made a donation
to Save the Children International to support
their work providing education, food, water,
and cash grants to Ukrainians.
In late March 2022, we consulted the majority
of our shareholders on the proposed cash
acquisition and $100 million injection of
capital into R&Q by Brickell PC Insurance
Holdings LLC at 175 pence per share or the
alternative of raising $100 million in new
R&Q shares. Given the feedback from our
shareholders and the uncertainty in the
capital markets at the time, we announced
on 1 April 2022 that the Board was
recommending the cash acquisition of R&Q.
At our Special General Meeting on 25 May
2022, our shareholders did not approve the
acquisition of R&Q. We therefore announced
our intention to raise $100 million by way of
a Fundraise to de-lever our balance sheet
and improve our financial profile.
I believe that the overwhelming interest
we have received from a large number of
shareholders to support the Fundraise is a
strong demonstration of confidence in our
strategy and the future value of the Group.
William Spiegel
Executive Group Chairman
12 June 2022
2021 was a significant year for our business
as we outlined an ambitious Five-Year
Strategy that will see R&Q transform into a
fee-based, capital lighter business. Critically
we believe this strategy will, over time, deliver
higher-quality and more predictable profits
in both Legacy Insurance and Program
Management while also enabling us to
better leverage our leading underwriting
and origination capabilities to further
develop the compelling opportunities we
have identified for both businesses.
The last twelve months have already seen us
take major strides in delivering against this
strategy, including: the launch of Gibson Re
as a legacy sidecar reinsurer to R&Q; ongoing
momentum in Program Management with
growth in Gross Written Premium (GWP)
now expected to be ahead of the target we
outlined last year; and adding a number of
talented leaders to our management team.
We have also begun work on a series of
internal projects that will help us deliver on
our objective to be a more cohesive, efficient
and data-first, global business. Further
supporting this progress are our actions as
a responsible corporate citizen, and as part
of this we have outlined our plans to further
develop and implement a clear ESG strategy
in 2022.
This was all achieved, once again, against
the backdrop of a global pandemic. While
we are now seeing encouraging signs of
a world returning to normal, COVID-19
continues to have an impact on the lives
and health of many. I am hugely proud of
how our employees have continued to show
resilience, adaptability, and compassion
in the face of these challenges. However,
we remain mindful that significant
macroeconomic and political uncertainties
remain. Like everyone, all of us at R&Q have
been horrified by what is taking place in
Ukraine and our thoughts are with all those
Strategic reportCorporate governanceFinancial statements 10
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
2021 in review
Our results are examined in more detail in the Financial review (pages 16-19)
but in summary, 2021 reflected the strategic repositioning of Legacy Insurance
to become a more fee-based, capital lighter business and the continuation of
strong growth and profitability of our Program Management business.
William Spiegel
Executive Chairman
When setting out our Five-Year Strategy, we
were clear that there would be a temporary
reduction in near-term profits as a result of
repositioning our Legacy Insurance business
away from upfront ‘Day-One’ Underwriting
Income to annual recurring Fee Income.
Typically, a significant proportion of our
Legacy Insurance acquisitions are closed
in the fourth quarter. The successful launch
of Gibson Re in September therefore meant
a meaningful percentage of Underwriting
Income was shared with Gibson Re, our
reinsurance sidecar, which reduced R&Q’s
retained portion of that income in exchange
for a contracted future fee-stream. Our
Pre-Tax Operating Profit (PTOP) fell to a loss
of $21.0 million, in part due to the shift to a
recurring fee-based business, as well as
$29 million of adverse development.
However, this number does not capture the
contracted fee-stream we will receive from
managing legacy insurance reserves for
Gibson Re for multiple years. At the end of
2021, we had $417 million of Reserves Under
Management (RUM) from four Legacy
Insurance transactions; on an annualised
basis this represents $17.7 million of recurring
Fee Income, however, this Fee Income
is not included in 2021 PTOP since these
transactions were completed at year-end
2021. It is important to note two further
benefits from Gibson Re: in order to complete
these four deals, our prior funding model
would have required us to raise ~$100 million
of additional capital and assume 100% of the
risk on these transactions. Gibson Re enables
us to continue the growth of our Legacy
Insurance business while we transition to
become a manager of legacy reserves,
sharing risk and alleviating the constraints
that a just-in-time capital funding model has
historically placed on R&Q.
While we made great strides with Gibson
Re, I am disappointed to have to report an
extraordinary non-cash, pre-tax charge of
~$90 million. By way of background, R&Q
acquired a company over 15 years ago
which has a reinsurance policy that provides
coverage once claim payments reach a
certain level. The reinsurance policy contains
an experience refund to the subsidiary of any
residual assets under the reinsurance treaty
above and beyond that needed to pay
claims. The experience refund is treated as
an asset under IFRS on the Group’s balance
sheet based on the amount expected to
be realized in the ordinary course over a
40-year projection period. Recently, claims
have accelerated above expectations,
leaving the subsidiary with minimal liquid
assets while still requiring $34 million in future
claim payments before it can access the
reinsurance coverage. Management believes
it is in the best interests of shareholders for
the subsidiary to commute the reinsurance
policy in order to provide liquidity to meet
anticipated claims rather than having R&Q
contribute up to $34 million to this subsidiary
over the next two to three years. The
impairment of the asset arises from the early
commutation of this reinsurance contract. It
is important to know that this impairment is
not related to our core Legacy Insurance and
Program Management businesses nor any of
the Accredited companies. The decision we
have taken enables us to move forward with
a cleaner, less volatile business.
Furthermore, in Q4 2021, the Group was
required to use meaningful cash capacity to
fund collateral requirements upon certain
reserve strengthening in Lloyd’s. Together
with the ~$90 million non-cash charge, R&Q
requires capital, which we are seeking to
raise by way of a Fundraise.
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
11
Our Group result reflects a year of evolution
towards our future state, and I am pleased that
we have reported underlying progress in both
of our businesses, Program Management and
Legacy Insurance.”
Of the 15 deals completed in 2021, four were
80% reinsured by Gibson Re. With RUM of $417
million in our first four months of deployment,
we see this as an excellent achievement.
We are also pleased that the Gibson Re
transaction was recognized in the recent
Trading Risk Awards as ‘Non-Life Transaction
of The Year’. Our pipeline remains strong, and
we continue to be a leading player in small to
middle market legacy insurance solutions.
Capital and liquidity framework
Last year we articulated a liquidity and
capital framework to help investors
understand the capital intensity of R&Q,
particularly regarding Legacy Insurance. In
response we were successful in launching
Gibson Re. We also shared a dividend
strategy of paying out 25-50% of PTOP and
progressively growing our dividend from
4 pence per share. In H1 2021, we paid a
dividend of 2 pence per share. Due to the
extraordinary non-cash charge and required
Fundraise, we will not pay a final dividend for
the 2021 fiscal year. While we will endeavor
to maintain our dividend strategy of paying
25-50% of PTOP, we believe it is in the best
interest of the Group to not have a minimum
dividend of 4 pence per share.
In 2021, we also embarked upon an exciting
efficiency project to automate and centralize
our business processes. This project will allow
us to achieve improved operating leverage
as we continue to grow our businesses. We
anticipate one-time investment spending
over the next year of ~$20 million in this
project. This initiative is anticipated to yield
meaningful cost savings by FY 2024.
Our Group result reflects a year of evolution
towards our future state, and I am pleased
that we have reported underlying progress
in both of our businesses, Program
Management and Legacy Insurance. In
addition to a number of strategic milestones,
this is showcased by our two primary KPIs:
growing GWP in Program Management and
RUM in Legacy Insurance, each leading to
growing Fee Income and highlighting the
high quality revenue potential of R&Q.
Program Management
Growth in Program Management continues
at pace, with PTOP increasing by 506%
to $21 million. We also saw the Pre-Tax
Operating Margin improve to 36% as we
started to see the benefits of operating
leverage as the business grows to scale.
During 2021, we added 21 new programs
and increased Fee Income by 133% to
$56.1 million and we remain excited by the
potential opportunities in the US, UK and
Europe. We have put in place an outstanding
team of entrepreneurial leaders in Program
Management and, aligned to the continued
growing demand we are seeing from both
MGAs and reinsurance capital, believe we
will continue to enjoy accelerated growth
in this part of our business. 2021 Fee Income
benefited from the strong growth of
Tradesman Program Managers, an MGA
in which we own 40%. Tradesman added
$11.1 million to our Fee Income.
Based on our success in growing GWP to
over $1 billion in 2021, we believe we will
achieve our previously announced target
of $1.75 billion in 2022 rather than in 2023.
Legacy Insurance
The formation and launch of Gibson Re
last September was a landmark moment
for Legacy Insurance, underpinning its
transformation into what will become
primarily a recurring fee-based business.
Gibson Re is a Bermuda-domiciled
collateralized reinsurer with ~$300 million
of third-party capital, which will allow R&Q
to support ~$2 billion of Gross Acquired
Reserves. Gibson Re will reinsure 80% of
R&Q’s qualifying Legacy transactions for
up to three years, with R&Q retaining 20%,
which will promote alignment of interests.
R&Q receives annual recurring fees of 4.25%
of RUM for at least six years, plus potential
performance fees.
Our ability to successfully raise capital for
Gibson Re from a range of sophisticated
institutional investors is testament to the
strength, track-record, and reputation
of our Legacy Insurance franchise. In the
last 10 years alone, we have completed
over 130 transactions across 38 regulatory
jurisdictions. Crucially, this means we have
a highly diverse portfolio with respect
to both the years in which the books we
acquired were written and the classes
of business they cover.
While Gibson Re changes the model for
Legacy Insurance, what has not changed
is the team’s ability to originate and
underwrite. In 2021 we completed 15 deals,
with $735 million of Gross Reserves Acquired,
an increase of 15% relative to 2020. As already
stated, under our old model this activity
would have required a further $100 million
of capital.
Strategic reportCorporate governanceFinancial statements 12
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Market and strategy
Last year we set out our ambitious Five-Year Strategy to become
a simpler, fee-orientated capital lighter business.
There are five pillars of our strategy: Increasing
Fee Income, Enhancing Transparency,
Automating Processes, Engaging Employees
and Acting Responsibly. We have already
discussed the progress on increasing Fee
Income with the launch of Gibson Re, and
what this means for our Legacy Insurance
business, as well as the excellent progress
against our GWP target for Program
Management. I am encouraged to report
that we have already made good progress
against the other pillars.
Enhancing transparency
As part of this strategy, we have defined a
clear set of KPIs which capture the earnings
potential of a capital-light R&Q and will
enable our stakeholders to clearly assess our
progress. These KPIs are:
» As a Group we focus on Fee Income and
PTOP
» In Program Management we focus on
GWP, Fee Income and PTOP and the
corresponding Operating Margin
» In Legacy Insurance we focus on RUM, Fee
Income and PTOP and the corresponding
Operating Margin
These KPIs reflect the performance of
Program Management and Legacy Insurance
as primarily fee-generating businesses,
while also capturing their ability to effectively
grow and deliver operating leverage.
Furthermore, we have articulated a capital/
liquidity framework, introduced a robust
internal Reserve Committee, enhanced our
risk framework and optimized our investment
portfolio based on appropriate asset-liability
management.
Automating processes
In the second half of the year, we began work
on an efficiency program. This is a significant
organizational change program that will
generate significant recurring annual savings
by 2024. This program includes transitioning
to a single Group-wide accounting system,
a single global Program Management
operating model, moving our data to the
cloud and the automation of a number of
manual processes.
This automation will also empower our
people, letting them spend greater time
on the complex tasks associated with
underwriting and origination where their skills
are most valuable. In practice, automation will
allow us to grow our business without adding
incremental costs for certain processes.
For example, we recently implemented
a new piece of software that will deliver
significant efficiency for our Actuarial and
Finance functions, moving the team from
manual data entry to an automated data
feed. The new software is highly flexible and
gives us data visualization tools that offer
better real-time insights and has increased
usability for our underwriters. We are
finalising the automation and centralization
of the underlying data to save 200-300
hours a month and enhance our reporting
capabilities. Another area we are progressing
is the use of technology to automate
manual processes, including robotic process
automation: we have built and successfully
launched our first robots, and we have begun
to review the next set of process automation.
We are also changing how we process and
store documents, again moving away from
manual processing, which can be hugely
time consuming. We have entered into a
partnership with both a provider of a new
document management system and a
technology company specialising in Artificial
Intelligence (AI) applied to documents for
classification. This new approach makes it
far quicker for our teams to file, retrieve and
upload documents while also enabling us to
automate monthly claims payment workflows
– we have scanned and categorized over
1 million documents in this way.
These examples only represent the start of
our efforts to improve processes to support
the growth of the business and leverage AI to
help us work smarter. Our team has identified
a number of areas across our business
where we can find similar opportunities
to automate reporting processes and
document management. As a business
that has historically been run on a more
traditional basis, the potential upside for R&Q
is meaningful, both in the greater efficiency it
will create and in the ability to free our people
up to focus on more strategic thinking.
Engaging employees
Another key pillar of our Five-Year Strategy
is to Engage our People: we operate in
businesses that require specialist skillsets
aligned to longstanding market relationships.
Our culture is one where we aim to motivate
our people to be entrepreneurial and
accountable and we are grateful for the hard
work and dedication from all of our people in
the past year. I would like to thank everyone
at R&Q for their contribution to our results.
An important focus last year was on putting
in place the right leadership team to support
our long-term objectives, and we have been
able to enter 2022 with an outstanding team
in place. The exceptional talent we have
added is testament to R&Q’s reputation in
the market and shared excitement for what
we are building.
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
13
We talked in detail last year about how R&Q
competes in large and growing markets which
enjoy both secular growth and structural
protection from the Property and Casualty cycle.
This has not changed, and we continue to be
excited by what we are seeing in both Legacy
Insurance and Program Management.”
impacts on our business, on society and the
environment. The Board and leadership
teams have been actively involved in selecting
the material ESG topics that we will be
prioritizing in the coming years.
More fundamentally, legacy has now firmly
established itself as a permanent part of the
capital life-cycle within non-life insurance.
With the barriers to entry remaining high, R&Q
is strongly positioned.
The program market is also benefiting from
equally attractive market conditions as
talented underwriters continue to establish
their own MGAs and capital providers seek
underwriting outperformance. As in the
legacy market, R&Q is enviably positioned:
we are a genuinely independent program
manager with a highly rated balance sheet
and licences across Europe and the US. We
believe few can match this independence,
capital strength and global scale in terms of
licensed platforms.
In addition to developing and looking after
our people and considering our purpose, we
have collected data on our environmental
emissions for the first time which will provide
us with visibility of our carbon footprint.
We are also reviewing our policies, our
governance structures and applying the
Principle of Sustainable Insurance to ensure
we are embedding ESG across our business.
2022 will be an important year for us as we
look to develop and implement an ESG
strategy which is aligned with and supports
our Five-Year Strategy. As we continue to
develop our approach, we will ensure that
we continue to involve and engage our
stakeholders, both internal and external.
Market outlook
We talked in detail last year about how R&Q
competes in large and growing markets
which enjoy both secular growth and
structural protection from the Property and
Casualty cycle. This has not changed, and
we continue to be excited by what we are
seeing in both Legacy Insurance and
Program Management.
The legacy market, and our addressable
market within this, remains highly attractive
as risk carriers continue to proactively
manage their capital positions. The ongoing
attractive rating environment for ‘live’ business
has meant we have seen ongoing strong
demand for legacy solutions and expect
this to continue through 2022 and beyond.
In our two core businesses, we added Andy
Pinkes as Global CEO of Legacy Insurance,
as well as making a number of senior
hires in Program Management following
the appointment of Pat Rastiello as CEO
of Accredited America last year. We now
have in place strong management teams
for both Legacy Insurance and Program
Management, which enables them to
align across geographies and fully leverage
our pan-Atlantic underwriting and
origination capabilities.
From a corporate perspective we have also
made a number of key hires. This includes Rob
Thomas as Chief Data & Technology Officer
as well as further appointments to support
our Regulatory, Compliance and Corporate
Development functions.
We have also spent time updating our
workplace environment, offering our people
greater flexibility over how and where they
work. In addition, we have implemented
regular Town Halls and other communication
efforts across the Group including health and
wellness tips. Not only will this help us motivate
and support current employees, but it will also
enable us to attract new talent to R&Q.
Acting responsibly
Issues such as the ongoing pandemic, the
increasing urgency over climate action,
and the wellbeing of our employees are
influencing the way we act and behave as a
business. We have taken the first important
steps to support us in continuing to be
a successful and sustainable long-term
business. During 2021, we engaged with
our key stakeholders to understand what is
important to them from an environmental,
social and governance (ESG) perspective and
to gain insight into the associated potential
Strategic reportCorporate governanceFinancial statements 14
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Business model
We are moving from a complex, balance sheet intensive business to a more
simplified and predictable fee-based model with the launch of Gibson Re
and our Legacy Insurance Asset Management business.
Simplifying and enhancing our business model
Old complicated framework
New simplified framework
» Complex revenue model, driven by upfront Underwriting Income
associated with Legacy Insurance
» Simplified revenue model, driven by annual recurring Fee Income
on Program Management Gross Written Premium and Legacy
Insurance reserves
» Episodic earnings due to unknown timing of Legacy
» Predictable and high quality annual recurring Fee Income
» Balance sheet intensive due to required capital for Legacy
» Balance sheet lighter, with capital required to fund growth
Insurance transactions and need to raise equity to fund growth
provided by third parties
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.
Market leader in both
Program Management
and Legacy Insurance
businesses
Strong
financial track
record
1
Strong secular
growth
7
2
Conservative
investment
strategy
6
3
High barriers
to entry
5
4
Growing fee-based
Program Management
business
Fee-based, capital
lighter Legacy
Insurance businesses
Strategic reportCorporate governanceFinancial statements
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
15
We are becoming an annual recurring fee business
By executing on our five-year strategy of increasing Fee Income.
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. A majority of the
insurance risk in the Program Management business is assumed by
the reinsurer. As at year-end 2021, R&Q retained ~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
assumed by reinsurers. Given our established platform and licenses,
this business is highly scalable with significant potential for operating
leverage and requires less capital to grow since it bears little of the
insurance risk (after taking account of the reinsurance protection
from our highly rated or well collateralized reinsurance partners).
Our Program Management business is only four years old and in
2021 made its first profit. We anticipate our Program Management
business will generate gross written premium of USD1.75 billion by
2022, 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.
As we review on the past year, our program management in the
past 12 months has made ongoing progress supporting our five-year
strategy of generating fee income, notably:
» Increasing GWP in 2022 to USD1.75 billion, reaching this milestone
one year earlier than anticipated
» 69 Programs as of end of August
» Gross Written Premium of USD1 billion
» Annual recurring Fee Income of USD56 million
Legacy Insurance
MGA investments
» 40% ownership of Tradesman Program Managers
» Tradesman Net Income of USD29 million (H1 2021 annualized)
» Contributes Fee Income of USD11 million (H1 2021 annualized) to
Program Management
R&Q’s Legacy Insurance business provides creative financial
solutions to owners of expired insurance and reinsurance risks 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. In the past 12 months Legacy has made
important progress fees, notably:
» Launched Legacy Insurance Asset Management business
» Formed Gibson Re, raising ~USD300 million of long-dated capital;
supports ~USD2 billion of reserves
» Annual recurring Fee Income of 4.25% of ceded reserves for
at least six years, plus potential performance fees
» Launch additional vehicles after Gibson Re capital is fully utilized
Strategic reportCorporate governanceFinancial statements 16
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Financial review
We are pleased to report our financial results for the year ending
31 December 2021, which are now reported in US Dollars.
Group
Our KPIs measure the economics of the
business and adjust IFRS results to include
fully written Program Fee Income and
exclude non-cash intangibles created from
acquisitions in Legacy Insurance, net realized
and unrealized investment gains on fixed
income and lease-based assets, foreign
currency translation reserves, non-core
expenses and exceptional items. While
our underlying businesses performed well
in 2021, our Group operating results were
negatively impacted by reserve development
and a non-cash impairment of a structured
reinsurance contract that was previously
recognized as an asset.
Pre-Tax Operating Loss was $21.0
million primarily due to adverse reserve
development of $29 million. Tangible
Net Asset Value was $359.6 million, a 24%
decrease compared to year-end 2020,
primarily as a result of an ~$90 million non-
cash, pre-tax charge. On a fully diluted basis,
our Operating Loss Per Share was 7.5 cents
and our Tangible Net Asset Value Per Share
was 130.7 cents.
One of our objectives is to grow the relative
contribution of Fee Income to total Gross
Operating Income. Our Fee Income was
$56.1 million, a 133% increase compared to
2020 and represented 41% of Gross Operating
Income, an increase of 24 percentage points
compared to 2020.
Our IFRS Loss After Tax was $127.4 million
during the year and Net Asset Value was
$396.5 million, a 25% decrease compared
to year-end 2020 primarily due to adverse
reserve development and an~$90 million
non-cash, pre-tax charge. On a fully diluted
basis, our Loss Per Share was 46.9 cents and
our Net Asset Value Per Share was 144.0 cents.
Tom Solomon
Group Chief Financial Officer
Group results
$(21)m
2021
$20.6m
2020
$474.9m
2020
$359.6m
2021
Tangible Net Asset Value
41%
2021
18%
41%
14%
Pre-Tax Operating Profit (Loss)
17%
2020
Underwriting income
Fee income
Investment income
69%
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
17
One of our objectives is to grow the relative
contribution of Fee Income to total Gross
Operating Income.”
Program Management results
69
2021
48
2020
$1,032.8m
2021
$538.9m
2020
Number of Programs
Gross Written Premium
$20.6m
2021
35.7%
2021
$3.3m
2020
14.3%
2020
Pre-Tax Operating Profit
Pre-Tax Operating Profit Margin
Program Management
Our Program Management business
continued to grow rapidly in 2021. We
had 69 active programs, an increase of
21 programs compared to 2020 and Gross
Written Premium was $1.0 billion, a 92%
increase compared to 2020. Our results
are demonstrating the benefits of scale as
we earned a Pre-Tax Operating Profit of
$20.6 million, a 506% increase compared to
2020, representing a 35.7% margin on Gross
Operating Income, an increase of
21.4 percentage points compared to 2020.
The primary driver of Pre-Tax Operating Profit
is our Fee Income, which represents Program
Fee Income from written premium ceded
to reinsurers and our 40% minority stake
in Tradesman Program Managers, which
increased from 35% in Q2 2021. Fee Income
was $56.1 million, a 133% increase compared
to 2020, which included $11.1 million from
our minority stake in Tradesman Program
Managers. The Program Fee averaged
4.7%, an increase of 0.2 percentage points
compared to 2020, and we expect Fee
Income to generally grow in line with Gross
Written Premium. Underwriting Income
represents our ~7% retention of Program
Insurance risk. Our Underwriting Loss was
$1.1 million primarily due to the purchase of
reinsurance to minimize earnings volatility.
We expect Underwriting Income to be
roughly break-even as we purchase less
reinsurance consistent with our risk appetite,
as well as diversify our business away from
programs that consume such coverage.
Our Investment Income was $2.7 million,
a slight increase compared to 2020. Finally,
Fixed Operating Expenses increased 83%
compared to 2020 due to the expansion
of our staff and a higher allocation of
corporate expenses.
Strategic reportCorporate governanceFinancial statements 18
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Financial review
continued
Legacy Insurance results
Investment portfolio by credit rating
15
2021
19
2020
$735m
2021
$640m
2020
Number of Transactions
Gross Reserves Acquired
$417m
2021
$49m
2020
AAA/Cash: 34%
BBB: 24%
AA: 13%
A: 26%
BB or lower: 3%
Not rated: 1%
$0m
2020
$(5.7)m
2021
Reserves Under Management
Pre-Tax Operating Profit (Loss)
Investment portfolio by asset class
Legacy Insurance
Our Legacy Insurance business continued
to grow, concluding 15 transactions with
Gross Reserves Acquired of $735 million,
an increase of 15% compared to 2020. 2021
was the first year of utilizing our Gibson
Re sidecar, where we reinsured 80% of the
reserves from four transactions. At year-end
2021, we had Reserves Under Management
of $417 million, which will provide annual
recurring Fee Income of 4.25% or $17.7 million
beginning in 2022. Our Pre-Tax Operating
Loss was $5.7 million due the impact of
reinsuring upfront Underwriting Income
to Gibson Re as well as adverse reserve
development.
Currently, the primary driver of our Pre-Tax
Operating Result is our Underwriting Income,
which represents tangible day one gains
on retained transactions originated during
the year as well as claims management of
retained transactions closed in prior years.
Underwriting Income was $58.5 million, a 44%
decrease compared to 2020 due to ceding
Underwriting Income to Gibson Re and
$29 million of adverse reserve development,
primarily in our Lloyd’s business. In the future,
we expect Fee Income to be the primary
driver of Pre-Tax Operating Profit as we
grow our Reserves Under Management.
Our Investment Income was $19.3m, a
15% increase compared to 2020 driven by
acquired assets on transactions. Finally,
our Fixed Operating Expenses grew 17%
compared to 2020 primarily due to higher
corporate allocations.
Cash & MMF: 14%
ABS: 17%
Corporates: 43%
Equities: 3%
Gov’t & Munis: 23%
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
19
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.”
38%
2021
28%
2020
150%
2021
Preliminary
188%
2020
Adjusted Debt to Capital Ratio
Group Solvency Ratio
During 2021, financial markets witnessed an
increase in interest rates, with much of the
increase occurring in the 4th quarter of the
year. As a result, our investment portfolio
experienced unrealized net investment
losses of $18.4 million which are included in
our IFRS results.
Capital and liquidity
Our preliminary Group Solvency ratio was at
our target level of 150%, which represents a
decrease of 38 percentage points compared
to year-end 2020. Our adjusted debt to
capital ratio, which provides for partial equity
credit on our subordinated debt, was 37%, an
increase of 9 percentage points compared to
year end 2020 primarily due to the non-cash,
pre-tax charge of ~$90 million. We have
received pre-emptive waivers of certain
financial covenants from our bank lenders
until our Fundraise is complete in July 2022.
Corporate and other
Our Corporate and Other segment includes
unallocated operating expenses and
finance costs. Unallocated operating
expenses were $16.0 million, a 25% decrease
compared to 2020 primarily driven by higher
allocations to the two business segments.
Interest expense was $22.7 million, an 89%
increase compared to 2020 due to the
issuance of $125 million of subordinated
debt in H2 2020.
Cash and investments
Our Cash and Investments at year-end 2021,
excluding funds withheld, was $1.8 billion.
We produced a book yield, which excludes
net realized and unrealized gains on fixed
income assets, of 1.4%, a decrease of
20 bps compared to 2020 due to the higher
weightings toward non-US dollar assets
acquired in Legacy transactions.
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. 97% of our portfolio
was invested in cash, money market
funds, and fixed income investments. Of
our fixed income investments, 97% were
rated investment grade. After cash, which
comprised 14% of our portfolio, our largest
allocations were to corporate bonds (43%),
government and municipal securities (24%),
asset-backed securities (17%) and equities
(3%). We have extended duration in our
portfolio to both better match our expected
liability cashflows and to capture additional
investment return as the yield curve has
steepened; our interest rate duration was
3.2 years at year-end 2021 compared to
1.8 years at year-end 2020.
Strategic reportCorporate governanceFinancial statements 20
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Risk management
The Board and senior management continue to appreciate that the
Group’s ongoing success depends on its collective understanding
and management of known risks and exposures.
Overall responsibility for risk
management
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 the
past two years. The pandemic has tested
the rigor of the Group’s risk management
framework and control environment, and
both have continued to respond well.
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,
to 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 on risk to the Board and the Group
Risk and Compliance Committee.
Group risk committee
The Group Risk and Compliance Committee
(formerly Group Risk Committee) is a
formally-constituted Committee of the Board.
A report from the Group Risk and Compliance
Committee Chair on its changing roles and
responsibilities, operation, areas of focus
during 2021, discharging of responsibilities,
self-evaluation and plans for 2022 appears
on pages 45 to 47 of the 2021 Annual Report.
Risk appetite
The risk appetite framework sets the
boundaries within which risk-taking should
remain in order to meet the expectations of
the capital providers and other stakeholders.
For the Group, it is articulated via a series
of quantitative and qualitative statements
covering all defined categories of risk.
Risk appetite reflects the amount of risk
taking which is acceptable to the Group.
Accordingly, risk appetite refers to the
Group’s attitude to risk taking and whether it
is willing or able to tolerate a high or low level
of exposure to specific risks or risk categories.
Risk tolerance represents the Group’s
ability and willingness to bear risk. When
considering this, factors such as the
availability of capital, ability to raise capital,
strength of underlying operational processes
and procedures and strength of the
organization’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.
Principal risks and uncertainties
The principal risks and uncertainties can
be found within the Strategic Report on
pages 22 to 24 of the 2021 Annual Report.
For each principal risk, the title and a brief
description of the risks and key mitigating
actions are described.
This section also includes an overview of
how the management and oversight of the
principal risks and uncertainties continued
in 2021 through the lens of the pandemic.
Internal control system
The Group’s internal control system
comprises the following key elements:
» Documented governance arrangements
which 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 2021 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
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.
The scope of the Group Risk Committee
in late 2021, to encompass compliance,
has recognized heightened regulatory
scrutiny and the requirement for the
appropriate level of governance and
oversight in this regard.
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
21
Risk
Identification
Own Risk
and Solvency
Assessments
Risk
Owner
Risk
Governance
RISK
MANAGEMENT
PROCESS
Risk
Appetite
Risk
Reporting
Risk
Measurement
Risk
Monitoring
Risk
Mitigation
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 adapted and
will continue to adapt to address the Group’s
evolving strategic objectives. This is described
in more detail in the Strategic Report.
Board of Directors
Group Executive
Committee
Risk governance
Risk governance within the Group continues
to adopt a three lines of defence model at
both Group and business unit/entity level.
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
Own Risk and Solvency Assessments (ORSA)
and equivalents
The 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.
Strategic reportCorporate governanceFinancial statements 22
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
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.
Management of strategic change/
business development and growth
The Group fails to manage both the focus
on its core competencies and simultaneous
initiative as it develops and grows.
The Group fails to progress its pipeline of
legacy and program deals to the closure and
onboarding stage due to slowdown of these
processes, as well as the risk that the Group
fails to identify new business opportunities
from the inability to travel and meet new
potential counterparties.
Risk category: Strategic
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
Change in focus: No change
Reputation and stakeholder
management
Events within the Group may have an
adverse impact (notably, but not restricted
to, reputational) on the organization.
The Group fails to control and monitor
internal and external communication to
its key stakeholders or one of its business
units is associated with, for example,
ongoing lawsuits.
Risk category: Strategic/Operational
Mitigating actions
» Established process for monitoring and
managing external communications,
including disclosure committee for
announcements to the London Stock
Exchange (LSE)
» Regular liaison with the rating agencies
» Regular communication with regulators
» Regular communication with employees
including townhall meetings etc.
Change in focus: No change
Exposure management – reserving
The Group adopts a methodology that
produces incorrect reserving.
Risk category: Insurance
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
Change in focus: Increase
Exposure management – reinsurance
counterparty and catastrophe risk
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, reserves and
aggregate exposures to reinsurers following
the planned onboarding of new business.
Risk category: Credit/Insurance
Mitigating actions
» Integrated framework to assess potential
exposure (gross and net) 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
» Monitoring of gross underwriting
exposure of onboarded programs
utilizing catastrophe modelling capability
Change in focus: Increase
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
23
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 category: Credit
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.
Change in focus: No change
Capital and solvency management
The Group and its relevant subsidiary
companies are not Solvency II (or equivalent/
other) compliant in accordance with local
regulatory requirements and expectations.
Risk category: Strategic
Regulatory and Legal
Group
Mitigating actions
» 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.
Change in focus: Increase
Regulatory Risk – Legislative, economic,
and regulatory change (including Tax Risk)
The Group fails to implement or adapt
to emerging new regulatory or political
or legislative changes, and/or
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.
The Group is subject to litigation, mediation
and arbitration, and regulatory, governmental
and other sectorial inquiries in the normal
course of its business, although this is not
currently believed to have a material impact
on the Group’s financial position.
There is, however, an inherent risk that 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 recognized.
Risk category: Regulatory and legal
operational
Mitigating actions
» 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 analyze, interpret and oversee
the implementation of all emerging
regulatory changes including monitoring
changes to the legal landscape
» 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
» 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
» Tax operating guidelines and
monitoring thereto
Change in focus: Increase
Operational risk (including cyber risk)
The Group is reliant upon the knowledge and
expertise of its key Directors and staff and
fails to adequately plan for succession.
The Group suffers a major business
discontinuity event.
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.
The Group fails to adequately control its
third-party service providers.
The Group fails to manage its expense base
and/or the Group fails to deploy appropriate
financial and management reporting
mechanisms to inform key business decisions.
Risk category: Operational
Mitigating actions
» Development of succession plans and
management training across the Group
» Performance management process for
all staff
» 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 cybercrime
Strategic reportCorporate governanceFinancial statements 24
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Principal risks and uncertainties
continued
» Dedicated Chief Information
Security function
» Fit for purpose information security
governance structure and compliance,
where practical, with relevant International
Organization for Standardization or
International Electrotechnical Commission
27000 series of standards
» Cyber liability insurance
» Outsourcing agreements with all material
» 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 with the
outsourcers (internal and external)
Group’s bankers
Change in focus: Increase
Market and 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 category: Market
Mitigating actions
» Group Investment Committee and
subsidiary level Investment guidelines
and oversight by the relevant entity Board
» Utilization 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
Change in focus: Increase
» Outsourcing Policy
» 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
Change in focus: Increase
Liquidity risk
The Group fails to implement adequate
control over cash flow and liquidity leading
to financial shortfalls.
Risk category: Liquidity
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
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
25
Working responsibly
2021 has been a pivotal year for us in how we work with each other and how
we work with others. Our theme of ‘Evolving, Building and Growing’ describes
the journey we are on as we transform our business, and our theme also
reflects our efforts to foster a more ESG-driven mindset and culture.
We’ve made significant strides across
different aspects of the business – all of
which are centred around working and
growing responsibly in every market
we serve.
Our ESG approach
At R&Q, we understand that everything
we do has an impact on people and the
environment and so it is important to us
that we operate in an ethically, socially
and environmentally responsible way. In
recognition of this, we engaged a specialist
independent consultancy last year to
work with us to accelerate our progress
on environmental, social and governance
(ESG) aspects. In order to understand our
existing position, a comprehensive review
was undertaken which examined our
strengths and weaknesses and provided
the Board and management team with a
holistic understanding of our ESG positioning,
identifying potential areas for action
required in order to build the foundations
for a coherent ESG strategy for R&Q.
Below we describe some of the initial
steps we have taken as we embark on our
ESG journey.
Our governance of ESG
The Board and management team recognize
the importance of ESG to the success of our
business; it is a core driver within our business
strategy. Recognizing its importance, the
Board retains ultimate responsibility for
the Group’s ESG strategy, and the Executive
Chairman is directly accountable to the
Board for ESG and reports on progress in
implementing the strategy at each quarterly
Board meeting. The principal Committees
of the Board, namely the Audit Committee,
the Investment Committee, the Group
Risk and Compliance Committee and the
Remuneration and Nominations Committee,
are each responsible for incorporating ESG
into their work. Details of how they have done
this is outlined in the Chair’s Report
for each Committee on pages 32 to 49. The
CEO is supported by the Group Leadership
Team. R&Q is currently developing its
guiding principles and policies to support
its approach to ESG, and this will be a focus
for the Board and its Committees in the
coming year.
Prioritizing what is important to us
The material focus areas of the Group’s
ESG strategy were determined through
a consultation with a wide group of our
stakeholders. The materiality assessment,
using the Sustainability Accounting
Standards Board’s (SASB) materiality
mapping as a reference point, involved
qualitative and quantitative engagement
with the Board, the Group Leadership Team,
colleagues, asset managers, banks and
shareholders. The Group’s approach was
also benchmarked in a peer review of ESG
leaders in our industry.
The findings of the materiality assessment
were shared and discussed with our
colleagues across the Group and of the issues
that were identified, we have prioritized
ten material issues which are set out below,
all of which will be addressed by the Group
over time. We will regularly re-evaluate the
material issues to ensure that they reflect the
areas of highest priority to our stakeholders
and that they are aligned with the Principles
of Sustainable Insurance.
Embedding ESG
Although the direct environmental impacts
of our business may not be considered
significant, we will be looking to improve our
performance across all areas. We will also
be taking steps to ensure that environmental
considerations are taken into account in
terms of the products and services we offer.
As a business which is focused around the
assessment of risk, it will also be important
that we gain greater insight into the
associated risks and opportunities of climate
change on our business.
As we look to embed ESG across our
business, it is our intention to ensure that
the Group’s Purpose, Values and Culture
support both our business strategy and the
ESG priorities we have identified. During
2022, we will engage and listen to our people
throughout the organization to make sure
that there is a sense of ownership and
accountability as regards the Purpose and
Values we develop together for the business.
Environmental
Social
Governance
Tier 1
» Greenhouse Gas (GHG) emissions
reduction
» Net-zero strategy implications
» Employee engagement
» Purpose & Culture
» Employee wellbeing
» Business ethics & Governance
» Transparency & Stakeholder
engagement
Tier 2
» Physical Impacts of
climate change
» Diversity & Inclusion
» Systemic risk management
Strategic reportCorporate governanceFinancial statements 26
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Working responsibly
continued
Engaging our people
In considering our ESG objectives, ensuring
we provide a vibrant, collaborative,
collegiate environment where our people
can thrive and develop is critical. Employee
engagement, integrity and transparency
are key ESG topics for us and one of the
five pillars of our Five-Year Strategy is to
engage employees by fostering a spirit of
entrepreneurialism and accountability while
also increasing transparency.
We are committed to engaging our people
in such a way to build a culture that is strong
and diverse. We take care to be in line with
the guidelines prescribed by the Lloyd’s
Culture Dashboard which was launched
to help firms in the Lloyd’s market define
and chart progress against recommended
targets around inclusivity and other signifiers
of positive corporate culture.
Supporting our people through COVID-19
As in 2020, we continued to help our people
manage through COVID-19, providing
support for employees working from home
with IT and infrastructure assistance, while
also continuing to ascertain the needs of our
people managing home-front challenges
and seeking to maintain their overall
well-being. We also ensured that we followed
national guidelines in each of our markets
around vaccination, social distancing and
testing protocols. As a part of our efforts to
engage our people during COVID-19, we’ve
conducted two surveys asking for employee
preferences around ‘The Future of Work.’
We’ve introduced working approaches in our
different geographies that are focussed on
providing a more flexible work environment,
while ensuring we remain attuned to the
commercial practices in the respective
financial communities where we operate.
Driving One R&Q
We encouraged a ‘One R&Q Mindset’, via
regular engagement with our people
around financial performance; aligning
our extended leadership around the
development of our Purpose and Values;
and in seeking feedback from our people
about cultural endeavors we are initiating
across the organization in 2022 and beyond.
We increased our transparency around
business performance with the advent
of quarterly financial townhalls led by
our Senior Executive Team who provided
operational updates, progress against our
Five-Year Strategy and a view towards
our efforts to manage cash and expenses.
We empowered our next level of leadership
by fostering in them a more commercial
focus and reinforcing their role in driving
compliance and regulatory priorities.
We also initiated the development of our
Purpose and Values in 2021 by engaging
this population in helping define our value
proposition for stakeholders. Considering
the needs of our stakeholders is a critical
first step for us in defining our Purpose and
Values and this leadership group is one
whose views and perspectives we value.
Last year we also conducted an audit of
our staff to gauge their communications
preferences. Findings from this survey
confirmed that employee understanding of
strategy has increased steadily in the past
year and the current Executive Chairman’s
communications are well received. Based
on the feedback gathered through
this activity, in the coming year we are
planning to increase the communications
and engagement skills of our manager
population as well as providing more
ongoing updates around the progress
of the transformation that is underway to
improve the effectiveness and efficiency
of our financial processes.
Building community partnerships
And finally, we have been pleased in the
past year to continue to build important
ties to the communities where we operate
via our charitable giving initiatives. In
2021, our employees contributed funds to
support a food bank in Philadelphia and
our colleagues in the UK participated in
a 5km run to raise money for veterans during
the month of November to coincide with
UK Remembrance Day activities.
We have also entered into a partnership
with the Bermuda Institute of Ocean
Studies (BIOS) to support them as they
tackle important local and international
environmental issues. As the organization
Bermuda Institute of
Ocean Studies (BIOS)
Strategic reportCorporate governanceFinancial statements 2021 gender
statistics
1
14.29%
6
85.71%
Board Composition
11
61.11%
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
27
7
38.89%
131
54.13%
111
45.87%
Senior Management
(excluding Executive
Board Directors)
Global workforce
5km run in the UK to raise
money for veterans
is registered in Bermuda, we wanted to
initially direct our efforts at supporting
a country which is at the forefront of
experiencing and combatting the effects
of global climate change. As part of our
partnership with BIOS, we are co-funding an
education programme which is focused on
protecting Bermuda’s coastline and seabed.
Developing our purpose and values
In the coming year, we have several initiatives
planned to continue to support employee
engagement and our other ESG objectives.
In H1, we will be embarking on an
organization-wide effort to define our
Purpose and Values. This effort kicked off
in 2021 via activities with our leadership
team to canvas their views on the traits
that best define our value proposition to all
stakeholders as well as via the feedback
we received from leadership as part of the
materiality assessment conducted last year.
We will next be convening employee
workshops across all of our sites in H2 2022
to gather their views on the Purpose and
Values that should define how we make
decisions and how we serve our stakeholders.
From there we will then validate the Values
suggested by employees with our Senior
Leadership Team before rolling these out
across R&Q. As a part of this effort, we also
look forward to developing the corresponding
Behaviors that are needed to embed these
Values and help bring them to life within the
business to ensure the ongoing evolution of
our culture in a positive, credible way.
Environment
For the first time, we have collected data
and reported on some aspects of our
environmental emissions. As we continue to get
better visibility of our carbon footprint, we will
be in a better position to make improvements
to our reporting and to set targets.
We have held an initial workshop to discuss
the methodology and recommendations of
the Taskforce for Climate-related Financial
Disclosures (TCFD). During 2022, we will start
to gain a better understanding of the possible
risks and opportunities of climate change on
our business and, where appropriate, take the
necessary steps to refine our business model
and integrate potential risks into our risk
management process.
GHG Emissions
During 2021, R&Q operated out of managed
offices in Philadelphia, Atlanta, Orlando,
Bermuda, London, Norwich and Malta. The
New York office was re-opened in early 2022.
While we are sometimes limited in what we
can do to manage our office emissions, we
are taking steps to encourage responsible
behaviors and minimise our environmental
impacts, where possible.
R&Q emits only indirect GHG emissions, from
the generation of imported electricity by the
organization. These are Scope 2. Looking
ahead we will aim to include the appropriate
Scope 3 emissions.
This GHG evaluation aligns with the WRI
GHG protocol 2004-2021. The inventory was
defined using ISO14064-1 Greenhouse gases
International Standard (part 1).
Stakeholder engagement
During 2021, R&Q engaged regularly with
a broad range of stakeholders at different
levels throughout the organisation around
key milestones and on a more ad hoc basis.
It is our intention to adopt a more structured
approach to identifying and managing
our stakeholder relationships. This will be
a critical step in ensuring that stakeholder
interests are considered and embedded
within our decision-making.
In terms of our shareholders, we
communicated through a combination
of press announcements, investor
roadshows and analyst briefings. Employee
engagement continues on an ongoing basis
but also involved interactive sessions through
town hall meetings and other initiatives such
as employee coffee talks with the Chairman.
We submitted regular and ad hoc reports
to our 17 regulators, as well as meeting them
either individually or through the Supervisory
College, led by the Bermuda Monetary
Authority. We regularly communicate with
our insurance partners, both informally and
through more formal events such as larger
scale symposiums.
Scope
Activity type
CO2e (tonnes)
Scope 2
Purchased electricity – location based
219.26
Purchased heat and steam
0.00
Scope 2 – location based + heat and steam
219.26
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
29
Corporate
governance
30 Board of Directors
32 Corporate governance statement
38 Audit committee report
42 Remuneration & Nominations Committee report
45 Risk & Compliance Committee report
48
Investment Committee report
50 Statement of Directors’ responsibilities
30
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Board of Directors
William Spiegel (59)
Executive Chairman
D IC Rx
Alan Quilter (71)
Chief Executive Officer
Tom Solomon (52)
Chief Financial Officer
D Ri
Rx
Date appointed to Board
Chief Financial Officer from 2020
Skills and experience:
» A qualified actuary with
an MBA from Columbia
University
» Extensive actuarial,
investment banking and
insurance experience
Tom joined R&Q from Bank
of America, where he was
Managing Director, Head
of Americas insurance
investment banking. Prior to
this, Tom spent 13 years in the
investment banking division
and financial institutions group
at Citigroup, where he rose to
become Managing Director.
Tom started his career in 1992
as a Consultant Actuary with
PricewaterhouseCoopers.
William has been successful in
building and growing a wide
portfolio of insurance companies
including Caitlin Group, Clear
Blue Insurance Group, Essent
Group, Fidelis Insurance, Global
Atlantic Financial Group,
Lancashire Group, Montpelier Re,
Narraganset Bay Insurance and
Third Point Reinsurance.
Key external appointments:
Non-Executive Director of the
Bermuda companies Essent
Group, Fidelis Insurance Holdings
Ltd, Ivy Co-Invest Vehicle LLC
and Roosevelt Road Re, Ltd. He is
also a Non-Executive Director of
Tradesman Program Managers,
LLC in the US.
Date appointed to Board
Executive Chairman from
April 2021
Deputy Executive Chairman
from January 2020 to March 2021
Skills and experience:
» 30 years’ financial services
experience, principally
insurance and insurance
services
» Growing small to medium-
sized insurance companies
in the US, UK, and Bermuda
» Extensive public and private
company Board experience
William Spiegel joined R&Q from
the US private equity group,
Pine Brook Partners, which he
co-founded in 2006 and where
he was managing partner. Prior
to this William was with the
Cypress Group from its inception,
managing its financial services
and healthcare investing
activities. Before joining the
Cypress Group, William worked
in the Merchant Banking Group
at Lehman Brothers.
Date appointed to Board
Chief Executive Officer from
January 2020
Joint Chief Executive Officer from
June 2007 to January 2020
R&Q Group Director since 1992
Skills and experience:
» Chartered Accountant
» Member of the Chartered
Insurance Institute (CII)
and The Association of
Corporate Treasurers
» Co-founder of the Randall &
Quilter Group
» 50 years’ experience in the
London insurance market
Alan has been a driving force
in the development of R&Q,
including its 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 in 1992.
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
31
A
D
Audit Committee
IC
Investment Committee
Ri
Group Risk and Compliance Committee
Group Disclosure Committee
R
Remuneration & Nominations
Committee
Rx Regulatory Committee
Jo Fox (58)
Non-Executive Director
Audit Committee Chair
A R Ri
Philip Barnes (61)
Non-Executive Director
Alastair Campbell (77)
Non-Executive Director
Group Risk and Compliance
Committee Chair
Remuneration & Nominations
Committee Chair
Eamonn Flanagan (58)
Non-Executive Director
Investment Committee Chair
IC A R
Ri A IC R
R A
Date appointed to Board
Non-Executive Director from 2019
Date appointed to Board
Non-Executive Director from 2013
Date appointed to Board
Non-Executive Director from 2014
Date appointed to Board
Non-Executive Director from 2020
Skills and experience:
» Chartered Accountant
» Extensive Board level
experience with regulated
insurance businesses
» Corporate Governance,
General Insurance and
Solvency II
Jo is a seasoned Non-Executive
Director within the insurance
sector and has sat on the boards
of several global risk carriers
and intermediaries operating
within Lloyd’s and the London
market. Jo was Chair and
Non-Executive Director of R&Q
Managing Agency Limited until
it was acquired by Coverys in
2017. Prior to this, Jo held senior
finance positions with RoyScot
Trust, Liberty Risk Services
and International Insurance
Company of Hannover. She
chaired the International
Underwriting Association’s
Solvency Working Group from
2014 to 2016.
Key external appointments:
Non-Executive Director of
AmTrust Europe Limited and
Non-Executive Director of Argo
Managing Agency Limited.
Skills and experience:
» Chartered Accountant
» Board level experience with
several Bermuda insurance
and reinsurance companies
» Extensive finance and
insurance experience
Philip has served on the Board of
R&Q since 2013 and will be retiring
at the 2023 AGM. Philip is currently
President of the representative
office of the Jardine Matheson
Group of Companies in Bermuda
and was previously a Non-
Executive Director of Hiscox
Insurance Company (Bermuda)
Ltd. During his 25-year career
with Aon, Philip rose to become
Managing Director. He oversaw
the growth and development
of Aon’s Bermuda office into the
leading manager of captives
and reinsurance companies on
the island. Philip’s training is in
finance, and he has served on
various industry and Government
advisory committees over the
years during his 36-year career.
Key external appointments:
President of Jardine Matheson
International Services Limited.
Senior Independent Director
from 2019
Skills and experience:
» 50 years’ experience in the
insurance industry
» Chartered Accountant
» Wide-ranging Board
advisory experience,
investigation work and
acquisitions and disposals
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.
Following his retirement from
the firm in 2010, he has worked
as an Independent Consultant
and expert witness on
accounting projects.
Skills and experience:
» Qualified actuary
» FTSE Board experience
» Analysing the business
and financial models of
insurance companies
Eamonn is Non-Executive
Director of a number of listed
financial services companies.
He co-founded Shore Capital
Markets in 2003, an independent
securities business, where he
was a Director and top-rated
Analyst, receiving a number
of awards in the London
insurance market and from the
fund management industry.
Prior to this, Eamonn was a
Director and then Head of
European Insurance at a leading
investment bank. He is a Fellow
of the Institute of Actuaries and
the Institute of Directors.
Key external appointments:
Non-Executive Director of AJ Bell
PLC and Non-Executive Director
of Chesnara PLC.
Strategic reportCorporate governanceFinancial statements 32
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Corporate governance statement
I am pleased to present, on behalf of the Board, our corporate governance
statement for 2021.
Chairman’s introduction
Dear Shareholder
I am pleased to introduce our Corporate
Governance Statement for 2021 and proud
to be leading a Board that is committed to
satisfying the high standards of governance
expected by our stakeholders and that befits
our AIM listed status.
Board and executive leadership
On my appointment as Chair on 1 April
2021, I took steps to refresh the workings of
our Board and our approach to corporate
governance to ensure that they supported
our strategic focus on transforming the
business. As well as strengthening the
Executive Leadership Team, one of my key
priorities has been to find successors to
two of our long-standing Directors who
are coming to the end of their tenure. Their
appointments were put on hold during
merger talks and will be revisited as part
of our Board succession planning this year.
The biographies of our current Board of
Directors appear on pages 30 and 31
of this Report, as well as on our website:
www.rqih.com. You can also find the
biographies of our Executive Leadership and
Senior Management Teams on our website.
Workings of the Board
The Board relies on the work of our principal
Board Committees to support its decision-
making. During the year, we enhanced the
focus and accountability of these Board
Committees by refreshing their terms of
reference and re-allocating the work of the
Group Capital and Investment Committee
and the Reinsurance Asset Committee. The
Board agenda was adjusted to have greater
focus on strategy and be more forward
looking, and attendance at Board meetings
was streamlined. I am pleased to report
that we now have a high-level corporate
governance framework that better supports
the debate, challenge and decision-making
of the Board.
Compliance with the QCA Code
The Board continues to adhere to the Corporate Governance Code for Small and Mid-Size
Quoted Companies (QCA Code), as published by the Quoted Companies Alliance (QCA).
The Board believes that the QCA Code provides the Company with a practical and rigorous
corporate governance framework to support the business and its success in the long term.
This Statement sets out our approach to corporate governance and explains how the Board
and its Committees operate.
External Board evaluation
As a newly appointed Chair, I commissioned
an independent external evaluation of
the Board’s effectiveness and governance
believing that a fresh perspective would
help identify areas for improvement. The
findings reinforced significant improvements
to our Board dynamics and processes.
Those recommendations which have been
actioned are outlined in this Annual Report
and we plan to implement the others
throughout the coming year.
Our culture
This year we started work on defining a
clear and succinct purpose for the business
which will be the focus of everything we
do and a core set of values to guide the
way we behave. Together, these will be
the foundations of our desired culture and
represent our current and future aspirations
for the business. You can read more
about this and our work on stakeholder
engagement and ESG in the Working
Responsibly section on pages 25 to 27.
2022 Annual general meeting
We look forward to welcoming you to our
Annual General Meeting on 14 July 2022.
William Spiegel
Executive Group Chairman
12 June 2022
How we deliver growth
1. Strategy and business model
The Group is a leading non-life global
specialty insurance company focusing on
the Program Management and Legacy
Insurance businesses. We are 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 strategy is to deliver long-term
value for our shareholders by transitioning
from a capital-based business model
to a fee-based one and its key pillars
Strategic reportCorporate governanceFinancial statements are Increasing Fee Income, Automating
Processes, Harnessing Data, Engaging
Employees and Acting Responsibly. Details of
how we propose to deliver upon our strategy,
the key challenges we face in its execution
and our new business model can be found
in our Strategic Report.
2.
Understanding and meeting
shareholder expectations
The Board recognizes its responsibility to
deliver long-term value to shareholders
through the execution of the Company’s
strategy and is accountable to shareholders
for the Company’s performance over the
long-term. Our strategic performance
is measured by our Key Performance
Indicators, which are detailed on page 12
of this Report.
The Board is committed to providing
shareholders with clear and transparent
information on the Group’s strategy and
financial performance. Any published
announcements, financial reports and
key documents are publicly available
and are regularly updated on the Group’s
website. Our Directors meet with selected
key shareholders and research analysts
following the announcement of results and
obtain appropriate feedback.
The Executive Chairman, the Chief Executive
Officer and the Chief Financial Officer have
a regular dialogue with the Company’s joint
brokers, Barclays and Numis Securities, also
the Group’s NOMAD, on the Group’s activities,
strategies and performance. Other actions
to engage with shareholders during the
year include investor roadshows and virtual
meetings on financial social media networks.
These meetings and discussions give the
Board an opportunity to gauge shareholder
feedback and expectations.
Enquiries from individual shareholders are
welcomed. The Board makes itself available
to all shareholders at the Company’s Annual
General Meeting each year. The results of the
Meeting are published via a regulatory news
service and on the Company’s website.
3. Our wider stakeholder responsibilities
R&Q recognizes that delivering long-
term value to its shareholders relies on
maintaining good relations with its wider
stakeholders, both internal and external.
Each Board decision has a different impact
and relevance to each key stakeholder of the
business, so having a good understanding
of their priorities is important. We do this by
building trust and long-term relations with
our employees, debt investors, bankers,
regulators and insurance partners.
The Board engages directly with some
stakeholders, principally our shareholders
and employees. Engagement with
stakeholders also takes place at different
levels within the business and material
issues are reported back to the Board or
Board Committees, either informally by
executive management or by regular written
reports. The Board currently receives regular
stakeholder reports on investor relations
from the Chair, our People Strategy from
the Chief Human Resources Officer and the
Group’s regulatory supervision from the
Group Head of Governance.
Certain decisions require the Board to
balance the different and sometimes
competing interest of its key stakeholders in
order to promote the long-term success of
the Company. Examples include adopting
a new Group Remuneration Policy, our
efficiency and transformation programme
Project Gateway and our Dividend Policy.
R&Q is committed to operating responsibly
and our stakeholders have told us that they
expect this of us. Having listened, the Board
adopted Acting Responsibly as one of the
Company’s strategic pillars and has initiated
a new Group-wide ESG strategy which seeks
to integrate ESG into everything we do. Our
ESG journey is described in the Working
responsibly section on pages 25 to 27.
4. Our approach to effective risk
management
The Board is responsible for determining the
nature and extent of both the upside and
downside risks that it is willing to take within
the Group’s defined risk appetite in order to
deliver the Group’s strategy. The Group’s core
risk objectives seek to:
» protect the Group’s 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
The Board, assisted by the Group Risk and
Compliance Committee, monitors and
reviews the Group’s risk management and
internal controls framework. It is further
assisted by the Audit Committee which
reviews the Group’s systems of internal
financial controls on an annual basis. The
Risk Management section on page 20 of
this Annual Report, together with the Group
Risk and Compliance Committee Report on
pages 45 to 47 outline the Board’s approach
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
33
to identifying and assessing
risks and embedding risk management
across the Group.
The principal risks and uncertainties
affecting the Group and mitigating actions
are set out on pages 22 to 24. These and
other risk related matters are continually
monitored by the Group’s risk function which
reports regularly to the Board via the Group
Risk and Compliance Committee.
How we maintain a dynamic
management framework
5. Maintaining a well-functioning
balanced Board team led by the
Executive Group Chair
Our Board of Directors
On 1 April 2021, William Spiegel, our Deputy
Executive Chair, succeeded Ken Randall
as Executive Chair of the Company. The
Board appreciates the contribution that Ken
Randall made to the stewardship of R&Q, as
director and co-founder, during his time with
the Company. With the appointment of a
new Executive Chair, our Board is now ready
to lead R&Q through the next phase
of its growth.
The Board’s intention is to appoint two new
Independent Non-Executive Directors to
succeed Philip Barnes and Alastair Campbell
who approach the ninth anniversary of their
appointments in 2022 and 2023 respectively.
Board succession planning was put on hold
during merger talks and will be revisited in
good order, as appropriate. The Board has
expressed a desire to retain Philip Barnes’
experience of the Group and he has agreed
to remain involved with the Group following
his retirement.
Composition of the Board
The Board is led by William Spiegel, the
Executive Chair, whose role is to ensure that
the Board is effective in its task of setting
and implementing the Group’s direction and
strategy. He promotes a culture of openness
and debate facilitating constructive Board
relations and the effective contribution of all
Directors. As a full-time Executive Director,
he is not considered to be independent.
The Non-Executive Directors comprise
Alastair Campbell, Philip Barnes, Eamonn
Flanagan and Jo Fox, who are all judged
to be fully independent. They provide an
external perspective, independent oversight
and constructive challenge to the Executive
Directors and leadership by using their broad
range of experience and expertise. All the
Non-Executive Directors are able to commit
the time necessary to fulfil their respective
roles, including making themselves available
at short notice when required.
Strategic reportCorporate governanceFinancial statements 34
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Corporate governance statement
continued
Alastair Campbell is the Senior Independent
Director. His role is to provide a sounding
board for the Chairman, to act as an
intermediary for other Directors where
necessary and to provide an additional
channel for shareholder communication.
The Executive Directors on the Board are
Alan Quilter, Chief Executive Officer and
Tom Solomon, Chief Financial Officer. They
work full-time for the Company and are
responsible for the day-to-day running of the
Group’s businesses and the development
and implementation of strategy and
decisions made by the Board, and
operational management of the Group.
Board balance and independence
The Board considers that the current
balance of Executive and Non-Executive
Directors is appropriate and predominantly
independent, ensuring that no one individual
or group of individuals dominate the Board’s
decision-making, and have the right mix
of skills and experience to ensure effective
decision-making.
To further safeguard its independent
judgement and to prevent the undue
influence of third parties on the Board’s
decision making, the Board operates a
conflicts of interests policy, which restricts
a Director from voting on any matter in
which they might have a personal interest
unless the Board decides otherwise in
accordance with its bye-laws.
6. Board skills and experience
Directors who have been appointed to the
Board have been chosen because of the
skills and experience they offer. The current
Directors bring a broad range of commercial
and professional capabilities to the Board
including financial, insurance, actuarial and
governance skills. Their biographies are
detailed on pages 30 and 31.
The Board considers its composition
regularly as part of the succession planning
process and in response to the changing
needs of the Group’s business. In 2021, the
Board conducted an externally facilitated
skills and experience assessment as part
of its recruitment process for new Non-
Executive Directors. The Board concluded
that while it had the right mix of skills and
experience to deliver the Group’s strategic
ambitions, it could benefit from greater
international experience. This was factored
into the appointment process, which
considered a wide diverse candidate pool
in line with the Board’s Diversity Policy.
To maintain their skills and knowledge,
the Board is updated on legal, regulatory
and governance issues by the Company
Secretary, internal and external lawyers, the
Company’s NOMAD and the Group’s external
auditors, and receives independent advice
from other external professionals as required.
In addition, there are regular deep dives from
across the business at Board and Committee
level to ensure the Directors’ understanding
of the Group’s business remains current.
7. Board evaluation and effectiveness
The Board engaged BP&E Global Ltd to
undertake an external Board Effectiveness
Review of Randall & Quilter Investment
Holdings Ltd (RQIH), the ultimate holding
company of the Group. This included a review
of Board and Committee papers, individual
questionnaires, interviews and observing
a Board meeting. The draft findings were
discussed with Eamonn Flanagan, as
sponsor, and then presented to the Board
in November 2021.
While nothing critical was identified, helpful
points for further improvement were
recommended. These included focusing
on Board succession plans, reviewing
the structure of Board Committees,
improving Board oversight and delegation
to management and developing
R&Q’s purpose, values and mission. The
recommendations that the Board has
to-date acted upon are described
throughout this Annual Report.
The Board evaluation findings reinforced
the sense of substantial change and
improvement of the Board’s effectiveness
and governance of R&Q under the leadership
of our new Executive Chair.
8. Our purpose, values and culture
As the business is growing and the Group is
becoming a larger organization, the Board
believes that it is time to assure the long-term
success of R&Q by refreshing its purpose
and values, while retaining the positive
entrepreneurial spirit of its early years.
During the year, work began on clarifying
R&Q’s purpose and values, which we describe
on page 27, and we expect to do more over
the coming year. The Board believes that
R&Q needs a clear purpose that sets out
its contribution to society and aligns with
the Group’s strategy. Further development
of our corporate culture across the Group
and a clear definition of our core values is
essential and will be supported by our new
People Strategy. A key role of the Board will
be to ensure that the Group’s purpose, values,
culture and strategy are coherent.
Fitness, propriety and entrepreneurialism
are key aspects of our prevailing corporate
culture and are incorporated into our
Group-wide policies including dignity at
work, health and well-being, whistleblowing
and anti-bribery and corruption. The Board
monitors corporate culture through its
day-to-day interactions with employees,
stakeholder feedback, internal audit
reports and notifications of breaches
to Group policies.
9. The workings of our Board
Our Governance Framework
The Board has a clear corporate governance
framework, the structure of which is
described opposite.
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Annual Report 2021
35
The Board
The Board is primarily responsible for setting the Group’s strategy for delivering long-term value to our
shareholders and other stakeholders, providing effective challenge to management concerning the execution
of the strategy and ensuring the Group maintains an effective risk management and internal control system.
Our strategy
Our approach to risk
management and
key risks
Working responsibly
Key activities of
the Board
» Report Page 12
» Report Page 20
» Report Page 25
» Report Page 37
The Schedule of Matters Reserved for the Board is available on the Group’s website: www.rqih.com, together
with the biographies of our Directors, which also appear on page 30 and 31 of this Report.
The Board delegates certain matters to its four principal Committees
Audit Committee
Remuneration and
Nominations Committee
Group Risk and
Compliance Committee
Investment Committee
Oversees the Group’s
financial reporting,
maintains an appropriate
relationship with the
external Auditor and
monitors internal controls.
Establishes R&Q’s
Remuneration Policy and
undertakes succession
planning for the Board and
senior executives.
Oversees risk management,
internal controls and
regulatory compliance
across the Group.
Oversees the investment
strategy, management
and performance of the
Group’s investment assets.
» Report Page 38
» Report Page 42
» Report Page 45
» Report Page 48
Other supporting Committees include the Disclosure Committee and the Regulatory Committee. Their terms of
reference are available on the Group’s website: www.rqih.com
Executive Chairman
Executive Leadership and Senior Management Teams
The Executive Leadership and Senior Management Teams meet on a monthly basis and are responsible for the
day-to-day running of the business. Their biographies are available on the Group’s website: www.rqih.com
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Strategic reportCorporate governanceFinancial statements
36
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Corporate governance statement
continued
Responsibilities of the Board
The Board maintains a formal schedule of
matters which are reserved solely for its
approval and is permitted under its bye-
laws to delegate other responsibilities as
appropriate to its Board Committees and
executive management. Matters Reserved
for the Board include decisions relating to:
» Group strategy
» Capital structure
» Financial reporting and controls
» Significant contracts
» External and internal communications
» Board and executive leadership and
succession planning
» Group corporate governance, policies
and procedures
» Risk management and systems of
internal controls across the Group.
The complete Schedule of Matters Reserved
for the Board is available on the Group’s
website: www.rqih.com
Board Committees
The Board is supported by the work of its
four principal committees, namely the
Audit Committee, the Remuneration &
Nominations Committee, the Group Risk
and Compliance Committee, and the
Investment Committee. Reports from the
Chairs of these Committees outlining their
respective roles and work can be found on
pages 38 to 49. Other supporting Committees
include the Disclosure Committee and the
Regulatory Committee.
The Disclosure Committee comprises the
Executive Chairman, the Chief Executive
Officer and the Group General Counsel.
It meets annually to review the operation,
adequacy and effectiveness of the Group’s
disclosure procedures and as necessary for
the purpose of assisting the Board in fulfilling
its responsibilities under the Market Abuse
Regulation, AIM Rules and the Disclosure
and Transparency Rules.
The Regulatory Committee is a standing
committee comprising the Executive
Directors of the Company and the Group
Head of Governance. The Committee
considers and approves matters relating to
the submission of regulatory and statutory
returns made in the name of Company or
the R&Q Group as a whole. The Committee
meets as required during the year.
Our Changing Governance Framework
During 2021, the Board refreshed its
governance framework by restructuring two
of its Committees to make the framework
more flexible and efficient in meeting the
Group’s business needs and delivering its
strategic ambitions.
Firstly, the Group Capital and Investment
Committee was succeeded by a dedicated
Investment Committee on 1 May 2021
with specific responsibility for delivering
the Group’s investment strategy. Its other
responsibilities were assumed by the
Board. A non-decision making Transaction
Advisory Group was formed at the same
time to provide advice across Group
functions on program management and
legacy transactions.
Secondly, the Group’s Reinsurance Asset
Committee was disbanded in December
2021 and its responsibilities were assumed by
the Group Risk & Compliance Committee and
Group Audit Committee as appropriate.
How the Board operates
The Board comprises the Executive Chair, two
Executive Directors and four Independent
Non-Executive Directors. The Board met
at five scheduled meetings to consider its
main business and on 15 further occasions
to consider other specific matters.
The Board has a yearly forward planner
of meeting dates and agendas, which
allow sufficient time for both routine and
non-routine matters to be considered
throughout the year. The Chair of the Board
sets the agendas for upcoming meetings
with the Company Secretary. Board and
Committee papers and reports are required
to be clear and concise, with any feedback
on their content provided to authors by the
Company Secretary. They are circulated via
a secure Board portal, sufficiently in advance
of meetings to ensure that Directors have
sufficient time to review them. The authors
of Board papers and reports are sometimes
invited to join Board discussions, to enable
Directors to gain a deeper understanding
of the information provided and to hear
from those directly responsible. Minutes
and matters arising from meetings are
produced by the Company Secretary after
the meetings.
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Annual Report 2021
37
Membership and meetings attendance
Chair
William Spiegel
Board members
Philip Barnes
Alastair Campbell
Jo Fox
Eamonn Flanagan
Alan Quilter
Ken Randall*
Tom Solomon
20/20
20/20
20/20
19/20
20/20
19/20
4/4
19/20
Attending by invitation
Paper authors and presenters as necessary
*Ken Randall stepped down from the Board on
31 March 2021
10. Communicating with our shareholders
and stakeholders
The Board is committed to maintaining
effective communication and having
constructive dialogue with all its stakeholders.
The Board’s direct engagement with the
Company’s stakeholders is principally with
its shareholders and employees. Where
Directors do not have direct contact with
stakeholders, they rely on the executive
leadership team and dedicated functions
such as compliance and procurement
to engage with stakeholders on behalf
of the Company and this can take place
at both a Group and operational level.
Each stakeholder group has a tailored
engagement approach and this can
range from informal telephone calls, email
correspondence, regular meetings, reports
and surveys. The aim of all our stakeholder
engagement is to build trust and to
understand the views, interests and priorities
of all stakeholders, which in turn allows us to
take stakeholders’ interests into account in
key decisions.
Further details of how the Company engages
with its key stakeholders can be found on
pages 25 and 27. Details of how the Board
understands and meets the needs of its
shareholders are outlined in Paragraph two
of this Statement.
Main activities during 2021
» Review of Group’s strategic projects
» Re-structuring of Board Committees
» Developing the Group’s ESG initiative
» Reviewing the Quarterly Budget
Reforecasts
» Approval of 2020 financial results,
2021 interim financial results and
dividend payments
» Reviewing the Group Solvency Report
» Reviewing the Group’s BMA Supervisory
College Response
» Approving a listing on OTCQX in the USA
» Approving the launch of Gibson Re
» Initiating an external Board evaluation
and effectiveness review
» Amendment of the Company’s Bye-laws
» Approval of Group Tax Strategy and Tax
Operational Guidelines.
Areas of focus for 2022
» Further implementation of Project
Gateway, the Group’s transformation
and efficiency programme
» Embedding ESG across the Group
and business
» Rolling out the Group People Strategy
» Renewing the Company’s purpose,
values and culture
» Approval of 2021 financial results,
202 interim financial results and any
dividend payments
» Implementation of an appropriate
accounting framework
» Succession planning and remuneration
» Monitoring climate and cyber risk on
the business.
Strategic reportCorporate governanceFinancial statements 38
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Audit Committee report
Jo Fox
Audit Committee Chair
Role and responsibilities
The role of the Audit Committee is to assist
the Board in its oversight responsibilities
by reviewing and monitoring:
» the integrity of the Group’s published
Financial Statements
» the performance of the external
auditors and recommending their
appointment to the Board
» the work of the Internal Audit function
» the Group’s systems of internal
financial controls
» the Group’s approach to
whistleblowing, fraud prevention and
anti-bribery and corruption.
Full terms of reference are available on the
Group’s website: www.rqih.com
Dear Shareholder
I am pleased to present my first Report as
Chair of the Audit Committee for 2021 which
describes our activities and areas of focus
during the year.
Throughout the year, the Audit Committee
continued to support the Board in its
oversight of the Group’s financial reporting,
audits, systems of internal financial controls
and related activities.
How we operate
The Audit Committee comprises four
independent Non-Executive Directors,
three of whom are qualified Chartered
Accountants and one of whom is a qualified
actuary. All Committee members have
relevant financial expertise and extensive
insurance sector experience.
The Committee met at six scheduled
meetings during 2021. The Group’s Chief
Risk Officer, Head of Governance, Head
of Internal Audit, Chief Actuary and Head
of Tax attend from time to time to present
their respective reports. Finally, our external
Auditors, PKF Littlejohn LLP (PKF) also
attended relevant meetings during the year.
The Committee had a number of standing
agenda items it considered at each
meeting, including quarterly reviews and
updates on Accounting, Tax, Actuarial,
Subsidiary Audit Committee business, Errors
and Omissions Insurance and Internal Audit.
We also reviewed both the Annual and
Interim Financial Statements during the
financial year.
Areas of focus in 2021
Financial reporting
One of the Committee’s principal
responsibilities is to review and report to the
Board on the integrity of the Group’s financial
reporting. During the year, we reviewed:
» the 2021 interim and 2020 annual
Financial Statements and determined
that they presented a true and fair view of
the Group’s financial position
» the appropriateness of accounting
policies and practices
» all material financial judgements and
estimates made by management
» the Group’s going concern basis
of reporting.
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
39
Membership and meetings attendance
Chair
Jo Fox
Committee members
Philip Barnes
Alastair Campbell
Eamonn Flanagan
6/6
6/6
6/6
6/6
Attending by invitation
Other members of the Board
Head of Group Finance
Chief Risk Officer
Group Head of Governance
Group Head of Internal Audit
Group Head of Tax
Group Chief Actuary
Significant accounting judgements
During 2021, the Audit Committee reviewed
the following key areas of judgement and
estimates applied by management in
preparing the Group’s Financial Statements:
» Impairments of goodwill and intangibles
» Carrying values of reinsurance recoveries,
including structured reinsurance
contracts
» Carrying values of claim liabilities,
including Group entities carrying
significant reserves
» Fair values of assets and liabilities
acquired through reinsurance or
acquisitions and any negative
goodwill arising
» Fair values arising from legacy
insurance contracts
» Provisioning and additional disclosures
in respect of legal and contractual
exposures to warranties, indemnities
and guarantees
» Other judgement areas including the
amount of deferred tax asset and
the adequacy of anticipated future
investment income to offset future
run off costs.
Following discussions with our external
auditor, PKF Littlejohn (PKF), we were
pleased to advise the Board that the
above judgements and estimates made
by management in relation to the 2020
Annual Report and Financial Statements
were appropriate.
Accounting frameworks
The Audit Committee monitored
management’s assessment of the impact of
adopting International Financial Reporting
Standard 17 (IFRS 17) in financial year 2023
and alternatively under U.S. Generally
Accepted Accounting Principles (US GAAP).
While having no effect on the fundamental
economics of the Group’s insurance
contracts, both IFRS 17 and US GAAP would
result in major changes to accounting for
insurance transactions and the Group’s
annual reported results. It is anticipated that
the decision on which accounting standard
to adopt in financial year 2023 will be made
commensurate with the release of the 2022
interim Financial Statements.
Internal controls
While internal controls are reviewed by the
Group’s Risk and Compliance Committee,
the Audit Committee has a key role in the
oversight of the Group’s systems of internal
financial controls. In 2021, we received
a report from the Chief Risk Officer in
relation to internal financial controls, which
confirmed that there were no issues or areas
with significant shortcomings which would
impact the Financial Statements.
During the year, the Board began a Group-
wide efficiency transformation programme
across its business operations and Finance
functions. The Audit Committee considered
the efficiency programme’s impact on
the Group’s internal financial controls and
processes and will continue to review and
monitor its implementation.
Climate related disclosures
Our Board is committed to understanding
the climate-related risks associated with
our business. In support of this, the Audit
Committee considered the Taskforce on
Climate-related Financial Disclosures
Framework (TCFD) during 2021. We reviewed
the TCFD recommendations for disclosures
on climate risk in annual reports and
agreed to monitor the evolving regulatory
guidance and industry best practices on
TCFD disclosures as well as other climate and
sustainability disclosure requirements with a
view to enhancing our level of ESG reporting.
Group tax strategy
The Audit Committee has an oversight role
in relation to tax matters across the Group.
During the year, we received regular reports
from the Head of Group Tax on developments
in tax law and practice across the Group. The
Committee paid particular attention to the
reporting arrangements in place across the
different tax jurisdictions in which the Group
operates and concluded that there were
proper arrangements in place to ensure that
its tax obligations were met.
Whistleblowing, fraud prevention,
anti-bribery and corruption policies
The Committee has oversight responsibilities
for the Group’s non-financial controls relating
to whistleblowing, fraud prevention and
anti-bribery and corruption. During the year,
no incidents were reported to the Committee,
which concluded that the Group’s policies,
procedures and controls in this regard
were adequate.
Strategic reportCorporate governanceFinancial statements 40
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Audit Committee report
continued
External auditor tenure
PKF Littlejohn has audited the Group for over
20 years and the lead audit partner, Carmine
Papa, has been in post as the Group’s lead
partner since 2020. The Audit Committee
expected to put the external audit contract
out to tender in 2020, however, this was
postponed because of difficulties presented
by COVID-19. The Committee believes that
carrying out the tender process at the
same time as implementing the efficiency
programme would not be practical and
expects to tender the external audit during
2023 for the 2024 financial year.
Our Group has several overseas subsidiary
companies which are not audited by PKF.
The Committee reviewed the appointments
of these auditors during the year and
concluded that they should continue in their
local audit capacity.
Oversight of the external audit
An important part of the Committee’s work
is to review and monitor the effectiveness of
the external audit process. On completion
of the 2020 audit, Committee members
and key members of the management
team completed a feedback questionnaire
seeking their views on PKF’s performance.
PKF also provided the Committee with
assurance on the operation of their own
audit quality process. After considering all
aspects of the audit quality review process,
the Committee concluded that it was
satisfied that the external audit process
carried out by PKF had been delivered
effectively. Minor actions were agreed
to improve the audit process for the 2021
financial year reporting.
Following this evaluation, the Audit
Committee recommended to the Board
a proposal for the reappointment of PKF
as external auditor at the next Annual
General Meeting.
Non-audit service fees
The Group has guidelines for the provision of
non-audit services by our external auditor,
which are overseen by the Committee. All
non-audit services provided by the external
auditor are confined to assurance work and
require pre-approval by the Committee,
subject to the fee for any single engagement
being deemed by the Committee to be
small relative to the overall audit fees. This
approach allowed the Group to benefit from
the cumulative knowledge and experience
of its auditor while ensuring that the external
auditor maintains the same degree of
objectivity and independence. Non-audit
services fees for 2021 amounted to $24k
and related to the review of the Employers’
Liability Register for certain of the Group’s
insurance company subsidiaries and the
provision of information on certain historic
insurance balances under dispute. This
compared to total audit and audit-related
assurance services fees of $941k for 2021,
details of which appear in note 9 to the
Financial Statements.
Internal audit
The Company’s internal audit work is
undertaken by an in-house team led by the
Head of Internal Audit and supported by
co-source arrangements where specialist
skills and experience are required. The Head
of Internal Audit reports to, and regularly
meets with, the Chair of the Audit Committee.
The internal audit function is a key element
of the Group’s corporate governance
framework and operates in accordance
with a formal, written Charter. It provides
independent and objective assurance,
advice and insight on governance, risk
management and internal controls across
the Group. At each quarterly meeting in 2021,
Internal Audit provided an overview of the
work it had undertaken, actions arising from
audits conducted, the tracking of remedial
actions and progress against the annual
Internal Audit plan.
During the year, the Committee approved
the Internal Audit three-year rolling plan for
2022-2024 together with the 2022 budget
for the function. The Head of Internal Audit
liaised with senior management, the
subsidiary Audit Committee Chairs, and
the external auditors to assess the key risk
areas of the business and to determine
prioritization of the three-year plan.
In January 2021, the Audit Committee
commissioned an external review of the
Internal Audit Function by BP&E Global. The
assessment included a review of the Internal
Audit function and its documentation, as
well as a survey of its stakeholders across
the Group. The review concluded that
the Internal Audit function complied with
regulatory requirements and was viewed
as effective across the Group. A number of
enhancements to better align Internal Audit
with the strategic and operational risks of
the business going forward were adopted
and their implementation was monitored by
the Committee throughout the year.
Committee effectiveness review
During 2021, the Audit Committee benefited
from BP&E Global’s independent, external
evaluation of the Board and its Committees,
which concluded that the Audit Committee
was operating effectively. The Committee will
conduct its own effectiveness review in 2022.
Jo Fox
Chair of the Audit Committee
12 June 2022
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Annual Report 2021
41
Main activities during 2021
» Reviewed and approved the 2020 Annual
Report and Accounts
» Reviewed and approved the 2021 Interim
Financial Statements
» Reviewed the appropriateness of
significant accounting judgements made
by management
» Monitored implementation of IFRS17
and reviewed alternative accounting
frameworks
» Reviewed TCFD climate risk disclosure
requirements for annual reports
» Oversaw the Group’s internal financial
controls and Internal Audit work
» Oversaw the Group’s whistleblowing,
fraud prevention, anti-bribery and
corruption policies
» Maintained an appropriate relationship
with the Company’s external auditor.
2022 focus areas
» Monitoring the integrity of the Group’s
published Financial Statements, the
financial reporting systems and internal
financial controls
» Monitoring implementation of the
financial reporting and internal financial
controls transformation projects, ensuring
appropriate engagement of the external
and internal auditors
» Monitoring implementation of an
appropriate accounting framework
» Monitoring emerging climate related
disclosure requirements
» Reviewing the tenure and the timing of
the rotation of the external auditor
» Committee Effectiveness Review.
Strategic reportCorporate governanceFinancial statements 42
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Remuneration and Nominations
Committee report
Alastair Campbell
Remuneration and Nominations
Committee Chair
Role and responsibilities
The role of the Committee is to assist the
Board in its oversight responsibilities by:
» reviewing and monitoring the structure,
size and composition of the Board and
its committees
» undertaking succession planning for
the Board and senior executives
» setting the remuneration policy
for Executive Directors and senior
executives
» approving the reward outcomes for
individual executive directors and
senior executives.
Full terms of reference are available on the
Group’s website: www.rqih.com.
Dear Shareholder,
As Chair of the Remuneration and
Nominations Committee, I am pleased
to present its report for the year ended
31 December 2021.
Throughout the year, the Committee
continued to support the Board in ensuring
that R&Q’s leadership was suitably qualified,
experienced, and incentivized to deliver
against its strategy, now and in the future.
How we operate
The Committee is comprised solely of
independent Non-Executive Directors and
is supported by the Chief Human Resources
Officer. In addition, William Spiegel, the
Executive Chairman, and Alan Quilter, the
Group Chief Executive Officer, attended most
meetings by invitation, as did Ken Randall,
the former Executive Chairman, before his
retirement on 31 March 2021.
The Committee met at five scheduled
meetings during 2021 to consider the
main business outlined in its terms of
reference, and on two further occasions
to consider specific additional matters. It
reviews the composition of the Board and
its Committees each year and monitors
succession planning at both Board and
senior management level. The Committee
also approves the salaries and bonuses of
Directors and senior management annually
and sets the remuneration framework for
the year to come.
Areas of focus in 2021
Board composition
At the start of the year, the Committee
conducted an in-depth review of the size,
structure, and composition of the Board.
It concluded that a Board comprising of
at least an equal ratio of Independent
Non-Executive Directors to Executive
Directors and a maximum nine-year
tenure for Non-Executive Directors was
preferable. While the Committee did not
identify any material skills gaps on the
Board, it recognized the need for diversity
in the appointment process of new Board
members. An overview of the Board’s
skills, experience and knowledge is shown
in the biographies on pages 30 to 31. The
Committee later recommended to the
Board that all Directors of the Company be
re-appointed at the 2021 Annual General
Meeting of the Company.
Executive Chairman
Ken Randall, our longstanding Executive
Chairman stepped down from the
Committee in March of last year. William
Spiegel succeeded Ken Randall as Executive
Chairman on 1 April 2021 and the Committee
ensured a smooth handover of responsibility.
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
43
Membership and meetings attendance
Chair
Alastair Campbell
Committee members
Philip Barnes
Jo Fox
Eamonn Flanagan
Attending by invitation
Executive Chairman
Chief Executive Officer
Chief Human Resources Officer
7/7
7/7
7/7
7/7
Non-Executive Director appointments
A key focus area for the Committee in 2021
was Non-Executive Director recruitment, as
both Philip Barnes and I approach the ninth
anniversary of our appointments in 2022 and
2023 respectively. The Committee led the
selection and appointment process for our
successors, with the support of an external
global search agency, Russell Reynolds.
Following a skills and experience assessment
of the Board, it was determined that a key
component of our specification would
be that new Independent Non-Executive
Directors have an understanding of
non-life insurance, UK and US business
experience, and of their legal and regulatory
frameworks. A diverse longlist of potential
candidates was considered by the
Committee and a shortlist of two candidates
was selected for final stage interviews with
each member of the Board and the Chief
Human Resources Officer.
While both candidates satisfactorily
completed a thorough due diligence and
referencing process, their appointments
were put on hold by the Committee during
merger discussions. Board succession
planning will be revisited in good order,
as appropriate.
Executive succession planning
As the Group began its strategic
transformation under the new leadership of
William Spiegel, the need to strengthen the
Group’s executive and senior management
talent pool was identified. The Committee
received updates on the Group’s succession
plans below Board level, which identified
potential leaders, current and future skills
gaps and risks to the business including
upcoming retirements. The Committee
oversaw a number of internal promotions,
as well as the recruitment and appointment
of new senior executives in the US and
UK and approved their respective
remuneration packages.
Remuneration policy
During the year, the Committee began
a major exercise to reshape and enhance
the overall compensation philosophy of
the business and appointed Korn Ferry to
advise on developing a more structured
Remuneration Policy that would reward
Executive Directors and senior management
in a manner that ensures that they are
properly incentivized and motivated to
perform in the best interests of the Company,
its shareholders, and wider stakeholders.
The Committee determined that the
objectives of the new Policy would be to:
» attract, retain and motivate executive
management of the quality and
experience required to run the Company
successfully
» have regard to the international nature
of the business and to local practices
and conditions
» maintain gender parity in pay and to
target any gender pay gaps with the
aim of improving the recruitment and
progression of women in our workforce
» have regard to the views of shareholders
and other stakeholders
» be aligned to the risk appetite of
the Company and its long-term
strategic goals
» structure remuneration such that a
significant proportion should be linked to
corporate and individual performance,
both financial and non-financial, with
stretch targets for individuals
» promote the long-term success of
the Company
» be clear, simple, proportionate, and
aligned to the Company’s culture
» be in line with legal and regulatory
guidelines and requirements and the
QCA Code.
A key focus of the Committee this year
is to agree the full details of the new
Remuneration Policy, including share-based
incentives, and other specific plans for
its operation.
As part of the review of its remuneration
policy framework, the Committee also
reviewed executive pension payments,
life cover arrangements and termination
payments and determined that there
were no specific matters for detailed
consideration by the Committee.
Executive remuneration in 2021
The Committee approved the 2021
remuneration arrangements for the
Executive Directors and senior management
on the recommendation of the Executive
Chairman or the Chief Executive Officer as
appropriate. No individual was involved in
any decisions as to their own remuneration.
The Committee resolved that executive
remuneration arrangements for 2021 would
be in line with the broad approach taken in
previous years, with a discretionary bonus
scheme based on the achievement of
profitability targets and agreed personal
performance targets. Bonus payments under
the scheme were capped, with payment
phased over a three-year period and were
subject to clawback arrangements.
Non-Executive Directors fees
I and the other Non-Executive Directors each
receive a fee for our services as Directors,
which is approved by the Board, mindful of
the time commitment and responsibilities
of our roles and of current market rates
for comparable organizations and
appointments. With this in mind and against
the backdrop of the COVID-19 pandemic, it
was agreed by the Board as a whole that
there would be no change to Non-Executive
Directors’ fees in 2021.
Strategic reportCorporate governanceFinancial statements 44
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Remuneration and Nominations
Committee report continued
Committee effectiveness review
During 2021, we implemented the outcome
of our own Committee Effectiveness Review
carried out in 2020 and had regard to
recommendations from the external Board
evaluation conducted in 2021 to the extent
that it was applicable to the work of the
Committee; in the circumstances I believe
the Committee is operating effectively.
We agreed to hold effectiveness reviews
of the Committee every three years.
Alastair Campbell
Chair of the Remuneration and
Nominations Committee
12 June 2022
Main activities during 2021
» Conducted an in-depth review of the
Focus areas for 2022
» Revisit the Board’s succession plans in light
Board’s composition
of upcoming retirements
» Oversaw the change of Executive
» Continue to monitor the executive
succession plans
» Agree and implement the Group’s new
Executive Remuneration Policy, including
a share-based Long-Term Incentive Plan
» Embed ESG in the Group’s recruitment
and remuneration practices
» Define and implement the scope
of the Committee’s responsibilities
for Governance.
Chairman
» Undertook a search for new
Non-Executive Directors
» Oversaw the Group’s executive succession
plans and the appointment of external
key hires
» Approved the 2020 bonus payments
of Executive Directors and senior
management
» Approved the 2021 executive
remuneration framework
» Commenced a review of the Group’s
Executive Remuneration policy
» Reviewed Non-Executive Directors’ fees
» Reviewed the Committee’s Terms
of Reference.
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45
Risk & Compliance
Committee report
Philip Barnes
Group Risk and Compliance
Committee Chair
Role and responsibilities
The role of the Committee is to assist the
Board in fulling its oversight responsibilities
by reviewing and monitoring:
» the Group’s risk management and
internal control framework
» the Group’s risk appetite and
alignment with its risk strategy
» the principal and emerging risks
inherent within the business
» regulatory compliance by the Group.
Full terms of reference are available on the
Group’s website: www.rqih.com.
Dear Shareholder,
As Chair of the Group Risk and Compliance
Committee, I am pleased to present our
Committee Report for 2021 which describes
our activities and areas of focus during
the year.
During the year, the Committee continued
to support the Board in its oversight
responsibilities for risk management, internal
controls, and regulatory compliance across
the Group. Our key role is to ensure that risks
to our business which impact the delivery of
our strategy are identified, understood, and
effectively managed within our risk appetite,
and that appropriate internal controls are
in place.
Our changing role
Our Group now comprises 65 companies
established world-wide, of which 28 are
regulated, each subject to their own
statutory and compliance requirements. To
ensure that the Group and its subsidiaries
are better placed to meet their complex and
ever-evolving regulatory obligations, the
Board widened the remit of the Committee
in December 2021 to formally include
oversight of regulatory compliance matters
across the Group.
How we operate
The Committee comprises two Independent
Non-Executive Directors and the Chief
Executive Officer. Collectively, our skills and
experience cover the full range of business,
finance, risk, audit, and governance expertise
required to run a specialty insurance
company with an international presence.
The Committee met at scheduled quarterly
meetings during 2021. As Committee Chair,
I liaised closely with the Chair of the Audit
Committee to ensure a clear allocation of
responsibilities between the Committees
and complete governance across the Group’s
risk landscape.
The Committee meetings were attended
by the Chief Risk Officer, the Group Head
of Governance, the Group Head of Internal
Audit, and the Group Chief Actuary.
Members of the Group Executive and Senior
Management Teams were invited to attend
as appropriate.
The Committee had a number of standing
agenda items including the report of the
Chief Risk Officer, the Group Supervision and
Regulatory Update from the Group Head
of Governance, and the Strategic Priorities
Update from the Chief Executive Officer.
Strategic reportCorporate governanceFinancial statements 46
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Risk & Compliance Committee
report continued
Membership and meetings attendance
Chair
Philip Barnes
Committee members
Jo Fox
Alan Quilter
Attending by invitation
4/ 4
4/ 4
3/ 4
Chief Risk Officer
Group Head of Governance
Group Head of Internal Audit
Group Chief Actuary
Other members of the Group Executive and
Senior Management Teams as appropriate
Areas of focus in 2021
Risk appetite framework
The Committee reviewed and overhauled
the risk appetite framework during 2021
to ensure its continued alignment with the
Group’s strategic goals and business needs.
The Committee ensured that the Group’s risk
appetite framework operated effectively in
embedding risk management throughout
the business. It identified and addressed
the principal risks to the delivery of the
Group’s strategy and monitored their
continued appropriateness.
The Group’s principal risks and uncertainties
appear on pages 23 and 24.
Risk reporting
Effective reporting was fundamental to the
Committee’s management and oversight
of key risks during 2021. The Chief Risk
Officer provided a risk heat map at each
meeting, which remained largely unchanged
throughout 2021 and confirmed that the
Group remained relatively unimpacted by
circumstances arising out of the COVID-19
pandemic during the year. The Committee
also considered a risk dashboard at each
meeting, which demonstrated the Group’s
adherence to its predetermined risk appetite.
Emerging risks
The Group’s risk function operates an
Emerging Risks Focus Group which identifies
developing risks that cannot yet be fully
assessed but which could, in the future,
impact our ability to deliver on our long-term
business strategy. The Focus Group reported
twice to the Committee during 2021 and
considered emerging risks such as climate
change, changing workforce expectations,
emerging cyber risk, new and emerging
technology risk such as cloud concentration
and artificial intelligence, political
uncertainty, and civil instability.
Operational resilience
Operational resilience continued to be an
area of focus throughout the year. At each
meeting, we reviewed the operational risks
arising out of the COVID-19 pandemic to
our business, including the increased risk of
cyber and financial crime, staff well-being,
market-wide/ systemic issues and business
development. While business execution saw
some deceleration in the early stages of the
pandemic, we found that it did not have a
significant negative impact on our business.
Deep dives
The Committee carried out several in-depth
reviews of key risks to the business in order to
gain a fuller understanding of various risks in
different parts of the Group and challenge
management approaches to mitigating
those risks. Such reviews included people risk,
supply chain risk and investment/market risk.
Regulatory and compliance risk
The nature of our business means that
regulatory and compliance risk is always
on the radar. At each meeting in 2021, the
Committee received a report on the Group’s
supervision and related regulatory matters
from the Group Head of Governance. These
reports outlined the Group’s ongoing
engagement with its main regulators
during 2021. The Committee also reviewed
the ‘Dear CEO’ letters from the Financial
Conduct Authority (FCA) and the Prudential
Regulation Authority (PRA), and reviewed
the risk management disclosures in the 2020
Annual Report.
Subsidiary risks
As part of the oversight responsibilities
for risk management, internal control and
regulatory compliance across the Group, the
Committee routinely reviews the minutes of
the Risk and Compliance Committees of the
Group’s regulated subsidiaries. In November
2021, we held our second annual meeting
of Subsidiary Risk Committee Chairs. This
served as an opportunity for all attendees
to share subsidiary level risk and regulatory
compliance concerns and to understand
the Group approach to monitoring and
managing these, thereby ensuring a
consistent approach to risk management
and governance across the business.
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Annual Report 2021
47
Committee effectiveness Review
The Committee routinely benchmarks
its effectiveness against emerging best
practice. We do this by comparing our
composition, structure, and operation, along
with that of the Group’s risk management
function, against the risk coalition principles-
based guidance and other corporate
governance standards and guidelines,
including the QCA Governance Code. The
Committee will conduct its own annual
effectiveness review in 2022.
Philip Barnes
Chair of the Risk and Compliance Committee
12 June 2022
Main activities during 2021
» Reviewed the Group’s risk management
framework to ensure alignment with
Group strategy
» Monitored our principal risks against their
respective tolerance levels
» Reviewed its emerging risks landscape
» Conducted deep dives into people, supply
chain and investment/ market risk
» Monitored the Group’s interface with its
main regulators
» Met with Subsidiary Risk and Compliance
Committee Chairs to better understand
subsidiary level risk and to ensure
consistency of approach to risk
management across the Group.
Focus areas for 2022
» Annual review of the Group’s risk appetite
framework and internal controls
» Ongoing monitoring of the Group’s
principal and emerging risks
» Incorporating statistical and stochastic
analysis in the Group’s risk appetite
framework as appropriate
» Regulatory compliance including
monitoring the Group’s interface with
its regulators and rolling out a Group
Compliance Charter
» Management workshop and in-depth
review of emerging cyber risks
» Deep dives into our new fee-based
model, operational resilience, credit risk
and underwriting retention
» Committee effectiveness review.
Strategic reportCorporate governanceFinancial statements 48
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Investment Committee
report
Eamonn Flanagan
Investment Committee Chair
Role and responsibilities
The role of the Committee is to assist the
Board in its oversight of the investment
assets of the Group by:
» agreeing and implementing an
investment strategy to deliver the
Group’s investment objectives
» monitoring investment performance
» recommending the appointment
of suitably qualified external
investment managers to manage the
Group’s investments and overseeing
their performance
» aligning the Group and its subsidiary
companies on investment matters
» reviewing investment exposures.
Dear Shareholder,
As Chair of the Investment Committee, I am
pleased to present our report for 2021 which
describes our activities and areas of focus
during the year.
The Committee
As reported in the 2020 Annual Report,
a dedicated Investment Committee was
established in May 2021, reflecting the
increased importance of our investment
strategy and results to the business model.
The importance of investment earnings to
our overall results is clearly demonstrated
in the Group Chief Financial Officer’s report
on pages 16 to 19. In addition, as we set out
on pages 22 to 24, one of our Principal Risks
is ‘Market and Investment Risk’. Our role is to
provide mitigation to this risk through the
establishment of investment risk appetite
principles and related key risk indicators, and
consistent monitoring and reviewing of the
Group’s investment strategy, its execution,
and performance.
How we operate
The Committee comprises two Independent
Non-Executive Directors and the Executive
Chairman. Between us, we have extensive
financial experience, knowledge of capital
markets and an understanding of market,
investment, and insurance risk management.
The balance of skills between Committee
members makes us well qualified to address
the full scope of its responsibilities.
The Committee met four times during
the year. Both the Head of Corporate
Development and the Chief Risk Officer
were invited to attend the meetings at
which they provided informed support
to the Committee’s discussions. The main
business of each meeting was to oversee the
Group’s investment strategy and investment
performance, and a summary was
presented to the Board on a regular basis.
Areas of focus in 2021
Investment updates
The Committee received regular reports
from its investment managers on the
performance of the Group’s investment
portfolio allowing it to monitor execution of
the Group’s investment strategy. It reviewed
investment performance against agreed
benchmarks and relative to the market, asset
allocation, and compliance with agreed
mandates. The Committee also considered
the views of its investment managers on
market risk and recommendations for the
future positioning of the invested assets.
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Annual Report 2021
49
Focus areas for 2022
» Review of the investment strategy
and guidelines to ensure they remain
appropriate and applicable to the
requirements of our policyholders, meet
our regulatory obligations, and optimise
returns for our investors
» Continue to enhance asset liability
management within the various
mandates. This will focus on optimising
the matching of assets and liability
cashflows, within the context of
regulatory constraints, and thus
enhancing risk-adjusted returns on the
portfolios and reducing reinvestment risk
» Apply the Group’s ESG priorities across
the Group’s investment portfolios
as appropriate
» Undertake an internal review of the
performance of the Committee and
report on its conclusions.
Membership and meetings attendance
Chair
Eamonn Flanagan
Committee members
Philip Barnes
William Spiegel
Attending by invitation
Other members of the Board
Chief Risk Officer
Head of Corporate Development
4/ 4
4/ 4
4/ 4
Investment presentations and reports
by our investment managers were
standardized to focus on key issues relevant
to our investment mandates. The resulting
consistency of reporting allowed the
Committee to better monitor investment
performance across managers.
Change of investment manager
The Group employs a multi-asset investment
strategy focused on fixed income
investments, utilizing external investment
managers. During the year, the Committee
approved consolidating the management
of its assets with fewer investment
managers to streamline the investment
management process and reduce the
Group’s total investment management fees.
The Committee recommended the same to
relevant subsidiary company boards, subject
to approval by their respective regulators.
Accordingly, the number of investment
managers responsible for managing the
Group’s investments was reduced from
four to three.
Management of cash balances
The Committee focused on improving
cash management across the Group in
accordance with its liquidity requirements
and regulatory obligations. Available cash
was invested to improve returns and the
amount of cash in the Group portfolio was
reduced by almost 50% year-on-year.
Investment risk appetite
During the year, the Committee monitored
the performance of the Group’s investment
strategy within its established risk framework.
The Committee also worked with the Group
Risk Management function to update its key
risk indicators for investment performance
and to develop risk appetite statements and
key risk indicators for investment.
Environmental, social and governance
The Group’s ESG strategy continued to evolve
in 2021 and as part of this, the Committee
started to evaluate responsible investment
and climate change matters. The Committee
began work with its investment managers
to determine current best practices and will
focus on incorporating these into the Group’s
investment strategy as appropriate in the
coming year.
Eamonn Flanagan
Chair of the Investment Committee
12 June 2022
Main activities during 2021
» Received regular presentations from the
investment managers
» Approved a change of investment
manager
» Approved investment recommendations
proposed by the Group’s investment
managers
» Considered ways to standardize
investment manager presentations and
opportunities to reduce costs
» Focused on the management of cash
balances across the Group
» Considered the work and approach
being undertaken by the Group Risk
Management Function in relation to
investment risk
» Considered the ability of our investment
managers to deliver data pertaining to
ESG issues.
Strategic reportCorporate governanceFinancial statements 50
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
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.
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Annual Report 2021
51
Financial
statements
52
Independent auditor’s report
56 Consolidated income statement
57
58
59
Consolidated statement of
comprehensive income
Consolidated statement of changes in equity
Consolidated statement of financial position
60 Consolidated cash flow statement
61
Notes to the consolidated financial statements
52
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
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 (Group) for the year ended 31 December 2021
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).
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 2021 and its loss for the year then ended
» have been properly prepared in accordance with IFRSs.
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.
Material uncertainty related to going concern
We draw attention to note 2.d. in the Financial Statements, which indicates that the going concern basis is conditional on new equity funding
being raised by the end of July 2022. At the date of signing of these Financial Statements, the Group has not yet completed this capital raise but
has received indicative orders from its shareholders which indicate that the equity raising will be successful. However, the success of the capital
raise is subject to approval by shareholders at a Special General Meeting and therefore there is uncertainty that the appropriate resolutions will
be passed and the new equity funding is received. Our opinion is not modified in respect of this matter.
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 utilized 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.
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 $
Financial statement materiality
10% of average result 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.
8,300,000
(2020:
3,973,000)
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.
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Annual Report 2021
53
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 $6,300,000 (2020: $2,979,750).
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of $420,000 (2020: $198,650) 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.
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.
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 recognized 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 also performed the following procedures:
• Reviewed the underlying program agreements
•
Tested, on a sample basis, whether amounts recognized
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 2021 are $1,102 million.
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 utilized 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 analyzes
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.
Strategic reportCorporate governanceFinancial statements 54
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
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 2021
The Group completed 6 business combinations during
the year end 31 December 2021, giving rise to goodwill on
bargain purchase of $49.7 million.
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
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
55
» 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 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 dated 27 January 2022. 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
12 June 2022
Strategic reportCorporate governanceFinancial statements 56
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Consolidated income statement
For the year ended 31 December 2021
Note
2021
$m
$m
2020
$m
$m
Gross written premiums
Written premiums ceded to reinsurers
Net written premiums
Net change in provision for unearned premiums
Earned premium, net of reinsurance
Earned fee income
Gross investment income
Other income
Total fee, investment and other income
Total income
Gross claims paid
Proceeds from commutations and reinsurers’ share of gross claims paid
Claims paid, net of reinsurance
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
Amortization and impairment of intangible assets
Share of profit of associates
Result of operating activities
Finance costs
(Loss)/profit before income taxes
Income tax credit/(charge)
(Loss)/profit for the year
Attributable to:
Shareholders of the parent
Non-controlling interests
1,539.7
(1,463.5)
6
7
8
31.8
6.4
6.6
(485.9)
154.2
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
991.3
(520.2)
18.5
28.6
7.4
(270.7)
168.0
76.2
(12.2)
64.0
44.8
108.8
(331.7)
205.8
(125.9)
(166.0)
(183.1)
49.7
(13.3)
11.2
(135.5)
(26.5)
(162.0)
34.6
(127.4)
(127.4)
–
(127.4)
2021
(46.9)c
(46.9)c
471.1
(4.8)
466.3
54.5
520.8
(102.7)
(295.1)
(397.8)
(143.4)
(20.4)
84.2
(14.2)
1.7
51.3
(12.6
38.7
(1.0)
37.7
37.8
(0.1)
37.7
2020
17.5c
14.2c
Strategic reportCorporate governanceFinancial statements
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
57
Consolidated statement of comprehensive income
For the year ended 31 December 2021
Other comprehensive income:
Items that will not be reclassified to profit or loss:
Pension scheme actuarial gains/(losses)
Deferred tax on pension scheme actuarial (gains)/losses
Items that may be subsequently reclassified to profit or loss:
Exchange (losses)/gains on consolidation
Other comprehensive income
(Loss)/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.
2021
$000
3.1
(0.2)
2.9
(3.3)
(0.4)
(127.4)
(127.8)
(127.8)
–
(127.8)
2020
$000
(0.7)
0.3
(0.4)
12.6
12.2
37.7
49.9
50.0
(0.1)
49.9
Strategic reportCorporate governanceFinancial statements 58
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Consolidated statement of changes in equity
For the year ended 31 December 2021
Share
capital
$m
Share
premium
$m
Treasury
shares
$m
Convertible
debt
$m
Notes
Foreign
currency
translation
reserve
$m
Retained
earnings
$m
Sub-total
$m
Non-
controlling
interests
$m
Total
$m
200.9
(0.2)
80.0
Year ended 31 December 2021
At beginning of year
Functional currency revaluation
Loss 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
Dividend
Non-controlling interest in subsidiary disposed
6.2
(0.2)
–
–
–
–
–
–
0.1
–
1.4
–
–
–
25
14
7.2
–
–
–
–
–
–
2.6
–
85.9
–
(8.3)
–
At end of year
7.5
288.3
–
–
–
–
–
–
–
0.2
–
–
–
–
–
–
7.2
–
–
–
–
–
–
–
(87.2)
–
–
–
–
(24.7)
12.3
267.5
(26.6)
529.7
(0.1)
–
(127.4)
(127.4)
(3.3)
–
–
(3.3)
–
3.1
(0.2)
2.9
(3.3)
3.1
(0.2)
(0.4)
(3.3)
(124.5)
(127.8)
–
–
–
–
–
–
–
–
–
–
–
–
(15.7)
116.4
2.9
–
0.1
–
(8.3)
–
–
396.5
(0.5)
529.2
–
–
–
–
–
–
–
–
–
–
–
–
0.5
–
(0.1)
(127.4)
(3.3)
3.1
(0.2)
(0.4)
(127.8)
2.9
–
0.1
–
(8.3)
0.5
396.5
Share
capital
$m
Share
premium
$m
Treasury
shares
$m
Convertible
debt
$m
Notes
Foreign
currency
translation
reserve
$m
Retained
earnings
$m
Sub-total
$m
Non-
controlling
interests
$m
Total
$m
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 own shares
Issue of distribution shares
5.4
–
–
–
–
–
–
–
0.8
–
–
178.3
–
–
–
–
–
–
14.8
19.4
–
–
11.6
(11.6)
25
Cancellation of distribution shares
14
(11.6)
Non-controlling interest in subsidiary disposed of
–
–
–
—
–
–
–
–
–
–
–
–
–
(0.2)
–
–
–
—
–
(37.2)
–
230.1
37.8
376.6
37.8
0.6
–
377.2
37.8
–
–
–
–
–
–
80.0
–
–
–
–
12.5
–
–
–
12.5
12.5
(0.7)
0.3
(0.4)
37.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12.5
(0.7)
0.3
12.1
49.9
14.8
20.2
80.0
(0.2)
–
(11.6)
–
–
–
–
–
–
–
–
–
–
–
–
(1.1)
(0.5)
12.5
(0.7)
0.3
12.1
49.9
14.8
20.2
80.0
(0.2)
–
(11.6)
(1.1)
529.2
At end of period
6.2
200.9
(0.2)
80.0
(24.7)
267.5
529.7
The accounting policies and accompanying notes are an integral part of the Consolidated Financial Statements.
Strategic reportCorporate governanceFinancial statements
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
59
Consolidated statement of financial position
For the year ended 31 December 2021
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
22
24
21
24
27
25
25
25
30
2021
$m
86.2
46.2
2.1
6.1
1.8
1,511.3
21.8
2,105.6
20.4
3.6
1,096.3
266.3
5,167.7
2020
$m
82.2
45.4
2.1
5.6
1.8
1,171.5
180.4
1,180.6
5.7
–
689.6
363.5
3,728.4
3,207.5
2,402.8
395.9
7.6
3.0
9.0
1,140.1
2.4
5.7
330.2
6.8
2.9
18.0
426.0
2.6
9.9
4,771.2
3,199.2
7.5
288.3
–
–
(15.7)
116.4
396.5
–
396.5
5,167.7
6.2
200.9
80.0
(0.2)
(24.7)
267.5
529.7
(0.5)
529.2
3,728.4
The Consolidated Financial Statements were approved by the Board of Directors on 12 June 2022 and were signed on its behalf by:
W L Spiegel
T S Solomon
The accounting policies and accompanying notes are an integral part of the Consolidated Financial Statements.
Strategic reportCorporate governanceFinancial statements
60
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Consolidated cash flow statement
For the year ended 31 December 2021
Cash flows from operating activities
(Loss)/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
Amortization and impairment of intangible assets
Fair value loss/(gain) on financial assets
Loss on revaluation of investment property
Contributions to pension plan
Loss on net assets of pension schemes
Increase in receivables
Decrease/(increase) in deposits with ceding undertakings
Increase in payables
(Decrease)/increase in net insurance technical provisions
Net cash from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sale of financial assets
Purchase of financial assets
Acquisition of subsidiary undertakings (offset by cash acquired)
Divestment (offset by cash disposed of)
Distributions from associate
Net cash used in investing activities
Cash flows from financing activities
Repayment of borrowings
Proceeds from new borrowing arrangements
Dividends paid
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
10
14
20
2021
$m
(127.4)
(34.6)
26.5
2.9
2.8
(11.2)
(2.6)
(49.7)
13.3
17.7
–
(1.1)
0.1
(409.5)
158.7
705.7
(193.5)
98.1
(0.7)
100.8
(397.6)
46.7
3.5
10.3
2020
$m
37.7
1.0
12.6
3.0
14.8
(1.7)
(0.7)
(84.2)
14.2
(5.6)
0.2
(1.0)
0.3
(107.2)
(147.2)
23.4
299.8
59.4
(1.4)
100.3
(364.7)
29.3
(5.1)
–
(237.0)
(241.6)
(42.0)
121.7
(8.3)
(26.5)
–
–
–
–
44.9
(94.0)
363.5
(3.2)
266.3
50.7
215.6
266.3
(56.7)
186.3
–
(12.6)
(11.6)
19.9
80.0
(0.2)
205.1
22.9
309.4
31.2
363.5
36.4
327.1
363.5
The accounting policies and accompanying notes are an integral part of the Consolidated Financial Statements.
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
61
Notes to the consolidated financial statements
For the year ended 31 December 2021
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, providing program capacity to managing general agents (MGAs) and run-off solutions to the non-life insurance market. The
Consolidated Financial Statements were approved by the Board of Directors on 12 June 2022.
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 US dollars and millions, 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
recognized in the year when the revised estimate is made. .
New and amended Standards adopted by the Group
In the current year, the Group has applied new IFRSs and amendments to existing IFRSs issued by the IASB that are mandatory for an accounting
period that begins on or after 1 January 2021.
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 has reviewed internal and external contracts where LIBOR has been the interest rate reference point.
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 IFRS and other accounting 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).
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).
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).
Strategic reportCorporate governanceFinancial statements 62
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Notes to the consolidated financial statements continued
For the year ended 31 December 2021
2. Accounting policies continued
a. Basis of preparation continued
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, while having no effects on the fundamental economics of the insurance industry.
Impact analysis in respect of these and other accounting 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 are being developed to cater for the requirements of IFRS 9, ready for
implementation on 1 January 2023.
IFRS 9 requires all recognized 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 recognized 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 recognized in net earnings as the insurer fulfils its performance obligations under the contracts). Estimates are required to be
re-measured at each reporting date or period end. 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.
The Group also has the option to adopt US GAAP as permitted under the AIM listing rules. The rationale to consider an alternative accounting
regime is primarily based on the cost of implementing certain new IFRS standards and the impact on the Company’s competitive position in each of
its business lines.
During 2021, the Group continued to engage with external consultants to carry out an operational gap analysis and implementation plan. A
financial impact assessment was carried out and a sub-ledger selection process finalised. The Group has a roadmap in place to mobilize an
implementation program which includes 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 of the Group’s accounting policies. The accounting policies are
selected by the Directors to present Consolidated Financial Statements based on 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 2021 and 2020. 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.
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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 acquired, equity instruments issued and liabilities incurred or assumed at the date of 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, Asta
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 0.04% of the
capacity on the 2018, 2019 and 2020 years of account. For Syndicate 2689, the Group provides 0.07% of the capacity on the 2021 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 recognized 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 unrealized gains on transactions between Group companies are eliminated in preparing the
Consolidated Financial Statements. Unrealized 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, which is conditional on the raising of capital by end of
July 2022. At the date of signing these Consolidated Financial Statements, the Group has not yet completed its raise, which requires shareholder
approval. The Group has received indicative orders from its shareholders to demonstrate that the capital raise will generate sufficient funding
to enable the Group to continue as a going concern. Assuming the capital raise is completed by end July 2022, the Group’s financial position and
forecasts for 2022 and 2023 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 Insurance 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 date on which these
Financial Statements are signed.
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 US dollars, which is the Group’s
presentational currency.
The Group has changed functional and presentation currency from GBP to US dollars with effect from 1 January 2021. The change in functional
currency was made to reflect the fact that US dollars has become the predominant currency used in the Company, accounting for a significant
part of the Group’s cash flow, cash flow management and financing. The change has been implemented with prospective effect. The change of
presentation currency is applied retrospectively for comparative figures. Currency translation effects for the comparative figures arising from the
change to the new presentation currency US dollars, are booked as translation differences within the equity statement. Comparison figures in
the Consolidated Statement of Comprehensive Income have been re-presented to reflect the average currency rates of transactions in foreign
currencies for the period.
The different components of assets and liabilities in US dollars correspond to the amount published in the prior year Financial Statements in GBP
translated at the USD/GBP closing rate applicable at the end of each reporting period. As such, the change in presentation currency has not
impacted the measurement of assets, liabilities, equity, or any ratios between these components, such as debt to equity ratios.
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Notes to the consolidated financial statements continued
For the year ended 31 December 2021
2. Accounting policies continued
e. Foreign currency translation continued
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 recognized 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 recognized 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 recognized in other comprehensive income are recognized in the
Consolidated Income Statement as part of the gain or loss on disposal.
f. Premiums
Gross written premiums 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 written premiums 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 written premiums 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 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 recognized 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 (increase)/release 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 recognized 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 claims provisions nor the IBNR provisions have 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.
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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 changes in estimates are made.
When assessing the amount of any provision to be made, the future investment income and claims handling and all other costs of all the insurance
company subsidiaries’ and syndicates’ businesses in run-off are considered in aggregate.
The uncertainty inherent in the process of estimating the period of run-off and the pay-out pattern over that period, the anticipated run-off
administration costs to be incurred over that period and the level of investment income to be received is such that in the normal course of
events unforeseen or unexpected future developments may cause the ultimate costs of settling the outstanding liabilities to differ from that
previously estimated.
Unexpired risks provision
Provisions for unexpired risks are made where the costs of outstanding claims, related expense and deferred acquisition costs are expected to
exceed the unearned premium reserve 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 recognized 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 recognized 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 recognized 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 recognized 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 derecognized 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 derecognized 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 or 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.
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Notes to the consolidated financial statements continued
For the year ended 31 December 2021
2. Accounting policies continued
l. Financial instruments continued
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 analyzes.
Assets and long positions are measured at a bid price; liabilities and short positions are measured at an asking price. Where the Group has positions
with offsetting risks, mid-market prices are used to measure the offsetting risk positions and a bid or asking price adjustment is applied only to
the net open position as appropriate. Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk
of the Group entity and counterparty where appropriate. Fair value estimates obtained from models are adjusted for any other factors, such as
liquidity risk or model uncertainties, to the extent that the Group believes a third party market participant would take them into account in pricing
a transaction.
Upon initial recognition, attributable transaction costs relating to financial instruments at fair value through profit or loss are recognized when
incurred in other operating expenses in the Consolidated Income Statement. Financial assets at fair value through profit or loss are measured at
fair value, and changes therein are recognized 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.
Upon initial recognition, attributable transaction costs relating to financial instruments at fair value through profit or loss are recognized 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 recognized 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 recognized 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, realized and unrealized gains and losses and exchange gains and losses on financial assets at
fair value through profit and loss. The realized gains or losses on disposal of an investment are the difference between the proceeds and the original
cost of the investment. Unrealized 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 recognized 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 recognized in the Consolidated Income Statement.
Derivative financial instruments
Derivatives are initially recognized 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 recognizing 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.
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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 recognized in the Consolidated Income Statement.
n. Leases
The Group recognizes 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 recognize 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 recognizes 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 recognized 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 amortization and impairment.
Intangible assets acquired in a business combination, and recognized separately from goodwill, are recognized initially at fair value at the
acquisition date. This includes intangible assets calculated by measuring the difference between the discounted and undiscounted fair value of net
technical provisions acquired.
Amortization 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 amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is recognized 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 recognized 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 recognized in the year of acquisition.
Rights to customer contractual relationships
Costs directly attributable to securing the intangible rights to customer contractual relationships are recognized 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
amortization and impairment losses.
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Notes to the consolidated financial statements continued
For the year ended 31 December 2021
2. Accounting policies continued
q. Employee Benefits
The Group makes contributions to defined contribution schemes and a defined benefit scheme.
The pension cost in respect of the defined contribution schemes represents the amounts payable by the Group for the year. The funds of the
schemes are administered by trustees and are separate from the Group. The Group’s liability is limited to the amount of the contributions.
The defined benefit scheme is funded by contributions from a subsidiary company and its assets are held in a separate Trustee administered fund.
Pension scheme assets are measured at market value, and liabilities are measured using the projected unit method and discounted at the current
rate of return on high quality corporate bonds of equivalent term and currency to the liability.
Current service cost, net interest income or cost and any curtailments/settlements are charged to the Consolidated Income Statement. The present
value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets is recognized and disclosed separately
as a net pension liability in the Consolidated Statement of Financial Position. Surpluses are only recognized up to the aggregate of any cumulative
unrecognized 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 recognized 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 recognized 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 recognized 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 recognized 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 recognized 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.
Earned fee income
Earned fee income comprises brokerage and profit commission arising from the placement of insurance contracts. Brokerage is recognized 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 recognized over the life of the relevant contracts to ensure that revenue appropriately reflects the
cost of fulfilling those obligations. Profit commission is recognized 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.
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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
recognized 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.
w. Current and deferred income tax
Tax on the profit or loss for the year comprises current and deferred tax.
Tax is recognized in the Consolidated Income Statement except to the extent that it relates to items recognized in other comprehensive income, in
which case it is recognized 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 recognized to the extent that it is probable that future taxable profits will be available against which these temporary
differences can be utilized.
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
realized, 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 recognized 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.
Strategic reportCorporate governanceFinancial statements 70
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Notes to the consolidated financial statements continued
For the year ended 31 December 2021
3. Estimation techniques, uncertainties and contingencies continued
Claims provisions continued
Independent external actuaries are contracted to provide a Statement of Actuarial Opinion for the Lloyd’s Syndicates on which Group participates.
This statement confirms that, in the opinion of the actuary, the booked reserves are greater than or equal to their view of best estimate.
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 reasonable 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 utilize, 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 recognized 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 recognized assets and liabilities should be increased or no longer exist and should be de-recognized.
Where decisions to de-recognize 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-recognized 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 recognized in the accounting period in which the position is clarified.
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71
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 recognized.
Changes in foreign exchange rates
The Group’s Consolidated Financial Statements are prepared in US dollars. Therefore, fluctuations in exchange rates used to translate other
currencies, particularly the Euro and sterling, into US dollars 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 US dollar value of the Group’s investments and
the return on its investments. Income and expenses are translated into US dollars 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 recognized 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 and Compliance 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 of loans and guarantees between Group companies.
The main objective of the investment policy is to maximize risk adjusted returns while adhering to regulatory and Group investment guidelines
together with seeking to optimise the matching of asset and liability cashflows.
Strategic reportCorporate governanceFinancial statements 72
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Notes to the consolidated financial statements continued
For the year ended 31 December 2021
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 2021 and 2020 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
2021
$m
330.9
1,055.9
11.9
112.6
266.3
2020
$m
311.8
778.2
7.5
74.0
363.5
1,777.6
1,535.0
%
18.6
59.4
0.7
2.4
18.9
%
20.3
50.7
0.5
4.8
23.7
100.0
100.0
Corporate bonds include asset backed mortgage obligations totalling $45.1m (2020: $41.2m).
Based on invested assets at external managers of $1,511.3m as at 31 December 2021 (2020: $1,171.5m), 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 2021 of $15.1m (2020: $11.7m).
(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.
2021
Government and government agencies
Corporate bonds
Equities
Cash-based investment funds
Purchased reinsurance receivables (Note 19)
Total financial assets measured at 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
Level 1
$m
330.9
999.0
11.6
–
–
1,341.5
Level 1
$m
311.3
724.4
7.2
–
–
1,060.9
Level 2
$m
–
56.9
0.3
112.6
–
169.8
Level 2
$m
0.5
35.8
0.3
74.0
–
110.6
Level 3
$m
–
–
–
–
6.6
6.6
Level 3
$m
–
–
–
–
6.4
6.4
Total
$m
330.9
1,055.9
11.9
112.6
6.6
1,517.9
Total
$m
311.8
778.2
7.5
74.0
6.4
1,177.9
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73
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 recognized in the Consolidated Income Statement
Disposals
Exchange adjustments
Closing balance
2021
$m
6.4
0.2
–
–
6.6
2020
$m
8.1
0.5
(2.0)
(0.2)
6.4
Level 3 investments (purchased reinsurance receivables) have been valued using detailed models outlining the anticipated timing and amounts
of future receipts. The net gains recognized in the Consolidated Income Statement in other income for the year amounted to $0.2m (2020: $0.5m).
The Group purchased no further reinsurance receivables in 2021 (2020: nil). Short term delays in the anticipated receipt of these investments will
not have a material impact on their valuation.
There were no transfers between Level 1 and Level 2 investments during the year under review.
The following shows the maturity dates and interest rate ranges of the Group’s debt securities:
(ii) Liquidity risk
As at 31 December 2021
Maturity date or contractual re-pricing date
Total
$m
Less than one year
$m
After one year but
less than two years
$m
After two years but
less than three years
$m
After three years but
less than five years
$m
More than five years
$m
Debt securities
1,499.4
258.0
176.2
172.6
235.4
657.2
Interest rate ranges (coupon-rates)
Debt securities
0.13-8.025
0-8.25
0.10-7.38
0.13-9.75
0.01-9.25
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 2020
Maturity date or contractual re-pricing date
Total
$m
Less than one year
$m
After one year but
less than two years
$m
After two years but
less than three years
$m
After three years but
less than five years
$m
More than five years
$m
Debt securities
1,164.0
226.6
206.4
167.3
162.8
400.9
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
0.13-10.00
0.13-8.25
0.10-7.88
0.14-9.75
0.37-9.00
The Investment Committee determines, implements and reviews investment strategies for each entity and for the Group as a whole, having
appropriate regard for the duration characteristics of the liabilities supported by the investments and the specific liquidity requirements for
each entity. Liquidity risk is also monitored by the Group’s financial planning and treasury function’s established cash flow and liquidity
management processes.
Strategic reportCorporate governanceFinancial statements 74
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Notes to the consolidated financial statements continued
For the year ended 31 December 2021
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 minimize 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 Group guideline is for the reinsurers of program management to meet a minimum of the AM Best A credit rating or otherwise fully
collateralise the obligation, in order to mitigate counterparty credit risk.
The ratings used in the below analysis are based upon the published rating of Standard & Poor’s or other recognized ratings agency.
As at 31 December 2021
Deposits with ceding undertakings
Reinsurers’ share of insurance liabilities
Receivables arising out of reinsurance contracts
As at 31 December 2020
Deposits with ceding undertakings
Reinsurers’ share of insurance liabilities
Receivables arising out of reinsurance contracts
A rated
$m
16.8
1,301.3
367.5
A rated
$m
130.3
852.6
191.2
B rated
$m
Less than B
$m
Other*
$m
Exposures of
less than $200k
$m
0.6
50.3
14.2
–
–
–
B rated
$m
Less than B
$m
9.1
59.6
13.4
–
–
–
4.0
729.1
87.8
Other*
$m
40.4
264.4
59.3
0.4
24.9
7.0
Exposures of
less than $200k
$m
0.6
4.0
0.9
Total
$m
21.8
2,105.6
476.5
Total
$m
180.4
1,180.6
264.8
* Other includes reinsurers who currently have no credit rating, but for which the Group endeavors to obtain collateral.
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 2021
Percentage of receivables
As at 31 December 2020
Percentage of receivables
0–6
months
%
6–12
months
%
12–24
months
%
> 24
months
%
93.2
1.2
1.6
4.0
0–6
months
%
6–12
months
%
12–24
months
%
> 24
months
%
50.7
8.8
11.0
29.5
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.
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
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75
4. Management of insurance and financial risks continued
b. Credit risk continued
Financial assets past
due but not impaired
As at 31 December 2021
Deposits with ceding undertakings
Reinsurers’ share of insurance liabilities
Receivables arising out of reinsurance contracts
Neither past due
nor impaired
$m
Past due
1–90 days
$m
Past due more
than 90 days
$m
Assets that have
been impaired
$m
Carrying value in
the balance sheet
$m
19.0
2,011.2
419.5
–
–
–
–
2.8
94.4
57.0
21.8
2,105.6
476.5
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
$m
Past due
1–90 days
$m
Past due more
than 90 days
$m
Assets that have
been impaired
$m
Carrying value in
the balance sheet
$m
180.2
1,071.2
120.4
–
0.3
–
0.3
0.2
109.5
143.8
180.4
1,180.6
264.8
The Directors believe the amounts past due but not impaired, or with no provisions provided, are recoverable in full. Where no provisions have
been made, the Directors believe that there are no merits for a provision to be made and amounts are recoverable in full. Where there are merits
for a provision then such provisions are made.
Credit risk is managed by committees established by the Group, Capita Managing Agency Limited (Capita), Vibe Syndicate Management Limited
(Vibe), Asta Managing Agency Limited (Asta) and Coverys Managing Agency Limited (Coverys). Capita, Vibe, Asta and Coverys are the Lloyd’s
Managing Agents which manage the Syndicates on which the Group participates. Capita, Vibe, Asta 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 and S2689 Committees on which the Group 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.
The Group Board had a Group Reinsurance Asset Committee, chaired by a Non-Executive Director, which met quarterly. Its function was 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. The committee was disbanded at the end of 2021 and from 2022 onwards reinsurance assets will be overseen by the
Group Risk and Compliance and Audit committees, with some responsibilities now residing with management.
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 and Compliance Committee and the Capita, Vibe, Asta 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 US dollars and its exposure to foreign exchange risk arises primarily with respect to Sterling
and Euros.
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.
Strategic reportCorporate governanceFinancial statements 76
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Notes to the consolidated financial statements continued
For the year ended 31 December 2021
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 2021
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 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
Sterling
$m
12.5
1,156.5
811.9
301.4
132.9
US Dollar
$m
73.7
895.3
697.3
476.0
124.6
(1,929.9)
(2,071.4))
3.9
(453.0)
36.2
Sterling
$m
36.2
715.7
279.4
294.4
180.6
(1,431.6)
(4.1)
(89.8)
(19.2)
(6.0)
151.4
340.9
US Dollar
$m
45.8
439.0
1,094.2
158.7
181.5
(1,187.8)
(23.7)
(150.3)
557.4
Euro
$m
–
53.8
71.8
1.7
8.8
(70.1)
(0.2)
(46.4)
19.4
Euro
$m
0.2
25.9
25.4
1.2
1.4
(53.3)
(0.1)
(9.7)
(9.0)
Total
$m
86.2
2,105.6
1,581.0
779.1
266.3
(4,071.4)
(2.3)
(348.0)
396.5
Total
$m
82.2
1,180.6
1,399.0
454.3
363.5
(2,672.7)
(27.9)
(249.8)
529.2
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
Sterling weakening
Euro strengthening
Sterling strengthening
31 December 2021
31 December 2020
Changes in
variables
Impact on
profit
$m
Impact on
equity*
$m
Impact on
profit
$m
Impact on
equity*
$m
10%
10%
10%
10%
(3.1)
(4.8)
3.8
3.8
(5.9)
(27.4)
7.3
33.5
3.0
(14.4)
(2.4)
17.6
(0.2)
(43.7)
0.2
53.4
* 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, while 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 while maintaining local
capital which meets or exceeds the relevant local minima including, where appropriate, those relating to maintenance of external credit ratings.
This is monitored by way of a capital sufficiency assessment by the Group Risk and Compliance Committee.
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
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77
4. Management of insurance and financial risks continued
e. Insurance risk
(i) Program management business
The Group underwrites live business (which is largely reinsured) through a network of MGAs. This program management business is underwritten
in the US by Accredited Surety and Casualty Inc. (ASC) and Accredited Speciality Insurance Company (ASI), and in Europe by Accredited Insurance
(Europe) Limited (AIEL). Each of these insurance companies are rated A- by AM Best. The Group is exposed to the risk of its net retention increasing
due to fluctuations in the timing, frequency and severity of insured events.
(ii) Syndicate participations
The Group participates on Syndicates shown below:
Syndicate
2689
1991
1991
1991
1110
1110
1110*
5678
5678
Year of
account
Syndicate
Capacity £m
Group
participation
£m
Open/closed
2022
2020
2019
2018
2020
2019
2017
2019
2018
71.6
110.0
126.8
126.8
3.0
3.0
280.0
122.8
114.1
0.1
–
0.1
0.1
3.0
3.0
280.0
122.8
114.1
Open
Open
Open
Open
Open
Open
Open
Closed
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 and 5678 and 2689 are classified by Lloyd’s as run-off Syndicates and their capacity shown above is reflective of this status. Syndicate 1110 is the Group’s
platform for consolidating legacy transactions at Lloyd’s. The capacity of run-off Syndicates does not represent the level of risk these are able to take on, but is a nominal level
set by Lloyd’s; they are able to receive portfolios of risk greater than this nominal capacity.
The Group is exposed to the risk of its Syndicate participation exposures increasing due to fluctuations in the timing, frequency and severity of insured events.
(iii) Underwriting risk
Underwriting risk is the primary source of risk in the Group’s program management 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 2018.
Strategic reportCorporate governanceFinancial statements 78
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Notes to the consolidated financial statements continued
For the year ended 31 December 2021
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 2021
Gross claims at:
1 January/acquisition
Exchange adjustments
Payments
Gross provision at 31 December 2021
Deficit 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 2021
Net claims at :
1 January/acquisition
Exchange adjustments
Payments
Net position at 31 December 2021
(Deficit)/surplus to date
Group entities at
1 January 2018
$m
Entities acquired
by the Group
during 2018
$m
Entities acquired
by the Group
during 2019
$m
Entities acquired
by the Group
during 2020
$m
Entities acquired
by the Group
during 2021
$m
522.8
(67.6)
(71.3)
148.1
(112.5)
419.5
522.8
31.3
(196.3)
(419.5)
(61.7)
22.5
(10.1)
(6.0)
2.7
(2.9)
6.2
22.5
(8.2)
(8.6)
(6.2)
(0.5)
374.6
(173.1)
30.5
13.0
–
245.0
374.6
(13.4)
(185.3)
(245.0)
(69.1)
938.0
9.2
(134.4)
–
–
521.5
(10.8)
–
–
–
815.8
510.7
938.0
9.3
(135.1)
(815.8)
(3.6)
521.5
(0.6)
(10.3)
(510.7)
(0.1)
Group entities at
1 January 2018
$m
Entities acquired
by the Group
during 2018
$m
Entities acquired
by the Group
during 2019
$m
Entities acquired
by the Group
during 2020
$m
Entities acquired
by the Group
during 2021
$m
350.5
(51.1)
(44.7)
84.9
(155.7)
183.9
350.5
(5.5)
(186.7)
(183.9)
(25.6)
21.5
(10.1)
(5.7)
2.6
(2.1)
6.2
21.5
(8.8)
(7.7)
(6.2)
(1.2)
351.6
(159.9)
18.4
15.0
–
225.1
351.6
(18.6)
(177.7)
(225.1)
(69.8)
642.1
(6.6)
(106.7)
–
–
109.8
(10.8)
–
–
–
528.8
99.0
642.1
16.1
(119.9)
(528.8)
9.5
109.8
(0.6)
(10.3)
(99.0)
(0.1)
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.
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
79
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 – delegates underwriting authority to MGAs to provide program capacity through its licensed platforms in the US
and Europe
» Legacy Insurance – acquires legacy portfolios and manages the run-off of claims reserves
» Corporate / Other – primarily includes the holding company costs and interest expense on debt
Segmental results for the year ended 31 December 2021
Underwriting income
Fee income
Investment income
Gross Operating Income
Fixed operating expenses
Interest expense
Pre-Tax Operating Profit
Unearned program fee income
Net intangibles
Net unrealized and realized gains/(losses)
Non-core and exceptional items
Profit Before Tax
Segment assets
Segment liabilities
Program
Management
$m
Legacy
Insurance
$m
Corporate/
Other
$m
(1.1)
56.1
2.7
57.7
(37.1)
–
20.6
58.5
–
19.3
77.8
(83.5)
–
(5.7)
–
–
2.8
2.8
(16.0)
(22.7)
(35.9)
Note
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
1,039.6
864.1
4,113.3
3,292.2
14.8
614.9
Total
$m
57.4
56.1
24.8
138.3
(136.6)
(22.7)
(21.0)
(13.2)
2.3
(18.4)
(111.7)
(162.0)
5,167.7
4,771.2
Strategic reportCorporate governanceFinancial statements 80
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Notes to the consolidated financial statements continued
For the year ended 31 December 2021
5. Segmental information continued
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 income
Net intangibles
Net unrealized and realized gains/(losses)
Non-core and exceptional items
Profit Before Tax
Segment assets
Segment liabilities
Program
Management
$m
Legacy
Insurance
$m
Corporate/
Other
$m
(3.1)
24.1
2.6
23.6
(20.3)
–
3.3
103.6
–
16.8
120.4
(71.4)
–
49.0
–
–
1.4
1.4
(21.1)
(12.0)
(31.7)
Note
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
Total
$m
100.5
24.1
20.8
145.4
(112.8)
(12.0)
20.6
(4.0)
19.9
6.8
(4.6)
38.7
909.3
853.7
2,632.6
2,021.0
186.5
324.5
3,728.4
3,199.2
Our KPIs measure the economics of the business and adjust IFRS results to include fully written Program Fee Income and exclude non-cash intangibles created from acquisitions
in Legacy Insurance, net realized and unrealized investment gains on fixed income and lease-based assets, foreign currency translation reserves, non-core expenses and
exceptional items. While our underlying businesses performed well in 2021, our Group operating results were negatively impacted by reserve development and a non-cash
impairment of a structured reinsurance contract that was previously recognized as an asset.
Notes:
(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 comprises program fee income from insurance policies already bound (written), regardless of the amount of premium earned in the financial period, and
earnings from minority stakes in MGAs.
(iii)
Investment income represents income arising on the investment portfolio excluding net realized and unrealized investment gains or losses on fixed income and lease-
based assets.
(iv) Gross operating income represents pre-tax operating profit before fixed operating expenses (v) and interest expense.
(v)
Fixed operating expenses include employment, legal, accommodation, information technology, Lloyd’s Syndicate and other fixed expenses of ongoing operations,
excluding non-core and exceptional items.
(vi)
Pre-tax operating profit is a measure of how the Group’s core businesses performed adjusted for unearned program fee income (vii), intangibles created in Legacy
acquisitions and net realized and unrealized investment gains on fixed income and lease-based assets.
(vii) Unearned program fee income represents the portion of program fee income (ii) which has not yet been earned on an IFRS basis.
(viii) Movement on net intangibles comprises the aggregate of intangible assets arising on acquisitions in the period less amortization on existing intangible assets charged in
the period.
(ix) Non-core and exceptional items comprises the results of entities which are considered non-core and one-off or exceptional P&L items.
No income from any one client included within the fee income generated more than 10% of the total external income.
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
81
5. Segmental information continued
Geographical analysis
As at 31 December 2021
Gross assets
Intercompany eliminations
Segment assets
Gross liabilities
Intercompany eliminations
Segment liabilities
Revenue from external customers
UK
$m
1,716.7
(137.4)
1,579.3
1,307.3
(238.3)
1,069.0
7.9
North
America
$m
2,418.6
(103.5)
2,315.1
2,566.5
(12.2)
2,554.3
59.6
Europe
$m
1,331.9
(58.6)
1,273.3
1,196.9
(49.0)
1,147.9
41.3
Total
$m
5,467.2
(299.5)
5,167.7
5,070.7
(299.5)
4,771.2
108.8
Revenue from external customers represents the Group’s total consolidated income, after elimination of internal revenue. This has reduced in
2021 from 2020 due the Group ceding qualifying Legacy Insurance revenue to a third-party legacy sidecar.
As at 31 December 2020
Gross assets
Intercompany eliminations
Segment assets
Gross liabilities
Intercompany eliminations
Segment liabilities
Revenue from external customers
UK
$m
1,302.6
(116.4)
1,186.2
1,083.7
(155.4)
928.3
160.2
North
America
$m
1,936.1
(197.2)
1,738.9
1,737.1
(213.5)
1,523.6
291.9
Europe
$m
867.2
(63.9)
803.3
756.0
(8.6)
747.4
68.7
Total
$m
4,105.9
(377.5)
3,728.4
3,576.8
(377.5)
3,199.3
520.8
6. Earned fee income
Written fee income for Program Management represents the fee income from insurance policies written in the period. Earned fee income adjusts
written fee income to reflect the portion of written free income to be earned in the following financial periods and to recognize the written fee
income written in prior financial periods to be earned in this financial period.
Written fee income
Unearned fee income
Earned fee income
2021
$m
45.0
(13.2)
31.8
2020
$m
22.5
(4.0)
18.5
Strategic reportCorporate governanceFinancial statements 82
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Notes to the consolidated financial statements continued
For the year ended 31 December 2021
7. Gross investment income
Investment income (excluding realized and unrealized gains and losses)
Realized net gains/(losses) on financial assets
Unrealized (losses)/gains on financial assets
Investment income
8. Other income
Income from contracts with customers
Management fees
Income from other sources
Insurance commissions
Gain on sale of subsidiary
Interest expense on pension scheme deficit
Rental income from investment properties
Purchased reinsurance receivables
2021
$m
24.1
3.8
(21.5)
6.4
2021
$m
3.0
0.7
2.6
(0.1)
0.2
0.2
6.6
2020
$m
23.0
(4.5)
10.1
28.6
2020
$m
4.3
2.6
–
(0.2)
0.2
0.5
7.4
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
Expenses of insurance company subsidiaries
Expenses of syndicate participations
Employee benefits
Other operating expenses
2021
$m
58.6
24.8
59.3
23.3
2020
$m
53.0
7.4
59.7
23.3
166.0
143.4
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 (including Syndicate participations) segments.
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 audits.
2021
$m
0.3
0.9
0.8
0.2
2.2
2020
$m
0.2
0.8
1.2
0.2
2.4
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
83
2021
$m
11.1
0.3
15.1
26.5
2020
$m
3.2
0.2
9.2
12.6
10. Finance costs
Bank loan and overdraft interest
Interest on lease liabilities
Subordinated debt interest
Finance costs have increased in 2021 as a result of the increase in average drawn Group Bank facility compared to 2020, as well as subordinated
debt interest associated with the $125,000k notes issued in December 2020.
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
Amortization of pre contract costs
Amortization 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
Income tax (credit)/charge for the year
2021
$m
59.3
4.3
2.9
0.1
1.6
13.3
2021
$m
–
0.3
(7.7)
(7.4)
(27.2)
–
(34.6)
2020
$m
59.7
4.5
3.0
0.1
1.0
14.2
2020
$m
–
(2.0)
5.9
3.9
(4.8)
1.9
1.0
Strategic reportCorporate governanceFinancial statements 84
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Notes to the consolidated financial statements continued
For the year ended 31 December 2021
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:
(Loss)/profit before income taxes
(Loss)/profit on ordinary activities at the standard rate of corporation tax in the UK of 19.00% (2020: 19.00%)
Income not taxable for tax purposes
Expenses not deductible for tax purposes
Differences in taxation treatment
Unrelieved tax losses carried forward
Utilization of brought forward losses
Foreign tax
Tax rate differential
Adjustments in respect of previous years
Income tax charge/(credit) for the year
2021
$m
(162.0)
(30.8)
(24.1)
6.3
(1.8)
20.0
(0.7)
(7.7)
3.9
0.3
(34.6)
2020
$m
38.8
7.4
(26.9)
3.2
–
20.0
(0.2)
5.9
(8.3)
(0.1)
1.0
c. Factors that may affect future tax charges
In addition to the recognized deferred tax asset, the Group has other trading losses of approximately $366.4m (2020: $269.9m) 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 $37.9m (2020: $35.3m).
In the Finance Bill 2021, it was announced that the main rate of UK corporation tax would increase to 25% from April 2023.
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:
(Loss)/profit for the year attributable to ordinary shareholders
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
2021
$m
(127.4)
No.
000’s
224,284
47,327
271,611
(46.9)c
2020
$m
37.8
No.
000’s
200,827
15,199
216,026
17.5c
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
85
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:
(Loss)/profit 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
Diluted net asset value per ordinary share
2021
$m
(127.4)
No.
000’s
217,611
–
217,611
(46.9)c
2021
$m
396.5
No.
000’s
275,211
–
275,211
144.0c
2021
$m
396.5
No.
000’s
275,211
–
–
275,211
144.0c
2020
$m
37.8
No.
000’s
216,026
49,772
265,798
14.2c
2020
$m
529.7
No.
000’s
224,395
(112)
224,283
236.2c
2020
$m
529.7
No.
000’s
224,395
(112)
49,772
274,055
193.3c
Strategic reportCorporate governanceFinancial statements
86
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Notes to the consolidated financial statements continued
For the year ended 31 December 2021
14. Distributions
The amounts recognized as distributions to equity holders in the year are:
Dividend
Distribution on cancellation of AD shares
Total distributions to shareholders
15. Intangible assets
Cost
As at 1 January 2020
Exchange adjustments
Acquisition of subsidiaries
Disposals
As at 31 December 2020
Exchange adjustments
Acquisition of subsidiaries
Additions
Disposals
As at 31 December 2021
Amortization/impairment
As at 1 January 2020
Exchange adjustments
Charge for the year
Disposals
As at 31 December 2020
Exchange adjustments
Charge for the year
Disposals
As at 31 December 2021
Carrying amount
As at 31 December 2021
As at 31 December 2020
2021
$m
8.3
–
8.3
2020
$m
–
11.6
11.6
US state
licences &
customer
contracts
$m
Arising on
acquisition
$m
Goodwill
$m
Other
$m
Total
$m
8.3
–
–
(3.3)
5.0
–
–
–
–
57.5
2.3
34.1
(6.1)
87.8
(1.2)
14.6
0.4
–
25.0
0.1
–
–
25.1
(0.2)
3.4
–
–
5.0
101.6
28.3
–
–
3.3
(3.3)
–
–
–
–
–
5.0
5.0
7.9
0.3
9.9
(6.1)
12.0
(0.5)
12.7
–
24.2
77.4
75.8
23.0
0.1
0.9
–
24.0
–
0.5
–
24.5
3.8
1.1
0.9
–
–
–
0.9
–
–
–
(0.7)
0.2
0.5
–
0.1
–
0.6
–
0.1
(0.5)
0.2
–
0.3
91.7
2.4
34.1
(9.4)
118.8
(1.4)
18.0
0.4
(0.7)
135.1
31.4
0.4
14.2
(9.4)
36.6
(0.5)
13.3
(0.5)
48.9
86.2
82.2
Goodwill acquired through business combinations has been allocated to the Legacy insurance business segment, 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 is determined based on a value in use calculation using cash flow projections from financial budgets approved by
senior management.
Strategic reportCorporate governanceFinancial statements
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
87
Key assumptions used in value in use calculations
The calculation of value in use 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% (2020: 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 (2020: 10.0%).
The Directors believe that no reasonably 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 2020
Exchange adjustments
Additions
Disposals
As at 31 December 2020
Exchange adjustments
Additions
Disposals
As at 31 December 2021
Depreciation
As at 1 January 2020
Exchange adjustments
Charge for the year
Disposals
As at 31 December 2020
Exchange adjustments
Charge for the year
Disposals
As at 31 December 2021
Carrying amount
As at 31 December 2021
As at 31 December 2020
Computer
equipment
$m
Office
equipment
$m
Leasehold
improvements
$m
1.6
(0.1)
0.1
(0.3)
1.3
–
0.1
(0.1)
1.3
1.4
(0.1)
0.2
(0.3)
1.2
(0.1)
0.2
–
1.3
–
0.1
1.5
–
1.1
(0.3)
2.3
–
–
(0.4)
1.9
1.1
–
0.2
(0.3)
1.0
–
0.3
(0.4)
0.9
1.0
1.3
1.6
(0.1)
0.2
(0.1)
1.6
–
0.6
–
2.2
0.9
(0.1)
0.2
(0.1)
0.9
–
0.2
–
1.1
1.1
0.7
Total
$m
4.7
(0.2)
1.4
(0.7)
5.2
–
0.7
(0.5)
5.4
3.4
(0.2)
0.6
(0.7)
3.1
(0.1)
0.7
(0.4)
3.3
2.1
2.1
As at 31 December 2021, the Group had no significant capital commitments (2020: none). The depreciation charge for the year is included in
operating expenses.
Strategic reportCorporate governanceFinancial statements 88
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Notes to the consolidated financial statements continued
For the year ended 31 December 2021
17. Right-of-use assets
Position recognized at 1 January 2020
Deprecation charge for the year
Additions in the year
Exchange adjustment
As at 31 December 2020
Deprecation charge for the year
Additions in the year
As at 31 December 2021
Property
$m
Office
equipment
$m
4.2
(2.3)
3.5
0.1
5.5
(2.1)
2.7
6.1
–
(0.1)
0.2
–
0.1
(0.1)
–
–
Total
$m
4.2
(2.4)
3.7
0.1
5.6
(2.2)
2.7
6.1
The cost of leases with a rental period of less than 12 months or with a contract value of less than $4,000 was $0.1m for the year (2020: $0.1m) 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
As at 31 December
2021
$m
1.8
–
1.8
2020
$m
1.9
(0.1)
1.8
The investment properties are measured at fair value derived from the valuation work performed at the balance sheet date by independent
property appraisers.
Rental income from the investment properties for the year was $0.2m (2020: $0.2m) and is included in Other Income within the Consolidated
Income Statement.
b. Financial Instruments
Financial investment assets at fair value through profit or loss (designated at initial recognition)
Equities
Debt and fixed interest securities
Cash-based investment funds
2021
$m
11.9
1,386.8
112.6
1,511.3
2020
$m
7.5
1,090.0
74.0
1,171.5
Included in the above amounts are $126.6m (2020: $52.1m) 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 $95.6m (2020: $133.2m) of funds withheld as collateral for certain of the Group’s reinsurance contracts.
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
89
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
Oleum Insurance Company Limited
R&Q Bermuda services Limited
R&Q Re (Bermuda) Limited
RQLM Limited
Sandell Holdings Ltd.
Tradesman Program Managers, LLC
R&Q Re (Cayman) Ltd.
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 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
Vibe Services Management Limited
Vibe Syndicate Management Limited
La Licorne Compagnie de Reassurances SA
Capstan Insurance Company Limited
R&Q Ireland Claims Services Limited #
R&Q Ireland Company Limited by Guarantee #
R&Q Theta Designated Activity Company
Hickson Insurance Limited
Pender Mutual Insurance Company Limited
R&Q Insurance Management (IOM) Limited
Accredited Insurance (Europe) Limited {
R&Q Malta Holdings Limited
Accredited Bond Agencies Inc.
Accredited America Insurance Holding Corporation
Accredited Specialty Insurance Company
Accredited Surety and Casualty Company, Inc.
CMAL LLC }
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 Reinsurance Company
R&Q Services Holding Inc
% of ordinary shares held via:
Country of
incorporation/
registration
The Company
Subsidiary
and associate
undertakings
Overall effective % of
share capital held
Barbados
Barbados
Bermuda
Bermuda
Bermuda
Bermuda
USA
Cayman Island
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
England and Wales
France
Guernsey
Ireland
Ireland
Ireland
Isle of Man
Isle of Man
Isle of Man
Malta
Malta
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
–
–
–
–
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
–
–
–
–
–
–
–
–
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
100
100
100
–
100
40
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
40
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
Strategic reportCorporate governanceFinancial statements 90
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Notes to the consolidated financial statements continued
For the year ended 31 December 2021
18. Investment properties and financial assets continued
c. Shares in subsidiary and associate undertakings continued
Principal activity and name of subsidiaries/associate
R&Q Solutions LLC
Randall & Quilter America Holdings Inc
Randall & Quilter Healthcare Holdings Inc.
Randall & Quilter PS Holdings Inc
Risk Transfer Underwriting Inc.
Transport Insurance Company
# has a November year end due to Irish Law Society connection.
{ Has a UK and an Italian Branch
} Membership interest held by R&Q Capital No.1 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
% 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
–
–
–
–
–
–
100
100
100
100
100
100
2021
$m
302.6
476.5
779.1
3.2
134.3
6.6
173.1
317.2
1,096.3
100
100
100
100
100
100
2020
$m
189.5
264.8
454.3
3.1
131.1
6.4
94.7
235.3
689.6
Of the purchased reinsurance receivables balance $6.6m is expected to be received after 12 months (2020: After 12 months $6.3m).
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.
The Group has retroactive reinsurance policies within R&Q Reinsurance Company, which have an experience account that provides R&Q
Reinsurance Company with any excess assets that remain with the reinsurer after paying all claims. The Group recognizes the experience account
as a structured reinsurance receivable at the undiscounted best estimate value of excess investment assets above that needed to pay claims.
During 2021, management determined that it was in the best interest of shareholders to commute one of the retroactive reinsurance policies
within R&Q Reinsurance Company in order to provide liquidity to pay claims. The commutation of the policy significantly earlier than had been
anticipated has resulted in a full impairment of the structured reinsurance asset from the 2020 value of $86.8m.
Prepayments and accrued income includes gross deferred acquisition costs which have increased in accordance with the growth of
Program Management.
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
91
20. Cash and cash equivalents
Cash at bank and in hand
2021
$m
266.3
2020
$m
363.5
Included in cash and cash equivalents is $0.8m (2020: $0.8m) 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
2021
$m
506.2
(506.2)
–
751.3
109.7
861.0
4.9
23.4
135.4
115.4
279.1
1,140.1
2020
$m
516.4
(516.4)
–
222.0
44.6
266.6
1.9
14.5
81.1
61.9
159.4
426.0
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. 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.
Strategic reportCorporate governanceFinancial statements 92
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Notes to the consolidated financial statements continued
For the year ended 31 December 2021
22. Financial liabilities
Amounts owed to credit institutions
Lease liabilities
Deposits received from insurers
Amounts due to credit institutions are payable as follows:
Less than one year
Between one to five years
Over five years
2021
$m
395.9
7.6
3.0
406.5
2021
$m
8.0
188.1
199.8
395.9
2020
$m
330.2
6.8
2.9
339.9
2020
$m
69.2
42.1
218.9
330.2
As outlined in Note 31, $153.6m (2020: $85.5m) owed to credit institutions is secured by debentures over the assets of the Company and several of
its subsidiaries.
The Group has issued the following debt:
Issuer
Randall & Quilter Investment Holdings Ltd.
Principal
$70,000k
Rate
Maturity
6.35% above USD LIBOR
Randall & Quilter Investment Holdings Ltd.
$125,000k
6.75% above USD LIBOR
Accredited Insurance (Europe) Limited
Accredited Insurance (Europe) Limited
R&Q Re (Bermuda) Limited
€20,000k
€5,000k
$20,000k
6.7% above EURIBOR
6.7% above EURIBOR
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 $70.0m Notes issued by Randall & Quilter Investment Holdings 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
2021
2020
$m
2.2
5.5
0.2
7.9
$m
1.9
5.2
0.2
7.3
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
Flow 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.
2021
$m
330.2
70.5
(4.8)
395.9
2020
$m
191.9
138.7
(0.4)
330.2
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
93
2021
2020
Program
Management
$m
Legacy
Insurance
$m
Program
Management
$m
Total
$m
Legacy
Insurance
$m
Total
$m
682.6
(197.1)
1,720.2
(288.8)
2,402.8
(485.9)
390.9
1,009.5
(131.9)
(138.7)
1,400.4
(270.6)
–
–
459.3
287.9
(22.3)
91.1
430.4
64.7
(8.6)
(11.9)
91.1
430.4
524.0
279.3
(34.2)
–
–
307.0
100.1
16.5
426.1
368.2
42.1
(3.1)
16.1
426.1
368.2
349.1
97.0
32.6
1,210.4
1,997.1
3,207.5
682.6
1,720.2
2,402.8
1,180.6
(154.2)
377.3
(122.5)
653.7
(182.9)
–
–
430.5
270.7
(20.6)
526.9
28.7
164.2
247.5
(13.6)
(3.7)
4.2
164.2
247.5
416.9
267.0
(16.4)
1,151.4
954.2
2,105.6
28.9
(14.2)
1,193.3
(317.5)
1,222.2
(331.7)
–
–
28.8
17.2
(1.7)
59.0
(73.1)
182.9
78.3
(4.9)
(16.1)
(73.1)
182.9
107.1
12.3
(17.8)
1,042.9
1,101.9
238.4
(45.4)
283.1
1.4
27.4
–
22.0
526.9
771.1
(93.3)
143.0
366.8
14.7
(3.1)
(5.9)
615.7
(167.9)
283.1
1.4
318.1
92.2
38.0
1,180.6
784.7
(102.7)
143.0
366.8
31.0
4.8
(5.4)
1,193.3
1,222.2
–
–
290.7
92.2
16.0
653.7
13.6
(9.4)
–
–
16.3
7.9
0.5
28.9
23. Insurance contract provisions and reinsurance balances
Gross
Insurance contract provisions at 1 January
Claims paid
Increases/(decreases) in provisions arising from the (disposal)/
acquisition of subsidiary undertakings and Syndicate participations
Increases in provisions arising from acquisition of reinsurance portfolios
Increase in claims provisions
Increase/(decrease) in unearned premium reserve
Net exchange differences
As at 31 December
Reinsurance
Reinsurers’ share of insurance contract provisions at 1 January
Proceeds from commutations and reinsurers’ share of gross claims paid
Increases/(decreases) in provisions arising from the (disposal)/
acquisition of subsidiary undertakings and Syndicate participations
Increases in provisions arising from acquisition of reinsurance portfolios
Increase in claims provisions
Increase/(decrease) in unearned premium reserve
Net exchange differences
As at 31 December
Net
Net insurance contract provisions at 1 January
Net claims paid
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
Strategic reportCorporate governanceFinancial statements 94
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Notes to the consolidated financial statements continued
For the year ended 31 December 2021
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
$m
2021
Legacy
Insurance
$m
Program
Management
$m
Total
$m
2020
Legacy
Insurance
$m
Total
$m
600.0
610.4
1,996.5
0.6
2,596.5
611.0
1,210.4
1,997.1
3,207.5
572.4
579.0
1,151.4
27.6
31.4
59.0
954.1
0.1
954.2
1,042.4
0.5
1,042.9
1,526.5
579.1
2,105.6
1,070.0
31.9
1,101.9
349.9
332.7
682.6
336.4
317.3
653.7
13.5
15.4
28.9
1,719.7
0.5
2,069.6
333.2
1,720.2
2,402.8
526.9
–
863.3
317.3
526.9
1,180.6
1,192.8
0.5
1,206.3
15.9
1,193.3
1,222.2
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.
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.
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
95
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 $11.8m (2020: $12.2m).
24. Current and deferred tax
Current tax
Current tax assets
Current tax liabilities
Net current tax assets/(liabilities)
2021
$m
3.6
(2.4)
1.2
2020
$m
–
(2.6)
(2.6)
Deferred tax
Deferred tax is calculated in full on temporary differences under the liability method using tax rates of 25% for the UK (2020: 19%) and 21% for the
US (2020: 21%).
Deferred tax assets have been recognized 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 2020
Movement in year
As at 31 December 2020
Movement in year
As at 31 December 2021
The movement on the deferred tax account is shown below:
Deferred
tax assets
$m
Deferred
tax liabilities
$m
5.4
0.3
5.7
14.7
20.4
(12.8)
(5.2)
(18.0)
9.0
(9.0)
As at 1 January 2020
Movement in year
As at 31 December 2020
Movement in year
As at 31 December 2021
Accelerated
capital allowances
$m
Trading losses
$m
Pension
scheme deficit
$m
Other temporary
differences
$m
(0.1)
–
(0.1)
–
(0.1)
20.6
(2.4)
18.2
4.4
22.6
1.7
0.2
1.9
(0.5)
1.4
(29.6)
(2.7)
(32.3)
(19.8)
(12.5)
Total
$m
(7.4)
(4.9)
(12.3)
23.7
11.4
Total
$m
(7.4)
(4.9)
(12.3)
23.7
11.4
Strategic reportCorporate governanceFinancial statements 96
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Notes to the consolidated financial statements continued
For the year ended 31 December 2021
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 2020
Movement in 2021
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
Deferred tax in
Consolidated
Income
Statement
$m
3.1
22.6
Deferred tax in
Consolidated
Statement of
Comprehensive
Income
$m
0.3
(0.2)
Exchange
adjustment
$m
(8.3)
1.3
2021
$m
5.6
17.0
22.6
Total
$m
(4.9)
23.7
2020
$m
7.8
10.4
18.2
Deferred tax assets are recognized 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 $22.6m (2020: $18.2m) 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 recognized arises in the US subgroup.
25. Share capital
At 1 January 2020
Issue of ordinary shares
Share based payments
Treasury
Issue of AD shares
Redemption/cancellation of AD shares
At 31 December 2020
Functional currency revaluation
Issue of ordinary shares
Share based payments
Treasury
Distribution
At 31 December 2021
Number
of shares
Ordinary shares
$m
Share premium
$m
Treasury share
reserve
$m
195,917,568
21,578,813
6,898,903
(111,525)
222,563,380
(222,563,380)
224,283,759
–
49,772,168
1,043,816
111,525
–
275,211,268
5.4
0.8
–
–
11.6
(11.6)
6.2
(0.2)
1.4
0.1
–
7.5
176.7
20.6
14.8
–
(11.2)
–
200.9
7.2
85.9
2.6
(8.3)
288.3
–
–
–
(0.2)
–
–
(0.2)
–
–
–
0.2
–
–
Total
$m
182.1
21.4
14.8
(0.2)
0.4
(11.6)
206.9
7.0
87.3
2.7
0.2
(8.3)
295.8
Strategic reportCorporate governanceFinancial statements
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
97
In 2020, a Group subsidiary issued 47,609,270 USD0.01 convertible preference shares for cash consideration. These preference shares converted
into ordinary share capital of the Company upon certain regulatory conditions being met on 21 January 2021, whereby, the Group issued 49,772,168
ordinary shares for settlement of the convertible preference shares
Allotted, called up and fully paid
275,211,268 ordinary shares of 2p each (2020: 224,283,759 ordinary shares of 2p each)
1 Preference A Share of £1
1 Preference B Share of £1
Included in equity
275,211,268 ordinary shares of 2p each (2020: 224,283,759 ordinary shares of 2p each)
1 Preference A Share of £1
1 Preference B Share of £1
2021
$m
7.4
–
–
7.4
2021
$m
7.4
–
–
7.4
2020
$m
6.2
–
–
6.2
2020
$m
6.2
–
–
6.2
Cumulative Redeemable Preference Shares
Preference A and B Shares have rights, inter alia, to receive distributions in priority to ordinary shares of distributable profits of the Company
derived from certain subsidiaries:
» Preference A Share: one half of all distributions arising from the Company’s investment in R&Q Reinsurance Company up to a maximum
of $5.0m.
» Preference B Share: one half of all distributions arising from the Company’s investment in R&Q Reinsurance Company (UK) Limited up to
a maximum of $10.0m.
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 did not issue any distribution shares (2020: AD shares with an aggregate value of $11.6m, 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
2021
$m
46.8
5.4
1.8
5.3
59.3
2020
$m
49.2
4.7
1.7
4.1
59.7
Pension costs are recognized in operating expenses in the Consolidated Income Statement and include $1.8m (2020: $1.7m) in respect of
payments to defined contribution schemes.
Strategic reportCorporate governanceFinancial statements
98
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Notes to the consolidated financial statements continued
For the year ended 31 December 2021
26. Employees and Directors continued
Average number of employees
Program Management
Legacy Insurance
Other
Remuneration of the Directors and key management
Aggregate Director emoluments
Aggregate key management emoluments
Share-based payments – Directors
Share-based payments – Key management
Highest paid Director
Aggregate emoluments
2021
2020
Number
Number
125
154
16
295
2021
$m
11.1
3.5
4.8
0.5
19.9
6.9
71
169
40
280
2020
$m
12.3
4.3
3.9
0.1
20.6
6.7
Total
$m
4.0
2.0
6.9
2.3
0.1
0.1
0.1
0.1
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
T S Solomon
A H F Campbell
P A Barnes
J P Fox
E M Flanagan
Salary
$m
Directors’
Fees
$m
Bonus
paid
$m
Movement
in bonus
accrued
$m
Share
award cost
$m
0.3
0.7
1.5
0.5
–
–
–
–
–
–
–
–
0.1
0.1
0.1
0.1
3.7
1.1
1.5
1.0
–
–
–
–
–
0.2
–
–
–
–
–
–
–
–
3.9
0.8
–
–
–
–
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 2021 financial year represent the amounts paid in 2021 and provision for costs relating to the
2019, 2020 and 2021 reporting years’ performance, which will be paid in 2021, 2022 and 2023. The provisions are established on the likelihood
of the performance and service period criteria being met. Where contractual arrangements supersede the above policy, the contractual
arrangements are included.
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
99
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, with the last valuation completed as at
1 January 2021.
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.
The position and assumptions under IAS 19 as at 31 December 2021 are as follows.
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
2021
$m
36.6
(42.3)
(5.7)
1.4
(4.3)
2020
$m
37.7
(47.7)
(10.0)
1.9
(8.1)
All actuarial losses are recognized 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 2020
Interest (expense)/income
Remeasurements:-
Loss from changes in financial assumptions
Loss from changes in demographic assumptions
Experience gain
Employer’s contributions
Benefit payments from the plan
Currency revaluation
As at 31 December 2021
Present value
of obligation
$m
Fair value of
plan assets
$m
Deficit of
funded plan
$m
(47.6)
(0.6)
(48.2)
2.7
(0.1)
0.5
(45.1)
–
2.0
0.8
(42.3)
37.7
0.5
38.2
–
–
–
38.2
1.1
(2.0)
(0.7)
36.6
(9.9)
(0.1)
(10.0)
2.7
(0.1)
0.5
(6.9)
1.1
–
0.1
(5.7)
Strategic reportCorporate governanceFinancial statements 100
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Notes to the consolidated financial statements continued
For the year ended 31 December 2021
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
$m
Fair value of
plan assets
$m
Deficit of
funded plan
$m
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
Past service cost
Employer’s contributions
Benefit payments from the plan
Currency revaluation
As at 31 December 2020
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
(43.5)
(0.8)
(44.3)
–
(4.0)
(0.2)
–
(48.4)
–
2.7
(1.9)
(47.6)
34.0
0.7
34.7
3.3
–
–
–
38.0
1.0
(2.7)
1.4
37.7
2021
1.90%
3.50%
3.20%
(9.5)
(0.1)
(9.6)
3.3
(4.0)
(0.2)
–
(10.4)
1.0
–
(0.5)
(9.9)
2020
1.35%
3.00%
2.70%
2.70%
2.70%
3.50%
3.00%
2021
26.3
29.0
27.8
30.5
2020
26.2
28.7
27.4
30.0
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
101
d. Sensitivity to assumptions
The results of the IAS 19 valuation at 31 December 2021 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 7.4%
Increase by 1.4%
Increase by 3.9%
The above sensitivity analyzes 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
2021
Level 2
1.6
22.7
4.0
–
8.3
36.6
Level 1
–
–
–
–
–
–
$m
Total
1.6
22.7
4.0
–
8.3
36.6
2020
Level 2
0.5
23.7
3.8
–
9.7
37.7
Level 1
–
–
–
–
–
–
$m
Total
0.5
23.7
3.8
–
9.7
37.7
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. $1.1m of contributions have been made directly into the scheme during 2021 (2020: $1.1m).
In March 2022, a recovery plan has been renegotiated and agreed with the Trustees to eliminate the plan deficit by 31 December 2025.
Starting from July 2022, monthly payments will increase to provide annualised payments of $1.9m, and further single annual payments
of $0.8m will be made, finalising in December 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
2021
$m
–
0.1
0.2
–
2020
$m
0.7
0.2
0.1
0.1
Strategic reportCorporate governanceFinancial statements 102
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Notes to the consolidated financial statements continued
For the year ended 31 December 2021
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
Written Commissions
Funds due at year end
2021
$m
245.2
12.2
5.4
2020
$m
133.1
6.7
0.7
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 assets/(liabilities)
Income for the year
Profit for the year
2021
$m
29.0
(33.2)
(4.2)
63.5
29.4
2020
$m
19.6
(19.0)
0.6
19.6
13.7
29. Business combinations
Business combinations
During the year, the Group made five business combinations of run-off portfolios and acquired two non-insurance legacy businesses (which
were acquired as part of a single transaction). All of the Group’s business combinations involved Legacy Insurance 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:
EIIDAC
NYSHPWCT
Vibe
Oleum
Saurea
UK P&I Club
Intangible
assets
$m
Other
receivables
$m
Cash and
investments
$m
Other
payables
$m
Technical
provisions
$m
Tax and
deferred tax
$m
Net assets
acquired
$m
Consideration
$m
Gross deal
contribution
$m
3.1
0.3
2.8
–
0.4
11.3
17.9
0.5
–
2.7
–
–
–
3.2
64.1
2.8
1.6
1.2
4.1
66.7
140.5
(0.3)
–
(0.9)
–
–
–
(1.2)
(36.2)
(2.0)
–
–
(3.5)
(49.6)
(91.3)
(0.4)
30.8
–
–
–
(0.1)
(2.8)
(3.3)
1.1
6.3
1.2
1.0
25.6
66.0
9.1
–
6.3
0.9
–
–
16.3
21.6
1.1
–
0.4
1.0
25.6
49.7
Gross deal contribution represents the net asset value acquired in excess of any consideration paid, gross of any transaction expenses
or commissions.
Goodwill on bargain purchase arises when the consideration is less than the fair value of the net assets acquired. It is calculated after the
alignment of accounting policies and other adjustments to the valuation of assets and liabilities to reflect their fair value at acquisition.
The long-tail nature of the liabilities causes significant problems for former owners such as tying up capital and a lack of specialist staff.
As a specialist service provider and manager, the Group is more efficient at managing such entities and former owners are prepared to sell
at a discount on the fair value of the net assets.
In order to disclose the impact on the Group as though the legacy entities had been owned the whole year, assumptions would have to be
made about the Group’s ability to manage efficiently the run-off of the legacy liabilities prior to the acquisition. As a result, and in accordance
with IAS 8, the Directors believe it is not practicable to disclose revenue and profit before tax as if the entities had been owned for the whole year.
Strategic reportCorporate governanceFinancial statements Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
103
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 2021:
EIIDAC
On 19 May 2021, the Group announced it had completed the acquisition of the entire issued share capital of Electric Insurance Ireland DAC
(EIIDAC), an Irish domiciled captive insurance company of the General Electric Group. EIIDAC was incorporated in 2005 and wrote Employer’s
Liability and General Liability business between 2007 and 2020. External costs incurred total $124k.
NYSHPWCT
On 13 July 2021, but effective 1 August 2020, Accredited Surety & Casualty received regulatory approval to assume (novate) the Workers’
Compensation Liability policies of New York State Health Providers Workers Compensation Trust (NYSHPWCT). The policies assumed covered
the period from April 1992 to January 2011.
Vibe
On 21 May 2021, following regulatory approval, the Group completed the acquisitions of Vibe Syndicate Management Limited (VSML) and Vibe
Services Management Limited (Vibe Services), together ‘Vibe’, thus finalising the second completion of its purchase of the Vibe Group following
the acquisition of Vibe Corporate Member Limited in December 2020. VSML is regulated as a Lloyd’s Managing Agency for Syndicate 5678.
External costs incurred were $49k.
Oleum
On 28 September 2021, following regulatory approval, the Group completed the acquisition of Oleum Insurance Company Limited (Oleum),
a Barbados domiciled captive insurance company of Repsol. Oleum wrote policies covering property, construction and general liability risks
from 1995 to 2015 when it was placed in run-off. External costs incurred were $62k.
Saurea
On 17 November 2021, Accredited Insurance (Europe) completed the novation of General Liability and Professional Indemnity policies of Saurea
S.A., a Luxembourg based captive of Saur Group. The policies covered risks underwritten from 2006 to 2019. External costs incurred were $122k.
UK P&I Club
Effective 7 December 2021, the Group completed the Part VII transfer of the non-EEA industrial disease liabilities of the United Kingdom Mutual
Ship Assurance Association Limited (UK P&I Club) to R&Q Gamma Company Limited. External costs incurred were $110k.
30. Non-controlling interests
The following table shows the Group’s non-controlling interests and movements in the year:-
Non-controlling interests
Equity shares in subsidiaries
Share of retained earnings
Movements in the year
Balance at 1 January
Profit for the year attributable to non-controlling interests
Comprehensive profit attributable to non-controlling interests
Changes in non-controlling interest in subsidiaries
Balance at 31 December
2021
$m
–
–
–
(0.5)
–
–
0.5
–
2020
$m
–
(0.5)
(0.5)
0.6
(0.1)
(0.1)
(1.0)
(0.5)
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 2021 was $153.6m (2020: $85.5m).
The Group also gives various other guarantees in the ordinary course of business.
Strategic reportCorporate governanceFinancial statements 104
Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Notes to the consolidated financial statements continued
For the year ended 31 December 2021
32. Foreign exchange rates
The Group used the following exchange rates to translate foreign currency assets, liabilities, income and expenses into US dollars sterling, being
the Group’s presentational currency:-
UK Sterling
Euro
2021
2020
Average
Year end
Average
Year end
0.73
0.84
0.75
0.88
0.78
0.88
0.74
0.82
33. Events after the reporting date
On 1 April 2022, the Group announced that terms had been agreed to recommend the cash acquisition of the Group as well as $100m of new
equity funding by Brickell PC Insurance Holdings (Brickell).
On 25 May 2022, the Special General Meeting vote failed to approve the transaction with Brickell; consequently the Company announced it would
embark on an equity Fundraise of $100m via a placing and up to $8m via an open offer, the Fundraise is subject to shareholders’ approval and is
expected to complete in mid-July.
34. Contingent liability
Attention is drawn to Notes 2h, 3 and 23 which set out the uncertainties inherent in assessing outstanding claims reserves in the ordinary course.
The Group’s insurance contract provisions include a provision for costs only in respect of a potential accumulation of claims from a single
policyholder in the Group’s Legacy business. The claims involve multiple uncertainties including questions relating to liability, coverage, incidence,
quantum and other legal and technical issues. Management has concluded that it is not possible to measure the appropriate reserve for these
claims with sufficient reliability. Based on the documentation made available to date, and expert opinion and legal advice, management
believes that it is not probable that any significant amount, other than costs, will be payable to settle the claim; however, the ultimate cost of
the claims could be materially higher. In the circumstances, and in accordance with IAS 37, management has concluded that it is not currently
appropriate to recognize any estimate of the possible outcome but to disclose the position as a contingent liability.
35. Ultimate controlling party
The Directors consider that the Group has no ultimate controlling party.
Strategic reportCorporate governanceFinancial statements Shareholder Information
Auditors and Reporting Accountants
PKF Littlejohn LLP
15 Westferry Circus
Canary Wharf
London
E14 4HD
Principal Bankers
NatWest Bank PLC
250 Bishopsgate
London
EC2M 4AA
Registrar
Computershare Investor Services (Bermuda)
Limited
5 Reid Street
Hamilton HM11
Bermuda
Trading Platforms
The Company is listed on the Alternative
Investment Market (AIM) 100 Index of the
London Stock Exchange and the OTCQX
Best Market, a US trading platform that
is operated by OTC Markets Group. The
Company also has debt securities which
are traded on the Global Exchange Market
of Euronext Dublin.
Board of Directors
William Spiegel
Alastair Campbell
Philip Barnes
Jo Fox
Eamonn Flanagan
Alan Quilter
Tom Solomon
Secretary
David Gormley
Registered Office
Clarendon House
2 Church Street
Hamilton
HM11
Bermuda
Registered Number
47341
Nominated Advisor and Joint Broker
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London
EC4M 7LT
Joint Broker
Barclays Bank PLC
5 The North Colonnade
Canary Wharf
London
E14 4BB
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
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