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Randall & Quilter Investment Holdings Ltd.
Annual Report 2021
Strategic
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Corporate
governance
Financial
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ANNUAL REPORT 2022
BUILDING THE FOUNDATIONS
TO GROW SUSTAINABLY
R&Q INSURANCE
HOLDINGS LTD
BUILDING THE
FOUNDATIONS
TO GROW
SUSTAINABLY
Building the foundations to grow sustainably is our theme for this year’s
Annual Report and is representative of the work we have led over the past year
to transform our operational infrastructure, and to make our business stronger
to enable sustainable, long-term growth.
In the past year, we have reinforced our culture through the launch of our purpose
and values. We have strengthened our teams by bringing in diverse talent with
strong capabilities, and ensured the activity we do internally to engage our people
is as confident as the activity we take with stakeholders in the sector and in our
communities. We are continuing to improve our operations by upgrading our
technology, claims and finance systems with more modern, automated solutions.
We have been building these foundations while driving our strategic pillars, in
order to evolve R&Q into a capital-efficient, fee-oriented, data-driven company.
In the following pages, we explore our accomplishments in laying in place the
solid foundations to drive growth, and ensure that, in every market we touch,
our impact is positive and sustainable.
4
The building blocks of our journey
6
Business highlights from 2022
10
Chair’s statement
12
2022 in review
16
Business model
17
Purpose and values
18
Working responsibly
25
Principal risks and uncertainties
28
Financial review
34
Board of Directors
36
Corporate governance statement
42
Audit Committee report
46
Remuneration, Nominations and Governance Committee report
50
Investment Committee report
53
Group Risk and Compliance Committee report
56
Risk management
58
Statement of Directors’ responsibilities
60
Independent auditor’s report
64
Consolidated income statement
65
Consolidated statement of comprehensive income
66
Consolidated statement of changes in equity
67
Consolidated statement of financial position
68
Consolidated cash flow statement
69
Notes to the consolidated financial statements
Strategic
report
Corporate
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Financial
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Contents
R&Q is a global non-life specialty insurance company. We operate two core,
highly complementary, businesses: Program Management (Accredited) and
Legacy Insurance (R&Q Legacy). Both these businesses are leaders in their
respective markets.
The building blocks
of our journey
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Annual Report 2022
Innovating our operational
infrastructure
More sophisticated technology for
efficiency and decision-making
» SAP implementation
» Cloud onboarding
Better financial management
» Moved to one general ledger
» We have begun work to consolidate or remove
systems across R&Q
» Elected to change our accounting regime to
US GAAP (starting 1 January 2023)
» Data automations
» Cybersecurity tools
in order to continue…
supported by…
2022 has been about building a strong, confident
business while transforming our internal foundations
Growing and evolving
our portfolio
Accredited firing on all cylinders
» Established an effective new business while
delivering insights and taking risks that help
our customers improve their businesses
» Building an industry best-in-class platform for
diligence, onboarding, monitoring and retention
R&Q Legacy strategy will drive efficiency
and operational leverage
» Fee-oriented transformation underway with
formation of Gibson Re and promising pipeline
» New fee stream being pursued through
corporate liability deals
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Investing in a
sustainable future
Important progress being made to
embed Environmental, Social and
Governance (ESG) across the business
and its value chain
» Sustainability is one of our strategic pillars
and a core value
» ESG Working Committee created
» ESG Framework developed and approved
by the Board
» Signatory of UN Principles for
Sustainable Insurance
Strengthening our culture,
skills and teams
Onboarded and developed diverse talent
with desired capabilities
» Over 70 new hires across the Group and every
team, reinforcing business areas like M&A and
driving operational improvements
» Promoted over 20 high-performing employees
Rolled out our purpose and values
» R&Q’s guide to achieving our strategic
objectives and how we want our culture and
mindset to be defined
ultimately underpinned by…
...for the benefit of all
of our stakeholders.
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Business highlights from 2022
Enhance
Transparency
Our strategic pillar
to make economically-driven decisions
and facilitate long-term value creation,
efficient allocation of capital, enhanced
risk-management and strong governance
The progress we have made
»
Redefined KPIs to focus on cash
economics (e.g. Pre-Tax Operating
Profit) rather than accounting profits
»
Developed and articulated a robust
capital and liquidity framework
»
Introduced a robust reserving committee
»
Enhanced the risk framework, supported
by more sophisticated stochastic
modeling of risks and their impact on
liquidity and earnings
»
Optimised the investment portfolio with
a focus on Asset-Liability Management
»
Created an emerging-issues tracking
and monitoring process to identify and
better manage risk
»
Created an ‘after-action review process’
to self-assess and take lessons learned
across the organisation
Automate
Processes
Our strategic pillar
to support growth and create
operating leverage
The progress we have made
»
Invested over $20 million to upgrade
the infrastructure in order to support
compliance requirements and business
growth objectives
»
Moved to a single group-wide general
ledger from multiple regional and
disparate financial systems
»
Implemented automation tools including
robotics to eliminate extensive manual
business processes and reduce
over-reliance on end user computing tools
»
Digitised, absorbed and categorised
over one million paper documents into a
modern document management solution
»
Designed and implemented a robust
cloud-based infrastructure enabling
financial and actuarial data absorbtion,
validation, pre-processing and
automated management information
Increase Fee Income
and Capital Efficiency
Our strategic pillar
to pivot to a capital-efficient and
higher return on equity model
The progress we have made
»
Grew Accredited GWP by 80% to
$1.8 billion, one year ahead of
original guidance
»
Generated a 78% increase of $80 million
of Fee Income in Accredited
»
Grew RUM in R&Q Legacy to $417 million
in less than one year with annual
fees of 4.25% on Reserves Under
Management (RUM)
»
Transitioning R&Q Legacy to an annual
recurring fee business based on RUM
through Gibson Re in 2021
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Act
Responsibly
Our strategic pillar
to respect all stakeholders of the business
and embed ESG in our business processes
The progress we have made
»
Focused on behavioural change tied to
long-term value creation and innovation
rather than short-term profits
»
Completed an organisational assessment
of ESG and gaining greater visibility on
our carbon footprint
»
Launched a bottom-up development and
roll-out of our purpose and values
»
Enhanced community engagement
Engage
Employees
Our strategic pillar
to foster constructive, transparent and
open dialogue to accelerate the execution
of our strategy and attract new talent
The progress we have made
»
Expanded our talent mix across
the organisation
»
Established metrics-based expectations
in goal-setting process to align to
compensation
»
Improved collaboration across lines
of business and geographies and
encouraged a culture of speaking up
»
Instituted regular town halls and
communication to promote transparency
and active engagement from all levels
10
Chair’s statement
12
2022 in review
16
Business model
17
Purpose and values
18
Working responsibly
25
Principal risks and uncertainties
28
Financial review
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Chair’s statement
It is therefore clear to the Board that
achieving our objective of unlocking value
in each business is best managed through
a separation of Accredited and R&Q Legacy.
William will discuss this further in his 2022
in review.
My appointment as Independent Non-
Executive Chair has also enabled R&Q to
move to a corporate governance structure
that is better aligned with best market
practice. As Executive Chair, the role William
was undertaking was far closer to that of
Group CEO and it is appropriate that this is
now formalised.
Since starting my role, I have been deeply
impressed by the calibre of R&Q’s Leadership
Team, many of whom have joined in the last
two to three years. William has assembled
a bench with deep experience across
insurance, capital markets and financial
services. This has been particularly important
given the extensive transformation that
has taken place within the business to
ensure it has the technology, platforms and
processes required to support the growth
of Accredited and R&Q Legacy. This has
included substantial changes to make R&Q
a more efficient business, improve its risk
management and governance practices
and build a stronger culture that can attract
and retain the talent we need.
The Board and I are focused on supporting
the Leadership Team as they continue to
drive these essential changes, while also
pursuing the strategic separation of our two
businesses. Since coming into the business,
my confidence in the inherent value within
R&Q has only increased. I firmly believe we
have the right team and strategy to realise
these objectives.
Jeffrey Hayman
Independent Non-Executive Chair
28 June 2023
I was pleased to be appointed Independent Non-Executive Chair
in March 2023. Since joining I have spent time getting to know our
businesses Program Management (Accredited) and Legacy Insurance
(R&Q Legacy), our people and our shareholders.
Clearly both of R&Q’s two businesses have
excellent fundamentals: they are well-
established players in attractive non-life
insurance niche segments, enjoy high barriers
to entry, have high quality management
teams and employees with strong
technical expertise, and they both have well
established reputations in the market.
However, it is also important to acknowledge
2022’s challenges. These included continued
volatility and adverse development in our
older legacy books as well as a number of
corporate events that absorbed significant
Board and management time. In addition,
the company oversaw extensive and ongoing
internal transformation to ensure its people,
technology, risk management, culture and
governance are appropriate to support
R&Q’s strategic and growth ambitions.
On an underlying basis, I believe the picture
is encouraging. Accredited has established
itself as a genuine leader with exciting
growth. At the same time R&Q Legacy
is building momentum in its strategic
transformation, albeit at a slower pace
than originally envisaged given the need for
prudence in a softer legacy market. The joint
venture with Obra Capital to acquire MSA
Safety, post-period end, is also indicative of a
meaningful opportunity to provide solutions
for corporate liabilities through partnerships
with third-party capital, adding to what is
now a sizeable pool of reserves managed
by R&Q Legacy.
The focus for R&Q therefore needs to be
unlocking the value within both businesses.
Doing this will create more opportunity
for our people, stronger counterparties for
capital and trading partners, and greater
returns for our shareholders.
Although transitioning to a fee-oriented
business, R&Q Legacy has a more volatile
earnings profile than Accredited, which
could impact the financial strength rating
critical to Accredited.
Jeffrey (Jeff) Hayman
Independent Non-Executive Chair
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2022 in review
Accredited has seen remarkable growth in
the past five years and is now the largest
program manager in Europe and one of
the largest in the US. It also relies on an
‘A’ financial strength rating to conduct its
business and, although it has historically
relied on the strength of the broader Group
to obtain its financial strength rating, it now
has both the size and scale to achieve a
standalone rating. Conversely, R&Q Legacy,
which does not require a financial strength
rating to conduct business, is at an earlier
stage of its strategic journey as it transitions
to a fee-oriented and capital-efficient
model that will create a more profitable,
sustainable and valuable business.
Therefore, we announced in April 2023
that the Board had concluded that it
was in shareholders’ best interests to
evaluate strategic options that allowed
for a separation of Accredited and R&Q
Legacy. A process is underway for the sale
of Accredited with interest expressed from
a number of parties. In addition, a variety
of strategic actions are being explored in
relation to R&Q Legacy.
We have two great businesses, but they
operate in different parts of the insurance
ecosystem, require different skill sets and
expertise and have different rating and
regulatory needs. We are now in a position
where each has the scale, maturity and
brand strength to stand on their own. By
separating these businesses, we can ensure
both have the right level of management
focus and appropriate capital structures to
achieve their full potential. Legal separation
was successfully completed as planned
in Q2 2023 and, with the completion of the
reorganisation, AM Best announced the
recognition of Accredited as an independent
rating unit (separate from R&Q) and has
maintained an A- financial strength rating,
pending the completion of the sale process.
We also announced in June 2023 that we
have raised $50 million of preferred equity
from Scopia Capital, one of our largest
shareholders, with the opportunity to raise
2022 was, without doubt, an eventful year for R&Q. I would like to start
by thanking our shareholders and partners for their support and our
employees for their focus and commitment.
William Spiegel
Group Chief Executive Officer
During the year we saw substantial progress
with regards to our strategic pillars, most
notably the continued evolution and transition
of R&Q Legacy and significant investment
and change aimed at making R&Q a modern
and efficient company with a strong culture.
In many ways these changes represent a
multi-year operational turnaround at R&Q.
Turnarounds are difficult; they take time,
focus and resilience in the face of both many
obstacles and outside scrutiny.
In 2022, we were also required to navigate
a number of events which we had not
anticipated at the start of the year and which
took up significant management time. In
particular, while we were successful in our
defense against the shareholder activism, this
event, including the public attention drawn to
it, took a toll on the mental health of many of
our employees who are proud of their work
at R&Q. I have been particularly impressed
with the way our employees responded, with
continued focus and commitment.
Turning to our performance for 2022, we
are disappointed with our headline
operating result, which is a Pre-Tax
Operating Loss of $33.3 million. This loss
is larger than expected, primarily driven
by $32 million of adverse development
in R&Q Legacy, mainly from our older
legacy transactions. Beyond the adverse
development, and at an underlying level,
this result reflects two business at different
stages of their development. Accredited
continued to grow and reported record
results and a profit of $55.7 million while R&Q
Legacy reported a loss $56.6 million. If not
for the adverse development, R&Q Legacy
would have shown good execution against
its transition plan to become a more capital-
efficient business. Our overall loss was also
impacted by $32.4 million in Corporate and
Other, which is primarily an interest expense.
I will discuss Accredited and R&Q Legacy in
more detail shortly.
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an additional $10 million. This is being used to
increase the capital resources of R&Q Legacy,
which is providing reinsurance support to
Accredited, as well as general corporate
purposes given that Accredited will no longer
pay intra-group dividends to R&Q as part of
a requirement to secure its financial strength
rating from A.M. Best.
Turning to corporate governance, I am
pleased that we were able to welcome Jeff
Hayman as our Independent Non-Executive
Chair in March 2023. Jeff’s long career in
the global insurance sector and board
experience made him the outstanding
candidate and he is already making a
valuable contribution.
Accredited review
Accredited was launched in 2017 and,
when I joined R&Q in early 2020, had circa
$370 million in Gross Written Premium
(GWP). Today, that has increased by nearly
550% and, with a GWP of circa $2.0 billion,
Accredited is now one of the most important
hybrid carriers globally.
Accredited’s results for last year reflect
not only outstanding growth, but a robust,
operationally-mature and well-diversified
business. In 2022, we reported a Pre-Tax
Operating Profit of $55.7 million and Fee
Income (excluding minority stakes in
Managing General Agents (MGAs)) of $80
million, increases of 170% and 78% respectively.
This Pre-Tax Operating Profit included $12
million that arose from the Group’s minority
stake in Tradesman Program Managers
(Tradesman). In March we announced that we
completed the sale of our 40% minority stake
in Tradesman for $47 million or approximately
10x EBITDA upon adjusting for the maximum
contingent commissions that could become
payable to reinsurers should the program
underperform expectations and $67 million of
net debt on Tradesman’s balance sheet as at
31 December 2022. Furthermore, our decision
to reduce our exposure to certain Tradesman
programs meant the minority investment was
no longer strategic to R&Q. We made 3.7x our
initial investment in Tradesman of $25 million,
including $46 million of dividends received
to date and have subsequently replaced the
GWP from Tradesman’s programs with new
MGA partnerships.
We are also now seeing Accredited
increasingly benefit from operational
leverage given its meaningful scale with
margin improvement of 21 percentage
points over the year, increasing from 36% to
57%. It is not only scale driving this enhanced
margin; we are starting to see benefits
emerge from our smart investments in
data and technology to make Accredited
a more efficient business. This has included
moving to a cloud-based architecture,
centralising our data, enabling new analytics
and reporting, automating a number of
processes and optimising resources. This
remains a core focus, and we expect to drive
further operational improvements in 2023
that will both support growth and enhance
our profitability.
Our overall result was driven by a 76%
increase in GWP to $1.8 billion written
through our 77 programs and supported
by over 250 reinsurance partnerships. As
Accredited continues to scale, we believe
that this diversification by program, class of
business and reinsurer is particularly important.
Supporting this growth is the consistently
strong feedback we get from MGAs on the
value they place in Accredited as a partner.
From an underwriting portfolio perspective,
it means we are not over-exposed to either a
single program or specific classes of business,
giving us protection against headwinds in any
part of the market. Furthermore, Accredited
employs a rigorous screening process in
order to select only high-quality programs
out of a large pipeline of opportunities. We
couple this with highly active oversight that
includes regular audits and reviews and our
technology allows underwriting, actuarial
and finance to perform ongoing monitoring
of each program’s performance, giving us
early indication of any developing situations,
enabling the quality of performance to
be maintained.
From a reinsurer perspective, our
diversification gives us multiple channels
for sourcing capacity. It also supports our
focus on managing counterparty credit,
something that is critical for any program
manager. We have developed a broad
panel of highly-rated reinsurers to support
Accredited. Our focus on due diligence
and active management of our programs
is an important differentiator for these
reinsurance partners when providing
capacity to Accredited.
Looking ahead our strategy for Accredited
remains unchanged. We will look to:
»
Partner with high quality MGAs and
reinsurers to drive annual, recurring
Fee Income.
»
Minimise balance sheet volatility
through low retention of underwriting
risk and protecting our retentions with
excess of loss reinsurance.
»
Continue to invest in data to enable better
analytics and automation to support
growth and create operating leverage.
»
Make Accredited a destination for talent
by empowering our employees.
»
Act responsibly and embrace
ESG practices.
To achieve this, we have set out a number
of priorities for 2023:
»
Develop more multi-program, ‘super
MGAs’. These partnerships, which are
often multi-year partnerships, enable us
to bring in significant new GWP through
writing large single programs or multiple
programs with a single MGA, with
whom we already have a partnership.
We already have a number of ‘super
MGAs’ as partners.
»
Upgrade to a smoother speed-to-market
process for new business, making it easier
and quicker for new MGAs to onboard
their programs.
»
Keep driving our innovative and
client-centric business model, making
Accredited an industry partner of choice.
This includes our two conferences in
Florida and Zurich which last year were
attended by over 350 professionals.
Finally, I believe it worth reiterating the
attractive structural tailwinds that give us
such confidence in the future for Accredited.
Independent MGA written premium is
growing at double the rate of the overall P&C
market, with MGAs becoming the platforms
of choice for more and more entrepreneurial
underwriters and insurance talent. Therefore,
it is not surprising that in 2022, according
to Conning, non-affiliated MGAs became a
larger part of the MGA market than affiliated
MGAs, a testament to the importance and
growing position of hybrid carriers in the P&C
market. We also think that hybrid carriers
like Accredited will continue to capture an
increased proportion of premium (currently
the hybrid carriers collectively write c.10% of
the c.$130 billion global MGA premium) as
MGAs look to align with conflict free capacity
that can not only support their ambitions but
offer a best-in-class approach to data and
operational excellence. We remain excited
about the future.
R&Q Legacy review
R&Q Legacy is in the process of transitioning
to a fee-oriented model. As we knew when
we started this journey, the transition will
take time and this is reflected in our results
for R&Q Legacy. However, we remain firm in
our belief that this will result in a less volatile
business that generates more sustainable
and predictable profit and with greater
ability to scale.
R&Q Legacy includes historical transactions
which predate the sidecar reinsurance
arrangement with Gibson Re and, as
discussed below, are therefore subject to
increased volatility in earnings over the
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insurance liabilities – enabling us to realise
our vision for R&Q Legacy as a leading global
manager of insurance reserves and non-
insurance legacy liabilities.
Strategic and operational update
A significant focus for the Leadership Team in
2022 was driving forward our strategic pillars,
and I am pleased by the progress we have
made across each of these:
»
Increase Fee Income And Capital
Efficiency: growing annual recurring
Fee Income that produces higher returns
on equity.
»
Enhance Transparency: putting in
place clear metrics to drive economic
decision making that facilitates long-term
value creation.
»
Automate Processes: investing in
automation and data to support growth
and create operating leverage.
»
Engage Employees: empowering our
employees to execute our strategy and
attracting new talent.
»
Act Responsibly: respecting all our
stakeholders and embedding ESG in
our business processes.
I have already touched on the progress
we are making in growing Fee Income and
profitability, but less visible is the extensive
work we have undertaken to make R&Q a
more modern, technology and data-enabled
and operationally robust business.
As part of Enhance Transparency we are
making R&Q a stronger and more resilient
business by improving our reporting, risk
management, governance and compliance.
This has included developing a more formal
reserving committee, an enhanced risk
framework supported by more sophisticated
stochastic modelling of risks and their
impact on liquidity and earnings, optimising
our investment portfolio with a focus on
asset-liability management and improving
our Treasury function.
As part of Automate Processes we are
investing $20-25 million in operational
improvements, with c.$15 million of this
focused on making R&Q Legacy a more
efficient and scalable business. The R&Q
Legacy team has identified and taken
action on a number of opportunities to
reduce expenses, including simplifying our
legal entity structure and rationalising our
real estate footprint. Work is also underway
to automate the input of data we receive
from our Third-Party Administrators (TPAs)
and move our internal systems to the
cloud. Better use of data is enabling us
to make smarter decisions, quicker, while
more automated processing is reducing
duplication and costs. As we have seen with
Accredited, we expect this work to create
operational leverage benefits as we grow
our Reserves Under Management.
In addition, we continue to attract strong
talent including senior hires into our Legacy
M&A team and our North America Legacy
Claims team.
Looking ahead, we are confident of
successfully building our Reserves Under
Management. Our pipeline is healthy with
identified transactions comprising over $1
billion of reserves and we continue to focus
our attention on areas where we have
a competitive advantage which is in the
small to medium size range where R&Q has
historically operated.
In addition, shortly after the year-end, we
announced a landmark deal to invest
alongside Obra Capital to acquire and
professionally manage the non-insurance
legacy liabilities of MSA Safety, our first
transaction involving non-insurance liabilities.
This transaction increased our Reserves Under
Management to more than $1 billion. Our
objective is to identify and execute similar
deals to create compelling finality solutions for
corporates in the US, UK and Europe.
This, alongside Gibson Re, will see R&Q
Legacy earn fees from two distinct, but
complementary, pools of liabilities – traditional
insurance reserves, and corporate non-
life of the transaction from any adverse
development. Disappointingly, in 2022, for
the second year in a row, we experienced
adverse development of c.3.6% of net
reserves in these books. We are currently
exploring solutions to reduce the volatility
arising from pre-Gibson Re transactions.
The softer conditions impacting the legacy
market saw us adopt a more cautious
approach to transactions in 2022. While
significant opportunities remain, and our
deal team sees a high volume of these, we
have been highly disciplined in our approach
to pricing. In 2022, this saw us complete only
four deals with a total of $68 million in Gross
Reserves Acquired.
As a result of these factors, R&Q Legacy
reported a Pre-Tax Operating Loss of $56.6
million, including $32 million of net adverse
development. We earned Fee Income of
$12.1 million on $395.6 million of Reserves
Under Management.
As we have discussed previously, prior to new
accounting rules effective from 1 January
2023, our previous IFRS accounting regime
allowed ‘Day-1 gains.’ This meant that a
majority of a transaction’s profits could
be recorded upfront upon closing of the
transaction. Any net reserve development
after a transaction had closed therefore
created heightened volatility in earnings
over the course of that transaction’s lifetime.
However, it does not mean that the
underlying returns of a transaction would not
meet expectations when taking into account
the Day-1 gain and investment income. Going
forward, neither IFRS 17 nor our new US GAAP
accounting regime allow for Day-1 gains.
Furthermore, our transition to a fee-oriented
model will make Underwriting Income a
smaller part of our R&Q Legacy returns, with
R&Q now retaining only 20% of a typical
transaction and the remaining 80% being
ceded to Gibson Re.
From an operational perspective, and
aligned to our broader strategy, we are
2022 in review
continued
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deployed to date. This investment was
not optional, but rather it was required in
order for the business to scale and meet
reporting requirements. The good news is
that this investment is expected to generate
approximately $10 million of recurring annual
productivity efficiencies by 2024.
This investment includes moving to a single
group-wide general ledger, implementing
automation tools including robotics to
eliminate extensive manual business
processes, digitising over one million paper
documents into a modern document
management solution, implementing a
robust cloud-based infrastructure for our
financial and actuarial data and migrating
data to our enterprise warehouse to
reduce reliance on legacy technologies
and reduce our application footprint. These
tools will triage emails and documents
automatically, eliminate paper costs to
leverage searchable digital documents,
and fully automate processes that took
several hours a day of manual processing
across multiple departments.
Our pipeline of automation is very strong.
With the proficiency that we’ve built over
the past two years, we are working on
several new initiatives where we are
aiming for another $1 million of annual run
rate savings by further leveraging our cloud
automation, document management system
and robotics.
In 2022 Engage Employees was an important
driver for several actions. We rolled out
a much needed brand refresh and, most
notably, we launched R&Q’s purpose and
values. We set out our purpose as:
‘We enable the success of our customers
by delivering tailored, data-driven and
innovative insurance solutions that provide
protection and assurance in an uncertain
world.’ Supporting this are our four values:
»
Operate as One collaborating across
teams and geographies to deliver
our best, while upholding a shared
commitment to integrity.
»
Invest in People passionately
investing energy, attention and capital
into our relationships. This means that
we help each other, our customers,
and communities succeed today…
and tomorrow.
»
Own the Next Step encouraging
accountability and transparency.
We want to benefit from the insights
and expertise of everyone at R&Q
and we know we see the best results
when we combine our expertise with
empowerment, ownership and action.
»
Create Sustainable Value committed
to delivering value for our customers,
partners, investors and each other. To
address the needs of the industries we
serve, we must be agile and sustainable
with our products and solutions setting
the standard for quality and innovation.
It has been exciting to see the meaningful
engagement and enthusiasm from our
employees, and we are committed to
embedding these values into our behaviours
and actions in 2023 and beyond.
We further engaged both our employees
and external audiences via our brand
refresh for RQIH, Accredited and R&Q
Legacy, which provides a more confident
and contemporary image to our clients,
customers and partners. This new look and
feel of our brand has helped us to better
distinguish ourselves at external events and
conferences and rejuvenate interest in R&Q
from potential new talent.
We introduced changes to make our
compensation and goal-setting more
metrics-based to help our people better
track their progress and help ensure tighter
alignment with our strategy across the
business. And finally, through a year that had
its share of change, we have continued to
enhance the variety of our communications
and respond to feedback from our people,
giving them the information they need to
perform and be inspired. We have taken a
more proactive approach to engagement
including more regular town halls and the
provision of dedicated briefings for managers
to help them provide context to their teams
and answer questions more effectively.
Our sector remains one where the battle for
talent is intense, and we are confident in our
efforts to provide our people with a dynamic
environment where they can contribute and
grow their careers in a meaningful way.
ESG update
We continue to make positive progress in
terms of embedding ESG across our business
and this is clearly reflected in our strategic
pillars and refreshed purpose and values. We
have developed an ESG framework, aligned to
the guidance provided by Lloyd’s and the UN’s
Principles for Sustainable Insurance, the latter
we are pleased to have joined as a signatory.
We continue to assess potential risks and
opportunities within our business and across
our value chain. As part of these efforts, we
have made our initial voluntary TCFD climate
change risk disclosure in this Report.
Outlook
Our immediate focus remains the separation
of Accredited and R&Q Legacy. This process
is progressing well, with the legal separation
of these entities achieved in Q2 2023, as
planned, and the recognition by AM Best of
Accredited as an independent rating unit,
with an A- financial strength rating.
As we continue to assess the strategic options
for both businesses, we expect to provide
further updates over the course of 2023.
We believe the outlook is strong for
Accredited and R&Q Legacy. Both businesses
have excellent pipelines and, while we
remain highly disciplined, we are confident
of growing GWP and Reserves Under
Management in each business respectively.
William Spiegel
Group Chief Executive Officer
28 June 2023
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Business model
In 2022, our business model enabled us to evolve into a more capital-efficient,
fee-oriented and data-driven company. Our strategic pillars help us achieve our
business and operational objectives, and our purpose and values define how we work.
Market leader in both
Accredited and R&Q
Legacy businesses
Strong secular
growth
Strong
financial
track record
High barriers
to entry
Conservative
investment
strategy
Fee-oriented,
capital-efficient R&Q
Legacy business
Growing fee-oriented
Accredited business
1
7
6
5
4
3
2
»
Revenue model, driven by annual recurring Fee Income on Accredited Gross Written Premium
and R&Q Legacy reserves
»
Predictable and high quality annual recurring Fee Income
»
Balance sheet efficient, with capital required to fund growth provided by third parties
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Operate
as One
We want great ideas to
flourish. We are committed
to collaborating across teams
and geographies to deliver
our best, while upholding
our shared commitment
to integrity.
Create
Sustainable
Value
We are committed to
delivering value for our
customers, partners,
investors and each other.
To address the needs of the
industries we serve, we must
be agile and sustainable.
Our products and solutions
set the standard for quality
and innovation.
Invest in
People
We are passionate about
investing energy, attention
and capital into our
relationships. This means
that we help each other, our
customers, and communities
succeed today…and
tomorrow.
Own the
Next Step
We encourage
accountability and
transparency. We want to
benefit from the insights
and expertise of everyone
at R&Q. We know we see
the best results when we
combine our expertise
with empowerment,
ownership and action.
Our
purpose
Our values
We enable the success of our customers by delivering tailored,
data-driven and innovative insurance solutions that provide
protection and assurance in an uncertain world.
Purpose and values
Our purpose articulates our contribution to our clients and society.
Our values help us align on how we prioritise, make business decisions
and articulate the behaviours we expect from each other. These values
guide every action we take and are at the heart of R&Q’s culture.
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Working responsibly
Building our foundations
Sustainability is a core component of our
strategic pillars and is a dominant theme
across the values that we launched in 2022.
Through our efforts in the past year, we
are confident that sustainability is another
‘building block’ providing us with a solid
platform to grow the business responsibly.
Following a third-party external stakeholder
materiality assessment conducted in late
2021, we have developed an ESG Framework
which focuses on the material sustainability
issues that are most relevant to our
stakeholders. Our efforts are two-fold in that
we are now seeking to begin addressing
and reporting on those topics where we
have direct control as well as seeking to
engage external parties along our value
chain to pursue shared objectives around the
ongoing improvements to key ESG metrics.
Embedding ESG
We are pleased with the progress we have
made in developing our ESG framework
which incorporates the guidance provided
by Lloyd’s of London and the UN Principles
for Sustainable Insurance (UN PSI). We have
recently been confirmed as a signatory
to the UN PSI, reaffirming our ambition to
act responsibly and collaborate with other
players within the industry.
In 2022, we established an ESG Working
Committee, incorporating representatives
from our Executive Committee, Accredited
and R&Q Legacy businesses, Investments,
Risk, HR, Compliance and Regulatory, and
Company Secretariat. The ESG Working
Committee has been meeting on a monthly
basis and has been an effective way of
ensuring co-operation across the business,
sharing of knowledge and maintaining
momentum as we look to embed ESG across
our business and value chain. There are now
numerous working groups who report into
the ESG Working Committee and progress
and actions are discussed and approved by
the Executive Committee and the Board.
Acting responsibly
We are in the process of identifying and
analysing possible environmental and
social risks and opportunities across our
Accredited and R&Q Legacy businesses.
We are also assessing the sustainability
approaches adopted by our partners.
The findings are beginning to inform our
policies and decision-making as regards
underwriting new business and renewals.
At the same time, we have reviewed the
management and reporting of ESG issues by
our asset managers and are drafting our own
investment policy.
Prioritising what is important to us
It was clear from our materiality assessment
findings (see fig 1 below), that if we are to
be successful in embedding ESG across our
business we need to focus on our people,
our culture and our partners in order to drive
change. It is for this reason that we have
continued to direct our efforts to ensure we
are engaging our people across a variety
of different channels and seeking to ensure
that we are creating a vibrant, collaborative
environment where our people can flourish.
A key component of this effort was the
approach we took to develop our purpose
and values.
Developing our purpose and values
In 2022, we embarked on a comprehensive
organisational-wide journey to define a
clear and succinct purpose statement along
with a set of values to define our culture,
and help guide us in our decision-making
and prioritisation.
To ensure that the effort around developing
our purpose and values was underpinned
by rigour and input from all levels of
the workforce, we organised a series of
workshops that gathered input with our
employees on their views on how R&Q
contributes to society as well as their
reflections on those traits that best define
the culture and ways of working within R&Q.
In line with our theme of ‘Building the foundations to grow sustainably’,
we continue to make good progress establishing Environmental, Social
and Governance (ESG) as a strategic driver across our business.
Environmental
Social
Governance
Tier 1
»
GHG emissions reduction
»
Net-zero strategy implications
»
Employee engagement
»
Purpose and culture
»
Employee wellbeing
»
Business ethics and governance
»
Transparency and stakeholder
engagement
Tier 2
»
Physical impacts of
climate change
»
Diversity and inclusion
»
Systemic risk management
Fig 1: Materiality Assessment
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We then convened our Leadership Team
to have the same collaborative workshop
experience enjoyed by the rest of the staff to
give them the opportunity to compare their
reflections with the collective feedback from
the R&Q workforce. The result of this effort
was the creation of six core ‘themes’ that
reflected consistent priorities across all levels
of the organisation. From there we crafted
a purpose statement and a set of values
which were then refined by the Leadership
Team and validated with the Board. The final
purpose and values were then launched
across R&Q via an all-staff employee-
townhall where we shared with employees
the key themes we heard from them and
showed how these fed directly into the final
purpose and values.
As our business is growing, and we are on
the journey of embedding sustainability
practices across the organisation, this
initiative is closely aligned to our Act
Responsibly strategic pillar. Our culture is
and will continue to be the backbone of
our success and we are firmly committed
to ensuring R&Q is representative of best
practices within our industry. Our refreshed
purpose and values will play a big part in
making that a reality.
Embedding our purpose and values
Since the launch of our purpose and values
in 2022, we are continuing to integrate
them within our teams and across all our
operations and processes. From there, we
convened manager workshops across the
organisation to define the behaviours that
align with our values. These workshops
will be rolled out more comprehensively
in 2023 as part of our efforts to embed the
values into the fabric of how we operate.
We have also been working to embed the
purpose and values into our performance
management system. We have recently
developed and rolled out corresponding
behaviours that sit under each value and
help us bring them to life within the business
in a credible way. This process reduces the
ambiguity in terms of the expectations we
have of each other and means we can hold
each other to a high standard of excellence
in the delivery of our respective mandates.
Collaborating across the organisation
One of our core values is Operate as One,
a natural theme that arose in the employee
discovery workshops.
We continue to build global roles across the
organisation, bringing the best practices
of formerly siloed businesses together and
placing the work in the right places with talent
that has the right skill set. At the same time,
we aligned our performance management
approach across the company to create a
more equitable and streamlined process.
We continue to drive efforts to increase the
effectiveness of our manager population.
Guidance and support were provided to
managers on managing effective remote
teams; leading their teams during change,
which included recommended activities
for fostering inclusivity; helping teams
understand the wider business context in the
face of operational changes; and support
on how best to engage through periods of
transition or uncertainty.
Engaging our employees
Engage Employees is one of our key strategic
pillars and Invest in People is one of our four
critical values which will guide the future
success of R&Q.
Alongside our engagement on our purpose
and values, we also maintained a regular
stream of communications on our business
performance and operational updates
through quarterly townhalls and progress
updates led by our Executive Directors and
Senior Management Team.
We introduced a new series of curated
newsletters to mark cultural observances
from geographies around the world, which
provided our employees with educational
and action-focused resources to explore. We
developed these newsletters on a variety
of topics such as Pride Month, Black History
Month, World Wellbeing Week, Hispanic
Heritage Month and World Mental Health Day.
We engaged our employees around
important topics throughout the year,
including a fundraiser and awareness
raising challenge spearheaded by one of
our Executive Directors, and joined by other
colleagues across R&Q, on the topic of men’s
Manager workshops
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continued
health. We also organised an interactive
activity around wellbeing, with the use of
a platform presenting select resources
on mental health and tips for managing
stress, where we invited our employees
to contribute and exchange personal
experiences and helpful advice.
Community partnerships
As part of our partnership with the Bermuda
Institute of Ocean Studies (BIOS), we hosted,
alongside BIOS, two webinars to educate our
employees on the work being undertaken.
Board members also had the opportunity to
visit the BIOS team in late 2022 and see the
Ocean Academy research work in action.
This commitment continues into 2023.
In the US, we participated in initiatives to
give back across some of our office locations
including food and monetary donations to
Philabundance in Philadelphia, sandwich-
making for The Sandwich Project in Atlanta,
and sorting donated groceries to feed over
5,300 people at the Florida Second Harvest
Food Bank in Orlando.
In support of the people of Ukraine, we
organised a joint fundraiser for Save the
Children. In all, a $35,000 donation was made
to Save the Children International, including
$10,000 personally donated by R&Q
colleagues, to support their work providing
resources to Ukrainians.
In the UK, we have made a donation of
£15,000 which will provide meals, housing
and essential items for families in difficult
situations across four charities: Better
Together Norfolk, The Whitechapel Mission,
Home Start UK, and the Royal London
Hospital Whitechapel Children’s Ward.
In support of our ambition around ESG,
we introduced a Voluntary Time Off policy,
amounting to two paid days each year for
all employees to volunteer.
Climate Action
Although the direct environmental impacts
of our business may not be considered
significant, we are committed to improving
our performance across all areas, be they
within our direct or indirect control. We
will also be taking steps to ensure that
environmental considerations are taken
into account in terms of the products and
services we offer.
R&Q’s exposure to physical climate change
risk in our own operations is modest.
However, as a business with a head office
in Bermuda, we recognise that this is an
area of the world that is vulnerable to
catastrophic hurricane events and may
be severely affected by any future climate
change trends, such as rising sea levels.
For this reason, it made sense for us last
year to support the BIOS’ efforts in tackling
important local and international climate
change issues. We are pleased to be
continuing our partnership in 2023.
As a business which is focused around
the assessment of risk, we are gaining
greater insight into the potential risks and
opportunities of physical climate change
on our business. Although not currently
mandatory for us, with the support of an
industry climate specialist, we are reporting
for the first time in line with the Task Force on
Climate-related Financial Disclosure (TCFD)
recommended disclosures. We will continue
to evolve and develop our understanding
and reporting in next year’s report. Please
see separate section below.
For the second year, we have collected and
reported our Scope 1 and 2 emissions. As we
continue to get better visibility of our carbon
footprint, including Scope 3 emissions, we will
be in a better position to make improvements
to our reporting, set targets and develop our
own emissions reduction strategy.
TCFD disclosure
Introduction
Through the 2015 Paris Climate Agreement,
world governments have committed to
keeping the global temperature rise to
well below 2 degrees centigrade above
pre-industrial levels and are working to
limit warming to 1.5 degrees centigrade.
The Financial Stability Board created the
Shoal of fry in Bailey’s Bay seagrass bed
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2022 gender statistics
Board composition
Global workforce
Senior Management
(excluding Executive
Board Directors)
7
87.5%
23
79.31%
183
55.45%
1
12.5%
6
20.69%
147
44.55%
TCFD to improve and increase climate-
related financial information. The TCFD
comprises four pillars, under which sit
11 recommendations for disclosure. We
recognise that climate change creates
both potential risks and opportunities for
our business and going forward we intend
to be accountable for and transparent
about how we assess and manage climate-
related risks and opportunities. We also
recognise that how we approach climate
change is important for maintaining and
building our stakeholder relationships and
our reputation. We therefore fully support
the recommendations of TCFD and are
reporting on them for the first time this
year. Going forward, we will continue to
refine our assessment of climate change
risks and opportunities and embed climate
change risk management in our day-to-day
operations and new business acquisition.
Climate change has featured as an
emerging risk within the business for some
time and, at the instigation of the Board in
2022, a decision was made to undertake
a programme to understand the impact
of climate-change and to meet the
recommendations of TCFD. During 2022, we
set up a TCFD Working Group headed by the
Chief Risk Officer (CRO) with representatives
from across our business and functions. This
working group has started to meet regularly,
with the support of external advisors, to:
»
Start to understand the potential
consequences of climate change to
our business.
»
Review and discuss how to analyse the
current status of climate change across
our operations and investments.
»
Review and discuss the potential risks
and opportunities from climate change
to our operations and investments.
»
Start to build a range of climate change
scenarios that are tailored to our business
that will provide the best basis for
discussion and analysis of the risks
and opportunities.
We recognise that we are at the beginning
of our TCFD journey and the TCFD Working
Group will continue to convene during the new
financial year and beyond to meet our and
our stakeholders’ expectations of the TCFD
framework, supported by external experts.
Climate change scenario planning
To improve our understanding of climate
change risks and opportunities, we have
started to build and consider a range of
climate scenarios. While this work remains
ongoing, the main reference points for
these scenarios include the TCFD Hub,
the Climate Financial Risk Forum (CFRF),
the Network for Greening the Financial
System (NGFS), particularly their Scenarios
Portal, and climate risk guidance from the
Geneva Association and the Institute of Risk
Management (IRM).
The process we are implementing to
develop the appropriate scenarios involves
distinct steps:
»
Developing and defining scenarios
Selecting the appropriate scenarios
and developing narratives according
to our business model. These are based
on recognised external base scenarios
to enable comparability with other
organisations, complemented with
information relevant to R&Q operations.
»
Assessing materiality of
climate-related risks
Drawing on the expertise of internal
subject matter experts (SMEs) within
R&Q to identify the potentially material
climate-related risks and opportunities
associated with each scenario, enabling
efforts to be focused where it matters.
The assessment of material climate risks
will consider a range of risk types across
each scenario, namely physical, transition
and liability (litigation) risks.
We are in the process of developing three
representative scenarios chosen from the NGFS
set (Net Zero 2050, Divergent Net Zero and
Current Policies) one from each of the Orderly,
Disorderly and Hothouse world categories.
»
Orderly scenarios assume climate
policies are introduced early and
become gradually more stringent. Both
physical and transition risks are relatively
subdued. Net Zero 2050 limits global
warming to 1.5°C through stringent
climate policies and innovation, reaching
global net zero CO2 emissions around
2050. Some jurisdictions such as the US,
EU and Japan reach net zero for all GHGs.
»
Disorderly scenarios explore higher
transition risk due to policies being
delayed or divergent across countries
and sectors. Divergent Net Zero reaches
net zero around 2050 but with higher
costs due to divergent policies introduced
across sectors leading to a quicker phase
out of oil use.
»
Hothouse world scenarios assume that
some climate policies are implemented
in some jurisdictions, but globally efforts
are insufficient to halt significant global
warming. The scenarios result in severe
physical risk including irreversible
impacts like sea-level rise. Current policies
assume that only currently implemented
policies are preserved, leading to high
physical risks.
To align with our business strategy and
current risk framework, we have defined the
short-term time frame as one to three years,
the medium-term time frame as five to ten
years and the long-term time frame as up to
25 years.
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continued
Describe management’s role in assessing
and managing climate-related risks
and opportunities.
The Chief Risk Officer is responsible for
the overall management of the risk
management framework, which includes
facilitating the identification, assessment,
evaluation and management and emerging
risks. During the year a TCFD Working Group
was created, headed by the Chief Risk Officer
with representatives from across the Group.
To date a series of workshops have been
run with these business representatives who
have been assigned to identify climate-
related risks and opportunities within their
respective business areas and to identify
any potential mitigating or positive actions,
if required, at this stage. These business
representatives will report back to the TCFD
Working Group during the first half of the
financial year 2023.
In addition, an ESG Working Committee has
been established to which the TCFD Working
Group reports. Representatives from the
Accredited and R&Q Legacy businesses, as
well as Investments, Risk; Compliance and
Regulatory; Company Secretariat; Finance
and those people who have responsibility
for input into and developing the ESG
framework, including climate-change, within
their respective operations. The ESG Working
Committee is tasked with the creation, co-
ordination and implementation of the Group’s
developing ESG framework and strategy. The
ESG Working Committee reports to William
Spiegel, the Group Chief Executive Officer,
where all material decisions in relation to ESG,
including climate change, will be made by the
Leadership Team and the Board.
Strategy
Disclose the actual and potential impacts
of climate-related risks and opportunities
on the organisation’s businesses, strategy,
and financial planning where such
information is material.
Describe the climate-related risks and
opportunities the organisation has identified
over the short, medium, and long-term.
And
Describe the impact of climate-related
risks and opportunities the organisation’s
businesses, strategy and financial planning.
R&Q is a global non-life specialty insurance
company, operating in two core, highly
complementary, businesses: Accredited
and R&Q Legacy together with its
investment portfolio.
During 2021, the Group undertook an
ESG materiality assessment using the
Sustainability Accounting Standard’s
Board (SASB) materiality mapping as
a reference point, involving qualitative
and quantitative engagement with the
Group’s key stakeholders. As outcomes of
this assessment both the Group’s net-zero
strategy implications and the physical
impacts of climate change were identified.
During the same year, the Emerging Risks
Focus Group undertook a ‘deep dive’ into
the Group’s exposure to climate-change
risk over the short-term. Climate change
is also taken into consideration within the
catastrophic modelling undertaken by the
Group, where preliminary work has also been
undertaken with external CAT modelling
Governance
Disclose the organisation’s governance
around climate-related risks and
opportunities.
Describe the Board’s oversight of climate-
related risks and opportunities.
The Board assumes overall responsibility
and accountability for the management
of climate-related risks and opportunities
and ensures that the Group has an
appropriate and proportional approach to
risk management and that this approach
is both generic to the Group’s activities
and aligned with the overall corporate
strategy. During the year, the Board
received an initial review of climate change
within a proposed ESG Framework, which
incorporated an Environmental Strategy
including the implementation of the TCFD
recommendations. The Board is supported
by the Group Risk and Compliance
Committee which is responsible for the
oversight of the Emerging Risks Focus Group,
which covers climate change. In addition,
a TCFD Working Group has been formed
headed by the Chief Risk Officer, who heads
the Group Risk function which is responsible
for designing, overseeing, implementing and
improving the risk management framework.
The TCFD Working Group also reports to
the Group ESG Working Committee which
reports to William Spiegel, the Group Chief
Executive Officer, who is the ESG sponsor on
the Board.
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partners in order to develop quantitative
measures of future climate-change related
risk. Currently, the direct impact of climate
change on the business is not considered
to be significant. However, in line with the
TCFD recommendations, the TCFD Working
Group is taking steps to ensure that climate-
change considerations are being taken into
account in terms of the products, services
and investments based on the scenarios
outlined in the introduction of this report
over both the medium and long-term. During
2023, this work will continue with a focus on
transitional, physical and liability risks.
We also recognise the potential impacts
of climate-related risks and opportunities
upon the Group’s investment portfolio. The
Group has started working with its chosen
asset managers to better understand the
potential impacts of both the transition to a
lower carbon-intensive global economy and
the potential physical impacts from climate
change. Though this work is at its early stages,
it is noted that all the Group’s asset managers
are signatories to the UN Principles for
Responsible Investment and have adopted
the recommendations of TCFD themselves.
Going forward, working with the asset
managers, the Group will develop tools to
identify, measure and manage the risks and
opportunities from climate-change within
the investment portfolio and promote any
climate-responsible policies developed within
the ESG Working Committee and agreed by
the Leadership Team and the Board.
As the Group develops its ESG strategy and
framework, incorporating an environmental
strategy, climate-related risks and
opportunities will be further integrated into
the business, strategy and financial planning
and the Group will report on this in more
detail in the future.
Describe the resilience of the organisation’s
strategy, taking into consideration different
climate-related scenarios, including a two
degree centigrade or lower scenario.
As highlighted, the Group has formed a TCFD
Working Group under the leadership of the
Chief Risk Officer. This Working Group is in
the process of understanding the climate
change risks and opportunities under a
range of third-party-generated climate
scenarios, with the main reference points
for these scenarios including the TCFD Hub,
the Climate Financial Risk Forum (CFRF),
the Network for Greening the Financial
System (NGFS), particularly their Scenarios
Portal, and climate risk guidance from the
Geneva Association and the Institute of Risk
Management (IRM).
Three representative scenarios are being
developed chosen from the NGFS set (Net
Zero 2050, Divergent Net Zero and Current
Policies) one from each of the Orderly,
Disorderly and Hothouse world categories.
The Group expects to report in more detail
on likely scenario impacts for the reporting
period 2023 and in future years. At the
current time, the Group believes that its
underwriting and investment strategies are
resilient with regard to climate-change risks,
judged from the work undertaken by the
Emerging Risks Focus Group, including its
catastrophic modelling.
Risk Management
Disclose how the organisation
identifies, assesses, and manages
climate-related risks.
Describe the organisation’s processes
for identifying and assessing climate-
related risks.
The Group has an Emerging Risks Focus
Group with the responsibility to identify,
assess and prioritise any emerging risks,
which currently include those of climate
change. The Emerging Risks Focus Group
meets biannually and reports to the Group
Risk and Compliance Committee.
Climate change is an established emerging
risk and in the latter half of 2021, the
Emerging Risk Focus Group undertook a
‘deep dive’ into the risk exposure from climate
change. This work was then used to review
the Group’s assessment of the risks from
climate change and was also used to inform
a more detailed workshop on the PRA’s
Supervisory Statement SS3/19.
Describe the organisation’s processes for
managing climate-related risks.
As stated earlier in this TCFD report, currently,
the direct risk of climate change on the
business is not considered to be significant.
However, any potential risk that has been
identified by the Emerging Risk Focus Group
has been allocated to be the responsibility of
a business representative within the Group.
These risks are now being discussed as part
of the ongoing work both within the TCFD
Working Group and also the ESG Working
Committee. They are being built into the ESG
strategy and framework and are part of the
ongoing management process to embed
ESG within the Group. Further details will be
provided as the Group develops its approach
to climate-related risks and covered in future
TCFD reports.
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Describe how processes for identifying,
assessing, and managing climate-related
risks are integrated into the organisation’s
overall 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 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 and reports on
risk to the Board and the Group Risk and
Compliance Committee, which is a formally
constituted Committee of the Board.
The TCFD Working Group, which is headed
by the Chief Risk Officer, is in the process of
continuing to identify, assess, and manage
climate-related risks. As stated, to date
none of these have been identified as being
material to the Group at the current time.
Going forward as the TCFD Working Group
develops its work on climate-related risks
and opportunities for the Accredited, R&Q
Legacy and Investment areas of the business
and considers these against the identified
scenarios, the Chief Risk Officer will be in the
position to include any identified risks into
the Group’s risk management framework.
Further details of the Group’s approach to
risk management can be found on page 56
of this Annual Report.
Metrics and Targets
Disclose the metrics and targets used
to assess and manage relevant climate-
related risks and opportunities where such
information is material.
Disclose the metrics used by the
organisation to assess climate-related risks
and opportunities in line with its strategy
and risk management process.
As stated, the Group is in the early stages of
developing its assessment of climate-related
risks and opportunities in line with its strategy.
From the work undertaken by the Emerging
Risk Focus Group, no climate-related risks
have been currently identified that are
deemed to be material. To date, no metrics
are being used to assess climate-related
risks and opportunities. However, as both
the Group’s approach to ESG and its work on
climate change develops it is the intention to
identify and report on metrics in the future.
Disclose Scope 1, Scope 2 and if appropriate
Scope 3 greenhouse gas (GHG) emissions,
and the related risks.
GHG emissions are disclosed in the GHG
Emissions table (Fig 2, page 24) of the Annual
Report. The table includes a year-on-year
comparison of Scope 1 and 2 emissions,
which shows a 5% reduction in emissions,
despite the fact that the New York office
was re-opened. We have reported on one
category – business travel – of our Scope 3
emissions for the first time and will look to
build on this as we gain greater insight into
emissions across our broader value chain.
Scope
Activity type
2022
CO2e (tonnes)
2021
CO2e (tonnes)
Year-on-year
change
Scope 2
Purchased electricity –
location based
209.00
219.26
-5% (note 1)
Scope 2
Purchased heat
and steam
0.00
0.00
Scope 3 (note 2)
Business travel
344.13
not reported
Total Emissions
553.13
219.26
Describe the targets used by the
organisation to manage climate-related
risks and opportunities and performance
against targets.
As we develop our ESG programme and
strategy, we have the ambition to set a
number of climate-related targets. We
are in the process of improving our GHG
measurement from our own operations and
have the intention to produce a roadmap to
net-zero for our Scope 1 and Scope 2 in due
course. For our Scope 3 emissions, we are
working across our Accredited, R&Q Legacy
and Investment divisions to understand
better our exposure to climate-related risks
and opportunities. As this work develops,
we will expand our GHG measurement to
begin to understand our Scope 3 emissions
and the actions we can undertake to
decarbonise. We will also continue to monitor
developments both in TCFD and related
issues such as transition planning and
nature-related impacts.
Working responsibly
continued
Fig 2: GHG Emissions
Note:
1)
5% reduction in Scopes 1 and 2 year-on-year, despite the re-opening of the New York office
2)
Scope 3 emissions reported for the first time and currently only account for the business travel
(principally UK and Europe) category
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Principal risks
and uncertainties
The following highlight the ‘top ten’ risks and
uncertainties facing the Group and receiving
Senior Management attention. This list is not
exhaustive and comprises a brief description
of those risks and uncertainties that the
Board considers to be the major risks to the
Group’s strategy it faces, along with the main
mitigating actions in place.
Management of strategic change/
business development and growth
The Group fails to manage both the focus
on its core competencies and simultaneous
initiatives as it develops and grows.
The Group fails to progress its pipeline
of Accredited and R&Q Legacy 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.
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/or 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
Accredited and R&Q Legacy pipelines
including initial screening processes
and relevant Committee and/or
Board approval.
Reputation and stakeholder
management
Events within the Group may have an
adverse impact (notably, but not restricted
to, reputational) on the organisation.
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
»
Regular liaison with the rating agencies
»
Regular communication with regulators
»
Regular communication with employees
including townhall meetings etc.
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.
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
utilising catastrophe modelling capability.
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Principal risks and uncertainties
continued
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.
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 statutory minimal.
Legal and regulatory risk (including
tax risk)
The Group fails to implement or adapt to
emerging new regulatory or political or
legislative changes.
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 recognised.
The Group fails to identify its tax exposures
arising from emerging UK and overseas
legislation and fails to implement
appropriate controls and processes to
ensure compliance with all relevant laws.
Risk category: Regulatory and Legal
Operational
Mitigating actions
»
Oversight by the Group Head of
Compliance and Regulatory Affairs
»
Deployment of local expertise
where needed
»
Management of relationships with
all local regulators
»
Internal working and steering groups
to analyse, interpret and oversee
the implementation of all emerging
regulatory changes
»
Maintenance and operation of an
effective governance framework
leveraging the expertise of the
Group and individual entity boards
and management
»
Leverage of specific additional
local regulatory and legal expertise
where appropriate
»
Quarterly review with the Chief
Accounting Officer of the Group’s
current tax position and potential future
implications of current and emerging
legislation and developments including
monitoring changes to the legal
landscape. Use of third-party tax experts
as required
»
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.
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 also fails to address staff wellbeing
and engagement.
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
»
Staff engagement surveys and policies
on retention and wellbeing
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Robust, regularly tested business
continuity and disaster recovery plans
»
Defence in depth approach to security
leveraging tools, technology, and training
to keep pace with the increasing threat
from cybercrime
»
Dedicated Chief Information
Security function
»
Fit-for-purpose information
security governance structure and
compliance, where practical, with
relevant International Organisation
for Standardisation or International
Electrotechnical Commission 27000
series of standards
»
Cyber liability insurance
»
Outsourcing agreements with all material
outsourcers (internal and external)
»
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, review,
and oversight
»
Appropriately skilled and trained staff
»
Fit-for-purpose reporting mechanisms.
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
»
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
Group’s bankers.
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
»
Utilisation of intra-group loans between
entities as part of the investment strategy
subject to appropriate controls
»
Holding of surplus funds in sterling except
for US entities where surplus funds are
held in US Dollars
»
Dedicated Group cash flow, treasury
management and invested assets
function to monitor investment
concentration and returns
»
Investments are primarily made
in marketable, and investment
grade-rated securities
»
Asset, liability, and duration matching.
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Group
Our Key Performance Indicators (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 at
R&Q Legacy, net realised and unrealised
investment gains and losses on fixed income
assets, foreign currency translation reserves,
non-core expenses and exceptional items.
Our Pre-Tax Operating Loss was $33.3 million,
primarily due to adverse reserve development
in R&Q Legacy’s core reserve portfolios of
$32 million and fewer than expected legacy
transactions completed. One of our KPIs is to
grow our Fee Income which was $92.0 million
(excluding minority stakes in MGAs), a 105%
increase compared to 2021.
Tangible Net Asset Value was $301.0 million,
a 16% decrease compared to year-end 2021,
primarily as a result of adverse development
in R&Q Legacy and c.$100 million in
extraordinary one-time charges, of which
$43 million is associated with a non-
cash charge related to adverse reserve
development in a non-core subsidiary, which
will reverse upon deconsolidation from
the Group and movement to discontinued
operations in Q1 2023. The remaining
extraordinary one-time expenses include
reinsurance litigation associated with older
legacy transactions and discontinued
program businesses ($28 million), automation
process implementation costs ($14 million),
which is expected to yield meaningful
productivity savings starting in 2024, advisory
costs associated with last year’s unsuccessful
sale of the Group and subsequent
shareholder activism ($8 million) and other
one-off costs ($3 million). On a fully diluted
basis, our Operating Loss Per Share was
9.9 cents and our Tangible Net Asset Value
Per Share was 79.7 cents.
Financial review
We are pleased to report our financial results for the year ending 31 December
2022, which is the final year we will do so under IFRS. For future periods, we will
report our financial results in accordance with US GAAP.
Tom Solomon
Group Chief Financial Officer
Pre-Tax Operating Loss
$(21.4)m
$(33.3)m
2021
2022
Group results
$301.0m
Tangible Net Asset Value
$359.6m
2021
2022
2022 income
2021 income
Underwriting income
Fee income
Investment income
$104.4m
$(22.2)m
$31.7m
$57.0m
$56.1m
$24.8m
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Our IFRS Loss After Tax was $297.0 million
for the year, impacted by c.$162 million of
non-cash items, including net unrealised and
realised investment losses on fixed income
assets of $135.8m, unearned program Fee
Income of $17.0 million and amortisation
of net intangibles of $9.6 million. Our IFRS
Net Asset Value was $185.2 million, which
is impacted by c.$218 million of non-cash
items, including accumulated net unrealised
investment losses on fixed income assets
of $111.6 million, unearned program Fee
Income of $34.9 million and net intangibles
of $71.0 million. On a fully diluted basis, our
IFRS Loss Per Share was 91.3 cents and our
IFRS Net Asset Value Per Share was 49.1 cents.
In 2023 we are adopting US GAAP as our
accounting standard. US GAAP has a number
of differences from IFRS, namely fair market
value measurement of legacy gross and
ceded reserves including a risk margin, as
well as the recognition of unallocated loss
adjustment expenses and current expected
credit losses on reinsurance recoverables.
Neither US GAAP nor other accounting
standards, such as IFRS 17, recognise Day-1
gains in legacy insurance transactions. As
a result of these differences, our unaudited
US GAAP Loss After Tax for 2022 was
estimated at c.$90–115 million and our
US GAAP Net Asset Value at 31 December
2022 was estimated at c.$225-250 million,
significantly different than IFRS results.
$80.0m
2022
Fee Income
(excluding MGA stakes)
Gross Written Premium
$44.9m
2021
2022
2021
$1.8b
$1.0b
$55.7m
2022
Pre-Tax Operating Profit
Pre-Tax Operating Profit Margin
$20.6m
2021
2021
2022
56.8%
35.7%
Accredited results
Accredited
The Accredited business continued to grow
rapidly in 2022. Our Gross Written Premium
was $1.8 billion, a 76% increase compared to
2021. Our results demonstrate the benefits of
scale as we earned a Pre-Tax Operating Profit
of $55.7 million, a 170% increase compared
to 2021, representing a 56.8% margin on
Gross Operating Income, an increase of
21.1 percentage points compared to 2021. This
Pre-Tax Operating Profit includes $12.4 million
associated with our minority stakes in MGAs.
The primary driver of Pre-Tax Operating Profit
is our Fee Income. Fee Income excluding
minority stakes in MGAs was $80.0 million,
a 78% increase compared to 2021. Program
Fees averaged 4.7% of ceded written
premium, which is flat compared to 2021,
and we expect Fee Income to generally
grow in line with Gross Written Premium.
Underwriting Income represents our
c.7% retention of Program Insurance risk.
Our Underwriting result was breakeven
primarily due to the purchase of excess of
loss reinsurance above and beyond the
underlying combined ratio of 85% in order
to minimise any balance sheet volatility.
Our Investment Income was $5.6 million, a
108% increase compared to 2020 associated
with higher reinvestment rates. Finally,
Fixed Operating Expenses increased 14%
compared to 2021 due to the expansion
of our staff and a higher allocation of
corporate expenses.
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Financial review
continued
which included $32 million of adverse reserve
development (included in Underwriting
Income). Note that Underwriting Income
in 2022 is not comparable with 2021, which
included Day-1 accounting gains on legacy
transactions closed before Q4 that were 100%
retained by R&Q. Our Investment Income
was $24.9 million, a 29% increase compared
to 2021 driven by higher reinvestment yields.
Finally, our Fixed Operating Expenses
decreased 15% compared to 2021 due to
expense control and foreign exchange rates.
4
2022
Number of Transactions
15
2021
$395.6m
2022
Reserves Under Management
$417.0m
2021
Gross Reserves Acquired
Pre-Tax Operating Loss
2022
2022
2021
2021
$68.8m
$(56.6)m
$735.0m
$(6.1)m
R&Q Legacy
R&Q Legacy concluded four transactions
with Gross Reserves Acquired of $68 million,
a decrease of 91% compared to 2021 due to
extra prudence in a softer pricing market.
At year-end 2022, we had Reserves Under
Management of $396 million and during
2022 we reported Fee Income of $12.1 million
compared with none in 2021. We expect Fee
Income to become the predominant driver
of Pre-Tax Operating Profit once we fully
deploy capital in our sidecar, Gibson Re. Our
Pre-Tax Operating Loss was $56.6 million,
R&Q Legacy results
Investment portfolio by credit rating
Investment portfolio by asset class
AAA/Cash: 38.7%
AA: 11.7%
A: 26.7%
BBB: 20.9%
BB or lower: 1.4%
Not rated: 0.6%
Cash & MMF: 18.9%
Corporates: 57.3%
Gov’t & Munis: 22.6%
Equities: 1.2%
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Corporate and other
Our Corporate and Other segment includes
unallocated operating expenses and
finance costs. Unallocated operating
expenses were $1.9 million, an 86% decrease
compared to 2021 primarily driven by higher
allocations to the two business segments.
Interest expense was $30.5 million, a 34%
increase compared to 2021 associated with
higher interest rates.
Cash and investments
Our Cash and Investments at year-end 2022,
excluding funds withheld, was $1.6 billion.
We produced a book yield, which excludes
net realised and unrealised gains on fixed
income assets, of 1.9%, an increase of 50 bps
compared to 2021, due to the higher interest
rate environment.
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, 95% were
rated investment-grade. After cash, which
comprised 20% of our portfolio, our largest
allocations were to corporate bonds (39%),
government and municipal securities (20%),
asset-backed securities (17%) and equities
(3%). We have maintained a duration in our
portfolio of 3 years, shorter than that of our
liabilities of 6 years.
38%
2021
Adjusted Debt to Capital Ratio
37%
2022
Group Solvency Ratio
2022
2021
158%
150%
During 2022, financial markets witnessed
a significant increase in interest rates.
As a result, our investment portfolio
experienced unrealised net investment
losses of $118 million, which are included in
our IFRS results. Given the high credit quality
of our investment portfolio and the primarily
casualty-focused retained liabilities, we
do not expect to realise these mark-to-
market losses other than to rebalance the
portfolio for more attractive reinvestment
opportunities, and hence do not include such
movement in our Pre-Tax Operating Profit.
Capital and liquidity
Last year we raised $130 million of equity
capital ($121 million net of fees), of which
$60 million was contributed to Funds At
Lloyd’s and the rest for general corporate
purposes. Since then, we experienced
unexpected adverse development in R&Q
Legacy, primarily in Lloyd’s, which requires an
even greater amount of collateral to support
such adverse development. We also had
$28 million in unexpected one-off historic
legal matters associated with older legacy
transaction and discontinued programs.
As a result, our preliminary Group Solvency
ratio at 31 December 2022 was 158%, which is
above our target level of 150%. Nevertheless,
this adverse development and one-off
historic legal matters used up a material
amount of our capital resources, and without
the ability to take dividends from Accredited
as part of the planned separation, required
that we raise $50-$60 million of preferred
equity this year. Our total debt at year end
2022 was $344.9 million, which includes a
bank facility as well as subordinated notes. In
addition, we have $175.4 million of unsecured
letters of credit that provide security on
assumed reinsurance of legacy exposures,
which are guaranteed by the Group.
34
Board of Directors
36
Corporate governance statement
42
Audit Committee report
46
Remuneration, Nominations and
Governance Committee report
50
Investment Committee report
53
Group Risk and Compliance
Committee report
56
Risk management
58
Statement of Directors’ responsibilities
Corporate
governance
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Board of Directors
Tom Solomon (53)
Group Chief Financial Officer
D
Alan Quilter (72)
Group Head of Accredited
D RC*
Date appointed to Board
Group Head of Accredited from
31 March 2023
Chief Executive Officer from
January 2020 to 31 March 2023
Joint Chief Executive Officer from
June 2007 to January 2020
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.
Date appointed to Board
Group 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.
Date appointed to Board
Group Chief Executive Officer
from 31 March 2023
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 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.
Key external appointments:
»
Non-Executive Director
of Essent Group, Fidelis
Insurance MGU and Ivy
Co-Investment Vehicle LLC.
Date appointed to Board
Independent Non-Executive
Chair from 31 March 2023
Skills and experience:
»
41 years’ insurance experience
»
Extensive Board experience
for a range of global
insurance companies
Jeffrey (Jeff) serves as R&Q’s
Independent Non-Executive
Chair. He has previously held
long tenures at The Travelers and
American International Group.
Jeff was recently a Board
member and committee chair
of Zurich Insurance Group Ltd,
has also served on the boards
of 21st Century Insurance and
Fuji Fire and Marine Insurance
and is a past Chair of the Foreign
Non-Life Insurance Association
in Japan.
Jeffrey (Jeff) Hayman (63)
Independent Non-Executive
Chair
I R RC
William Spiegel (60)
Group Chief Executive Officer
D I
Executive Chair from April 2021 to
31 March 2023
Deputy Executive Chair from January
2020 to March 2021
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A
Audit Committee
D
Group Disclosure Committee
I
Investment Committee
R
Remuneration, Nominations and
Governance Committee
RC Group Risk and Compliance
Committee
* Alan Quilter stepped down from the Group Risk and
Compliance Committee on 2 November 2022
Note: Alastair Campbell was the Senior Independent
Director and Chair of the Remuneration, Nominations
and Governance Committee during 2022. Alastair
retired as a Director on 31 January 2023.
Jo Fox (59)
Independent Non-Executive
Director
Audit Committee Chair
A R RC
Date appointed to Board
Non-Executive Director from 2019
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 Westfield Specialty
Managing Agency Limited
Philip Barnes (62)
Independent Non-Executive
Director
Group Risk and Compliance
Committee Chair
RC A I R
Eamonn Flanagan (60)
Independent Non-Executive
Director
Investment Committee Chair
Remuneration, Nominations and
Governance Committee Chair
I R A RC
Robert Legget (72)
Independent Non-Executive
Director
Senior Independent Director
A I R
Date appointed to Board
Non-Executive Director from 2013
Skills and experience:
»
Chartered Accountant
»
Board level experience with
several Bermuda insurance
and reinsurance companies
»
Extensive finance and
insurance experience
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 37-year career.
Key external appointments:
»
President of Jardine
Matheson International
Services Limited
Date appointed to Board
Non-Executive Director from 2020
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 Chesnara PLC
Date appointed to Board
Non- Executive Director and
Senior Independent Director
from 26 August 2022
Skills and experience:
»
Chartered Accountant
»
Corporate governance
experience
»
Background in capital
markets
Robert co-founded Progressive
Value Management Limited in
2000. This is now trading under
the name of Progressive Asset
Management Limited, for which
he is Chair, and specialises in
creating value and liquidity for
institutional investors from illiquid
holdings in underperforming
companies. In this role he has
significant engagement with
public company boards. Robert
was formally a Director of Quayle
Munro Holdings PLC and CT
Private Equity Trust PLC (formally
Foreign & Colonial Private Equity
Trust PLC).
Key external appointments:
»
Senior Independent Director
of Downing Strategic Micro-
Cap Investment Trust PLC,
and Sureserve Group PLC
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Chair’s introduction
Dear Shareholder
As the Executive Chair during the 2022
financial year, I am pleased to introduce
our Corporate Governance Statement for
2022 and proud the Board continues to be
committed to satisfying the high standards
of governance expected by our stakeholders
and that befits our AIM listed status.
Board and executive leadership
On 31 March 2023 we announced the
appointment of a new Independent Non-
Executive Chair, Jeff Hayman. Appointing
an Independent Non-Executive Chair has
been an important objective to ensure
that our governance structure is more
aligned with best practice. Jeff has 41
years of highly relevant experience that
includes long tenures at The Travelers and
American International Group, including
as CEO of Global Consumer Insurance and
President and CEO of AIU Far East Holdings.
Consequently, I transitioned into the role of
Group CEO and Alan Quilter assumed the
role of Group Head of Accredited. Alan has
advised the Board of his intentions to retire
in December 2023. As co-founder Alan has
been instrumental in the growth, evolution,
and success of R&Q over the last 30 years
and the Board is delighted he will remain as
a director for the remainder of 2023, ensuring
a smooth transition.
During the year, Robert Legget joined
the Board and was appointed as Senior
Independent Director (SID). Robert’s
appointment will improve the mix of opinion,
expertise, and perspective available to
the Board. In particular, his corporate
governance experience and background in
capital markets and advising investors will
be of significant value.
The details of our strategic direction are
covered in detail in the Strategic Report on
pages 12 to 15.
The Board relies on the work of our
principal Board Committees to support
its decision-making.
Our culture
In late 2022, R&Q launched its new global
purpose statement and set of values which
are described in detail on page 17. We are
also pleased to announce that we have
recently become a signatory on the UN
Principles of Sustainable Insurance. You
can read more about this and our work
on stakeholder engagement and ESG in
the Working Responsibly section on pages
18 to 24.
2023 Annual general meeting
We look forward to welcoming you to our
Annual General Meeting on 28 July 2023.
William Spiegel
Group Chief Executive Officer
28 June 2023
Corporate governance statement
I am pleased to present, on behalf of the Board, our corporate
governance statement for 2022.
Alastair Campbell retired as planned from
the Board on 31 January 2023, after serving
nine years. I would like to thank Alastair
whose considered and collaborative
approach has been critical in helping guide
the Board. Philip Barnes, who has surpassed
his nine-year tenure will remain on the
Board to assist with the separation of
Accredited and R&Q Legacy businesses.
The Board considers Philip as independent
as he continues to make independent
contributions and challenges management.
The search for a new Non-Executive
Director was put on hold to allow our new
Independent Non-Executive Chair, Jeff
Hayman, to be involved in the recruitment.
The biographies of our current Board of
Directors appear on pages 34 and 35
of this Report, as well as on our website:
www.rqih.com. You can also find the
biographies of our Executive Directors and
Senior Management Team on our website.
Workings of the Board
The $130m capital raise, attempted takeover
by Brickell and shareholder activism took
a significant amount of the Board’s time
and involved frequent Board meetings.
Nevertheless, there was significant progress
against the strategic financial goal to
become a capital-efficient, fee-oriented and
data-driven specialty insurance company
and the implementation of the governance
recommendations contained in the
independent external evaluation.
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.
Compliance with the QCA Code
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How we deliver growth
1. Strategy and business model
The Group is a leading non-life global
specialty insurance company focusing on
the Accredited and R&Q Legacy 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 Accredited 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
Accredited business plays an important
role supporting the growth of independent
insurance distribution.
The R&Q Legacy 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 R&Q Legacy 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-oriented one and its key pillars are
Increase Fee Income and Capital Efficiency,
Enhance Transparency, Automate Processes,
Engage Employees, Act Responsibly.
The Board is currently reviewing strategic
options to separate Accredited and
R&Q Legacy. This will include a legal
reorganisation followed by anticipated
strategic transactions with third parties.
The Board have concluded this will enable
both Accredited and R&Q Legacy to have
more appropriate capital structures, which
will set each on a stronger footing to deliver
profitable growth. In less than five years,
the Accredited business has grown into one
of the world’s largest program managers
with over 80 different programs and 200
reinsurance partnerships. Given the size
of Accredited, the benefits of separating
Accredited and R&Q Legacy have become
far clearer.
More information can be found in our
Strategic Report on page 12.
2. Understanding and meeting
shareholder expectations
The Board recognises 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.
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.
Members of the Board have engaged
with shareholders extensively throughout
the year. Our directors met with the top
shareholders several times in 2022 to
discuss the $130m capital placing, the
Brickell takeover and the requisition notice
served by Phoenix (which at the time held
over 10% of issued share capital) to remove
William Spiegel as a director and appoint
Ken Randall as a director. The view of
shareholders has been factored in by the
Board in its decision-making.
The Executive Directors 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.
Our primary investors have met with
our Independent Non-Executive Chair
Jeff Hayman.
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 recognises 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
the Leadership Team 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 Compliance and Regulatory Affairs.
Employees are invited to attend regular Town
Hall events led by the Leadership Team. At
the most recent Town Hall event, employees
were given an opportunity to ask questions
on the separation of the Accredited and R&Q
Legacy businesses.
Certain decisions require the Board to
balance the different and sometimes
competing interests of its key stakeholders
in order to promote the long-term success
of the Company. Examples include, the
proposed separation of the Accredited
and R&Q Legacy business which has
been initiated to set each on a stronger
footing to deliver profitable growth for
shareholders and the efficiency and
transformation programme.
R&Q is committed to operating responsibly
and our stakeholders have told us that they
expect this of us. Having listened, the Board
adopted Act 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 18 to 24.
4. Our approach to effective risk
management
The Board defines the Group’s risk appetite
and is responsible for determining the nature
and extent of both the upside and downside
risks that it is willing to take order to deliver
the Group’s strategy.
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 56
of this Annual Report explains the three
lines of defence model and this material is
incorporated into this Corporate Governance
Section by reference.
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The principal risks and uncertainties
affecting the Group and mitigating actions
are set out on pages 25 to 27. 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 an
Independent Non-Executive Chair
Our Board of Directors
On 31 March 2023, Jeff Hayman was
appointed Independent Non-Executive
Chair. William Spiegel assumed the role of
Group Chief Executive Officer and remains
a director. Alan Quilter, previously Group
Executive Officer will also remain a director
but will work exclusively with the Accredited
teams in the US and UK/Europe before
retiring at the end of December 2023.
Robert Legget joined the Board on 26 August
2022 and is the Senior Independent Director
and a member of the Audit Committee,
Investment Committee and Remuneration,
Nominations and Governance Committee.
Alastair Campbell retired from the Board,
after the conclusion of his nine-year term.
The appointment of another Non-Executive
Director was deferred until the new Chair had
been appointed and has a chance to become
acquainted with the Board.
Philip Barnes has surpassed his nine-
year tenure. However, given the delay in
appointing a new Non-Executive Director,
the Board has expressed desire to retain
Philip Barnes’ experience on the Group while
the separation of the Accredited and R&Q
Legacy businesses is undertaken. Philip
Barnes will continue as the Chair of the Group
Risk and Compliance Committee. The Board
considers Philip Barnes as independent
as he continues to make independent
contributions and challenges management.
The recruitment process to appoint the new
Directors is discussed in the Remuneration,
Nominations and Governance Committee
Chair Report on pages 46 to 49.
Composition of the Board
The Board is led by Jeff Hayman,
Independent Non-Executive Chair, whose
role is to provide strong and effective
leadership of the Board, to ensure that
the Board is effective in its task of setting
and implementing the Group’s direction
and strategy and to ensure the Board is
structured effectively to observe the highest
standards of integrity and corporate
governance. Jeff was considered to be
independent on his appointment.
The Non-Executive Directors comprise
Philip Barnes, Eamonn Flanagan, Jo Fox
and Robert Legget, who are all judged to
be independent. They provide an external
perspective, independent oversight and
constructive challenge to the Executive
Directors and Senior Management Team
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.
Robert Legget replaced Alastair Campbell
as the SID. His role is to provide a sounding
board for the Chair, to act as an intermediary
for other Directors where necessary and
to provide an additional channel for
shareholder communication.
There are three Executive Directors on
the Board: William Spiegel, Group Chief
Executive Officer, Alan Quilter, Group Head
of Accredited and Tom Solomon, Group 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. The Remuneration,
Nominations and Governance Committee
reviews the independence of each Non-
Executive Director.
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 34 and 35.
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.
The appointment of Robert Legget has
strengthened the Board’s corporate
governance experience and his background
in capital markets and advising investors is
of significant value. The Board also reviewed
the succession plan for Executive Directors
and Senior Management Team positions.
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.
Corporate governance statement
continued
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In addition, there are deep dives from across
the business at Board and Committee level
to ensure the Directors’ understanding of the
Group’s business remains current. Reports are
received from Accredited and R&Q Legacy at
each Board meeting.
7. Board evaluation and effectiveness
The Board engaged BP&E Global Ltd to
undertake an external Board Effectiveness
Review of R&Q Insurance Holdings Ltd,
the ultimate holding company of the
Group in 2021, with findings presented
to the Board in November 2021. During
2022, the Remuneration, Nominations and
Governance Committee received updates
on the progress of the Executive Directors
in implementing these recommendations.
Of note, the Board now receives an update
on ESG matters at each Board meeting and
updates from local CEOs are provided to the
Board twice a year. There has also been an
improvement in the quality of the papers
submitted to the Board for review and the
reinstatement of quarterly group meetings
with Independent Non-Executive Directors.
A formal training programme and the
inclusion of Board strategy away days have
been added to the 2023 Board timetable.
The Board received training on US GAAP
during 2022.
8. Our purpose, values and culture
In late 2022, R&Q launched its new global
purpose statement and set of values, which
are outlined in detail on page 17. A key driver
on this journey was to have a clear sense
of why we exist as an organisation and a
clear sense of what sets of behaviours help
support our culture.
The Board was involved in overseeing and
approving where the organisation landed
in its bottom-up approach. Our purpose
reflects the positive impact that we believe
we can have on customers and society and
our values describe our desired culture
and give us all a compass for how we wish
to work with each other and those we
serve all over the world. A key role of the
Board will be to ensure that the Group’s
purpose, values, culture, and strategy are
coherent and are embedded within the
business model.
On the recommendation of the Board, a TCFD
Working Group was set up to understand
the impact of climate change and to meet
the requirements of the TCFD. During the
year, the Board received a proposal on how
the Group intends to implement the TCFD
recommendations. Further information on
the function of the TCFD Working Group is
included on pages 20 to 24.
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 on page 40.
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
Leadership Team. Matters Reserved for the
Board include decisions relating to:
»
Strategy and management
»
Structure and capital
»
Financial reporting and controls
»
Contracts
»
Communication
»
Board membership and other
appointments
»
Remuneration
»
Delegation of authority
»
Corporate governance
»
Policies and procedures
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
and Governance 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 42 to 55. Other supporting Committees
include the Disclosure Committee.
The Disclosure Committee comprises the
Group Chief Executive Officer, Chief Financial
Officer and Group Head of Accredited. 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.
Our changing governance framework
During 2022, the Remuneration and
Nominations Committee was renamed
the Remuneration, Nominations and
Governance Committee and the terms of
reference of this Committee were amended
to include additional items in relation to
Governance. The terms of reference for
all Board Committees were updated and
approved by the Board.
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Audit Committee
Oversees the Group’s
financial reporting,
maintains an appropriate
relationship with the
external Auditor and
monitors internal controls.
»
Report Page 42
Remuneration,
Nominations and
Governance Committee
Establishes R&Q’s
Remuneration Policy and
undertakes succession
planning for the Board
and Leadership Team.
Oversees the Corporate
Governance Framework.
»
Report Page 46
Group Risk and
Compliance Committee
Oversees risk management,
internal controls and
regulatory compliance
across the Group.
»
Report Page 53
Investment Committee
Oversees the investment
strategy, management
and performance of the
Group’s investment assets.
»
Report Page 50
The Board delegates certain matters to its four principal Committees
Executive Directors and Senior Management Team
The Board
The Executive Directors and the Senior Management Team meet on a monthly basis and are responsible for the
day-to-day running of the business. The roles and responsibilities of the Independent Non-Executive Chair and
Executive Directors are available on the Group’s website: www.rqih.com
Our strategy
»
Report Pages 6–7
Working responsibly
»
Report Pages 18–24
Our approach to risk
management and
key risks
»
Report Pages 25–27
Key activities of
the Board
»
Report Pages 34–35
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 pages 34 and 35 of this Report.
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.
Other supporting Committees include the Disclosure Committee. The terms of reference for the Committees are
available on the Group’s website: www.rqih.com
Shareholders and Stakeholders
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via a secure Board portal, in advance of
meetings to ensure that Directors have
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.
Main activities during 2022
»
Review of Group’s strategic projects
»
Approval of 2021 financial results,
2022 interim financial results and
dividend payments
»
Reviewing the Group Solvency Report
»
Reviewing the Group’s BMA Supervisory
College Response
»
Amendment of the Company’s Bye-laws
»
Approval of Group Tax Strategy and Tax
Operational Guidelines
»
Further implementation of Project
Gateway, the Group’s transformation, and
efficiency programme
»
Launched the Company’s purpose, values
and culture statements
»
Review of appropriate accounting
framework and selection of US GAAP
»
Completed a $130m equity raise
»
Refinanced $120m of Letters of Credit
»
Modernised the Risk Appetite Framework
»
Completed planned R&Q Legacy entity
consolidations with significant savings
»
Responding to shareholder requisition
»
Responding to attempted Brickell
take-over
Areas of focus for 2023
»
Separation of the Accredited and
R&Q Legacy businesses
»
Embedding ESG across the Group
and business
»
Succession planning and remuneration
»
Monitoring climate and cyber risk on
the business
»
Embedding US GAAP
»
Working on a standalone credit rating
for the Accredited Group
»
Cost rationalisation
»
Becoming a Signatory to the UN
Principles of Sustainable Insurance
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 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 page 37. Details of how the Board
understands and meets the needs of its
shareholders are outlined in paragraph two
of this statement.
Chair
William Spiegel
23/24
Board members
Philip Barnes
24/24
Alastair Campbell
24/24
Jo Fox
23/24
Eamonn Flanagan
23/24
Robert Legget
1/3*
Alan Quilter
21/24
Tom Solomon
24/24
Attending by invitation
Paper authors and presenters as necessary
Membership and meetings attendance
* Robert Legget was appointed to the Board on
26 August 2022
How the Board operates
The Board comprises the Independent
Non-Executive Chair, three Executive
Directors and four Independent Non-
Executive Directors. The Board met at five
scheduled meetings to consider its main
business and on 19 further occasions to
consider other specific matters, including
the $130m equity raise, Brickell takeover
attempt and shareholder requisition notice.
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
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Dear Shareholder
I am pleased to present my Report as Chair
of the Audit Committee for the year ended
31 December 2022.
The Committee amended its terms of
reference to clarify that the external auditor
evaluation is an annual, rather than a
periodic, process. Full terms of reference
are available on the Group’s website:
www.rqih.com
The Committee has a number of standing
agenda items it considered at each meeting,
including: review of financial reports,
updates from management on finance
operations, accounting policies, tax matters,
and actuarial reserving; reports from the
Chairs of the subsidiary audit committees,
and reports from internal audit. The
Committee also reviewed both the Annual
and Interim Financial Statements during
the financial year.
Operation of the Committee
The Audit Committee comprises four
independent Non-Executive Directors.
Robert Legget was appointed to the
Committee in November 2022 and
Alastair Campbell stepped down from
the Committee in January 2023. Two of
the current Committee members are
qualified Chartered Accountants and
one is a qualified actuary. All Committee
members have relevant financial expertise
and the majority has extensive insurance
sector experience.
Significant matters
Financial reporting
One of the Committee’s main responsibilities
is to review and report to the Board on the
integrity of the Group’s financial reporting.
During the year, the Committee reviewed:
»
the 2022 interim and 2021 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
Jo Fox
Audit Committee Chair
Audit Committee report
»
the performance of the external
auditors and to recommend their
appointment to the Board
»
the work of the Internal Audit function
»
the Group’s systems of internal
financial controls
»
the Group’s arrangements for
whistleblowing, fraud prevention
and anti-bribery and corruption.
During the year the Committee continued
to assist the Board in its oversight of the
Group’s financial reporting, internal and
external audit arrangements, and systems
of internal financial controls. Its principal
activities remain to review and monitor:
»
the integrity of the Group’s published
Annual Report and Financial
Statements
Role and responsibilities
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»
the reconciliation between the Group’s
alternative performance measures and
the Financial Statements
»
the Group’s going concern basis
of reporting
We continued to hold management to high
standards of reporting practice, not only for
the published Annual Report and accounts
but also for information presented to the
Committee and the Board. This ensured that
the Directors had appropriate and timely
information and explanations to understand
and assess the Group’s financial reporting.
Significant accounting judgements
During 2022, the Audit Committee reviewed
the following key areas of judgement and
estimates applied by management in
preparing the Group’s Interim and Annual
Financial Statements:
»
Carrying values of claim liabilities,
including reviewing Group entities
carrying significant reserves
»
Carrying values of reinsurance recoverables
»
Fair values of assets and liabilities
acquired through reinsurance or
acquisitions and any negative
goodwill arising
»
Fair values arising from R&Q Legacy
contracts
»
Impairments of goodwill and intangibles
»
Provisions 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 2021
Annual Report and Financial Statements
were appropriate.
Group tax strategy
The Audit Committee has an oversight role
in relation to tax matters across the Group.
During the year, the Committee received
regular reports on developments in tax law
and practice across the Group.
Accounting frameworks
During 2022, the Committee continued to
assess the impact of International Financial
Reporting Standard 17 (IFRS 17) on its
business. It also evaluated whether adopting
US Generally Accepted Accounting Principles
(US GAAP) would be more appropriate.
After careful deliberation, the Committee
concluded that a change of accounting
framework to US GAAP would be more
appropriate for the Group’s business profile.
The data requirements of IFRS 17 for run-off
insurance policies and reinsurance contracts
are onerous for both existing and future
transactions, and the ongoing costs of
conforming with IFRS 17 would place R&Q at
a significant competitive disadvantage in the
legacy insurance market, where most of the
market participants report under US GAAP.
As part of its deliberation, the Committee
reviewed management’s assessment of the
impact of US GAAP accounting policies on
all aspects of the income statement and
statement of financial position. While there
are differences of treatment between IFRS
and US GAAP, the change in accounting
framework will not alter the economic-based
alternative performance measures that the
Group uses to manage the business.
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 2022, the Committee
received a report from the Chief Risk Officer
in relation to internal financial controls as
well as an Annual Statement from the Head
of Internal Audit, which confirmed that there
were no issues or areas with significant
shortcomings which would impact the
Financial Statements.
Chair
Jo Fox
5/5
Committee members
Philip Barnes
5/5
Alastair Campbell
5/5
Eamonn Flanagan
5/5
Robert Legget
1/1
(from 2 November 2022)
Attending by invitation
Group Chief Financial Officer
Head of Group Finance
Group Head of Internal Audit
Group Chief Actuary
External Auditors, PKF Littlejohn LLP (PKF)
Other members of the Board and
Leadership Team as appropriate.
Membership and meetings attendance
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During the year, the Board began a Group-
wide finance and operations transformation
programme. This included the introduction
of a new accounting system from 1 January
2023 and a reorganisation of the Finance
function. The finance team was rearranged
to align skills and resources into three main
teams reporting to the Group Chief Financial
Officer: Treasury, Financial Planning and
Analysis, and Accounting. As a result, a Chief
Accounting Officer was recruited with strong
technical, leadership and governance skills
as well as extensive industry knowledge.
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.
Whistleblowing, fraud prevention,
anti-bribery and corruption policies
The Committee has oversight responsibilities
for the Group’s arrangements relating to
whistleblowing, and other systems and
controls related to fraud prevention and
anti-bribery and corruption. The Committee
Chair is the whistleblowing champion and
all regulated entities within the Group have
appointed an Independent Non Executive
Director as a whistleblowing champion.
The Committee is satisfied that the Group’s
policies, procedures and controls in this
regard are adequate.
Internal Audit
The Company’s internal audit work is
undertaken by an in-house team led by the
Group Head of Internal Audit and supported
by co-source arrangements where specialist
skills and experience are required. The
Group 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 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 2022 the Group
Head of Internal Audit provided an overview
of the work Internal Audit had undertaken,
actions arising from audits conducted, the
tracking of remedial actions and progress
against the annual Internal Audit plan.
At the request of the Committee, the Group
Head of Internal Audit began preparing
a governance and assurance map in
conjunction with the Chief Risk Officer and
Group Head of Compliance and Regulatory
Affairs so that the Committee could assess
the breadth and depth of assurance across
all business functions This work will be
completed in 2023 and will inform future
monitoring plans across Risk, Compliance
and Internal Audit.
During the year, the Committee approved
the Internal Audit three-year rolling plan for
2023-25 together with the 2023 Internal Audit
budget. The Group Head of Internal Audit
consulted with the Leadership Team, the
Group Independent Non-Executive Directors,
the subsidiary Audit Committee Chairs,
and the external auditors to assess the key
risk areas of the business and to determine
prioritisation of the three-year plan.
Independence assessment – Group Head
of Internal Audit
The Chartered Institute of Internal Auditors
(CIIA) code of best practice advises audit
committees to consider the tenure of the Chief
Internal Auditor and where tenure exceeds
seven years to assess the Chief Internal
Auditor’s independence and objectivity.
The Group Head of Internal Audit has been
in the role for eight years, so an assessment
of his independence was conducted during
the year.
The Committee members unanimously
agreed that there were no concerns with the
independence, objectivity, or integrity of
the Group Head of Internal Audit.
Oversight of the external audit
The Committee reviewed and approved the
2022 external audit plan. The audit approach
and risks were similar to the 2021 financial
year and reflected the implementation of ISA
315 which requires audit documentation to
be more detailed, as well as the introduction
of ISA 240 covering fraud, which requires
that discussion with management include
a review of management’s processes and
procedures for identifying and responding
to the risks of fraud within the entity.
External auditor evaluation
An important part of the Committee’s work
is to review and monitor the effectiveness
of the external audit process. The Group
has carried out a performance evaluation
of the auditors in each of the last three
years and although there is no formal
requirement to carry out an evaluation
annually, the Committee recommended that
an evaluation be carried out and that the
Committee’s terms of reference be amended
to state that the evaluation is to be carried
out annually henceforth.
During 2022, on completion of the 2021
year end audit, Committee members and
key members of the management team
completed a feedback questionnaire
seeking their views on the external auditor’s
performance. The external auditor, PKF
Littlejohn, also provided the Committee
with assurance on the operation of their
own audit quality process. Overall, the
survey showed that the Committee (and
other respondents) were satisfied with the
performance of PKF Littlejohn.
Audit Committee report
continued
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Non-audit service fees
The Group has guidelines for the provision
of non-audit services by the external auditor,
which are overseen by the Committee. No
revisions were made to the Group Non-Audit
Services Policy during the year.
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 allows the Group to
benefit from the cumulative knowledge and
experience of its auditor while ensuring that
the external auditor remains independent.
Non-audit services fees for 2022 amounted
to $0.1 million and related to the review of
the Employers’ Liability Register for certain of
the Group’s insurance company subsidiaries
and the review of the 2022 interim financial
statements. This compared to total audit and
audit-related assurance services fees of $1.0
million for 2022, details of which appear in
note 9 to the Financial statements.
External auditor tenure
PKF Littlejohn has audited the Group for over
25 years and the lead audit partner, Carmine
Papa, has been in post as the Group’s lead
partner since 2020. As previously reported,
the Committee expected to put the external
audit contract out to tender in 2020, however,
this was postponed because of difficulties
presented by COVID-19. During 2022, the
Committee agreed to defer the process by a
further 12 months due to the planned change
of accounting framework in 2023 which
would require continuity of external auditor
during 2022 and 2023. The audit tender will
take place in 2023 for the 2024 financial year.
Two of the ‘Big Four’ auditing firms are not
eligible to tender as they have provided
services to the Group and its material entities
recently. Mid-tier firms will be included
in the short list, subject to independence
requirements. The Committee considers
global reach of any potential appointee to
be an important requirement in the selection
process given that the Group operates in
many jurisdictions including the UK, Europe,
United States and Bermuda.
Committee Effectiveness Review
The Board and its Committees will carry out
an internal effectiveness review in 2023.
2023 focus areas
The main areas of focus are expected to be:
»
Oversight of the external audit tender
process and recommendation of
selection of external audit firm
»
Challenging appropriateness and level
of reserving across the Group
»
Overseeing implementation of US
GAAP reporting
»
Overseeing ongoing finance
transformation project
»
Monitoring the integrity of the Group’s
published financial statements, the
financial reporting systems and internal
financial controls
»
Monitoring climate-related disclosure
requirements.
Jo Fox
Chair of the Audit Committee
28 June 2023
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Dear Shareholder,
As Chair of the Remuneration, Nominations
and Governance Committee, I am pleased
to present its report for the year ended 2022.
During the year the role of the Committee was
expanded to include the specific oversight of
governance, in line with the recommendations
of the 2021 Board Evaluation.
After the year-end we announced the
appointment of Jeff Hayman as our
Independent Non-Executive Chair.
Robert Legget was appointed as an
independent Non-Executive Director and
Senior Independent Director on 26 August
2022 as part of R&Q’s ongoing, and previously
announced, plan. The Board intends to
proceed with the appointment of a further
independent NED in due course.
I should like to take this opportunity to
extend my thanks and that of the Committee
to Alastair Campbell for his chairing of the
Committee for the past three years during
a time of considerable challenges. We all
benefited from his wise counsel and wealth
of experience.
Operation of the Committee
The Committee is comprised solely of
independent NEDs and is supported
by the Chief Human Resources Officer,
Michele Briggs.
The Committee met at six scheduled
meetings during 2022 to consider the main
business outlined in its terms of reference,
and on two further occasions to consider
specific additional matters.
Committee effectiveness review
We agreed to hold external effectiveness
reviews of the Committee every three years.
Remuneration, Nominations and
Governance Committee report
»
setting the remuneration framework for
the year to come, including bonus plans
»
approving the reward outcomes
for the individuals in the Leadership Team.
Revisions have been proposed and
approved to the Terms of Reference of the
Committee in respect of Governance, ESG
and Diversity and Inclusion. Other minor
matters were approved and recommended
to the Board for adoption. The full, revised
terms of reference are available on the
Group’s website: www.rqih.com.
The role of the Committee is to support the
Board in ensuring that R&Q’s leadership
is suitably qualified, experienced, and
incentivised to deliver against its strategy,
now and in the future. It does this by:
»
reviewing and monitoring the structure,
size and composition of the Board and
its Committees
»
undertaking succession planning for
the Board, Executive Directors and
Senior Management
»
setting the remuneration policy
for the Leadership Team comprised
of Executive Directors and Senior
Management Team
Role and responsibilities
Eamonn Flanagan
Remuneration, Nominations and
Governance Committee Chair
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Main activities during 2022
»
Conducted an in-depth review of the
Board’s composition
»
Oversaw the recruitment of the
Independent Non-Executive Chair
»
Undertook a search for new NEDs
»
Oversaw the Group’s executive succession
plans and the appointment of external
key hires
»
Approved the bonus payments of the
Leadership Team
»
Approved the 2023 Leadership Team
remuneration framework
»
Commenced a review of the Group’s
Executive Remuneration policy
»
Reviewed NEDs’ fees
»
Reviewed the Committee’s Terms
of Reference.
Remuneration
Remuneration policy
Last year, the Committee undertook
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 the Senior Management Team in a
manner that ensures that they are properly
incentivised 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 Executives
and Senior 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 recruitment and progression
in a diverse 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 of the
QCA Code.
A key focus of the Committee in 2022
has been to agree the details of the new
Remuneration Policy and other specific plans
for its operation.
Non-Executive Directors fees
The NEDs each receive a fee for their services
as Directors, which is approved by the
Board, mindful of the time commitment and
responsibilities of their roles and of current
market rates for comparable organisations
and appointments. It has been agreed that
NED fees will be reviewed every two years.
Executive remuneration in 2022
The Committee approved the 2022
remuneration arrangements for the
Leadership Team on the recommendation
of the Executive Chair (now 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 2022 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 are
subject to clawback arrangements.
Chair
Alastair Campbell
6/6
(to 31 January 2023)
Eamonn Flanagan
6/6
(from 31 January 2023)
Committee members
Philip Barnes
6/6
Jo Fox
6/6
Eamonn Flanagan
6/6
Robert Legget
1/1
(from 2 November 2022)
Attending by invitation
William Spiegel, Group Chief Executive
Officer (from 31 March 2023)
Alan Quilter, Group Head of Accredited
(from 31 March 2023)
David Gormley, Group Company Secretary
Michele Briggs, Chief Human
Resources Officer
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We considered the 2022 compensation plan
scorecard, which remains based on a 60%
financial metrics and 40% non-financial
metrics split, with individuals evaluated on a
five-point scale across both sets of metrics.
The Committee discussed that the plan
was clear in justifying how bonus payments
were awarded. We also wanted to be sure
that we had discretion in the amounts paid,
as this is a sensitive issue for investors across
the UK and they are keen for companies to
show restraint.
Despite all the issues in 2022, the Group
achieved a significant number of
accomplishments during the year. A new
platform was rolled out to Finance together
with a new organisational structure that
is expected to deliver significant savings
in 2024. A new modern Risk Appetite
Framework was introduced across the
Group. Accredited continued to grow Gross
Written Premiums and the development
of R&Q Legacy’s capital-efficient model
progressed well. The results on R&Q Legacy
were disappointing as the business suffered
from adverse developments on old
legacy deals.
Remuneration outcomes
The remuneration detail is set out in the
Employees and Directors Note 26 to the
Accounts on page 106.
Cost of living payments
The Committee approved proposals for
making one-off ex-gratia cost of living
payments directed towards the lower-paid
staff to ease their financial position in the
light of current inflation across the Group’s
locations. This took the form of a one-time
payment of £1,000 (US $1,200 / Euros
€1,150) to be paid in the December payroll
to all employees earning up to £60,000
(US$72,000/ Euros €69,000). This would
result in one off aggregate cost to the
Group of £89,000.
Composition, succession and evaluation
Board composition
The Board of R&Q remains keenly aware of
shareholder views around its composition
and elements of the Company’s corporate
governance structure. Following an extensive
review in the second half of 2021, the Board
had intended to introduce certain changes,
including new Board members, to address
these views and bring its structure in line with
best practice. These changes were put on
hold due to corporate activities in early and
mid 2022. Once these were concluded, the
Board recommenced the implementation
of its planned changes.
Board appointments
The initial focus area for the Committee
in 2022 was NED recruitment, as Alastair
Campbell and Philip Barnes reached the
ninth anniversaries of their appointments.
The Committee led the selection and
appointment process for their successors,
with the support of an external global
search agency, Russell Reynolds. This
was a continuation of the role for which a
competitive selection process was run in 2021.
Russell Reynolds have no other connection to
the company or individual directors.
Following a skills and experience assessment
of the Board, it was determined that the
requirements for the new independent NEDs
should cover an understanding of non-life
insurance, experience of business in the
UK and US, and the associated 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 until mid-
2022, due to the corporate activities in 2022.
The Board and Committee re-started the
process, and Robert Legget, was duly
appointed as NED and SID, with effect from
26 August 2022.
Robert comes well regarded as a
businessman who has significant experience
of governance issues including acting as a
Senior Independent Director and chairing
board committees of PLC companies.
Robert’s board and governance experience
was of prime importance for fulfilling the
role of SID. The Committee also considered it
advantageous from a diversity perspective
that Robert had experience of being an
Independent Non-Executive Director of
companies which operate in different
industries to R&Q.
The Board and Committee then decided
that the recruitment of any further NEDs be
deferred until the new independent non-
executive Chair had been appointed. As a
consequence, Philip Barnes was asked to
continue as a director and chair of the Group
Risk and Compliance Committee for another
year, until the new chair had time to become
familiar with the Company and with the
matters addressed by that Committee. The
Board and the Committee have reviewed
Philip’s independence and have concluded
that he remains of independent mind and
approach. We acknowledge his willingness
to continue with this role.
Independent Non-Executive Chair
recruitment
A sub-committee of the Remuneration
Committee was set up for the recruitment
of a new Chair led by Robert Legget as
SID and comprising Alastair Campbell
(until his retirement, replaced by Eamonn
Flanagan) and William Spiegel; assistance
was provided by the Chief Human Resources
Officer and Russell Reynolds was retained to
resource suitable candidates as part of the
search for NEDs, as set out above.
Remuneration, Nominations and Governance
Committee report continued
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The working party held its first meeting
in October 2022, with Russell Reynolds in
attendance. At that meeting the working
party worked through the definition for an
Independent Non-Executive Chair, where
Russell Reynolds had done some of the work
previously. A job specification was agreed,
from which the sub-committee would look
to produce a list and ranking of potential
candidates. The working party also reviewed
the number of days that the candidate
would be required to work on the Company.
Russell Reynolds produced a final list
of candidates with a view to starting
discussions in 2023.
The sub-committee met with a number of
top-class candidates to fill the role of non-
executive Chair and, with the assistance
of Russell Reynolds, narrowed the field
down to two candidates. Both candidates
subsequently met with all members of the
Board and the Board concurred that Jeff
Hayman was the preferred candidate.
In terms of remuneration for the role, the
sub-committee settled on an annual fee of
$300,000 noting that the Chair would be
based in the US, recognising the size and
complexity of the business and the strong
reputation that the proposed Chair had
within the insurance industry.
Board Committee membership
The Committee reviewed the composition
of the Committees of the Board, following
Robert’s appointment and recommended
some changes that have been approved by
the Board. These were that Robert Legget
be a member of the Committee and of both
the Audit and Investment Committees, and
the appointment of Eamonn Flanagan to
the Group Risk and Compliance Committee.
Upon his appointment, the Chair has been
appointed to all Committees of the Board,
except the Audit Committee.
Executive succession planning
As the Group began its strategic
transformation under the 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 also
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. Plans were put in place across the
business and succession priorities have been
identified, with some employees retiring from
the business within the next year.
Governance
The Committee noted the Governance
update as presented by the Company
Secretary was almost complete for 2022
and that some items still needed to be
addressed and closed off in 2023. The
following items were presented to the
Committee for approval.
Terms of reference
The 2021 Board Effectiveness review had
recommended that the Committee take on
the Governance oversight role on behalf of
the Board, with updated terms of reference.
This is to be reviewed after six months.
Governance framework
The Committee noted the Governance
Framework (see page 40) and suggested
some enhancements to improve the two-
way flow of information between the Board
and Management.
ESG
The Committee has been kept up to date on
progress relating to ESG and related matters,
such as those related to Organisation
Change and Succession. In addition,
particular attention is being paid to the
embedding of ESG across the organisation,
with an ESG Framework and Strategy being
finalised to support the R&Q Corporate
Strategy. Each member of the Leadership
Team has ESG criteria written into their
personal objectives.
2023 focus
»
Monitor the Board’s succession plans in
light of upcoming retirements
»
Agree and implement the Group’s new
Remuneration Policy for the Leadership
Team, including a long-term share-based
incentive plan
»
Executive Retention Plan for the
Leadership Team
»
Further embed ESG in the Group’s
recruitment and remuneration
practices, with each of the Executives
and Senior Management having an
ESG-based objective
»
Ensure the Terms of Reference are
complied with in the context of the
ongoing strategic review
Eamonn Flanagan
Chair of the Remuneration, Nominations
and Governance Committee
28 June 2023
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Dear Shareholder,
As Chair of the Investment Committee, I am
pleased to present our report for 2022 which
describes our activities and areas of focus
during 2022.
During the year, Robert Legget was
welcomed on to the Committee.
Markets experienced an historic number
of interest rate increases in 2022 as central
banks raised rates to curb inflation. Macro
and market environments became more
complex, leading to heightened volatility,
although emerging signs of disinflation
calmed markets in the second half of the
year. Overall, the yield curve increased ,
and we witnessed a severely inverted yield
curve, which has been a historical indicator
of recessions.
Investment Income on a Pre-Tax Operating
Profit basis, which excludes realised and
unrealised gains and losses on fixed income
investments, increased relative to 2021.
The increase in investment income was
driven by higher returns on floating rate
investments and cash, and reinvesting new
and maturing assets into the higher interest
rate environment. There was a material
increase in the unrealised loss position driven
by higher interest rates and credit spreads,
with the majority of unrealised losses arising
from fixed rate corporate and government
bonds. On a total return basis, our investment
performance was consistent with fixed
income benchmarks, and benefited from
our allocation to floating rate assets. Asset-
liability management (ALM) is core to the
management of the company’s investments,
driven by our desire to reduce the likelihood
of realising losses arising from the mismatch
in the timing of cash outflows relative to
investment cash inflows. Nevertheless, we
may buy and sell assets for a variety of
reasons, including when there are compelling
relative value or credit-related considerations
that may allow us to improve our long term
investment-related economics relative to
the risk we are taking. For 2022, realised
losses amounted to $18 million reflecting
opportunistic transactions to enhance
long-term returns as well as the need to
make claim payments.
Eamonn Flanagan
Investment Committee Chair
Investment Committee
report
»
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.
Our role is to provide mitigation to
the Principal Risk and Uncertainty of
‘Market and Investment 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.
We also assist the Board in its oversight of
the investment assets of the Group by:
Role and responsibilities
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Operation of the Committee
The Committee comprises two independent
NEDs, the Executive Chair (Group Chief
Executive Officer from 31 March 2023) and
the Independent Non-Executive Chair
(from 31 March 2023). 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 the Committee’s
responsibilities.
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.
The standing agenda items include a review
of market conditions, portfolio performance
and benchmarking, investment activity
and key initiatives, a review of realised and
unrealised gains/(losses) and other topics of
high relevance based upon macro and risk
conditions at that time.
Investment presentations and reports by
our investment managers are standardised
to focus on key issues relevant to our
investment mandates. The resulting
consistency of reporting allows the
Committee to better monitor investment
performance across managers.
Main activities during 2022
»
Review of the investment strategy
and guidelines to ensure they remain
appropriate and applicable to the
requirements of our liability needs and
risk profile, meet regulatory requirements,
and optimise returns for our investors
»
Continue to enhance asset liability
management targets and capabilities.
This focuses on optimising the matching
of assets and liability cash flows, within
the context of regulatory constraints, and
enhancing risk-adjusted returns on the
portfolios and reducing reinvestment and
liquidity risks
»
Evaluate 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.
Areas of focus in 2022
Group Investment Strategy and Guidelines
The Committee considered the amended
Group Investment Strategy and Guidelines
and noted that the changes were to
processes and that there had been no
change to investment risk appetite or
strategy. We consider the Group Investment
Strategy and Guidelines to provide the
appropriate level of flexibility and to be in
line with the industry standards. After careful
deliberation, the Committee recommended
that the Board approve the Group
Investment Strategy and Guidelines.
The Group employs an investment strategy
focused on fixed income investments,
utilising three external investment managers.
Our investment philosophy is to structure
investment portfolios and liquidity to match
our liability profile and limit the need to be
‘forced sellers,’ while focusing on high quality
fixed income assets that produce stable,
predictable cash flows.
The Committee considered the Risk
Management Update and noted that
two investment risk KRIs were proposed –
Investment Performance and Investment
Manager Performance and that each risk
had an appropriate owner.
Investment risk appetite
The Group invests primarily in marketable,
investment grade-rated, fixed income
securities and has KRIs related to the
amount of net realised loss on investments
that can be incurred in any one quarter,
measured relative to invested assets, and
the performance of its investment managers.
During the year, the Committee continued
to monitor the performance of the Group’s
investment strategy within its established
risk framework. The Committee also worked
with the Group Risk function to update its key
risk indicators for investment performance
and to develop risk appetite statements and
key risk indicators for investment.
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, market performance and
compliance with agreed mandates. The
Committee also considered the views of its
investment managers on market risk and
recommendations for the positioning of the
invested portfolio.
Chair
Eamonn Flanagan
4/ 4
Committee members
Philip Barnes
4/ 4
William Spiegel
4/ 4
Robert Legget
1/1
(from 2 November 2022)
Attending by invitation
Other members of the Board
Chief Risk Officer
Head of Corporate Development
Membership and meetings attendance
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Various specific matters were raised by the
Committee during the course of the year,
driven by topical risk matters. For example,
the Committee reviewed how the Group’s
investments had been impacted by the
conflict in Ukraine and what actions had
been taken, including:
»
The sale of a security which had minority
Russian ownership and may have been
impacted by sanctions.
»
An exposure to aircraft leasing
investments, where planes had been
leased to Russian airlines.
Management of cash balances
The Committee focused on improving
cash management across the Group in
accordance with its liquidity requirements
and regulatory obligations. Cash balances
during the year were impacted by one-time
items; and duration continues to shorten as
risk-reward and realised loss minimisation
favours shorter-dated assets.
Environmental, social and governance
The Group’s ESG strategy continued to
evolve in 2022 and the Committee has been
evaluating responsible investment and
climate change matters. The Committee has
been working with its investment managers
to determine current best practices and is
focusing on incorporating these into the
Group’s investment strategy as appropriate
in the coming year.
2023 focus
Overseeing:
»
Realised loss mitigation
»
Further ALM work, including the
finalisation of the ALM tool (Group,
entity and portfolio-level ALM analytics
and charts) and the use of output to
collaborate with investment managers
and increase the alignment of ALM goals
»
The exploration of new investment
manager opportunities that expand
the Group’s investment capabilities
and assets
»
The adoption and incorporation of
Group-level Risk Appetite Principles and
investment-related limits and thresholds
»
Management of cash
»
Positioning of the ESG portfolio and the
reporting and disclosure of ESG metrics
and targets
Eamonn Flanagan
Chair of the Investment Committee
28 June 2023
Investment Committee report
continued
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Group Risk and Compliance
Committee report
Dear Shareholder,
As Chair of the Group Risk and Compliance
Committee, I am pleased to present our
Committee Report for 2022 which describes
our activities and areas of focus during
the year.
During the year the Chief Executive
Officer, Alan Quilter, stood down from the
Committee and was replaced by Eamonn
Flanagan. I should like to thank Alan for his
wise contributions to the workings of the
Committee and to welcome Eamonn.
I should also like to welcome our new
Independent Non-Executive Chair, Jeff
Hayman, to the Committee for 2023.
Operation of the Committee
The Committee comprised three
Independent Non-Executive Directors.
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 2022.
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 had a number of standing
agenda items including the report from the
Chief Risk Officer, Group Regulatory interface
and horizon scanning from the Group Head
of Compliance and Regulatory Affairs, and
an update on strategic priorities from a
representative from Executive Management.
Risk Management
Risk reporting and risk appetite framework
Effective risk reporting was fundamental to
the Committee’s management and oversight
of key risks during 2022. As part of the report
from the Chief Risk Officer, the Committee
received a forward-looking risk heatmap
at each meeting showing how the principal
risks were faring relative to each other in
terms of priority and potential impact.
The Committee also considered, as part of
the report from the Chief Risk Officer, a more
detailed risk dashboard at each meeting,
Philip Barnes
Group Risk and Compliance
Committee Chair
»
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.
During the year, the Committee continued,
under its widened remit (incorporating
Compliance from Q4 2021) 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.
We also assist the Board in fulfilling its
oversight responsibilities by reviewing
and monitoring:
Role and responsibilities
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which demonstrated the Group’s adherence
to its predetermined risk appetite/
tolerance for taking risk in respect of its key
risks. The Committee ensured continued
alignment of the framework with the Group’s
principal risks to the delivery of the Group’s
strategy and monitored its continued
appropriateness.
At the request of Executive Management,
during 2022, the Group Risk function has
worked with colleagues in the Data,
Investments and Capital functions to
develop the current risk appetite framework
to include a suite of quantitative, analytical
metrics, for implementation during 2023.
The Group’s principal risks and uncertainties
appear on pages 25 to 27.
Emerging risks
The Group’s Risk function operates an
Emerging Risks Focus Group (ERFG) 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 now meets three times annually.
During 2022, it met three times and provided
a report to the Committee each time.
The risks considered included, but
were not restricted to, climate change,
macroeconomic and geopolitical volatility,
changing expectations of the workforce,
developing cyber risk and increase in
regulatory scrutiny.
The focus group has continued to consider
the specific risks and issues related to the
requirements of the Task Force on Climate-
related Financial Disclosures (TCFD) and the
UK Financial Conduct Authority Supervisory
Statement SS3/19, under the auspices of the
Group-wide ESG working group.
Operational resilience
Operational resilience has continued to be
an ongoing area of scrutiny. The primary
areas under review during 2022 included the
external cyber threatscape and associated
risks, including a presentation from the
Group Head of Data and Technology,
and the operational risks arising from the
Group’s transformation project. Business
continuity management forms part of the
Group Risk function and any issues arising
are reported to the Committee by exception.
The Committee also considered outsourcing
risk and the development of monitoring
capabilities within the Group to oversee its
material outsourcing arrangements, both
external and within the Group.
Other risk matters
The Committee also considered the following
risk matters during 2022:
»
Reserving risk – the development of
enhanced metrics for reserving risk to
be considered as part of the wider review
of the Group risk appetite framework
»
Inflationary pressures as a driver of
a number of the Group’s key risks,
particularly within the consideration
of reserving risk and market risk
»
Reputation and stakeholder
management and the impact of the
shareholder activism during 2022
»
Intermediary counterparty risk and the
mechanics of negotiating and paying
up front commissions and accounting
for commission clawbacks
»
Reinsurance counterparty risk – the tools,
mechanism and underlying assumptions
for monitoring reinsurance counterparty
risk were reviewed as they relate to the
new capital light structure underlying the
Group’s new fee-oriented model
»
Stress and scenario testing – a Group-
wide stress and scenario testing policy
was reviewed and approved by
the Committee
»
Tax risk – the Committee considered
the potential implications of the global
minimum tax initiatives on the Group
Compliance
Compliance Charter
The nature of our business means that
regulatory and compliance risk is always
on the radar. At each meeting in 2022, the
Committee received a report on the Group’s
supervision and related regulatory matters
from the Group Head of Compliance and
Regulatory Affairs. These reports outlined the
Group’s ongoing engagement with its main
regulators during 2022 and also ‘horizon scans’
to be aware of incoming issues. Ongoing
updates are provided to all regulators.
Chair
Philip Barnes
6/ 6
Committee members
Jo Fox
6/ 6
Eamonn Flanagan
2/ 2
Alan Quilter
2/4
(from 2 November 2022)
Attending by invitation
Chief Risk Officer, Susan Young
Group Head of Compliance and Regulatory
Affairs, Angele St. John
Group Head of Internal Audit, Ashwani Malik
Other members of the Executive and Senior
Management Team as appropriate.
Membership and meetings attendance
Group Risk and Compliance
Committee report continued
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Annual return to the Bermuda Monetary
Authority (BMA)
The Company is required to submit its annual
regulatory return to the Bermuda Monetary
Authority (BMA). The key documentation
comprises the Group Solvency Self-
Assessment (GSSA) and the Group Bermuda
Solvency Capital Requirement (BSCR) 2021
Regulatory Filings. The Committee reviewed
the documentation and recommended
they be submitted to the full Board for
approval, following which they be filed with
the BMA subject to some minor changes.
The Committee now requires that the Group
Capital function should prepare a forward
looking projection of the Group BSCR as part
of the standard agenda for future meetings.
Horizon scans
The Committee heard updates on key
regulatory initiatives including various
consultation papers from the BMA,
including a revised insurance Code of
Conduct, outsourcing and third party
risk management from the UK PRA,
and Consumer Duty from the UK FCA,
pronouncements from the US NAIC on
Insurance Business Transfers and the new
Malta Financial Services Authority (MFSA)
Code of Corporate Governance.
The Committee was also advised that,
following the PRA’s recent policy statement,
large transactions (greater than £100m)
would necessitate a Section 166 skilled
person review under the Financial Services
and Markets Act (FSMA). The Committee
discussed the proposal that the Group
conduct an analysis of its processes in
order to be proactive and understand
any weaknesses.
Subsidiary Risk and Compliance –
Oversight and Reporting
As part of the oversight responsibilities
for risk management, internal control and
regulatory compliance across the Group,
the Committee receives a report from the
Chair of each regulated subsidiary Risk and
Compliance Committee. In November 2022,
we held the third annual meeting of the
subsidiary Risk and Compliance Committee
Chairs. This serves 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 concerns,
thereby ensuring a consistent approach to
risk management, regulatory compliance
and governance across the business.
Committee effectiveness review
The Committee has traditionally
benchmarked its effectiveness against
emerging best practice. We do this by
comparing our composition, structure, and
operation, along with that of the Group’s Risk
function, against the risk coalition principles-
based guidance and other corporate
governance standards and guidelines,
including the QCA Governance Code.
The Group’s Risk Governance arrangements
(covering both the operation of this
Committee and that of the Group Risk
function) were subject to an internal audit
review, using the Risk Coalition guidance as
a benchmark. The internal audit report was
finalised in the second half of 2022 and the
findings will be addressed during the course
of 2023.
The Committee will then conduct its
own annual effectiveness review in 2023
and beyond.
Focus areas for 2023
»
Ongoing monitoring of the Group’s
principal and emerging risks
»
Ongoing monitoring of the Group’s
regulatory footprint, horizon scanning
for regulatory pipeline initiatives and
reporting on regulatory interface
»
Implementation of the Group’s new risk
appetite framework enhancements
incorporating statistical and stochastic
analysis, and ongoing review of the
Group’s risk appetite framework and
internal controls
»
Deep dives into climate change and
the requirements of the TCFD, Execution
risk surrounding the Group’s ongoing
strategic initiatives, Consumer Duty, the
Group’s evolving
fee-oriented model and underwriting
retention strategy, as well as reserving
and liquidity risk
»
Oversight of the implementation
of recommendations from internal
audit reviews into risk governance
arrangements and compliance
Philip Barnes
Chair of the Group Risk and
Compliance Committee
28 June 2023
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Risk management
»
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 function as described above
The Board considers that the controls in
place during 2022 were and continue to
be broadly relevant, proportional, and
appropriate for the needs of the Group, and
in addition are sufficiently flexible to evolve
with the changing needs of the business.
A number of the Group’s subsidiaries are
regulated and accordingly are subject to
the relevant degree of local regulatory
oversight. Members of the Board and
Leadership Team 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 was widened, to encompass
compliance recognised heightened
regulatory scrutiny and the requirement
for the appropriate level of governance
and oversight in this regard. 2022 was the
first full year that the Committee operated
in its new guise.
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
recent years.
Risk management framework and
Risk 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 Leadership Team,
meeting regularly with them to monitor
existing identified risks and uncertainties,
identify new and emerging risks and to
ensure that there are appropriate processes
and procedures in place to monitor these
risks. It is also responsible for monitoring that
the business meets regulatory expectations
around enterprise risk management and
reporting in risk to the Board and the Group
Risk and Compliance Committee.
Group Risk Committee
The Group Risk and Compliance Committee
is a formally constituted Committee of the
Board. A report from the Group Risk and
Compliance Committee Chair on its role,
responsibilities, operation, areas of focus
during 2022, discharging of responsibilities,
self-evaluation and plans for 2022 appears
on pages 53 to 55.
Risk appetite
The risk appetite framework sets the
boundaries within which risk taking should
remain in order to meet the expectations of
the capital providers and other stakeholders.
For the Group, it is articulated via a series
of quantitative and qualitative statements
covering all defined categories of risk.
Risk appetite reflects the amount of risk
taking which is acceptable to the Group.
Accordingly, risk appetite refers to the
Group’s attitude to risk taking and whether it
is willing or able to tolerate a high or low level
of exposure to specific risk or risk categories.
Risk tolerance represents the Group’s
ability and willingness to bear risk. When
considering this, factors such as the
availability of capital, ability to raise capital,
strength of underlying operational processes
and procedures and strength of the
organisation’s culture are all relevant.
The risk appetite framework, which is set at
both the Group level and for each of the key
business units, is reviewed annually and/or
when there are material changes to the
overall risk profile of the Group and or its
business units.
Principal risks and uncertainties
The principal risks and uncertainties can be
found within the Strategic Report on pages
25 to 27. For each principal risk, the title
and a brief description of the risks and key
mitigating actions are described.
Internal control system
The Group’s internal control system
comprises the following key elements:
»
Documented governance arrangements
continue to evolve along with the overall
business strategy
»
Strategic planning process setting
priorities for the forthcoming planning
horizon, reviewed by the Board
periodically to ensure the Group is
focusing on its core strengths
The Board and Leadership Team continue to appreciate that the
Group’s ongoing success depends on its collective understanding
and management of known risks and exposures.
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Board of Directors
Group Executive
Committee
Third line
Independent Assurance
(Internal/External Audit,
Independent Review etc.)
First line
The Business
(Risk and
Control
Owners)
Second line
Direct
Assurance
Compliance,
Legal
RISK
MANAGEMENT
Risk Appetite Framework –
Objective Setting, Budgets,
Targets and Tolerances
Risk Appetite Framework –
Objective Setting, Budgets,
Targets and Tolerances
Business
Planning
Process –
Targets and
Tolerances
Capital
Assessment
and Planning
Process – Capital
Allocation and
Management
ORSA
PROCESS
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.
Risk governance
Risk governance within the Group continues to
adopt a three lines of defence model at both
Group and business unit/entity level.
Own Risk and Solvency Assessments
and equivalents
The own risk and solvency assessment (ORSA)
or equivalent is defined as; ‘The entirety of
the processes and procedures employed to
identify, assess, monitor, manage, and report the
short- and long-term risks a firm faces or may
face and to determine the own funds necessary
to ensure that overall solvency needs are met
at all times.’ The report produced as part of this
process can be described as the ‘shop window’
of the business planning, capital setting and risk
assessment process.
Risk
Identification
Own Risk
and Solvency
Assessments
Risk
Governance
Risk
Mitigation
Risk
Monitoring
Risk
Owner
Risk
Appetite
Risk
Measurement
Risk
Reporting
RISK
MANAGEMENT
PROCESS
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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.
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.
Statement of Directors’
responsibilities
60
Independent auditor’s report
64
Consolidated income statement
65
Consolidated statement
of comprehensive income
66
Consolidated statement
of changes in equity
67
Consolidated statement
of financial position
68
Consolidated cash flow statement
69
Notes to the consolidated
financial statements
Financial
statements
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Independent auditor’s report to the members
of R&Q Insurance Holdings Ltd
Opinion
We have audited the group financial statements of R&Q Insurance Holdings Ltd (the ‘group’) for the year ended 31 December 2022 which
comprise the consolidated income statement, the 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 2022 and its loss for the year then ended; and
»
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 the successful sale of
the Accredited Group which should give rise to substantial cash proceeds. At the date of signing of these financial statements the group has
not yet completed this sale but has received interest from a number of bidders which indicate that it is probable that the sale process would
be successful. As stated in note 2.d, these events or conditions, along with the other matters as set forth in note 2.d, indicate that a material
uncertainty exists that may cast significant doubt on the group’s ability to continue as a going concern. 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 group’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, the effects of the sale
of the Accredited Group by the end of 2023, and the raising of up to $60m of non-voting preferred equity. 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 bids received from the process established by the group for the disposal of the Accredited Group.
»
We have reviewed the factors and assumptions included in the cash forecast. We considered the appropriateness of the methods used to
calculate the cash forecasts and determined that the methods utilised were appropriate to be able to make an assessment for the group.
We have also carried out a sensitivity analysis of the group’s cash flow forecast to factor in different scenarios.
»
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.
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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
5% of the loss before tax.
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 loss before tax was the most relevant
benchmark to these users.
13,800,000
(2021:
8,300,000)
We use a different level of materiality (‘performance materiality’) to determine the extent of our testing for the audit of the financial statements.
Performance materiality is based on the audit materiality as adjusted for the judgements made as to the entity risk and our evaluation of the
specific risk of each audit area having regard to the internal control environment. This was set at $10,950,000 (2021: $6,300,000).
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of $730,000 (2021: $420,000) as well
as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We reassessed materiality at the end of the audit and did not find it necessary to revise our planning materiality.
Our approach to the audit
Our audit approach was developed by obtaining an understanding of the group’s activities, taking into account the geographic structure of the
group, the key subjective judgements made by the directors, for example in respect of significant accounting estimates that involved making
assumptions and considering future events that are inherently uncertain, and the overall control environment.
Based on this understanding we assessed those aspects of the group’s transactions and balances which were most likely to give rise to
a material misstatement and were most susceptible to irregularities including fraud or error. Specifically, we identified what we considered
to be key audit matters and planned our audit approach accordingly.
The group operates in a number of overseas locations. In establishing the overall approach to the group audit, we determined the type of work
that needed to be performed by us, as the group auditors, and the component auditors of the overseas subsidiaries.
Where the work was performed by component 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.
In addition to the matter described in the material uncertainty related to going concern section, we have determined the matters described
below to be the key audit matters to be communicated in our report.
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Financial
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Area
Reason
Audit response
Recognition of
program income
Refer to Notes
2 f) and 5 to the
group financial
statements
for disclosures
of related
accounting
policies and
balances.
The group has entered into a number of new programs
in the year.
In accordance with IFRS, the income arising from these
programs should only be recognised as income within
the income statement when the performance conditions
associated with it have been met.
The determination of the performance conditions
associated with such income gives rise to significant
judgements to be exercised by management.
There is a risk that such judgements are not made in
accordance with IFRS and thus the accounting for such
income is materially misstated in the financial statements.
We obtained an understanding and evaluated the design and
implementation of controls that the group has established in relation
to the recognition of the new program income.
We also performed the following procedures:
•
Reviewed the underlying program agreements; and
•
Tested, on a sample basis, whether amounts recognised
were reasonable and appropriately recorded in the correct
accounting period based on the contractual obligations of the
insurance agreements.
Based on the procedures we performed, we observed that the
recognition of the new program income was reasonable and
appropriate based on the requirements of IFRS and the nature
of the underlying agreements.
Valuation of
insurance
contract
provisions
Refer to Notes 2
h) and 23 to the
group financial
statements
for disclosures
of related
accounting
policies and
balances.
Total net insurance contract provisions for the year end
31 December 2022 are $1,118 million.
The methodologies and assumptions utilised to develop
insurance contract provisions involve a significant degree
of judgement. The liabilities are based on the estimated
ultimate cost of all claims incurred but not settled at a
given date, whether reported or not. In addition, classes of
business where there is a greater length of time between
initial claim event and settlement (such as historic
asbestosis and environmental pollution classes) also tend
to display greater variability between initial estimates
and final settlements. A range of methods may be used to
determine these provisions.
We focused on this area as the underlying methods include
a number of explicit and implicit assumptions relating to
the expected settlement amounts and settlement patterns
of claims and are subject to complex calculations including
application of management’s judgement which can give
rise to materially different values.
We evaluated whether the group’s actuarial methodologies were
consistent with those used generally in the industry and with prior periods.
We also evaluated the governance around the overall group reserving
process, including the scrutiny applied by the group audit and risk
committee, as well as group level actuarial reviews.
Additionally, we performed the following procedures:
•
Tested, on a sample basis, the underlying data to source
documentation to assess the completeness and accuracy;
•
Reviewed any significant prior year reserve movements by
reference to any significant adverse market development;
•
Performed independent re-projections and sensitivity analyses
on selected classes of business and compared our re-projected
claims reserves to those booked by management, and challenged
management to understand any significant differences.
•
Tested the calculations used in identifying reinsurers’ share of
any claims.
Based on the procedures we performed, we observed that the value of the
insurance contract provisions was reasonable and appropriate.
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 contained within the Annual Report. Our opinion on the group financial
statements does not cover the other information, except to the extent otherwise explicitly stated in our report, and we do not express any form
of assurance conclusion thereon. 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 this gives rise to a
material misstatement in the financial statements. 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.
Independent auditor’s report to the members
of R&Q Insurance Holdings Ltd continued
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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.
»
We determined the principal laws and regulations relevant to the group 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 group
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 group 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 company’s members, as a body, in accordance with our engagement letter. Our audit work has been undertaken
so that we might state to the 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 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
28 June 2023
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Financial
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Consolidated income statement
For the year ended 31 December 2022
2022
2021
Note
$m
$m
$m
$m
restated*
Gross Written Premiums
1,908.7
1,539.7
Written premiums ceded to reinsurers
(1,764.9)
(1,463.5)
Net written premiums
143.8
76.2
Net change in provision for unearned premiums
(42.5)
(12.2)
Earned premium, net of reinsurance
101.3
64.0
Earned Fee Income
6
75.0
31.8
Gross investment income
7
(97.4)
6.4
Other income
8
2.9
6.6
Total fee, investment and other income
(19.5)
44.8
Total income
81.8
108.8
Gross claims paid
(651.9)
(485.9)
Proceeds from commutations and reinsurers’ share of gross claims paid
484.5
154.2
Claims paid, net of reinsurance
(167.4)
(331.7)
Net change in provisions for claims
0.3
205.4
Net claims provision increase
(167.1)
(126.3)
Operating expenses
9
(178.9)
(166.0)
Result of operating activities before goodwill on bargain purchase
(264.2)
(183.5)
Goodwill on bargain purchase
29
0.6
49.7
Amortisation and impairment of intangible assets
15
(9.7)
(12.8)
Share of profit of associates
12.4
11.2
Result of operating activities
(260.9)
(135.4)
Finance costs
10
(31.7)
(26.5)
Loss before income taxes
11
(292.6)
(161.9)
Income tax (charge)/credit
12
(4.4)
34.8
Loss for the year
(297.0)
(127.1)
Attributable to:
Shareholders of the parent
(297.0)
(127.1)
Non-controlling interests
30
–
–
(297.0)
(127.1)
The accounting policies and accompanying notes are an integral part of the Consolidated Financial Statements.
Note
2022
2021
Earnings per share:
Basic
13
(91.3)c
(46.8)c
Diluted
13
(91.3)c
(46.8)c
*All restatements in the financial statements relate to the change in discounting as noted in 2.a.
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Financial
statements
Consolidated statement of comprehensive income
For the year ended 31 December 2022
2022
2021
$m
$m
restated
Other comprehensive income:
Items that will not be reclassified to profit or loss:
Pension scheme actuarial (losses)/gains
(4.5)
3.1
Deferred tax on pension scheme actuarial losses/(gains)
1.1
(0.2)
(3.4)
2.9
Items that may be subsequently reclassified to profit or loss:
Exchange losses on consolidation
(35.7)
(3.3)
Other comprehensive income
(39.1)
(0.4)
Loss for the year
(297.0)
(127.1)
Total comprehensive income for the year
(336.1)
(127.5)
Attributable to:
Shareholders of the parent
(336.1)
(127.5)
Total comprehensive income for the year
(336.1)
(127.5)
The accounting policies and accompanying notes are an integral part of the Consolidated Financial Statements.
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statements
Consolidated statement of changes in equity
For the year ended 31 December 2022
Notes
Share capital
$m
Share premium
$m
Foreign currency
translation
reserve
$m
Retained
earnings
$m
Total
$m
Year ended 31 December 2022
At beginning of year
7.5
288.3
(15.7)
117.2
397.3
Loss for the year
–
–
–
(297.0)
(297.0)
Other comprehensive income
Exchange losses on consolidation
–
–
(35.7)
–
(35.7)
Pension scheme actuarial losses
–
–
–
(4.5)
(4.5)
Deferred tax on pension scheme actuarial losses
–
–
–
1.1
1.1
Total other comprehensive income for the year
–
–
(35.7)
(3.4)
(39.1)
Total comprehensive income for the year
–
–
(35.7)
(300.4)
(336.1)
Transactions with owners
Issue of shares
25
2.5
121.5
–
–
124.0
At end of year
10.0
409.8
(51.4)
(183.2)
185.2
Notes
Share
capital
$m
Share
premium
$m
Treasury
shares
$m
Convertible
debt
$m
Foreign
currency
translation
reserve
$m
Retained
earnings
$m
Sub-total
$m
Non-
controlling
interests
$m
Total
$m
restated
Year ended 31 December 2021
At beginning of year
6.2
200.9
(0.2)
80.0
(24.7)
267.5
529.7
(0.5)
529.2
Restated
2a
–
–
–
–
–
0.5
0.5
–
0.5
Functional currency revaluation
(0.2)
7.2
–
7.2
12.3
(26.6)
(0.1)
–
(0.1)
Loss for the year (restated)
–
–
–
–
–
(127.4)
(127.4)
–
(127.4)
Other comprehensive income
Exchange losses on consolidation
–
–
–
–
(3.3)
–
(3.3)
–
(3.3)
Pension scheme actuarial gains
–
–
–
–
–
3.1
3.1
–
3.1
Deferred tax on pension scheme actuarial gains
–
–
–
–
–
(0.2)
(0.2)
–
(0.2)
Total other comprehensive income for the year
–
–
–
–
(3.3)
2.9
(0.4)
–
(0.4)
Total comprehensive income for the year
–
–
–
–
(3.3)
(124.2)
(127.5)
–
(127.3)
Transactions with owners
Share based payments
0.1
2.6
0.2
–
–
–
2.9
–
2.9
Issue of convertible debt
1.4
85.9
–
(87.2)
–
–
0.1
–
0.1
Purchase of shares
–
–
–
–
–
–
–
–
–
Dividend
14
–
(8.3)
–
–
–
–
(8.3)
–
(8.3)
Non-controlling interest in disposed subsidiary
–
–
–
–
–
–
–
0.5
0.5
At end of year (restated)
7.5
288.3
–
–
(15.7)
117.2
397.3
–
397.5
The accounting policies and accompanying notes are an integral part of the Consolidated Financial Statements.
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Financial
statements
Consolidated statement of financial position
For the year ended 31 December 2022
2022
2021
Company Number 47341
Notes
$m
$m
restated
Assets
Intangible assets
15
71.0
81.8
Investments in associates
22.4
46.2
Property, plant and equipment
16
1.8
2.1
Right of use assets
17
4.1
6.1
Investment properties
18a
–
1.8
Financial instruments
– Investments (fair value through profit and loss)
18b
1,580.9
1,511.3
– Deposits with ceding undertakings
4b
49.6
21.8
Reinsurers’ share of insurance liabilities
23
2,693.2
2,003.1
Deferred tax assets
24
42.2
20.4
Current tax assets
24
7.4
3.6
Insurance and other receivables
19
1,125.4
1,096.3
Cash and cash equivalents
20
316.9
266.3
Total assets
5,914.9
5,060.8
Liabilities
Insurance contract provisions
23
3,811.1
3,100.9
Financial liabilities
– Amounts owed to credit institutions
22
344.9
395.9
– Lease liabilities
22
5.4
7.6
– Deposits received from reinsurers
22
38.2
3.0
Deferred tax liabilities
24
16.6
7.9
Insurance and other payables
21
1,498.3
1,140.1
Current tax liabilities
24
7.3
2.4
Pension scheme obligations
27
7.9
5.7
Total liabilities
5,729.7
4,663.5
Equity
Share capital
25
10.0
7.5
Share premium
25
409.8
288.3
Foreign currency translation reserve
(51.4)
(15.7)
Retained earnings
(183.2)
117.2
Attributable to equity holders of the parent
185.2
397.3
Non-controlling interests in subsidiary undertakings
30
–
–
Total equity
185.2
397.3
Total liabilities and equity
5,914.9
5,060.8
The Consolidated Financial Statements were approved by the Board of Directors on 28 June 2023 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.
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Consolidated cash flow statement
For the year ended 31 December 2022
2022
2021
Notes
$m
$m
restated
Cash flows from operating activities
Loss for the year
(297.0)
(127.1)
Tax included in consolidated income statement
4.4
(34.4)
Finance costs
10
31.7
26.5
Depreciation and impairment
16 & 17
2.4
2.9
Share based payments
25
–
2.8
Share of profits of associates
(12.4)
(11.2)
Profit on divestment
–
(2.6)
Goodwill on bargain purchase
29
(0.5)
(49.7)
Amortisation and impairment of intangible assets
15
9.7
12.8
Fair value loss on financial assets
135.8
17.7
Contributions to pension plan
(2.1)
(1.1)
Loss on net assets of pension schemes
0.3
0.1
Increase in receivables
(26.7)
(409.5)
(Increase)/decrease in deposits with ceding undertakings
(27.8)
158.7
Increase in payables
373.4
705.7
Increase/(decrease) in net insurance technical provisions
42.2
(193.5)
Net cash from operating activities
233.4
98.1
Cash flows from investing activities
Purchase of property, plant and equipment
16
(0.3)
(0.7)
Proceeds from sale of financial assets
269.9
100.8
Purchase of financial assets
(531.1)
(397.6)
Acquisition of subsidiary undertakings (offset by cash acquired)
0.6
46.7
Divestment (offset by cash disposed of)
1.7
3.5
Distributions from associate
36.2
10.3
Net cash used in investing activities
(223.0)
(237.0)
Cash flows from financing activities
Repayment of borrowings
(84.5)
(42.0)
Proceeds from new borrowing arrangements
44.8
121.7
Dividends paid
–
(8.3)
Interest and other finance costs paid
10
(31.7)
(26.5)
Receipts from issue of shares
124.0
–
Net cash from financing activities
52.6
44.9
Net increase/(decrease) in cash and cash equivalents
61.1
(94.0)
Cash and cash equivalents at beginning of year
266.3
363.5
Exchange (losses)/gains on cash and cash equivalents
(10.5)
(3.2)
Cash and cash equivalents at end of year
20
316.9
266.3
Share of Syndicates’ cash restricted funds
50.7
50.7
Other funds
266.2
215.6
Cash and cash equivalents at end of year
316.9
266.3
The accounting policies and accompanying notes are an integral part of the Consolidated Financial Statements.
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statements
Notes to the consolidated financial statements
For the year ended 31 December 2022
1. Corporate information
R&Q Insurance Holdings Ltd (the ‘Company’) is a company incorporated in Bermuda and listed on AIM, a submarket 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 28 June 2023.
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 account. 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
recognised in the year when the revised estimate is made.
Policy change
The Group has opted to apply discounting to portfolios that would be better represented on a true economic basis by discounting the claims
and IBNR provisions where the liability cash flows are ‘fixed and determinable’ by nature. For example, where contractual terms result in no claim
payments for several years and with a known maximum quantum thereafter and Periodic Payment Orders (PPOs) as they are based on the
defined pay out structure of the PPO court orders. The presented financial statements include the discounting and restatement of the prior year
comparatives accordingly.
The above change results in the following amendments to the 2021 comparatives:
As reported
Effect of change
in accounting
policy
As restated
$m
$m
$m
Consolidated statement of financial position
Intangible assets
86.2
(4.4)
81.8
Reinsurers’ share of insurance liabilities
2,105.6
(102.5)
2,003.1
Insurance contract provisions
(3,207.5)
106.6
(3,100.9)
Deferred tax liabilities
(9.0)
1.1
(7.9)
Retained earnings brought forward 1 January 2021
267.5
0.5
268.0
Loss for the year
(127.4)
0.3
(127.1)
Consolidated income statement
Net claims provision increase
205.8
(0.4)
205.4
Amortisation and impairment of intangible assets
(13.3)
0.5
(12.8)
Income tax
34.6
0.2
34.8
Basic and diluted earnings per share for the prior year have also been restated:
Basic
(46.9)c
(46.8)c
Diluted
(46.9)c
(46.8)c
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Notes to the consolidated financial statements continued
For the year ended 31 December 2022
2. Accounting policies continued
a. Basis of preparation continued
New and amended Standards adopted by the Group
The group is adopting US GAAP for the reporting of financial statements beginning on 1 January 2023. The US GAAP basis of preparation will result in
changes to Consolidated Financial Statements:
i.
Gross and ceded technical provisions – There are significant differences in the measurement of gross and ceded reserves under US GAAP and
IFRS as follows:
1.
Under US GAAP, a provision for unallocated loss adjustment expenses (‘ULAE’) is required. This is not required under IFRS provided the
estimated future investment income is sufficient to cover ULAE.
2.
Under US GAAP, Program Management reserves are carried at best estimate on an undiscounted basis with an allowance for expected
credit losses (‘CECL’) against the reinsurance recoverable. This allowance is established based on impairment factors provided by AM Best
that take into account the duration and credit rating of the reinsurance recoverables at a confidence level of 95%.
3.
Under US GAAP, Legacy Insurance reserves are measured at fair value. R&Q is adopting this methodology in order to recognise
reinsurance credit for Legacy Insurance reserves ceded to Gibson Re, which is not recognised under traditional GAAP accounting for
retroactive policies. The Legacy Insurance reserves are carried at fair value based on a building block model that factors in discounted
cash flows, risk margin and ULAE. On a transaction close, the fair value of the liabilities are set to the fair value of the investment assets
transferred. Hence, there is no Day 1 gain recognised under US GAAP and as a result, a higher level of reserves are created at transaction
close due to greater claim uncertainty compared to a portfolio which has been owned and managed by the Group for a period of time.
Over time, as the portfolio matures and claim uncertainty reduces, reserves are adjusted to the best-estimate but no earlier than twelve
months after transaction close.
ii. Deferred acquisition costs – US GAAP does not allow for the capitalisation and deferral of internal costs unless they can be directly attributable
to successful acquisition of the policies.
iii. Goodwill / intangible assets – Under IFRS, Legacy Insurance acquisitions include the creation of intangible assets associated with the
discounting of technical provisions. Under US GAAP, Legacy Insurance reserves are already discounted at fair value and thus intangible assets
are not created.
iv. Deferred taxation – Deferred taxes are temporary differences between tax and accounting bases. As the accounting bases of certain assets
and liabilities (mainly reserves and intangibles) will change, with no change in the tax bases, the temporary differences will also change.
v. Bonus accrual – IFRS does not require accrual of discretionary bonuses. Under US GAAP, bonuses need to be accrued when they are probable
and can be reasonably estimated.
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 2022 and 2021. 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.
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.
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Certain Group subsidiaries underwrite as corporate members of Lloyd’s on Syndicates managed by Coverys Managing Agency Limited, Asta
Managing Agency Limited and Capita Managing Agency Limited. In view of the several and direct liability of underwriting members at Lloyd’s
for the transactions of Syndicates in which they participate, only attributable shares of transactions, assets and liabilities of those Syndicates are
included in the Consolidated Financial Statements. The Group continues to conclude that it remains appropriate to consolidate only its share of the
result of these Syndicates. The Group is the sole provider of capacity on Syndicate 1110, and these Consolidated Financial Statements include 100%
of the economic interest in this Syndicate. 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 0.09% on 2023 and 0.07% of the capacity on the 2022 and 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 recognised in the Consolidated Income Statement and adjusted against the cost of the investment included in the
Consolidated Statement of Financial Position.
When the Group’s share of losses equals or exceeds the carrying amount of the investment in the associate, the carrying amount is reduced to nil and
recognition for the losses is discontinued except to the extent that the Group has incurred obligations in respect of the associate. Equity accounting is
discontinued when the Group no longer has significant influence over the investment. Inter-company transactions, balances and unrealised gains on
transactions between Group companies are eliminated in preparing the Consolidated Financial Statements. Unrealised losses are also eliminated
unless the transaction provides evidence of impairment of the asset transferred. Where necessary, amounts reported by subsidiaries have been
adjusted to conform to the Group’s accounting policies. Non-controlling interests represent the portion of profit or loss and net assets not held by
the Group and are presented separately in the Consolidated Income Statement and Consolidated Statement of Comprehensive Income and within
equity in the Consolidated Statement of Financial Position, separately from the equity attributable to the shareholders of the parent.
Insurance broking cash, receivables and payables held by subsidiary companies which act as intermediaries, other than any receivable for fees,
commissions and interest earned on a transaction, are not included in the Group’s Consolidated Statement of Financial Position as the subsidiaries
act as agents for the client in placing the insurable risks of their clients with insurers and as such are not liable as principals for amounts arising from
such transactions.
d. Going concern
The Consolidated Financial Statements have been prepared on a going concern basis, which is conditional on the completion of the Group strategic
review, and this includes the raising of up to $60m through the issuance of preference shares and the separation and sale of the Accredited Group
from R&Q Legacy. At the date of signing these Consolidated Financial Statements, the Group has completed the issuance of the preference
shares and has received interest from a number of bidders and is in the process of selecting the preferred bidder for the Accredited Group. There
is uncertainty about the timing and completion of the sale of the Accredited Group however assuming the sale is completed the Group’s financial
position and forecasts for 2023 and 2024 demonstrate that it has adequate cash resources to meet its liabilities as they fall due.
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.
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.
Transactions and balances
Transactions in foreign currencies are recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the end of the reporting period; the
resulting exchange gain or loss is recognised in the Consolidated Income Statement. Non-monetary items recorded at historical cost in a foreign
currency are translated using the exchange rate as at the date of the initial transaction and are not subsequently restated.
Group translation
The assets and liabilities of overseas subsidiaries, including associated goodwill, held in functional currencies other than the Group’s presentational
currency are translated at the exchange rate as at the period end date. Income and expenses are translated at average rates for the period. All
resulting exchange differences are recognised in other comprehensive income and accumulated in the foreign currency translation reserve in the
Consolidated Statement of Financial Position.
On the disposal of foreign operations, cumulative exchange differences previously recognised in other comprehensive income are recognised in the
Consolidated Income Statement as part of the gain or loss on disposal.
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Notes to the consolidated financial statements continued
For the year ended 31 December 2022
2. Accounting policies continued
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 recognised during the period are recorded in operating expenses in the Consolidated Income Statement.
g. Claims
These include the cost of claims and related expenses paid in the year, together with changes in the provisions for outstanding claims, including
provisions for claims incurred but not reported and related expenses, together with any other adjustments to claims from previous years. Where
applicable, deductions are made for salvage and other recoveries. These are shown as net claims provisions (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 recognised to reflect the amount estimated to be recoverable under the reinsurance
contracts in respect of the outstanding claims reported and IBNR. The amount recoverable from reinsurers is initially valued on the same basis as
the underlying claims provision. The amount recoverable is reduced when there is an event arising after the initial recognition that provides objective
evidence that the Group may not receive all amounts due under the contract.
Neither the claims provisions nor the IBNR provisions have been discounted, other than for long term liabilities with predictable cash flows.
The uncertainties which are inherent in the process of estimating are such that, in the normal course of events, unforeseen or unexpected future
developments may cause the ultimate cost of settling the outstanding liabilities to differ materially from that estimated. Any differences between
provisions and subsequent settlements are recorded in the Consolidated Income Statement in the year which they arise.
Having regard to the significant uncertainty inherent in the business of insurance as explained in Note 3, and in light of the information available, in
the opinion of the Directors the provisions for outstanding claims and IBNR in the Consolidated Financial Statements are fairly stated.
Provision for future claims handling costs
Provision for future run-off costs relating to the Group’s run-off businesses is made to the extent that the estimate of such costs exceeds the
estimated future investment income expected to be earned by those businesses.
Estimates are made for the anticipated costs of running off the business of those insurance subsidiaries and the Group’s participation in Syndicates
which have insurance businesses in run-off. Where insurance company subsidiaries have businesses in run-off and underwrite new business,
management estimates the run-off costs and the future investment income relating to the run-off business. Syndicates are treated as being in
run-off for the Consolidated Financial Statements where they have ceased writing new business and, in the opinion of management, there is no
current probable reinsurer available to close the relevant syndicate year of account.
Changes in the estimates of such costs and future investment income are reflected in the year in which the 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.
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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 recognised when the Group has a present obligation (legal or constructive) as a result of a past
event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
Provisions are measured at the present value of the expected expenditure to settle the obligation, using a pre- tax rate that reflects current market
assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised
as an interest expense.
j. Structured settlements
Certain of the US insurance company subsidiaries have entered into structured settlements whereby their liability has been settled by the purchase
of annuities from third party life insurance companies in favour of the claimants. The subsidiary retains the credit risk in the unlikely event that the life
insurance company defaults on its obligations to pay the annuity amounts. Provided that the life insurance company continues to meet the annuity
obligations, no further liability will fall on the insurance company subsidiary. The amounts payable to claimants are recognised in liabilities. The
amount payable to claimants by the third party life insurance companies are also shown in liabilities as reducing the Group’s liability to nil.
In the opinion of the Directors, this treatment reflects the substance of the transaction on the basis that any remaining liability of Group companies
under structured settlements will only arise upon the failure of the relevant third party life insurance companies and will be reduced by any available
reinsurance cover.
Should the Directors become aware of a claim arising from a policy holder that a third party life insurance company responsible for the payment of
an annuity under a structured settlement may not be in a position to meet its annuity obligations in full, appropriate provision will be made for any
such failure.
Disclosure of the position in relation to structured settlements is shown in Note 21.
k. Segmental reporting
The Group’s business segments are based on the Group’s management and internal reporting structures and represent the level at which financial
information is reported to the Board, being the chief operating decision maker as defined in IFRS 8.
l. Financial instruments
Financial instruments are recognised in the Consolidated Statement of Financial Position at such time that the Group becomes a party to the
contractual provisions of the financial instrument. A financial asset is derecognised when the contractual rights to receive cash flows from the
financial assets expire, or where the financial assets have been transferred, together with substantially all the risks and rewards of ownership.
Financial liabilities are derecognised if the Group’s obligations specified in the contract expire, are discharged or cancelled.
Financial assets
i) Acquisition
On acquisition of a financial asset, the Group is required under IFRS to classify the asset into one of the following categories: ‘financial assets at fair
value through profit 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.
iii) Fair value measurement
When available, the Group measures the fair value of an instrument using quoted prices in an active market for that instrument.
If a market for a financial instrument is not active, the Group establishes fair value using a valuation technique. Valuation techniques include using
recent arm’s length transactions between knowledgeable, willing parties (if available) and reference to the current fair value of other instruments
that are substantially the same or discounted cash flow analyses.
Assets and long positions are measured at a bid price; liabilities and short positions are measured at an asking price. Where the Group has positions
with offsetting risks, mid-market prices are used to measure the offsetting risk positions and a bid or asking price adjustment is applied only to the
net open position as appropriate. Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the
Group entity and counterparty where appropriate. Fair value estimates obtained from models are adjusted for any other factors, such as liquidity
risk or model uncertainties, to the extent that the Group believes a third party market participant would take them into account in pricing
a transaction.
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Notes to the consolidated financial statements continued
For the year ended 31 December 2022
2. Accounting policies continued
l. Financial instruments continued
Upon initial recognition, attributable transaction costs relating to financial instruments at fair value through profit or loss are recognised when
incurred in other operating expenses in the Consolidated Income Statement. Financial assets at fair value through profit or loss are measured at
fair value, and changes therein are recognised in the Consolidated Income Statement. Net changes in the fair value of financial assets at fair value
through profit and loss exclude interest and dividend income, as these items are accounted for separately as set out in the investment income
section below.
iv) Insurance receivables and payables
Insurance receivables and payables are recognised when due. These include amounts due to and from agents, brokers and insurance contract
holders. Insurance receivables are classified as ‘loans and receivables’ as they are non-derivative financial assets with fixed or determinable
payments that are not quoted on an active market. Insurance receivables are measured at amortised cost less any provision for impairment.
Insurance payables are stated at amortised cost. Insurance receivables and payables are not discounted.
v) Investment income
Investment income consists of dividends, interest, realised and unrealised gains and losses and exchange gains and losses on financial assets at
fair value through profit and loss. The realised gains or losses on disposal of an investment are the difference between the proceeds and the original
cost of the investment. Unrealised investment gains and losses represent the difference between the carrying amount at the reporting date, and the
carrying amount at the previous period end or the purchase value during the period.
Financial liabilities
Borrowings
Borrowings are initially recorded at fair value less transaction costs incurred. Subsequently borrowings are stated at amortised cost and interest is
recognised in the Consolidated Income Statement over the period of the borrowings.
Senior and subordinated debt
R&Q Insurance Holdings Ltd and Group subsidiaries have issued senior and subordinated debt. At Group level this is treated as a financial liability
and interest charges are recognised in the Consolidated Income Statement.
Derivative financial instruments
Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at their
fair value. The best evidence of fair value of a derivative at initial recognition is the transaction price. The method of recognising the resulting fair
value gains or losses depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. Fair
values are obtained from quoted market prices in active markets, recent market transactions, and valuation techniques which include discounted
cash flow models. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.
The Group has not designated any derivatives as fair value hedges, cash flow hedges or net investment hedges.
m. Property, plant and equipment
All assets included within property, plant and equipment (‘PPE’) are carried at historical cost less depreciation and assessed for impairment.
Depreciation is calculated to write down the cost less estimated residual value of motor vehicles, office equipment, IT equipment, freehold property
and leasehold improvements by the straight-line method over their expected useful lives.
The principal rates per annum used for this purpose are:
%
Motor vehicles
25
Office equipment
8–50
IT equipment
20–25
Freehold property
2
Leasehold improvements
Term of lease
The gain or loss arising on the disposal of an item of PPE is determined as the difference between the sales proceeds and the carrying amount of the
asset and is recognised in the Consolidated Income Statement.
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n. Leases
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of- use asset is initially measured at cost,
which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial
direct costs incurred and an estimate of costs to refurbish the underlying asset, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the
useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis
as those of Property, plant and equipment. In addition, the right-of-use asset is reviewed for impairment losses, if any, and adjusted for certain
re-measurements of the lease liability.
The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and
leases of low-value assets, including IT equipment. The Group recognises the lease payments associated with these leases as an expense to the
Consolidated Income Statement on a straight-line basis over the lease term.
Right-of-use assets are disclosed under note 17.
o. Goodwill
The Group uses the acquisition method in accounting for acquisitions. The difference between the cost of acquisition and the fair value of the Group’s
share of the identifiable net assets acquired is capitalised and recorded as goodwill. If the cost of an acquisition is less than the fair value of the net
assets of the subsidiary acquired the difference is recognised directly in the Consolidated Income Statement as goodwill on bargain purchase.
Goodwill acquired in a business combination is initially measured at cost, being the excess of the fair value of the consideration paid for the business
combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition,
goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment at the cash generating unit level, as shown
in Note 15, on a biannual basis or if events or changes in circumstances indicate that the carrying amount may be impaired.
p. Other intangible assets
Intangible assets, other than goodwill, that are acquired separately are stated at cost less accumulated amortisation and impairment.
Intangible assets acquired in a business combination, and recognised separately from goodwill, are recognised initially at fair value at the
acquisition date. This includes intangible assets calculated by measuring the difference between the discounted and undiscounted fair value of net
technical provisions acquired.
Amortisation is charged to operating expenses in the Consolidated Income Statement as follows:
Purchased IT software
3–5 years, on a straight-line basis
On acquisition of insurance companies in run-off
Estimated pattern of run-off
On acquisitions – other
Useful life, which may be indefinite
Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is recognised in the Consolidated Income Statement to reduce the carrying amount to the
recoverable amount.
US insurance authorisation licences
US state insurance authorisation licences acquired in business combinations are recognised initially at their fair value. The asset is not amortised,
as the Directors consider that economic benefits will accrue to the Group over an indefinite period due to the long-term stability of the US insurance
market. The licences are tested annually for impairment. This assumption is reviewed annually to determine whether the asset continues to have an
indefinite life. Costs of acquiring new licences are recognised in the year of acquisition.
Rights to customer contractual relationships
Costs directly attributable to securing the intangible rights to customer contractual relationships are recognised as an intangible asset where
they can be identified separately and measured reliably, and it is probable that they will be recovered by directly related future profits. These
costs are amortised on a straight-line basis over the useful economic life which is deemed to be 15 years and are carried at cost less accumulated
amortisation and impairment losses.
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Notes to the consolidated financial statements continued
For the year ended 31 December 2022
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 recognised and disclosed separately
as a net pension liability in the Consolidated Statement of Financial Position. Surpluses are only recognised up to the aggregate of any cumulative
unrecognised net actuarial gains and past service costs, and the present value of any economic benefits available in the form of any refunds or
reductions in future contributions.
Subject to the restrictions relating to the recognition of a pension surplus, all actuarial gains and losses are recognised in full in other comprehensive
income in the period in which they occur.
r. Cash and cash equivalents
For the purposes of the Consolidated Cash Flow Statement, cash and cash equivalents comprise cash at bank and other short-term highly liquid
investments with a maturity of three months or less from the date of acquisition, and bank overdrafts which are repayable on demand.
s. Finance costs
Finance costs comprise interest payable and are recognised in the Consolidated Income Statement in line with the effective interest rate on liabilities.
t. Operating expenses
Operating expenses are accounted for in the Consolidated Income Statement in the period to which they relate.
Pre-contract costs
Directly attributable pre-contract costs are recognised as an asset when it is virtually certain that a contract will be obtained and the contract is
expected to result in future net cash inflows in excess of any amounts recognised as an asset.
Pre-contract costs are charged to the Consolidated Income Statement over the shorter of the life of the contract or five years.
Onerous contracts
Onerous contract provisions are provided for in circumstances where the Group has a present legal or constructive obligation as a result of past
events to provide services, the costs of which exceed future income. The costs of providing the services are projected based on management’s
assessment of the contract.
Arrangement fees
Arrangement fees in relation to loan facilities are deducted from the relevant financial liability and amortised over the period of the facility.
u. Other income
Other income is stated excluding any applicable value added tax and includes the following items:
Management fees
Management fees are from non-Group customers and are recognised when the right to such fees is established through a contract and to the
extent that the services concerned have been performed. Billing follows the supply of service and the consideration is unconditional because only
the passage of time is required before the payment is due.
Purchased reinsurance receivables
The Group accounts for purchased reinsurance receivables 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 recognised at the
inception date of the policy, or the date of contractual entitlement, if later. Alterations in brokerage arising from premium adjustments are taken
into account as and when such adjustments are notified. To the extent that the Group is contractually obliged to provide services after this date, a
suitable proportion of income is deferred and recognised over the life of the relevant contracts to ensure that revenue appropriately reflects the
cost of fulfilling those obligations. Profit commission is recognised when the right to such profit commission is established through a contract but
only to the extent that a reliable estimate of the amount due can be made. Such estimates are made on a prudent basis that reflects the level of
uncertainty involved.
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v. Share based payments
The Group issues equity settled payments to certain of its employees.
w. Current and deferred income tax
Tax on the profit or loss for the year comprises current and deferred tax.
Tax is recognised in the Consolidated Income Statement except to the extent that it relates to items recognised in other comprehensive income,
in which case it is recognised in the Consolidated Statement of Comprehensive Income.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the
countries where the Company’s subsidiaries and associates operate and generate taxable income.
Deferred tax liabilities are provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the Consolidated Financial Statements. However, if the deferred tax arises from initial recognition of an asset or
liability in a transaction other than a business combination and which, at the time of the transaction, affects neither accounting, nor taxable profit or
loss, it is not provided for.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which these temporary
differences can be utilised.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities
and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or
different taxable entities where there is an intention to settle the balances on a net basis. Deferred tax assets and liabilities are determined using
tax rates that have been enacted or substantively enacted by the period end date and are expected to apply when the related deferred tax asset is
realised, or the deferred tax liability is settled.
x. Share capital
Ordinary shares and Preference A and B shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options
are shown in equity as a deduction, net of tax, from the proceeds.
y. Distributions
Distributions payable to the Company’s shareholders are recognised as a liability in the Consolidated Financial Statements in the period in which
the distributions are declared and approved.
3. Estimation techniques, uncertainties and contingencies
Estimates and judgements are continually evaluated, and are based on historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
Significant uncertainty in technical provisions
Significant uncertainty exists as to the accuracy of the insurance contract provisions and the reinsurers’ share of insurance liabilities established
in the insurance company subsidiaries and the Lloyd’s Syndicates on which the Group participates as shown in the Consolidated Statement of
Financial Position. The ultimate costs of claims and the amounts ultimately recovered from reinsurers could vary materially from the amounts
established at the year end.
In the event that further information were to become available to the Directors of an insurance company subsidiary which gave rise to material
additional liabilities, the going concern basis might no longer be appropriate for that company and adjustments would have to be made to reduce
the value of its assets to their realisable amount, and to provide for any further liabilities which might arise in that subsidiary. The Group bears no
financial responsibility for any liabilities or obligations of any insurance company subsidiary in run-off, except as disclosed. Should any insurance
company subsidiary cease to be able to continue as a going concern in the light of further information becoming available, any loss to the Group
would thus be restricted to the book value of their investment in and amounts due from that subsidiary and any guarantee liability that may arise.
Claims provisions
The Consolidated Financial Statements include provisions for all outstanding claims and IBNR, for related reinsurance recoveries and for all costs
expected to be incurred to run-off its liabilities.
The insurance contract provisions including IBNR are based upon actuarial and other studies of the ultimate cost of liabilities including exposure
based and statistical estimation techniques. There are significant uncertainties inherent in the estimation of each insurance company subsidiary’s
and Lloyd’s Syndicate’s insurance liabilities and reinsurance recoveries. There are many assumptions and estimation techniques that may
be applied in assessing the amount of those provisions which individually could have a material impact on the amounts of liabilities, related
reinsurance assets and reported shareholders’ equity funds. Actual experience will often vary from these assumptions, and any consequential
adjustments to amounts previously reported will be reflected in the results of the year in which they are identified. Potential adjustments arising
in the future could, if adverse in the aggregate, exceed the amount of shareholders’ equity funds of an insurance company subsidiary.
Independent external actuaries are contracted to provide a Statement of Actuarial Opinion for the Lloyd’s Syndicates 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.
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Notes to the consolidated financial statements continued
For the year ended 31 December 2022
3. Estimation techniques, uncertainties and contingencies continued
Claims provisions continued
In the case of the Group’s larger insurance companies, independent external actuaries provide a view of best estimate reserves and confirm that the
held reserves are within their range of 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 utilise, where practical, the exposure to these losses by contract to determine the claims provisions.
Insurance claims handling expenses
The provision for the cost of handling and settling outstanding claims to extinction and all other costs of managing the run-off is based on an
analysis of the expected costs to be incurred in run-off activities, incorporating expected savings from the reduction of transaction volumes
over time.
The period of the run-off may be between 5 and 50 years depending upon the nature of the liabilities within each insurance company subsidiary.
Ultimately, the period of run-off is dependent on the timing and settlement of claims and the collection of reinsurance recoveries; consequently
similar uncertainties apply to the assessment of the provision for such costs.
Reinsurance recoveries
Reinsurance recoveries are included in respect of claims outstanding (including IBNR claims) and claims paid after making provision for
irrecoverable amounts. The reinsurance recoveries on IBNR claims are estimated based on the recovery rate experienced on notified and paid
claims for each class of business.
The insurance company subsidiaries are exposed to disputes on contracts with their reinsurers and the possibility of default by reinsurers. In
establishing the provision for non-recovery of reinsurance balances, the Directors of each insurance company subsidiary consider the financial
strength of each reinsurer, its ability to settle their liabilities as they fall due, the history of past settlements with the reinsurer, and the Group’s own
reserving standards and have regard to legal advice regarding the merits of any dispute.
Recognition and de-recognition of assets and liabilities in run-off
In the course of the Group’s business of managing the run-off of insurers and brokers, accounting records are initially recognised in the form provided
by previous management. As part of managing run-off the Group carries out extensive enquiries to clarify the assets and liabilities of the run-off and
to obtain all available and relevant information. Those enquiries may lead the Group to identify and record additional assets and liabilities relating
to that run-off, or to conclude that previously recognised assets and liabilities should be increased or no longer exist and should be de-recognised.
Where decisions to de-recognise liabilities are supported by an absence of relevant information there may remain a remote possibility that a third
party may subsequently provide evidence of its entitlement to such de-recognised liabilities which may lead to a transfer of economic benefit to
settle such entitlement. The right of a third party to such a settlement will be recognised in the accounting period in which the position is clarified.
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Defined benefit pension scheme
The pension assets and post retirement liabilities are calculated in accordance with IAS 19. The assets, liabilities and Consolidated Income Statement
charge or credit, calculated in accordance with IAS 19, are sensitive to the assumptions made, including inflation, interest rate, investment return
and mortality. IAS 19 compares, at a given date, the current market value of a pension fund’s assets with its long term liabilities, which are calculated
using a discount rate in line with yields on high quality bonds of suitable duration and currency. As such, the financial position of a pension fund on
this basis is highly sensitive to changes in bond rates and equity markets.
Litigation, mediation and arbitration
The Group in common with the insurance industry in general, is subject to litigation, mediation and arbitration, and regulatory, governmental and
other sectorial inquiries in the normal course of its business. The Directors do not believe that, in the aggregate, current litigation, governmental or
sectorial inquiries and pending or threatened litigation or dispute is likely to have a material impact on the Group’s financial position. However, if
the outcome of any individual dispute differs substantially from expectation, there could be a material impact on the Group’s profit or loss, financial
position or cash flows in the year in which that impact is recognised.
Changes in foreign exchange rates
The Group’s Consolidated Financial Statements are prepared in 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 recognised specialists as well as the Group’s own internal review. Liabilities may not be settled for
many years and significant judgement is involved in making an assessment of these liabilities, the period over which they will be settled and,
where appropriate, the discount rate to be applied to assess the present value of the amounts to be settled.
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Notes to the consolidated financial statements continued
For the year ended 31 December 2022
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 maximise risk adjusted returns whilst adhering to regulatory and group investment guidelines
together with seeking to optimise the matching of asset and liability cash flows.
The investment allocation (including surplus cash) at 31 December 2022 and 2021 is shown below:
2022
2021
$m
$m
Government and government agencies
395.3
330.9
Corporate bonds
1,079.2
1,055.9
Equities
22.0
11.9
Cash-based investment funds
84.4
112.6
Cash and cash equivalents
316.9
266.3
1,897.8
1,777.6
%
%
Government and government agencies
20.8
18.6
Corporate bonds
56.9
59.4
Equities
1.2
0.7
Cash-based investment funds
4.4
2.4
Cash and cash equivalents
16.7
18.9
100.0
100.0
Corporate bonds include asset backed mortgage obligations totalling $28.8m (2021: $45.1m).
Based on invested assets at external managers of $1,580.9m as at 31 December 2022 (2021: $1,511.3m), 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 2022 of $15.8m (2021: $15.1m).
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(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.
2022
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
Government and government agencies
395.3
–
–
395.3
Corporate bonds
1,062.4
16.8
–
1,079.2
Equities
21.3
0.7
–
22.0
Cash-based investment funds
–
84.4
–
84.4
Purchased reinsurance receivables (Note 19)
–
–
6.6
6.6
Total financial assets measured at fair value
1,479.0
101.9
6.6
1,587.5
2021
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
Government and government agencies
330.9
–
–
330.9
Corporate bonds
999.0
56.9
–
1,055.9
Equities
11.6
0.3
–
11.9
Cash-based investment funds
–
112.6
–
112.6
Purchased reinsurance receivables (Note 19)
–
–
6.6
6.6
Total financial assets measured at fair value
1,341.5
169.8
6.6
1,517.9
The following table shows the movement on Level 3 assets measured at fair value:
2022
2021
$m
$m
Opening balance
6.6
6.4
Total net gains recognised in the Consolidated Income Statement
–
0.2
Closing balance
6.6
6.6
Level 3 investments (purchased reinsurance receivables) have been valued using detailed models outlining the anticipated timing and amounts
of future receipts. The net gains recognised in the Consolidated Income Statement in other income for the year amounted to nil (2021: $0.2m). The
Group purchased no further reinsurance receivables in 2022 (2021: 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.
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Notes to the consolidated financial statements continued
For the year ended 31 December 2022
4. Management of insurance and financial risks continued
a. Investment risks (including market risk and interest rate risk) continued
The following shows the maturity dates and interest rate ranges of the Group’s debt securities:
(ii) Liquidity risk
As at 31 December 2022
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
1,506.9
224.2
264.8
153.0
275.8
589.1
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
0.10–8.25
0.13–9.75
0.05–8.88
0.01–9.25
0.01–9.36
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)
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
0.13–8.025
0–8.25
0.10–7.38
0.13–9.75
0.01–9.25
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 functions’ established cash flow and liquidity management
processes.
(iii) Interest rate risk
Fixed income investments represent a significant proportion of the Group’s assets and the Investment Committee continually monitors
investment strategy to minimise the risk of a fall in the portfolio’s market value.
The fair value of the Group’s investment portfolio of debt and fixed income securities is normally inversely correlated to movements in market
interest rates. If market interest rates rise, the fair value of the Group’s debt and fixed income investments would tend to fall and vice versa.
Debt and fixed income assets are predominantly invested in high-quality corporate, government and asset- backed bonds. The investments
typically have relatively short durations and terms to maturity.
The Group is exposed to interest rate risk within the Group’s financial liabilities. This exposure lies predominately with amounts owed to credit
institutions and debentures secured over the assets of the Company and its subsidiaries.
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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’s A credit rating or otherwise fully
collateralise the obligation, in order to mitigate counterparty credit risk.
The ratings used in the analysis below are based upon the published rating of Standard & Poor’s or other recognised ratings agency.
As at 31 December 2022
A rated
$m
B rated
$m
Less than B
$m
Other*
$m
Exposures of
less than $200k
$m
Total
$m
Deposits with ceding undertakings
38.3
1.5
–
9.1
0.7
49.6
Reinsurers’ share of insurance liabilities
2,077.1
80.3
–
496.0
39.8
2,693.2
Receivables arising out of reinsurance contracts
202.0
7.8
–
48.3
3.9
262.0
As at 31 December 2021 restated
A rated
$m
B rated
$m
Less than B
$m
Other*
$m
Exposures of
less than $200k
$m
Total
$m
Deposits with ceding undertakings
16.8
0.6
–
4.0
0.4
21.8
Reinsurers’ share of insurance liabilities
1,198.8
50.3
–
729.1
24.9
2,003.1
Receivables arising out of reinsurance contracts
367.5
14.2
–
87.8
7.0
476.5
*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 2022
0–6
months
%
6–12
months
%
12–24
months
%
> 24
months
%
Percentage of receivables
39.5
11.3
11.8
37.4
As at 31 December 2021
0–6
months
%
6–12
months
%
12–24
months
%
> 24
months
%
Percentage of receivables
93.2
1.2
1.6
4.0
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Notes to the consolidated financial statements continued
For the year ended 31 December 2022
4. Management of insurance and financial risks continued
b. Credit risk continued
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.
Financial assets past
due but not impaired
As at 31 December 2022
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
Deposits with ceding undertakings
47.0
–
–
2.6
49.6
Reinsurers’ share of insurance liabilities
2,613.4
79.9
2,693.2
Receivables arising out of reinsurance contracts
220.7
–
–
41.3
262.0
Financial assets past
due but not impaired
As at 31 December 2021 restated
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
Deposits with ceding undertakings
19.0
–
–
2.8
21.8
Reinsurers’ share of insurance liabilities
1,908.7
94.4
2,003.1
Receivables arising out of reinsurance contracts
419.5
–
–
57.0
476.5
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, R&Q Syndicate Management Limited (‘RQSML’), Asta Managing Agency Limited
(‘Asta’ and Coverys Managing Agency Limited (‘Coverys’). RQSML, Asta and Coverys are the Lloyd’s Managing Agents which manage the Syndicates
on which the Group participates. RQSML, 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.
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 RQSML, 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.
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The table below summarises the Group’s principal assets and liabilities by major currencies:
31 December 2022
Sterling
$m
US Dollar
$m
Euro
$m
Total
$m
Intangible assets
35.6
35.3
0.1
71.0
Reinsurers’ share of insurance liabilities
1,229.2
1,452.6
11.4
2,693.2
Financial instruments
706.5
925.4
21.0
1,652.9
Insurance receivables
563.2
66.7
1.5
631.4
Cash and cash equivalents
176.5
139.4
1.1
317.0
Insurance liabilities and insurance payables
(2,416.2)
(2,524.4)
(35.7)
(4,976.3)
Deferred tax and pension scheme obligations
(18.3)
(6.1)
(0.2)
(24.6)
Trade and other (payables)/receivables
(119.0)
(58.0)
(2.4)
(179.4)
Total
157.5
30.9
(3.2)
185.2
31 December 2021 restated
Sterling
$m
US Dollar
$m
Euro
$m
Total
$m
Intangible assets
8.1
73.7
–
81.8
Reinsurers’ share of insurance liabilities
1,054.0
895.3
53.8
2,003.1
Financial instruments
811.9
697.3
71.8
1,581.0
Insurance receivables
301.4
476.0
1.7
779.1
Cash and cash equivalents
132.9
124.6
8.8
266.3
Insurance liabilities and insurance payables
(1,823.3)
(2,071.4)
(70.1)
(3,964.8)
Deferred tax and pension scheme obligations
3.9
(6.0)
(0.2)
(2.3)
Trade and other (payables)/receivables
(453.0)
151.4
(46.4)
(348.0)
Total
35.9
340.9
19.4
396.5
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.
31 December 2022
31 December 2021
Changes in
variables
Impact on
profit
$m
Impact on
equity*
$m
Impact on
profit
$m
Impact on
equity*
$m
Euro weakening
10%
2.2
0.1
(3.1)
(5.9)
Sterling weakening
10%
(3.8)
(17.8)
(4.8)
(27.4)
Euro strengthening
10%
(2.4)
–
3.8
7.3
Sterling strengthening
10%
4.9
22.1
3.8
33.5
*Impact on equity reflects adjustments for tax, where applicable.
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Notes to the consolidated financial statements continued
For the year ended 31 December 2022
4. Management of insurance and financial risks continued
d. Capital management
The Group’s objectives with respect to capital sufficiency are to maintain capital at a level that provides a suitable margin over that deemed by the
Group’s regulators and supervisors as providing an acceptable level of policyholder protection, whilst remaining economically viable. The Group is
regulated in Bermuda by the Bermuda Monetary Authority (‘BMA’). The BMA assesses the capital and solvency adequacy of the Group and requires
that sufficient capital is in place to meet the Bermuda Solvency Capital Requirement (‘BSCR’). The BSCR generates a risk-based capital measure by
applying capital factors to capital and solvency return elements, including investments and other assets, premiums and reserves, operational risk,
and insurer- specific catastrophe exposure measures, in order to establish an overall measure of capital and surplus for statutory solvency purposes.
The Group maintains a capital level that provides an adequate margin over the Group’s solvency capital requirements whilst maintaining local
capital which meets or exceeds the relevant local minima including, where appropriate, those relating to maintenance of external credit ratings.
This is monitored by way of a capital sufficiency assessment by the Group Risk and Compliance Committee.
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 is 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
Year of
account
Syndicate
Capacity £m
Group
participation
£m
Open/closed
2689
2023
52.0
0.1
Open
2689
2022
71.6
0.1
Open
2689
2021
0.1
—
Open
1991
2020
110.0
—
Open
1991
2019
126.8
0.1
Open
1991
2018
126.8
0.1
Open
1110
2022
3.0
3.0
Open
1110
2020
3.0
3.0
Open
1110
2019
3.0
3.0
Open
1110*
2017
280.0
280.0
Open
*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
and adverse net claims development.
Syndicates 1110, 1991 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
they 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.
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(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 2019.
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Notes to the consolidated financial statements continued
For the year ended 31 December 2022
4. Management of insurance and financial risks continued
e. Insurance risk continued
(iv) Reserving risk continued
The analysis of claims development in the Group’s run-off insurance entities is as follows:
Gross
Group entities at
1 January 2019
$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
Entities acquired
by the Group
during 2022
$m
Gross claims at:
1 January/acquisition
467.6
374.6
938.0
521.5
68.0
First year movement
(77.3)
(173.1)
9.2
(10.8)
–
Second year movement
150.7
30.5
(134.4)
–
–
Third year movement
(115.4)
13.0
–
–
–
Fourth year movement
(112.5)
(2.9)
–
–
–
Gross provision at 31 December 2022
313.1
242.1
815.8
510.7
68.0
Gross claims at:
1 January/acquisition
467.6
374.6
938.0
521.5
68.0
Exchange adjustments
31.3
(8.2)
(13.4)
9.3
(0.6)
Payments
(196.3)
(8.6)
(185.3)
(135.1)
(10.3)
Gross provision at 31 December 2022
(313.1)
(242.1)
(815.8)
(510.7)
(68.0)
Deficit to date
(10.5)
115.7
(76.5)
(115.0)
(10.9)
Net
Group entities at
1 January 2019
$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
Entities acquired
by the Group
during 2022
$m
Net claims at :
1 January/acquisition
310.8
351.6
642.1
109.8
13.6
First year movement
(50.4)
(159.9)
(6.6)
(10.8)
–
Second year movement
87.5
18.4
(106.7)
–
–
Third year movement
(157.8)
15.0
–
–
–
Fourth year movement
(155.7)
(2.1)
–
–
–
Net provision at 31 December 2022
34.4
223.0
528.8
99.0
13.6
Net claims at :
1 January/acquisition
310.8
351.6
642.1
109.8
13.6
Exchange adjustments
(5.5)
(8.8)
(18.6)
16.1
(0.6)
Payments
(186.7)
(7.7)
(177.7)
(119.9)
(10.3)
Net position at 31 December 2022
(34.4)
(223.0)
(528.8)
(99.0)
(13.6)
(Deficit)/surplus to date
84.2
112.1
(83.0)
(93.0)
(10.9)
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 is disclosed in note 23.
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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. 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 2022
Note
Program
Management
$m
Legacy
Insurance
$m
Corporate/
Other
$m
Total
$m
Underwriting income
(i)
0.1
(22.3)
–
(22.2)
Fee Income
(ii)
92.3
12.1
–
104.4
Investment income
(iii)
5.6
24.9
1.2
31.7
Gross operating income
(iv)
98.0
14.7
1.2
113.9
Fixed operating expenses
(v)
(42.3)
(71.3)
(3.1)
(116.7)
Interest expense
–
–
(30.5)
(30.5)
Pre-Tax Operating Profit/(loss)
(vi)
55.7
(56.6)
(32.4)
(33.3)
Unearned program Fee Income
(vii)
(17.0)
Net intangibles
(viii)
(9.6)
Net unrealised and realised gains/(losses)
(135.8)
Non-core and exceptional items
(96.9)
Loss before tax
(292.6)
Segment assets
2,197.0
3,220.6
497.3
5,914.9
Segment liabilities
2,121.0
2,988.6
620.1
5,729.7
Segmental results for the year ended 31 December 2021 restated
Note
Program
Management
$m
Legacy
Insurance
$m
Corporate/
Other
$m
Total
$m
Underwriting income
(i)
(1.1)
58.1
–
57.0
Fee Income
(ii)
56.1
–
–
56.1
Investment income
(iii)
2.7
19.3
2.8
24.8
Gross operating Income
(iv)
57.7
77.4
2.8
137.9
Fixed operating expenses
(v)
(37.1)
(83.5)
(16.0)
(136.6)
Interest expense
–
–
(22.7)
(22.7)
Pre-Tax Operating Profit/(loss)
(vi)
20.6
(6.1)
(35.9)
(21.4)
Unearned program Fee Income
(vii)
(13.2)
Net intangibles
(viii)
2.8
Net unrealised and realised gains/(losses)
(18.4)
Non-core and exceptional items
(111.7)
Loss before tax
(161.9)
Segment assets
1,039.6
4,006.4
14.8
5,060.8
Segment liabilities
864.1
3,184.5
614.9
4,663.5
The above key performance indicators used by management measure the economics of the business and adjust IFRS results to include fully
written Program Fee Income and exclude non-cash intangible assets created from acquisitions in Legacy Insurance, net realised and unrealised
investment gains on fixed income and lease-based assets, foreign currency translation reserves, non-core expenses and exceptional items.
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Notes to the consolidated financial statements continued
For the year ended 31 December 2022
5. Segmental information continued
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 realised and unrealised 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),
intangible assets created in Legacy acquisitions and net realised and unrealised 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 amortisation 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 income and
expenditure.
No income from any one client included within the Fee Income generated more than 10% of the total external income.
Geographical analysis
As at 31 December 2022
UK
$m
North
America
$m
Europe
$m
Total
$m
Gross assets
1,539.8
3,031.8
1,767.2
6,338.8
Intercompany eliminations
(132.3)
(229.2)
(62.4)
(423.9)
Segment assets
1,407.5
2,802.6
1,704.8
5,914.9
Gross liabilities
1,524.9
2,967.1
1,661.6
6,153.6
Intercompany eliminations
(274.6)
(82.6)
(66.7)
(423.9)
Segment liabilities
1,250.3
2,884.5
1,594.9
5,729.7
Revenue from external customers
2.1
17.9
61.8
81.8
Revenue from external customers represents the Group’s total consolidated income, after elimination of internal revenue.
As at 31 December 2021 restated
UK
$m
North
America
$m
Europe
$m
Total
$m
Gross assets
1,609.8
2,418.6
1,331.9
5,360.3
Intercompany eliminations
(137.4)
(103.5)
(58.6)
(299.5)
Segment assets
1,472.4
2,315.1
1,273.3
5,060.8
Gross liabilities
1,199.6
2,566.5
1,196.9
4,963.0
Intercompany eliminations
(238.3)
(12.2)
(49.0)
(299.5)
Segment liabilities
961.3
2,554.3
1,147.9
4,663.5
Revenue from external customers
7.9
59.6
41.3
108.8
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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 recognise the
written Fee Income written in prior financial periods earned in this financial period.
2022
2021
$m
$m
Written Fee Income
92.0
45.0
Unearned Fee Income
(17.0)
(13.2)
Earned Fee Income
75.0
31.8
7. Gross investment income
2022
2021
$m
$m
Investment income (excluding realised and unrealised gains and losses)
38.4
24.1
Realised net (losses)/gains on financial assets
(18.8)
3.8
Unrealised losses on financial assets
(117.0)
(21.5)
Investment income
(97.4)
6.4
8. Other income
2022
2021
$m
$m
Income from contracts with customers
Management fees
1.6
3.0
Income from other sources
Insurance commissions
–
0.7
Gain on sale of subsidiary
1.1
2.6
Interest expense on pension scheme deficit
(0.1)
(0.1)
Rental income from investment properties
0.2
0.2
Purchased reinsurance receivables
0.1
0.2
2.9
6.6
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
2022
2021
$m
$m
Expenses of insurance company subsidiaries
59.8
58.6
Expenses of syndicate participations
20.6
24.8
Employee benefits
62.4
59.3
Other operating expenses
36.1
23.3
178.9
166.0
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.
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Notes to the consolidated financial statements continued
For the year ended 31 December 2022
9. Operating expenses continued
2022
2021
Auditor remuneration
$m
$m
Fees payable to the Group’s auditors for the audit of the parent company and its Consolidated Financial Statements
0.3
0.3
Fees payable for the audit of the Group’s subsidiaries by:
– Group auditors
1.0
0.9
– Other auditors
0.9
0.8
Other services under legislative requirements
0.1
0.2
Total
2.3
2.2
Included within fees payable to audit the Group’s subsidiaries is an amount for Group’s share of the audit fee payable for Syndicate audits.
10. Finance costs
2022
2021
$m
$m
Bank loan and overdraft interest
12.1
11.1
Interest on lease liabilities
0.3
0.3
Subordinated debt interest
19.3
15.1
31.7
26.5
11. (Loss)/profit before income taxes
(Loss)/profit before income taxes is stated after charging:
2022
2021
$m
$m restated
Employee benefits (Note 26)
62.4
59.3
Legacy acquisition costs (including aborted transactions)
0.9
4.3
Depreciation and impairment of fixed assets and right-of-use assets (Note 16 & 17)
2.4
2.9
Short-term and low value lease rental expenditure
0.1
0.1
Amortisation of pre contract costs
1.2
1.6
Amortisation and impairment of intangibles (Note 15)
9.7
12.8
12. Income tax charge
a. Analysis of charge in the year
2022
2021
$m
$m restated
Current tax
Current year
–
–
Adjustments in respect of prior periods
(0.1)
0.3
Foreign tax
0.8
(7.7)
0.7
(7.4)
Deferred tax
Current year
(8.5)
(27.4)
Adjustments in respect of prior periods
12.2
–
Income tax charge/(credit) for the year
4.4
(34.8)
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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:
2022
2021
$m
$m restated
Loss before income taxes
(292.6)
(161.9)
Loss on ordinary activities at the standard rate of corporation tax in the UK of 19.00% (2021: 19.00%)
(55.6)
(30.8)
Income not taxable for tax purposes
(1.8)
(24.1)
Expenses not deductible for tax purposes
20.6
6.3
Differences in taxation treatment
2.4
(2.0)
Unrelieved tax losses carried forward
18.8
20.0
Utilisation of brought forward losses
(2.2)
(0.7)
Foreign tax
0.8
(7.7)
Tax rate differential
9.3
3.9
Adjustments in respect of previous years
12.1
0.3
Income tax charge/(credit) for the year
4.4
(34.8)
c. Factors that may affect future tax charges
In addition to the recognised deferred tax asset, the Group has other trading losses of approximately $322.8m (2021: $366.4m) 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 $34.2m (2021: $37.9m).
In the Finance Bill 2021, it was announced that the main rate of UK corporation tax would increase to 25% from 1 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:
2022
2021
$m
$m restated
Loss for the year attributable to ordinary shareholders
(297.0)
(127.1)
No.
000’s
No.
000’s
Shares in issue throughout the year
275,211
224,284
Weighted average number of ordinary shares issued in year
50,031
47,327
Weighted average number of ordinary shares
325,242
271,611
Basic earnings per ordinary share
(91.3)c
(46.8)c
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Notes to the consolidated financial statements continued
For the year ended 31 December 2022
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:
2022
2021
$m
$m restated
Loss for the year attributable to ordinary shareholders
(297.0)
(127.1)
No.
000’s
No.
000’s
Weighted average number of ordinary shares issued in year
325,242
217,611
Diluted earnings per ordinary share
(91.3)c
(46.8)c
c. Net asset value per share
2022
2021
$m
$m restated
Net assets attributable to equity shareholders as at 31 December
185.2
396.3
No.
000’s
No.
000’s
Ordinary shares in issue as at 31 December
377,395
275,211
Net asset value per ordinary share
49.1c
144.4c
d. Diluted net asset value per share
2022
2021
$m
$m restated
Net assets attributable to equity shareholders as at 31 December
185.2
397.3
No.
000’s
No.
000’s
Ordinary shares in issue as at 31 December
377,395
275,211
Diluted net asset value per ordinary share
49.1c
144.4c
14. Distributions
The amounts recognised as distributions to equity holders in the year are:
2022
2021
$m
$m
Dividend
–
8.3
Total distributions to shareholders
–
8.3
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15. Intangible assets
US state
licences &
customer
contracts
$m
Arising on
acquisition
$m
Goodwill
$m
Other
$m
Total
$m
Cost
As at 1 January 2021
5.0
82.8
25.1
0.9
113.8
Exchange adjustments
–
(1.1)
(0.2)
–
(1.3)
Acquisition of subsidiaries
–
14.6
3.4
–
18.0
Disposals
–
–
–
(0.7)
(0.7)
As at 31 December 2021
5.0
96.7
28.3
0.2
130.2
Exchange adjustments
–
(3.7)
(0.4)
–
(4.1)
Additions
–
–
–
1.9
1.9
As at 31 December 2022
5.0
93.0
27.9
2.1
128.0
Amortisation/impairment
As at 1 January 2021
–
12.0
23.9
0.7
36.6
Exchange adjustments
–
(0.5)
–
–
(0.5)
Charge for the year
–
12.3
0.5
–
12.8
Disposals
–
–
–
(0.5)
(0.5)
As at 31 December 2021
–
23.8
24.4
0.2
48.4
Exchange adjustments
–
(0.9)
(0.2)
–
(1.1)
Charge for the year
–
9.7
–
–
9.7
As at 31 December 2022
–
32.6
24.2
0.2
57.0
Carrying amount
As at 31 December 2022
5.0
60.4
3.7
1.9
71.0
As at 31 December 2021
5.0
72.9
3.9
–
81.8
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.
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 13.4% (2021: 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 (2021: 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.
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Notes to the consolidated financial statements continued
For the year ended 31 December 2022
16. Property, plant and equipment
Computer
equipment
$m
Office
equipment
$m
Leasehold
improvements
$m
Total
$m
Cost
As at 1 January 2021
1.3
2.3
1.6
5.2
Exchange adjustments
–
–
–
–
Additions
0.1
–
0.6
0.7
Disposals
(0.1)
(0.4)
–
(0.5)
As at 31 December 2021
1.3
1.9
2.2
5.4
Exchange adjustments
–
(0.2)
–
(0.2)
Additions
0.1
–
0.3
0.4
Disposals
–
(0.2)
–
(0.2)
As at 31 December 2022
1.4
1.5
2.5
5.4
Depreciation
As at 1 January 2021
1.2
1.0
0.9
3.1
Exchange adjustments
(0.1)
–
–
(0.1)
Charge for the year
0.2
0.3
0.2
0.7
Disposals
–
(0.4)
–
(0.4)
As at 31 December 2021
1.3
0.9
1.1
3.3
Exchange adjustments
–
(0.1)
–
(0.1)
Charge for the year
0.1
0.3
0.2
0.6
Disposals
–
(0.2)
–
(0.2)
As at 31 December 2022
1.4
0.9
1.3
3.6
Carrying amount
As at 31 December 2022
–
0.6
1.2
1.8
As at 31 December 2021
–
1.0
1.1
2.1
As at 31 December 2022, the Group had no significant capital commitments (2021: none). The depreciation charge for the year is included in
operating expenses.
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17. Right-of-use assets
Property
$m
Office
equipment
$m
Total
$m
Position recognised at 1 January 2021
5.5
0.1
5.6
Deprecation charge for the year
(2.1)
(0.1)
(2.2)
Additions in the year
2.7
–
2.7
As at 31 December 2021
6.1
–
6.1
Deprecation charge for the year
(1.8)
–
(1.8)
As at 31 December 2022
4.1
–
4.1
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 (2021: $0.1m) and is
reflected within expenses in the Consolidated Income Statement.
18. Investment properties and financial assets
a. Investment properties
2022
2021
$m
$m
As at 1 January
1.8
1.8
Disposal
(1.8)
–
As at 31 December
–
1.8
Rental income from the investment properties for the year was $0.1m (2021: $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)
2022
2021
$m
$m
Equities
22.0
11.9
Debt and fixed interest securities
1,474.5
1,386.8
Cash-based investment funds
84.4
112.6
1,580.9
1,511.3
Included in the above amounts are $104.1m (2021: $126.6m) 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 $50.5m (2021: $95.6m) of funds withheld as collateral for certain of the Group’s reinsurance contracts.
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Notes to the consolidated financial statements continued
For the year ended 31 December 2022
18. Investment properties and financial assets continued
c. Shares in subsidiary and associate undertakings
The Company had interests in the following subsidiaries and associates at 31 December 2022:
% of ordinary shares held via:
Name of subsidiaries/associate
Country of
incorporation/
registration
The Company
Subsidiary
and associate
undertakings
Overall effective % of
share capital held
Distinguished Re Ltd
Barbados
–
100
100
R&Q Services Bermuda Limited
Bermuda
–
100
100
R&Q Re (Bermuda) Ltd.
Bermuda
–
100
100
RQLM Limited
Bermuda
100
–
100
Sandell Holdings Ltd.
Bermuda
–
100
100
Tradesman Program Managers, LLC
USA
–
40
40
R&Q Re (Cayman) Ltd.
Cayman Island
–
100
100
R&Q Capital No. 1 Limited
England and Wales
–
100
100
R&Q Capital No. 6 Limited
England and Wales
–
100
100
R&Q Capital No. 7 Limited
England and Wales
–
100
100
R&Q Capital No. 8 Limited
England and Wales
–
100
100
R&Q Central Services Limited
England and Wales
–
100
100
R&Q Delta Company Limited
England and Wales
–
100
100
R&Q Eta Company Limited
England and Wales
–
100
100
R&Q Gamma Company Limited
England and Wales
–
100
100
Inceptum Insurance Company Limited
England and Wales
–
100
100
R&Q Insurance Services Limited
England and Wales
–
100
100
R&Q Munro MA Limited
England and Wales
–
100
100
R&Q Munro Services Company Limited
England and Wales
–
100
100
R&Q Oast Limited
England and Wales
–
100
100
R&Q Overseas Holdings Limited
England and Wales
–
100
100
R&Q Reinsurance Company (UK) Limited
England and Wales
–
100
100
R&Quiem Financial Services Limited
England and Wales
–
100
100
Randall & Quilter II Holdings Limited
England and Wales
–
100
100
Randall & Quilter IS Holdings Limited
England and Wales
–
100
100
Randall & Quilter Underwriting Management Holdings Limited
England and Wales
–
100
100
R&Q UK Holdings Limited
England and Wales
100
100
100
The World Marine & General Insurance Company PLC
England and Wales
–
100
100
Vibe Services Management Limited
England and Wales
–
100
100
R&Q Syndicate Management Limited
England and Wales
La Licorne Compagnie de Reassurances SA
France
–
100
100
Capstan Insurance Company Limited
Guernsey
–
100
100
R&Q Ireland Claims Services Limited #
Ireland
–
100
100
R&Q Ireland Company Limited by Guarantee #
Ireland
–
100
100
Hickson Insurance Limited
Isle of Man
–
–
100
Pender Mutual Insurance Company Limited
Isle of Man
–
100
100
R&Q Insurance Management (IOM) Limited
Isle of Man
–
100
100
R&Q Insurance (IOM) Limited
Isle of Man
–
100
100
Accredited Insurance (Europe) Limited {
Malta
–
100
100
R&Q Malta Holdings Limited
Malta
–
100
100
Accredited Bond Agencies Inc.
USA
–
100
100
Accredited America Insurance Holding Corporation
USA
–
100
100
Accredited Specialty Insurance Company
USA
–
100
100
Accredited Surety and Casualty Company, Inc.
USA
–
100
100
CMAL LLC }
USA
–
–
–
Excess and Treaty Management Corporation
USA
–
100
100
GLOBAL Reinsurance Corporation of America
USA
–
100
100
GLOBAL U.S. Holdings Incorporated
USA
–
100
100
Grafton US Holdings Inc.
USA
–
100
100
ICDC Ltd
USA
–
100
100
National Legacy Insurance Company
USA
–
100
100
R&Q Healthcare Interests LLC
USA
–
100
100
R&Q Reinsurance Company
USA
–
100
100
R&Q Solutions LLC
USA
–
100
100
Randall & Quilter America Holdings Inc
USA
–
100
100
Randall & Quilter PS Holdings Inc
USA
–
100
100
Risk Transfer Underwriting Inc.
USA
–
100
100
Transport Insurance Company
USA
–
100
100
# 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
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19. Insurance and other receivables
2022
2021
$m
$m restated
Receivables arising from direct insurance operations
369.4
302.6
Receivables arising from reinsurance operations
262.0
476.5
Insurance receivables
631.4
779.1
Trade receivables/Receivables arising from contracts with customers
8.5
3.2
Other receivables
218.5
134.3
Purchased reinsurance receivables
6.6
6.6
Prepayments and accrued income
260.4
173.1
494.0
317.2
Total
1,125.4
1,096.3
Of the purchased reinsurance receivables balance $3.6m is expected to be received after 12 months (2021: After 12 months $6.6m).
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.
Prepayments and accrued income includes gross deferred acquisition costs which have increased in accordance with the growth of Program
Management.
20. Cash and cash equivalents
2022
2021
$m
$m
Cash at bank and in hand
316.9
266.3
Included in cash and cash equivalents is $0.8m (2021: $0.8m) being funds held in escrow accounts in respect of guarantees provided to the
Institute of London Underwriters.
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
2022
2021
$m
$m
Structured liabilities
504.4
506.2
Structured settlements
(504.4)
(506.2)
–
–
Payables arising from reinsurance operations
721.8
751.3
Payables arising from direct insurance operations
405.2
109.7
Insurance payables
1,127.0
861.0
Trade payables
6.2
4.9
Other taxation and social security
43.5
23.4
Other payables
171.5
135.4
Accruals and deferred income
150.1
115.4
371.3
279.1
Total
1,498.3
1,140.1
The carrying amounts disclosed above reasonably approximate their fair values at the period end date.
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Notes to the consolidated financial statements continued
For the year ended 31 December 2022
21. Insurance and other payables continued
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 was unable
to meet its 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.
22. Financial liabilities
2022
2021
$m
$m
Amounts owed to credit institutions
344.9
395.9
Lease liabilities
5.4
7.6
Deposits received from insurers
38.2
3.0
388.5
406.5
Amounts due to credit institutions are payable as follows:
2022
2021
$m
$m
Less than one year
26.5
8.0
Between one to five years
123.3
188.1
Over five years
195.1
199.8
344.9
395.9
As outlined in Note 31, $103.0m (2021: $153.6m) owed to credit institutions is secured by debentures over the assets of the Company and several of
its subsidiaries.
The Group has issued the following debt:
Issuer
Principal
Rate
Maturity
Randall & Quilter Insurance Holdings Ltd.
$70,000k
6.35% above USD LIBOR
2028
Randall & Quilter Insurance Holdings Ltd.
$125,000k
6.75% above USD LIBOR
2033
Accredited Insurance (Europe) Limited
€20,000k
6.7% above EURIBOR
2025
Accredited Insurance (Europe) Limited
€5,000k
6.7% above EURIBOR
2027
R&Q Re (Bermuda) Limited
$20,000k
7.75% above USD LIBOR
2023
The Group’s subsidiary, Randall & Quilter America Holdings Corporation (reassigned from 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
R&Q Insurance Holdings Ltd.
The Group also has $175.4 million of unsecured letters of credit which are guaranteed by the Group.
Lease liabilities maturity analysis – contractual undiscounted cash flows
2022
2021
$m
$m
Less than one year
2.2
2.2
Between one to five years
3.4
5.5
Over five years
–
0.2
Total undiscounted lease liabilities at 31 December
5.6
7.9
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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.
2022
2021
$m
$m
Balance at 1 January
395.9
330.2
Financing cash flows*
(39.7)
70.5
Non-cash exchange adjustment
(11.3)
(4.8)
Balance at 31 December
344.9
395.9
*Represents the net cash flows from the repayment of borrowings and the proceeds from new borrowing arrangements.
23. Insurance contract provisions and reinsurance balances
2022
2021
Program
Management
$m
Legacy
Insurance
$m
Total
$m
Program
Management
$m
Legacy
Insurance
$m
Total
$m
Gross
Insurance contract provisions at 1 January
1,210.4
1,890.5
3,100.9
682.6
1,613.2
2,295.8
Claims paid
(325.2)
(326.7)
(651.9)
(197.1)
(288.8)
(485.9)
Increases in provisions arising from the acquisition of subsidiary
undertakings and Syndicate participations
–
0.5
0.5
–
91.1
91.1
Increases in provisions arising from acquisition of reinsurance portfolios
–
67.5
67.5
–
430.4
430.4
Increase in claims provisions
831.9
129.3
961.2
459.3
65.1
524.4
Increase/(decrease) in unearned premium reserve
453.4
–
453.4
287.9
(8.6)
279.3
Net exchange differences
(49.6)
(70.9)
(120.5)
(22.3)
(11.9)
(34.2)
As at 31 December
2,120.9
1,690.2
3,811.1
1,210.4
1,890.5
3,100.9
Reinsurance
Reinsurers’ share of insurance contract provisions at 1 January
1,151.4
851.7
2,003.1
653.7
424.4
1,078.1
Proceeds from commutations and reinsurers’ share of gross claims paid
(284.1)
(200.4)
(484.5)
(182.9)
28.7
(154.2)
Increases in provisions arising from the acquisition of subsidiary
undertakings and Syndicate participations
–
0.4
0.4
–
164.2
164.2
Increases in provisions arising from acquisition of reinsurance portfolios
–
54.0
54.0
–
247.5
247.5
Increase/(decrease) in claims provisions
755.1
52.1
807.2
430.5
(13.6)
416.9
Increase/(decrease) in unearned premium reserve
410.9
–
410.9
270.7
(3.7)
267.0
Net exchange differences
(21.3)
(76.6)
(97.9)
(20.6)
4.2
(16.4)
As at 31 December
2,012.0
681.2
2,693.2
1,151.4
851.7
2,003.1
Net
Net insurance contract provisions at 1 January
59.0
1,038.8
1,097.8
28.9
1,188.8
1,217.7
Net claims paid
(41.1)
(126.3)
(167.4)
(14.2)
(317.5)
(331.7)
Increases/(decreases) in provisions arising from the acquisition
of subsidiary undertakings and Syndicate participations
–
0.1
0.1
–
(73.1)
(73.1)
Increases in provisions arising from acquisition of reinsurance portfolios
–
13.5
13.5
–
182.9
182.9
Increase/(decrease) in claims provisions
76.8
77.2
154.0
28.8
78.3
107.1
Increase/(decrease) in unearned premium reserve
42.5
–
42.5
17.2
(4.9)
12.3
Net exchange differences
(28.3)
5.7
(22.6)
(1.7)
(16.1)
(17.8)
As at 31 December
108.9
1,009.0
1,117.9
59.0
1,038.8
1,097.8
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Notes to the consolidated financial statements continued
For the year ended 31 December 2022
23. Insurance contract provisions and reinsurance balances continued
2022
2021
Program
Management
$m
Legacy
Insurance
$m
Total
$m
Program
Management
$m
Legacy
Insurance
$m
Total
$m
Gross
Claims reserves
1,084.1
1,689.6
2,773.7
600.0
1,889.9
2,489.9
Unearned premiums reserves
1,036.8
0.6
1,037.4
610.4
0.6
611.0
As at 31 December
2,120.9
1,690.2
3,811.1
1,210.4
1,890.5
3,100.9
Reinsurance
Claims reserves
1,019.5
681.1
1,700.6
572.4
851.6
1,424.0
Unearned premiums reserves
992.5
0.1
992.6
579.0
0.1
579.1
As at 31 December
2,012.0
681.2
2,693.2
1,151.4
851.7
2,003.1
Net
Claims reserves
64.6
1,008.5
1,073.1
27.6
1,038.3
1,065.9
Unearned premiums reserves
44.3
0.5
44.8
31.4
0.5
31.9
As at 31 December
108.9
1,009.0
1,117.9
59.0
1,038.8
1,097.8
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.
As stated in Note 2 the Group has opted to discount reserves on long term liabilities with predictable cash flows.
Other than as described above, insurance liabilities are not discounted.
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 one percent reduction in the net technical provisions would increase net assets by $11.2m (2021: $11.0m).
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24. Current and deferred tax
Current tax
2022
2021
$m
$m
Current tax assets
7.4
3.6
Current tax liabilities
(7.3)
(2.4)
Net current tax assets
0.1
1.2
Deferred tax
Deferred tax is calculated in full on temporary differences under the liability method using tax rates of 25% for the UK (2021: 25%) and 21% for the US
(2021: 21%).
Deferred tax assets have been recognised in respect of all tax losses and other temporary differences giving rise to deferred tax assets where it is
probable that these assets will be recovered.
The movements in deferred tax assets and liabilities during the year are shown below. The movement in deferred tax is recorded in the income
tax charge in the Consolidated Income Statement.
Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances
on a net basis.
Deferred
tax assets
$m
Deferred
tax liabilities
$m
Total
restated
$m
As at 1 January 2021
5.7
(17.1)
(11.4)
Movement in year
14.7
9.2
23.9
As at 31 December 2021
20.4
(7.9)
12.5
Movement in year
21.8
(8.7)
13.1
As at 31 December 2022
42.2
(16.6)
25.6
The movement on the deferred tax account is shown below:
Accelerated
capital allowances
$m
Trading losses
$m
Pension
scheme deficit
$m
Other temporary
differences
$m
Total
restated
$m
As at 1 January 2021
(0.1)
18.2
1.9
(31.4)
(11.4)
Movement in year
–
4.4
(0.5)
(20.0)
23.9
As at 31 December 2021
(0.1)
22.6
1.4
(11.4)
12.5
Movement in year
–
7.9
0.5
4.7
13.1
As at 31 December 2022
(0.1)
30.5
1.9
(6.7)
25.6
Movements in the provisions for deferred taxation are disclosed in the Consolidated Financial Statements as follows:
Exchange
adjustment
$m
Deferred tax in
Consolidated
Income
Statement
$m
Deferred tax in
Consolidated
Statement of
Comprehensive
Income
$m
Total
restated
$m
Movement in 2021
1.3
22.8
(0.2)
23.9
Movement in 2022
8.3
3.7
1.1
13.1
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Notes to the consolidated financial statements continued
For the year ended 31 December 2022
24. Current and deferred tax continued
Deferred tax continued
The analysis of the deferred tax assets relating to tax losses is as follows:
2022
2021
$m
$m
Deferred tax assets – relating to trading losses
Deferred tax assets to be recovered after more than 12 months
15.9
5.6
Deferred tax assets to be recovered within 12 months
14.6
17.0
Deferred tax assets
30.5
22.6
Deferred tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through future
taxable profits is probable.
The Directors have prepared forecasts which indicate that, excluding the deferred tax asset on the pension scheme deficit, the deferred tax
assets will substantially reverse over the next six years.
The above deferred tax assets arise mainly from temporary differences and losses arising on the Group’s US insurance companies. Under local
tax regulations these losses and other temporary differences are available to offset against the US subsidiaries’ future taxable profits in the
Group’s US Insurance Services Division as well as any future taxable results that may arise in the US insurance companies.
The Group’s total deferred tax asset includes $30.5m (2021: $22.6m) in respect of trading losses carried forward. The tax losses have arisen in
individual legal entities and will be used as future taxable profits arise in those legal entities. Substantially all of the unused tax losses for which
a deferred tax asset has been recognised arises in the US subgroup.
25. Share capital
Number
of shares
Ordinary shares
$m
Share premium
$m
Treasury share
reserve
$m
Total
$m
At 1 January 2021
224,283,759
6.2
200.9
0.2
207.3
Functional currency revaluation
(0.2)
7.2
–
7.0
Issue of ordinary shares
49,772,168
1.4
85.9
–
87.3
Share based payments
1,043,816
0.1
2.6
–
2.7
Treasury
111,525
–
–
(0.2)
(0.2)
Distribution
–
–
(8.3)
–
(8.3)
At 31 December 2021
275,211,268
7.5
288.3
–
295.8
Issue of ordinary shares
102,183,967
2.5
121.5
–
124.0
At 31 December 2022
377,395,235
10.0
409.8
–
419.8
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2022
2021
$m
$m
Allotted, called up and fully paid
377,395,235 ordinary shares of 2p each (2021: 275,211,268 ordinary shares of 2p each)
10.0
7.4
1 Preference A Share of £1
–
–
1 Preference B Share of £1
–
–
10.0
7.4
2022
2021
$m
$m
Included in equity
377,395,235 ordinary shares of 2p each (2021: 275,211,268 ordinary shares of 2p each)
10.0
7.4
1 Preference A Share of £1
–
–
1 Preference B Share of £1
–
–
10.0
7.4
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.
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Notes to the consolidated financial statements continued
For the year ended 31 December 2022
26. Employees and Directors
Employee benefit expense for the Group during the year
2022
2021
$m
$m
Wages and salaries
50.9
46.8
Social security costs
4.4
5.4
Pension costs
1.8
1.8
Share-based payment charge
5.3
5.3
62.4
59.3
Pension costs are recognised in operating expenses in the Consolidated Income Statement and include $1.9m (2021: $1.8m) in respect of
payments to defined contribution schemes.
Average number of employees
2022
2021
Number
Number
Program Management
168
125
Legacy Insurance
144
154
Other
18
16
330
295
Remuneration of the Directors and key management
2022
2021
$m
$m
Aggregate Director emoluments
7.3
11.1
Aggregate key management emoluments
3.5
3.5
Share-based payments – Directors
4.7
4.8
Share-based payments – Key management
0.5
0.5
16.0
19.9
Highest paid Director
Aggregate emoluments
7.7
6.9
Key management refers to employees who are Directors of subsidiaries within the Group but not members of the Group’s Board of Directors.
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Directors’ emoluments
Salary
$m
Directors’
Fees
$m
Bonus
paid
$m
Movement
in bonus
accrued
$m
Share
award cost
$m
Total
$m
A K Quilter
0.7
–
0.9
(0.2)
–
1.4
W L Spiegel*
1.5
–
1.5
0.8
3.9
7.7
T S Solomon
0.5
–
1.0
–
0.8
2.3
A H F Campbell
–
0.1
–
–
–
0.1
P A Barnes
–
0.2
–
–
–
0.2
J P Fox
–
0.2
–
–
–
0.2
E M Flanagan
–
0.1
–
–
–
0.1
R Legget
–
–
–
*Out of $7.7m of total compensation, $3.9m represents the vesting of the stock award of $12m granted in 2020 at 177.5p, which vested after three years at67.8p. To satisfy tax
liabilities arising from the vesting William Spiegel sold 2.8m Ordinary Shares which, in accordance with the share award agreement, have been purchased by the Group to be
held in Treasury.
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 2022 financial year represent the amounts paid in 2022 and provision for costs relating to the 2020,
2021 and 2022 reporting years’ performance, which will be paid in 2022, 2023 and 2024. The provisions are established on the likelihood of the
performance (financial and personal) and service period criteria being met based on a board approved scorecard. Where contractual
arrangements supersede the above policy, the contractual arrangements are included.
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 is 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 the reporting period are as follows.
a. Employee benefit obligations – amount disclosed in the Consolidated Statement of Financial Position
2022
2021
$m
$m
Fair value of plan assets
20.0
36.6
Present value of funded obligations
(27.9)
(42.3)
Net defined benefit liability
(7.9)
(5.7)
Related deferred tax asset
2.0
1.4
Net position in the Consolidated Statement of Financial Position
(5.9)
(4.3)
All actuarial losses are recognised in full in the Consolidated Statement of Comprehensive Income in the period in which they occur.
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Notes to the consolidated financial statements continued
For the year ended 31 December 2022
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 2021
(42.3)
36.6
(5.7)
Interest (expense)/income
(0.7)
0.6
(0.1)
(43.0)
37.2
(5.8)
Remeasurements:
Return on plan assets, excluding amounts included in interest expense
–
(14.4)
(14.4)
Loss from changes in financial assumptions
11.9
–
11.9
Experience gain
(2.0)
–
(2.0)
Loss on curtailments
(0.2)
–
(0.2)
(33.3)
22.8
(10.5)
Employer’s contributions
–
2.1
2.1
Benefit payments from the plan
2.5
(2.5)
–
Currency revaluation
0.6
(0.8)
(0.2)
As at 31 December 2022
(30.2)
21.6
(8.6)
Present value
of obligation
$m
Fair value of
plan assets
$m
Deficit of
funded plan
$m
As at 31 December 2020
(47.6)
37.7
(9.9)
Interest (expense)/income
(0.6)
0.5
(0.1)
(48.2)
38.2
(10.0)
Remeasurements:
Loss from changes in financial assumptions
2.7
–
2.7
Loss from changes in demographic assumptions
(0.1)
–
(0.1)
Experience gain
0.5
–
0.5
(45.1)
38.2
(6.9)
Employer’s contributions
–
1.1
1.1
Benefit payments from the plan
2.0
(2.0)
–
Currency revaluation
0.8
(0.7)
0.1
As at 31 December 2021
(42.3)
36.6
(5.7)
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c. Significant actuarial assumptions
i) Financial assumptions
2022
2021
Discount rate
4.75 %
1.90%
RPI inflation assumption
Pre 2030: 3.20%/Post 2030: 2.95%
3.50%
CPI inflation assumption
Pre 2030: 2.40%/Post 2030: 2.85%
3.20%
Pension revaluation in deferment: – CPI, maximum 5%
Pre 2030: 2.40%/Post 2030: 2.85%
2.70%
Pension increases in payment: – RPI, maximum 5%
Pre 2030: 3.20%/Post 2030: 2.95%
3.50%
ii) Demographic assumptions
Assumed life expectancy in years, on retirement at 60
Assumed life expectancy in years, on retirement at 60
2022
2021
Retiring today
– Males
21.7
21.6
– Females
24.2
24.1
Retiring in 20 years
– Males
23.0
22.9
– Females
25.6
25.5
d. Sensitivity to assumptions
The results of the IAS 19 valuation at 31 December 2022 are sensitive to the assumptions adopted.
The sensitivities regarding the principal assumptions used to measure the Scheme liabilities are set out below:
Assumption
Change in assumption
Change in liabilities
Discount rate
Increase by 0.1%/Decrease by 0.1%
Decrease by £238k/Increase by £242k
Rate of inflation
Increase by 0.1%/Decrease by 0.1%
Increase by £56k/Decrease by £55k
Life expectancy
Increase by 1 year/Decrease by 1 year
Increase by £621k/Decrease by £646k
The above sensitivity analyses are based on a change in assumption while holding all other assumptions constant. In practice, this is unlikely
to occur, and changes in some of the assumptions may be correlated. The sensitivity of the defined benefit obligation to significant actuarial
assumptions has been estimated, based on the average age and the normal retirement age of members and the duration of the Scheme.
e. The major categories of plan assets are as follows
Level 1
2022
Level 2
$m
Total
Level 1
2021
Level 2
$m
Total
Cash and cash equivalents
–
2.6
2.6
–
1.6
1.6
Investment funds:
– equities
–
5.1
5.1
–
22.7
22.7
– bonds
–
2.0
2.0
–
4.0
4.0
– property
–
–
–
–
–
–
– liability driven
–
10.3
10.3
–
8.3
8.3
–
20.0
20.0
–
36.6
36.6
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. $2.1m of contributions were made directly into the scheme during 2022 (2021: $1.1m). In March
2022, a recovery plan was renegotiated and agreed with the Trustees to eliminate the plan deficit by 31 December 2025. From July 2022, monthly
payments increased to provide annualised payments of $1.9m, and further single annual payments of $0.8m will be made, finalising
in December 2025.
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Notes to the consolidated financial statements continued
For the year ended 31 December 2022
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:
2022
2021
$m
$m
A K Quilter and family
–
0.1
W L Spiegel
–
0.2
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.
2022
2021
$m
$m
Written premium
303.3
245.2
Written Commissions
30.6
12.2
Funds due at year end
5.5
5.4
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:
2022
2021
$m
$m
Assets
29.7
29.0
Liabilities
(97.1)
(33.2)
Net assets/(liabilities)
(67.4)
(4.2)
Income for the year
67.9
63.5
Profit for the year
31.1
29.4
29. Business combinations
Business combinations
During the year, the Group made two business combinations of run-off portfolios. 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:
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
La Vittoria
0.1
–
0.6
–
(0.5)
(0.1)
0.1
–
0.1
Energia
–
–
1.4
–
–
–
1.4
0.9
0.5
0.1
–
2.0
–
(0.5)
(0.1)
1.5
0.9
0.6
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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 absorbing capital and requiring recruitment of specialist
staff. As a specialist service provider and manager, the Group is more efficient at managing such entities and former owners are prepared to sell
at a discount on the fair value of the net assets.
In order to disclose the impact on the Group as though the legacy entities had been owned the whole year, assumptions would have to be made
about the Group’s ability to manage efficiently the run-off of the legacy liabilities prior to the acquisition. As a result, and in accordance with IAS 8,
the Directors believe it is not practicable to disclose revenue and profit before tax as if the entities had been owned for the whole year.
Where significant uncertainties arise in the quantification of the liabilities, the Directors have estimated the fair value based on the currently
available information and on assumptions which they believe to be reasonable.
30. Non-controlling interests
The following table shows the Group’s non-controlling interests and movements in the year:
2022
2021
$m
$m
Non-controlling interests
Balance at 1 January
–
(0.5)
Changes in non-controlling interest in subsidiaries
–
0.5
Balance at 31 December
–
–
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 2022 was $103.0m (2021: $153.6m).
The Group also gives various other guarantees in the ordinary course of business.
32. Foreign exchange rates
The Group used the following exchange rates to translate foreign currency assets, liabilities, income and expenses into US dollars, being the
Group’s presentational currency:
2022
2021
Average
Year end
Average
Year end
UK Sterling
0.80
0.81
0.73
0.75
Euro
0.95
0.94
0.84
0.88
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Notes to the consolidated financial statements continued
For the year ended 31 December 2022
33. Events after the reporting date
On 6 January 2023, the Group announced that it had acquired a non-controlling interest in a corporate vehicle which owns corporate liability
exposures (formerly MSI Safety). The Group will manage the exposures for an annual management fee.
On 17 March 2023, the Group sold its 40% non-controlling interest in TPM Holdings (Tradesman) for a total consideration of $47m.
In March 2023, the Group and the Pennsylvania Insurance Department agreed to proceed with a liquidation of R&Q Reinsurance Company.
As a result of provisions made in the past this liquidation will not negatively impact the Group’s net assets.
On 4 April 2023, the Group announced the intention to separate its Program Management business, Accredited, from Legacy Insurance and in
June 2023 received all regulatory consents required.
On 12 June 2023, the Group announced a $50m issuance of preferred stock to a current shareholder, with the potential to upsize the transaction
to $60m.
On 12 June 2023, the Group announced it was exploring a potential sale of the Accredited Group. To date the Group has received a number of bids
for this sale.
34. Ultimate controlling party
The Directors consider that the Group has no ultimate controlling party.
Board of Directors
William Spiegel
Philip Barnes
Jo Fox
Eamonn Flanagan
Alan Quilter
Tom Solomon
Jeff Hayman
Robert Legget
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
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
Corner House
20 Parliament Street
Hamilton HM12
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.
PRINCIPAL WORLDWIDE OFFICE LOCATIONS
Bermuda Office
Head Office
FB Perry Building
40 Church Street
PO Box HM 650
Hamilton
Malta Office
Pieta
Skyway Offices
177/179 Marina Street
Pieta PTA 9042
Malta
UK Offices
London
71 Fenchurch Street
London EC3M 4BS
Norwich
Floor 3, Lawrence House
5 St Andrews Hill
Norwich NR2 1AD
US Offices
New York
250 West 55th Street
25th Floor
New York NY 10019
Philadelphia
2 Logan Square
100 North 18th Street
Suite 600
Philadelphia PA 19103
Orlando
4798 New Broad Street
Suite 200
Orlando FL 32814
rqih.com