Randall & Quilter, Bermuda based specialist non-life insurance and reinsurance investor, legacy or run-off transaction service provider and underwriting manager (among other things) is targeting growing its program business, through which it can provide reinsurance capital providers with efficient access to re/insurance risk.
The program business model sees rated insurance vehicles used to front underwriting business for risk capital providers. Increasingly these can be rated reinsurance companies, that are looking to access primary books of business, or insurance-linked securities (ILS) funds, that are looking to bring their risk capital closer to the source of the risk.
Randall & Quilter (R&Q) is looking to grow this area of its business, which could offer it the chance to earn commission and fees from both traditional and alternative reinsurance capital providers, while offering ILS funds or ILS investors a chance to work alongside a respected underwriting partner as they seek out new sources of insurance-linked returns.
R&Q is already operating in this manner, earning commissions and fees by working with MGA’s backed by capital providers through its A- rated U.S. insurance carrier Accredited. R&Q also sees the potential for its Malta platform, through R&Q Insurance Malta which has a number of EU licenses, to follow a similar strategy.
“The continued growth in virtual insurers such as MGAs, looking for carriers backed with reinsurance or alternative capital is highly supportive of the commission based business model being deployed in Accredited, our A- rated carrier in the US. A similar model is now being finalised in R&Q Insurance Malta, which has the added benefit of having secure EU wide licenses in a post-Brexit world. The pipeline of programs for both carriers is extremely strong with underwriting on a number of these expected to commence in coming months, the financial benefits of which will be particularly notable during 2018 once a full year’s earning pattern is established,” the company explained in its results today.
While the business underwritten through Accredited is not your typical ILS or alternative capital play, it’s clear that R&Q recognises the potential for it to increase its earnings by having a broad underwriting facilitation and fronting platform that reinsurance capital providers, of traditional or alternative means, could work with.
Offering program fronting for the European market could be a good move, particularly as some EU reinsurance rates are now so low that alternative capital would benefit from being able to source portfolios of insurance risk more directly.
“We are also beginning to use RQIM’s wide licensing to write quality books of business, largely reinsured to highly rated counterparties, thereby developing a fast growing additional commission stream,” R&Q said.
Randall & Quilter has been looking to target the ILS sector for some time, with mooted exit (or run-off type) solutions for ILS funds and collateralized reinsurance underwriters one of the products the company had been looking at.
Using its program business platform in the U.S. and in Europe to provide ILS and alternative capital providers with mechanisms to access portfolios of insurance business more directly, could be an interesting revenue stream for the company. Especially as getting closer to the risk, in order to raise margins through more direct access, is so necessary and popular right now.
In fact, R&Q is so keen on this model right now that part of a recent capital raising is set to be devoted to supporting growth in program business; “Part of the proceeds will also be used to grow the balance sheets of Accredited and R&Q Insurance Malta where we have excellent prospects for generating fast growing commissions from writing program business primarily ceded to highly rated reinsurers.”
Chairman Ken Randall explained; “We believe the Group is well positioned to benefit from some of the most promising growth areas in the non-life insurance market, namely legacy and the provision of licensed paper to write program (MGA) business. ”
It stands to reason that R&Q would write that business for alternative capital providers as well, if they wanted it.
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