Non-life legacy insurance and reinsurance as well as program management firm R&Q Insurance Holdings Ltd. has revealed earning $12.1 million in fee income from its first full year operating the legacy insurance focused collateralised reinsurance sidecar, Gibson Re.
Gibson Re was launched by R&Q in September 2021, with $300 million of investor capital raised to support a significant percentage of R&Q’s legacy portfolio.
The introduction of the Gibson Re reinsurance sidecar was expected to simplify R&Q’s legacy insurance and reinsurance business model, reducing the capital required from R&Q’s own balance-sheet to enter into new legacy deals.
At the same time, Gibson Re drives a new source of fee income, with R&Q saying this is part of its strategy to shift to a capital-lighter model.
R&Q still assumes 20% of the legacy reserves underwritten, for alignment of interest reasons, but most of the legacy earnings are switched to a fee income basis as they are ceded to Gibson Re, with profit shares also available as well.
In 2022, the latest R&Q results that came out this morning show a further $68.8 million of legacy reserves acquired, of which roughly $55 million, so 80%, would have been ceded to the Gibson Re sidecar.
Which takes the total reserves ceded to Gibson Re to just over $422 million so far.
Having previously reported that it earned $9 million of fee income from Gibson Re in the first-half of 2022, it now transpires the full-year total was $12.1 million.
R&Q hasn’t disclosed why the fees were lower in the second-half. The company also hasn’t disclosed any performance fees earned as yet.
Just four legacy transactions were completed in 2022, with R&Q saying it was “exercising discipline in a soft market.”
Reserves under management were reported as being $395.6 million at year-end, with seemingly a significant percentage now held in Gibson Re.
R&Q has reported more adverse development, on older reserves, this morning, but we are told these haven’t impacted Gibson Re.
R&Q said it is exploring solutions that can help to reduce the volatility in its pre-Gibson legacy reserves.
Overall R&Q’s legacy business unit fell to a $56.6 million operating loss for 2022, meaning the $12.1 million in fees earned from the sidecar will have been particularly welcome.
Looking forward, R&Q still anticipates fee income becoming the dominant driver of operating profits for its legacy business, once the Gibson Re sidecar capital is fully deployed.