R&Q: Managing legacy risks for third-party investors a key business goal

Becoming a manager of third-party capital from investors interested in accessing the returns of legacy insurance and reinsurance business is a “key goal” for Randall & Quilter (R&Q) Investment Holdings, the specialist non-life insurance and reinsurance legacy investor and program manager said today.

In announcing its results, R&Q explained that it sees tapping into the alternative reinsurance capital trend as a way for it to boost its capacity to do larger legacy and run-off transactions, while also creating an attractive source of fee income at the same time.

It’s been a goal for the firm for a while of course and we’ve covered before the ambitions of R&Q to launch legacy or run-off sidecar structures, as a way to bring managed, third-party capital from investors within its operating core.

Executive Chairman Ken Randall, Group Chief Executive Officer Alan Quilter and Deputy Executive Chairman William Spiegel all commented on the ambition to move into managing third-party capital.

“Over the next few years we expect our Legacy business to continue to provide strong and consistent Operating Returns on Capital.

“Our key goal for the Legacy business is to add a recurring fee component to its income by managing legacy business on behalf of third parties,” the senior executives explained.

Adding, “There is a growing demand from alternative capital providers, such as pension funds, sovereign wealth funds and family offices, for access to the legacy insurance business we originate and service. The demand is driven because insurance liabilities are generally non-correlated to other securities, such as stocks and bonds.”

The steady source of fee income that a managed capital operation could bring would be a valuable addition to earnings for R&Q, especially as the company could do larger run-off deals, with the help of alternative capital and be more active in the space and competitive with the largest players.

Scale really does matter in legacy these days, when it comes to competing for the largest transactions that come to market.

Adding third-party capital into the business mix is one way R&Q can gain greater scale, while not putting its own balance-sheet capital to work, but still earning attractive fees.

For institutional investors, such as pension funds, partnering with a legacy manager of insurance and reinsurance risks such as R&Q could be a very attractive prospect, as well managed run-off portfolios can deliver significant and stable returns over the longer-term, while remaining relatively uncorrelated to broader financial markets.

R&Q recently raised $100 million of capital to aid its growth and expansion, with $20 million of the capital raise coming from Hudson Structured Capital Management Ltd., the insurance-linked securities (ILS), reinsurance- and transportation- focused investment manager.

The company has ambitious targets for 2020 and beyond, with third-party capital set to play an important role.

R&Q aims to compete for larger legacy transactions and increase the size of the run-off portfolios it bids for by using sidecars and other third-party capital partnerships, the company said today.

“As a manager of third party capital, we would expect to be paid fees for sourcing and managing these transactions,” R&Q explained.

Some specialist insurance-linked securities (ILS) funds already allocate a level of capital to legacy and run-off markets, while other large institutional investors see the benefits of partnering with a legacy specialist to access prime sources of legacy insurance and reinsurance risk-linked returns.

Partnering is critical, as managing legacy portfolios is a particularly specialist business, where the ability to manage claims volume, season the portfolio of risk to better understand it, and forecast profitable outcomes is key to performance.