The interims reveal the early benefits of R&Q’s decision to simplify its business in 2016 and refocus on two core strategic areas. Volumes of new legacy and program management deals are gathering momentum, building complementary revenues and leveraging the group’s core competitive advantages and enabling it to capitalise on industry trends. The rationalisation has created two core divisions and activities.
Acquisition/reinsurance of US and UK/EU insurance companies or policies in run-off. This activity aims to generate book value growth and progressive cash returns over on average, a one to five-year period
These are licensed to provide comprehensive insurance services in the EU and US markets and will pursue strategies which generate growing, reproducible fee income.
A strong first half saw a 40% increase in underlying operating profit (continuing operations) to £7.8m. That reflects growing contributions from legacy purchases, demand for program underwriting services in US and Europe, and a streamlined expense base. Two acquisitions announced with the interims could make a significant impact this year, subject to receipt of regulatory approval before 31 December, or in FY19 if not.
Both divisions reported encouraging client growth and strong new business pipelines and look well placed to benefit as insurers seek to manage competitive pressures and cope with increased regulation. Additionally, R&Q’s Malta base puts it in a strong position to capitalise upon uncertainty resulting from the Brexit negotiations.
Our forecasts assume the latest acquisition completes this year, but overall, builds in a 12-18 months delay before new program management business is fully reflected in the bottom line, which relates to accounting. As those factors fall away with scale, operational gearing should take over and drive up margins. Also, bigger floats and rising interest rates may see an up‐tick in investment income.