R&Q to consider further MGA investments to follow Tradesman stake

Randall & Quilter (R&Q)’s management has said the firm will consider further investments in the MGA space having taken a 35 percent stake in New York-based MGA Tradesman in the third quarter.

Speaking to The Insurer following the group’s announcement of an H1 operating profit that rose 30 percent, chairman Ken Randall said the legacy and fronting specialist was interested in developing MGA partnerships where there is a “compelling underlying business case”.

“We are looking at other opportunities, and consider each case on its own merits,” he said. “We won’t go out and buy shares in any old MGA but are interested and have been for a long time in investing in MGAs where there is a compelling underlying business case.”

Randall said R&Q would be “very selective and strategic” in any deals it pursues and highlighted the strength of Tradesman as a business as the driving force behind the decision to take a stake in the company.

“Tradesman has focused on a particular niche and developed its services and underwriting capacity within those markets.

“They started by underwriting a primary program for a limited number of insureds, then writing the first excess layer of $2mn, then writing a $5mn layer before putting another $5mn excess layer on top, for the same group of insureds.

“They know a lot about those insureds, and that appeals to us”.

R&Q generated an underlying result of £10.4mn in H1, up from £8mn in the first half of 2019. Its pre-tax profit fell to £0.6mn, down from £33.1mn in H1 2019, with the drop driven by mark-to-market investment losses and the one-off impact of the Global Re legacy acquisition in last year’s first half.

In its legacy business, R&Q agreed a flurry of reinsurance transactions in the first half with major counterparties such as Allianz, HIIG and RenaissanceRe – further evidence of the growing demand for back-year deals from carriers keen to free up solvency capital to focus on live underwriting.

“We’ve seen a trend for more reinsurance opportunities, which is partly a function of the marketplace which has seen using the legacy market to improve capital efficiency,” Randall said.

“This can be to either take away problem accounts or lay off part of a risk to our balance sheet so companies can reduce capital charges and bolster their firepower for business they are looking to grow.”

This year GWP at R&Q’s fronting business, Accredited, passed the $1bn milestone.

The London-listed firm signed 10 new programs in H1, taking its live total to 36, with four more added since 1 July, representing ~$200mn of additional contracted premium.

R&Q – which earns commissions on GWP written on its AM Best A- rated capacity in both the EU and US – said its program business arm has now moved into profit on an economic Ebitda basis with H1 2019’s modest loss of $0.3mn moving to a $0.8mn profit.

It also said it will benefit from the market hardening which is seeing rate increases accelerate in most classes, while growth will continue as contracted premium continues to earn through to written premium.

In addition, the group said it has bolstered Accredited’s European arm in the period with the establishment of a UK branch of its Maltese operating company, which enables the firm to “continue to underwrite and service our UK partners post Brexit”. It has also opened a branch in Milan, Italy.

More recently, R&Q formed a US E&S company, Accredited Specialty Insurance Company, which will enable Accredited to expand its fronting/program services to the fast-growing $55bn market. The group recently announced the hiring of Aon veteran Pat Rastiello to lead the initiative.