R&Q subjected to BMA review of legacy business, halting transactions

R&Q Insurance Holdings said this morning that the Bermuda regulator has requested an independent actuarial review of its legacy reserves, its capital and its cash flow projections, which will put on hold any legacy transaction to Bermuda based R&Q Re, including a previously announced deal.

R&Q said it has been in “discussions” with the Bermuda Monetary Authority (BMA), its main insurance regulator and has engaged closely with the BMA on the future plans for R&Q Legacy.

Remember that R&Q had reached an agreement to sell its Accredited program Management business to private equity investment manager Onex Corporation, a move that would result in R&Q pivoting to become solely a legacy insurance and reinsurance business.

But this has brought greater scrutiny at the same time, it seems, with the BMA wanting a thorough review of R&Q’s legacy reserves and ability to sustain cash levels.

The BMA has requested an independent actuarial review of the required reserves of the remaining R&Q Legacy business following the sale of Accredited, as well as its capital and its cash flow projections.

The BMA has now told R&Q to pause the planned redemption of US $20 million Tier 2 floating rate subordinated notes that had been issued by R&Q Re (Bermuda) Limited and made up some of its solvency capital.

Paying down debt had been a key focus for R&Q, to put its business in a position to trade forwards as legacy only, but now these notes will remain outstanding and R&Q will continue to pay interest on them.

In addition, the BMA has told R&Q to put a hold on the approval of any new external legacy transactions to R&Q Re (Bermuda), while the BMA review of R&Q Legacy is ongoing.

R&Q said that this includes a recently announced UK Motor loss portfolio transfer deal.

The company stated, “Although these decisions by the BMA and the BMA’s review will impact R&Q Legacy’s ability to complete certain transactions in the short term, the Board remains firmly committed to the legacy plan outlined in the circular published on 14 December 2023.

“The Board reiterates its belief that a successful Sale represents the best outcome for all stakeholders, including enabling R&Q to undertake a material financial de-leveraging to support the strategy of transitioning the Legacy business to a capital efficient and stable recurring fee-based business model.”

Updates: The markets reacted strongly to this news, with R&Q’s share price plunging 25% right after the open, but then gradually recovering somewhat although still being down just over 10% around 10am UK.