R&Q still pursuing expansion trail

Ken Randall, the formidable veteran in the Lloyd’s insurance market who heads acquisitive non-life insurance services group Randall & Quilter Investment Holdings, is champing at the bit just now, despite a recent fivefold increase in interim pre-tax profits to £3.7 million. That leap was the result of a US legal settlement between insurers exposed to the 2001 New York World Trade Center attack, including Lloyd’s Syndicate 3330, run by Randall & Quilter, and is not going to be repeated.  

Meanwhile, cyclical weakness in underwriting premiums and low investment returns are blunting profitability in parts of the AIM-quoted business, and the company’s shares are languishing at a 12-month low of 91p – at which at least they offer a consolatory yield of 8.1 per cent and the promise of a progressive dividend policy. 
 
Randall says insurers are now waiting for another ‘market-turning event’, preferably a massive loss borne by a few but scaring away surplus capital from the market and enabling everyone to impose hefty premium rate increases.   
However, Randall, a former head of regulation at Lloyd’s and one-time chief executive of ultimately ill-starred insurance syndicate manager Merrett Group, is not himself banking on such an event, welcome though it would be, nor is he allowing current market conditions to deflect him from his strategy of expansion for long-term growth.   

Having built up another insurance services concern, Eastgate, with his business partner Alan Quilter (erstwhile head of the Lloyd’s market’s financial services group) before selling it to private equity group Duke’s Place in 2000, he floated the present company with Quilter in 2007. Since then, he has diversified it from its original business of running off insurance companies and Lloyd’s syndicates that are no longer writing new business into other niche areas.   

These include premium credit control and binding authorities (where underwriters cede underwriting authority to brokers within set parameters), with a focus on areas pinpointed by the Lloyd’s market as ripe for improvement.   

Randall & Quilter, in which Randall owns a substantial stake, is planning to set up a new Lloyd’s underwriting syndicate in partnership with ‘a major European insurer’ and has been preparing its application for this new entity to start underwriting in time for the key annual policy renewals in January. Acquisitions so far this year have included the £2.7 million purchase of La Licorne, a French third-party motor reinsurer in run-off since 1991, and the company is also scouting for US takeovers.     

The goal is to reduce profits volatility and increase their future visibility. Welcome as the Syndicate 3330 settlement was, it followed another, less gratifying settlement, with Equitas, the Lloyd’s market’s ‘long-tail’ reinsurance run-off vehicle, over airline claims for the 1990 Gulf War and payouts on the 1989 Exxon Valdez oil spill, which slashed the company’s profits last year from £8.8 million to £260,000.    

Randall is no stranger to controversy, and Randall & Quilter’s US arm, R&Q USA, is embroiled in a complex legal dispute about run-off and reinsurance arrangements in the USA involving American insurer Seaton and Stonewall, in which Duke’s Place has an interest. Randall has stated that he and the company expect to make a recovery of the damages incurred hitherto and of a ‘substantial proportion’ of the costs that will be incurred in defending a counterclaim by Seaton and Stonewall in the English courts.   

With cash and ‘near cash’ of £42.6 million at the end of June, Randall & Quilter has scope for further suitable acquisitions and to maintain its progressive policy in distributing cash to shareholders. Analysts see pre-tax profits this year of £7.5 million and argue that the shares show a 38 per cent discount to net asset value as well as an 8.1 per cent yield, while Randall suggests the payoff in profit terms will come in 2012. The shares should rally over the medium to long term.