Transforming revenue visibility
R&Q’s latest transaction, the creation of Gibson Re as a ‘sidecar’ for future legacy deals, should progressively smooth contributions from the Legacy Insurance division and create a new, equally substantial but far more visible, source of profitable revenue.As its portfolio scales, Gibson Re should help transform R&Q’s Legacy division from an entity that reports substantial but unpredictable, episodic upfront profits on acquisitions, into an asset manager earning fee income from legacy insurance portfolios assembled on behalf of third parties. On all new deals, R&Q will only retain a 20% participation onto its own balance sheet.
The new sidecar provides R&Q with access to a substantial capital base, initially US$300m, but potential future sidecars will be raised when that pool is committed. It will reduce the need for future equity issues to support growth from its own balance sheet and progressively release R&Q’s own capital for reinvestment elsewhere and support a progressive distribution strategy.
The interims reveal acceleration in underlying Program Management division growth. It is rapidly attaining scale, reporting an eleven-fold increase in pre-tax operating profit at a 40% margin, both annualised. The $23.5m headline group H1 21 pre-tax operating loss demonstrates how legacy deal timing can materially impact reported numbers.
Our unchanged 240p / share fair value assumption reflects trading post period-end, and outlook for higher quality revenue from the new structured Legacy division. That will move the rating from a sum of the parts for two distinct businesses to an EBIT multiple for both as Gibson Re’s book scales up.
Gallagher (Arthur J.) is a holding company. Through its subsidiaries, the company provides insurance brokerage, consulting and third party claims settlement and administration services to both domestic and international entities. The company's segments are: brokerage, which is primarily comprised of its retail and wholesale insurance brokerage operations; risk management, which provides contract claim settlement and administration services for enterprises and public entities that choose to self-insure their property/casualty coverages and for underwriting enterprises that choose to outsource their property/casualty claims departments; and corporate, which manages its clean energy and other investments.
Marsh & McLennan Companies is a holding company. Through its subsidiaries, the company provides clients advice and solutions in risk, strategy and people. The company provides analysis, advice and transactional capabilities to clients. The company conducts business through two segments: Risk and Insurance Services, which includes risk management activities (risk advice, risk transfer and risk control and mitigation solutions) as well as insurance and reinsurance broking and services; and Consulting, which includes health, wealth and career services and products, and other management, economic and brand consulting services.
Randall & Quilter Investment Holdings is a holding and investment company. Through its subsidiaries, Co. acts as owners and managers of insurance companies, live and in run-off, as underwriting managers for insurers, as participators and managers of Lloyd's syndicates, as purchasers of insurance receivables and as service providers to the non-life insurance market. Co.'s has 3 segments: insurance investments which acquires and assumes legacy portfolios, insurance debt and provides capital support to Lloyd's syndicates; insurance services which provides insurance related services; and underwriting management, which provides management to Lloyd's syndicates and operates underwriting entities.
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