Goodwill write-down pushes Randall & Quilter into loss

Run-off buyer Randall & Quilter (R&Q) made an after-tax loss of £488,000 in 2011 (2010: profit of £6.4m) thanks to a £13.5m goodwill impairment charge.

R&Q has also announced the acquisition of run-off company Trimac Acceptance and its associated Barbados-based captive, Trimac Exit Insurance.

The goodwill impairment, which R&Q warned about in a 5 March trading update, emanates from its R&Q Re US operation.

The reduction in the division’s goodwill value was caused by a sharp fall in US investment returns because of low government bond yields, coupled with an acceleration of claims settlement during the year. The combined effect was “much lower than expected” cash and investment  balances at the end of the year.

R&Q stressed that the write-down is not due to any change in the expected trading performance of its companies and is a non-cash item. As such it will not hit R&Q’s net tangible asset value per share.

The loss before tax was £4.7m (2010: profit of £7.5m). The 2011 loss after tax was reduced by a £4.2m tax credit. R&Q said that excluding the goodwill impairment charge, profit before tax would have been £8.8m.

“It is pleasing to report a rise in Group profit (prior to goodwill impairment) during the year compared to 2010,” R&Q chief executive Ken Randall. “Our expectation of a much stronger second half of the year was realised, especially in the Insurance Services Division.”

R&Q’s Insurance Services Division manages Lloyd’s syndicates. Randall said the division benefitied in particular from an increased profit commission from Syndicate 3330 and a second-half revenue bias in certain operating subsidiaries. The company’s operating profit was flat at £5.6m (2010: £5.8m).

He added that the Insurance Investments Division, which buys run-off books, produced and “excellent result”. This was driven by a strong performance in the UK portfolios and run-off syndicate 102and more modest deterioration than expected investment income and adverse loss development in R&Q Re US. The division’s 2011 operating profit was £8.3m (2010: £7.4m).

Randall said the Underwriting Management Division, which manages start-up Lloyd’s syndicates and operates managing general agencies (MGAs) had a more mixed performance. It made an operating loss of £1.1m (2010: loss of £1m).

“Whilst operational progress was encouraging, the division generated an operating loss. This was attributable to the continued weak premium rating environment which held back the income development of the MGAs and the costs and business disruption brought about by the preparations for Solvency II,” he said. “A combination of these factors also impacted our ability to launch new ‘Turnkey’ syndicates.”

However Randall added that the division’s  outlook was encouraging as it had added two new MGAs to its portfolio since the beginning of 2012 “one of which has a particularly significant renewal book”.