Randall & Quilter RQIH Final Results

  Randall & Quilter (RQIH) - Final Results

RNS Number : 6484B
Randall & Quilter Inv Hldgs PLC
19 April 2012

                  Randall & QuilterInvestment Holdings plc

                     ("Randall & Quilter" orthe "Group")

              Final results for theyearended 31 December 2011

The Board of Randall & Quilter (AIM: RQIH), the specialist non-life  insurance 
investor, service provider  and underwriting manager,  is pleased to  announce 
the Group's final results for the year ending 31 December 2011.


• Total Group income of £36.8m (2010: £32.8m), an increase of over 12%
• Adjusted* profit before tax of £8.8m (2010: £7.5m)
• Return of cash of 4.9p, through  a G and H share scheme** ,  bringing 
the total cash distribution to shareholders to 8.1p for the year (2010: 7.35p)
• Upwards  rebasing  of  the Group’s  progressive  distribution  policy 
following the completion of a share repurchase and subsequent cancellation  of 
5 million ordinary shares
• Undiscounted  net tangible  asset value  per share  of 107.3p  (2010: 
95.9p), an increase of 11.9%
• Tax credit of  £4.2m due to  UK tax profits  being offset by  brought 
forward tax losses, favourable tax treatment of Seaton & Stonewall legal  cost 
recoveries and a recovery of tax paid in prior years by US subsidiaries.

* Excludes the goodwill impairment previously announced
** Details of which will be announced shortly


• Insurance Investments Division -  A very pleasing result with  strong 
contributions from the non US  insurance companies and run-off Syndicate  102, 
producing an operating profit of £8.3m (2010: £7.4m).
• Insurance Services Division - A satisfactory performance following  a 
much stronger second half, with operating profit for the year of £5.6m  (2010: 
• Captives Division - An operating  profit prior to the Nordic  Venture 
write-off of £0.3m (2010: £0.2m) again impacted by on-going investment
• Underwriting  Management Division  -  Good operational  progress  but 
performance  impacted   by  the   challenging  premium   rating   environment, 
preparations for Solvency II and weak trading in our Canadian MGA resulting in
an operating loss of £1.1m for the year (2010: £(1.0)m)
• An ‘Other Corporate’ charge, which includes parent company overheads,
of £2.1m, (2010: £4.5m),  reduced by the inclusion  of the one-off legal  cost 
recoveries in respect of the Seaton and Stonewall litigation as well as  lower 
acquisition related costs during the year compared to 2010.

Commenting  on   the   results,Ken  Randall,Chairman   andChief   Executive 
Officerof the Group said:

"It is  pleasing  to  report  a  rise  in  Group  profit  (prior  to  goodwill 
impairment) during  the year  compared  to 2010.  Our  expectation of  a  much 
stronger second half  of the year  was realised, especially  in the  Insurance 
Services Division  which benefited  from the  anticipated increase  in  profit 
commission on syndicate 3330 and a second half revenue bias in certain of  our 
operating  subsidiaries.  The  Insurance  Investments  Division  produced   an 
excellent result  for the  year, driven  by  a strong  performance in  the  UK 
portfolios and run-off syndicate 102 and more modest deterioration than we had
feared in investment income and adverse loss development in R&Q Re (US).

The Underwriting  Management Division  had a  more mixed  performance.  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. A combination of
these factors also impacted  our ability to  launch new 'Turnkey'  syndicates. 
The outlook  is  however  encouraging  with two  MGAs  added  to  the  Group's 
portfolio since  the  beginning of  2012,  one  of which  has  a  particularly 
significant renewal book. We  are also exploring ways  in which we can  expand 
upon our live syndicate management activities.

The Captives Division's operating result was subdued once again as the  Nordic 
venture was closed and on-going investment in other jurisdictions impacted the
result. We  have however  laid strong  foundations for  future profits,  which 
should start  to emerge  in the  current year.  Our market  presence is  also 
enabling us to  identify opportunities to  acquire a number  of "end of  life" 

2011 saw a satisfactory end to the long running Seaton & Stonewall  litigation 
and a recovery of legal costs, which benefited the 'Other Corporate' result.

We also  carried out  an extensive  share repurchase  programme of  5  million 
ordinary shares during the summer of 2011 and subsequently rebased the Group's
per share progressive  distribution policy  to benefit  all shareholders  with 
immediate effect.

We look  forward  to the  future  with  confidence. Whilst  the  business  and 
investment environment is still challenging in some areas, the organic  growth 
and improvements  to  the operational  efficiency  of our  service  businesses 
continue and we are now  beginning to reap the  benefits of our investment  in 
Captives and Underwriting Management.

In the  Insurance  Investments  Division, there  is  continued  potential  for 
further reserve releases in our owned company portfolios but US asbestos still
poses a risk and  investment returns in high  quality fixed income  securities 
remain subdued. Our acquisition of further insurance assets is set to continue
with  a  significantly  increased  deal  pipeline  and  signs  of  diminishing 
competition at the smaller end of the market where we focus. We have  internal 
resources to take advantage  of the current pipeline  and are exploring  asset 
based financing  to  increase  our  capacity  further  should  the  prevailing 
attractive market  conditions continue.  We also  maintain a  focus on  those 
opportunities which not  only fit our  return criteria but  from which we  can 
generate good, short to medium cash flow."


Company: Randall & Quilter Investment Holdings plc

Booth Tel:  020  7780 

Nominated Advisor  Numis Securities Limited

& Joint Broker: Stuart Skinner (Nominated Advisor)  Tel: 
020 7260 1314

 Charlie Farquhar
(Broker) Tel: 020 7260 1233

Joint Broker:  Shore Capital Stockbrokers Ltd

Danford Tel: 020 7408

Auton Tel: 020 7408 4090

Corporate &  FTI Consulting

Financial            PR:            Neil            Doyle 
 Tel: 020 7269 7237

 Ed Berry
 Tel: 020 7269

Blackwell Tel: 020 7269 7222

The Chairman's  Statement,  Business  Review andHighlights  of  Accounts  are 
attached. The full final results for theyearended 31 December 2011 will  be 
sent to shareholders shortly and will be available on the Company's website at

There will be an analyst presentation at 9:30am on Thursday 19^th April 2012
at FTI Consulting, Holborn Gate, 26 Southampton Buildings, London, WC2A 1PB.
Those analysts wishing to attend and who have not registered are asked to
contact Tom Blackwell at FTI on +44 20 7269 7222 or at

The Company's Annual General Meeting will be held on 27 June 2012 at 11 am  at 
the offices of FTI Consulting.

Details of the proposed G and H scheme will be announced shortly. In light of
this, the Board will not be recommending a final dividend for the year.

Notes to Editors:

Since formation, Randall  & Quilter has  pursued a buy  and build strategy  to 
create a  comprehensive range  of investment  activities and  services in  the 
global non-life insurance  market and is  focused on the  following four  core 

• Insurance Investments;

• Insurance Services;

• Underwriting Management; and

• Captives

The Group currently:

• has a team  of up to  400 insurance professionals based  in the UK,  USA, 
Bermuda, and  Continental Europe  with  wide service  capability in  both  the 
'live' and 'run-off' market;

• has a portfolio of eleven insurance companies in run-off (from the UK, US
and Continental Europe) with net assets of c.£86.5m as at 31 December 2011;

• provides 'turnkey' management services to Lloyd's syndicate 1897, manages
two RITC ('run-off') syndicates and owns and operates 5 MGAs; and

• acquires  and  manages  a  portfolio of  insurance  receivables,  with  a 
carrying cost of c. £8.1m as at 31 December 2011;

The Group was founded by Ken Randall, Executive Chairman and Chief  Executive, 
and Alan Quilter, Chief Operating Officer, who both have extensive  experience 
in the industry including as Head of Regulation of Lloyd's and as Head of  the 
Market Financial Services Group respectively.


                                                                                2011     2010
                                                                               £000     £000
Group Results

Total Income                                                                   36,793   32,818

Operating result (before goodwill and interest)                                7,851     6,180
Adjusted* Profit on ordinary activities before income taxes                   8,801     7,523
* Excludes goodwill impairment                                                             



Goodwill Impairment                                                           (13,458)     -

(Loss)/Profit on ordinary activities before income taxes                     (4,657)    7,523
Credit/(Charge)  4,169  (1,150)
(Loss) Profit after tax                                                        (488)     6,373
Earnings per share (Basic)                                                     (0.9)p    12.2p
Total net tangible assets per share                                            107.3p    95.9p

Group income  increased  by 12%  in  the year  as  the full  year  benefit  of 
acquisitions made  during  the  course  of 2010  and  organic  growth  in  the 
operating companies  outweighed  lower investment  income.  Operating  profit 
before goodwill on bargain purchase  and goodwill impairment rose strongly  to 
£7.9m from £6.2m in the  prior year as a result  of strong performance in  the 
Insurance Investments Division  and a lower  'Other Corporate' charge  arising 
from the  one-off Seaton  &  Stonewall legal  cost recovery.  Adjusted  profit 
before tax (prior to goodwill impairment) also improved to £8.8m from £7.5m in
2010 despite a higher  financing charge following the  renewal of the  Group's 
credit facility and a lower contribution from goodwill on bargain purchase.

The Group benefited from a substantial  tax credit arising from the fact  that 
the majority of  the Group's profits  were generated  in the UK  in the  year, 
where the  Group  has significant  tax  losses from  prior  years as  well  as 
favourable treatment of the recovered legal costs from the Seaton &  Stonewall 
litigation. In the USA we  have also benefitted from a  refund of tax paid  in 
prior periods.

The goodwill impairment, relating to R&Q Re US was commented on in the Group's
recent trading update. The impairment arises due to the continued low  market 
yields on  high  quality  fixed  income securities  and  the  acceleration  in 
settlement of  known claims  during 2011  which resulted  in much  lower  than 
anticipated cash and investment balances by  year end. The impairment has  not 
arisen due to  any change in  expectations of  the performance of  any of  the 
Group's operating  companies and  has not  impacted the  Group's net  tangible 
asset  value  per  share.  The  Group  does  not  carry  any  other   goodwill 
attributable to insurance company subsidiaries in its financial statements.

Once again, the Insurance Investments Division performed very well, generating
an operating  profit of  £8.3m (2010:  £7.4m), driven  by strong  net  reserve 
releases in the  UK portfolios, especially  in R&Q Re  (UK), and an  excellent 
first year  performance of  run-off Syndicate  102,  on which  we have  a  20% 
economic interest. Our insurance/reinsurance debt acquisition activities  also 
produced a good profit  for the year as  sizeable dividends were received  and 
announced on existing positions. We also made several purchases,  particularly 
during the latter part of the year, which should benefit future years.

We commented  in the  interim results  that we  had seen  some evidence  of  a 
pick-up in asbestos related claims in our US portfolios, but this was in  fact 
mostly contained within our reinsurance programme and there was a more limited
impact than expected  on net reserves.  The major impact  was the  accelerated 
cash outflows as claims were settled, resulting in lower funds to invest.  The 
relatively modest net reserve deterioration in  R&Q Re (US) in the year  arose 
from other parts of  the book, including claim  settlements on policies  which 
are part of a developing dispute with the ACE group, which relates back to the
acquisition of the company.

Whilst investment markets were and  remain challenging, percentage returns  on 
funds held  by our  insurance  company subsidiaries  remained stable  at  3.0% 
overall (2010: 3.0%), significantly above the Lloyd's market average of  1.9%. 
Total investment income  however fell, reflecting  a significant reduction  in 
average balances held.

The performance of the Insurance  Services Division ('ISD') during the  second 
half of the year was  strong both in absolute terms  and compared to the  same 
period in  2010, due  to the  higher profit  commission earned  in respect  of 
Syndicate 3330, a natural second half revenue bias in certain of our operating
subsidiaries as well as  some new business  income generation. The  divisional 
operating result for the year as a whole of £5.6m ended up being only modestly
down (2010:  £5.8m), in  spite  of significant  restructuring costs  of  £0.9m 
incurred during 2011 relating to a rationalisation of offices and a number  of 
staff redundancies. These redundancies followed  a planned review of  staffing 
levels after the  integration of  the various service  businesses acquired  in 
2010.  The  planned  diversification  into  the  'live'  market,  focused  on 
providing specialist  services  to  the London  subscription  market  such  as 
premium credit control,  binding authority management  and broker/MGA  support 
services, resulted in 'live' service income becoming a significant portion  of 
our total service revenue during the year. The ability to service both run-off
and live market business has also increased our penetration of large  insurers 
who favour an  outsourced model  for specialist projects.  Our legacy  broker 
operations and 'broker wrap' product (which offers market participants a  full 
exit  solution  from   servicing  legacy   claims)  also   continue  to   gain 

The Underwriting Management Division's  financial performance during 2011  was 
below initial expectations. Though the  division benefited from a good  profit 
commission on run-off Syndicate 102 in the second half, the substantial  costs 
and associated business disruption relating  to preparations for Solvency  II, 
together with a  persistently poor  underwriting rate  environment took  their 
toll. Not  only  did  these  factors  lead  to  weaker  than  anticipated  MGA 
commissions  but  also  a  lack   of  new  turnkey  syndicate   opportunities. 
Furthermore, our Canadian MGA struggled to gain the distribution channels  and 
market penetration required,  exacerbating the problems  posed by low  premium 
rates. This resulted  in an  operating loss in  that single  entity of  £1.0m, 
which accounted for almost  the entire divisional  loss. Following a  thorough 
review of market conditions, the potential income growth and our cost base,  a 
decision has been reached to consider our options in Canada.

Despite a disappointing divisional financial result, we made good progress  in 
developing the Underwriting Management  business. 2011 saw  the launch of  our 
first turnkey syndicate on behalf of  Skuld, a long established Norwegian  P&I 
club manager. During the early part of 2012, we also added two other UK  based 
Managing General Agents for  nominal cost, with  significant renewal books  of 
business. Our UK based MGA operations have thus gained necessary scale. Though
the pipeline for new  'turnkey' syndicates remains  subdued, we are  exploring 
other ways to expand upon our live syndicate management activities.

The Captives Division operating result of  £0.3m, prior to the Nordic  Venture 
write-off (2010: £0.2m) was below budget in  2011 as a result of the costs  of 
developing the onshore  US platform  and on-going  investment elsewhere.  Once 
again however, R&Q Quest (Bermuda), the division's principal operating company
made a good contribution. Strong foundations were also laid for future profit
generation, especially in the latter part of 2011 and in the first quarter  of 
this year. We  were pleased to  complete the acquisition  of Triton,  Norway's 
leading captive manager  in the  summer and to  establish R&Q  Quest (USA)  to 
which 11 contracts were novated  from Camelback, a manager ceasing  operations 
in the US market. We have  also recently broadened our activities to  include 
the formation of risk  retention groups and  captives for specialist  industry 
groups and have been leveraging our contacts and infrastructure to offer  full 
exit solutions to late stage  captives or those already  in run off. 2012  has 
begun promisingly as a  result and we are  confident that with the  additional 
benefit of recent  cost reductions,  the division will  begin to  make a  more 
significant contribution to the Group's operating profit.

The 'Other Corporate'  charge of £2.1m  for the year  (2010: £4.5m)  benefited 
from a significant one-off  recovery in legal  costs following the  successful 
resolution of the Seaton & Stonewall  litigation as well as lower  acquisition 
related expenses.

Since late  2011 we  have become  increasingly active  in the  acquisition  of 
legacy insurance assets. In December we acquired Principle Insurance, followed
in February by the RITC  of former Equity managed  Syndicate 1208 on which  we 
have a 50% economic interest, in  March by the acquisition of Northern  Foods 
Insurance and by the agreement to  acquire Trimac Exit Insurance in  Barbados, 
announced today. Our insurance debt acquisition activities have also grown  in 
scale with five  new receivables  purchased since December,  for an  aggregate 
consideration of $3.5m.

In summary, 2011  was generally  a good  year for  the Group  with a  pleasing 
underlying performance  in the  Insurance Investments  and Insurance  Services 
Divisions, especially  against a  background of  lower investment  income  and 
higher restructuring  costs. Whilst  the Captives  and Underwriting  divisions 
underperformed  against  initial  financial  expectations,  their  operational 
achievements have been significant, especially during the latter part of  2011 
and early 2012. We  therefore look forward  to these improvements  translating 
into stronger financial contributions in the current year and beyond.

The Group  completed a  share repurchase  during 2011  of 5  million  ordinary 
shares which were subsequently cancelled. As well as proving our commitment to
active capital management, the share buyback enabled the Group to eliminate  a 
share overhang from certain of  the original external shareholders.  Directors 
and family members also participated in the buyback to maintain the free float
and liquidity of the shares, resulting in their percentage holding rising only
slightly. Furthermore, to  provide a  benefit to all  shareholders, the  Group 
rebased its per share progressive  distribution policy to reflect the  reduced 
number of shares in  issue. The Group  proposes to pay out  4.9p per share  in 
cash to  all  shareholders through  a  G/H  share scheme  bringing  the  total 
distributions in  respect of  the 2011  financial year  to 8.1p  per share  an 
increase of over 10%  compared to 2010. Further  details will be announced  in 
due course. The Group has internal resources to take advantage of the  current 
pipeline of legacy insurance acquisition  opportunities. The Group is  however 
looking at further asset based borrowing facilities to ensure that it is  able 
to remain active should the current attractive market conditions continue.


Though the  underwriting rating  and  investment markets  remain  challenging, 
which inevitably affect  parts of our  business, the overall  outlook for  the 
Group is positive. We are seeing good deal flow on the legacy insurance  asset 
side with opportunities  both completed and  being worked on  in Lloyd's,  the 
insurance company, discontinued captives and insurance debt markets. There are
also signs that competition is reducing in the smaller end of the market where
we  focus.  Realisation  of  the  operational  and  capital  benefits  we  can 
potentially bring to  bear on such  acquisitions through portfolio  transfers, 
novations and mergers, has led us to concentrate on funding new deals directly
through our  own balance  sheet  but we  cannot  discount the  possibility  of 
partnering with others on larger sized deals through the 'sidecar'  structures 
previously commented  on. Such  co-investment would  be dependent  upon  the 
generation of satisfactory overrider fees for the Group.

We continue to  identify key areas  of focus in  order to crystallise  further 
reserve savings  in our  owned insurance  company portfolios  but US  asbestos 
still poses a risk. Disagreements with Ace relating back to the acquisition of
R&Q Re (US) are on-going and may result in further litigation between Ace  and 
Group companies. Our initial view of the recent House of Lord's so-called  'EL 
Trigger judgement' relating to UK asbestos is that its potential impact on the
Group will  be limited.  Diversification into  investing in  Lloyd's (in  RITC 
(run-off) and  turnkey  syndicates),  discontinued captives  and  the  growing 
importance of the insurance debt  acquisition activities is also reducing  our 
dependency on finding reserve redundancy  in the existing company  portfolios. 
To counteract the challenges of  the investment markets, we have  repositioned 
our investment  portfolios  to insulate  our  investments from  the  potential 
impact of rising interest rates and have focussed on areas of the market  that 
we believe are undervalued, whilst maintaining high credit quality.

The costs and uncertainty of Solvency  II will continue into 2012 and  beyond. 
We have  already seen  evidence of  the FSA  requiring an  additional  capital 
buffer beyond  the ICA/QIS  5 result  to reflect  uncertainty over  the  final 
solvency rules. As the  Solvency II standard  model currently stands  however, 
there appears to be  no material additional  capital requirements compared  to 
the prevailing ICA regime  on the portfolios  we own. Of  more concern is  the 
potential impact on holding company capital obligations, commented on recently
by the Prudential Group. The proposed regulations may penalise groups with  US 
subsidiaries and we are still unclear as to whether the FSA will recognise the
special circumstances  of run-off  specialists. We  are therefore  considering 
alternative holding company structures to mitigate this risk.

On the service side  of the business, the  diversification into more  external 
contracts and  'live  market'  niche  services  is  proving  successful.  The 
cross-selling of our extensive live and run-off service offering is  beginning 
to gain traction  and the  development of full  exit solutions  to the  legacy 
broking market is generating new  business opportunities. The benefits of  the 
recent restructuring  programme  within  ISD  should  also  improve  operating 

As has  already been  mentioned,  the outlook  for  the Captives  division  is 
positive with  investment  in the  US  onshore platform,  the  acquisition  of 
Triton, the leading Norwegian captive manager and some cost reduction measures
now complete. The plan to broaden out our activities into the establishment of
risk retention  groups  and captives  is  progressing  well and  we  are  also 
leveraging our infrastructure and  contacts successfully to make  acquisitions 
of late stage captives or those already in run-off.

Finally, the Underwriting Management Division should benefit during 2012  from 
profit commission on  both run-off  Syndicates 102 and  3330 (formerly  1208). 
Consolidation of the MGAs we have launched or acquired, especially R&Q  Marine 
Services, should also result  in the emergence  of profitable trading,  though 
the cost of certain options we might pursue in respect of our Canadian MGA and
persistent soft underwriting rates  are likely to  hold back performance.  The 
Lloyd's 'turnkey'  pipeline remains  relatively inactive  due to  Solvency  II 
preparations and  the poor  premium rating  environment but  we are  exploring 
other expansion routes  at Lloyd's and,  in any case,  believe that  prospects 
will improve in 2013  and beyond. Turnkey capacity  in Lloyd's remains a  rare 
commodity and valuations achieved for agencies subject to recent M&A  activity 
show the inherent value of Lloyd's platforms.


Insurance Investments Division ('IID')

This division is engaged in the following activities:

• The acquisition and management  of solvent insurance companies,  captives 
and portfolios in run-off, typically at a  discount to net asset value in  the 
UK, US, Continental Europe, Bermuda and elsewhere;

• The provision of capital (Funds at Lloyd's) to Group managed  Reinsurance 
to  Close  (RITC)  run-off  syndicates  in  Lloyd's  and  new  turnkey  'live' 
syndicates; and

• The acquisition of insurance debt due to insurance or corporate creditors
from insolvent estates.

At 31 December  2011, the  portfolio of  acquired insurance  companies was  as 

                      Vendor      Country of   Acquisition NAV* £m   NAV* £m
                                 Incorporation    Date
                                                            (as at    (as at
                                                           31/12/11) 31/12/10)
La Metropole SA     Travelers       Belgium    29 Nov 2000    0.3       0.3
('La Met')          Group

Transport            American         USA      30 Nov 2004    8.1       9.2
Insurance Company   Financial
('Transport')         Group
R&Q Reinsurance        Ace Group      UK       3 July 2006   11.9       3.4
Company (UK)

('R&Q Re (UK)')
R&Q Reinsurance        Ace Group      Belgium  3 July 2006    2.9       3.0
Company (Belgium)

('R&Q Re
R&Q Reinsurance        Ace Group      USA      3 July 2006   16.8      15.7

('R&Q Re (US)')
Chevanstell        Trygg Forsikring   UK       10 Nov 2006   30.7      31.0

R&Q Insurance        Deloitte LLP,    Guernsey 9 June 2009    1.9       1.8
(Guernsey)        Administrators for
Limited            Woolworths Group                 
('R&Q Guernsey")                                    
Goldstreet        Sequa Corporation & US       14 Dec 2009    4.1       4.1
Insurance Company Columbia Insurance
('Goldstreet')          Company                                          

La Licorne S.A.     MAAF Assurances   France    22 April     2.9**      4.5
('La Licorne')                                                       

Principle              PICH Ltd       UK       29 December    5.9        -
Insurance Company                                 2011
Ltd (Principle')
TOTAL                                                        85.5      73.0

*IFRS basis for Group consolidation purposes

** After £2m capital extraction during the year

The Group's strategy in  the owned insurance company  portfolios is to  manage 
actively the claims,  reinsurance and  investment assets. Part  of the  claims 
strategy includes seeking mutually beneficial commutations. This is consistent
with our aim  of managing  down the liabilities  to progress  the run-off  and 
realise cash  profit through  capital reductions  and dividends.  Our  recent 
focus on  shorter tail  run-off  portfolios from  which  we can  extract  cash 
relatively quickly after acquisition was further illustrated in the year by  a 
£2m capital release  from La Licorne,  purchased only in  April 2010. We  have 
also recently received approval  from the FSA for  an extraction of a  further 
£3m from Chevanstell and a capital extraction of at least another £1m from  La 
Licorne is imminent.

There was an aggregate net claimsrelease  of £13.4m from our owned  insurance 
companies and syndicate participations during  the year (2010: £9.5m),  driven 
once again by the strong performance  of the UK portfolios, especially R&Q  Re 
(UK). Only R&Q Re  (US) suffered any material  net claims strengthening;  and 
this was more modest  than feared as the  pick-up in asbestos related  claims, 
which we  warned about  at the  interim results  stage, was  mostly  contained 
within our reinsurance programme.

Our internal  actuarial  team continues  to  work closely  with  our  external 
actuaries to enhance and refine our knowledge of the profiles of our insurance
company liabilities with the  aim of identifying areas  where reserves may  be 
appropriately reduced.

The Net  Asset Values  of the  owned  companies reflect  not just  net  claims 
releases but  also any  surplus/deficit of  investment income  over  operating 
expenses. The US portfolios'  Net Asset Values are  also affected by  exchange 
rate movements as their  assets (and liabilities)  are all dollar  denominated 
and are translated into Sterling for  Group reporting purposes. In the  non-US 
companies, liabilities and assets are  matched by currency and surpluses  kept 
in Sterling.

The acquisition of Principle Insurance, a takaful motor insurer in run-off  at 
the end of 2011 for £4.35m resulted in goodwill on bargain purchase of c.£1.5m
(2010: £1.7m, relating principally to the acquisition of La Licorne).

On a  like for  like  basis, the  aggregate Net  Asset  Values of  the  owned 
insurance companies rose strongly during the year to £81.6m from £73.0m at the
end of 2010.

The key issues in the main insurance company subsidiaries during the year were
as follows:


There was a significant net reserve  release again in Chevanstell during  2011 
of £3.3m  (2010: £4.9m)  emanating  primarily from  the Marine,  Aviation  and 
reinsurance accounts.

Due to the poor  performance of the bank  perpetual securities and  prevailing 
low interest rate  environment, the  Net Asset  Value of  the company  however 
remained broadly stable during the year. As is covered in detail below,  steps 
have now been  taken to  restructure the  investment portfolio  and we  expect 
investment income and  expenses to be  much more balanced  during the  current 
year and beyond.

Work continues  to identify  further assumed  claims accounts  where there  is 
reserve redundancy.  We  are also  progressing  a number  of  commutations  to 
further reduce the net  insurance liabilities, which were  under £14m at  year 
end, resulting  in  a  large  surplus  over  capital  requirements  under  the 
prevailing Solvency  I and  ICA regime  as well  as under  QIS 5  (the  latest 
'prototype' capital  model  for  Solvency  II). As  a  result,  we  have  been 
successful in gaining approval  from the FSA for  a capital extraction of  £3m 
but the FSA's additional prudence ahead of the finalisation of the Solvency II
regulations has temporarily limited our scope to get approval for the level of
capital extractions which we would ordinarily expect.


A number of significant  claims settlements were  negotiated during the  year, 
especially in the last quarter, with gross claims paid of $75m, a  significant 
part of which has  been billed to  reinsurers. As a  result of this  activity, 
outstanding reinsurance debt rose substantially to over $40m from $17m a  year 
earlier. The affect of this accelerated claims settlement activity has been to
reduce investment balances, contributing to the goodwill write-off referred to

Whilst there was an  overall net reserve deterioration  of £3.7m in the  year, 
the majority of this was attributable to the non-asbestos accounts. Though the
anticipated pick up in asbestos claims materialised, this largely fell to  our 
reinsurers. We have a comprehensive reinsurance programme which provides  very 
effective protection from large losses, which is our current experience. There
remains a continued risk from asbestos related claims if we were to experience
the unexpected development  of a  large number  of smaller  losses across  the 
book. This risk is further ameliorated  however by additional (so far  unused) 
reinsurance of  up to  $35m provided  by the  Ace group  as part  of the  2006 
acquisition agreement.

As has already been commented on  above, we have unresolved disputes with  Ace 
arising out of the 2006 acquisition.

In spite of the net reserve deterioration, the net assets of R&Q Re (US)  rose 
slightly in  the year  as a  result of  a surplus  of investment  income  over 
expenses and a tax credit.


R&Q Re  (UK)'s external  actuaries  completed a  detailed  review of  the  net 
reserve position  during  the year  and  significant reserve  reductions  were 
identified in  both the  gross and  net estimates  for Marine  and  Non-Marine 
reinsurance exposures.  A net  reserve  release of  over £11m  was  identified 
overall. This was  offset in part  by a deficit  of investment income  against 
expenses, again  primarily  due to  the  decline  in value  of  the  perpetual 
securities but net assets rose sharply by £8.5m to £11.9m during the year.

A number of commutations were agreed and settled, especially during the latter
part of 2011. As a  result of these commutations,  we have now eliminated  the 
vast majority of residual exposures to  reinsurance claims arising out of  the 
Exxon Valdez and Kuwait Airways losses.

Transport Insurance Company

There were significant gross claim settlements in Transport in 2011 but  these 
were recoverable from the NICO (Berkshire) retroactive reinsurance  agreement. 
The 2011 external actuarial report showed over $5.5m of reserve redundancy but
this simply increased the  surplus cover available under  the NICO policy  and 
had no impact on the balance sheet. It does however have a positive impact  on 
the regulatory Risk Based Capital test.

Disappointingly, we  lost the  Aerojet litigation  in early  2012 but  we  had 
already provided fully for this on  consolidation in the Group accounts.  This 
write down  in the  company's own  accounts reduced  the capital  surplus  for 
regulatory capital purposes.  Because the state  insurance regulations do  not 
allow Transport to take credit for the NICO Retroactive Reinsurance Treaty, we
are working with the  Ohio Insurance Department to  take Transport back  above 
the Authorised Control Level and have provisionally agreed to make  Goldstreet 
Insurance Company its wholly owned subsidiary, thereby increasing  Transport's 

The Net Asset Value of  Transport on an IFRS basis  fell by c.£1m during  2011 
primarily as  a result  of  a deficiency  of  investment income  to  operating 

Other Insurance Subsidiaries

Our other insurance subsidiaries  continue to run-off in  line or better  than 
planned with particularly good results from  La Licorne following a series  of 
commutations. This allowed a further capital extraction in the year of £2m and
a potential for a further release  during the current year. R&Q Guernsey  also 
had a  good year  with  a net  reserve release  and  a reduction  in  required 
collateral to the fronting  companies allowing a  repayment of the  intragroup 
loans and positive 'free' cash balances to start generating investment income.

Lloyd's Participations

For the 2011 underwriting  year the Group provided  8.33% of the  underwriting 
capacity for Syndicate 1897 (which it manages under a turnkey basis for Skuld)
with capacity of £60m and 20%  of the underwriting capacity on RITC  (run-off) 
Syndicate 102.

Syndicate 1897 as a whole produced a loss for the year of c.£6m as a result of
both the  customary expense  drag on  syndicates during  their first  year  of 
operation and the significant loss suffered on the KS Endeavour rig explosion.
R&Q's 8.33% share of the Syndicate 1897 loss was c. £0.5m.

Run-off Syndicate 102  however produced an  excellent profit for  the year  of 
c.£11.0m and our share,  was £2.2m. The aggregate  contribution of £1.7m  from 
our  Lloyd's  participations  during   2011  was  therefore  significant   and 
represented over a 20% return on the £8.3m of Funds-at-Lloyd's ('FAL') we  put 
up as 'regulatory capital' from our wholly owned corporate member, R&Q Capital

For the  2012 underwriting  year, we  continue to  provide the  same level  of 
capacity on Syndicate  1897 and Syndicate  102. However, due  to the  slightly 
reduced ICA  (Capital Requirement)  of Syndicate  1897 and  the lower  reserve 
level of run-off Syndicate 102, we had  a lower total FAL requirement for  the 
year in  respect  of  these  syndicates  of c.  £6.5m.  As  has  already  been 
mentioned, we also wrote the RITC of former run-off Syndicate 1208 during  the 
early part of 2012  and have a  50% net economic  interest in this  syndicate, 
having put up additional FAL of just under £3m at the end of February. We  are 
optimistic therefore  that  our  Lloyd's  participations  will  make  an  even 
stronger contribution to the divisional result during 2012.

Investment Policy and Returns

The investment  return on  funds held  by  our insurance  companies is  a  key 
component of the performance of the IID and despite the persistently low level
of interest  rates  during the  year  and the  poor  performance of  the  bank 
perpetuals following  market  turmoil in  August  and September,  the  overall 
percentage investment  return  for  the  year  remained  stable  at  3.0%  and 
significantly above a benchmark of the  Lloyd's market average of 1.9%.  Total 
investment income however  fell to £6.3m  (2010:£8.5m) as a  result of  lower 
average fund balances held,  especially in R&Q  Re (US) following  accelerated 
claims settlements.

For investment management purposes, the assets in our owned company  portfolio 
are divided between the US and UK companies.

As at 31  December 2011, the  total investments in  the externally managed  US 
companies portfolio amounted to $187.0m and  in the UK companies portfolio  to 
an equivalent of £63.9m (comprising of £27.7m of Sterling assets and $55.8m of
Dollar assets).  The  investment  returns  for 2011  were  c.  4.0%  and  1.1% 
respectively for the two  portfolios . The strong  return in the US  companies 
portfolio was due to  a high weighting in  US Municipals, which delivered  the 
best annual return within the fixed income asset classes during the year.  Our 
returns would  have been  even higher  had we  not kept  a defensive  duration 
stance. The  core fixed  income performance  in the  sterling part  of the  UK 
companies portfolio was  strong at  over 3%  but the  underperformance of  the 
perpetuals dampened  overall  performance here  and  the dollar  part  of  the 
portfolio was also weak due to some spread widening in corporates,  especially 

At 31 December 2011 the average duration of the US companies portfolio was  c. 
3.0 years whilst  the average duration  for UK companies  portfolio was  c.2.8 

The fixed income portfolio breakdowns by credit rating and asset class were as

Credit Rating:

                                 US Companies Portfolio UK Companies Portfolio
As at 31 December 2011
Government  &  Govt   Guaranteed                  19.1%                   2.7%
AAA                                               16.6%                  14.4%
AA                                                32.8%                   6.0%
A                                                 30.1%                  30.3%
BBB                                                1.0%                  22.0%
BB                                                    -                  9.5%*
P-1                                                0.4%                   3.4%
NR (Equities)                                         -                  11.7%
                                                 100.0%                 100.0%

* Comprises the step-up perpetuals discussed above

Asset Classes:

                           US companies Portfolio UK Companies Portfolio
As at 31 December 2011
Government/Agency Bonds                     18.8%                   2.7%
Corporates (ex financials)                   5.4%                  19.5%
Corporates (financials)                     21.2%                  52.9%
Cash                                         3.7%                   1.4%
CDs                                             -                   2.2%
Asset backed                                    -                   9.6%
Municipals                                  50.9%                      -
Equities                                        -                  11.7%
                                           100.0%                 100.0%

The Group's overall investment objectives are to:

•  Pro-actively  manage  the  asset  allocation  and  credit/interest  rate 
strategies but outsource the investing to specialist managers;

• Optimise  risk adjusted  returns through  the creation  of a  diversified 
portfolio of assets and individual securities;

• Maintain the principal value of the investments held;

• Keep average  duration/maturities relatively  short and  focus on  liquid 
securities in  order  to  provide  funds  to pay  claims  as  we  manage  down 
liabilities through claims settlements;

• Match insurance liabilities in original currencies;

• Monitor  interest  rate  risk  and use  floating  rate  securities  where 
possible in a rising interest rate environment; and

• Take controlled credit risk by limiting spread duration

Each of  the owned  insurance companies  invests its  funds within  guidelines 
established by its board of directors having regard to recommendations of  the 
Group Investment Committee, applicable insurance regulations and, in the  case 
of R&Q Re (US), the contractual obligations imposed by the surplus maintenance
insurance agreement provided by the ACE Group when R&Q Re (US) was acquired. 

Since  year  end,  in  line  with  the  Group's  investment  objectives,  some 
substantial changes have been made to  the UK companies portfolio to  minimise 
interest rate risk and optimise  risk adjusted returns. A significant  portion 
of the bank perpetuals have therefore been sold, realising a good profit  from 
the year end values as  we took advantage of the  rally in risk assets  during 
January and February. The remainder of  the fixed income portfolios were  also 
sold, realising a  further small profit  from year end  values. A  significant 
portion of the  funds have  been reinvested in  a portfolio  of floating  rate 
Residential Mortgage  Backed Securities  ("RMBS") with  primarily AAA  and  AA 
ratings and a  weighted average  life of c.  2.5 years.  In addition,  smaller 
parts of  the remaining  funds have  been invested  in a  senior secured  loan 
portfolio, a  UCITS compliant  short  duration high  yield  fund and  in  high 
yielding equities. The management  of the majority of  the portfolio has  been 
transferred to 24 Asset Management, a specialist RMBS manager. We believe that
the result of these changes has been highly positive as average credit ratings
have increased, interest rate risk  has been significantly reduced and  yields 
have risen.  We have  also increased  liquidity for  expected claims  payments 
during the year through the use of money market funds. We continue to look  at 
ways of implementing similar strategies in our managed syndicate funds and our
US companies portfolio, but  are unfortunately more  restricted in the  latter 
case by local regulation.

The Group's syndicate  funds are  currently managed by  Amundi and  investment 
income reported in the overall syndicate results.

Insurance debt acquisition activity

As at 31 December 2011, the Group had insurance and reinsurance receivables on
its balance sheet from its insurance debt acquisition activities with a
carrying value of £8.1m (2010: £1.8m). This increase reflects some
significantly enhanced acquisition activity during the year, especially in the
second half, which should benefit the current year and beyond as we receive
distributions from the closing insolvent insurance companies of which we are
now creditors.

A good result was generated from this part of the IID activities during 2011
with an operating profit of over £350k (2010: £(157)k), as a result of a
significant dividend received during the latter part of Q4 from a US estate,
likely to close during 2013.

Since early 2012 we have made 3 further acquisitions with another acquisition
now agreed (and awaiting completion), for an aggregate consideration of c.
$1m. We have also received further dividends of over $1.5m from the existing
portfolio in addition to the £1.2m of accrued income, now paid, which was held
on the balance sheet as at 31 December 2011.

Insurance Services Division

The Insurance Services  Division performed satisfactorily  during 2011 with  a 
much stronger second  half resulting  from the  anticipated additional  profit 
commission on the Syndicate  3330 service contract,  some natural second  half 
revenue bias in certain of the operating subsidiaries and new business income.
Total revenue rose to £35.2m (2010: £32.6m), primarily as the result of a full
year's contribution from  the Reinsurance Solutions  businesses acquired  from 
Guy Carpenter during late  2010. Operating profit of  £5.6m (2010: £5.8m)  was 
satisfactory, especially  given  the  restructuring costs  of  £0.9m  and  the 
significantly lower profit commission on Syndicate 3330 compared to 2010.

The Insurance Services Division's activities include:

· Claims management

· Reinsurance management

· Broker services (eg broker replacement)

· Audit & Inspection (for coverholders etc)

· Accounting Services

· Premium credit control & broker performance

· Compliance & company secretarial services

As well as providing full scale claims and reinsurance management services  to 
the Group's owned company portfolios and managed syndicates, the Group  offers 
a broad range of specialist insurance services  to a wide range of clients  in 
both the legacy and 'live' insurance markets.

In 2011, external revenue again exceeded internal revenue (£20.6m compared  to 
£13.6m) and live market  income accounted for almost  a quarter of the  total, 
demonstrating the  growing importance  of our  live market  operations,  which 
helps support the organic growth strategy.

The Group's  strength  in  live  market  servicing  is  focused  on  providing 
specialist niche  services to  the London  based subscription  market and  has 
followed the  successful  integration of  a  number of  targeted  acquisitions 
during 2010. Furthermore, the ability to service both run-off and live  market 
business has  increased our  penetration of  large insurers  who  increasingly 
favour an outsourced model for specialist projects.

The Group has an  established reputation and skill  base in the London  legacy 
market. R&Q is, for example, one of the leading players in broker replacement,
assuming the responsibility for reinsurance collections and claims settlements
for legacy insurers. Its  unique 'broker wrap' product  offers brokers a  full 
exit from servicing legacy  accounts for a fixed  fee, thereby allowing  these 
businesses to concentrate on repeat income  business. 2011 saw the Group  add 
the AJ Gallagher Re  run-off to the Carvill  run-off acquired during 2010  and 
there is a further pipeline of further opportunities.

The Group also has  significant third party  orientated service operations  in 
the US  in  addition  to the  staff  focused  on the  management  of  its  own 
portfolios. This follows  the acquisition of  Reinsurance Solutions Inc.  from 
Guy Carpenter during late 2010, which has a diverse blue chip client base  and 
an increasingly  acknowledged expertise  in workers  compensation claims.  The 
Group is also the manager  for the US based ECRA  run-off pool with well  over 
$1bn of outstanding  claims on behalf  of numerous US  insurance groups.  This 
activity may  offer  future  potential for  providing  commutation  and  other 
consultancy services to pool members wishing to seek an exit.

As has been  commented on previously,  the Group has  undertaken a  full-scale 
review of its  cost base.  This involved  a cost-benefit  analysis of  certain 
offices and a look at management  and staffing levels, especially in light  of 
the numerous  acquisitions  in 2010  and  their subsequent  integration.  This 
resulted in the closure and rationalisation of  offices in both the UK and  US 
and, unfortunately, a number of redundancies, across all levels. The costs  of 
these measures in 2011  was c.£0.9m. A further  round of staff reductions  has 
recently taken place in the US and to a lesser extent in the UK. This is again
regrettable, but  necessary, to  ensure  that the  business remains  lean  and 
competitive. The net impact of this recent programme is however expected to be
positive  during  the  current   year  with  savings  outweighing   associated 
redundancy costs.

We look  forward to  the current  year and  beyond with  confidence. With  the 
benefit of a more  appropriate cost base and  some significant organic  growth 
opportunities from  the cross-selling  initiatives of  our diverse  specialist 
service offering,  we expect  to  increase our  operating margins  and  resume 
growth in operating profit.

Underwriting Management Division

The Underwriting Management Division is engaged in the following activities:

· Management of RITC (run-off) syndicates

· Management of live 'turnkey' syndicates

· Delegated underwriting through a  number of specialist managing  general 
agents ('MGAs') with niche underwriting accounts

The Underwriting  Management  Division  produced  significantly  higher  total 
revenue of  £5.4m  during  the  year (2010:  £0.7m)  as  its  operations  were 
successfully expanded. This revenue was generated from income associated  with 
its management of turnkey  Syndicate 1897, management  fees from both  run-off 
syndicates (S.102 and S.3330),  a profit commission  on run-off Syndicate  102 
and a small amount of commission income from its start-up MGAs. The  operating 
loss of £1.1m (2010: £(1.0)m) was however disappointing; a result of the costs
associated with preparations  for Solvency  II, the  weak underwriting  rating 
environment and distribution and capacity issues in our Canadian MGA .

The poor underwriting market impacted our ability to grow premiums in the MGAs
as quickly as budgeted.  It also reduced the  attractiveness of launching  new 
syndicates, but our ability  to launch further  'turnkey' syndicates was  also 
impacted by the preparations of the Lloyd's market for Solvency II.

2011 however saw R&Q become  an established turnkey provider, having  launched 
and managed one of only two syndicates begun in the year. The lack of  turnkey 
capacity in the market  positions the Group well  for when underwriting  rates 
improve and  preparations for  Solvency II  are finalised.  The Group  remains 
positive that  the attractiveness  of  the Lloyd's  market, given  its  unique 
distribution, global  licences and  capital  and operational  efficiency  will 
bring significant management opportunities  in the future.  The Group is  also 
exploring other ways of expanding its live syndicate management activities.

In our  MGA business,  the  Canadian operations  did  not achieve  the  market 
penetration we were targeting, given the high cost base. This was  exacerbated 
by a highly competitive marketplace and the operating loss of £1.0m  reflected 
disappointing written premium figures. Whilst the current year has shown  some 
improvement, we are currently considering our options..

The performance  of the  UK based  MGAs was  more in  line with  expectations, 
(certainly after adjusting for market conditions) and a positive  contribution 
is anticipated for the current year and beyond.

Since the beginning of 2012, we have  also added two other UK based MGAs,  R&Q 
Marine Services (to which was transferred a Yacht and Marine Trades  portfolio 
from Underwriting  Risk Services  Ltd  (URSL), a  subsidiary of  Talbot)  and 
Synergy, an MGA focused on the high net worth market, which we acquired from a
private consortium.

A description of  all of the  owned MGAs is  provided in the  table below.  We 
currently expect  to generate  c.  £50m in  aggregate  premium income  in  the 
current year.

                                Business Scope:
R&Q Marine Services (formerly   · Yacht and Marine Trade and associated  risks 
Underwriting Risk Services Ltd) account  with  a  focus  on  super/mega  yacht 
                                business,  with   various  binding   authority 

                                · Potential new facilities for Yacht cargo and
                                targeted overseas expansion

Commercial Risk Services        · Specialises in Commercial Combined, Property
                                Owners, Contracting and Package Business

                                · Established and  loyal distribution base  of 
                                100 Independent UK Intermediaries

Just Underwriting               · Specialist  wholesale  facility  focused  on 
                                liability business  produced  from  specialist 

                                · Delegated authorities  in niches of  leisure 
                                market  such  as  Motorsport  and  Equestrian/ 
                                Livestock/ Bloodstock

                                · Additional facilities for Personal  Accident 
                                and Contingency
Altus Management                · An 'MGA of MGAs' model focused on  accessing 
                                specialist regional US  and international  MGA 

                                · Emphasis  on SME  Property business  written 
                                under binding authorities

Synergy Insurance               · UK emerging  and established wealth  private 
                                client insurance  book,  including  fine  art, 
                                jewellery and motor

                                ·   Distributed   largely   through   regional 
                                brokers, but an expanding direct book

                                · The business is  currently property led  but 
                                some motor led business is developing.


The  Group's  strategy  has  been   to  attract  underwriting  talent  to   an 
entrepreneurial platform, where  results are  well rewarded.  The breadth  and 
scale of our MGA operations has  changed considerably over the past 12  months 
and we are pleased with the quality of the underwriting teams that have joined
the Group. The Group owns either 100% or a significant majority share of  each 
MGA and  encourages  minority ownership  by  key  staff to  provide  a  strong 
alignment of interests. In  order to ensure that  the MGAs write business  for 
profit rather than volume, to safeguard  their longevity and success, the  key 
underwriters  are  also  entitled  to  a  meaningful  portion  of  any  profit 
commissions earned from  the third  party capital providers.  The Group's  own 
economic model  is  focused  on  ensuring that  the  commissions  we  generate 
(typically  between  10%  and  15%)  on  the  business  written  will  produce 
satisfactory margins over expenses. As we build scale and as the newly  formed 
MGAs mature, this  balance should  become more  favourable. It  has also  been 
helped by  the purchase  in 2012  (at nominal  cost) of  established books  of 
business, especially in R&Q Marine Services.

An important component  of the Underwriting  Management Division's  activities 
continues to be  the management of  run-off syndicates. Indeed,  over £20m  of 
profit (before profit commissions) was generated by the run-off syndicates  we 
managed during  2011,  primarily  for  the  account  of  third  party  capital 
providers. A significant contribution to the division was made during the year
from the profit  commission on Syndicate  102, the recovery  of costs on  both 
Syndicate 3330 and 102.

At the end of 2011, the open years of Syndicate 3330 which had been managed by
R&Q on  behalf of  the Fairfax  group for  three years  were, as  anticipated, 
reinsured to close  into a  new syndicate  managed by  Fairfax's own  managing 
agency. During the  early part  of 2012 however,  R&Q reinsured  to close  the 
run-off Syndicate 1208 (formerly managed by Equity Syndicate Management)  into 
the 2012  year  of  account of  Syndicate  3330.  As well  as  the  continuing 
management fees that this transaction brings, it provides the opportunity  for 
the Group to  earn profit commissions  on a further  run-off syndicate,  which 
should help bring the Underwriting Management Division to profit during 2012.

Captives Division

The Captives Division activities include:

· Assisting with the  establishment and management  of captives and  cells 
for corporates  and risk-retention  groups.  Services include  accounting  and 
claims  handling,  completing  regulatory  returns  and  helping  with  broker 
relationships and reinsurance coverage

· Providing  a full  insurance and  risk management  service to  insurance 
companies in fiscally attractive jurisdictions

· Offering  exit solutions  to  late-stage captives  or those  already  in 
run-off through novation, amalgamation and portfolio transfer

The R&Q Captives operations are currently run from Bermuda, the USA, Gibraltar
and Norway.  Overall, the  division  generated income  of £4.7m  during  2011 
(2010: £3.0m),  the increase  primarily due  to the  full year  absorption  of 
Caledonian and  the acquisition  of  Triton. Operating  profit, prior  to  the 
Nordic venture write-off, was £0.3m (2010:  £0.2m), once again subdued by  the 
costs of ongoing investment, including in R&Q Quest (USA).

The core of the business still resides in Bermuda where R&Q Quest (Bermuda) is
one of  the  leading independent  captive  managers.  R&Q Quest  has  over  85 
'Equity' Captive clients as well as 40 'Rent-A-Captive' clients who own  cells 
in  R&Q  Quest  SAC,  our  cell  company  subsidiary.  Clients  include  major 
corporations from the US,  Europe, Latin America and  even the Pacific Rim  as 
well as a number  of trade groups and  associations. Bermuda remains the  most 
significant captive domicile in  the world and whilst  the trend to  establish 
onshore captives in the US has begun to make it less dominant, new markets are
opening up,  especially  in  Canada  and Latin  America.  We  continue  to  be 
satisfied with  the  operating  performance  of  R&Q  Quest  (Bermuda),  which 
generated income of  £2.9m and an  operating profit of  over £0.5m during  the 
year, broadly similar to the year prior.

Caledonian in Gibraltar, which is predominantly an insurance company  manager, 
performed less well due to delays  in new business income and the  anticipated 
fall in revenue from its major insurance company client. Operating profit  was 
very small on turnover of £0.6m. The pipeline for new licence applications and
management opportunities however is promising  and we remain attracted to  the 
jurisdiction through  its attractive  tax rate,  onshore EEA  status and  good 
regulatory access.

Triton in Norway, which we acquired in July, is the country's leading  captive 
and insurance  company manager  and also  has claims  handling expertise.  The 
company has  performed well  since acquisition,  generating £0.1m  in under  6 
months on turnover of £0.6m.

R&Q Quest USA,  the Group's onshore  US platform, was  established during  the 
year. In December, the business assets of Camelback Captive Services Inc  were 
then acquired for a  nominal sum. The 11  small client contracts acquired  and 
the success of the  recent initiatives to offer  our cell infrastructure  (for 
the retention of certain insurance risks) to members of a farming co-operative
and dentist  and lawyer  groups should  enable  our US  operations to  make  a 
positive contribution during 2012 and beyond.

The Group's strategy  is to  build upon  these recent  initiatives across  the 
division to  form other  risk retention  groups and  broaden out  the  service 
offering to  include programme  administration,  claims management  and  other 
consultancy services. We will, as  always, consider profitable expansion  into 
other territories should suitable opportunities arise.

The ability to offer exit solutions to late stage captives or those already in
run-off has also helped to differentiate  R&Q's operations and we expect  some 
significant revenue from  this activity  during 2012.  The captive  management 
infrastructure, especially the cell company in Bermuda, also enables us to bid
competitively for the acquisition of dormant captives seeking a sale to  avoid 
the burden of ongoing operating expenses.

Overall, we remain positive about the outlook in the division, as well as  the 
ability to make  a more significant  operating profit, having  taken steps  to 
reduce the cost base in a number of the subsidiaries and to launch new revenue


The Group's parent  ('RQIH') and R&Q  Reinsurance Company ('R&Q  Re (US)')  is 
currently in arbitration (which  has been stayed)  and litigation with  Horace 
Mann Insurance Company ("Horace Mann") and a number of ACE Group  subsidiaries 
in a New York State court.

The lawsuit, initiated by RQIH and R&Q  Re (US), seeks a declaration that  R&Q 
Re (US)  is  not liable  under  a reinsurance  treaty  by which  R&Q  Re  (US) 
allegedly reinsured Horace Mann because,  among other things, that treaty  was 
excluded from the contracts and liabilities  acquired by the Group in 2006  as 
part of its purchase of R&Q Re (US).  The dispute with Horace Mann and ACE  is 
part of a wider set of disputes related to the purchase of R&Q Re (US).  These 
disputes may lead to further litigation in due course.


The Group continues to seek high  quality individuals to develop existing  and 
new business  areas.  Whilst  Alan  Quilter and  I  still  enjoy  running  the 
business, we recognise the importance of succession planning and have  ensured 
that the Group has strength  and depth in the  management team and across  the 
four divisions.

During the past year, we were pleased to welcome Justin Mead, who heads up R&Q
Quest (USA) as well as Severin Sirnes, Waldemar Rode and colleagues of  Triton 
Management in Norway.

Following  the  transfer  of  the  Yacht  and  Marine  Trades  portfolio  from 
Underwriting Risk Services  Ltd (URSL) to  R&Q Marine Services  Ltd (RQMS)  in 
January 2012,  we  are  also pleased  to  welcome  Nick Hales,  who  has  been 
appointed as Head of the  Group's MGA operations, as  well as Paul Miller  and 
the remaining staff from  the former URSL team.  Following the acquisition  of 
Synergy, also  in  January  2012,  we welcome  Emma  Bennett  and  colleagues. 
Finally, we are pleased to welcome  Henry Colthurst, who has joined to  assist 
on  the  run-off  of  new  RITC  Syndicate  3330  and  other  Lloyd's   legacy 
opportunities as well as become a director of the Group's managing agency.

During the past year, the staff have continued to make valuable  contributions 
to the success of the Group and I wish to express my gratitude for this. It is
of course regrettable that at the same  time that we are expanding the  number 
of staff in certain areas of the  business, we have to contract in others,  to 
manage the cost base. This in no way reflects on staff performance but  merely 
the difficult and  uncertain times  in which we  live. We  continue to  reward 
staff and management based on the Group's financial performance and have begun
to formalise  incentive structures  to retain  and attract  the best  industry 

Key Performance Indicators

In order to focus our delivery to shareholders and facilitate analysis of  our 
progress, we report the following key performance indicators:

• Revenue growth and Operating Profit margins in the:

- Insurance Services Division

- Captive Division

• Operating profit in the:

- Insurance Investments Division

- Underwriting Management Division

• Diluted EPS

• Distributions per share (i.e dividends and any other capital return to

• Net Tangible Asset Value per share

• Total Shareholder return

The tables below show the results:

Insurance Services
                 Revenue Growth Operating Profit Margin
      2011                 8.0%                   16.0%
      2010                40.0%                   17.7%
                 Revenue Growth Operating Profit Margin
      2011                58.7%                    5.9%
      2010                10.6%                    7.8%
Operating Profit
                    Investments Underwriting Management
      2011                 8.3*                   (1.1)
      2010                  7.4                   (1.0)
Key per share                                                                
                                                           Total Shareholder 
             Basic EPS        Distributions p/s NTA p/s             Return**
      2011       (0.9)                     8.10    107.3               12.1p 
      2010        12.2                     7.35     95.9             (12.7)p 

* Excludes goodwill impairment

** Includes change in share price  between 1 January and 31 December  together 
with distributions per share relating to that accounting period

K E Randall

Chairman and Chief Executive Officer

18 April 2012

Risk Management

Following on from detailed risk management in the Group's wholly owned Lloyd's
managing agency in preparation for Solvency II, the Group has recently created
a Group  Risk Committee  and is  compiling detailed  risk registers  for  each 
division. The committee  consists of  the Group Chief  Financial Officer,  the 
Group Head of  Risk Management,  the Heads of  each of  the Group's  operating 
divisions and senior managers of the  Group's US operations. The Chairman  and 
one other member of the Committee are independent.

The following risks  are deemed to  be the principal  risks facing the  Group. 
Risks relating  specifically  to  the Group's  owned  insurance  entities  and 
service operations are dealt with separately towards the end of this section.

Group Risks:

Group Cash Flow Risk

The Group must  actively manage its  cash flow to  ensure that operating  cash 
flow requirements, debt repayments (together with interest payable) and claims
payments can be met and the Group's progressive distribution policy sustained.
The Group  undergoes a  thorough annual  budgeting process,  which includes  a 
monthly Group  cash  flow  projection,  against  which  actual  movements  are 
regularly monitored through, for example,  the weekly circulation of the  cash 
balances in each of the Group's entities.

The boards of each  of the owned insurance  companies also carefully  consider 
and monitor  the likely  liquidity  needs (by  currency) to  meet  anticipated 
claims settlement and fees during the year. This information is relayed to the
Group investment committee and  investment managers to  ensure that funds  are 
kept sufficiently liquid  at all  times. A  similar process  takes place  with 
respect to the Group's managed  syndicates. Furthermore, the Group strives  to 
match the duration and currencies of its liabilities and keep asset  durations 
lower where it believes that favourable commutation opportunities are likely.

The Group also has access to a £2m overdraft facility (currently undrawn) with
Clydesdale Bank,  with  which  it  has its  main  £30m  credit  facility.  Any 
commitment of Group funds (in addition to budgeted amounts) or an increase  in 
the Group's indebtedness, for investing in the Group's existing operations  or 
for the  acquisition  of  a  legacy insurance  asset  or  service  company  is 
considered in the  context of  available 'free'  cash flow  and any  available 
surplus balances in the owned insurance companies.

The Group  takes a  very  conservative approach  to  the forecasting  of  cash 
extractions from the  IID and to  the payback from  any investment or  service 
company related acquisition.

Capital Management

Growth within the Group may be constrained by the availability of capital.  As 
part of  the yearly  budget  process, the  Directors  work together  with  the 
finance team to consider  any requirements for capital  to expand the  Group's 
existing operations  and to  fund the  likely acquisition  pipeline of  legacy 
insurance assets. This is also monitored  on an ongoing basis. The  visibility 
of pipeline  acquisitions  is however  limited  and the  ability  to  complete 
transactions on the terms desired uncertain.

The Group has traditionally  funded acquisitions through  drawing down on  its 
main Group credit facility and using 'free' available Group cash balances. The
c.£17m of  primary  funds  raised on  the  Group's  IPO on  the  London  Stock 
Exchange's AIM during late 2007 was used to repay the Group's external debt at
that time and enabled the Group to enter into a new £30m credit facility  with 
RBS. During  late 2011,  this £30m  credit facility  was refinanced  with  the 
Clydesdale bank with  a new  5 year  term. The  amount drawn  down under  this 
facility at the end  of 2011 was  £23.2m. The Group  continues and expects  to 
continue to meet all covenant tests in relation to its credit facility but the
ability to draw down the full remaining amount under the facility is dependent
on being  able to  demonstrate  that any  target  acquisition can  generate  a 
certain increase  in  EBITDA. The  Group  is therefore  pursuing  asset  based 
financing  initiatives  in  parallel  to  increase  its  access  to  leverage, 
especially for the  acquisition of insurance  receivables and portfolios  with 
short run-off profiles.

The majority of the  Group's insurance entities are  subject to external  risk 
based  or   minimum  capital   requirements.   The  Directors   have   overall 
responsibility  for  managing  the  Group's  overall  capital  base  and   for 
maintaining sufficient  capital  within  the  Group's  insurance  entities  to 
satisfy  external  regulatory   requirements.  The   Group  receives   timely 
information regarding the levels  of capital each entity  is required to  hold 
and the prevailing  surpluses, which  facilitates the  Group's active  capital 
management strategy.  The Directors  have  complied with  external  regulation 
throughout the  period, except  in the  case of  Transport Insurance  Company, 
which as explained in the Business Review above, we are liaising with the Ohio
Department of  Insurance over  our  plans to  restore its  regulatory  capital 
position. The Group's overall solvency position as at 31 December 2011 was  in 
excess of £7m above the Group Capital Adequacy Requirement.

A number  of the  Group's  non-US subsidiaries  have surpluses  available  for 
intra-group lending. The  Group regularly  monitors these  surpluses over  all 
existing and proposed solvency legislation. The Group has previously made  use 
of these surpluses for its investing activities and intends to continue to  do 
so provided that the boards of each entity are satisfied that the loans can be
repaid and are on sufficiently attractive terms.

Regulatory Risk

A number of the companies in the  Group are regulated. Failure to comply  with 
applicable regulations and solvency requirements, including Solvency II, could
result  in  an  impediment  of  business  development  and/or  a  variety   of 
sanctions. Of particular importance to the  Group is its ability to gain  and 
maintain a  sufficiently high  Solvency  II rating  for its  Lloyd's  managing 
agency. The  Directors are  responsible  for ensuring  that best  practice  is 
applied to ensure regulatory compliance.

There is a  risk that  compliance with the  increased regulations  faced by  a 
number of the Group's regulated subsidiaries puts an excessive operational and
cost burden on the Group.

The Group also faces the risk of a potential onerous Group solvency test under
the proposed Solvency II  legislation. Should the  logical derogations not  be 
granted by the host regulator in relation  to the inclusion of the Group's  US 
subsidiaries in any Group Solvency calculation, the Group may be deemed to  be 
insufficiently capitalised.  As a  result, the  Group is  looking at  ways  to 
mitigate this risk through a potential restructuring and redomicile.

Business Growth and Integration Risk

The  Group's  operations  have  grown  significantly  in  recent  years   both 
organically and  through acquisition.  Where growth  occurs without  requisite 
management controls  in  place  there  is  an  increased  risk  that  business 
objectives may not  be aligned,  new business targets  not met  and costs  not 
adequately managed. The Directors seek to mitigate this risk through  detailed 
budgeting, a regular flow of management information, including the preparation
and analysis of monthly management accounts, and regular communication  within 
the  divisions.  In  addition  to  the  operation  of  divisional   executive 
committees, the Group has recently established intermediate holding companies,
on which  at  least two  Executive  Board  members sit  to  review  management 
information.  The  Group  also  has   a  twice  monthly  Executive   Committee 
(comprising of the Executive Board members and main divisional Heads) to which
full  operational  and  financial  updates   are  given  across  the   Group's 

The management of the Group's various overseas operations presents  additional 
challenges given the physical distance to the Group's executive management and
the different business and regulatory contexts. The Directors seek to mitigate
this risk through  frequent communication  and regular visits  to the  Group's 
operations in  the US  by the  Group's CEO  and COO  especially. The  Head  of 
Captives performs a  similar role  in relation  to the  Group's Bermudian  and 
European operations.

Failure to Deliver Strategic Objectives

All operations  within  the  Group  are expected  to  work  together  to  meet 
strategic  divisional  and  Group  objectives.  Where  there  is  a  lack   of 
understanding, cooperation  or  potentially even  conflict  across  divisions, 
there is a risk that these objectives  will not be met. The Directors seek  to 
mitigate this risk  through regular  reporting in the  various divisional  and 
Group committees outlined  above and through  a clearly communicated  strategy 
disseminated across  the  Group. The  group's  P.R representatives  also  help 
ensure that the full breadth of the business is understood both internally and

Key Man Dependency

Appropriate succession planning arrangements  are considered by the  Directors 
to ensure  that business  operations are  not  disrupted by  the loss  of  key 
staff. The  Group has  developed  strength and  depth across  its  management 
structures and believes its Human Resource policies are appropriate to  retain 
such staff and  recruit any appropriately  skilled people required.  However, 
the Group's  reputation and  standing  is still  significantly linked  to  the 
involvement of  its  founding  directors,  Ken Randall  and  Alan  Quilter.  A 
significant amount  of  knowledge, especially  with  regard to  the  terms  of 
acquisition and detail of certain  of the insurance company subsidiaries  also 
lies with Ken Randall especially and is not easily replaceable.

The Group has  however developed  strength and breadth  across its  management 
structures and believes its Human Resources policies are appropriate to retain
such staff and recruit any appropriately skilled people required.

Reliance on Group I.T and Communications

The Group may be unable  to operate efficiently or in  a timely manner in  the 
event of  a partial  or  complete failure  of  the I.T  infrastructure  and/or 
telephone systems.  This  is  particularly  important  for  the  Group's  live 
underwriting  operations.  The  Group  is  currently  reviewing  whether   the 
robustness and performance  of its IT  and telephone systems  is adequate  and 
whether an outsourced support service model might bring advantages in terms of
cost and  efficiency.  The  Group  has  also  recently  recruited  a  Business 
Continuity manager to ensure  the Group is adequately  geared up to deal  with 
potential business disruption.

Litigation Risk

The extent and complexity of the legal and regulatory environment in which the
Group operates and the products and services the Group offers, mean that  many 
aspects of the business involve substantial risks of liability. Any litigation
brought against the Group in the  future could have a material adverse  effect 
on the Group and litigation brought against specific Group Insurance Companies
may have a material  adverse effect on those  specific companies. The  Group's 
insurance and/or the  insurances of  specific companies  within the  Insurance 
Investments Division  may  not  necessarily  cover  any  of  the  claims  that 
policyholders, clients  or others  may  bring against  the Group  or  specific 
company, or may not be adequate to protect them against all the liability that
may be imposed.

In addition, litigation may  have a material adverse  effect upon the  Group's 
business in that legal decisions between third parties may expand the apparent
scope of legal liabilities, which in turn could increase the amount of  claims 
which have to be paid by the Group, thereby reducing profits.

The Group's  owned insurance  companies  are also  exposed to  potential  tort 
claims including claims for  punitive or exemplary damages  that could have  a 
materially adverse effect on profitability.

The Group  is pursuing  litigation against  third parties  and is  subject  to 
litigation by third  parties in the  normal course of  business. The  probable 
outcome of all such litigation is taken into account in compiling the  Group's 
liabilities. However, if  the outcome  or costs  (including potential  accrued 
interest costs)  of  such litigation  is  incorrectly estimated,  the  Group's 
results could be negatively affected.

Environmental Matters

Whilst the Directors do not consider  that the business of an insurance  group 
has a  large  adverse  impact  upon the  environment,  the  Directors  of  the 
subsidiary companies are  encouraged to  have regard  for their  environmental 

Risk Management - Insurance Companies

The activities  of the  Group's insurance  companies expose  each of  them  to 
financial and non financial risks.

Other than  as reported  in Note  2a and  Note 3,  the Company  and its  other 
subsidiaries  bear  no  financial   responsibility  for  any  liabilities   or 
obligations of individual  insurance companies. Should  any of the  insurance 
companies cease to be  able to continue  as a going concern,  any loss to  the 
Parent company and its other subsidiaries  is restricted to the book value  of 
their investment  in that  individual insurance  company and  any intra  group 
balances due by them.

Although the Directors strategically manage the risks within the Group, it  is 
the responsibility of the  Directors of the insurance  companies to adhere  to 
the Group's ethos  in managing their  company's exposure to  these risks  and, 
where possible, introduce controls and procedures that mitigate the effects of
the exposure to risk.

Insurance Risk

The very nature  of insurance  business is that  insurers are  exposed to  the 
possibility that claims will arise on business written. The risk attaching to
insurance contracts is based on the fortuity that events will occur which will
lead to a claim under the contract.

The main insurance risks which affect the insurance companies are:-

• Reinsurance risk -  the risk that the  reinsurers of the  insurance 
companies will dispute the coverage of losses

• Claims risk - a series of  claims in respect of a latent  liability 
that the insurance industry is not currently aware of

• Legal risk - changes in statute or legal precedent

• Reserving risk -  the risk that the  provisions established by  the 
companies prove to be inadequate.

Credit Risk on Receivables

Reinsurance receivables  are evaluated  each  quarter as  to credit  risk  and 
existing bad debt provisions are evaluated as to adequacy.

Currency Risk

The insurance companies are potentially exposed to currency risk in respect of
liabilities generated through regular  trading activity which are  denominated 
in currencies other than Sterling. The most significant foreign currencies to
which the companies are exposed are the US Dollar and the Euro. Group  policy 
requires that  the  Directors  seek  to mitigate  the  risk  by  matching  the 
estimated foreign currency denominated liabilities with assets denominated  in 
the same  currency. However,  in  certain asset  classes, much  better  priced 
investment opportunities exist  in Sterling  and Euros rather  than US  Dollar 
denominated investments due  to an  aversion to  non-US risk  by US  investors 
following the  recent  credit crisis.  In  certain of  the  Group's  insurance 
company portfolios we  have therefore  put in place  rolling foreign  exchange 
hedges to  mitigate any  FX  mismatch between  the  investments held  and  the 
underlying liabilities, rather  than directly hold  assets and liabilities  in 
the same currency.

Reliance on Investment Income

The Group's accounting  policy in  its consolidated  financial statemenst,  in 
relation to the insurance  company subsidiaries is  not to discount  insurance 
reserves and only to take a provision for future run-off operating expenses if
estimated investment income is insufficient over the Group as a whole to cover
future anticipated operating  expenses. Each insurance  company is modeled  in 
detail to ascertain the quantum of any provision required, taking into account
estimated investment returns, average funds held and operating costs over  the 
expected life of the run-off.

The investments held in the insurance company subsidiaries are however subject
to market risks, which  include interest rate and  credit risk, dealt with  in 
detail below.  Returns  may not  therefore  meet expectations  or  losses  may 
materialise. To mitigate these  risks the Group  has an Investment  Committee, 
formed of all the Executive Directors  and one of the Non-Executive  Directors 
which advises the boards  of the insurance companies  on asset allocation  and 
manager selection. The Investment Committee is also assisted by an independent
investment advisor. Timely and  accurate performance information is  regularly 
made available to both  the Group Investment  Committee and insurance  company 
boards to assist active management, which the Group believes is vital in  this 
prolonged period of low interest rates and economic uncertainty.

The level  of  funds held  in  the  insurance company  subsidiaries  may  also 
decrease faster than anticipated due  to accelerated claims payments and  this 
may have an impact on the  sufficiency of investment income to meet  operating 
expenses, provided the latter does not reduce proportionately.

Interest rate/Credit risk

The Group's  main exposure  to fluctuation  in interest  rates arises  in  its 
effect on the value  of funds invested  in bonds. In  order to mitigate  this 
risk, the Group  investment committee and  insurance company boards,  together 
with the  external  investment  managers, attempt  to  anticipate  any  future 
interest rate movement and to take  appropriate action to mitigate its  effect 
on the  value  of investments  held.  Recently,  for example,  the  Group  has 
switched into a number of floating  rate securities to protect against  likely 
interest rate rises. The Group is also exposed to credit risk through  holding 
corporate bonds, mortgage  backed securities  and loans,  depending on  actual 
default rate  and/or  changes  in  the  perceived  default  rates,  which  may 
fluctuate over time. The Group is therefore exposed to absolute loss and  mark 
to market  movements  in the  valuations  of  these securities.  In  order  to 
mitigate this  risk the  vast majority  of securities  held by  the Group  are 
investment grade and credit spread duration is kept low.

Liquidity Risk

Liquidity risk is the risk that cash  may not be available to pay  obligations 
when due. The cash position of  each of the insurance companies is  monitored 
on a  regular basis  to  ensurethat sufficient  funds  are available  to  meet 
liabilities as they fall due. Funds required to meetimmediate and short term
needs are invested  in money market  funds or short  term deposits. Funds  in 
excess of those required to meet shortterm needs are managed by external fund
managers.  The  investment  performance  of  the  fund  managers  is  closely 
monitoredthroughout the year by  the Directors of  each insurance company  and 
the investment committee.

The cash  position of  each  subsidiary is  monitored  weekly to  ensure  that 
sufficient funds are available to meet liabilities as they fall due.

Reserving/Actuarial Risk

Failure to  adopt  the  correct  reserving techniques  exposes  the  Group  to 
reserving risk and may present liquidity issues. The Directors actively manage
this risk through the appointment of  both internal and external actuaries  to 
perform all reserve calculations.

Litigation Risk

This risk as it relates to the  insurance companies is dealt with above  under 
Group Risks.

Risk Management - Service Companies

The activities  of  the Group's  service  companies  expose each  of  them  to 
financial and non-financial risks.

Although the Directors strategically manage the risks within the Group, it  is 
the responsibility of the Directors of the service companies to adhere to  the 
Group's ethos in managing the companies'  exposures to these risks and,  where 
possible, introduce controls and procedures  that mitigate the effects of  the 
exposure to risk.

Dependence on Clients

The service companies  derive a  significant proportion of  their income  from 
management contracts, which vary  in length by up  to five years. Failure  to 
retain key clients on renewal will have an adverse impact on income. The Group
enjoys a diverse client base with no single contract accounting for more  than 
10% of service income.

Liquidity Risk

Liquidity risk is the risk that cash  may not be available to pay  obligations 
when due. The management contracts within R&Q Insurance Services Limited  are 
typically structured  such  that fees  are  payable by  clients  quarterly  or 
annually in advance, providing the division with sufficient working capital to
support the obligations of all companies within the division.

The cash position of each of the  service companies is monitored on a  regular 
basis to ensurethat  sufficient funds  are available to  meet liabilities  as 
they fall due.

Share Capital

Details of the changes  in the Company's share  capital structure, rights  and 
obligations attaching  to, and  any  restrictions on  the transfer  or  voting 
rights of  the  Company's  shares  are  given in  Note  24  to  the  Financial 

Charitable Donations

During the  year  the  Group  contributed  £559  (2010:  £20)  for  charitable 

Employee Involvement

Review meetings are held with employees to discuss the financial position  and 
prospects of the  Group. Opportunity  is given  at these  meetings for  senior 
executives to be questioned about matters which concern the employees.

Employment of Disabled Persons

The Company and its subsidiaries have continued their policy of offering equal
rights to employment training, career  development and promotion to all  their 
employees including disabled employees.

Creditor Payment Policy

It is the Group's  policy to pay  creditors when they  fall due for  payment. 
Terms of payment are agreed  with suppliers when negotiating each  transaction 
and the policy is to  abide by those terms,  provided that the suppliers  also 
comply with all relevant terms and conditions.

Events after the reporting period end

Events after  the  reporting  period end  are  disclosed  in note  34  to  the 
Consolidated Financial Statements.

Purchase of own shares

The Group acquired a number of its own ordinary shares in the year. Details of
this are disclosed in note 24 to the Consolidated Financial Statements.

Disclosure of information to Auditors

The Directors who held office  at the date of approval  of this Report of  the 
Directors confirm that, so far as they are individually aware:-

· there is no relevant audit information of which the Company's auditors are
unaware; and

· each Director  has taken  all steps  that he ought  to have  taken as  a 
Director to  make himself  aware  of any  relevant  audit information  and  to 
establish that the Company's auditors are aware of that information.


Littlejohn LLP has signified its willingness to continue in office as auditors
and a resolution will be proposed at the forthcoming Annual General Meeting.

By order of the Board

Signed by

M L Glover

Company Secretary

18 April 2012

Statement of Directors' Responsibilities

The Directors are responsible  for preparing the Annual  Report and the  Group 
and Parent Company Financial Statements in accordance with applicable law  and 

Company law  requires  the  Directors  to prepare  Group  and  Parent  Company 
Financial Statements for each  financial year. Under  that law the  Directors 
have elected  to prepare  the Group  Financial Statements  in accordance  with 
International Financial  Reporting  Standards  ("IFRSs")  as  adopted  by  the 
European Union and elected to prepare the Parent Company Financial  Statements 
in accordance with United Kingdom Generally Accepted Accounting Practice.

Under Company  law the  Directors must  not approve  the Financial  Statements 
unless they are satisfied that they give a true and fair view of the state  of 
affairs of the Group and Parent Company and of the profit or loss of the Group
for that year.

In preparing these Financial Statements the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable and prudent;

· state  whether the  Group  Financial Statements  have been  prepared  in 
accordance with  IFRSs  as adopted  by  the  European Union,  subject  to  any 
material departures disclosed and explained in the Financial Statements; and

· state whether the Parent Company Financial Statements have been prepared
in accordance with UK Accounting Standards, subject to any material departures
disclosed and explained in the Parent Company Financial Statements.

The Directors confirm that they have  complied with the above requirements  in 
preparing the Financial Statements.

The Directors are responsible for keeping adequate accounting records that are
sufficient to show  and explain  the Parent Company's  transactions and  which 
disclose with reasonable accuracy  at any time the  financial position of  the 
Group and  Parent  Company  and  enable them  to  ensure  that  its  Financial 
Statements comply with the Companies Act 2006. They are also responsible  for 
safeguarding the  assets  of the  Group  and  Company, and  hence  for  taking 
reasonable  steps  for  the  prevention  and  detection  of  fraud  and  other 

Under applicable law and regulations,  the Directors are also responsible  for 
preparing a Report  of the  Directors that complies  with that  law and  those 

The Directors  are  responsible  for  the maintenance  and  integrity  of  the 
corporate and  financial  information  included  on  the  Company's  website. 
Legislation in the United Kingdom governing the preparation and  dissemination 
of  the   Financial  Statements   may  differ   from  legislation   in   other 

Independent Auditors' Report to the Shareholders of

Randall & Quilter Investment Holdings plc

We have  audited  the  Group  and Parent  Company  Financial  Statements  (the 
"Financial Statements") of Randall &  Quilter Investment Holdings plc for  the 
year ended 31 December 2011 which comprise the Consolidated Income  Statement, 
the Consolidated Statement of Financial  Position, the Parent Company  Balance 
Sheet, the Consolidated  Cash Flow  Statement, the  Consolidated Statement  of 
Comprehensive Income, the Consolidated Statement of Changes in Equity and  the 
related notes.  These  Financial  Statements have  been  prepared  under  the 
accounting policies set out therein.  The financial reporting framework  that 
has been  applied in  the preparation  of the  Group Financial  Statements  is 
applicable law  and International  Financial  Reporting Standards  (IFRSs)  as 
adopted by the  European Union.  The financial reporting  framework that  has 
been applied in the preparation of the Parent Company Financial Statements  is 
applicable  law  and  United  Kingdom  Accounting  Standards  (United  Kingdom 
Generally Accepted Accounting Practice).

This report  is made  solely to  the  Company's shareholders,  as a  body,  in 
accordance with Chapter 3  of Part 16  of the Companies  Act 2006. Our  audit 
work has been undertaken so that we might state to the Company's  shareholders 
those matters we are required to state to them in an auditor's report and  for 
no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility  to anyone  other  than the  Company and  the  Company's 
shareholders as  a body,  for our  audit work,  for this  report, or  for  the 
opinions we have formed.

Respective Responsibilities of Directors and Auditors

As explained more fully in  the Statement of Directors' Responsibilities,  the 
Directors are responsible for the preparation of the Financial Statements  and 
for being satisfied that they give  a true and fair view. Our  responsibility 
is to audit and express an  opinion on the Financial Statements in  accordance 
with applicable law and International Standards on Auditing (UK and Ireland).
Those standards  require us  to  comply with  the Auditing  Practices  Board's 
Ethical Standards for Auditors.

Scope of the audit of the Financial Statements

An audit involves obtaining evidence about the amounts and disclosures in  the 
Financial  Statements  sufficient  to  give  reasonable  assurance  that   the 
Financial Statements are  free from material  misstatement, whether caused  by 
fraud or  error.  This  includes  an assessment  of  whether  the  accounting 
policies  are   appropriate  to   the  Group's   and  the   Parent   Company's 
circumstances, and have  been consistently applied  and adequately  disclosed, 
the reasonableness of significant accounting estimates made by the  Directors, 
and the overall presentation  of the Financial  Statements. In addition,  we 
read all the financial and non-financial  information in the Annual Report  to 
identify material inconsistencies with  the audited Financial Statements.  If 
we become aware of any  apparent material misstatements or inconsistencies  we 
consider the implications for our report.

Opinion on Financial Statements

In our opinion:

· the Financial Statements give a true  and fair view of the state of  the 
Group's and of the Parent Company's affairs as at 31 December 2011 and of  the 
Group's loss for the year then ended;

· the Group Financial Statements have been properly prepared in accordance
with IFRSs as adopted by the European Union;

· the Parent Company Financial  Statements have been properly prepared  in 
accordance with United Kingdom Generally Accepted Accounting Practice;

· the  Financial Statements  have  been prepared  in accordance  with  the 
requirements of the Companies Act 2006.

Independent Auditors' Report to the Shareholders of

Randall & Quilter Investment Holdings plc (continued)

Emphasis of  matter to  the Consolidated  Financial Statements  -  significant 
uncertainty in relation to technical provisions

In forming our opinion we have considered the adequacy of the disclosures made
in Notes  2(a) and  3 to  the Financial  Statements. Significant  uncertainty 
arises in the quantification of technical provisions because of the long  tail 
nature  of  the  business  underwritten  by  the  Group's  insurance   company 
subsidiaries in  run-off. If  further information  becomes available  to  the 
Directors  of  those  companies  which  gives  rise  to  material   additional 
liabilities, the going concern basis might no longer be appropriate for  those 
companies only and adjustments would  need to be made  to reduce the value  of 
their assets  to  their realisable  amount  and  to provide  for  any  further 
liabilities which might arise.  Should the going concern  basis no longer  be 
appropriate to any  insurance company  subsidiary this  would not  necessarily 
affect the going concern  basis for the remaining  group. Our opinion is  not 
qualified in this respect.

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information  given in the Report  of the Directors for  the 
financial year for which the Consolidated Financial Statements are prepared is
consistent with the Financial Statements.

Matters on which we are required to report by exception

We have  nothing to  report in  respect  of the  following matters  where  the 
Company's Act 2006 requires us to report to you if in our opinion:

· adequate accounting records have not been kept by the Parent Company, or
returns adequate  for our  audit  have not  been  received from  branches  not 
visited by us; or

· the Parent Company  Financial Statements are not  in agreement with  the 
accounting records and returns; or

· certain disclosures of Directors' remuneration specified by law are  not 
made; or

· we have not received all the information and explanations we require for
our audit.

Carmine Papa (Senior Statutory Auditor)

Littlejohn LLP

1 Westferry Circus

Canary Wharf


E14 4HD

18 April 2012

Consolidated Income Statement

For the year ended 31 December 2011

                                             2011               2010        
                                Note    £000   £000   £000   £000 
Gross premiums written                   2,290               948          
Reinsurers' share of gross              (1,080)              (230)          
Net written premiums                     1,210               718          
Change in gross provision for             (871)                 -          
unearned premiums
Change in provision for unearned                                
premiums, reinsurers' share                                                 
                                             -                 -
Net change in provision for unearned      (871)                          - 
Earned premium, net of                              339               718 
Net investment income            6       6,358             8,530          
Other income                     7      30,096            23,570          
^                                               36,454            32,100 
Total income                                     36,793            32,818 
Gross claims paid                      (80,777)           (43,863)          
Reinsurers' share of gross              51,278            30,048          
claims paid
Claims paid, net of                    (29,499)           (13,815)          
Movement in gross technical             94,000            61,898          
Movement in reinsurers' share of       (51,135)           (38,626)
technical provisions
Net change in provisions for            42,865            23,272          
Net insurance provisions                         13,366             9,457 
Operating expenses               8              (42,308)           (36,095) 
Result of operating activities
before goodwill on bargain                                                  
purchase                                          7,851             6,180
Goodwill on bargain purchase     32               1,541             1,701 
Impairment of intangible                        (13,458)                - 
Result of operating activities                   (4,066)             7,881 
before finance costs
Finance costs                    9                 (591)              (358) 
(Loss)/Profit on ordinary        10              (4,657)             7,523 
activities before income taxes
Income tax credit/(charge)       11               4,169            (1,150) 
(Loss)/Profit for the year                         (488)             6,373 
Attributable to equity holders                                              
of the parent
Attributable to ordinary                           (488)             6,559 
Non-controlling interests                             -              (186) 
                                                   (488)             6,373 
Earnings per ordinary share for the
(loss)/profit attributable to the                                            
ordinary shareholders of the Company:
Basic                            12               (0.9p)              12.2p 
Diluted                          12               (0.9p)              12.0p 

Consolidated Statement of Financial Position

as at 31 December 2011

Company Number 03671097                                     2011     2010


                                                            £000    £000
Intangible assets                                    14    14,510   26,705
Property, plant and equipment                        15     1,717      817
Financial instruments
 - Investment properties                           16a     1,022    1,042
 - Investments (fair value through profit or loss) 16b   198,012  223,258
 - Deposits with ceding undertakings                       3,766    4,017
Reinsurers' share of insurance liabilities           22   166,745  216,607
Current tax assets                                   19     2,769    1,394
Deferred tax assets                                  23     5,358    2,707
Insurance and other receivables                      17    71,298   43,528
Cash and cash equivalents                            18    37,183   60,109
Total assets                                              502,380  580,184
Insurance contract provisions                        22   362,229  440,095
Financial liabilities
 - Amounts owed to credit institutions              21    23,224   19,627
 - Deposits received from reinsurers                       2,291    2,736
Deferred tax liabilities                             23       470      840
Insurance and other payables                         20    43,392   34,976
Current tax liabilities                                       601    2,525
Pension scheme obligations                           28     2,641        -
Total liabilities                                         434,848  500,799
Share capital                                        24     1,036    1,135
Shares to be issued                                  25       254      250
Share premium account                                25     8,064   16,029
Capital redemption reserve                           25     5,750    1,614
Treasury share reserve                               25      (704)   (1,334)
Retained earnings                                    25    53,132   61,855
Attributable to equity holders of the parent               67,532   79,549
Non-controlling interest in subsidiary undertakings             -     (164)
Total equity                                               67,532   79,385
Total liabilities and equity                              502,380  580,184

The Financial Statements were approved by  the Board of Directors on 18  April 
2012 and were signed on its behalf by:-

K E Randall T A Booth

Consolidated Cash Flow Statement

For the year ended 31 December 2011

                                         2011   2010

                                  Note   £000  £000
Cash flows from operating
(Loss)/Profit before income taxes        (4,657)  7,523 -0- Apr/19/2012 06:01
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