Bermudian-based R&Q Insurance Holdings Ltd has reached agreement for Obra Capital Inc to acquire all of the interests held by R&Q and its affiliates in Sag Main Holdings LLC, the joint venture between Obra and R&Q.

The joint venture was established in 2022 to hold entities with legacy non-insurance corporate liabilities to which R&Q would provide management services.

Under the terms of the transaction, R&Q Solutions LLC and R&Q Re (Bermuda) Ltd will transfer their collective 49 per cent interest in the joint venture to Obra.

The fee income received by R&Q in 2023 was $7 million.

As consideration, R&Q will receive from Obra $27 million alongside the transfer and delivery of $3 million of preference shares held by Obra in Randall & Quilter PS Holdings Inc.

The company said the proceeds would be used for a combination of paying down the group’s revolving credit facility and retaining cash in regulated entities.

Jeff Hayman, the chairman of R&Q, said: “We are pleased with the strong return on our investment in the joint venture and this agreement is in line with our objective of realising value from within our Legacy Insurance business.

“Although we believe that the corporate liabilities market continues to represent an attractive long-term opportunity, developing regulations, including potential changes around capital requirements, have reduced the strategic attractiveness of direct equity participation in joint ventures of this type for R&Q.

“However, R&Q’s expertise in the management of long-tail liabilities means that servicing and advisory opportunities will continue to exist in this space and the provision of solutions for corporations seeking to manage such liabilities will continue to represent a large and addressable target market for R&Q Legacy.”

News of the deal with Obra came as R&Q provided a trading update.

It said R&Q Legacy’s reserves under management at year-end 2023 were approximately $1 billion. This will reduce by about $670 million following the sale of the corporate liabilities joint venture.

Following extensive internal and external reserve reviews, the company said, R&Q Legacy is expected to realise adverse development of approximately 23 per cent of the group’s net reserves for the year to December 31 2023, which includes the $64.2 million of adverse reserve development identified at the half-year.

It said this primarily related to tail claim development as well as inflation and abuse claim development across the portfolio.

The company said Accredited was expected to recognise gross written premium of $2.1 billion and fee income (excluding minority stakes in managing general agents) of $90 million, which increased 17 per cent and 12.5 per cent, respectively, over the prior year.

Based on preliminary and unaudited information, R&Q said, it anticipated that it would realise a significant pre-tax loss for the year driven by the adverse development in Legacy and a material increase in corporate costs in relation to the sale of Accredited.

R&Q announced last October that it had entered into a conditional agreement with funds advised by Onex Corporation to sell 100 per cent of its equity interest in Randall & Quilter America Holding Inc, the holding company of the Accredited business.

It said the sale would enable the board to undertake a material financial de-leveraging of R&Q and return the capital solvency position back to target levels, enhancing the business’s ability to execute the board’s existing strategy of transitioning R&Q Legacy to a capital efficient and stable recurring fee-based business model.

R&Q said it continued to work expeditiously towards achieving satisfaction of the conditions to enable that sale to take place and continued to expect closing to occur in the second quarter of the year.