Annual Results 2022

R&Q Insurance Holdings Ltd

Results for the year ended 31 December 2022

Strong growth in Accredited offset by Legacy adverse development

29 June 2023

R&Q Insurance Holdings Ltd (AIM: RQIH) ("R&Q" or the "Group"), the leading non-life global specialty insurance company focusing on the Program Management ("Accredited") and Legacy Insurance ("R&Q Legacy") businesses, today announces its results for the year ended 31 December 2022.

Strategic and Governance Update

• Completed the legal separation of Accredited and R&Q Legacy and announced exploration of strategic transactions with third parties as part of the separation
• Recognition by AM Best of Accredited as an independent rating unit, with an A- financial strength rating
• Completed sale of minority stake in Tradesman Program Managers for $47 million at 10x adjusted EBITDA and 3.7x initial investment
• Raised $50m of preferred equity from Scopia Capital, with the opportunity to raise an additional $10 million to increase the capital resources of R&Q Legacy
• Appointed Jeff Hayman as our Independent Non-Executive Chairman

2022 Financial Highlights

Accredited

• Gross Written Premium of $1.8 billion (2021: $1.0 billion, a 76% increase)
• Fee Income (excluding MGA stakes) of $80.0 million (2021: $44.9 million, a 78% increase)
• Pre-TaxOperating Profit of $55.7 million (2021: $20.6 million, a 170% increase)
• Pre-TaxOperating Profit Margin of 56.8% (2021: 35.7%, a 21.1 percentage point increase)

R&Q Legacy

• Completed four transactions while exercising discipline in a soft market with Gross Reserves Acquired of $68.8 million (2021: $735.0 million)
• Reserves Under Management of $395.6 million at year-end, which has increased to over $1 billion with MSA Safety transaction involving non-insurance liabilities that closed in January 2023 (2021: $417.0 million)
• Fee Income of $12.1 million (2021: $0 million)
• Pre-TaxOperating Loss of $56.6 million, which includes $32.0 million of adverse development primarily from older transactions. The loss, excluding adverse development, reflects the first full year of a transition to a capital efficient annual recurring, fee-based revenue model from a balance sheet intensive, Day-1 gain model

Group

• Total Fee Income (excluding MGA stakes) of $92.0 million (2021: $44.9 million, a 105% increase)
• Pre-TaxOperating Loss of $33.3 million impacted by $32.0 million of adverse development and the transition to a fee-based revenue model at R&Q Legacy

Non-Recurring Items

• Significant non-recurring items:

1. Non-cashcharges of c.$205 million primarily associated with:
2. • Unrealised and realised non-economic net investment losses of $135.8 million; $18 million of realised losses arising primarily from rebalancing the portfolio for higher returns
   • $43 million of non-cash adverse development associated with a non-core subsidiary, that will become a discontinued operation in Q1 2023 at which time such charges will be reversed
   • Unearned program fee income of $17.0 million in which cash has already been received
   • Net intangible amortisation of past legacy acquisitions of $9.6 million

1. Extraordinary one-off cash charges of c.$50 million primarily associated with:
2. • $28 million in one-off historic legal matters associated with older legacy transactions and discontinued programs
   • $14 million in automation spend which should yield meaningful productivity savings starting in 2024
   • $8 million in advisory costs associated with shareholder activism and sale process

Operational Highlights

• Continued focus on cost control with Fixed Operating Expenses decreasing 13% year-over-year
• Operational improvement program underway with c. $15 million of the total $20 ‒ 25 million investment deployed since 2021, with the remainder to be incurred in 2023
• Investment in automation and technology processes is expected to generate approximately $10 million of recurring annual cost efficiencies by 2024

Outlook

• Focus remains on the separation of R&Q Legacy and Accredited
• Accredited and R&Q Legacy both with excellent pipelines

* Restated for change in accounting policy as noted in 2.a. of the financial statements

William Spiegel, Chief Executive Officer of R&Q, commented:

"2022 was, without doubt, an eventful year for R&Q. I would like to start by thanking our shareholders and partners for their support and our employees for their focus and commitment. During the year we saw substantial progress with regards to our Five-Pillar Strategy, which includes significant investment and change aimed at making R&Q a more modeand efficient company with a stronger culture. In many ways the changes we are making represent a multi- year operational turnaround at R&Q and, although not always easy, they will make us a stronger, more sustainable and more effective business.

While our Pre-Tax Operating Loss of $33.3 million is driven primarily by $32 million of adverse development in R&Q Legacy, at an underlying level our performance reflects two businesses at different stages of their development. Accredited continued to grow and reported record results while R&Q Legacy reported a loss but has shown good execution against its transition plan to become a more capital efficient business.

We announced in April 2023 that the Board had concluded that it was in shareholders' best interests to evaluate strategic options that allowed for a separation of Accredited and R&Q Legacy. We have two great businesses, but they operate in different parts of the insurance ecosystem, require different skillsets and expertise, and have different rating and regulatory needs. We are now in a position where each has the scale, maturity, and brand strength to stand on its own. By separating these businesses, we can ensure both have the right level of management focus and appropriate capital structures to achieve their full potential.

1. Excludes minority stakes in MGAs
2. Gross of cessions to Gibson Re
3. On a fully diluted basis

Looking ahead, we are confident the outlook is strong for Accredited and R&Q Legacy. Both businesses have excellent pipelines and, while we remain highly disciplined, we are confident of growing Gross Written Premium and Reserves Under Management in each business respectively."

Enquiries to:

William Spiegel

Tom Solomon

Numis Securities Limited (Nominated Advisor & Joint Broker) Tel: 020 7260 1000

Giles Rolls

Charles Farquhar

Pre-Tax Operating Profit is a measure of how the Group's core businesses performed adjusted for Unearned Program Fee Income, intangibles created in Legacy Insurance acquisitions, net realised and unrealised investment gains on fixed income assets, exceptional foreign exchange net gains upon consolidation and non-core,non-recurring costs.

Operating EPS represents Pre-Tax Operating Profit adjusted for the marginal tax rate, divided by the average number of diluted shares outstanding in the period.

Tangible Net Asset Value represents Net Asset Value adjusted for Unearned Program Fee Income, intangibles created in Legacy Insurance acquisitions, net unrealised investment gains on fixed income assets and foreign currency translation reserves.

Gross Operating Income represents Pre-Tax Operating Profit before Fixed Operating Expenses and Interest Expense

Fee Income represents Program Fee Income, Fee Income on Reserves Under Management and excludes share of earnings from minority stakes in MGAs.

Program Fee Income represents the full fee income from insurance policies already bound including Unearned Program Fee Income, regardless of the length of the underlying policy period. We believe Program Fee Income is a more appropriate measure of the revenue of the business during periods of high growth, due to a larger than normal gap between written and earned premium.

Unearned Program Fee Income represents the portion of Program Fee Income that has not yet been earned on an IFRS basis.

Underwriting Income represents net premium earned less net claims costs, acquisition expenses, claims management costs, premium taxes / levies and the cost of excess of loss coverage.

Investment Income represents income on the investment portfolio excluding net realised and unrealised investment gains on fixed income assets.

Fixed Operating Expenses include employment, legal, accommodation, information technology, Lloyd's syndicate, and other fixed expenses of ongoing operations, excluding non-core and exceptional items.

Pre-Tax Operating Profit Margin is R&Q's profit margin on Gross Operating Income.

Gross Reserves Acquired represent Legacy Insurance reserves acquired gross of reinsurance to Gibson Re.

Reserves Under Management represent insurance reserves ceded to Gibson Re and non-insurance liabilities for which

R&Q earns annual recurring fees.

Chairman's Statement

I was pleased to be appointed Independent Non-Executive Chairman in March 2023. Since joining I have spent time getting to know our businesses (Legacy Insurance ("R&Q Legacy") and Program Management ("Accredited")), our people and our shareholders.

Clearly both of R&Q's two businesses have excellent fundamentals: they are well-established players in attractive non- life insurance niche segments, enjoy high barriers to entry, have high quality management teams and employees with strong technical expertise, and they both have well established reputations in the market.

However, it is also important to acknowledge 2022's challenges. These included continued volatility and adverse development in our older legacy books as well as a number of corporate events that absorbed significant Board and management time. In addition, the company oversaw extensive and ongoing internal transformation to ensure its people, technology, risk management, culture and governance are appropriate to support R&Q's strategic and growth ambitions.

On an underlying basis, I believe the picture is encouraging. Accredited has established itself as a genuine leader with exciting growth. At the same time R&Q Legacy is building momentum in its strategic transformation, albeit at a slower pace than originally envisaged given the need for prudence in a softer legacy market. The joint venture with Obra Capital, Inc. to acquire MSA Safety post-period end is also indicative of a meaningful opportunity to provide solutions for corporate liabilities through partnerships with third-party capital, adding to what is now a sizeable pool of reserves managed by R&Q Legacy.

The focus for R&Q therefore needs to be unlocking the value within both businesses. Doing this will create more opportunity for our people, stronger counterparties for capital and trading partners and greater returns for our shareholders.

Although transitioning to a fee-oriented business, R&Q Legacy has a more volatile earnings profile than Accredited, which could impact the financial strength rating critical to Accredited. It is therefore clear to the Board that achieving our objective of unlocking value in each business is best managed through a separation of Accredited and R&Q Legacy. William will discuss this further in his CEO Statement.

My appointment as Non-Executive Chairman has also enabled R&Q to move to a corporate governance structure that is better aligned with best market practice. As Executive Chairman, the role William was undertaking was far closer to that of Group CEO and it is appropriate that this is now formalised.

Since starting my role, I have been deeply impressed by the caliber of R&Q's leadership team, many of whom have joined in the last two to three years. William has assembled a bench with deep experience across insurance, capital markets and financial services. This has been particularly important given the extensive transformation that has taken place within the business to ensure it has the technology, platforms and processes required to support the growth of Accredited and R&Q Legacy. This has included substantial changes to make R&Q a more efficient business, improve its risk management and governance practices and build a stronger culture that can attract and retain the talent we need.

The Board and I are focused on supporting the leadership team as they continue to drive these essential changes, while also pursuing the strategic separation of our two businesses. Since coming into the business, my confidence in the inherent value within R&Q has only increased. I firmly believe we have the right team and strategy to realise these objectives.

Chief Executive Officer's Statement

2022 was, without doubt, an eventful year for R&Q. I would like to start by thanking our shareholders and partners for their support and our employees for their focus and commitment.

During the year we saw substantial progress with regards to our strategic pillars, most notably the continued evolution and transition of R&Q Legacy and significant investment and change aimed at making R&Q a modeand efficient company with a strong culture. In many ways these changes represent a multi-year operational turnaround at R&Q. Turnarounds are difficult; they take time, focus and resilience in the face of both many obstacles and outside scrutiny.

In 2022 we were also required to navigate a number of events we had not anticipated at the start of the year, and which took up significant management time. In particular, while we were successful in our defense against the shareholder activism, this event, including the public attention drawn to it, took a toll on the mental health of many of

our employees who are proud of their work at R&Q. I have been particularly impressed with the way our employees responded with continued focus and commitment.

Turning to our performance for 2022, we are disappointed with our headline operating result, which is a Pre-Tax Operating Loss of $33.3 million. This loss is larger than expected, primarily driven by $32 million of adverse development in R&Q Legacy, mainly from our older legacy transactions. Beyond the adverse development, and at an underlying level, this result reflects two businesses at different stages of their development. Accredited continued to grow and reported record results and a profit of $55.7 million while R&Q Legacy reported a loss of $56.6 million. If not for the adverse development, R&Q Legacy would have shown good execution against its transition plan to become a more capital efficient business. Our overall loss was also impacted by $32.4 million in Corporate and Other, which is primarily interest expense. I will discuss Accredited and R&Q Legacy in more detail shortly.

Accredited has seen remarkable growth in the past five years and is now the largest program manager in Europe and one of the largest in the US. It also relies on an 'A' financial strength rating to conduct its business and, although it has historically relied on the strength of the broader Group to obtain its financial strength rating, it now has both the size and scale to achieve a standalone rating. Conversely, R&Q Legacy, which does not require a financial strength rating to conduct business, is at an earlier stage of its strategic journey as it transitions to a fee-oriented and capital-efficient model that will create a more profitable, sustainable and valuable business. Therefore, we announced in April 2023 that the Board had concluded that it was in shareholders' best interests to evaluate strategic options that allowed for a separation of Accredited and R&Q Legacy. A process is underway for the sale of Accredited with interest expressed from a number of parties. In addition, a variety of strategic actions are being explored in relation to R&Q Legacy.

We have two great businesses, but they operate in different parts of the insurance ecosystem, require different skillsets and expertise, and have different rating and regulatory needs. We are now in a position where each has the scale, maturity, and brand strength to stand on their own. By separating these businesses, we can ensure both have the right level of management focus and appropriate capital structures to achieve their full potential. Legal separation was successfully completed as planned in Q2 2023 and with the completion of the reorganisation, AM Best announced the recognition of Accredited as an independent rating unit (separate from R&Q) and has maintained an A- financial strength rating pending the completion of the sale process.

We also announced in June 2023 that we have raised $50 million of preferred equity from Scopia Capital, one of our largest shareholders, with the opportunity to raise an additional $10 million. This is being used to increase the capital resources of R&Q Legacy, which is providing reinsurance support to Accredited, as well as general corporate purposes given that Accredited will no longer pay intra-group dividends to R&Q as part of a requirement to secure its financial strength rating from AM Best.

Turning to corporate governance, I am pleased that we were able to welcome Jeff Hayman as our Non-Executive Chairman recently. Jeff's long career in the global insurance sector and Board experience made him the outstanding candidate and he is already making a valuable contribution.

Accredited review

Accredited was launched in 2017 and when I joined R&Q in early 2020, it had circa $370 million in Gross Written Premium ("GWP"). Today that has increased by nearly 550% and, with GWP of circa $2.0 billion, Accredited is now one of the most important hybrid carriers globally.

Accredited's results for last year reflect not only outstanding growth, but a robust, operationally-mature and well- diversified business. In 2022, we reported a Pre-Tax Operating Profit of $55.7 million and Fee Income (excluding minority stakes in Managing General Agents("MGAs")) of $80 million, increases of 170% and 78% respectively. This Pre-Tax Operating Profit included $12 million that arose from the Group's minority stake in Tradesman Program Managers ("Tradesman"). In March we announced that we completed the sale of our 40% minority stake in Tradesman for $47 million or approximately 10x EBITDA upon adjusting for the maximum contingent commissions that could become payable to reinsurers should the program underperform expectations and $67 million of net debt on Tradesman's balance sheet as at 31 December 2022. Furthermore, our decision to reduce our exposure to certain Tradesman programs meant the minority investment was no longer strategic to R&Q; we have made 3.7x our initial investment in Tradesman of $25 million, including $46 million of dividends received to date and have subsequently replaced the GWP from Tradesman's programs with new MGA partnerships.

We are also now seeing Accredited increasingly benefit from operational leverage given its meaningful scale with margin improvement of 21 percentage points over the year, increasing from 36% to 57%. It is not only scale driving this enhanced margin; we are starting to see benefits emerge from our smart investments in data and technology to make Accredited a more efficient business. This has included moving to a cloud-based architecture, centralising our data, enabling new analytics and reporting, automating a number of processes and optimising resources. This remains a core focus, and we expect to drive further operational improvements in 2023 that will both support growth and enhance our profitability.