The Intelligent Quarterly from the publishers of The Insurance Insider

Spring 2012

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Alan Quilter and Ken Randall The uninitiated would never guess this from a casual meeting. Ken Randall ( and Alan Quilter of Randall & Quilter Investment Holdings (R&Q) are unassuming, plain speaking and highly approachable. As our US colleagues would put it, they are a couple of "regular guys".

The London market is brimming full of people who look and sound like Ken and Alan. But that is where the similarity ends. It is only when you start talking to the pair that you get an idea of what extraordinary careers they have had and what an interesting journey they have been on through the vicissitudes of the past 40 years.

Randall and Quilter's paths first crossed back in the days of disco, kipper ties and a heady reforming period for their former employer, Lloyd's.

Ken Randall is an accountant by trade, and started out his career in publishing. He came to Lloyd's to sort out its then publishing arm, Lloyd's of London Press. Following high-profile scandals such as the Sasse affair, Ken soon found himself drawn into Corporation matters and was rapidly promoted to head of regulation, helping usher in the new Lloyd's Act of 1982 that still largely governs the affairs of the Society today.

"It doesn't pay to be too much of an optimist in this business - that's been beaten into me over the years. Never hire an optimistic underwriter - you've always got to be realistic"
Ken Randall

Alan Quilter describes himself as "man and boy" London market. He joined Lloyd's straight from school as a policy checker, did his insurance exams and completed accountancy qualifications while on a secondment. Ken was his boss at Lloyd's in the mid 1970s. A move into the market financial services department was followed by a three-year period in investment management.

Meanwhile Ken was none other than CEO of one of Lloyd's dominant underwriting powerhouses - the Merrett group - which he ran for seven years.

While at Merrett he started getting interested in the potential of legacy and eventually quit to start a new company to run-off HS Weavers, bankrolled by the Swiss insurance giant Winterthur. This did not work out and he decided to go it alone.

That is when he rejoined Alan Quilter (by now a fully qualified corporate treasurer) and the R&Q story really kicked off.

The pair (plus original partner Stephen Bailey - who now works for legacy rival Audley Gilroy) grew their nascent business extremely fast in the 1990s to create what became known as Eastgate.

As well as doing a lot of Equitas work (see boxout) in 1992 R&Q bought its first insurance company in run-off - ostensibly with money borrowed from Stephen Bailey's wife. However, the banking establishment of the day - including, Ken reveals with a wink, one young Turk then working at Bankers Trust by the name of Tom Bolt - was blind to the opportunity.

"Back then the response was something akin to 'why not get a real job?'" explains Ken.

(At this point the reader will guess that it is Ken who is the frontman and principal spokesman in this successful partnership; this is reflected in their initial shareholdings in R&Q. 39 percent for Ken, 8.7 percent for Alan).

They were undeterred, sensing that the opportunity was too great to miss. Accounting firms were embracing UK company law to create solvent schemes of arrangement and portfolio transfers were evolving into Part VII transfers.

"What attracted us to the run-off space was that in the 1990s it was populated by people who could not get another job," Randall explains. "Our plan was that if we could put together a good team we could make a serious difference."

And the timing could not have been better. Not only was there Equitas and the high-profile failures at HS Weavers, English & American and Willis Faber Underwriting Management to feed off. The London market was witnessing a mass extinction of foreign reinsurers' thinly capitalised subsidiaries.

Of course there has been a sea change since then, when Ken and Alan "couldn't hire good claims people for love nor money".

Randall explains that the legacy business is now seen as a legitimate independent sector in its own right. "We used to have to persuade people to come and join us in what was seen as a dark and dirty corner of the industry, but people now happily move across," he says.

"Back then there was a unique set of circumstances due to a poor decision by the old Board of Trade not to allow branch offices of foreign insurers. This led to loads of really small insurers in London writing small lines at the bottom of the slip that inevitably ended up in a mess. The process of cleaning up has gone on for years - but it is done and dusted now."

The halcyon days may have passed but, of course, this does not mean that run-off is going away. "It just means that going forward you have to earn your keep," Ken says, noting that there is still quite a lot of strategic post-event repositioning, just "not on the massive scale of the past".

To get back to the story so far.

Things were going really well and that is when the dynamic duo made what they now acknowledge to be a major strategic gaff. Eastgate expanded far too rapidly - and into high-volume, low-margin business.

Outsourcing was the buzzword and the firm had a string of call centres on the go. At its late nineties peak Eastgate was turning over some $150mn, employed 1,300 staff and was the third-largest provider of insurance services in the UK.

There was a badly timed foray into the legal expenses business with the acquisition of Hambro Assistance, just as cutthroat (and ultimately suicidal) new competition hit the marketplace. This proved the tipping point and the pair had to sell to outsourcing giant Capita in 2000 - for a fraction of what the company was worth a few years earlier.

Ken readily admits that moving out their core area of understanding was a key and an expensive mistake to learn.

But our pair is made of stern stuff. "In the end we took what we could from that business and refocused on the US and buying run-off companies," Ken concludes.

The pair came out of the Capita sale with a three-year non-compete agreement. Needless to say the day after it expired they bought Cavell management services and the R&Q that we can recognise today was born in earnest.

A softly spoken Alan explains that the main lesson he took from the Eastgate episode was that "sticking to your knitting" is key. However, the pair is keen to stress that staying with what you know should never mean playing it safe - they still see risk-taking as a fundamental part of their business model.

Barring the successful IPO in 2007, we're pretty much up to date with our remarkable tale.

So what next? There will be diversification but this time it will be low volume and high margin and play to the group's core skills.

"I do not think we are in business to find our staff jobs that make no money - our job is to sell our wares for a premium price because I think we've got premium people," Ken expounds.

Hence the perfect logic of a move into the live market with a Lloyd's turnkey managing agent operation, for which R&Q now has in-principle approval from Lloyd's.

What better way of leveraging 40 years of London and Lloyd's experience? And Ken explains that when the right businesses are signed up and brought into the room, R&Q will be aligning its own capital with its new charges, and possibly bringing in capital from members' agents.

But Ken and Alan are far too experienced to be under any illusions about the state of today's soft market and the difficulties that it poses new entrants.

The plan is to find and back accretive businesses, within the turnkey or as third party capital, and as Ken puts it: "If they can make money in a tough market, when the market turns - and believe me it will - we will be in a very good position."

Scaling up for the live market has involved making new hires but Ken and Alan are keen to point out that no future ventures are ever likely see the group employing over 1,000 people again.

There are other sensible bolt-on acquisitions such as the premium credit control specialist JMD earlier in the year. The group sees plenty of opportunity in captive management, where Ken and Alan see demand for independent (non global broker) service operations.
There will doubtless be more deals because these two serial entrepreneurs never stand still.

But there will eventually be an orderly handover to the managers of the future ­- although the exact date is still unclear. Prudent succession planning means that for the last couple of years top decisions have been made by an executive committee.

And what is Ken's advice for any ambitious youngster taking their first steps on Lime Street?

"Well, there was definitely a time in the early nineties when there was a lot of money to be made in reinsurance collections. Then after that I would have said to become an actuary."

And what will be the growth business for today's go-getters? "Get into the compliance business," advises Randall.

You heard it here first. And so the meeting ends and the remarkable story continues.

Given the experience of all that has gone before, one notes a palpable and steely resolve to get everything just right this time. IQ will not be betting against this pair, they know far too much.