Ratings boost for Fidelis Insurance
Bermuda-based Fidelis Insurance Holdings has had its ratings outlook upgraded from stable to positive by ratings agency S&P Global due to its strong earnings history and improved risk profile.
S&P affirmed Fidelis' A- issuer credit and financial strength ratings on its core re/insurance operating entities.
“Fidelis has generated strong underwriting results, adding to an excellent track record that we expect will continue," S&P said. "The company's results have outperformed those of higher rated peers with a combined ratio of 82.4% in 2023, and a five-year average of 87.9%.”
The agency said Fidelis’ gross premiums written (GPW) jumped to $3.6 billion in 2023 from $811 million in 2019. The company uses a three-pillar approach with its GPW split among the specialty (62.6%), bespoke (20.1%), and reinsurance (17.2%) segments, with specialty being the primary area of growth in 2023.
In January 2023, Fidelis split into two separate legal entities, a balance sheet company (Fidelis Insurance) that S&P Global rates and that holds the capital in the structure, which then delegates all its underwriting to the separate newly-created managing general underwriter, The Fidelis Partnership. However, underwriting and reinsurance purchasing decisions are discussed daily with The Fidelis Partnership, which executes individual deals within the framework of underwriting and gross and net exposure limits set by Fidelis.
Fidelis Insurance is headed by CEO Dan Burrows.
S&P Global said: “We viewed, and continue to do so, that the split and full delegation of all underwriting is a constraining factor on competitive position. However, we acknowledge that Fidelis can also allocate capital to other underwriting partners. Nevertheless, Fidelis has remained a top performer and has expanded its book of business successfully, and we expect the company will continue to produce strong results.”
Fidelis has deployed more capital into direct and facultative (D&F) insurance in its specialty pillar and prefers to write catastrophe risk in that segment more so than in the traditional excess of loss property catastrophe reinsurance segment, according to S&P. Fidelis believes the risk/reward is better as pricing is stronger with tighter terms and conditions including a sublimit for secondary perils, better modelling and data quality, and can generate more dollars per unit of risk, S&P added.
Fidelis is also growing in non-natural catastrophe exposed lines of business, which S&P said added “diversity to its underwriting portfolio”. The expansion has reduced the company's exposure, as measured by its net aggregate probable maximum losses as a proportion of its total adjusted capital, according to the agency. S&P added: “Furthermore, the natural catastrophe losses impact on the combined ratio in 2023 was the lowest in the past five years (2019-2023), with an impact of 4.2 percentage points (ppts), well below the five-year average of 14.8 ppts. In 2024-2026, we expect Fidelis to produce a strong combined ratio of 87%-90% (including a natural catastrophe load of 8-10 ppts) and a return on equity in the mid-teens, depending on investment returns.
“Fidelis also benefits from an excellent risk-adjusted capital adequacy. At the end of 2023, capitalisation was materially redundant at the 99.99% confidence level, and we expect it to remain so through 2026, factoring in strong operating earnings.”
S&P said: “The positive outlook reflects a potential upgrade of Fidelis if it meets or exceeds our operating results expectations and it continues enhancing its enterprise risk management framework in line with the increasing complexity of its business. We also expect Fidelis to maintain strong risk controls and operate robust checks and balances around its relationship with The Fidelis Partnership.”
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