The choice advantage

Having capital to deploy is one thing. Having enough good places to put it is another. That distinction sits at the heart of the model Pelagos Insurance Capital has been building.

Over the past 18 months, the Bermuda-based capital allocator, formerly known as Fidelis Insurance Group, has deliberately widened the range of underwriting partners through which it can access risk, creating more choices over where its capital goes and, crucially, more competition for it.

For Jonny Strickle, group managing director, the logic is straightforward: “You can have the best idea of how to allocate your capital in the world, but if you don’t have the access to market to deploy against that, you can’t be an effective capital allocator,” he told Bermuda:Re+ILS.

“Expanding that set of options has been a real focus of ours over the last 18 months.”

But Pelagos is not trying to build the biggest possible network of underwriting partners. Quite the opposite. As its options expand, management is deliberately keeping the number of relationships manageable.

That tension of wanting more choices without becoming further removed from the risks behind them says much about what Pelagos means when it describes itself as a capital allocator.

“We are never going to be a passive capital allocator,” said group CEO Dan Burrows. “We are very focused on proximity to risk.”

More options, not more distance

With consideration for the long-standing relationship, The Fidelis Partnership remains the benchmark against which Pelagos judges prospective underwriting partners, according to Strickle, and the company says it has not lowered that bar as it has broadened the model.

It looks for differentiated market access, established track records, attractive economics and teams operating in areas where Pelagos sees an opportunity. Cultural alignment matters too, and the latter is not simply a question of getting along.

Pelagos expects to be hands-on with respect to underwriting decisions taking place on its balance sheet. “We’re going to want access. We’re going to be communicating,” he said.

“A lot of people say they can live up to that expectation. Very few can do in practice. We need to have confidence and faith that our partners can because proximity to risk is paramount for us,” Burrows explained.

That places a natural constraint on how far the partnership model can expand.

Pelagos could theoretically create hundreds of relationships and gain exposure to an enormous range of underwriting. But doing so would undermine one of the characteristics it believes differentiates its model: senior management remains directly involved in evaluating the opportunities being put in front of the company.

“The entire management team opines on every opportunity at the moment,” Strickle said. “We don’t want to lose that.”

The danger with delegated authority, in his view, emerges when the provider of the capital stops paying sufficiently close attention to what is being written. “Keeping a small number of partners we invest a lot of time with is really important to us.”

So far, the newer relationships remain a relatively small part of the overall portfolio, accounting for just over 10% of gross premium written, but Strickle said they are outperforming the targets Pelagos established for them. For management, that is early validation of a process designed not simply to find more underwriting, but to find more credible alternatives for its capital.

Making capital compete

Alternatives carry significance because underwriting is not the only possible destination for Pelagos’s capital. Burrows wants the company to lean fully into the implications of calling itself a capital allocator. That means underwriting opportunities have to compete not only against each other, but against investment opportunities, outwards reinsurance and returning capital to shareholders.“It is a healthy, competitive landscape for our partners. We can take action, competing and vying for what is the most accretive way we can deploy our capital,”  he said.

Pelagos has already demonstrated its willingness to use those other levers. Since its 2023 IPO, it has been active in repurchasing shares, with Burrows pointing to around $650 million of buybacks. That willingness becomes particularly relevant as capital becomes more abundant across the reinsurance market.

One instinct when more capital arrives is to find somewhere to put it. Pelagos’s model is intended to make that unnecessary. More possible destinations for capital do not create an obligation to deploy it; they create the ability to compare opportunities against one another.

As Strickle put it: “I think we can be most efficient by having a range of options that are all attractive, all competing for that capital allocation.”

Getting in, and getting out

Optionality is only useful, however, if a company can act on it. Pelagos points to its response to conflict in the Middle East as an example. Within 24 hours of hostilities breaking out, it had selected an underwriting partner, established its risk appetite and begun writing business.

But Burrows regards what happened afterwards as equally important. As the conflict broadened, exposures changed and more capital entered the market in search of returns, Pelagos stopped writing. “People are throwing the abundant capital into areas to try and make a quick buck,” he said. “You’ve got to know when to put your pen down, which is what we’ve done.”

Aviation provides another example. When opportunities failed to meet Pelagos’s hurdle rate in the fourth quarter of last year, it cut premium by 50%.

The same flexibility extends to the other side of the balance sheet. Pelagos establishes a strategic reinsurance programme around the portfolio it expects to write, then looks for opportunities to adjust that protection throughout the year. It purchased additional wildfire protection shortly before the California wildfires, for example, while other in-year purchases have paid within the same quarter.

The point is not that Pelagos can predict when losses will occur, Burrows readily acknowledges the fortuitous timing of the wildfire purchase, but that the company wants the ability continually to retune its risk rather than regard the annual plan as fixed once set.

But there is an important boundary around that flexibility: “You’ve got to be strategic. We take a long-term view, while maintaining the flexibility to capitalise on opportunities as they arise.”

A strategic core

That distinction is particularly important when it comes to underwriting partnerships. Pelagos does not want to add a partner simply because an attractive opportunity has appeared that year. Relationships need to make sense over the longer term, and the economics are assessed against through-cycle metrics rather than constantly changing targets.

Strickle said Pelagos will sometimes reject an excellent underwriting opportunity because it lacks the long-term scalability to justify adding another partner.

For people whose job is to assess risk and reward, he admitted, that can be difficult: “It’s hard to say no. So, I think learning to stick to the strategic guidelines that we’ve put in place has been very important.”

Burrows makes a similar point about growth. Pelagos could, he believes, grow by 20% every year if growth itself were the objective. It isn't: “We’re building the business future-proofed, long term,” he said.

That produces a model with two different speeds. Its inward underwriting relationships are intended to provide a strategic foundation that persists through the cycle. Around them, Pelagos can move tactically: adjusting deployment, buying additional protection, reducing exposures or returning capital.

It is flexibility without treating the portfolio as transient.

Access before selection

Expanding the number of high-quality options also helps Pelagos address another issue that Burrows and Strickle believe receives too little attention: access. Underwriting is often discussed primarily as an exercise in selecting the right risks from the opportunities presented. Strickle argues that this overlooks an earlier question: how much of the market an underwriter gets to see in the first place.

“You could be the greatest underwriter in the world in terms of selecting risk. If you only see 10% of the market, you’re going to do much worse than someone that sees 80% of the market, but is slightly worse at selecting risk,” he said.

The quality of Pelagos’s access therefore depends in large part on the position its underwriting partners hold in their respective markets. Where those partners are leaders, they see opportunities earlier, engage with brokers and clients as programmes are taking shape and have greater scope to influence the business they ultimately put to Pelagos’s balance sheet.

For Pelagos, that creates a broader and potentially better set of risks from which to allocate capital. It can also create more scope to shape the resulting portfolio.

The company’s rebrand has widened that opportunity set further. Burrows describes it as the biggest influence on the business over the past 12 months, in part because establishing Pelagos as a clearly independent capital allocator has changed how the company is understood in the market and opened additional avenues with brokers, clients and prospective underwriting partners.

For Strickle, its significance comes back to the same capital-allocation equation: the more high-quality routes Pelagos has into the market, the more choice it has over where its capital ultimately goes: “The rebrand has brought more of those options to the table for us.”

One portfolio, different routes

Having more routes into the market inevitably creates another challenge: ensuring apparent diversification is genuine. Pelagos therefore views exposures across underwriting partners at group level rather than treating each relationship as an isolated portfolio.

Bamboo and The Fidelis Partnership, for example, can both give Pelagos exposure to California property, but through different parts of the market: Bamboo through homeowners and Fidelis predominantly through excess and surplus lines.

Similarly, The Fidelis Partnership writes mortgage business focused primarily on Europe, while Euclid provides access to the US.

In property catastrophe reinsurance, Oak and The Fidelis Partnership can both deploy Pelagos capital, giving the company different routes into the same market. The Fidelis Partnership has a right of first offer on that capacity, but Pelagos ultimately determines how capital is allocated, and, after an event, potentially two underwriting teams competing for its capacity. “More options is always better as long as they’re top-tier options,” Strickle reiterated.

That is where Pelagos’s central portfolio and exposure management functions become important. The company can aggregate risks across partners, identify concentrations and decide which route offers the best use of its appetite.

The individual underwriting opportunity is therefore only one part of the decision. Pelagos is trying to judge each one against everything else the balance sheet could be doing.

The value of choice

That becomes more relevant as capital becomes plentiful. Burrows expects a benign wind season could, if witnessed, bring further capital management activity across the industry, including special distributions and M&A. Pelagos will consider acquisitions where something can be added strategically, he said, but it does not regard deployment as an end in itself.

The company is instead building around a deceptively simple proposition: capital allocation improves when there are more high-quality choices, but only if management remains close enough to understand those choices and selective enough to reject them.

That requires access to risk, partners capable of clearing a high underwriting bar and the organisational speed to move when circumstances change. It also requires the patience to do nothing when the numbers do not work.

In a market where capital itself is abundant, that ability to choose, and to keep choosing, might ultimately prove more valuable than the capital being allocated.

Read the full Bermuda:Re+ILS Annual 2026 here. 

Did you get value from this story? Sign up to our free newsletters and get stories like this sent straight to your inbox.