Burrows: Fidelis confident ’24 GPW growth will be “broadly in line” with last year

Fidelis Insurance Holdings is confident it can produce growth in 2024 similar to the 19 percent increase in gross premiums written (GPW) last year, while a big opportunity for the insurer will be property direct and facultative (D&F) business, its CEO has told The Insurer in an interview.

After markets closed on Thursday, Fidelis reported operating earnings per share for the fourth quarter of $1.15, comfortably beating the $0.79 analysts’ consensus and up from $0.65 in Q4 2022.

The combined ratio of 81.4 percent for Q4 2023 was an increase of 15.2 points year on year, while GPW increased 32 percent year on year to $783.9mn.

The Q4 results capped a busy year that started with completion of the bifurcation that split Fidelis into a balance sheet business, Fidelis Insurance Holdings, and a newly formed managing general underwriter known as Fidelis MGU. The balance sheet business then completed an IPO in June.

In an interview with this publication shortly after the results were released, CEO Dan Burrows said he was “very pleased” with the Q4 and full-year performance.

“We bifurcated 3 January 2023 so to produce that result in the first year really validates the model that has created the ability for us to do this,” he said.

For the full year, Fidelis reported that its combined ratio improved 9.8 points to 82.1 percent in 2023 from 91.9 percent the previous year. GPW increased 19 percent in the year to $3.58bn.

When asked about expectations for premium growth in 2024, Burrows said: “We are comfortable saying we'll be broadly in line with where we were last year.”

Fidelis is a global specialty insurer that focuses on three core pillars: specialty, bespoke and reinsurance.

“We’ve had compound increases in those lines for the last four or five years,” Burrows noted.

Direct property business a “real focus” for ’24

In 2023, Fidelis’ $3.58bn GPW was split 62 percent specialty, 20 percent bespoke and 18 percent reinsurance. This compared with 2022’s $3.02bn GPW being split 54 percent, 26 percent and 20 percent, respectively.

Burrows highlighted continued positive movement at 1.1 for marine, aviation and aerospace, and property D&F business.

“When we think about the sector issues driving the harder market that we've seen over the last three or four years – climate change, conflicts, uncertainty around casualty reserves, and claims inflation – they're still there.”

The executive noted that there has been no new money of significance coming in, unlike in previous hard markets.

“So we see positive rate movement in ’24. It's a mature hard market, and we're very optimistic that we can deliver great results again,” he said.

Burrows said that an advantage for Fidelis is that it is the lead on the majority of the business it writes, and for every deal in the bespoke segment.

“When you're the leader, when you're the price maker, you see the risk first, you get differentiated pricing, you get better selection, you get better terms and conditions. And that's a more desirable place to be across the cycle.

“So we're very optimistic at the moment, we see growth potential everywhere. But I think the real focus will be property D&F.”

Property D&F represented 25 percent of Fidelis’ GPW in 2023.

Around five years ago, larger insurers in the property D&F space including AIG and FM Global reduced the line sizes they were willing to write.

“Those giants of the sector have not returned in a meaningful way,” Burrows said. “So there's still a lot of dislocation and opportunity, and a lot of pent-up demand. So we're still seeing opportunities there. We are still seeing positive movement,” said Burrows.

Fidelis floated on the New York Stock Exchange on 29 June last year at $14 a share. The share price closed on Thursday at $14.96, up 1.4 percent for the day and up 21.3 percent from the turn of the year.

Burrows suggested that Fidelis’ underwriting performance is not aligned with its share price.

“We know we've got to spend more time with investors,” he said. “It's a unique model. It's new. But we’re patient. We understand that it's really a journey with the investors to get them more comfortable.”

When asked why more capital has not come into the market to take advantage of the hard conditions, Burrows said there are barriers such as climate change, the difficulty in finding good management teams, and investors having better places to put money.

“I don't think necessarily certain elements within our industry have been good custodians of capital within certain areas,” he noted. “I think that's had a profound effect on investor sentiment.

“But I think now they're looking with more interest as well. There's more stable returns, and people have better understanding and articulation around climate change and the loading for that.”

As well as announcing its Q4 results, Fidelis after markets closed on Thursday announced its board of directors has approved the initiation of a quarterly dividend programme, with an initial dividend of $0.10 per share payable on 29 March.

In a statement, Burrows said the decision to initiate a quarterly dividend “reflects our balance sheet strength following a transformative year in which we achieved meaningful strategic milestones”. He said the dividend and the previously announced $50mn share repurchase programme shows the insurer is “committed to sharing our success with shareholders”.

JMP lifts Fidelis target price

JMP Securities analyst Matthew Carletti in a note released on Thursday evening lifted his target share price on Fidelis by $2 to $24.

Fidelis’ closing price of $14.96 on Thursday implies a price to book value of 0.8x and return on equity of 14.2 percent.

Carletti noted that specialty insurance lines represent the large majority of Fidelis’ business, with reinsurance a smaller exposure at 17 percent of the book.

“This, combined with Fidelis’ leading market position in many of the classes of business it underwrites, should position it for success in the coming years, in our view,” Carletti said.

“Reinsurance is likewise the best market we have seen in a long time, and while management has not leaned in quite as hard here as it believes the primary market currently represents a better risk/reward, particularly for property exposures, it has the tools and knowhow to do so as opportunities present.”

KBW equity analyst Meyer Shields in a research note highlighted that the Q4 results included beats on the core loss ratio, reserve releases, investment income, and taxes, partly offset by higher-than-expected catastrophe losses and underwriting expenses.