Fidelis CEO Richard Brindle late last month unveiled a visionary new business model for his Bermudian company with the creation of a $3bn projected GWP MGU and the separation of the group’s balance sheet carriers in a transaction seen as the first of its kind.

Fidelis, Capital Z Partners, The Travelers Companies, Inc., Blackstone, Further Global Capital Management and Alfa Insurance

Our sister publication The Insurer revealed that the new MGU is being valued at around $2bn, or 10.5x 2023 projected earnings, and will have access to capacity under a long-term rolling contract with the London-Bermuda group’s balance sheet companies.

According to US banking sources, 40-50 percent of that valuation comes from the equity investment from backers including Blackstone and Further Global Capital Management.

Those new investors join the existing roster of Capital Z Partners, Travelers and Alfa Insurance.

Fidelis MGU NWP projections ($mn)

The balance of the deal is funded by debt, with the financing also led by Blackstone.

Sources said the materials sent to investors ahead of the deal included projections of managed net written premiums of $1.96bn this year and $2.29bn next year. Fidelis has publicly said the MGU plans to underwrite $3bn+ of premium on a gross basis.

Revenues generated by the MGU are estimated to come in at $342mn this year and $365mn in 2023, which at a projected margin of 52 percent would result in Ebitda of $177mn and $191mn respectively.

That is likely to have been seen as an attractive entry point to the business when set against valuations in the mid- to high teens that MGUs and MGAs have been changing hands for recently. Fidelis is likely to have also marketed the MGU on its own established underwriting record.

Long-term capacity

The final terms of the long-term rolling contract for capacity have not been confirmed.

But sources suggested it would likely include a lock-in of several years and then a rolling renewal that could take the partnership beyond a decade.

Sources said that subject to regulatory approval this could be up to 13 years, including an initial four-year lock-in period.

This would have given investors in the balance sheet company confidence of exclusive access to Fidelis’ superior underwriting, and investors in the MGU the reassurance of long-term capacity support.

Capacity is king in the MGU and MGA world and the ability to lock in access to long-term paper is likely to be seen as a major differentiator for the new vehicle.

As previously reported, Fidelis MGU will be created as a separate entity from the Bermudian firm’s balance sheet insurance companies but will provide a range of services to the group’s established operations. Fidelis confirmed its balance sheet companies will provide long-term capacity for the MGU.

Brindle, who is chairman, group CEO and chief underwriting officer of Fidelis, will serve as chairman and CEO of the MGU. Fidelis’ head of Bermuda Dan Burrows will lead the balance sheet businesses.

Brindle said the new set-up will ensure the group’s balance sheet companies will have access to the group’s market-leading underwriting talent and risk origination, with appropriate structures in place to ensure alignment.

The Insurer TV: Brindle talks deal logic

Fidelis CEO Richard Brindle has earned a reputation as an underwriting innovator during his near four decades in the (re)insurance space, from his tenure with Lloyd’s insurer Tarquin Underwriting in the 1990s, through the formation of Lancashire in the 2000s and the subsequent launch of Fidelis in 2015.

And the bifurcation of the Bermudian’s underwriting and balance sheet businesses looks like a visionary move – and one that is also a complicated deal that juggles multiple stakeholders and investor interests.

The Insurer TV sat down with the executive to examine the deal and what it means, as Brindle suggests it is a transaction that has never been done before, and leaves “everybody happy”.

“The private equity exiting shareholders are getting a multiple they could only dream of through any other means,” Brindle explained.

“The incoming investors are investing in what should be an incredibly exciting journey for the world’s largest and most diversified MGU. Everybody is happy which makes for a nice transaction – nobody feels like they’re getting screwed.”