Brindle this week unveiled a visionary new business model for his Bermudian carrier which will see a new $3bn projected GWPs MGU (see projected net written premiums below) created with the group’s balance sheet companies separated off as part of the transaction, subject to regulatory approval. It is a complicated deal involving the juggling of multiple stakeholders and investor interests and The Insurer TV sat down with him to examine the transaction and what it means.

The landmark bifurcation deal has set Fidelis apart from its peers – as Brindle reveals in an in-depth interview with The Insurer TV, “this has never been done before”. 

During the interview he highlights the rationale behind the transaction, a deal which he believes leaves “everybody happy”.

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

“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.”  

Fidelis has not disclosed valuations but The Insurer understands the MGU is valued below standard multiples at around 8x EBITDA on a forward basis and 10x current; while the overall group is valued significantly higher than current peer valuations at around 1.7-1.9x.

Fidelis MGU revenue and Ebitda projections ($mn)

Deal logic

Fidelis MGU will be a separate entity from the Bermudian firm’s balance sheet insurance companies but the two parts of the business will still work closely together.

The MGU will provide a range of services to the balance sheet companies, which will in turn provide a source of long-term capacity for the MGU. Earlier this week, we revealed it could be up to 13 years: four years locked in plus 9 years rolling renewal, albeit this wasnt officially confirmed by Fidelis.

“The perverse outcome and unintended consequence in our industry is most people who perhaps have blazed a trail in their 20s and 30s then disappear into middle management and then senior management”

The logic behind the transaction, Brindle reveals, came through the experience of establishing the group’s existing MGA platform, Pine Walk. The largest cell to launch through the platform to date was Navium, led by veteran former Beazley marine underwriter Clive Washbourn.

Fidelis-MGU-NWP-projections-($mn)

“Clive came to me and said is there a construct here where I can underwrite on your paper and you can take care of all the back office functions so I just get to underwrite?” 

“We did that deal for him, and I sat there thinking “I want that”. The Fidelis MGU is the same logic, it’s just on a much bigger scale. It will be the largest and most diversified MGU in the world – this has never been done before.”

Addressing the talent challenge

Brindle believes there is real value to the market in allowing long standing talented underwriters, such as Washbourn, to be free to underwrite rather than be caught up in red tape. 

“The perverse outcome and unintended consequence in our industry is most people who perhaps have blazed a trail in their 20s and 30s then disappear into middle management and then senior management,” he says.

“By the time they’re 50ish, the brokers can’t get hold of them – they’ve just vanished into committee meetings. That does not serve our industry well.”

Brindle reveals the original impetus for the project – which was dubbed Project Cooper – was to free up both himself and his colleagues to “do what we do best and not spend our days in committee meetings”. 

At a time of constrained cat capacity, Brindle says the move has also been welcomed by brokers. 

“This industry is lacking in underwriting talent as a whole, with a real lack of leadership and innovation. I think we supply both in huge measure.”

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

“When I rang round some of the leading brokers, we got a universally positive reaction. The comment that was made again and again was the need for leadership. If this means we have more time to spend on underwriting and talking to brokers, the better it is for them.”

Everybody is happy

Brindle believes the deal is not just good for brokers. 

“I first thought of this last September in my gym.  It was on a Sunday morning, I was thinking about Clive, I was thinking about the trajectory of the business,” he explains.

Former Beazley marine supremo Clive Washbourn now leads the Fidelis backed Navium and was part-inspiration for the Fidelis bifurcation, says Brindle

“It’s all so complicated because we have founding private equity shareholders who wanted liquidity – they’ve been in for seven years now – but the options are limited.

“An IPO is not something I’m prepared to do, and options for a strategic sale are pretty much non-existent at the moment for any balance sheet insurance business as there are no buyers out there.”.

With multiples for a private equity style acquisition “barely above book value”, Brindle instead worked with the group’s advisors Evercore and investors, led by Capital Z and Travelers, to “put together something that had never been done before”.

“This is one of those really amazing transactions that everybody is happy. The banker’s cliché is that in most deals, everybody is a little bit unhappy, but that is not the case here at all.

“The private equity exiting shareholders are getting a multiple they could only dream of through any other means. And the incoming investors are investing in what should be an incredibly exciting journey for the world’s largest and most diversified MGU.

Brindle: “Others will try, few will succeed”

The coming together of the “really fine minds” that constructed and executed the transaction will make it difficult for others in the market to follow suit, Brindle said during the latest episode of Leading Voices on The Insurer TV.

“Others will certainly try; but my take is that few will succeed,” said Brindle as he explained the key components which got the landmark deal over the line.

“It’s very complicated, it’s very hard work, and I think to have any chance of getting it away you’ve got to have an incredibly good track record,” said Brindle.

“In order for investors in the balance sheet to be prepared to take that sort of once-removed type position, you’ve got to have a hell of a track record. And I’ve got that, candidly.  We’ve got that,” Brindle asserted. 

Brindle also lauded the “visionary investors” involved who were able to understand this was not a traditional balance sheet transaction. 

“The division of the spoils needs to be different, the incentivisation needs to be different. And we have that with Travelers and Capital Z who understood that this deal just wouldn’t fly unless everybody thought quite imaginatively and differently about it.”

Advisory firm Evercore was also highly praised during the interview, having worked “tirelessly” to get the groundbreaking bifurcation deal – which remains subject to regulatory approval – over the line. 

“The team showed enormous intuition about what makes people like me tick,” he said. “Because there are certain things that just aren’t going to work for me and [they] understood that.”

Watch the full thirteen-minute interview which includes Richard Brindle’s observations on the marketplace, entrepreneurship and Lloyd’s…