Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Fidelis Insurance Holdings Ltd (FIHL, Financial) reported a 24.7% increase in gross premiums written for the second quarter, with double-digit growth across all three segments.
- The company achieved an overall Renewal Pricing Index (RPI) of 112% for the quarter, indicating strong pricing power.
- FIHL's property direct and facultative segment saw a 37.4% increase in gross written premiums, driven by high retention of existing clients and new business.
- The company has completed a $50 million share repurchase program and announced a new $200 million share repurchase program, reflecting strong capital management.
- Net investment income increased to $46 million for the second quarter, up from $27.3 million in the prior year period, due to strategic portfolio rotation into higher-yielding securities.
Negative Points
- The combined ratio for the quarter was 92.7%, higher than prior quarters, primarily due to a higher level of catastrophe and large losses in the specialty segment.
- Losses on intellectual property insurance within the bespoke segment contributed 8.2 points to the overall combined ratio, leading to the cessation of underwriting this product.
- Aviation and aerospace premiums were down compared to the prior year, driven by deals not meeting underwriting criteria and rating hurdles.
- The company faced heightened severe convective storms, impacting the loss ratio and contributing to a catastrophe and large loss ratio of 36.2% for the quarter.
- Policy acquisition expenses from third parties were 28.4 points of the combined ratio, in line with the prior year period, but general and administrative expenses increased to 4.9 points from 4.3 points, driven by higher headcount.
Q & A Highlights
Q: Can you elaborate on the reaffirmation of the ROAE goals for the year and the expected seasonality in the third quarter?
A: Allan Decleir, CFO: While we monitor our business on a quarterly basis, we manage it over the duration of our short-term portfolio. The year-to-date ROAE is 12%, and we expect some seasonality in the second half, especially in our reinsurance segment. Our investment income continues to improve, and we are confident in our long-term and current year targets.
Q: Can you provide more context on the MGU ceding commission ratio running higher than expected?
A: Allan Decleir, CFO: The ceding commission paid to the Fidelis partnership includes several components, such as a commission on net premium written and earned, as well as a profit commission. The current quarter's underwriting results impacted the profit commission. Overall, we are comfortable with the commission guidance and believe it is working as intended.
Q: Can you quantify the remaining exposure to the intellectual property (IP) portfolio?
A: Jonathan Strickle, Chief Actuarial Officer: Our IP portfolio consisted of a small number of policies, and we no longer write this business. We have a handful of live policies outstanding, and we monitor them closely. Approximately one-third of the portfolio is still outstanding, but we are comfortable with our current reserves.
Q: What is the runway for the favorable growth environment in property direct and facultative (D&F) given the slowing property pricing?
A: Allan Decleir, CFO: We believe we are still in a mature hardening market with disciplined market participants. Our verticalized market approach allows us to achieve preferential pricing and terms. We continue to see positive RPIs and expect to achieve our growth targets for the year.
Q: How long will it take for the remaining IP portfolio to run off, and is there potential for similar losses in the future?
A: Jonathan Strickle, Chief Actuarial Officer: The remaining IP policies are reasonably short-tail and should run off by around 2027. The losses this quarter came from three separate incidents, and we continue to monitor the remaining policies closely.
Q: Can you provide more details on the pricing environment in the D&F market and the RPI for this quarter?
A: Allan Decleir, CFO: Property D&F continues to drive our growth with a 37% increase and positive RPIs. We prefer this line of business over others due to its profitability and the opportunities it presents.
Q: How fast can you execute the $200 million share repurchase authorization, and is this reflective of excess capital today?
A: Allan Decleir, CFO: We continuously evaluate our capital position and have surplus capital. Given the current valuation of our shares, share repurchases are a compelling use of excess capital. We are comfortable with our capital position and will continue to consider share repurchases.
Q: Has anything changed in your approach to the property D&F market given the active hurricane season and year-to-date losses?
A: Jonathan Strickle, Chief Actuarial Officer: Our approach has not changed. We use the Fidelis view of risk, which includes significant loadings over base models to account for climate change and other factors. We are confident in our portfolio and the level of exposure we have.
Q: Can you elaborate on the outwards reinsurance purchasing and how it impacts your property exposures?
A: Jonathan Strickle, Chief Actuarial Officer: We do not disclose our PMLs publicly due to the difficulty in comparing between peers. However, we have not increased our overall exposures despite premium growth. We constantly review and optimize our outwards reinsurance portfolio to manage risk.
Q: Do you have any exposure to the recent plane crash in Brazil?
A: Jonathan Strickle, Chief Actuarial Officer: No, we do not have any exposure to the underlying liability policy or any material exposure to the event.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
