Fidelis Insurance - Q4 2023
March 1, 2024
Transcript
Operator (participant)
Good morning, ladies and gentlemen, and welcome to the Fidelis Insurance Holdings Fourth Quarter and Year-End 2023 Earnings Conference Call. As a reminder, this call is being recorded for replay purposes. Following the conclusion of formal remarks, the management team will host a question-and-answer session, and instructions will be given at that time. With that, I will now turn the call over to Miranda Hunter, Head of Investor Relations. Ms. Hunter, please go ahead.
Miranda Hunter (Head of Investor Relations)
Good morning, and welcome to the Fidelis Insurance Group Fourth Quarter and Full Year 2023 Earnings Conference Call. With me today are Dan Burrows, our CEO, and Allan Decleir, our CFO. We're also joined by members of the Fidelis Insurance Group management team, including Jonny Strickle, our Group Chief Actuary. Before we begin, I'd like to remind everyone that statements made during the call, including the question and answer section, may include forward-looking statements. These statements are based upon management's current assessments and assumptions and are subject to a number of risks and uncertainties. These risks and uncertainties are described in our IPO prospectus, dated June 28, and filed with the SEC. Although we believe that the expectations reflected in forward-looking statements have a reasonable basis when made, we can give no assurance these expectations will prove to be achieved.
Consequently, actual results may differ materially from those expressed or implied. For more information, including on the risks and other factors that may affect future performance, investors should also review periodic reports that are filed with us with the SEC from time to time. Management will also make reference to certain non-GAAP measures of financial performance. The reconciliation to U.S. GAAP for each non-GAAP financial measure can be found in our current report on Form 6-K, furnished with the SEC yesterday, which contains our earnings press release and is available on our website, fidelisinsurance.com. With that, I'll turn the call over to Dan.
Dan Burrows (Group CEO)
Thank you, Miranda. Good morning, everyone, and thank you for joining us today. 2023 was a milestone year for the Fidelis Insurance Group, and we couldn't be more pleased with our performance. In July, we completed our IPO and listed on the New York Stock Exchange, unlocking new opportunities and positioning us for long-term industry-leading results. What is particularly exciting is that throughout the year, we successfully executed on our objective of delivering consistently compelling returns, and there are a few key messages I want to emphasize today. Firstly, this continues to be the best market environment we've seen in 20 years. Against that backdrop, we took advantage of opportunities to grow our business in target markets and actively shaped our portfolio with strong gross premium written growth of 31.7% in the quarter and 18.6% for the year.
Secondly, we maintained our track record of best-in-class underwriting performance with one of the best combined ratios in the industry at 81.4% for the quarter and 82.1% for the year. Thirdly, we delivered strong operating ROAE of 23.6% for the quarter and 18.8% for the full year. We also grew book value per share to $20.69, representing growth of 13.4% from the third quarter. And finally, we are proactively sharing our success with shareholders through both our previously announced share repurchase program and yesterday's announcement of a regular quarterly dividend.
Allan will dive deeper into our results for the quarter shortly, but as we reflect on this remarkable progress in 2023, we would like to begin today's call by highlighting how Fidelis Insurance Group has built a truly differentiated global specialty insurance platform, which we have also outlined in our updated investor presentation, which has been filed and is available on our website. First and foremost, our strategy is focused on leading the global specialty insurance industry in delivering consistently compelling returns through the cycle and creating value for our shareholders and all other stakeholders. For nearly a decade, we have established ourselves as a market leader, creating a strong, highly diversified and innovative portfolio focused on three segments: specialty, bespoke, and reinsurance.
Our specialty segment is focused on traditional specialty business, where we take significant positions in the major lines, including property direct and facultative, marine, and aviation and aerospace, leading approximately 90% of the deals we participate in across the portfolio. This positioning also enables us to cross-sell lines of business with both brokers and clients. Our aviation portfolio, where war and allied coverage capacity is scarce, is an example of how we execute this strategy. Our bespoke segment focuses primarily on highly tailored, specialized products that facilitate underlying transactions, offering our clients enhanced capital efficiencies. By its nature, we lead all of the deals we participate on within this segment.... reinsurance segment primarily focuses on a strategically selected property catastrophe book, optimized to reflect our view of risk.
This allows us to manage our exposures and minimize volatility, especially as the industry continues to confront the realities of climate change and the rising incidence of secondary peril losses, both of which we have adjusted for in our modeling and risk selection process for a number of years. Furthermore, we leverage our leading position on approximately 80% of the deals we participate on, which allows us to secure differential rates, terms, and conditions. As we look into 2024 and beyond across core lines, this remains the best market environment our seasoned team has seen in the last 20 years, with clear supply demand imbalances and no signs of new capital coming into the market in any meaningful way. These market dynamics have presented opportunities for us to accelerate growth, leveraging our scale, agility, and deep relationships with brokers and clients.
As a lead underwriter in a verticalized market, this has created enhanced metrics and underwriting performance durability. Our underwriting strategy and structure is working exactly as intended, providing access to the best underwriters in the industry and ensuring a level of rigor and discipline around risk selection that is frankly unprecedented in our industry. Our in-house underwriting team, led by our Chief Underwriting Officer, Ian Houston, collaborates closely with Fidelis MGU to actively shape our inwards and outwards portfolio, including engaging in the MGU's daily underwriting calls to directly participate in origination and risk selection as our portfolio is assembled. Our structure continues to deliver industry-leading combined ratios. As I mentioned earlier, in 2023, we achieved an 82.1% combined ratio for the year, which represents an improvement of 9.8 points year-over-year.
We believe that the portfolio we have constructed is well-positioned to continue delivering market-leading combined ratios in the mid- to high 80s through the cycle. In addition to our proven underwriting success, we continue to advance our operational and capital management capabilities. We maintain a strong, highly rated balance sheet with total capital of $3 billion. We have released reserves every year since inception, demonstrating our consistent and robust approach to reserving. In addition, our focus is on short-tail lines with carefully managed catastrophe exposure and no long-tail casualty business. This approach, and our minimal exposure to social inflation risk, reinforces our confidence that we can avoid meaningful reserve volatility moving forward. Further, we continue to strategically use reinsurance, including our 20% whole account quota share with Travelers, that recently renewed for a second year as a flexible and aligned source of capital.
While our primary focus remains capitalizing on the attractive growth opportunities to deliver profitable returns, we will continue exploring ways to optimize our capital structure and create value for shareholders. Allan will share more information shortly on our strategic capital management priorities. Overall, our fourth quarter and full year performance reflects our scale, lead positioning, balance sheet strength, and expert execution from our dedicated teams. Taken together, these competitive advantages position us to deliver sustainable, long-term, profitable growth. I'll now turn it over to Allan to walk through our financial results in more detail.
Allan Decleir (Group CFO)
Thanks, Dan. I'd also like to welcome everyone joining our Fourth Quarter Earnings Call. Additionally, I'd like to take a moment to wish Dan a very happy birthday. As Dan mentioned, we had a very strong fourth quarter, with operating net income of $135 million, or $1.15 per diluted common share, and an annualized operating return on average equity of 23.6%. For the year, we had operating net income of $399 million, or $3.49 per diluted common share, which is an operating return on average equity of 18.8%. Our diluted book value per share at year-end was $20.69, which represents growth of 27.4% from January 3, 2023, the date of the separation transactions.
I will now discuss our fourth quarter of 2023 results and briefly touch on our full-year results. Looking at our gross premiums written, we had strong top-line growth of 32% in the quarter to $784 million, compared to the fourth quarter of 2022. The increase was broad-based across all three segments.... This was driven in large part by bespoke, with growth of 59%, with over $100 million of new business, predominantly structured credit deals that came in at the end of the quarter, new business in the political risk book, and some recurring deals. The specialty segment grew by 14%, primarily driven by property D&F that benefited from the continued strong rating environment and new business. Our reinsurance segment had immaterial activity in quarter four, as is typical for that business.
On a net premiums earned basis, we delivered an increase of 25% to $508 million in the fourth quarter of 2023, consistent with our growth in gross premiums written. Our strong underwriting performance resulted in a combined ratio of 81.4% for the fourth quarter, which included a loss ratio of 37.3%. This loss ratio was comprised of attritional losses of 25.4%, catastrophe and large losses of 14.9%, and favorable prior year development of 3%. The catastrophe and large losses for the fourth quarter were $76 million. The most significant losses were the ViaSat-3 satellite deployment failure, as well as an increase in our estimate of the loss related to the Sudan conflict and other loss events in our property D&F line of business.
We had net favorable prior year development of $15 million for the quarter, versus $4 million in the prior year period of 2022. The favorable loss reserve development was primarily attributable to benign claims experience in our reinsurance and bespoke segments. Turning to expenses. Policy acquisition expenses from third parties were 23.7 points of the combined ratio for the quarter, compared to 29.7 points of the combined ratio in the prior year period. As a reminder, our policy acquisition expense varies over time, depending on our business mix and the amount in terms of our outwards reinsurance purchases that can vary from year to year. Our Fidelis MGU commissions were 15.3 points of the combined ratio for the quarter, of which 3.8 points related to profit commissions payable due to the strong underwriting results in the quarter.
Our general and administrative expenses were 5.1 points of the combined ratio for the quarter. The expense includes additional variable compensation as a result of our strong financial performance. Turning now to investments. Net investment income increased to $39 million for the fourth quarter of 2023, compared with $17 million in the prior year period. In 2023, we invested $2.1 billion in fixed maturity available for sale securities with an average investment yield of 5.1%. At December 31, 2023, the average rating of fixed income maturities in our investment portfolio was A+, with an average duration of 2 years. While our investment portfolio remains conservatively positioned, we have increased our allocation to high quality, longer duration bonds.
Turning to our full year 2023 results, the operating highlights include operating net income of $399 million, resulting in an operating return on average equity of 18.8%. Gross premiums written increased by 18.6% to $3.6 billion. This growth was primarily driven by our specialty segment, with the largest premium increase in our property D&F line of business of approximately $300 million. We had a combined ratio of 82.1% versus 91.9% in 2022, primarily driven by lower catastrophe and large losses in 2023. Finally, net investment income was $120 million, compared with $41 million last year. Turning to our capital strategy, we remain committed to maintaining a strong balance sheet and attractive financial profile.
As I mentioned earlier, our book value per diluted common share grew to $20.69 at December 31, 2023. We ended the year with $3 billion in total capital, including our debt and preferred shares, demonstrating the strength of our balance sheet. On an additional positive note, a few weeks ago, AM Best revised their outlook from negative to stable and affirmed our financial strength rating of A. Key factors cited in support of this revision included the performance of the management team, the strength of our relationship with the MGU, our continuing operating profitability, and our robust risk-adjusted capitalization. We remain focused on proactively managing and allocating capital to maintain our financial strength, drive profitable underwriting, and create value for our shareholders.... In 2024, our strategic capital management priorities include, first, allocating capital back into the business and deploying capital into attractive underwriting opportunities.
Second, constantly reassessing our outwards reinsurance purchasing program. We use reinsurance as a flexible and aligned source of capital. We recently renewed for a second year, our 20% whole account quota share with Travelers. Also, at January 1, we secured consistent year-on-year capacity in our non-proportional purchases and saw some improvement in pricing terms and conditions. Furthermore, we recently issued two new tranches of our Herbie Re catastrophe bond for $150 million to cover earthquake and named storm events in the U.S. Finally, we will return capital to shareholders through a combination of share buybacks and dividends. On December 21, 2023, we announced that our board approved the adoption of a repurchase program of up to $50 million of our common shares.
Through February 28, 2024, we have repurchased 243,871 common shares at a weighted average share price of $12.08, for a total of approximately $3 million. As mentioned by Dan, yesterday, we took another step in our commitment to building value for our shareholders with the announcement that our board has approved the implementation of a regular quarterly dividend of $0.10 per common share, or approximately $50 million per year. This equates to a dividend yield of approximately 3% of current market capitalization. Finally, I would like to discuss income tax. In the fourth quarter of 2023, we established a net deferred tax benefit of $90 million as a result of the transition provisions specified in the Bermuda Corporate Income Tax Act of 2023.
This tax asset will be utilized beginning on January 1, 2025, the date of implementation of the Bermuda Corporate Income Tax. For 2024, we currently expect an effective group tax rate of 14%, but the outcome will depend on the jurisdictions in which the profits are ultimately earned. To conclude, I'm very pleased with our outstanding financial performance in the fourth quarter and for the year, and with our prospects for 2024 and beyond. I will now turn it back to Dan for additional remarks.
Dan Burrows (Group CEO)
Thanks, Allan. As you have heard, we have had a great deal of success in 2023, capitalizing on opportunities across attractive lines, achieving strong rate increases, and firmly cementing our position as a leading global specialty insurer. We are entering 2024 with momentum and expect sustainable, mature, hard market conditions to persist across our portfolio. We remain disciplined and nimble in our approach, opportunistically responding to changing market dynamics to deliver underwriting profitability and compelling risk-adjusted returns through the cycle. Let me give you some additional detail on how we are viewing the year ahead. In specialty, we believe we are well-positioned with a high-quality, mature portfolio and lead positioning in lines of business, including property direct and facultative, marine, and aviation and aerospace.
The attractive pricing we saw in 2023 has carried over into the start of 2024, and we are positioned to take advantage of opportunities in the market. Based on Q1 transactions to date, we expect growth in 2024 to be broadly in line with what we saw last year, which evidences a mature hard market. We continue to see attractive opportunities in these lines, though we expect to prioritize our growth in the property, direct and facultative line in 2024, where we leverage our substantial capacity and relationships, which allows us to see risks before peers, facilitating better pricing, terms, and conditions, and risk selection. In bespoke, the risks we underwrite yield strong returns. However, the premiums written do not follow a regular, predictable schedule like the specialty and treaty books.
Deal flow on this book can be difficult to predict, as we saw in the second half of 2023. But as of today, we are two-thirds of the way through the first quarter, and I would note the pipeline of deals is currently tracking with prior year, with a good mix of structured credit and political risk opportunities. And finally, in reinsurance, we are seeing increased demand, with clients looking to buy more limit, both in the U.S. and Europe. Through our portfolio optimization, we are able to take advantage of this without compromising our view of risk. We write approximately a third of our reinsurance book at 1/1, and in 2024, we saw strong 1/1 renewals with our reinsurance team, seeing RPIs of 118%. In total, we wrote $276 million of reinsurance business at 1/1.
This compares to premiums of $230 million in 2023 for the same period. This 20% increase in premiums year-on-year was driven by strong retention rates with our core quality clients, where we were able to continue to increase rates and achieve differentiated terms. Across our broader portfolio, we are successfully underwriting attractive risks, driving increased profitability and generating compelling returns, all while maintaining prudent capital levels and a strong balance sheet. We are committed to creating value by delivering operating ROAE of 13%-15% through the cycle. Given where the market is for 2024, we expect to again deliver returns above this long-term target in the 14%-16% range. In closing, we are pleased with the progress we've made in 2023 and confident in the outlook for our business.
We have the team, portfolio, and balance sheet needed to drive continued above-market returns and create meaningful value for our shareholders. With that, I'll turn it back to the operator.
Operator (participant)
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Before we take your questions, I'd like to kindly ask everyone to please limit your questions to one primary question, along with a single follow-up. If you have any further questions, please rejoin the queue. With that, our first question comes from the line of Matt Carletti with JMP. Please go ahead. I'm sorry. Your first question comes from Meyer Shields with KBW. Please go ahead.
Meyer Shields (Managing Director and Equity Research Analyst - Property and Casualty Insurance)
Great. Thanks so much, and thank you for all the detail in terms of expectations for 2024. One question I'm getting is, if you give us a sense of the catastrophe load that's embedded in the loss ratios?
Dan Burrows (Group CEO)
Yeah, thanks, Meyer. Great question, and I think, you know, we've explained previously, you know, we stepped back in 2021. We didn't think the models were adequately reflecting climate change and the impact of inflation, so we formed our own view of risk. When we look at how that differs from our peer group, we think the loads that we're putting in are roughly about 160%, and that would depend on geography and peril. But if you think that's how we kind of think about it, it's about that sort of benchmark.
Meyer Shields (Managing Director and Equity Research Analyst - Property and Casualty Insurance)
Okay, perfect. And then this is probably a little bit detailed, but I was wondering, given the sort of history of rushing in when there are pricing opportunities, I was hoping you could talk about the exposure Fidelis has to Middle East Marine.
Dan Burrows (Group CEO)
To? Pardon me.
Sorry, Mike. I couldn't think. Okay, well, I think firstly, I'd start off by saying, you know, we as a business have no concentration or exposure in the region. We have no known reported losses of materiality, but there is obviously an opportunity in political violence and war policies. So we think specifically about Marine War Breach. So we have seen some opportunities, but not to the same degree as what we saw post-Ukraine. So we're taking advantage of that, but I'd say we don't really have a concentration of exposure in the Middle East.
Meyer Shields (Managing Director and Equity Research Analyst - Property and Casualty Insurance)
Okay, fantastic. Thank you.
Operator (participant)
Your next question comes from Matt Carletti with JMP. Please go ahead.
Matt Carletti (Managing Director and Senior Analyst - Insurance and InsurTech)
Okay, thanks. Good morning. Hopefully, you guys can hear me now.
Dan Burrows (Group CEO)
Good morning, Matt.
Matt Carletti (Managing Director and Senior Analyst - Insurance and InsurTech)
Good morning. Happy birthday, Dan. I'm sure there's nothing you'd rather be doing than asking our question.
Dan Burrows (Group CEO)
Thanks, Matt. No, no, this is what I wanted for my birthday.
Matt Carletti (Managing Director and Senior Analyst - Insurance and InsurTech)
You know, look, you gave a lot of great color on expectations by segment for the year. I guess if I could just ask you a high-level question of: you guys have always been very agile in reacting to market conditions, you know, recent history, kind of, you know, pulling back on property and reinsurance, putting that capital to work through insurance means to get the same exposure. Is there anything like that taking place in the market that we should think of as kind of shifting exposures, or do you expect at least at this juncture, 2024 to kinda, kinda look a lot like 2023?
Dan Burrows (Group CEO)
You know, we've built a lead position across the three, the three pillars of our business. I think if you break down the gross written premium, you know, it's, it's 62% specialty, 20% bespoke, and 18% reinsurance. I would expect that to be very similar for 2024. We always evaluate new opportunities, and when they hit those risk-adjusted, returns, then, then we execute. But I think, you know, we see very positive movement in all lines of business, so I would expect the portfolio to look very similar as to it did, in 2023.
Matt Carletti (Managing Director and Senior Analyst - Insurance and InsurTech)
Okay, great. And then just a second question, if I could, probably for Allan. I noticed the expense ratio, policy acquisition ratio in specialty was quite low this quarter. Is that just, is that just mix of business, the lines being written in the quarter, or is there anything to note there that we should think about going forward?
Dan Burrows (Group CEO)
Yeah, good, good question, Matt. And Dan, again, it, it really is, as you say, it's all about business mix in that line of business.
Matt Carletti (Managing Director and Senior Analyst - Insurance and InsurTech)
Great.
Thanks a lot. Thank you. Appreciate it.
Operator (participant)
Your next question comes from Andrew Andersen with Jefferies. Please go ahead.
Andrew Andersen (SVP, Equity Research - North America Non-Life Insurance)
Hey, good morning. Maybe going back to the growth commentary, and I think I heard you say within bespoke, tracking with the prior year for 2024. I guess I'm trying to, to think about, you know, Q4 is very strong, and that is a seasonally higher quarter with perhaps a different business mix, but end of the year strong. So kind of why are we thinking about maybe flattish growth in 2024 for this segment?
Dan Burrows (Group CEO)
Yeah, thanks, Andrew. Great question. Dan, again, here. I mean, obviously, I, I'll remind everyone, bespoke is a really profitable line, and, and as you say, the deal flow is a lot less predictable than our other pillar, specialty and, and reinsurance, which have nominated in all seasons throughout the year. So what we really wanted to do in today is give you a bit more color around the dynamic within a quarter. So that's give you a better sense of direction because we know it's hard to model. So that's why we say we're, we're tracking with Q1 in terms of momentum. We do have a very robust pipeline, and again, that's what we saw in the back end of 2023, deals that have come back, some new business, they hit those benchmarks, and we were able to execute on them.
So we've got a very strong pipeline, but they've got to hit those risk-adjusted returns. So that's why we're really, you know, looking to follow the similar pattern where the second half of the year will be heavier. But as we stand now, we're bang on line with where we want to be, and where we were last year.
Andrew Andersen (SVP, Equity Research - North America Non-Life Insurance)
Okay. Thank you. And then, and then I guess on the other side of that, it sounds like the specialty opportunity is perhaps a lot better than, you know, where we were thinking it would be for 2024, and, you know, growth in that segment could be upwards of 30%+. Kind of, how did the environment change throughout the second half of the year, and does it sound like there's better opportunity within, I guess, broadly within specialty across all the subsegments?
Dan Burrows (Group CEO)
Yeah, I think we see, you know, potential to expand existing lines, and that could be geographically as well. I think we're looking at other regions. Obviously, the BRIC economies are expanding, so that creates opportunity. But, you know, we're a top three market in those lines of business, so we see plenty of opportunity. We're seeing deals before peer groups, so we're able to structure and benefit from differential pricing and terms. So yeah, again, just very positive movement for specialty and those three core lines. I would say, you know, if you think about specialty marine, aviation and aerospace, and then property D&F, property, direct and facultative is where we will focus most of the growth in 2024.
Andrew Andersen (SVP, Equity Research - North America Non-Life Insurance)
Thank you.
Operator (participant)
Your next question comes from Lee Cooperman with Omega Family Office. Please go ahead.
Lee Cooperman (Chairman and CEO)
Thank you. Good morning, and happy birthday, Dan. I have a few questions. One is on capital adequacy. I'm looking at your income statement, your balance sheet. It seems that we have more capital than we need. And I'm just curious, what is your view of your capital adequacy, and would you rather write more business in this environment or buy back your stock? Which is more attractive use of your capital?
Dan Burrows (Group CEO)
Good morning, Lee, and thanks for the birthday message. You know, we're in a strong position. We've had a great performance, and we've got a very strong balance sheet. But what I'll do is I'll pass over to Allan to let him talk a little bit further about capital management in 2024.
Allan Decleir (Group CFO)
Yeah. Hi, good morning, everyone. Thanks, Dan and, and Lee. Yeah, currently, as I said in my prepared remarks, that our primary focus is investing back in the business with outstanding returns, deploying capital into underwriting opportunities, and opportunistically taking advantage of some of the pricing dynamics. We believe that this deployment will deliver strong returns for our investors. As I mentioned, we also always look at our outwards reinsurance program when we look at our capital. There are opportunities there to look at whether we want to retain more risk or less risk, given what we see in the market. But as you mentioned, right now, share buybacks are certainly the best way to return value back to shareholders. We have the $50 million plan that's out there, that we put in place in December.
We've utilized only $3 million of it, but we do plan to fully utilize that plan going forward. Once that plan is utilized, we will certainly assess the share price at that point in time and decide whether we should implement a new share buyback program.
Lee Cooperman (Chairman and CEO)
All right. Second question, as a follow-up. We sell at a very attractive price relative to our competition. Does our unusual structure discourage potential buyers from bidding for us? Because it would seem to me, you know, you, you've built a hell of a company selling at a ridiculously low multiple, and, I'm just curious whether our relationship with MGU makes it highly unlikely that anybody would try to buy us.
Dan Burrows (Group CEO)
Yeah. Thanks, Lee. It's, it's Dan here. It's a great question. So obviously, when we look, we look at, you know, the share price, we don't feel it's, it's reflecting or aligned to our performance. You know, we've got one of the market leading combined ratios for the year at just, just over 82%. I think what it shows to us is we need to spend more time with investors, you know, getting them more comfortable with the structure. Because it is the structure that has resulted in this great outperformance. Let's, let's not be, let's be clear about that, when we're very proud of it. Our relationship with the MGU has worked exactly as intended, and we have delivered outstanding results.
So we, you know, we have to be a little patient, but we're certainly dedicating more and more time to that investor engagement so they get more comfortable with the structure.
Mike Ward (Managing Director - Insurance)
I'm not an insurance expert, but I'm just curious, when you take all the pushes and pulls, do you expect to earn more money in 2024 than you earned in 2023? I'm not asking you for specific forecasts, but directionally, will you expect to have improved results in 2024 versus the outstanding results in 2023?
Dan Burrows (Group CEO)
Yeah, I think, you know, our long-term ROE target throughout the market is, through the cycle, 13-15. But I think at this particular moment, you know, we can up that a little bit and we'd expect to earn a bit more. So we're going more in the range of 14-16. But we are seeing positive movement as well, and we expect to grow. So we've factored that in, into those comments.
Mike Ward (Managing Director - Insurance)
Good luck, and happy birthday once again. Thank you.
Dan Burrows (Group CEO)
Yeah, I really appreciate it. Thanks very much.
Operator (participant)
Your next question comes from Pablo Singzon with JP Morgan. Please go ahead.
Pablo Singzon (Executive Director - North American Life Insurance Coverage)
Hi, good morning. Dan, first of all, I hear you, no signs of new capacity entering the market, but we've been hearing that in certain lines, property D&F, for example, it seems like price increases in 2024, you know, there's a chance that they could be not of the same magnitude as in 2023. Do you think that's an accurate-
Dan Burrows (Group CEO)
Sorry. Sorry, sorry. That's a really bad line. We can't really hear the question. It's breaking up.
Pablo Singzon (Executive Director - North American Life Insurance Coverage)
Oh, is this better, Dan?
Dan Burrows (Group CEO)
Yeah, that's much better. Thank you. Yeah. Thanks.
Pablo Singzon (Executive Director - North American Life Insurance Coverage)
Yep, sorry about that. I'll speak louder. So, I was just saying, hear you on no signs of new capacity entering the market, but we've been hearing that in certain lines, property D&F, for example, price increases in 2024 are unlikely to be of the same magnitude as in 2023. Do you think that's an accurate commentary about the market, and therefore will most of your, you know, let's call it 30%+ specialty growth in 2024 come from exposure?
Dan Burrows (Group CEO)
No, no, no. We're seeing, we're still seeing positive rate movement in that line of business. Yes, we've had, you know, compounding increases over the last four or five years, and we are very much in a mature hard market. So, we still see plenty of opportunity to grow with positive price movement year-over-year in 2024. We are a lead market. You know, it's a verticalized market, so you have to factor that in, that, you know, price makers get better terms than price takers. So, you know, we're seeing the deals before other people, we're structuring them. A lot of them are private layers or private arrangements. So, you know, we get much better terms, conditions. And it's not all about premium.
You know, terms, conditions, coverage, that's an important proportion of any RPI when we look at that and model it.
Pablo Singzon (Executive Director - North American Life Insurance Coverage)
Okay. And then for Allan, just on taxes, I guess this is a two for one, but they're short. One was just hoping for more color on the 14% tax rate for 2024. I think you were running in the high single digits in 2023. And then for this quarter specifically, it seems like the tax rate, XD days, was lower than normal as well. Thank you.
Allan Decleir (Group CFO)
Yeah, thanks, Pablo. You picked up some of the tax numbers here very appropriately. Yeah, 2023, to answer that question first is our profits for 2023 were mainly in jurisdictions with a lower tax rate. So, Bermuda, for example, rather than in the UK or Ireland, where the tax rate is higher, hence our decrease in our expected tax rate for 2023. For 2024, as I said in my prepared remarks, we're expecting a tax rate of approximately 14%, but again, that will depend greatly on where the profits arise. Again, we are diversified across jurisdictions as well as lines of business. Looking beyond that becomes a little more complicated. As you know, the Bermuda Corporate Tax Act was just enacted at the end of 2023. It's at a 15% baseline tax rate.
However, there are many transition and other credits that would be provided against that. We know of the transition adjustment, which we booked in the quarter for $90 million. However, all the other items that are gonna play into that rate are not yet concluded upon by the Bermuda tax authorities. They're gonna be rolled out through 2024, and we'll know more about those. So as we think about 2025, we think it'll be broadly in line in terms of the tax rate with 2024. However, again, it's to be determined based on things that happen in the upcoming year.
Pablo Singzon (Executive Director - North American Life Insurance Coverage)
Okay, thank you.
Operator (participant)
Your next question comes from Mike Ward with Citi. Please go ahead.
Mike Ward (Managing Director - Insurance)
Thanks, guys. Good morning. I was just wondering if you could maybe expand on the Structured Credit product growth in the quarter, and any update on the IP Finance line in terms of risk or growth?
Dan Burrows (Group CEO)
Yeah, thanks, Mike. Dan here. I'll take those questions. So, firstly, you know, when we look at Q4, we wrote about $102 million of new business, and that was predominantly through the aircraft leasing, so the AFIC deal, which is contract frustration, then some structured credit and some mortgage. The structured credit really is regulatory capital relief transactions with some of the major European banks on their asset-backed portfolio. So if they get to the end of the year, you know, they could be rolling up those portfolios, and insurance can step in and kind of give them some regulatory capital relief. And that's the sort of product that we're looking at.
So that's really traditionally why those deals happen towards the end of the year, as institutions roll up the portfolio and are looking to buy out some, you know, capital relief, solvency relief, regulatory capital, that sort of thing. And then moving on to IP, it's a really good question. I think what we can say, there's been no movement in the losses to our portfolio. It is a new line of business, and certainly we've ensured a feedback loop from our claims data into the underwriting process. And, you know, we're not afraid to change our assumptions and change pricing accordingly. So that's just resulted in fewer deals hitting our hurdle rate than originally planned, and we believe this is the right approach with any new line of business.
I'd just like to underline again, we don't have any exposure to Vesttoo, unlike others in this space.
Mike Ward (Managing Director - Insurance)
Got it. That's helpful. And then maybe just kind of high-level question. Just curious if you could discuss any business that you might have rejected from the MGU in the quarter. And then, I guess, after the split, like, I'm curious if there's been business that maybe the MGU wanted but you didn't, so they looked elsewhere. Just kind of trying to, you know, think about the relationship so far.
Dan Burrows (Group CEO)
Yeah, I think that we have a very aligned approach and, and share a very similar view of risk. So, you know, fundamentally, the, the portfolio we're very pleased with. But yeah, we've had discussions around certain lines. It could be, you know, primary D&F, where we don't really have appetite for attrition. We helped work with them on a construction portfolio where, you know, our Chief Underwriting Officer and myself have experience of that. So that, that was more kind of shaping risk. You know, neither, neither party are really currently that interested in writing lines like casualty. So yeah, there, there are, there are deals occasionally we discuss in more detail, and they may not be within our appetite, but I wouldn't disclose any more than that.
Mike Ward (Managing Director - Insurance)
Thank you.
Operator (participant)
Your next question comes from Meyer Shields with KBW. Please go ahead.
Meyer Shields (Managing Director and Equity Research Analyst - Property and Casualty Insurance)
Thanks. First, I feel bad for not wishing Dan a happy birthday. But more importantly, with all the puts and takes on reinsurance, should the 2024 ratio of net to gross written premium go up or down compared to 2023, do you think?
Allan Decleir (Group CFO)
Yeah, I'll take that. Meyer, thanks. It's Allan here. No, I mean, as I mentioned in my prepared remarks, a lot of our reinsurance on our reinsurance portfolio has been purchased already. So we believe that our outwards program is pretty similar to how it was last year in terms of retention. We're pleased with how the program worked last year, and so as Dan mentioned, we wrote one-third of our reinsurance book. At January 1, our outwards reinsurance program has been partially placed, and our quota shares, a lot of those are in place. So we would expect generally the same retention in 2024 as 2023 broadly. Although, of course, we do have the, you know, renewals in Japan in April and then in the U.S. market in middle of the year.
Meyer Shields (Managing Director and Equity Research Analyst - Property and Casualty Insurance)
Perfect. Thanks so much.
Operator (participant)
Ladies and gentlemen, as a reminder, should you have a question, please press Star followed by 1. Your next question comes from Pablo Singzon with JP Morgan. Please go ahead.
Pablo Singzon (Executive Director - North American Life Insurance Coverage)
Hello, can you hear me?
Dan Burrows (Group CEO)
Yeah. Hi. Hi, Pablo.
Pablo Singzon (Executive Director - North American Life Insurance Coverage)
Okay. Yep. Hi. So, the first one, just for Allan, has the entire book renewed into the commission arrangement with Fidelis MGU at this point? In other words, is a 15% MGU expense ratio a good run rate to think of for 2024?
Allan Decleir (Group CFO)
Yeah, thanks. That, Pablo, that's a great question. Our strategy and structure was designed to work in the long term with the MGU. Again, it's a long-term binder agreement, and it's worked with some of the best underwriters in the industry. And it's worked as intended, and we produced a fabulous 82.1% combined ratio for 2023. And we believe that the portfolio as a whole is well positioned, going forward through the cycle, to produce a combined ratio in the mid- to high 80s through the cycle. We work closely and collaborate closely with the MGU on all aspects of our inwards and outwards portfolio. In 2023, we had outstanding underwriting performance, and as a result, the profit commission to the MGU was higher than in a normal year, in a 13%-15% ROE year.
So broadly speaking, yes, the fees to the MGU will be similar going forward. It is pretty much baked into our returns, or is baked into our returns. It'll be slightly less if we only meet... it'll have slightly lower recurrence, obviously, but I think it'll be broadly in line with this year going forward.
Pablo Singzon (Executive Director - North American Life Insurance Coverage)
Okay, thanks. And then, second and last for Dan, I just wanted to confirm, when you say growth and specialty will be broadly in line with 2023, we're talking about the 40% GPW growth this year, right? So does that serve your expectation for 2024? Just wanted to make sure that's clear.
Dan Burrows (Group CEO)
Yeah, I think that, that's, you know, what, what we would be projecting for 2024. That's correct, Pablo.
Pablo Singzon (Executive Director - North American Life Insurance Coverage)
Okay, thank you.
Operator (participant)
Thank you. That concludes today's question and answer sessions. I'd like to turn the call back to Dan Burrows for closing remarks.
Dan Burrows (Group CEO)
Well, thank you, and thanks for joining today's call. I'd just like to say we're very confident in our current position and excited about the prospects for 2024, and we look forward to sharing our continued progress with you in future earnings calls. It's a special day today, not only because it's my birthday, and in closing, I would like to extend heartfelt thanks to all our colleagues and partners for their exceptional performance throughout the year, especially today on Employee Appreciation Day. It's important to acknowledge the hard work, dedication, and unwavering commitment of the team at Fidelis Insurance Group, so I thank them all. So thanks, and have a great day.
Operator (participant)
Thank you. That concludes today's conference call. Thank you for participating. You may now disconnect.