Q1 2024 Earnings Summary
- Fidelis Insurance Group is well-protected against extreme weather events, thanks to a broad suite of reinsurance products including proportional, non-proportional, and index products, as well as recently renewed bonds totaling $150 million that provide protection for U.S. named storms and earthquakes. This strong risk management makes the company resilient in the face of increased hurricane forecasts.
- The company's diversified portfolio allows it to manage large losses effectively, such as the Baltimore bridge collapse. With over $1 billion of specialty written in the quarter, any potential loss is considered manageable within the diversified portfolio. Fidelis adopts a standard and conservative reserving approach, weighing limits against the full range of probabilistic outcomes, indicating prudent financial management.
- Participation in the new Lloyd's Syndicate 3123 enables Fidelis to access new business opportunities that were previously unattainable, particularly in Lloyd's-only business. The company has observed positive movement in reinsurance pricing and plans to selectively increase exposure in lines with greater appetite, potentially enhancing growth and profitability.
- Exposure to the Baltimore bridge collapse: Fidelis Insurance Group may have significant exposure to the Baltimore bridge collapse. Management acknowledged the complexity and early stage of the event, stating that they "would weight limits against the full range of probabilistic outcomes" but did not provide specific details. This lack of specificity could indicate uncertainty about the potential impact on future results. ,
- Limited disclosure on catastrophe exposure: When asked about exposure to potential extreme hurricane forecasts, management stated, "we don't give out details on PMLs." The lack of detailed disclosure on probable maximum losses (PMLs) may raise concerns about the company's exposure to catastrophic events and their potential impact on financial performance.
- Reliance on significant reserve releases: The company reported a substantial reserve release of $67 million in the quarter, described as "the largest disclosed quarterly release" by analysts. Management indicated that reserves are reviewed on a timely basis, but such significant releases may not be sustainable and could affect future earnings if reserve releases decrease.
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Baltimore Bridge Loss Impact
Q: How does the Baltimore loss affect your reserves and market outlook?
A: The Baltimore bridge loss is within our expectations given our market profile. We use a standard reserving approach, weighting limits against the full range of probabilistic outcomes. We've written over $1 billion in specialty this quarter, so any loss is very manageable within our diversified portfolio. The situation is complex and it's too early to determine how it will impact the market or pricing. -
Reserve Release This Quarter
Q: What drove the significant reserve release this quarter?
A: As a short-duration company with an average reserve duration of two years, we review reserves timely each quarter. In Q1 2024, prior-year activity was benign across all segments. The reserve release was purely based on actual loss experience, with no change in assumptions. -
Property Pricing Outlook
Q: How is property pricing trending and what's your market outlook?
A: The market remains robust—the best we've seen in 20–25 years—with compound increases over the last few years. While property pricing power is decelerating but still increasing, we're seeing positive movement. Our leadership position allows us to dictate terms and secure better pricing and coverage. Despite inflation driving demand, there's been no significant new capacity entering the market. -
Share Buyback Program
Q: How will you pace the $50 million share buyback?
A: We announced a $50 million buyback program in December 2023, to be executed over 12 months. With our current book value at $21.22, we can continue the program throughout 2024. We'll be measured and consider share price to ensure buybacks are accretive to book value. -
Bespoke Segment Cession Rates
Q: What cession rate should we expect for the Bespoke segment?
A: The Bespoke segment experiences fluctuations due to unique deals. Generally, the 2023 overall yearly cession rate is around 40%, potentially as high as 50%, depending on the type of deal. -
Hurricane Exposure
Q: What's your exposure to potential extreme hurricane forecasts?
A: While we don't disclose PMLs, we're exposed at 1-in-150-year events. We have substantial proportional protection in both the treaty and D&F portfolios, and we buy a broad suite of products including non-proportional and index products. We've renewed bonds providing protection for U.S. wind and quake, so we believe we're well protected. -
Lloyd's Syndicate Plans
Q: Will the syndicate write more reinsurance, increasing exposure?
A: We'll focus on lines where we have appetite, taking smaller shares where we don't. We've seen positive pricing in reinsurance and have taken premium increases rather than exposure increases. The syndicate allows us to access business we couldn't before, but we'll avoid attritional risks not in our appetite. Any activity will have no material impact on our 2024 premium.
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