Fidelis has conducted its second equity raise of the year, bringing in $500mn of new capital and taking the company to almost twice the size it was a year ago, as it tools up to support growth into a hardening market.
The raise has been supported by a range of investors including a wholly owned subsidiary of the Abu Dhabi Investment Authority, Crestview, CVC and Pinebrook, as well as investors from Goldman Sachs’ high-net-worth network.
Fidelis is the first private company to announce a completed fundraise, as new capital formation picks up pace across public companies, start-ups and private scale-ups.
The fundraise is proportionally the biggest in the sector to date, and is equivalent to roughly 45 percent of Fidelis’ pre-transaction common equity.
Conviction to take more risk
Fidelis founder and CEO Richard Brindle told this publication that the latest equity raise would position the business for rapid growth.
“When rates are higher you should have the conviction to take more net risk, and we have great appetite from our shareholders to take risk,” he said.
The serial industry entrepreneur said Fidelis was now in a position to scale up its line sizes to meet client needs.
“What tends to happen in a hard market is that all of the incumbents reduce line sizes sharply, and you need to step into the breach,” he said.
Brindle said that raising new capital now reflected the firm’s ethos that carriers should position themselves defensively through the soft market before growing as the cycle turns.
“I think this has been a vindication of our underwriting approach,” he said. “Specialty insurance has had no margin for the last five years, and we showed the patience and the discipline to wait it out.”
He explained that while the firm’s approach through the soft market had been characterised by caution, “the default position for our underwriters now should be that you want to write something”.
Brindle said Fidelis felt it was in a position to increase exposure as others were retrenching because it had a highly conservative investment philosophy, and “predictable” losses from Covid-19 owing to limited exposure to areas like binders, direct and facultative property and cat treaty for cedants with large commercial books.
Verticalised market
The Fidelis CEO said that the ability to access well priced risk was “not linear” to size, explaining that being able to put out $50mn instead of $25mn created scope to secure access to better than market terms.
“It was the most verticalised renewal we have ever seen in Florida – and we expect that again to a degree in the Northeast at 1.7.”
Brindle said that at times of dislocation experience comes into its own. “The market is looking for leadership at this moment. You need responsible underwriters and experienced leaders who have traded through hard markets before – and this is going to be my fourth hard market.”
The executive said he tells his underwriters to position themselves at the front of the peloton on pricing, “not in the yellow-jersey position”, adding that growth in a hard market required a carrier to take the brokers and clients with them.
Brindle said that he expected a “multi-year” opportunity to emerge and – echoing comments earlier this year– said the firm would raise additional equity if the rating environment supports it.
“A world of pain”
The executive – an early exponent of third-party capital – explained that “we are in a different world now”.
“The ILS market is in a world of pain,” he said. “People are trapping every dollar of available retro capital that they can.”
Brindle said that this has created a fourth year of ILS losses, and additional losses from an unmodelled source, substantially curbing available ILS capacity at 1 June.
“And the pressure from Covid losses quarter after quarter more generally will be relentless for those with such exposures,” he said. “And every day in some form of shutdown, the loss is ticking up.”
Brindle was speaking a week after AM Best upgraded the business from A- to A, citing “very strong underwriting results” and “the strongest” level of risk-adjusted capitalisation.
The CEO said the upgrade provided the firm with the “ammunition” to take on even more of a leadership role, and that it was already playing a part in boosting its share of programmes.
Fidelis’ raise came after news of a flurry of fundraising exercises across the market.
On Monday this publication broke the news that former Hiscox CUO Richard Watson is fundraising for a new Lloyd’s and Bermuda business, while Ascot founder Martin Reith has retained Macquarie to explore options for a comeback. Beat Capital has also engaged Evercore as it looks to raise a balance sheet.
Arch founder Dinos Iordanou is in talks with Hellman & Friedman and Carlyle about securing $1bn of funds to back a Bermuda start-up, and has held detailed discussions with former Axa XL CEO Greg Hendrick about joining the enterprise.
There has also been a slew of raises from public companies with Lancashire today completing a £277mn ($351.9mn) placing.
RenaissanceRe raised over $1bn last week, including an over-allotment option. In May Hiscox raised £375mn and Beazley sold almost £250mn of stock.
