Fidelis has launched its third fundraise in just over half a year in a move that could take total new 2020 capital towards the $1.5bn mark, Insurance Insider can reveal.
Sources told this publication that the (re)insurer, which is led by Richard Brindle, will seek to tap existing and new investors for around $200mn of additional equity and $100mn of new debt.
It is understood that after a surge in underwriting mid-year the prior new equity has been effectively deployed already, with the raise lined up to provide the firepower to support major 1 January growth. Sources said that alongside the joint equity and debt raise, it is actively seeking third-party capital to support its retro and cat reinsurance book.
Counter-cyclical underwriter Fidelis, which ramped up cautiously from its 2015 start amidst soft underwriting conditions, has transitioned rapidly to growth mode in the past 12 months as the hard part of the cycle arrived.
Sources said that Evercore is advising Fidelis on the fundraise, with a target close in Q4.
First mover
Ahead of this new raise, Fidelis has already raised just over $1.1bn of equity and debt since the start of the year.
Fidelis executed the first private equity raise from an incumbent following the dislocation caused by Covid-19, and with the $500mn brought in equivalent to 45% of pre-transaction equity – proportionally the highest of the fundraises in the sector to date.
After completing this raise in early June, the carrier topped up its debt with a $330mn issuance, taking its total capital to over $2bn, with debt-to-equity around ~17%. The additional debt raised is expected to take debt leverage to around 22%.
All of this came on top of the short-tail (re)insurer raising $300mn of new capital in February from a mixture of existing investors and the Abu Dhabi Investment Authority (ADIA) sovereign wealth fund.
Fidelis has taken a different approach from other parties looking to raise new funds by returning to the market for successive raises to support near-term growth, lessening the drag on returns it would have faced if it had rolled out a ~$1bn raise in one go.
Sources have said that the business is on course to comfortably outstrip 50% growth in its top line in 2020, with growth driven out of areas including specialty insurance, cat reinsurance and retro.
Fidelis declined to comment for this story.
Dialling up net risk
However, following the completion of the June raise, CEO Brindle told this publication that its actions had positioned 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 in June.
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”.
The business has been staffing up to support growth, entering specie and contingency in recent months, following a recent entry to aviation and a scale-up in its marine book.
The firm has consistently outperformed the broader market on underwriting and last year posted a combined ratio of 83%, up from 78% in 2018.
Alongside ADIA, investors include Crestview Partners, CVC Capital Partners, Pinebrook, Capital Z and founding management.
Rating story
Rates in the London market, which were in strongly positive territory ahead of the pandemic, have accelerated since as a risk-off mentality, caution around an above-average US wind season and low interest rates amplify underwriting discipline resulting from pre-existing dynamics.
Rates were up around 15 percent in the mid-year renewals, with Hiscox reporting that rates had achieved compound growth of 45% in London market insurance lines since their 2017 nadir, with a projected combined ratio on business being put on the books of 90%.
Reinsurance rates also hit an inflection point at mid-year, with double-digit rises registered on even good accounts as all boats finally rose in US property. The Guy Carpenter Rate on Line Index for US property cat was up 12% for the period January through July.
Retro pricing has also soared, with UNL cover very difficult to secure for mid-year buyers who typically turned to the ILW market. With issues around the trapping of ILS capital due to tail risk around the property BI issue from Covid, there is scope for significant additional dislocation at 1 January.
