Fidelis posts 78% combined ratio in cat-hit 2018

Fidelis’ combined ratio improved by 8 points to 78 percent last year despite an uptick in cat losses.

Net profit excluding preference shares surged from $4mn to $56mn for the 12 months to 31 December.

The carrier, led by Lancashire founder Richard Brindle, also delivered an annualised return on equity (RoE) of 6.2 percent – up from 0.4 percent in the preceding 12 months.

The combined ratio improved despite the fact cat losses rose from $38mn to $45mn, as it benefited from $15mn of favourable development on prior-year cats, including reserve releases on Hurricane Irma.

Gross premiums written increased by almost 27 percent to $691mn at the London market and Bermuda carrier.

The company said that its earned-to-written premium ratio remains low owing to the lagged earn-through on multi-year deals, and that if the metric had been at a “mature state” of 80 percent, its combined ratio would have been 71 percent and its RoE 11.5 percent.

In an interview with The Insurance Insider alongside the results release, Fidelis CEO Brindle said that the rating response to the 2017 events demonstrated that the industry had undergone a “secular change” and that companies now need to “think differently” to succeed.

The company had originally intended to write a significant book of London market specialty insurance risk in lines like terrorism and energy, but it had scaled back drastically given the rating environment and wrote only 6 percent of top line in its specialty insurance segment in 2018.

The executive said that too many in the market were focused on doing the “same old stuff” and were “not coming up with anything new”.

Brindle said that 64 percent of the firm’s top line came in its bespoke underwriting segment. He said that this book is made up largely of contracts with customised wordings, non-correlating risks, title insurance and trade credit policies.

Examples include the Aircraft Finance Insurance Consortium, a Marsh-brokered programme that underwrites the delivery of Boeing aircraft to airlines to reduce the cost of financing.

Brindle added that the consortium had underwritten about 4 percent of Boeing’s new aircraft sales in 2018 and this figure was likely to grow to between 7.5 percent and 10 percent.

“This is the biggest block of new aviation premium to hit the market in my career,” he said.

Growth is likely to be focused on this bespoke segment, Brindle said, with work underway to see if the air finance product can be replicated in the marine market to serve shipping firms.

The former Lancashire CEO said that despite the rate rises coming through in the London specialty market, he believed the risks continue to be sorely under-priced.

“The base is so low. When you drill down to look at most specialty accounts – where there are rate rises these are in the low single digits, which is not enough to bring the risks back to technical profitability,” he said.

Brindle stressed that the firm had moved away from its original total return model and was now focused on taking risk on the liability side not the asset side of the balance sheet.

“We have sold out of all our hedge funds except one and we will be out of that by the end of 2019,” he said.

He added that 92 percent of its portfolio is now in fixed income securities or cash.

Fidelis was founded in 2015 with backing from Pine Brook, Crestview and CVC.

Brindle said Fidelis was not looking for a liquidity event “anytime soon”, and that if the business were sold in the future management would remain committed to its existing underwriting strategy.

“If in the future we did sell the business, we would want to carry on doing what we do as an underwriting centre of excellence,” he said.

According to Brindle, Fidelis is also likely to increase the size of its sidecar Socium Re in the coming year.

The carrier will target mid-year and year-end raises for the $50mn special purpose vehicle, which was launched in June last year.