Be different—and make a difference

Fidelis was convinced that 2020 represented an opportunity to grow the business. It raised substantial fresh capital in a series of issues, as Hinal Patel, group chief financial officer and Bermuda chief executive officer, explains.

“Companies needed to push rates up to replace the lost investment income.”
Hinal Patel, Fidelis Insurance

How much capital did you raise and how?

Fidelis raised $1.3 billion of capital in 2020. We raised $860 million of common equity, $330 million of tier 3 debt and $125 million of tier 2 debt. With limited exposure to COVID-19, the funds were raised to take advantage of the hardening rating environment.

Who are the main investors?

For the common equity we had a combination of our current shareholders providing more capital and new longer-term investors such as ADIA, Capital Z and ALFA.

Have you hired any new key figures/senior management?

Across the group, we have hired 19 underwriting heads in 2020 across a number of specialty and reinsurance lines of business, bringing varying levels of experience. These underwriters were hired to help with the rapid growth of the business, and to identify and develop new opportunities.

“We carried out a third raise in Q4 2020 following further pricing momentum.”

What is your initial business plan?

We grew our business from $811 million of premium in 2019 to over $1.5 billion in 2020. This has been across our reinsurance and specialty pillars. The marine, aviation and in particular the direct and facultative (D&F) markets have seen strong rate increases over 2020. Excess and surplus (E&S)/specialty markets are seeing record demand as admitted and mega-markets continue to reduce appetite and tighten underwriting, driving market dislocation and differential pricing.

In 2021 we will continue to grow our reinsurance and specialty lines and growing into new lines such as contingency, fine art and specie.

Due to our technology and aggregation system FireAnt, which responds in real time to changes in our inwards and outwards portfolios, we were able to deploy the capital quickly after we raised the funds optimising the efficiency of our capital.

While we grow the business in a strengthening market, we’re also looking to reduce the volatility of our results and have reduced our exposures as a percentage of capital to the lowest levels we have had since starting up.

Why did you feel now was a good time to raise additional capital?

We raised the capital over the course of the year raising $300 million of equity back in February 2020 to take advantage of the market hardening. At that stage we saw four main themes playing out:

  1. The ILS retraction in collateralised retrocession is gaining pace due to investor exasperation with unmodelled losses and the inefficiency and opacity of capital trapping mechanisms.
  2. The insurance company pullback as mega-markets continue to reduce appetite in the E&S/specialty markets along with Lloyd’s Decile initiative reducing capacity from Lloyd’s for underperforming classes.
  3. Casualty crisis as social and award inflation was taking hold, leading to several players having to strengthen their casualty reserves.
  4. Three years of material losses in 2017, 2018 and 2019.

More pricing momentum was created as the COVID-19 crisis hit during Q1 2020, causing unprecedented and unmodelled losses. This was a multi-class multi-territory loss which is still ongoing. Added to this was the lower interest rate environment meaning companies needed to push rates up to replace the lost investment income. As a result we saw more opportunities and embarked on a second raise in June 2020.

We carried out a third raise in Q4 2020 following further pricing momentum and new opportunities to grow resulting from the increased market loss activity in Q3 from the active hurricane season and specialty retention losses such as the Beirut explosions, the International Group marine losses, and aviation losses such as the Air India crash to name a few, all in addition to the worsening COVID-19 loss environment..

Why did you choose Bermuda to do so?

Bermuda is increasingly the world’s main reinsurance marketplace, with increasing amounts of capital, both physical and human. More and more brokers are opening offices and populating them with senior people, and more of the overall capacity for deals is written in Bermuda.

We have added underwriters to our Bermuda office to start to write classes such as bespoke, D&F and energy, alongside our reinsurance offering in Bermuda, to take further advantage of this.

“Bermuda charities will be major recipients of our cash donations and our time.”

What has been your experience of Bermuda so far?

We have found Bermuda a very welcoming business environment. In particular, over the last year the government’s handling of COVID-19, from the sensible quarantine measures to the vaccine rollout, has been well planned and clearly communicated. This has meant that for much of the time, while colleagues in other countries were struggling with remote working, we have been able to work from the office, with all the benefits of communication, collaboration and creativity that come from that.

The BMA is a regulator that understands our business model and values transparency and communication.

What are your predictions for reinsurance market conditions in 2021?

It’s hard to make predictions in the era of climate change, so we just try to ensure that our business is primed for any eventuality. Already we’ve seen a rollercoaster of expectations with retrocession pricing below expectation at January 1 (good if like us you were a buyer), but with a substantial market event in February expectations are already beginning to rise for both reinsurance and retro.

As we keep saying, the industry isn’t suffering from an absence of capital but from an absence of profit. With the elevated level of losses from secondary perils, let alone hurricanes, prices will have to reflect that if reinsurers are even to begin covering their cost of capital.

What are your medium-term objectives?

We always say we want to be different and to make a difference. We have objectives for our performance in terms of combined ratio and return on investment, but also in terms of how we reflect and impact the societies we work in.

On the former we want to continue to grow profitably on our own balance sheet and to find more partners for our Socium business. On the latter we have established the Fidelis Foundation, and Bermuda charities will be major recipients of our cash donations and our time as we seek to become more involved in helping improve this wonderful Island.

Image courtesy of Getty; Shutterstock / Eric Isselee

In association with:

A Bermuda:Re+ILS Special Report