Fidelis Insurance (FIHL) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported net income of $20 million or $0.18 per diluted common share, with operating net income of $14 million or $0.12 per diluted common share, resulting in an annualized operating return on average equity (ROAE) of 2.3% [20][21] - Gross written premiums increased by 9% year-to-date to $2.9 billion, with a quarterly growth of 2% to $1.2 billion [20][21] - The combined ratio for the quarter was 103.7%, impacted by the English High Court judgment related to Russia-Ukraine litigation [7][21] Business Line Data and Key Metrics Changes - In the Insurance segment, gross premiums written increased by 7% in the quarter, driven by asset-backed finance and portfolio credit, as well as political risk lines [21][10] - The Reinsurance segment saw gross premiums written of $317 million for the quarter, down from $346 million in the prior year [21] - The attritional loss ratio improved to 24.7% for the quarter, compared to 25.9% in 2024, indicating strong underlying portfolio performance [22] Market Data and Key Metrics Changes - The company maintained high retention levels, around 90% for the year, despite competitive pressures in certain markets [66] - The property market is experiencing significant pricing differentials compared to subscription market players, allowing the company to achieve favorable terms [11][10] - The aviation sector remains challenging, with the company not willing to write business that does not meet underwriting standards [12][104] Company Strategy and Development Direction - The company aims to balance profitable underwriting with capital returns to shareholders, having delivered a gross written premium growth of 54% since 2022 [5] - A focus on deploying capital to attractive risk-reward opportunities is emphasized, with ongoing expansion of strategic partnerships [6][38] - The company plans to continue share repurchases and has renewed its common share repurchase authorization to $200 million [18][29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the business's strength and the ability to capitalize on profitable opportunities, particularly as the uncertainty from Russia-Ukraine litigation is resolved [38] - The company expects underwriting growth for the full year to be approximately 6% to 10%, with a strong pipeline in asset-backed finance and portfolio credit [34][35] - Management remains cautious about the aviation market but is hopeful for improvements in pricing [104] Other Important Information - The company announced an increase in its quarterly dividend to $0.15 per share, reflecting a dividend yield of 3.6% [29] - The effective tax rate for the first half of the year was 18.9%, expected to remain around 19% for the full year [27][28] Q&A Session Summary Question: Impact of wind season on property pricing - Management indicated that a significant capital event would be necessary to impact overall profit cap pricing, noting that recent losses have not affected the broader market [44][46] Question: Demand for political risk coverage - Management reported an uptick in deal activity in political risk, with new and repeat customers indicating a strong pipeline [48][50] Question: Explanation for discount valuation - Management acknowledged the stock is undervalued and emphasized strong performance excluding Russia-Ukraine impacts, indicating confidence in the portfolio's profitability [54][56] Question: Future expectations for return on equity - Management expressed confidence in achieving through-the-cycle targets, with a reasonable expectation of 15% return on equity in the current environment [59][60] Question: Pricing levels in property D and F - Management noted that while pricing is under pressure, they are maintaining high retention rates and are not willing to write inadequately priced business [66][68] Question: Reserve releases in property - Management indicated that positive prior year development is driven by actual claims experience, with consistent results expected in the reinsurance segment [80][82] Question: Tax rate guidance - Management clarified that the increase in the effective tax rate is due to the geographic distribution of income, with expectations for a similar rate in 2026 [110][112]