Fidelis Insurance (FIHL) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported an operating net income of $127 million, or $1.21 per diluted common share, with an annualized operating return on average equity (ROAE) of 21.4%, an increase of five points year over year [13][14] - The combined ratio for the quarter was 79%, the best since becoming a publicly traded company, improving by more than eight percentage points from the same quarter last year [5][16] - Gross premiums written increased by 8% to $798 million for the quarter, bringing year-to-date gross premiums written to $3.7 billion, also an increase of 8% compared to the same period last year [14][15] Performance Across Business Lines - In the insurance segment, gross premiums written increased by 4% to $606 million, driven by new business and asset-backed finance [14][15] - The reinsurance segment saw gross premiums written grow to $192 million for the quarter, up from $159 million in the prior year, attributed to new business opportunities following loss impacts from California wildfires [15][11] - The direct property book grew by 9.5% year on year, benefiting from new opportunities at compelling pricing [8][14] Market Data and Key Metrics Changes - The company experienced a positive pricing dynamic in the reinsurance segment, with an RPI of 7.1, supported by post-wildfire opportunities [11][12] - The overall RPI remained broadly flat, reflecting the company's differentiated position and ability to navigate market conditions [8][9] - The effective tax rate for the first nine months of the year was 18.8%, compared to 14.6% in the same period of 2024, reflecting a greater proportion of pre-tax income generated in higher tax rate jurisdictions [19] Company Strategy and Development Direction - The company is focused on strategic capital allocation and expert risk selection, balancing profitable growth with returning capital to shareholders through share repurchases and dividends [6][20] - The ongoing expansion of underwriting partnerships is a strategic priority, with the total number of underwriting partners growing to the mid-single digits [23][24] - The company aims to maintain discipline in underwriting standards while capitalizing on attractive rate and margin opportunities across various lines of business [25][27] Management's Comments on Operating Environment and Future Outlook - Management remains bullish about the market, indicating that the prevailing hard market conditions present opportunities for growth [33][34] - The company is cautious in the aviation sector due to increased competition and has seen encouraging signs in the marine sector [10][79] - Management emphasized the importance of maintaining underwriting discipline and focusing on margin, even as competition increases [27][76] Other Important Information - The company repurchased 1.8 million common shares for $32 million at an average price of $17.40 per share during the quarter, with additional repurchases following [21][22] - The average rating of fixed income securities remains high at A-plus, with a book yield of 5% [19] Q&A Session Summary Question: Thoughts on reinsurance growth and expectations for 2026 - Management expressed confidence in the market, indicating that they expect to continue seeing growth opportunities through both existing and new underwriting partnerships [33][34] Question: Stability of RPIs and competitive pressures - Management acknowledged pressure in certain lines, particularly in direct property, but noted strong retention rates and margins [37][38] Question: Exposure to Caribbean hurricane losses - Management indicated that while there is some exposure, it is too early to provide detailed loss estimates, but any net losses are expected to fall within the anticipated cap load [59] Question: Opportunities in data center construction - Management highlighted the importance of having a meaningful line size to participate in large placements, leveraging their structure with the Fidelis partnership [60][62] Question: Verticalization in the market - Management clarified that verticalization is a phenomenon present in both hard and soft markets, allowing them to set terms and conditions effectively [45][46] Question: Concerns about valuation and market multiples - Management agreed that they believe the company is undervalued and emphasized the need for consistent strong underwriting results to unlock value [52][54] Question: Performance in aviation and marine sectors - Management noted that while aviation remains competitive, marine is showing more stability and opportunities for growth [76][79]