Fidelis Insurance Holdings Limited Q2 FY2025 earnings call

• Reflected on past 2 years since IPO, noting 54% gross written premium growth and 39% book value per diluted share increase since 2022.
• For the quarter, gross written premiums reached $2.9 billion with 9% year-to-date growth. Combined ratio was 103.7% due to Russia-Ukraine litigation impact. Annualized operating ROAE was 2.3% with net income of $20 million. Excluding litigation impacts, combined ratio was in the mid-70s and ROAE targets were surpassed.
• Insurance segment: 7% premium growth, direct property book strong returns, disciplined underwriting. Reinsurance segment: Premium in line with prior year, portfolio optimization with core clients, outwards reinsurance as core part.
• Capital management initiatives: Renewed common share repurchase authorization to $200 million and raised quarterly dividend to $0.15.

In the Insurance segment, there was 7% premium growth in the quarter as capacity was deployed into higher-margin areas, with the direct property book delivering strong returns. The segment RPI was flat as disciplined underwriting avoided underpriced business. In the Reinsurance segment, premium in the quarter was broadly in line with prior year, with focus on optimizing the portfolio with core clients. Some rating movement in parts of the portfolio was seen, and the 4/1 and 6/1 renewals had specific developments. Outwards reinsurance serves as a core component of portfolio management, with the sponsorship of the HerB 7 cat bond and successful renewal of cat protections in the traditional market.

• Full year underwriting growth expected to be approximately 6% to 10%.
• In Insurance, focus on areas like Asset Backed Finance, Property (high retention rates, margin, profitability), Marine (stable market, balanced portfolio), and Aviation (waiting for sustained pricing improvement).
• In Reinsurance, optimize portfolio with top-tier clients, manage exposures via outwards reinsurance, and focus on U.S. wind season impact on market trajectory.

• Market dynamics and potential capital events could impact property cat pricing.
• Geopolitical risks and macroeconomic issues could affect Political Risk, Terror coverages.

Q: Dan, you mentioned that this year's wind season could determine the trajectory of property cat pricing going forward. And I get that as a concept, but I'm wondering maybe more specifically, since California's wildfires didn't seem to have an impact on pricing outside of California, what sort of loss or losses in Florida or in the Southeastern United States from wind season, do you think it would take to impact overall property cat pricing for next year?

A: Yes. Thanks, Meyer. And I think that really has been a path that we've seen in recent loss activity. Years ago, a decent sized loss would affect the whole market, and we haven't seen that. We've just seen California wild prices with any real movement. I would say it's really about a capital event. That's what's really going to change the market, something that really hits capital and potentially rating. I think for us, we've got a well-managed portfolio. We're a big user of outwards reinsurance. We talked a little bit about some of our key PMLs. So we think we're well positioned. But I think it's really a capital event.

Q: Congratulations on your results. But I need a little help in my analysis as I'm not an insurance expert. The company has done an seemingly excellent job in capital management and risk management, which has resulted in the company that's selling at a discount valuation relative to its peers. And checking around the Street, it seems that our unusual structure is probably responsible plus the Ukraine issue and the California wildfires, which are behind us. The -- your book value has been able to rise throughout that period of losses, which is impressive. How do you explain the discount valuation? And is it due to the structure? I know Richard Brindle and he's done an outstanding job and he's a good guy having your team. Why are we selling at discount valuation?

A: Yes. Look, thanks, Lee. And we completely agree that our stock is undervalued at the time. And just to highlight the performance ex Russia-Ukraine for the quarter, we would have been in the mid-70s. And even if we look at Q1 with Russia-Ukraine -- sorry, with wildfires, not ex Russia and Ukraine, we'd be ahead of plan. So the results are exceptional. And remember, that business, Russia-Ukraine was written pre-bifurcation. So that gives us a lot of confidence, not only the trading environment, but how the TFP are building the portfolio. It's mature, it's diversified, it's optimized, but it's highly profitable. So I think where we are now, we're in a really strong position to buy back stock because we do think we're undervalued. But when you look at performance, it really indicates that the structure is working exactly as intended. They're focusing on the inwards portfolio. They're creating alpha. We've got one of the best combined ratios ex Russia-Ukraine in the market. So we agree we're undervalued, but it allows us to take advantage of that dislocation, buy back shares, expand the share repurchase program, and that creates immediate value. So what we'll do is to continue to focus on performance. We think that will unlock the true value of the business. But you're absolutely right, Lee, it should be trading above book. We think we're undervalued. It does create an opportunity to buy back stock. But I think the structure works exactly as it should be working. We match the right capital to the right risk. They concentrate in the underwriting. And now we're post Russia-Ukraine, we can draw a line under it. Those unencumbered results will come through and prove it to the market.