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Insider In Full: Brindle: Fidelis will raise more capital if opportunity is there

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Topics: Strategy Topical Trends

Fidelis chairman and group CEO Richard Brindle has said his firm will not hesitate to raise more capital if the rating environment continues to create opportunities...

This week, the firm revealed a $300mn capital raise, in which it brought in the Abu Dhabi Investment Authority as a new investor, and secured increased support from existing shareholders.  

In an interview with Insurance Insider following the news, Brindle said his firm was in conversations with multiple investors and would “absolutely” seek to raise further funds if the opportunity was good enough.  

“If rates continue going up and we are constrained by our capital, we will raise more capital, for sure,” he said.  

The CEO said Fidelis was finding lots of opportunities to deploy the new capital on specialty lines and was anticipating being able to write business at higher rates at both the Japan and Florida catastrophe renewals in the months to come.  

The current market environment “feels like 2006, but not as good”, Brindle said. “You have similar characteristics to 2006/07, where brokers are having difficulty getting the business placed at the original price.” 

The executive said he anticipated catastrophe rates would remain on an upward trajectory for the foreseeable future, given severe Japanese typhoon losses, Irma and Michael loss creep and assignment of benefits trends in Florida.  

“We also think ILS appetite for more volatile perils and attachment points will be diminished for some time to come, which will make the 1.6 renewal interesting for Florida,” Brindle said. 

Meanwhile, the CEO said he believed momentum in specialty lines will depend very much on the US domestics and Lloyd’s, and whether the Corporation continues with its tougher approach to performance management and growth.   

“As long as Lloyd’s keep their nerve, and I expect them to, we think the squeeze will continue on specialty lines,” he said.  

“We are pretty bullish that this is a medium-term opportunity and it’s not a flash in the pan.” 

The Fidelis CEO said although his firm will capitalise on this opportunity, he is keen not to be overly aggressive on pricing, 

“I always tell my underwriters, ‘Don’t say no, say no, but’,” Brindle explained. “We are not looking to gouge and get the highest price. Yes we do like to be top-quartile in terms of pricing, but it’s an opportunity to rekindle a lot of old relationships from previous cycles.” 

Room for expansion 

Brindle told this publication the additional firepower that comes with the $300mn capital raise would allow Fidelis to explore entering new lines. He highlighted contingency as one area which could be facing “huge dislocation” from the consequences of coronavirus. 

Fidelis will also consider writing more retro business – where rates are seeing double-digit increases – on its own enlarged balance sheet, but the CEO said his firm has also reinitiated efforts to raise third-party capital for distressed single situation retro opportunities.  

Fidelis was among a number of companies and individuals that sought to fundraise for new retro vehicles in the second half of last year, but ultimately downed tools as third-party investors cooled on the sector. 

The CEO noted the challenges with writing retro on a rated balance sheet, saying: “The problem with retro is its very binary and it attaches low down on the curve. You have to be careful that, in a medium-sized event, you’re not losing a whole lot of money.” 

He continued: “We are very sceptical of funds that have had no alignment through retention, and we think many investors simply won’t support that structure anymore. We are not afraid to take a 20 percent retention on retro, but it does work much better with partners. 

“So we are back on the road now looking to rekindle some of those conversations but on what we call ‘special situations’ opportunities where capital can support one-off dislocated deals. It’s not easy.” 

Reflecting on Fidelis’ previous attempts to fundraise for retro, Brindle said: “It was near-impossible to raise money for the traditional retro type opportunities. In fact, the question which came up in every single meeting was climate change, and the industry as a whole simply has no credible answer to that. 

“Our experience is that anyone in the industry now trying to raise money and relying on the models alone is laughed out of the room.” 

Fidelis has developed its own methodology where it looks at claims severity and frequency over a five-to-10-year period to supplement the models. The 30-to-60-year historical records often used by models are in many ways no longer credible, as oceans are warmer now than they were 30 years ago, Brindle said.  

“Overall, the industry had been bad [on climate change] and CEOs don’t talk about it anywhere near enough.” 

Risk allocation 

Fidelis runs a risk-allocator model, whereby it sources risk and matches it with the best platform within the firm. A big part of this strategy is its third-party capital arm Socium, which now has $2.5bn in assets under management and also houses MGA platform Pine Walk. 

“We are very much traditional underwriters and use our own balance sheet, but the fee part of the business is also important,” Brindle said.  

The executive said Fidelis would look to build out its third-party capital business further, but said he would stop short of raising third-party ILS capital to directly support specialty lines.  

“I just think it is terribly dangerous,” he said, pointing to the example of the Prestige oil spill, where a long-running legal battle found insurers liable for the losses.  

“The ILS market didn’t exist then but had you placed a collateralised contract to protect the marine writings, you would have long since returned the capital and now you would be running that loss net.” 

He added: “We think collateralised capital only works for cat under current structures.” 

 

The Insurance Insider delivers global wholesale, specialty, and (re)insurance intelligence that enables you to act first. Redeem you complimentary 14-day trial for more premium content from The Insurance Insider.

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