Brindle: Fidelis has put $1bn of new capital to work
Fidelis has raised more than $1 billion of new capital this year — and all of it has already been put to work.
The privately held Bermudian reinsurer and specialty insurer doubled its capacity to $2 billion this year, through the raising of $800 million in equity capital and a further $300 million in ten-year bonds.
Richard Brindle, chairman and group chief executive officer of Fidelis, said in an interview that the new capital enabled the company to capitalise on favourable market conditions.
One of the drivers of the hardening market, he said, was the trapped capital in the insurance-linked securities market after three years of catastrophe losses had shown up some structural issues with the third-party capital vehicles.
Mr Brindle believes that a combination of factors mean that “probably the hardest market we've seen since 2002” will continue, probably beyond next year.
Fidelis was one of several Bermudian insurers to raise capital this year, along with the likes of RenaissanceRe, Arch Capital, Hiscox and Lancashire.
Mr Brindle said: “I said it would be a crime if we did not put all of that capital to work and we've deployed every dollar.”
Fidelis's ability to capitalise was strengthened in June with the upgrade of its financial strength rating to A from A- by credit rating agency AM Best.
Mr Brindle sees five main factors behind rising prices across re/insurance lines:
• Large catastrophe losses of the past three years
• Casualty crisis: years of inadequately priced casualty insurance coming home to roost
• Lloyd's of London market clamping down on underperforming syndicates
• Pullback by large US insurers including AIG, releasing demand into the market
• Issue of trapped capital putting a damper on the insurance-linked securities market
Mr Brindle, who founded Fidelis in 2015, wants his team to capitalise on today's opportunities.
He said: “I say to our underwriters, ‘Never say no, say no, but…'. Those ‘no, buts' have started conversations that have led directly to orders.”
Further upward pressure on pricing stems from the pandemic. Mr Brindle believes that the industry's CVovid-19 losses could reach $90 billion.
“If the farcical stuff from the Trump administration in terms of managing the response to Covid-19 in the United States continues, then there could be a whole lot more losses coming down the road. So there are a lot of headwinds incumbents are facing and that's why I don't see the market losing its hardness any time soon,” Mr Brindle said. “I expect the rate rises to continue into next year and beyond.”
Fidelis underwrites out of offices in London and Dublin, as well as its Bermuda headquarters. The island-based team, led by Bermuda CEO Hinal Patel, numbers 43, but Mr Brindle expects that to grow.
Mr Brindle said: “We're writing a lot more business now. Our contract count has gone up, which means more ops, more legal, more accounting, more underwriting, more everything.
“That's great for our mentorship scheme, because we have an industry that's in a really interesting phase.”
In recent years, third-party capital in the form of ILS such as catastrophe bonds, has been taking an ever-greater share of the market. However, the value of the traditional reinsurance model has been highlighted by current issues with ILS, Mr Brindle said.
Global broker Aon estimated that about $15 billion of collateralised reinsurance capital was trapped at the end of the first quarter of this year, as losses from events such as 2017 Hurricane Irma and 2018 Typhoon Jebi continued to creep higher.
“The whole point of ILS is to be an annual venture, when you can roll the capital or not,” he said. “The problem is that now the capital is getting trapped for multiple years.
“Those guys did very well when there was that loss-free period between 2012 and 2016, but the problem is there have been losses every year since, compounding the problem of the trapped capital.
“I wish them well and they have a role to play in our industry, but they're going to have to think about how they deal with trapped capital, because it's not an issue that will go away and creative thinking is required.”
Bermuda is the world leader in ILS and according to a report by alternative risk transfer website Artemis.bm, about 84 per cent of global issuance was listed on the Bermuda Stock Exchange at the end of 2019.
Mr Brindle, who founded Lancashire Insurance Group in Bermuda in 2005, has a fondness for the island and sees its handling of the pandemic as a feather in its cap.
“The shambolic reaction of the UK Government contrasts sharply with the efficiency of the Government here,” he said. “I was so impressed, when I flew in on the BA flight, not only with the efficiency, but the courtesy with which we were met.
“Given that Bermuda probably competes more with the UK than anywhere else for insurance talent, and given the chaotic response of the government in the UK to the pandemic, I think Bermuda has a real marketing opportunity now.”
During the pandemic Fidelis has ramped up its support of local charities. In April, the company donated $350,000 to support the Covid-19 effort in Bermuda. Company staff also donated $32,500 to Bermuda charities.
Since then, Fidelis has made additional donations of about $120,000 to local charities, including the Bermuda Community Foundation, Family Centre, Big Brothers Big Sisters, Life Through Sports, the Coalition for the Protection of Children, Women's Resource Centre and the Eliza DoLittle Society.
CVC, a major shareholder of Fidelis, also added $150,000 to Fidelis's Covid-19-related donations. Of that, $105,000 is being donated to the Bermuda charities the company supports.