Pelagos Insurance Capital Limited

ladies and gentlemen good morning and welcome to the fidelis insurance holdings third quarter and first in nine months 2023 earnings conference call as a reminder this call is being recorded for replay purposes following the conclusion of formal remarks the management will host a question and answer session and instructions will be given at that time Participants are asked to limit themselves to one question and one follow-up during the Q&A session. With that, I'd now like to turn the call over to Jillian Benson, Group Head of Reporting. Ms. Benson, please go ahead.

Good morning, and thank you for joining us to discuss Fidelis Insurance Group's 2023 third quarter earnings results. With me today are Dan Burrows, our CEO, Alan DeClaire, our CFO, Johnny Strickle, our Chief Actuarial Officer, and Ian Houston, our Chief Underwriting Officer. We will start with prepared comments by Dan and Alan, and then we will take your questions. Before we begin, I'd like to remind everyone that certain statements in our press release and discussed on this call do constitute forward-looking statements under federal securities laws within the meaning of Private Securities Litigation Reform Act of 1995. we intend our forward-looking statements to be subject to the safe harbor created thereby. These statements are based upon management's current assessments and assumptions and are subject to a number of risks and uncertainties. These risks and uncertainties are described in our IPO Perspectives dated June 28 and filed with the SEC. Although we believe that the expectations reflected in forward-looking statements have a reasonable basis when made, we can give no assurance that these expectations will prove to be achieved. Consequently, actual results may differ materially from those expressed or implied. For more information, including on the risk and other factors that may affect future performance, investors should also review periodic reports that are filed by us with the SEC from time to time. Management will also make reference to certain non-GAAP measures of financial performance. The reconciliations to US GAAP for each non-GAAP financial measure can be found on our current report on Form 6K furnished to the SEC yesterday, which contains our earnings press release and is also available on our investor relations website at investors.fidelisinsurance.com and on the SEC's website. With that, I'll turn it over to Dan.

Thank you, Gillian. Good morning, everyone, and thanks for joining us today. We have spoken in the past about how our unique business model, capabilities, and expertise allow us to be nimble and opportunistic and generate consistent, compelling performance. This was evident in our third quarter and year-to-date results. On a year-to-date basis, we have delivered an annualised operating ROAE of 17.7% and a combined ratio of 82.4%, demonstrating continued superior underwriting returns. We remain focused on writing a short-tail portfolio across our three pillars, specialty, bespoke, and reinsurance, preserving underwriting integrity while adapting to market conditions and the broader macroeconomic and geopolitical landscapes. We leverage our relationship with Fidelis MGU to strategically capture underwriting opportunities, and we are focused on allocating capital to the areas that deliver the best risk-adjusted returns. From a macro perspective, we believe that the market remains robust and will provide opportunity to deliver attractive returns for the foreseeable future. We expect continued duration across the portfolio, in addition to compound year-on-year rate increases already achieved over the last five years. Market dynamics continue to be fueled by loss activity, with $100 billion of NatCat losses recorded so far in 2023. which we believe is beginning to look like the new expected annual aggregate of losses. This has been compounded by sustained capital constraints with no new significant capital injections into the industry. We will continue to take advantage of the opportunities these factors will create. The leverage created through our leadership and relevance to clients enables us to deliver superior underwriting margin, deploying our significant line size to take advantage of differential pricing in an increasingly verticalized market. I will now give a brief highlight of our performance and strategy across our three pillars. Compared to prior year, gross and premiums for the nine months up to September 30th increased 15% to $2.8 billion. Strong top line growth has been coupled with compelling bottom line profitability. Combined ratio improved year on year, from 101.6% to 82.4% for the first nine months, and our year-to-date annualised operating ROAE is 17.7%. Our growth in 2023 continues to be driven by our specialty insurance portfolio, where following years of compound increases across multiple lines of business and a continued momentum in pricing, we were able to leverage our market lead position, scale on lie size, to achieve favorable participation on targeted accounts. Year-to-date gross written premium is up 46% in the specialty segment, with property DNF a significant driver, with RPIs of over 140% for this class, as demand and pricing in the vertical remain robust. Specialty now represents 65% of year-to-date gross written premium versus 51% for the first nine months of 2022. We continue to focus as a specialty and bespoke insurance carrier where we see the best returns in the current market environment. While bespoke was down on the quarter year over year, we remain confident in this pillar of our business over the long term. Our lead position, along with the non-recurring nature of contracts, allows us to be particularly selective. This segment is more insulated to traditional insurance market cycles than specialty and reinsurance. And the deal flow is impacted by underlying transactional activity and sensitivities to economic and geopolitical trends. Given the lingering concerns around the current environment, we are deliberately taking a measured approach within this segment, assessing deal dynamics. This is a strategy we have deployed successfully before, where in 2020, we took a similar approach when COVID created uncertainty in the market. The portfolio performed well and enabled us to take advantage of opportunities as market conditions changed. Our strategy is to operate nimbly across our three pillars to achieve the best risk-adjusted returns as demonstrated by the company's overall strong year-over-year growth, and we remain well-positioned to respond to any change in conditions. Finally, in our reinsurance portfolio, we continue to experience favorable rating and have been able to maintain year-on-year gross weight and premium levels despite significant optimization and repositioning of the portfolio in line with our view of risk. We continue to carefully manage our capital deployment, managing volatility and exposures with targeted participation on select programs and in select geographies. Premium levels in this space have been significantly rate-driven with a year-to-date RPI of 168%. Overall, we delivered another quarter of profitable underwriting by focusing on risk-adjusted returns across the portfolio while leveraging the momentum established in the first half year to deliver significant year-on-year growth. A strong market position across our lines of business means we can achieve differential pricing and terms, and our expertise across underwriting and capital management enable us to opportunistically navigate the market and respond to prevailing conditions in conjunction with our partners at the MGU. Our relationship enables the MGU to fully focus on current underwriting opportunities. I've asked Richard Brindle, Chief Executive Officer and Chairman of Fidelis MGU, to join us for a pre-recorded segment to outline his views of the market and to provide commentary during this critical time of year.