As Fidelis Insurance Holdings, the new hybrid underwriting and investment-oriented insurance and reinsurance firm, builds traction and when the market opportunity is right, the company can be expected to work with third-party capital, according to CEO Richard Brindle.
Speaking with Artemis, Brindle explained that given his and co-founder Neil McConachie’s strong track record of introducing third-party capital into their business models, it can be expected that the pair will aim to do the same again when the time is right.
“Neil McConachie and I have a very strong track record of successfully introducing third party capital into our business model. It can be expected that we will aim to do the same again when the time is right,” Richard Brindle explained.
The launch of Fidelis has generated a significant amount of attention, with the firm’s hybrid approach to being flexible around underwriting and its investment strategy, intending to allocate capital to the side of the business which has the most promise at any one time.
As investment-oriented reinsurance firms, or hedge fund strategy reinsurers, go, Fidelis is unique in that it will leverage a number of leading asset managers and intends to be able to swap them out rapidly should it choose.
Market contacts report that Fidelis has already been seen underwriting some reinsurance business, meaning that Brindle and his team are already putting to work some of the $1.5 billion of launch capital that Fidelis successfully raised.
We asked Brindle about the development of the hybrid strategy for Fidelis. He responded; “It was developed by and Neil McConachie and myself. We recognized the constraints on insurers as return on traditional fixed income investments approached near all time lows. This created significant challenges on financial performance. The solution was to actively manage both sides of the balance sheet in a responsible way.”
Brindle feels that the investment side of the insurance and reinsurance business has perhaps been neglected and has not evolved as the market and needs of re/insurers have changed; “Insurance is the only industry that hasn’t really adapted to a post-2008 world. There are two sides to our business—underwriting and investment—and we need to actively address both of these to be successful.”
With the multi-manager approach to the investment side of the business, Brindle explained that Fidelis will have more flexibility and also a strategic edge as it can seek to more closely match assets to different parts of the re/insurers underwriting book.
“In contrast to reinsurers who give exclusive investment manager mandates to their hedge fund owners, we can allocate capital to top-tier managers running more diverse strategies that are well-suited to different parts of our book, and we will have the ability to change managers and allocations,” he explained.
The other key strategic difference between Fidelis and other investment-oriented reinsurers will be its ability to shift capital from underwriting to investment, as market conditions become more conducive on either side of the business.
Brindle explained that these shifts of capital could be achieved rapidly and that Fidelis will seek to leverage its ability to shift capital in order to optimise for the insurance cycle. Overall the strategy will help Fidelis to be as competitive as possible, in terms of capital cost.
Brindle said; “The Fidelis strategy recognizes that the insurance business is cyclical, and Fidelis is uniquely designed to adjust the allocation of risk as the cycle moves. This reallocation of risk can be done within days, meaning Fidelis can maintain the optimal capital allocation on the efficient frontier at all times. This helps maintain a lower cost of capital than our peers.”
On third-party reinsurance capital and insurance-linked investments, Brindle and McConachie have a track record of launching sidecars and ILS investment opportunities from their time running Lancashire and the pair intend to put this experience to good use.
Brindle commented; “Fidelis is keen to explore third party vehicles (asset manager / side car) when the market opportunity is right.”
And Brindle feels that Fidelis is building a team that can offer something which is more unique and perhaps more compelling, both to cedants and to third-party investors who might like to work with the firm.
“From an underwriting perspective, Fidelis has the expertise to underwrite short to mid tail composite (multi class) deals covering a broad range of lines of business like property, marine, aviation, energy, political risk, …altogether in one contract, either on a whole account or gross basis. There is substantial market appetite for these products and few insurers able to sell these products with a meaningful line size which gives Fidelis a clear edge,” Brindle explained.
But these multi-class products will be an additional offering, alongside the more traditional insurance and reinsurance lines that Fidelis will offer, Brindle said; “We will obviously write those in addition to standard reinsurance and insurance of property, marine, energy, aviation and political risk lines.”
So we should expect that once Fidelis is up to speed in the market it will begin to look at ways that third-party capital from institutional investors can augment its balance-sheet capacity and further aid its goal of a lower-cost of capital.
Once its hybrid investment and underwriting strategy is in full swing, the addition of a sidecar or managed fund containing third-party capital that can be deployed alongside its own capacity should help to make the Fidelis product a compelling offering for cedants.
In terms of attracting investors, with the track record of Brindle and McConachie and the high-profile launch of Fidelis, garnering investor interest in ILS opportunities at the firm is unlikely to prove too difficult we’d imagine.