Fidelis raises $500m to take advantage of “hardening” rates

Fidelis Insurance Holdings Limited, the specialty insurance and reinsurance firm launched by Richard Brindle, has revealed its second equity capital raise of this year, adding a further $500 million to take the re/insurers capitalisation to $2 billion.

Fidelis had already tapped institutional investors for a $300 million fresh capital raise back in February, to help it expand its business, in an equity growth round that featured the Abu Dhabi Investment Authority alongside existing shareholders.

Now, the company is seeking to take advantage of hardening reinsurance market conditions and has raised another $500 million in a private equity capital raise.

The new $500 million of equity capital comes from existing investor relationships, the company said.

Fidelis explained that it wants “the ability to broaden relationships with existing and new clients in the classes it already writes.”

In addition the company will seek to expand into new lines of insurance or reinsurance business and position itself to “take advantage of the attractive and hardening rating environment.”

Richard Brindle, Chairman and CEO of Fidelis, commented on the news, “We are seeing a broad-based hardening of rates and improvements to terms and conditions in multiple lines of business. This is due not just to the effects of COVID-19, but to multiple factors from ILS retrenchment to the increasing realisation that underwriting profits are the only sustainable basis for (re)insurers to build long-term business success.

“The $800 million of equity capital we have raised over the last six months demonstrates the confidence that our investors have in us to thrive in the current rating environment and over the longer term. Following on from the announcement of the rating upgrade from AM Best to “A” it is clear that we are well positioned for the current market conditions as we continue our development of a quality underwriting franchise.”

Fidelis’ fresh capital raise comes on the heels of yesterday’s announcement by Lancashire, as well as previous announcements by RenaissanceRe, Hiscox and Beazley.

As the specialty insurance and reinsurance world prepares itself for improved rates and underwriting conditions ahead, the market is of course building its capacity base.

There will be a fine balance in how much capital can be raised before it starts to pressure the ability of rates to rise, so incumbents and start-ups will need to manage this carefully, as demand is not yet seen to be rising to absorb all the extra capacity that capital raising will generate.

At the same time, while those raising capital keep mentioning ILS capital retrenching, there is as yet no significant evidence that the impacts will be all that significant overall, perhaps no more so than the impacts of recent years of catastrophes.

While certain ILS fund managers are less affected and making plans to raise capital and a number of ILS fund manager start-up ventures look set to emerge in time for 2021.

All of which could make it more challenging to sustain rate increases, without significant discipline from underwriters this time around.

As we all know, when fresh capital comes in there is often a tendency to get treated as the cheapest capacity in order to get deployed. With what looks like billions trying to be raised right now, there may be a fine balance between raising enough, to raising too much and halting the rise in rates in its tracks.

As a reminder, Fidelis is also out in the market with its first ever catastrophe bond right now, a Herbie Re Ltd. deal which could secure $125m of retrocession for the company.