Fidelis to separate underwriting and balance-sheet as it launches MGU

Fidelis Insurance Holdings Limited, a specialty insurance and reinsurance firm launched by Richard Brindle, has announced a new strategic shift as it plans the launch of an MGU and a separation of this new underwriting and origination arm from its balance-sheet businesses.

The move seems to be a way to expand the business rapidly with the help of investors, as Fidelis says it will target over $3 billion of premiums with the Fidelis MGU business.

At the same time, the move also allows more capital to enter the business, providing a different opportunity for backers and one which could be more appealing given the increasing investor focus on origination and underwriting businesses, as well as the popularity of investments into managing general agents and underwriters at this time.

Fidelis said it intends to create a new managing general underwriter (Fidelis MGU) which will be separated from the existing balance sheet insurance companies (Fidelis Balance Sheet Companies), once regulatory approval is received.

The company said the new structure will “allow each entity to focus on its core functions and specialisms, and provide clients, brokers and other stakeholders with continued levels of industry-leading service.”

Principal equity investors in the Fidelis MGU will be Capital Z Partners, The Travelers Companies, Inc. (which first invested in Fidelis a year ago), Blackstone, Further Global Capital Management and Alfa Insurance.

Blackstone is also leading a debt financing for the transaction as well.

Fidelis expects the Fidelis MGU will be one of the largest managing general underwriters globally, and targets to originate and underwrite over $3 billion of gross written premium, across a range of specialty insurance and reinsurance classes of business.

Richard Brindle, chairman, group chief executive officer and chief underwriting officer of Fidelis, commented on the news, “We are delighted to announce this ground-breaking transaction. The balance sheet companies will have access to our market leading underwriting talent and risk origination, with appropriate structures in place to ensure alignment. I have built my career on underwriting excellence with the support of stable capital providers – from Tarquin to Lancashire and now Fidelis – which will be continued through this transaction.

“Built on the best talent in the market, we are creating an MGU platform that will generate attractive returns for the shareholders of both of the separated businesses. Our success will be defined by the continued delivery of underwriting outperformance, aligned with our long-term philosophy of writing insurance and reinsurance in areas where deep expertise is required to deliver through the cycle. We look forward to the start of a long term and successful partnership between the companies.”

The separation of underwriting from balance-sheet may provide Fidelis with more opportunities to grow its capital base and deploy it, while building out an underwriting centre of excellence.

It may also allow even more flexibility in terms of balance-sheets as well, while also providing greater options for bringing in third-party reinsurance capital alongside its own balance-sheet capital in future as well.

The Fidelis Balance Sheet Companies will provide long-term capacity to back the underwriting of the Fidelis MGU.

There will also be mechanisms in place to ensure alignment among the separated companies, while capital and risk transfer resources that are currently available to Fidelis brokers and clients won’t change.

Richard Brindle will lead the Fidelis MGU as chairman and chief executive officer, while top executives from the senior Fidelis team will be retained by the Fidelis Balance Sheet Companies.

From a client and broker point of view, Fidelis does not expect there to be any change in how interactions and underwriting happen from its offices Bermuda, London and Dublin.

The risk appetite will remain the same, across the three core Fidelis pillars of bespoke, reinsurance and specialty.

While benefits of this transaction are cited as an “increased flexibility to quickly respond to evolving insurance and reinsurance market conditions and helping to sustain Fidelis’ market-leading underwriting results through access to top talent.”

The change in structure is subject to regulatory approval and the completion of certain transaction steps.

Once in effect though, it will provide Fidelis with flexibility to raise capital specifically to its underwriting and origination arm, the MGU, or to its balance-sheet businesses, while this separation may also provide more options for bringing in institutional capital to support risk as well.

It is also likely to boost the firm’s overall value as well, with new capital now set to support an expansion of its underwriting and origination.

Fidelis is already active in partnering with investors and sees utilising third-party reinsurance capital as key to its evolution.