Fidelis Insurance Holdings, a newly-formed specialty insurance and reinsurance provider which claims to use an innovative model to optimise both the underwriting and asset sides of the balance sheet, has raised about $1.5bn in equity capital.
Bermuda-based Fidelis will be led by two industry veterans: Richard Brindle, who will serve as group CEO and chief underwriting officer, and Neil McConachie, who will be group CFO. Previously, Brindle and McConachie built Lancashire Holdings from a startup into a $2.4bn company on the London Stock Exchange. Both ended their links with Lancashire last year.
Brindle said Fidelis would introduce "a new, stronger model to the insurance industry."
He said legacy insurance models, "by focusing on either assets or liabilities, have failed to optimise shareholder returns, and the low returns generated by fixed-income investments have been challenging."
Fidelis, Brindle explained, "will pursue a total return strategy by tactically shifting capital and risk between insurance and investments to maximize our return on equity across market cycles." According to the Wall Street Journal, Fidelis might have as much as 90% of its cash committed to hedge funds when the underwriting environment is unattractive, while being able to quickly switch a similar amount into underwriting when that market improves.
Brindle said he hoped others would follow this model, "as we strongly believe it will be very good for the industry."
The founding investors in Fidelis are funds of private equity firms, Crestview Partners, CVC Capital Partners and Pine Brook, which have invested a combined $650m. The remainder of the capital investment comes from individual investors, family offices and institutional investors.
The investment is another major example of newer players entering the insurance market.
Traditional capital grew 4% to $511bn in 2014 while alternative capital – typically catastrophe bonds, collateralised reinsurance, sidecars and hedge fund insurers – grew 28% to $64bn, according to the Aon Benfield Aggregate (ABA) report (IERM, 31 March 2015, Reinsurer capital climbs 6% to $575bn).
In contrast to reinsurers who give exclusive investment manager mandates to their hedge fund owners, Fidelis said it will allocate capital to seven or eight top-tier managers running more diverse strategies that are well-suited to different parts of its book, and will have the ability to change managers and allocations. The Wall Street Journal said York Capital Management would receive the largest allocation of cash from Fidelis.
Fidelis CIO Edward Russell will manage the investment portfolio under the direction of the investment committee, working closely with advisor Goldman Sachs' alternative investments & manager selection (AIMS) group.
McConachie commented that as well as helping boost returns, Fidelis believes the diversification in assets will protect Fidelis against financial market volatility better than a single-manager strategy. "Optimising across hard and soft underwriting markets, as well as through different investment cycles, makes Fidelis not only a strong new player, but also very attractive for investors looking to reduce downside risk."
Fidelis will underwrite a book of insurance and reinsurance business principally in the property, energy, marine and aviation risk classes. The company, which has received an A M Best rating of A- (excellent), expects to begin underwriting immediately.