Good morning, ladies and gentlemen, and welcome to the Fidelis Insurance Holdings Second Quarter 2024 Earnings Conference Call. As a reminder, this call is being recorded for replay purposes. Following the conclusion of formal remarks, the management team will host a question-and-answer session and instructions will be provided at that time. With that, I will now turn the call over to Miranda Hunter, Head of Investor Relations. Ms. Hunter, please go ahead.

Good morning and welcome to the Fidelis Insurance Group's second quarter 2024 earnings conference call. With me today are Dan Burrows, our CEO; Allan Decleir, our CFO; and Jonny Strickle, our Chief Actuarial Officer. Before we begin, I'd like to remind everyone that statements made during the call, including the question-and-answer section, may include forward-looking statements. 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 most recent annual report on Form 20-F 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 assurances 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 risks 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 reconciliation to US GAAP for each non-GAAP financial measure and our definition of RPI, which is our renewal price index, can be found in our current report on Form 6-K furnished to the SEC yesterday, which contains our earnings press release and is available on our website fidelisinsurance.com. With that I'll turn the call over to Dan.

Thank you, Miranda. Good morning, everyone, and thank you for joining us. I will make a few comments before handing it over to Allan and Jonny to go through the quarter in more detail. The second quarter marks the one-year anniversary of our listing as a public company. We are pleased to report a solid quarter during which we have successfully deployed capital into attractive underwriting opportunities and returned excess capital to our shareholders. Our position as a market leader focused on short-tail specialty lines enables us to remain focused on delivering attractive growth and driving value creation for our shareholders. In underwriting, we continue to see attractive opportunities driving excellent top line growth and we remain on track to achieve our 2024 full year premium targets broadly in line with the growth we saw last year. Mature hard market conditions persist with a strong rating environment across the portfolio. The market remains verticalized. And as a leader, we are able to achieve preferential rates, terms, and conditions. We are committed to disciplined underwriting. And as we have spoken about before, one advantage of our business model is the ability to quickly respond to changing market conditions. And we remain focused on deploying our capital where we see the most attractive risk-reward opportunities in underwriting and broader capital management. We increased gross premiums written by 24.7% in the second quarter with double-digit growth across all three of our segments. Positive pricing persisted across our portfolio with an overall RPI of 112% in the quarter. Following several years of compound rate increases, rate acceleration is beginning to slow in some areas, but market conditions remain at the best levels we have seen in recent history. In our Specialty segment, we continue to see opportunities for targeted growth at attractive returns with…

Thanks, Dan. I speak for everyone when I say we wish you a speedy recovery. As Dan mentioned, we delivered a solid second quarter 24.7% growth in gross premiums written. Against the backdrop of heightened severe convective storms and losses on the intellectual property business, we generated operating net income of $63 million or $0.54 per diluted common share and an annualized operating return on average equity of 10%. We continued to grow our book value per diluted common share, which now stands at $21.71. Expanding on Dan's initial comments around their focus on capital management, we continue to pursue value-accretive opportunities as stewards of investor capital. Our first priority is to reinvest in the business and deploy capital into attractive growth initiatives. However, to the extent we have excess capital, we will return it to shareholders through dividends and opportunistic buybacks, including both open market purchases and privately negotiated transactions. We have completed our $50 million share buyback program that was announced in December and cumulatively repurchased approximately 3 million common shares at an average price per share of $16.83. This is approximately 78% of our current diluted book value per share, and that's highly accretive on both a book value and earnings per share basis to our shareholders. In taking a closer look at our results for the quarter, I will touch on our investment performance before turning it over to Jonny, who will provide more details on our underwriting results. Our net investment income increased to $46 million for the second quarter of 2024 compared with $27.3 million in the prior year period. We continued the rotation of the portfolio started in the first quarter by selling a portion of the fixed income portfolio and reinvesting the proceeds into longer-dated and higher-yielding securities. Specifically, we sold $220.4 million of securities with an average book yield at 1.6%, resulting in a realized loss of $6.1 million. We reinvested the proceeds into securities with an average purchase yield of approximately 5.2% locking in the current higher interest rates for a number of years to come. At June 30th, the average rating of fixed income securities remains very high and doubling minus with a book yield of 4.7%, duration has increased to 2.7 years as a result of purchasing longer maturity securities. Now I'll turn it over to Jonny to cover our quarterly underwriting results in more detail.

Thank you, Allan, and good morning, everyone. Looking at our gross premiums written, we had an excellent top line growth compared to the same quarter last year, growing by 24.7% to $1.2 billion. This is consistent with our expectations for 2024 growth to be broadly in line with the approximate 20% growth we saw last year. Starting with our Insurance business, we delivered specialty growth of 15.1% or $99.2 million, primarily driven by new business and increased rates in our Property and Property D&F lines of business, which saw an increase of 37.4% or $138.3 million as we continue to convert on opportunities in the market. This was partially offset by Aviation where certain deals did not meet our underwriting criteria and rating hurdles. The Bespoke segment grew $35.9 million versus prior year, driven by new structured credit business from our credit and political risk line. Given the highly tailored nature of this portfolio, premiums do not follow a regular predictable schedule and deal flow can be variable. Our Reinsurance segment also reported excellent top line results, growing by $100.9 million versus prior year, driven by rate increases as well as new business. Net premiums earned was $501.1 million, an increase of 16.8% versus the second quarter of 2023. As noted in prior quarters, within our Reinsurance segment, our property catastrophe premiums are not earned on a straight line basis and are weighted towards the second half of the year. Our combined ratio was 92.7% for the second quarter and our year-to-date combined ratio is 89.3%. As a reminder, our target is mid to high 80s across the cycle. Our loss ratio was 44.4% for the second quarter, which is composed of attritional losses, catastrophe and large losses as well as prior year development. Attritional loss activity was within our…

Thank you, Jonny. Now I'd like to talk about the insurance and reinsurance market outlook. We are seeing market participants collectively continue to demonstrate a disciplined approach. And we have not observed any new meaningful capacity come to market. We anticipate the mature hard market conditions to persist for the rest of the year, especially for leaders within this verticalized market. Now, looking at the dynamics within each of our underwriting segments. We continue to expect growth across our specialty book to be driven by Property Direct and Facultative. This market remains dislocated, rates remain attractive, retention levels are high, and new business opportunities continue to present themselves. In Marine, our established position as a leader enables us to take a cross-portfolio approach. Large marine construction continues to present attractive opportunities for growth. This is driven by the continued need for significant capacity to accommodate the volume of new builds. In marine war, our underwriters continue to leverage our capacity with hull acceptances to improve our overall pricing. Dan already mentioned the competitive dynamics currently affecting Aviation and Aerospace. We will continue to apply our underwriting discipline to opportunities presented. Turning to Bespoke. The custom and direct nature of the business continues to allow us to lead on substantially all of our deals. Deal flow in this book can vary quarter-to-quarter given the highly tailored one-off nature of these policies. But looking ahead to the second half of the year, our pipeline remains robust and is currently tracking with the prior year. Finally, in Reinsurance, the market remained attractive at July 1 with a continuation of trends seen throughout key renewal dates in 2024. We continue to take advantage of opportunities focusing on optimizing our reinsurance portfolio in line with our view of risk. Utilizing outwards reinsurance supports our underwriting…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] With that our first question will be from Mike Zaremski at BMO. Please go ahead.

Hey, good morning. Thanks. And also wishing Dan a good recovery, a swift recovery. First question, I just heard you kind of reaffirm the ROE goals for the year. I guess for looking at the year-to-date ROE and kind of I guess what the expected seasonality in 3Q kind of being the lowest ROE quarter of the year given the catastrophe load. Do you feel that maybe the consensus is underappreciating, maybe more retro you purchased or just the shape of your profitability in the second half of the year or is there anything you'd like to kind of help us think through?

Thanks, Mike. It's Allan here. Yeah, great question. And as you know, while we monitor our business on a quarterly basis, we think it's equally as important and more informative to manage it over the duration of our short-term portfolio. Over this time, we have obviously been pleased with our underwriting performance and our ROAE. And as you point out, the year-to-date ROAE is 12%. And definitely in the second half of the year, as you hinted at, there's some seasonality in our earnings patterns, especially in our Reinsurance segment, where we -- it's back ended in the second half of the year. I think on a further note, that our investment income, we continue to enhance and optimize that portfolio. And you see that with the results this quarter versus prior quarters and last year. So given our investment incomes, our ROAE today, and our combined ratio year-to-date of just over 89%, we are confident in our long-term targets as well as our current year targets.

Okay. Got it. Yeah. Okay. It feels like the investment income component is something that might be underappreciated. Okay. So for my follow-up, since I'll only ask one follow-up and get back in the queue. I'm feeling a lot of people ask about the IP losses. So I'm just curious, the MGU ceding commission ratio, it's running mid-14s year-to-date. That is kind of materially higher, maybe 100 basis points or more higher than what we had modeled out maybe six plus months ago. And any color you can add on kind of what's going on there?

Yeah, it's Allan again, Mike. The ceding commission that we pay The Fidelis Partnership is several components. As you know, it's a ceding commission on net premium written and earned, as well as a profit commission. As you can see, this quarter, with the underwriting results being slightly worse than in prior quarters, the prop commission is reflective of that. Overall, we're still comfortable with the overall commission guidance we've given. And we think that it's working exactly as we intended, that the partnership commissions as well as the day-to-day operations are working exactly as intended.

Okay. Got it. Thank you for your answers.

Thank you. Next question will be from Michael Ward at BITM. Please go ahead.

Hey, there. Good morning. I'm at Citi. I just had a question expanding on the IP. I was curious if you guys could maybe quantify the remaining exposure to this product that you do have.

Sure. It's Jonny here. I'll take that one. I'll start off by giving some context of the IP portfolio overall, and then I'll come to that specific question. So our IP portfolio consisted of a small number of policies which we've written over the last few years. As we mentioned in the prepared remarks, we no longer write it, and we haven't accepted any risks in 2024. To give some background on what happened on it, we had a greater number of defaults than we priced for, and we had more difficulty in realizing the value of the collateral after those defaults occurred than we'd anticipated. It is worth noting that not all the policies that we've written have resulted in a claim. Some of the books now run off, or alternatively, it's been resolved without any loss to us, either through a restructure or some other transaction that takes us off risk. Now, we have a handful of live policies outstanding and we monitor those on an ongoing basis. We're obviously comfortable with where we reserve to this quarter. But we do continue to monitor those policies going forward.

Okay. Are you able to sort of speak to, I guess, the percentage of the loans that you, where you've guaranteed the collateral is how far are you through the portfolio in terms of establishing reserves, I guess?

It's probably around a third of the portfolio is still outstanding, I would say. But to give some context, in the last week or so, we've resolved one of the exposures. So one came through, was still on risk. There was a transaction underlying it, and we've been able to come off risk on that one. So like I say it's just a handful remaining.

Okay. Thank you. That's helpful. And maybe just a non-IT question, I'm curious if you could speak to the runway for the favorable growth environment and growth in D&F specifically, given we've seen property pricing kind of slow down.

Hi. Yes. It's Allan, I'll take that call. We believe we're still in a mature hardened market and the conditions persist. The market has generally been very disciplined. We're pleased with that. And as I mentioned in my prepared remarks, there's been no new meaningful supply of capacity. One thing that we differentiate ourselves on in this market is it's a verticalized market and needs can get from their leverage and their scale that we get different and preferential pricing in terms of conditions. And we think that's an important feature of our business model versus others. We've had positive RPI across our portfolio on the back of many years of compound increases. And as we've mentioned previously, we don't write any casualty. We're comfortable with the duration with the market. Things can change quickly, as you know, in our industry, especially during wind season. But we're very pleased with the growth we're achieving, 25% growth in Q2, and we see no reason why that growth target that we have for the year of 20% or more will not be achieved.

Thank you, guys.

Thank you. Next question will be from David Motemaden at Evercore. Please go ahead.

Hi, thanks. Good morning. I'd also like to wish a speedy recovery to Dan. My first question, just following up on the IP portfolio. So the third of it that's still outstanding. I guess how long will that take to run off? And the type of loss that we had this quarter, is that something that could happen again depending on the defaults and the loss given defaults or just sort of thinking about how we can think about volatility in this line going forward as that book runs off.

Thanks for the question. It's Jonny here. These are reasonably short sale policies. So if they were to run off naturally we would expect that to happen by around 2027. As I mentioned in my previous response, there are options for us to come off risk depending on what underlying transactions happen to the company over that time. In terms of the outstanding exposure versus the loss experienced in the quarter. The loss experienced this quarter came from three policies, three separate incidents that we reserved for. And as I mentioned in the previous response, we have a handful of outstanding policies over this period.

Got it. Thank you. Okay. That's helpful. We can do that math. Okay. And then just on the D&F market, I think you, Allan and Jonny, I think you two also mentioned rate increases are starting to slow in some areas. It sounded like that was mainly Aviation. But I'm wondering if you can just elaborate maybe a little bit more on pricing in D&F. And I think you said RPI was 117% this quarter in D&F. If you could help us think through what that was last quarter as well that would be helpful.

Thanks, David. Yeah, Property D&F definitely continues to drive our growth and it's a wonderful business. We can just continue to see a lot of opportunities in that area. 37% growth, very positive RPIs, and we continue to see the -- continue that portfolio to expect to grow and to produce profitable underwriting results. We're definitely leaning into that. We prefer the Property D&F over some other areas of the business where your cap exposure, cap dollars will be put at risk. And so we think that's the best place to be in. As a specialty insurer, we prefer that line of business over many others and see great growth in that area.

Thank you.

Thank you. Next question will be from Andrew Andersen at Jefferies. Please go ahead.

Hey, good morning. Sorry, one more on the IP losses. Am I correct in thinking that this business is written on a claims made basis so we wouldn't have to be concerned with stacking of limits as we would on an occurrence policy?

I mean in terms of -- it's on an occurrence basis, but there are -- I don't really see any stacking of limit coming from this policy. There's only a handful of exposures. They're all remote from each other. And in terms of how they were to arrive at claim activity, they're reasonably independent.

Okay. And maybe within Bespoke, very strong growth in the quarter. Was any of that a forward from 3Q that could adversely impact next quarter's growth?

Hi. It's Allan. Our pipeline is very strong in Bespoke. We're pleased with that business. It is hard to predict. As we've said on many of our quarterly calls, it's a strong pipeline. And yeah we hit on a couple of deals this quarter. And we continue to expect that that pipeline will produce very profitable business going forward. And again, our Bespoke portfolio overall has produced very wonderful results over the last few years. And we're very pleased with the results there. And we continue to expect to produce returns, profitable returns going forward.

Thank you.

Thank you. [Operator Instructions] And next question will be from Pablo Singzon at JPMorgan Chase. Please go ahead.

Hi. Good morning. Dan, I wanted to wish you a speedy recovery as well. So first, just on Property D&F, it sounds like you're underwriting appetite has not changed substantially and the pricing environment is reasonably attractive. But I was curious if, on the margin, anything has changed in your approach. Just given sort of one broad expectations of an active hurricane season this year. And two, the losses that you booked in your portfolio year-to-date, right. Have any of those factors changed how you approach the market on the margin?

Hey, it's Jonny here. Thanks for the question. The short answer is no, it hasn't changed how we view the market. But to break down to your two components. So to start with an active hurricane season, for CAT exposures for both D&F and for the treaty book, we use our own view of risk, the Fidelis view of risk, which is a set of adjustments, we agree with the partnership to uplift the base CAT model. This reflects our views on climate change, but more generally, our view of CAT risk across the globe. It's a specific set of uplifts to the model. But if you think about it in aggregate, it's over a 50% load to the base loss coming out of that. And that's really the lens through which we view all of our CAT business. So it drives prices we charge on inwards, it drives where we deploy the risk, how we shape the portfolio, and it drives the outward protections we purchase. So this gives us confidence in the portfolio and the level of exposure we've got. Even if there is an uptick in expected activity, it's something that we've planned for a number of years, and it's something that we've put through our pricing and portfolio management over that period as well. In terms of the loss uptick in the quarter, I would say, as we said in our prepared remarks, if you step back and look over a longer-time horizon at Property D&F, it's been a very profitable line of business for us. If I think about this quarter in particular, there's around five large losses that come through on D&F, which make up most of the component you see on specialty. If I go back to Q1, there was only one loss. So in terms of timing, whether there's a material difference between three in three or one in five, we don't think so. We look over a much longer-time horizon and we're very happy with where that book is and how it's performed.

Got it. And then second question, maybe for Allan, just on the buybacks, how fast can you execute in the $200 million of authorization? And I guess, more importantly, is that amount like the prospective earnings generation or is that more reflective of excess capital you have today? Thank you.

Yeah. Hi, Pablo, it's Allan. Thanks. Yeah, we have a very intense look at capital every day. And so our capital considers many aspects in terms of how much do we have currently. We look forward to our expectations to growth. And as we've mentioned in the past, first and foremost, we're focused on investing back into the business. And Property D&F, as you mentioned, is one area we absolutely want to participate in. So when we look at our model, which includes regulatory aspects, the waiting agencies and others, we are in a very good situation where we have surplus capital. And given the current valuations of our shares, it's pretty much a no-brainer that we should consider share repurchases. And I think that we have, again, plans that we looked at with the partnership with next year. And we are very comfortable with our capital position and surplus capital is still in our books. And we will do the right thing, especially at these share prices.

Thank you.

Thank you. Next question will be from Meyer Shields at KBW. Please go ahead.

Great. Good morning. I also want to extend my best wishes to Dan, hope for a quick recovery. Allan, I think two quick questions for you. First, you mentioned a couple of times this morning that Fidelis does not write casualty. Does that mean that you're not going to be participating in Pine Walk's new casualty product?

Hi, Meyer, and thanks for the good wishes for Dan. The way we think about it is we want to match the right capital to the right risk. And we have -- we look at every opportunity under the welfare agreement with The Fidelis Partnership. We're always in constant dialogue with them and we knew they were going to -- we looked at this casualty proposal together. At this time, in the current market, we are not interested in participating in casualty. And so we are not participating in that new Pine Walk sale.

Okay. Thanks. Second question on Bespoke. It looks like the net-to-gross written premium ratio was the lowest that we've seen over the last several years. Is that a function of the individual products in the third, sorry, that were written in the second quarter or is this a broader change to the segment's reinsurance protection?

Hey, Meyer, it's Jonny. I'll take that one. You're right. It's the individual products. If you look across the Bespoke pillar, there are some places where being able to put out a bigger gross line gives you more leverage in terms of the pricing, terms and conditions, and just the type of products you can execute. So on those, we'd use much more quota share reinsurance sitting behind us, whereas some of the other products, we don't need to put out that size of buying, and therefore, we can just run the risk net. So it really does vary quarter-to-quarter and is completely dependent on the type of products we've written in that quarter.

Excellent. Thank you.

Thank you. Next question will be from David Motemaden at Evercore. Please go ahead.

Hey, thanks for taking my follow-up. I was just wondering if you could elaborate more on the outwards re, you mentioned purchasing and how we can think about your reinsurance protection on your property exposures in both reinsurance and D&F, looking for single event retention, PML, that sort of thing. If you could help us with that.

Hey, thanks for the question. It's Jonny here. So I'll start off with the PML query. We don't disclose our PMLs publicly at the moment. And one of the key reasons behind it is we think it's a really difficult metric to compare between peers. So as I mentioned earlier, we use the Fidelis view of risk here, and that generates the PMLs that we consider internally and it includes really significant loadings over the base model. Obviously, some peers will have their own loadings. We think we're towards the top end of that. And many will just use the base model to produce those numbers. So if we were to release them, then the comparison is quite difficult. But what I would say in terms of our overall exposure is we've grown cap premiums in the last few years. That growth has mostly come from rate rather than exposure-driven given the market conditions. We also, as evidenced this quarter, are constantly looking at our outwards portfolio, both to our opportunistic purchases, where we see something in the market that we like and to make sure that we smooth the risk across the portfolio. Bringing both of those bits together, we've not increased our overall CAT exposures over recent years, despite the premium growth.

Got it. That's helpful. And then any thoughts on or any quantification you could provide on the two hurricanes that have taken place so far in the third quarter?

Thanks for the question. It's Jonny here again. Yeah. As you mentioned, there's been two hurricanes, a number of other events in the market over the quarter. Just to give a bit of background on our process, we monitor all those type of events in conjunction with The Fidelis Partnership as they emerge, review our exposures, and where necessary, look through to loss modeling. Based on current information and our assessment of our exposures, we don't believe that we have material exposure to either of those or any of the other events coming through since quarter close.

Awesome. Thank you.

Thank you. Next question is from Mike Zaremski at BMO. Please go ahead.

Hey, great. Quick follow-up. I don't think you've given color on more context on the Reinsurance segment growth. I don't know if there's color on whether it's mostly Florida or just any insights there on what continues to be healthy growth.

Hi, Mike. It's Allan. As you know, we pride ourselves in our nimble approach. And we lean in when we see opportunities, certainly in the D&F space we have, and in this quarter and a little bit more in the Reinsurance space, we looked at the best opportunities to deploy our capital and we saw opportunities there. And I think that in terms of the Reinsurance segment itself, there were some opportunities with some of the higher tier clients, nationwide accounts, and they were priced appropriately. And we're very comfortable with that exposure. And again, as Jonny mentioned, with some tweaking of our outwards reinsurance program, it was a great risk to put -- series of great risks to put on our portfolio.

Okay. That's all I have. Thank you.

Thank you. Next will be Meyer Shields at KBW. Please go ahead.

Thanks. Just to follow-up on David's question, do you have any exposure to the plane crash in Brazil?

Hey, Meyer. It's Jonny here, I'll take that one. No, we don't have any exposure to the underlying on a liability policy, and at this time, we don't believe we have any exposure to that event at all.

All right. Thank you very much.

Next question will be from Pablo Singzon at JPMorgan Chase. Please go ahead.

Hi. Thanks for taking the follow-up, Allan, just a quick one for you on the portfolio. With regards to getting the longer dated assets, is that mostly done at this point or how would you characterize that process? Just want to get a sense of sort of the perspective uplift and NII from here. Thanks.

Yeah. Hi, Pablo. I think that answer probably changes the deal. I'm sure you've seen the markets. It's bouncing around a bit. But no, we're -- like our underwriting portfolio, we manage our capital across all areas, including investments. We continue to optimize it where we can. And while we have a short duration portfolio in our liability side and we are -- we match our assets accordingly. We repositioned our portfolio in the last six months to take advantage of where the rating environment is and to eliminate some reinvestment risk as maturities roll off and sold some lower yielding assets. I mentioned 1.7% yield in some of those and we sold them off and reinvested at 5.2%. I think you consider that we're still considering doing more of that in Q3 and Q4. But of course it's really dependent on the market, the liquidity of our portfolio and various other areas where we can allocate our capital. But it's an ongoing process.

Thank you.

Thank you. That concludes today's question-and-answer session. I'd like to turn the call back to Allan Decleir for closing remarks.

Thank you, everyone, for joining us today. We appreciate your interest in the company. If you have any follow-up questions, we'll be around to take your call. And thank you and have a great day.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again thank you for attending. And at this time, we do ask that you please disconnect your lines.