Fidelis outlook raised to ‘stable’ by AM Best on MGU synergy
AM Best has upgraded Fidelis Insurance Holdings and its subsidiaries to a ‘stable’ outlook, citing confidence in the Bermuda-based firm’s financial strength and its relationship with the spun-off managing underwriting entity, Fidelis MGU.
Fidelis Insurance Holdings has had the outlook for its subsidiaries upgraded to stable from negative.
The move came after the ratings agency said it was satisfied with the financial strength of the relationship between the Bermuda-based company and managing underwriting entity Fidelis MGU which was spun off from the company before it was floated as a public company.
AM Best also affirmed the financial strength ratings of A (Excellent) of Fidelis Insurance Bermuda, Fidelis Underwriting and Fidelis Insurance Ireland Designated Activity Company.
"The negative outlook AM Best placed on the ratings in 2023, was based on the execution risk related to the creation of Fidelis MGU, a new managing underwriting entity," the ratings agency said. "This entity would see key executives from Fidelis moved to this new entity, and risks of its acceptance into the market.
"AM Best has assessed the performance of the Fidelis management team and the strength of the business relationship between Fidelis and Fidelis MGU over the last year, which has been demonstrated through its financial stability. Fidelis has reported continuing operating profitability and robust risk-adjusted capitalisation."
Fidelis is led by chief executive officer Daniel Burrows.
AM Best said the credit ratings reflected Fidelis’ balance sheet strength, which AM Best assessed as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
"Fidelis' operating performance has been supported by consistent underwriting gains and investment returns," the agency said. "Profitability metrics have improved over the last five years with a combined ratio below its peers driven by disciplined underwriting, which has benefited from a diversified business platform. Scale and access to highly selective underwriting capabilities through Fidelis MGU gives Fidelis the ability to be cautiously opportunistic."
AM Best said the very strong balance sheet strength is supported by the strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), where absolute capital has been underpinned by consistent favourable earnings.
"The balance sheet assessment is also supported by prudent loss reserves, which have been showing favourable prior year development, since inception. Liquidity measures remains solid, supported by a high credit quality fixed income portfolio, which comprises the majority of investment assets, with a small allocation to alternative investments. Return on equity has been well above peers even during volatile cycles."
It added: "ERM is supported by robust governance frameworks that monitors and reviews business risks. Fidelis has established a comprehensive framework with defined functions and key performance indicators to oversee and validate Fidelis MGU."
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