Fidelis Insurance Q1 2024 Earnings Report

Fidelis Insurance EPS Results

• Actual EPS: $0.74
• Consensus EPS: $0.75
• Beat/Miss: Missed by -$0.01
• One Year Ago EPS: N/A

Fidelis Insurance Revenue Results

• Actual Revenue: $520.00 million
• Expected Revenue: $585.88 million
• Beat/Miss: Missed by -$65.88 million
• YoY Revenue Growth: N/A

Fidelis Insurance Announcement Details

• Quarter: Q1 2024
• Date: 5/9/2024
• Time: After Market Closes
• Conference Call Date: Friday, May 10, 2024
• Conference Call Time: 9:00AM ET

Fidelis Insurance (NYSE:FIHL) Holdings Ltd is a Bermuda‐incorporated specialty insurer and reinsurer that underwrites a broad range of liability and property risks. Founded in 2015, the company completed its initial public offering on the New York Stock Exchange in 2016 under the ticker FIHL. Fidelis focuses on providing tailored solutions for complex risks that traditional insurers may find difficult to accommodate, leveraging data analytics and underwriting expertise to structure policies across diverse industry segments.

The company’s product portfolio spans casualty lines—including general liability, excess and umbrella, professional indemnity, and management liability—alongside property, marine, energy and specialty programs. Fidelis also operates a Lloyd’s syndicate (Syndicate 6095) that contributes underwriting capacity for facultative and treaty reinsurance business. By combining admitted and non‐admitted paper, the company can serve both standard and hard‐to‐place risks.

Since its inception, Fidelis has expanded its geographic footprint with key offices in Hamilton, Bermuda; London; Singapore; Zurich; Hong Kong; and New York. This global presence enables the company to write locally regulated business in major markets while also tapping Lloyd’s of London for cross‐border transactions. Fidelis is active in both developed and emerging markets, providing market‐leading expertise in regions where specialty capacity is in high demand.

The firm is governed by an experienced board of directors and a senior management team with deep backgrounds in underwriting, risk management and reinsurance. Through rigorous risk selection and disciplined capital management, Fidelis aims to deliver sustainable underwriting returns while maintaining strong solvency and liquidity profiles. The company’s focus on niche sectors and customized product offerings positions it as a nimble competitor in the specialty insurance landscape.

Fidelis Insurance Q1 2024 Earnings Call Transcript

Key Takeaways

• Fidelis delivered a strong Q1 with gross premiums written up 21.6%, a combined ratio of 85.8%, annualized operating ROAE of 14%, and book value per share rising to $21.22.
• The company achieved a 112% Renewal Pricing Index overall (111% in Specialty, 118% in Reinsurance), reflecting robust pricing power in a hard market across its portfolio.
• Specialty segment premiums grew 24% to $1 billion, driven by a 36.5% increase in Property Direct and Facultative and a 49.9% rise in Marine, benefiting from strong market conditions.
• Fidelis is set to launch Lloyd’s Syndicate 3123 on July 1, providing global licensing and Lloyd’s-only capacities with a variable quota share to access new business channels.
• Management reserved $51.2 million for the Baltimore bridge collapse within capacity and large losses, but sees the impact as manageable given its diversified portfolio.

Presentation

[Operator]

Good morning, ladies and gentlemen, and welcome to the Fidelis Insurance Holdings first 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 given at that time. With that, I will now turn the call over to Miranda Hunter, head of investor relations. Ms. Hunter, please go ahead.

[Miranda Hunter, Head of Investor Relations at Fidelis Insurance Group]

Good morning and welcome to the Fidelis Insurance Group first quarter of 2024's earnings conference call. With me today are Dan Burrows, our CEO, and Allan Decleir, our CFO. 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 2023 annual report on Form 20-F filed with the SEC on March 15th. Although we believe that the expectations reflected in forward-looking statements have a reasonable basis when made, we can give no assurance that these expectations will prove to be achieved. Consequently, actual results may differ materially from those expressed or implied.

[Miranda Hunter, Head of Investor Relations at Fidelis Insurance Group]

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. Reconciliations to U.S. GAAP for each non-GAAP financial measure and our definition of RPI, which is our Renewal Pricing 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 at fidelisinsurance.com. With that, I'll turn the call over to Dan.

[Dan Burrows, CEO at Fidelis Insurance Group]

Thank you, Miranda. Good morning, everyone, and welcome to Fidelis Insurance Group's first quarter earnings call. I'm very pleased to report that we delivered a strong start to the year as we successfully capitalized on the continued mature hard market conditions, leaning into our core lines, achieving sustained profitable growth, leveraging our lead position to generate alpha results, and broadening the footprint of our business. In the first quarter, we increased gross premiums written by 21.6% and delivered a combined ratio of 85.8%, both of which were in line with our expectations. These excellent results reflect our strong underwriting and risk selection capabilities across our growing and well-diversified book of business. We continue to see positive pricing across our portfolio with an RPI for the first quarter of 112%, demonstrating our ability to achieve preferential returns in a versatile market.

[Dan Burrows, CEO at Fidelis Insurance Group]

We delivered another strong quarter of returns with an annualized operating ROAE of 14%, again in line with our expectations. We also grew book value per diluted common share to $21.22. For the full year, we remain on track to generate ROAE in the 14%-16% range as we earn a greater portion of our catastrophe-exposed premium in the second half of the year. As our results demonstrate, our strategy and structure are working exactly as intended. We have the flexibility, discipline, and market access to deploy capital where we believe there are attractive risk-reward opportunities in what continues to be the best market we have seen in decades.

[Dan Burrows, CEO at Fidelis Insurance Group]

We are leveraging our scale, lead positioning, and deep relationships with brokers and clients to grow our business and have constructed a diversified portfolio of short-held Specialty risks, which we believe is well positioned to deliver combined ratios in the mid- to high-80s throughout the cycle. And as a reminder, we do not write casualty lines. Key strength of our strategy is the daily underwriting calls, which are attended by all underwriters, both the Fidelis Insurance Group and the Fidelis Partnership. These calls provide insight across our entire portfolio, giving a forum to discuss our offering on each individual risk. They enhance our ability to cross-sell across target lines and help us quickly respond to market dynamics and capitalize on areas of opportunity.

[Dan Burrows, CEO at Fidelis Insurance Group]

We continue to see opportunities across our core lines, with Property Direct and Facultative being a great example where we delivered growth of 36.5% compared to prior periods, and we are capitalizing on attractive pricing within our broader Specialty portfolio. In the first quarter, we announced our participation and investment in a new Lloyd's Syndicate 3123 with the Fidelis Partnership, executing our capital and underwriting strategy and broadening the footprint of our business. For the targeted launch date of July 1st, this vehicle is expected to add to our long-term growth by providing access to enhanced ratings platforms, global licensing, and Lloyd's-only business. The syndicate will write business across multiple insurance and reinsurance classes and will be an extension of our strategy to leverage our expertise to take lead positions.

[Dan Burrows, CEO at Fidelis Insurance Group]

Fidelis Insurance Group will be taking a variable quota share across the portfolio, which enables us to access additional business channels that align to our current risk appetite. This is a perfect example of why our underwriting relationship with the Fidelis Partnership works so well. Our long-term agreement was designed to enable us to match the right risk with the right capital. Exercising our right of first refusal with this variable quota share allows us to do just that, participating in the lines where we have more risk appetite. As we consider industry events in the quarter, we wanted to touch on the March 26th Baltimore Bridge collapse, which will impact the Specialty insurance market. Given the complexities surrounding the event, it could take years to fully resolve. We continue to monitor developments and believe any loss resulting from the bridge collapse will be manageable within our diversified portfolio.

[Dan Burrows, CEO at Fidelis Insurance Group]

In summary, I'm very pleased with our first quarter performance, which positions us for another year of strong profitability, growth, and returns. With that, I'll pass it over to Allan to walk through our financial results in more detail.

[Allan Decleir, CFO at Fidelis Insurance Group]

Thanks, Dan. I'd also like to welcome everyone joining our first quarter earnings call. As Dan mentioned, we had an excellent first quarter to operating net income of $87.3 million or $0.74 per diluted common share and an annualized operating return on average equity of 14%. Our book value per diluted common share at March 31 was $21.22. Looking at our gross premiums written, we had excellent top-line growth of 21.6% in the quarter to $1.5 billion compared to the first quarter of 2023. This was driven in large part by the Specialty segment, which grew by $199.9 million or 24% to $1 billion. This is consistent with our expectations for growth to be broadly in line with what we saw last year.

[Allan Decleir, CFO at Fidelis Insurance Group]

Specialty growth was primarily driven by Property D&F, which saw an increase of $62.4 million or 36.5% from the prior year period, benefiting from the continued strong rating environment and new business. The growth is in line with the overall 38.7% growth we saw in its class across 2023. Other drivers of growth within our Specialty book in the quarter included Other Property, which saw an increase of $55.7 million, and Marine, which saw an increase of $49.9 million. As a reminder, there is seasonality within our Specialty book, with Marine and Aviation and Aerospace being more heavily weighted to the first half of the year, while in Property D&F, which we expect to be the key driver of Specialty growth this year, we anticipate a more even distribution of premium across the quarters.

[Allan Decleir, CFO at Fidelis Insurance Group]

Bespoke premiums were consistent with the prior period, with first quarter gross premiums written of $153.5 million and an increase of 1.8% versus prior year. Our reinsurance segment grew by $66.4 million or 25.5%, driven by Property Reinsurance. As Dan discussed in our year-end call, we write approximately a third of our reinsurance book at 1/1, and in 2024, we saw strong 1/1 renewals achieving RPIs of 118%. Looking ahead, premiums from the new Lloyd's Syndicate 3123 variable quota share and our 9.9% investment in the syndicate will flow through each of our three segments. Our participation in the syndicate won't materially impact our expectations for growth this year. On a net premiums earned basis, we delivered an increase of 26.4% from the prior year to $488 million in the first quarter of 2024, consistent with our growth in gross premiums written.

[Allan Decleir, CFO at Fidelis Insurance Group]

As noted by Dan, our premiums are not earned on a straight-line basis, with property catastrophe premiums more heavily weighted to the back half of the year. Our excellent underwriting performance resulted in a combined ratio of 85.8% for the first quarter, which included a loss ratio of 37.4%. This 37.4% is composed of attritional losses, catastrophe and large losses, and prior year development. Looking at attritional losses, in the first quarter, we had $146.3 million or 30% compared to $139.5 million or 36% in the prior year period. Catastrophe enlarged losses for the first quarter were $103 million, which includes a $51.2 million provision for the Baltimore Bridge collapse, in addition to other IBNR and smaller events in various lines of business, including aviation and aerospace, marine, and Property D&F. Specific to the Baltimore Bridge collapse, our exposure is in line with our market position.

[Allan Decleir, CFO at Fidelis Insurance Group]

We anticipate that any settlement will take a few years to play out, and as such, we have set our provision based on a probabilistic model. We had net favorable prior year development of $67 million for the quarter versus $2.1 million in the prior year period. Of the $67 million for the quarter, Specialty was $34.4 million, Reinsurance was $24.3 million, and Bespoke was $8.3 million, and this was all primarily driven by better-than-expected loss activity. Turning to expenses, policy acquisition expenses from third parties were 27.9 points of the Combined Ratio for the quarter, consistent with the prior year period. The Fidelis Partnership commissions were 15.7 points of the Combined Ratio for the quarter, of which 1.8 points related to accrued profit commissions due to the strong underwriting results in the quarter.

[Allan Decleir, CFO at Fidelis Insurance Group]

Finally, our general and administrative expenses were 4.8 points of the combined ratio for the quarter compared to 4.3 points of the combined ratio in the prior year period. Looking now at investments, net investment income increased to $41 million for the first quarter of 2024 compared with $20.4 million in the prior year period. During the first quarter of 2024, we sold $201.2 million of securities with an average book yield of 0.9%, resulting in a realized loss of $7.4 million. We reinvested the proceeds into securities with an average purchase yield of approximately 4.9%. At March 31, 2024, the average rating of fixed income securities remains very high at AA minus, with a book yield of 4.2%. Duration has lengthened slightly to 2.2 years. Turning to capital management, we remain committed to maintaining a strong balance sheet.

[Allan Decleir, CFO at Fidelis Insurance Group]

As I mentioned last quarter, our capital management strategy includes, first, allocating capital to support and grow our business in attractive segments of the market. Second, using outwards reinsurance as a flexible and aligned source of capital. And finally, returning excess capital to shareholders through a combination of share buybacks and dividends. Specifically, during the first quarter, as we mentioned, we grew our premiums and targeted lines, seeing overall premium growth across our book of 21.6%. Regarding outwards reinsurance, we sponsored two new tranches of our Herbie Re Catastrophe Bond for $150 million of protection to cover earthquake and named storm events in the U.S., enhancing our overall outwards program. We returned $16.8 million to shareholders through $11.8 million of common dividends and repurchases of $5 million. Subsequent to March 31, we have repurchased another $8.3 million of shares.

[Allan Decleir, CFO at Fidelis Insurance Group]

As of today, we have $36.7 million remaining in our share repurchase authorization. In summary, I'm very pleased with our excellent financial performance in the first quarter of 2024. Looking ahead, we are confident about the future as we continue to focus on delivering profitable underwriting and book value growth. I will now turn it back to Dan for additional remarks.

[Dan Burrows, CEO at Fidelis Insurance Group]

Thanks, Allan. As you can see, we entered 2024 in an incredibly strong position. We are operating in a sustained hard market with attractive levels of pricing across our portfolio, and our strategy remains to actively capitalize on the significant opportunities this presents. Taking a closer look at our segments, in Specialty, which is our largest, conditions and pricing remain attractive across our core lines, and in the first quarter, we achieved Specialty RPIs of 111%. As a reminder, our key drivers of Specialty are Property Direct and Facultative, Marine, and Aviation and Aerospace, and our aim is to be a top three market for these classes. Our appetite for Property Direct and Facultative has increased since late 2019 in response to attractive pricing levels given by the frequency of natural catastrophe and climate-driven events and the exit of a number of larger carriers.

[Dan Burrows, CEO at Fidelis Insurance Group]

Following $120 billion of natural catastrophe losses in 2023 and an active start to 2024, including several U.S. severe weather events, the market has remained dislocated with increased demand and no new meaningful supply of capital coming in. We continue to see attractive opportunities to deploy capacity across this key line of business in line with our targeted risk selection approach, and we are pleased with the continued strong performance of this line during the quarter. Marine also remains a significant market for us, where we're able to leverage our leadership positions to cross-sell and set pricing, terms, and conditions across multiple lines. We are seeing particularly attractive opportunities in large marine construction, where significant capacity is required, and we've had several new business wins this year. We've prided ourselves on our ability to innovate, enabling us to offer meaningful solutions to our clients.

[Dan Burrows, CEO at Fidelis Insurance Group]

We are an established leader in the classes we participate in, always looking to create alpha performance. Looking ahead, the Specialty market continues to offer growth across our core lines at attractive returns, and we expect Specialty to continue to contribute to our growth throughout 2024. In bespoke, our established relationship with clients and brokers, along with our underwriting expertise, enables us to maintain our position as an industry leader, particularly when considering the high barriers to entry for others, given the nature of the underlying risks. The unique nature of this business results in a less commoditized, more tailor-made product that delivers low volatility underwriting performance with less exposure to typical market cycles. Given the highly tailored nature of this portfolio, premiums do not follow a regular, predictable schedule. The first quarter was a solid start for the portfolio, with premium in line with expectations.

[Dan Burrows, CEO at Fidelis Insurance Group]

Looking ahead, our pipeline of structured risk transfer and political risk deals for the second quarter is in line with the prior year period, and we expect opportunities to continue for the rest of 2024. Finally, in reinsurance, we continue to execute our strategy of deploying capacity at targeted attachment points with core clients, and this was an excellent quarter for this segment. Rate remains attractive following an enhanced pricing environment and adjustment of terms and conditions over the past few years, and we were able to achieve higher rate increases across our portfolio given our thoughts on price leadership. RPI for the quarter was 118% and was the main driver for premium growth year-on-year. We continue to see clients looking to buy more limit in the U.S. and Europe, where our ability to offer private layers helps us secure our place on programs.

[Dan Burrows, CEO at Fidelis Insurance Group]

While we are beginning to see an uptick in demand, there's been no major influx of new capacity. We continue to manage our portfolio in line with our view of risk, and are happy with our position heading into the rest of the year. Briefly on 4/1, we saw positive rate movement continuing in April, where our portfolio is driven by Japanese treaty renewals. We continue to enhance our broad and established relationships in the region to create opportunities and seize the growth in our portfolio. As we look ahead to the rest of the year, we are focused on deploying capital to the best underwriting opportunities that will further enhance our efforts to deliver consistently compelling returns through the cycle and create value for our shareholders. One example is the new Lloyd's syndicate, which opens the door to exploring additional opportunities within Lloyd's.

[Dan Burrows, CEO at Fidelis Insurance Group]

Longer term, we believe this will lead to broader opportunities globally as we continue our focus on aligning our capitals to the right risk. In closing, 2024 is off to an excellent start. We are pleased with the momentum we had coming out of the first quarter and our ability to capitalize on opportunities across our portfolio. We are confident in the outlook for our business and remain on track to deliver operating ROAE in the 14%-16% range for the full year, which is above our long-term target. We continue to see growth potential in the current market, and our scale, leading positioning, balance sheet strength, and expert execution from our dedicated teams positions us well to deliver sustainable, long-term profitable growth and create meaningful value for our shareholders. With that, I'll turn it back to the operator.

[Operator]

Thank you. We will now begin the question and answer session. Should you have a question, please press star followed by the 1 on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be polled in the order they are received. Should you wish to decline from the polling process, please press star followed by the 2. If you are using a speakerphone, please lift the handset before pressing any keys. Before we take your questions, I'd like to kindly ask everyone to please limit your questions to one primary question along with a single follow-up. And if you have any further questions, please rejoin the queue. With that, our first question comes from the line of Matt Carletti with Citizens JMP. Your line is now open.

[Matt Carletti, Managing Director at Citizens JMP]

Thank you. Good morning. I was hoping to start with.

[Dan Burrows, CEO at Fidelis Insurance Group]

Morning. How are you?

[Matt Carletti, Managing Director at Citizens JMP]

Very well. Yourself?

[Dan Burrows, CEO at Fidelis Insurance Group]

Yeah, good. Thanks.

[Matt Carletti, Managing Director at Citizens JMP]

Great. I wanted to start, I guess, a two-part question on the Baltimore Bridge loss. I guess, one, if you could give us a little more perspective on kind of how you set that loss reserve, specifically if you can kind of what your view of industry loss is or if you're even able to kind of translate in those terms. And then secondly, just what impact do you think that loss might have on the related, particularly Marine but related markets?

[Dan Burrows, CEO at Fidelis Insurance Group]

Thanks for the question, Matt. I think, firstly, we look at Baltimore and say it's within expectation given our market profile. As you know, we take a standard reserving approach. We would weight limits against the full range of probabilistic outcomes. We've written over $1 billion of Specialty in the quarter. We think, therefore, any loss is very manageable within that sort of diversified portfolio. But it's very complex, and it's very early. So I think to talk about the second part of your question, how we think about it will impact the market, we'll just wait for it to develop and see what the impact to the market will be in the future. I just think it's too early to think about exactly how pricing will be affected.

[Matt Carletti, Managing Director at Citizens JMP]

Okay. Fair enough. And then maybe just a modeling follow-up question. Policy acquisition costs by segment had some variation, and you referenced mix of business and some reinsurance ceding commissions. Is it just kind of quarterly-to-quarterly fluctuation there, or is there anything kind of more forward-looking we should think about, I guess, asked in other ways? Or any reason to think kind of where we sat by segment on a full year 2023 level, it would look materially different for full year 2024?

[Allan Decleir, CFO at Fidelis Insurance Group]

Hi, Matt. Thanks for the question. It's Allan. No, I think you have the right answers. One important factor to always consider in our book of business is that we do buy a significant amount of outwards reinsurance, and that can also significantly impact the policy acquisition costs on a quarter-to-quarter basis. If it's quota share business that we buy on an outwards basis, there's a ceding commission and a profit commission that comes back to us. So it can fluctuate quarter to quarter depending on mix of business that is written and earned in the quarter. But I think, overall, the run rate in the first quarter and in 2023 is the way to think about it.

[Matt Carletti, Managing Director at Citizens JMP]

Okay. Great. Thank you. Appreciate it.

[Operator]

Your next question comes from Mike Zarembski with BMO. Your line is now open.

[Mike Zaremski, Managing Director at BMO]

Hey, great. Good morning. Just following up because I think some of us are trying to track all the what each company's thinking on the Baltimore Bridge losses. So, are you? Some companies have said the range is $1 billion-$3 billion. They're reserving at the upper end. Just curious if you wanted to provide any kind of color on that. If not, I can just move on to the next question.

[Dan Burrows, CEO at Fidelis Insurance Group]

Yeah. I think when, as I said, we weight against all of the probabilistic outcomes. And I think if you think of the top end of our range, it will be bang in line with the commentary you've heard from some of our peers.

[Mike Zaremski, Managing Director at BMO]

Okay. Got it. Okay. So just switching gears to a lot of talk in recent months about property pricing power, decelerating, but still increasing and coming off of record levels in many cases.

[Mike Zaremski, Managing Director at BMO]

I'm looking at some of your RPI KPIs that are helpful. Is that kind of directionally it looks like that's what you guys are also seeing? I don't think bespoke RPIs broken out as often. But what's your thought process on kind of pricing power and the overall marketplace?

[Dan Burrows, CEO at Fidelis Insurance Group]

Yeah. Thanks, Matt. It's a really good question. Firstly, on bespoke, because of the nature of that product line, it tends to be more insulated against market cycles. So we do see some improvement in terms on some of those lines, but generally, it's kind of flatter as opposed to the reinsurance and the Specialty. But when we think about market duration, it's still the best for pricing in the market, still the best market we've seen for 20-25 years. We've had compounding increases over the last 3 or 4, 5 years. It's still a very verticalized market.

[Dan Burrows, CEO at Fidelis Insurance Group]

So you talked about this before. So not everyone starts in the same place. So as a leader across the portfolio, about 90% of the business, then we're able to dictate terms, conditions, and we get better pricing, better coverage. And obviously, we see the opportunities early as well. So we're able to have, we think, a better risk selection on that basis. But we're still seeing positive movement. There's a lot of demand in the market. And despite those secular factors that we've talked about, long and hard climate change, catastrophe reserves, inflation, there's really been no new influx of significant capacity into the market. But inflation is driving demand, and we've seen that. So having that lead line that's scalable, it gives us leverage. We're important and relevant to the brokers and clients, and that's how we get the differential terms. That's what creates the alpha.

[Mike Zaremski, Managing Director at BMO]

That's helpful. And just lastly, just on the share authorization, stocks outperformed meaningfully since you announced that. Just anything we should think about in terms of how you all kind of are going to pace it going forward based on valuation?

[Allan Decleir, CFO at Fidelis Insurance Group]

Hi. It's Allan. Thanks for the question. No, I think when we announced the program in the latter part of December 2023, it was a $50 million buyback program. We said we'd be measured, but certainly, at the values of our shares, it was certainly accretive to shareholders. I think given our current $21.22 book value, we could still continue executing on the program throughout 2024. It was a 12-month authorization. So I think the pacing was right, and I think we will be in the market depending on share price and whether it's accretive to book value.

[Mike Zaremski, Managing Director at BMO]

Thank you.

[Operator]

Your next question comes from Yaron Kinar with Jefferies. Your line is now open.

[Yaron Kinar, Managing Director at Jefferies]

Thank you. Good morning. I want to start with the Bespoke segment, if we could. You offered some very helpful guidance last quarter talking about a pipeline that was relatively flat year-over-year. I think where there's still a bit of fluctuation is on the cession rate there. And I'm guessing it's because the book is essentially all new as opposed to renewed every quarter, and therefore, you can see pretty significant fluctuations. But is there any, I guess, guidance or rule of thumb you can offer us in terms of thinking of what a proper cession rate should be there, A? And B, maybe you can talk about the differences in the composition of the portfolio year-over-year that would have resulted in the change in cession rate.

[Dan Burrows, CEO at Fidelis Insurance Group]

Thanks, John. It's a great question. So it's Dan. I'll start. I think, specifically, this is about business mix. And the difference in cession rate this time was around a cyber relationship that we have, and we buy a lot of proportional reinsurance on it. And Allan said earlier, we see that as a very fungible form of capital. It helps scale our line and really gives us leverage as a leader. But in that particular instance, it's because we're ceding out premium because of the scale of the proportional program that we buy on it.

[Yaron Kinar, Managing Director at Jefferies]

Okay. Is there a way for us to think about is a 50% session rate a reasonable number to think about going forward? Obviously, there's going to be some fluctuation quarter-to-quarter, but just want to make sure we're thinking about it correctly.

[Allan Decleir, CFO at Fidelis Insurance Group]

Thanks, Yaron. It's Allan. Yeah. As you mentioned at the start of your question, the Bespoke segment, by its nature, has some fluctuations on the margin rate, and they tend to be unique. They're not necessarily all renewals. But in general, I would go with the we would go with the sort of 2023 overall yearly cession rates, which we think of as more in the 40%, maybe as high as 50%, again, depending on the type of deal. But it'd be more around the range of 40% cession.

[Yaron Kinar, Managing Director at Jefferies]

Got it. Thanks. My second question I realize it may be my third, but I'll try it anyway. The timing of reserve reviews, this was a very significant release this quarter. I think it's the largest disclosed quarterly release that I remember. Can you maybe talk about what drove that specifically and maybe how you look at the reserves over the course of the year as well, what books are reviewed?

[Allan Decleir, CFO at Fidelis Insurance Group]

It's Allan. Again, I'll take that question. For context, I would note again that we do not write any casualty business. We are a short-duration company. Our average duration of our reserves is two years. As a result, we have always had a process of looking at our reserves on a timely basis, quarter to quarter. And so each quarter, you will see that we do release reserves or strengthen reserves based on loss activity for that particular quarter. We do not wait for a particular quarter or year-end reserve review. In Q1 2024, the activity in prior years was fairly benign across all three segments. And again, the results that would flow through are purely based on experience. There was no change in assumptions. It was purely based on the actual flow-through of results for the quarter.

[Yaron Kinar, Managing Director at Jefferies]

Got it. Thank you.

[Operator]

Your next question comes from Meyer Shields with KBW. Your line is now open.

[Meyer Shields, Analyst at KBW]

Great. Thanks so much. Dan, one first question. I just want to make sure I understand it. It sounds like the syndicate is going to be writing reinsurance as well. Should we assume that Fidelis is willing to take on more exposure in reinsurance through the syndicate in addition to whatever pricing momentum there is? Yeah.

[Dan Burrows, CEO at Fidelis Insurance Group]

Thanks, Mike. It's a really good question. As you know, we have a Variable Quota Share. So we'll lean into lines where we do have appetite, and where we have less appetite, we'll take smaller shares. I think we have seen some very positive movement in terms of pricing on the reinsurance portfolio. And as we said in the script, we've taken premium increases rather than exposure increases. So we'll monitor it. There are some deals that flow into Lloyd's and Lloyd's only that we'd like to have access to.

[Dan Burrows, CEO at Fidelis Insurance Group]

That's one of the whole purposes of the syndicate is getting access to business we can't originate now. But we'll stay away from attritional. That's not really in our appetite. But depending on the risk, I think this is the key thing around the roster is that we get to see every deal. If it looks attractive, we can bind it. But if it's not within appetite, we won't match our capital to those risks.

[Meyer Shields, Analyst at KBW]

Okay. That's helpful. And then maybe on the flip side.

[Dan Burrows, CEO at Fidelis Insurance Group]

I think I just cut you out there. Sorry, Mike. Sorry to interrupt you. What I would say, that is going to have no, whatever we do would have no impact on our kind of premium for 2024. It's a very small premium item for 2024.

[Meyer Shields, Analyst at KBW]

No, that's helpful. That clarifies things. With regard to the Property D&F, I was hoping for an update on reinsurance purchasing strategy based on, I guess, current expectations for mid-year property pricing, property reinsurance pricing.

[Dan Burrows, CEO at Fidelis Insurance Group]

Yeah. Another good question and actually very timely. So as you know, we buy a very broad range or suite of products, both proportional, non-proportional, index. And 1/1 is a very busy time, as is 4/1. We tend to buy the D&F program there. It's come in within expectation. We've actually bought a bit more limit. You'll know we've just renewed the Herbie Re bonds, two tranches, $150 million or in total, $150 million. And that gives us protection for U.S. named storm and U.S. quake. So as the portfolio's grown, then we'll look to take opportunity in the reinsurance market just to help us scale our line. Once again, being a leader in a verticalized market, especially like D&F, gives you a very, very differential result. And we'll take advantage of that market if we can.

[Meyer Shields, Analyst at KBW]

Great. Fantastic. Thank you so much.

[Operator]

Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the 1. Your next question comes from Mike Ward with Citigroup. Your line is now open.

[Michael Ward, Managing Director at Citigroup]

Thanks. Good morning. I was wondering if just technical, if the Lloyd's structure ceding commission is comparable to the rest of the MGU-sourced business?

[Allan Decleir, CFO at Fidelis Insurance Group]

Hi. Yeah. It's Allan. Thanks, Mike. I think, overall, the Lloyd's expense structure is similar to how we have currently, and I wouldn't expect any material change to our expenses overall as a result of the Lloyd's participation.

[Michael Ward, Managing Director at Citigroup]

Okay. Okay. Thanks. And then there is potential there's hurricane forecasts coming out. Just wondering if you guys could remind us your exposure if we do see some of the relatively extreme forecasts?

[Dan Burrows, CEO at Fidelis Insurance Group]

Yeah. I mean, we don't give out details on PMLs. As you know, what we would say, we are exposed at 1-in-250 to quake and then Southeast clash. But we do, as I just mentioned, but we have a lot of proportional protection on that portfolio in both the Treaty and the D&F. And we buy a very broad suite of products. So we have non-proportional. We have index products. Just renewed the bonds, as I said a moment ago. So we think we're very well protected in that portfolio.

[Michael Ward, Managing Director at Citigroup]

Okay. Thank you, guys.

[Operator]

Thank you. This concludes today's question and answer session. I'd like to turn the call back to Dan Burrows for closing remarks.

[Dan Burrows, CEO at Fidelis Insurance Group]

Thank you, everyone, for joining us today. We appreciate your interest in our company. If you do have any follow-up questions, we'll be around to take your calls. Thank you very much and have a great day.

[Operator]

Thank you. That concludes today's conference call. Thank you for participating. You may now disconnect.

Participants

Executives

• Allan Decleir, CFO
• Dan Burrows, CEO
• Miranda Hunter, Head of Investor Relations

Analysts

• Matt Carletti, Managing Director at Citizens JMP
• Meyer Shields, Analyst at KBW
• Michael Ward, Managing Director at Citigroup
• Mike Zaremski, Managing Director at BMO
• Yaron Kinar, Managing Director at Jefferies