Good morning, ladies and gentlemen, and welcome to the Fidelis Insurance Holdings First Quarter 2024 Earnings Conference Call. [Operator Instructions]. With that, I'll 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 first quarter of 2024 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 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 can be found in our current report on Form 6-K furnished with the SEC yesterday, which contains our earnings press release and is available on our website fidelisinsurance.com. And with that, I'll turn the call over to Dan.

Thank you, Miranda. Good morning, everyone, and welcome to Fidelis Insurance Group 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 growth premiums written by 21.6% and deliver the 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 terms in a verticalized market. We delivered another strong course of returns with an annualized operating ROAE of 14%. Again, in line with our expectations, we also grew book value per diluted common share for $21.22. For the full year, we remain on track to generate ROAE in the 14% to 16% range as we earn a greater portion of our capacity 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. We are leveraging our scale, lead positioning and deep relationships with brokers and clients to grow our business and have constructed a diversified portfolio, short held specialty risks, which we believe is well positioned to deliver combined ratios in the mid to high 80s throughout the cycle.…

Thanks, Dan, and 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 for diluted common share at March 31 was $21 and $0.22. 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. Specialty growth was primarily driven by property DNF, 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 this class across 2023. Other drivers of growth within our specialty book in the quarter included other property. We saw an increase of 55.7 million, and marine we saw an increase of 49.9 million. As a reminder, there is seasonality within our specialty book with Marines and aviation and aerospace being more heavily weighted to the first half of the year, while in property DNF, which we expect to be the key driver of specialty growth this year. We anticipate a more even distribution of premium across the quarters. Bespoke premiums were consistent with prior periods with first quarter gross premiums written of 153.5 million, 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…

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 are practically remains to actively capitalize on the significant opportunities this presents. Taking a closer look at our segment, 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 of properties, direct and faculty, marine 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. Following $120 billion of natural capacity losses in 2023 and an active start to 2024, including several US 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 position 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 tried ourselves and our ability to innovate, enabling us to offer meaningful solutions to our clients. We are an established leader in the classes we participate in, always…

[Operator Instructions] With that, our first question comes from the line of Matt Carletti with Citizens JMP.

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 even able to kind of translate in those terms. And secondly, just what impact do you think that loss might have on the related particularly marine but related markets?

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 a billion dollars of specialty in the quarter, we think therefore the loss, 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, so 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.

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 seeding commissions. Is there any -- 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 way. Is there any reason to think kind of where we sat by segment on like a full year ‘23 level? It would look materially different for full year ‘24.

No, I think you have the right answers. One important factor to always consider on our book of business is that we do buy a significant amount of outwards reinsurance, and that can also significantly impact the post-acquisition costs on a quarter-to-quarter basis. If it's quarter share business that we buy on an outwards basis, there's a seeding commission and a profit commission that comes back, back to us. 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.

Your next question comes from Mike Zaremski with BMO.

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. Some companies have said like the range is 1 billion to 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.

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

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 is -- look, 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 and kind of pricing power in the overall marketplace?

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 kind of flatter as opposed to the reinsurance and the specialty. But when we think about market duration, it's still a best or pricing in the market. Still the best market we've seen for 20 to 25 years, we've had compound increases over the last three or four, five years. It's still a very verticalized market. So we've talked about this before. So not everyone starts in the same place. As a leader on across the portfolio, about 90% of the business then we're able to dictate terms, conditions, and we get better pricing, uh, better coverage. Obviously, we see the opportunities early as well. We're able to have a think, a better risk election 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 -- 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. 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.

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

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 at certainly add 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 if, depending on share price and whether it's accretive to book buy.

Your next question comes from Yaron Kinar with Jefferies.

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 session 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 seating rate should be there? A and B, maybe you can talk about maybe the differences in the composition of the portfolio year over year that would've resulted in B change in session rate?

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

And is there a way for us to think about, like, 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.

As you mentioned at the start of your question, the Bespoke segment by its nature has some fluctuations on the business -- and they tend to be unique. They're not necessarily all renewals, but in general, we would go with the sort of 2023 overall yearly session 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% session.

And my second question, I realize this 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 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?

I'll take that question. From for context, I would note again that we do not write any casualty business. We are 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'll 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.

Your next question comes from Meyer Shields with KBW.

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?

It's a really good question. As you know, we have a variable approach share, so we'll lean into lines where we do have appetite and, 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're monitor it. There are, there are some deals that flow into Lloyd's and Lloyd's only that we'd like to have access to that. That's a whole, 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. Depending on the risk, I think this is the key thing around the -- is that we get to see every deal. If it looks attractive we combined it. Uh, but if it's not with an appetite, we won't match our capital to those risks.

And then maybe on the flip side --

I think I just put out there that, -- sorry, Meyer, sorry to interrupt you. Whatever we say you that's 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.

With regard to the directing faculty book, I was hoping for an update on reinsurance purchasing strategy based on I guess current expectations for midyear property pricing, property reinsurance pricing.

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 1/4. We tend to buy the DNF program there. It's coming 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 US name storm, and US quake. So as you know, 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 DNF, gives you a very, very differential result. And and we'll take advantage of that market if we can.

[Operator Instructions] Your next question comes from Mike Ward with Citigroup.

I was wondering, just technical -- if the Lloyd structure of seating commission is comparable to the rest of the MGU sourced business?

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

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

I mean, we don't give out details on PMLs. As you know, what we would say, we are exposed at one and 150 to -- and then Southeast Clash, but we do, as I just mentioned, buy, we have a lot of proportional protection on that portfolio in both the Truity and the D&F. And we buy a very broad suite of products. We have non-proportional, we have index products, just renew the bonds, as I said a moment ago. So we think we're very well protected in that portfolio.

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

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

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