We came across a bullish thesis on Fidelis Insurance Holdings Limited (FIHL) on Substack by Kairos research. In this article, we will summarize the bulls’ thesis on FIHL. Fidelis Insurance Holdings Limited (FIHL)’s share was trading at $16.61 as of Feb 13th. FIHL’s trailing and forward P/E were 4.34 and 4.53 respectively according to Yahoo Finance.
A professional insurance agent at work in a modern office, representing the company’s independent agents.
Fidelis Insurance Holdings presents a unique investment opportunity in the specialty insurance sector, with its reinsurance and specialty lines businesses growing rapidly and efficiently. Founded in 2015, Fidelis has quickly built a diversified global portfolio. The company’s gross written premiums (GWP) reached $3.6 billion for the year ended December 31, 2023, with net premiums written totaling $1.8 billion. Notably, their GWP and net premiums have grown at a compound annual growth rate (CAGR) of 36.8% and 43%, respectively, from 2017 to 2023. The company’s average loss ratio of 45% and combined ratio of 86% over the past several years demonstrate its operational efficiency. Despite these strong numbers, Fidelis operates in a market that has benefited from rising rates in both reinsurance and specialty lines, and the company’s growth may slow if these conditions shift.
Fidelis’ business is divided into three key segments: specialty, reinsurance, and bespoke. The specialty segment, which represents 61% of GWP, is focused on short-tail risks in areas like energy, marine, aviation, and property development. This segment has grown 22% year-over-year in Q3 2024. Reinsurance, which accounts for 20% of GWP, is focused on residential property catastrophe risk and has grown rapidly at 56% in Q3 2024. The bespoke segment, which covers political and credit risks, has grown 17% year-over-year. Both reinsurance and specialty segments are growing efficiently, though the reinsurance segment stands out for its higher growth rate and better underwriting ratios.
Fidelis’ management has done an impressive job of growing the company’s book value per share, which has increased at a CAGR of 44% from 2018 to 2023. Their loss and expense ratios are also below the industry average, which reflects disciplined underwriting and risk management. However, the broader market conditions, including rising rates and increased competition, have contributed to Fidelis’ strong performance. These conditions, particularly in the reinsurance space, may not last indefinitely, posing a potential risk to future growth.
In terms of financial stability, Fidelis is in a strong position. With a debt-to-equity ratio of just 0.17, significantly lower than the industry average, the company is conservatively leveraged. Its investment portfolio, worth $4.7 billion, consists primarily of cash and U.S. Treasuries, reflecting a cautious approach to capital management. Fidelis has also returned significant capital to shareholders, including $141 million in dividends and share repurchases as of Q3 2024. The company’s $50 million share repurchase program in 2023 and subsequent $200 million program in 2024 further demonstrate its commitment to returning value to investors.
Despite these positives, Fidelis faces risks, particularly in its reinsurance business, which is heavily exposed to property catastrophic rates. As competition increases and capital floods into the reinsurance market, rates could decline, which would negatively impact Fidelis’ bottom line. Moreover, there is little insider ownership, which could lead to a lack of alignment between management and shareholders, particularly for long-term investors.
Given Fidelis’ current valuation, trading at about 70% of book value and potentially 4-5x earnings for 2025, there is an opportunity for upside if the company can maintain its book value growth of 5-10% and re-rate closer to 1x book value. This, combined with ongoing share repurchases and dividends, could offer substantial returns. However, the key risks—declining catastrophe rates and limited shareholder alignment—should be considered before investing. Overall, Fidelis presents a compelling case for investors looking for a company trading at a discount, but the risks tied to market conditions and management’s incentives should be carefully weighed.
Fidelis Insurance Holdings Limited (FIHL) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 22 hedge fund portfolios held FIHL at the end of the third quarter which was 22 in the previous quarter. While we acknowledge the risk and potential of FIHL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than FIHL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.