Executive Summary / Key Takeaways

• Fidelis Insurance Holdings Limited is emerging from a period of one-off challenges, with its core investment thesis centered on a highly profitable, diversified short-tail specialty insurance and reinsurance portfolio, underpinned by market leadership and agile underwriting.
• The company has effectively drawn a line under significant past exposures, including the Russia-Ukraine aviation litigation and the California wildfires, allowing its strong underlying performance to come to the forefront.
• FIHL's operational advantages, particularly its daily underwriting calls and real-time risk adjustments, provide a crucial competitive edge, enabling superior pricing and risk selection in a verticalized market.
• Robust capital management initiatives, including an expanded $200 million share repurchase authorization and increased dividends, underscore management's confidence in the company's undervalued stock and strong balance sheet.
• With a full-year 2025 underwriting growth target of 6% to 10% and through-the-cycle ROAE targets of 13% to 15%, Fidelis is poised for accretive growth and shareholder value creation in a favorable, albeit evolving, market environment.

The Specialty Edge: A Foundation for Growth

Fidelis Insurance Holdings Limited (FIHL), celebrating its 10-year anniversary in 2025, has strategically carved out a leadership position in the global specialty insurance and reinsurance markets. From its inception in 2014, the company established the Fidelis partnership as its cornerstone, a collaborative model designed to match capital to risk and ensure rigorous risk selection across its diverse portfolio of over 100 products. This foundational strategy, emphasizing lead positioning and cross-sell opportunities, has been critical in shaping FIHL's current market standing.

The insurance industry, particularly in specialty lines, continues to benefit from a sustained period of favorable pricing and terms. After years of compound rate increases, the market remains in one of the best underwriting environments seen in decades. This backdrop, however, is not without its complexities, as evidenced by the highest first-quarter industry catastrophe losses in over a decade in 2025 and ongoing global political uncertainty. These broad industry trends underscore the essential role of insurers and reinsurers and emphasize the necessity for premium rates and coverage terms to accurately reflect the evolving risk landscape.

FIHL's overarching strategy is to balance profitable underwriting opportunities with strategic capital management. The company's structure, which includes two main operating segments—Insurance and Reinsurance—allows for focused deployment of capital. The Insurance segment, encompassing direct property, marine, aviation, asset-backed finance, political risk, and structured credit, targets higher-margin areas. The Reinsurance segment focuses on optimizing its portfolio with core clients and managing exposures through targeted deployments and outwards reinsurance. This dual-segment approach, combined with a disciplined underwriting philosophy, positions Fidelis to capitalize on attractive risk-reward opportunities.

Technological Differentiators and Operational Agility

Fidelis's competitive advantage is not rooted in a single proprietary technology, but rather in its highly agile operational framework that leverages advanced analytics and real-time decision-making. The company’s "daily underwriting calls," sometimes occurring multiple times a day, are a critical differentiator. These calls integrate insights from claims, legal, underwriting, analytics, and actuarial teams, enabling underwriters to "make adjustments in real time" to pricing and deal structures based on evolving factors such as interest rates, tariffs, and geopolitical developments. This capability allows Fidelis to "reprice, readjust their thoughts on how the deal should be structured every single day."

This operational agility translates into tangible benefits for investors. For instance, in its Asset Backed Finance & Portfolio Credit (ABF&PC) segment, Fidelis runs "scenarios around sensitivities to a number of different economic variables to ensure that we're happy with the overall exposure." This proactive risk assessment, combined with the ability to implement changes quickly, enhances pricing accuracy and allows the company to maintain robust margins. The company's short-tail, diversified book of business further enables it to adapt rapidly to changing environments, insulating its portfolio from macro headwinds and inflationary pressures. Inflationary impacts are already being factored into pricing and insurance values across the property direct and facultative portfolio as risks renew. This real-time responsiveness and analytical rigor contribute significantly to Fidelis's competitive moat, supporting its financial performance through superior risk selection and pricing power.

Strategic Evolution and Partnership Expansion

Fidelis's history is marked by strategic evolution, particularly in its approach to partnerships. While the Fidelis partnership remains the cornerstone, the company is actively expanding its platform. In 2024, it onboarded its first third-party partners, and in 2025, it announced a new strategic partnership with Euclid Mortgage, effective January 1, 2025, expected to generate approximately $35 million in gross premiums written for the year. This diversification augments the existing book with highly accretive lines of business, demonstrating the company's commitment to matching capital to the right risks.

The company's participation in Lloyd's Syndicate 3123, launched in July 2024, also creates new opportunities, particularly within the bespoke segment. These initiatives, alongside a small quota share of Travelers (TRV)' cyber book, exemplify Fidelis's ability to successfully onboard new partners and leverage its "right of first offer" and "binder agreement processes" with the Fidelis partnership. The bar for new partnerships remains high, requiring them to meet or exceed internal underwriting hurdles, ensuring accretive growth.

Financial Performance and Operational Resilience

Fidelis has demonstrated significant growth and resilience, even amidst challenging market events. Since 2022, the company has delivered gross written premium growth of 54% and increased its book value per diluted share by 39%, including common share dividends.

For the second quarter of 2025, Fidelis reported gross premiums written of $1.2 billion, contributing to a year-to-date total of $2.9 billion, a 9% increase over the same period last year. The Insurance segment saw a 7% increase in gross premiums written to $902 million, driven by strong performance in Asset Backed Finance & Portfolio Credit and Political Risk, Violence & Terror. The Reinsurance segment, while seeing a slight decrease in Q2 2025 gross premiums written to $317 million from $346 million in the prior year, still achieved a 15% year-to-date growth.

The combined ratio for Q2 2025 was 103.7%, primarily reflecting the impact of the English High Court judgment on the Russia-Ukraine aviation litigation. However, excluding this impact, the company would have achieved a combined ratio in the mid-70s, significantly outperforming its through-the-cycle targets. The attritional loss ratio continued its positive trend, improving to 24.7% in Q2 2025 and 23.7% for the first half of the year, reflecting the strength of the underlying portfolio. Net adverse prior year development of $89 million in Q2 2025 was largely attributable to the Russia-Ukraine litigation, with the underlying Insurance portfolio showing favorable reserve development otherwise. The Reinsurance segment, conversely, recorded $24 million in net favorable development.

Liquidity remains strong, with the company's capital position providing ample flexibility. Net investment income for Q2 2025 was $45 million, with a diversified hedge fund portfolio now representing approximately 5% of total investable assets. The fixed income portfolio maintains a high average rating of A+ with a book yield of 5.0% as of June 30, 2025.

Competitive Landscape and Positioning

Fidelis operates in a competitive landscape dominated by larger, diversified insurers like Chubb Limited (CB), American International Group (AIG), and Berkshire Hathaway (BRK.B)'s insurance subsidiaries. While these giants compete on scale and broad market reach, Fidelis distinguishes itself through its specialized focus and agile underwriting.

Fidelis's market positioning as a leader in "highly verticalized markets" allows it to achieve "significant pricing differentials compared to subscription market players." For instance, in direct property, Fidelis is positioned to write private layers and leverage its line size for cross-class capacity, leading to "high retention levels and leadership terms and pricing." This contrasts with smaller, "price taker" players in the subscription market who often face "double-digit reductions."

Compared to Chubb, Fidelis's niche focus allows for greater agility and customization in solutions, particularly in bespoke and energy-related risks. While Chubb's extensive distribution and financial stability provide scale, Fidelis's ability to provide highly personalized solutions and "structure value-adding products" in areas like Asset Backed Finance & Portfolio Credit offers a unique value proposition. Similarly, against AIG, Fidelis's targeted bespoke solutions offer innovation speed for custom products, potentially leading in faster development of energy-related policies, though AIG's broader offerings provide more comprehensive coverage. Berkshire Hathaway, with its vast resources and cost leadership, represents a formidable competitor, but Fidelis's expertise in customized risk solutions and real-time adjustments provides an edge in adapting to emerging risks.

Fidelis's competitive advantages stem from its expertise in customized risk solutions, regulatory licenses in key jurisdictions, and strong relationships in specialty segments. Its operational model, characterized by daily underwriting calls and real-time adjustments, allows for superior accuracy in pricing and efficient risk underwriting. This enables Fidelis to compete effectively against larger, more traditional players by offering faster policy customization and more efficient claims processing in its niche areas. However, Fidelis's relatively smaller scale compared to its rivals could lead to higher customer acquisition costs and potential dependencies on specific markets, making it vulnerable to sector-specific downturns or aggressive pricing from larger competitors.

Outlook, Guidance, and Risk Assessment

Fidelis's outlook is optimistic, with management confident in the company's ability to deliver on its through-the-cycle targets. The company now expects underwriting growth for the full year 2025 to be approximately 6% to 10%. This growth is anticipated to be driven by a strong pipeline in Asset Backed Finance & Portfolio Credit, high retention and profitability in Property, and new marine construction opportunities. The effective tax rate for the full year 2025 is expected to remain in the 19% range.

Management anticipates continued market discipline, especially in reinsurance, with rates for renewals expected to be consistent with prior years. The U.S. wind season for the remainder of 2025 is a key factor that will "determine the trajectory of the market into 2026." Fidelis's long-term through-the-cycle targets remain a mid-to-high 80s combined ratio and a 13% to 15% operating return on average equity (ROAE).

Despite the positive outlook, risks remain. The aviation segment is identified as the "most challenged part of our portfolio," with Fidelis maintaining underwriting discipline and only deploying capital in more accretive ways until sustained market improvement is observed. The increasing frequency and severity of secondary perils, as highlighted by the California wildfires, underscore the ongoing impact of climate change. While Fidelis manages these exposures through active use of outwards reinsurance and robust PMLs (e.g., 1 in 100 windstorm clash and 1 in 250 California earthquake PML are both less than 10% of shareholders' equity), a significant "capital event" that "really hits capital and potentially rating" could still impact overall property cat pricing.

Conclusion

Fidelis Insurance Holdings Limited stands at a pivotal juncture, having effectively addressed past challenges and positioned itself for sustained, profitable growth. The company's core investment thesis is rooted in its specialized focus, agile underwriting capabilities, and disciplined capital management. By leveraging its market leadership in verticalized segments and its operational advantages, such as real-time risk adjustments, Fidelis continues to generate attractive margins and secure preferential terms.

Management's confidence is evident in the expanded share repurchase program and increased dividend, reflecting a belief that the stock is currently undervalued. With the Russia-Ukraine litigation largely behind it and robust strategies in place to manage catastrophe exposures, Fidelis is poised to demonstrate the full strength of its underlying portfolio. The company's strategic partnerships and continuous optimization of its business mix further enhance its ability to capitalize on favorable market dynamics, driving shareholder value through accretive growth and superior risk-adjusted returns.