Brindle talks about his new venture

[gfp]

He had some fans on this board, so I thought someone might find it interesting

------------------------

 

Insurers have 'one hand tied behind back': Brindle

Adam McNestrie

 

Legacy insurers have been "sleepwalking" for the last seven years and have failed to adapt to the realities posed by a low interest rate environment, according to Fidelis CEO Richard Brindle.

 

Speaking to The Insurance Insider as he launched his new $1.5bn carrier, Brindle argued that since the financial crisis began, "everyone has had one hand tied behind their back" when it comes to their low-yielding fixed income portfolios.

 

"They're making 0 percent now where they used to make 5 percent," he added.

 

Historically, the industry has relied upon generating a return from the asset side of the balance sheet as well as the liability side, but - unlike other areas of the financial services sector - insurers have failed to recalibrate their business model, the CEO argued.

 

Fidelis - his answer to the challenge - is a total return carrier that will dynamically change the amount of investment and underwriting risk it takes depending on market conditions.

 

Brindle said that Berkshire Hathaway is the only company in the space that has pursued this sort of model.

 

But while he admires Berkshire's trading instincts, Brindle said that Fidelis would not take quite such an opportunistic approach to its underwriting to ensure that client and broker relationships were safeguarded.

 

The Lancashire founder told The Insurance Insider that the business would not be gunning for the same level of investment returns as some of the more aggressive hedge fund reinsurers.

 

"We're not trying to be a Third Point Re and make 15 points a year on the investments," he said. Instead, the aim will be to make a high single-digit return on the asset side.

 

"The focus will be more on the investments than the underwriting in the first couple of years," Brindle said, with the second half of 2015 and 2016 seen as a "ramp up" period in underwriting owing to market conditions.

 

However, the business is still targeting a few percentage points of return on equity from underwriting in its first full year in operation.

 

"To begin with the underwriting piston will be pushed most of the way down and the investment piston pushed most of the way up," he said. "But we could move our allocation to mostly cash and fixed income almost overnight if we need to."

 

When the concept was under development last year, Brindle and CFO Neil McConachie were thinking more along the lines of a portfolio weighted towards specialty insurance, with some reinsurance exposure.

 

However, the emphasis has since shifted towards reinsurance.

 

"It's carnage in some of the specialty insurance classes - pricing has just gone off a cliff. We're not ideological about which lines of business we write."

 

Brindle has a long history of writing terrorism and energy business, and many expected them to be cornerstone classes for Fidelis. But the former Lancashire executive described them as "probably the worst in the world" at the moment.

 

By contrast, some reinsurance classes - including property catastrophe - continue to have attractive margins, he argued. Nevertheless, Brindle acknowledged that "the garden is hardly rosy" and that he regards current market conditions as unsustainable.

 

This stance represents a contrarian perspective given that the value of a reinsurance book is currently being heavily discounted in favour of portfolios of specialty insurance business.

 

Brindle maintained that there were opportunities in the reinsurance market for a new business of Fidelis' size, adding that the brokers were getting "spooked" about the "disappearance of counterparties" as M&A activity gathers pace.

 

And, although he continues to believe that a certain scale is needed to ensure relevance, Brindle insisted that the industry has overreacted, with carriers now "obsessed with becoming hulking big companies".

 

A nimble carrier with talented underwriters and a $100mn line size was closer to the industry sweet spot than a $10bn business, the executive argued.

 

He also said that Fidelis had not finished fundraising, with secondary raises from the Goldman Sachs high-net-worth network on the cards, potentially in the coming months.

 

Brindle said that CFO McConachie was responsible for pioneering the current operating model at the public London companies, which involves significant capital returns to shareholders, and said that this would continue at Fidelis.

 

A strong stream of dividends would be a major attraction to shareholders as the company navigates towards an initial public offering, likely in New York, over a two-to-five-year time window.

 

Charles Mathias, who resigned as chief risk officer at Lancashire earlier this week, is joining Fidelis in the same role. Goldman Sachs and Kinmont advised Fidelis.

 

[gfp]

And one more-

 

"Specialty (re)insurer Fidelis has confirmed that it will launch with around $1.5bn of capital, after it secured an A- rating from AM Best.

 

The start-up, which is led by CEO Richard Brindle and CFO Neil McConachie, said that it will look to optimise its returns across the liability and asset sides of its balance sheet.

 

The Insurance Insider first revealed in October that Brindle was working on a new vehicle after exiting Lancashire, the specialty insurer he founded in 2005, and reported on 2 June that the Fidelis fundraise was due to close this week at $1.5bn.

 

As previously reported, private equity houses Crestview Partners and Pine Brook will invest in the new Bermuda-based business. They will be joined by CVC Capital Partners, rather than Oaktree as initially intended.

 

In total the three PE houses will contribute $650mn of capital, Fidelis said, with the balance coming from individual investors, family offices and institutions.

 

"By focusing on either assets or liabilities, legacy insurance models have failed to optimise shareholder returns, and the low returns generated by fixed income investments have been challenging," Brindle said.

 

"Fidelis will pursue a total return strategy by tactically shifting capital and risk between insurance and investments to maximise our return on equity across market cycles. But we are first and foremost an underwriting company."

 

Fidelis confirmed that it would use a number of fund managers with a range of different strategies rather than allocating all of its assets to a single investment manager.

 

At the time of the fundraise, Fidelis said that it intended to use fund managers including York Capital, Seminole and BlackRock.

 

The asset management strategy will be developed in conjunction with Goldman Sachs' Alternative Investments & Manager Selection Group and will be managed by chief investment officer Edward Russell.

 

"In addition to seeking returns that outperform peers, we believe the diversification in assets will protect Fidelis against financial market volatility better than a single-manager strategy would," McConachie explained.

 

"Optimising across hard and soft underwriting markets, as well as through different investment cycles makes Fidelis not only a strong new player, but also very attractive for investors looking to reduce downside risk."

 

Fidelis said that its underwriting portfolio - which will be spread across reinsurance and insurance - will principally be in property, energy, marine and aviation risk classes, although it is also understood to be looking at writing a book of political risk business.

 

As previously reported by The Insurance Insider, Amlin's Ben Savill is in line to become CEO of Fidelis in Bermuda, with Aon Benfield's Dan Burrows set to take up the role of London CEO once regulatory approval is secured.

 

Brindle will act as group chief underwriting officer and will be actively involved in underwriting the company's portfolio, it is understood."

[racemize]

I guess Lancashire was too tied down to do this strategy there?  Or maybe he just got bored...

[giofranchi]

He had some fans on this board, so I thought someone might find it interesting

 

Thank you! :)

 

Cheers,

 

Gio

[merkhet]

Thanks for posting. Too bad it's not publicly traded. :(