US primary insurer Travelers has disclosed that its investment in Fidelis includes a 20% quota share arrangement, which its management says will allow the firm to “participate in the hard market.”
Travelers made a strategic minority investment in Bermudian re/insurer Fidelis in July of 2021, which came into effect on January 1st 2023.
At the time, Hinal Patel, the Group Chief Financial Officer of Fidelis, commented, “We are delighted to welcome Travelers to our shareholder panel.
“Travelers and Fidelis are leaders in their fields, with proven track records in our respective markets. We believe that there will be opportunities to learn from each other and work together.”
Now, in Travelers’ fourth-quarter conference call, Dan Frey, the firm’s Chief Financial Officer, disclosed that the investment includes an agreement that it had not previously disclosed, whereby Travelers will take a 20% quota share on policies issued by Fidelis with effective dates in 2023.
Frey suggested that the agreement would enable Travelers to take advantage of strong reinsurance pricing conditions, commenting: “The market for Fidelis products is probably as favourable as it has been in 20 years or so.”
He also noted that, while strategically valuable and expected to be accretive to earnings, the quota share deal is not anticipated to have a significant impact on Travelers’ consolidated financial results.
Frey continued, “Our portion of net written premiums from Fidelis is expected to be around $550m to $600 million for the full year and those premiums will be reflected within the international results of business insurance.
“Detailed terms of the quota share have not been disclosed, but we can share that there’s a loss ratio cap to ensure that even a worst-case underwriting scenario is boxed to a very manageable impact on Travelers.”
Notably, net income for the full year also fell by 22% to $2.84 billion, compared to 2021’s $3.66 billion, while core income for Q4 was $810 million, compared to $1.28 billion, in the prior year quarter.
Travelers noted that the decrease was primarily due to higher catastrophe losses, a lower underlying underwriting gain, and lower net investment income.
The firm also recently disclosed details of its reinsurance renewals for 2022, which include a higher attachment point for its occurrence catastrophe excess-of-loss program, as well as the apparent non-renewal of its aggregate catastrophe cover.