Fidelis insurance outlook revised at S&P to stable due to aviation losses and wildfire impact

Investing.com -- S&P Global Ratings has revised its outlook for Fidelis Insurance Holdings Ltd. from positive to stable. The change comes in response to significant net adverse prior year development in the fourth quarter of 2024 due to aviation-related losses stemming from the Russia-Ukraine conflict and anticipated losses from the January 2025 California wildfires.

Fidelis, which includes operating subsidiaries, experienced a weaker underwriting performance in 2024 than projected in base-case assumptions and those of similarly rated peers. The company also expects losses ranging from $160 million to $190 million (net of recoveries, reinstatement premiums, and tax) resulting from the California wildfires. These expected losses are likely to impact the company’s underwriting results for the year.

Despite these challenges, S&P Global Ratings affirmed all ratings for Fidelis, including a ’BBB’ issuer credit rating for the holding company, Fidelis Insurance Holdings Ltd., and an ’A-’ issuer credit and financial strength ratings for the core insurance and reinsurance operating entities. The stable outlook reflects the expectation that Fidelis will maintain its capitalization redundant at the 99.99% confidence level and continue to enhance its enterprise risk management framework.

Fidelis’ underwriting performance in 2024 was weaker than those of its peers, largely due to the net adverse prior year development of $287 million in the fourth quarter of 2024 in its Aviation and Aerospace line of business related to the ongoing Russia-Ukraine aviation litigation.

Following Russia’s invasion of Ukraine in February 2022, western sanctions resulted in aircraft leasing companies terminating contracts with Russian airlines. This led to western lessors not being able to repossess certain western-owned aircraft, resulting in claims against their insurers, including Fidelis.

Fidelis also anticipates significant losses from the recent California wildfires, estimated between $160 million and $190 million. These losses are expected to weigh on its underwriting performance in 2025, with a projected combined ratio in the range of 94%-97% and an expected improvement to low-90 area in 2026, including a natural catastrophe budget of 8-10 percentage points.

Despite recent underwriting challenges, Fidelis’ capitalization remains robust and is a rating strength. The company’s capital adequacy remained materially redundant at the 99.99% confidence level at the end of 2023 and is expected to remain so through 2026.

The stable outlook for Fidelis also takes into account the expectation that the company will continue to exercise its strong underwriting capabilities, which have historically produced industry-leading results. The ratings could be lowered or raised in the next two years depending on the company’s underwriting and overall operating performance, capital adequacy, and fixed-charge coverage ratio.

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