Fidelis Insurance (FIHL)

Specialty insurance provider Fidelis Insurance (NYSE:FIHL) fell short of the market’s revenue expectations in Q3 CY2025, with sales falling 5% year on year to $651.9 million. Its non-GAAP profit of $1.21 per share was 1% above analysts’ consensus estimates.

Company Overview

Founded in Bermuda in 2014 and designed to adapt nimbly to evolving market conditions, Fidelis Insurance (NYSE:FIHL) is a global specialty insurance and reinsurance company focused on creating value through strategic capital allocation, expert risk selection and a network of long-term underwriting partnerships.

This is a cyclical industry, and the sector benefits when there is 'hard market', characterized by strong premium rate increases that outpace loss and cost inflation, resulting in robust underwriting margins. The opposite is true in a 'soft market'. Interest rates also matter, as they determine the yields earned on fixed-income portfolios. The primary headwind remains the immense and concentrated exposure to large-scale catastrophe losses, as the growing impact of climate change challenges traditional risk models and creates significant earnings volatility. Additionally, they face the risk of adverse prior-year reserve development, where claims prove more costly than anticipated, while the eventual influx of new capital from alternative sources threatens to soften the market and compress future returns.

Fidelis Insurance competes with other specialty insurers and reinsurers including Arch Capital Group (NASDAQ:ACGL), Axis Capital Holdings (NYSE:AXS), RenaissanceRe Holdings (NYSE:RNR), and Hiscox (LON:HSX).

In general, insurance companies earn revenue from three primary sources. The first is the core insurance business itself, often called underwriting and represented in the income statement as premiums earned. The second source is investment income from investing the “float” (premiums collected upfront not yet paid out as claims) in assets such as fixed-income assets and equities. The third is fees from various sources such as policy administration, annuities, or other value-added services. Fidelis Insurance’s annualized revenue growth rate of 16.1% over the last two years was incredible for an insurance business.

This quarter, Fidelis Insurance missed Wall Street’s estimates and reported a rather uninspiring 5% year-on-year revenue decline, generating $651.9 million of revenue.

Net premiums earned made up 77.8% of the company’s total revenue during the last four years, meaning insurance operations are Fidelis Insurance’s largest source of revenue.

Markets consistently prioritize net premiums earned growth over investment and fee income, recognizing its superior quality as a core indicator of the company’s underwriting success and market penetration.

When insurers sell policies, they protect themselves from extremely large losses or an outsized accumulation of losses with reinsurance (insurance for insurance companies). Net premiums earned are:

• Gross premiums - what’s ceded to reinsurers as a risk mitigation and transfer strategy

Fidelis Insurance’s net premiums earned has grown at a 17.1% annualized rate over the last two years, much better than the broader insurance industry and in line with its total revenue.

In Q3, Fidelis Insurance produced $599.8 million of net premiums earned, down 5.5% year on year and short of Wall Street Consensus estimates.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For insurance companies, we look at pre-tax profit rather than the operating margin that defines sectors such as consumer, tech, and industrials.

This is because insurers are balance sheet businesses, where assets and liabilities define the core economics. This means that interest income and expense should be factored into the definition of profit but taxes - which are largely out of a company’s control - should not.

Over the last two years, Fidelis Insurance’s pre-tax profit margin has risen by 59.5 percentage points, going from 59.2% to breakeven. Said differently, the company’s expenses have increased at a faster rate than revenue, which usually raises questions unless the company is in high-growth mode and reinvesting its profits into attractive ventures.

In Q3, Fidelis Insurance’s pre-tax profit margin was 24.7%. This result was 7.5 percentage points better than the same quarter last year.

Insurers are balance sheet businesses, collecting premiums upfront and paying out claims over time. Premiums collected but not yet paid out, often referred to as the float, are invested and create an asset base supported by a liability structure. Book value per share (BVPS) captures this dynamic by measuring these assets (investment portfolio, cash, reinsurance recoverables) less liabilities (claim reserves, debt, future policy benefits). BVPS is essentially the residual value for shareholders.

We therefore consider BVPS very important to track for insurers and a metric that sheds light on business quality because it reflects long-term capital growth and is harder to manipulate than more commonly-used metrics like EPS.

Fortunately for investors, Fidelis Insurance’s BVPS grew at a decent 13.1% annual clip over the last two years.

Over the next 12 months, Consensus estimates call for Fidelis Insurance’s BVPS to grow by 29.1% to $23.80, elite growth rate.

The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.

If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.

Fidelis Insurance currently has $842.9 million of debt and $2.42 billion of shareholder's equity on its balance sheet, and over the past four quarters, has averaged a debt-to-equity ratio of 0.3×. We think this is safe and raises no red flags. In general, we’re comfortable with any ratio below 1.0× for an insurance business. Anything below 0.5× is a bonus.

We struggled to find many positives in these results. Its revenue missed and its net premiums earned fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock remained flat at $20.04 immediately after reporting.

Updated: February 25, 2026 at 12:07 AM EST

Before making an investment decision, investors should account for Fidelis Insurance’s business fundamentals and valuation in addition to what happened in the latest quarter.

We think Fidelis Insurance is a solid business. Although Fidelis Insurance’s declining EPS over the last two years makes it a less attractive asset to the public markets, its net premiums earned growth was exceptional over the last two years. On top of that, its projected EPS for the next year implies the company will start generating shareholder value.

Fidelis Insurance’s P/B ratio based on the next 12 months is 0.8x. When scanning the insurance space, Fidelis Insurance trades at a fair valuation. For those confident in the business and its management team, this is a good time to invest.

Wall Street analysts have a consensus one-year price target of $21.50 on the company (compared to the current share price of $20.09), implying they see 7% upside in buying Fidelis Insurance in the short term.