Fidelis Insurance (FIHL)

Specialty insurance provider Fidelis Insurance (NYSE:FIHL) fell short of the markets 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 insurer and reinsurer that provides customized coverage across property, specialty, and bespoke risk solutions.

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).

Insurance companies generate revenue three ways. The first is the core insurance business itself, represented in the income statement as premiums earned. The second source is investment income from investing the “float” (premiums collected but not yet paid out as claims) in assets such as fixed-income assets and equities. The third is fees from policy administration, annuities, and 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.

While insurers generate revenue from multiple sources, investors view net premiums earned as the cornerstone - its direct link to core operations stands in sharp contrast to the unpredictability of investment returns and fees.

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 therefore net of 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.

Fidelis Insurance’s net premiums earned came in at $599.8 million this quarter, 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 the combined ratio rather than the operating expenses and margins that define sectors such as consumer, tech, and industrials.

Combined ratio = (costs of underwriting + what an insurer pays out in claims) / net premiums earned. If a company boasts a combined ratio under 100%, it is underwriting profitably. If above 100%, it is losing money on its core operations.

Given the calculation, a lower expense ratio is better. Over the last two years, Fidelis Insurance’s combined ratio has increased by 17.3 percentage points, going from 82.2% to 99.4%. 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 combined ratio was 79%, beating analysts’ expectations by 200 basis points (100 basis points = 1 percentage point). This result was 8.4 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. While other (and more commonly known) per-share metrics like EPS can sometimes be lumpy due to reserve releases or one-time items and can be managed or skewed while still following accounting rules, BVPS reflects long-term capital growth and is harder to manipulate.

Fortunately for investors, Fidelis Insurance’s BVPS grew at a decent 12.8% annual clip over the last two years.

Over the next 12 months, Consensus estimates call for Fidelis Insurance’s BVPS to grow by 27.6% 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 quarter could have been better. The stock remained flat at $19.15 immediately following the results.

Updated: December 3, 2025 at 11:51 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Fidelis Insurance.

There are things to like about Fidelis Insurance. 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 $20.67 on the company (compared to the current share price of $18.43), implying they see 12.1% upside in buying Fidelis Insurance in the short term.