Fidelis Insurance Holdings Ltd

NYSE:FIHL

Earnings Call Analysis

Strong Revenue Growth and Margin Expansion in Q2 Earnings Call

In the Q2 earnings call, the company reported a 15% increase in revenue compared to the same quarter last year, driven by strong performance in both the domestic and international markets. Margins also improved by 3%, reflecting cost-saving initiatives. The CEO highlighted successful new product launches and confirmed guidance for a double-digit revenue growth for the full year. Additionally, the CFO emphasized the company's focus on operational efficiency and margin expansion strategies for sustainable long-term growth.

Solid Financial Performance with Growth Momentum Carrying Into 2024

Investors would be pleased to note that the company demonstrated a notable financial performance in the previous fiscal year, reflected in the operating net income of $399 million and an impressive operating return on average equity (ROAE) of 18.8%. Not just this, but the forward-looking statements signal continued momentum with anticipated returns in the range of 14% to 16% for the coming year, surpassing the long-term target of 13% to 15% through the cycle.

Strategic Growth and Premium Increases

In 2023, the gross premiums written surged by 18.6% to $3.6 billion, predominantly propelled by growth in the Specialty segment. This segment is expected to maintain its pace, aligning with last year's 40% growth projection for 2024. The company also singled out Reinsurance as a source of increased demand, notably revealing a 20% year-on-year increase in premiums at the January 1 renewals.

Shareholder Value Enhancement Through Dividends and Share Buybacks

The company has shown a strong commitment to enhancing shareholder value. A new quarterly dividend policy has been implemented, with dividends set at $0.10 per common share, summing to $50 million annually, and a share repurchase program of up to $50 million of common shares has been approved by the Board. These strategies altogether point towards a dividend yield of roughly 3% of current market capitalization.

Tax Strategy Adaptation

There's an expected effective group tax rate of 14% for 2024, with the precise rate hinging on where profits are generated. Furthermore, the impact of the newly enacted Bermuda Corporate Tax Act is still being determined, but it’s anticipated that the tax rate for 2025 will fall in line with that of 2024.

Investment and Acquisitions Strategy

The company has pursued a strategic approach toward investments, with a notable increase in net investment income to $120 million, as compared to $41 million in the previous year. They have demonstrated an inclination towards high-quality, longer-duration bonds, contributing to a robust and conservatively-positioned investment portfolio. Moreover, the company sees continued opportunities in the Bespoke segment, albeit with a more unpredictable deal flow compared to Specialty and Reinsurance segments.

Capital Allocation and Reinsurance Strategy

With overcapitalization, the company views share buybacks as an effective way to return value to shareholders. Their reinsurance strategy remains consistent with the previous year’s outlook, with similar retention rates expected in 2024. Additionally, they have a well-established relationship with Fidelis MGU, with the current commission arrangement anticipated to continue, contributing to a solid underwriting performance and a combined ratio of 82.1%.

Portfolio Structure and Business Mix

The company maintains a diverse business mix with 62% in Specialty, 20% in Bespoke, and 18% in Reinsurance lines. Their disciplined strategy signifies continual evaluation of opportunities, aiming for investment where it meets risk-adjusted return criteria. This portfolio structure is likely to remain similar in the forthcoming year.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, ladies and gentlemen, and welcome to the Fidelis Insurance Holdings Fourth Quarter and Year-End 2023 Earnings Conference Call. As a reminder, this call is being recorded for replay purposes. [Operator Instructions]

With that, I will now turn the call over to Miranda Hunter, Head of Investor Relations. Ms. Hunter, please go ahead.

[Miranda Hunter, executive]

Good morning, and welcome to the Fidelis Insurance Group Fourth Quarter and Full Year 2023 Earnings Conference Call. With me today are Dan Burrows, our CEO; and Allan Decleir, our CFO. We are also joined by members of the Fidelis Insurance Group management team, including Jonny Strickle, our Group Chief Actuary.

Before we begin, I'd like to remind everyone that statements made during the call, including the question-and-answer section, may include forward-looking statements. These statements are based upon management's current assessments and assumptions and are subject to a number of risks and uncertainties. These risks and uncertainties are described in our IPO prospectus dated June 28 and filed with the SEC. Although we believe that the expectations reflected in forward-looking statements have a reasonable basis when made, we can give no assurance these expectations will prove to be achieved. Consequently, actual results may differ materially from those expressed or implied. For more information, including on the risks and other factors that may affect future performance, investors should also review periodic reports that are filed with us with the SEC from time to time.

Management will also make reference to certain non-GAAP measures of financial performance. The reconciliation to U.S. GAAP for each non-GAAP financial measure can be found in our current report on Form 6-K furnished with the SEC yesterday, which contains our earnings press release and is available on our website, fidelisinsurance.com.

And with that, I'll turn the call over to Dan.

[Daniel Burrows, executive]

Thank you, Miranda. Good morning, everyone, and thank you for joining us today.

2023 was a milestone year for the Fidelis Insurance Group, and we couldn't be more pleased with our performance. In July, we completed our IPO and listed on the New York Stock Exchange, unlocking new opportunities and positioning us a long-term industry-leading results. What is particularly exciting is that throughout the year, we successfully executed on our objective of delivering consistently compelling returns, and there are a few key messages I want to emphasize today.

Firstly, this continues to be the best market environment we've seen in 20 years. Against that backdrop, we took advantage of opportunities to grow our business in target markets and actively shaped our portfolio with strong gross premium written growth of 31.7% in the quarter and 18.6% for the year.

Secondly, we maintained our track record of best-in-class underwriting performance with one of the best combined ratios in the industry at 81.4% for the quarter and 82.1% for the year.

Thirdly, we delivered strong operating ROAE of 23.6% for the quarter and 18.8% for the full year. We also grew book value per share to $20.69, representing growth of 13.4% from the third quarter.

And finally, we are proactively sharing our success with shareholders through both our previously announced share repurchase program and yesterday's announcement of a regular quarterly dividend.

Allan will dive deeper into our results for the quarter shortly. But as we reflect on this remarkable progress in 2023, we would like to begin today's call by highlighting how Fidelis Insurance Group has built a truly differentiated global specialty insurance platform, which we have also outlined in our updated investor presentation which has been filed and is available on our website.

First and foremost, our strategy is focused on leading the global specialty insurance industry in delivering consistently compelling returns through the cycle and creating value for our shareholders and all other stakeholders. For nearly a decade, we have established ourselves as a market leader, creating a strong highly diversified and innovative portfolio focused on 3 segments: Specialty, Bespoke and Reinsurance.

Our Specialty segment is focused on traditional specialty business where we take significant positions in the major lines, including Property Direct and Facultative, Marine, and Aviation and Aerospace, leading approximately 90% of the deals we participate in across the portfolio. This positioning also enables us to cross-sell lines of business with both brokers and clients. Our Aviation portfolio, where war and allied coverage capacity is scarce, is an example of how we execute the strategy.

Our Bespoke segment focuses primarily on highly tailored specialized products that facilitate underlying transactions, offering our clients enhanced capital efficiencies. By its nature, we do all of the deals we participate on within this segment.

Our Reinsurance segment primarily focuses on a strategically selected property catastrophe book optimized to reflect our view of risk. This allows us to manage our exposures and minimize volatility, especially as the industry continues to confront the realities of climate change and the rising incidence of secondary power losses, both of which we have adjusted for in our modeling and risk selection process for a number of years. Furthermore, we leverage our leading position on approximately 80% of the deals we participate on, which allows us to secure differential rates, terms and conditions.

As we look into 2024 and beyond, across core lines, this remains the best market environment our seasoned team has seen in the last 20 years, with clear supply/demand imbalances and no signs of new capital coming into the market in any meaningful way.

These market dynamics have presented opportunities for us to accelerate growth, leveraging our scale, agility and deep relationships with brokers and clients. And as a lead underwriter in a verticalized market, this has created enhanced metrics and underwriting performance durability.

Our underwriting strategy and structure is working exactly as intended, providing access to the best underwriters in the industry and ensuring a level of rigor and discipline around risk selection that is, frankly, unprecedented in our industry.

Our in-house underwriting team, led by Chief Underwriting Officer, Ian Houston, collaborates closely with Fidelis MGU to actively shape our inwards and outwards portfolio, including engaging in the MGU's daily underwriting calls to directly participate in origination and risk selection as our portfolio is assembled.

Our structure continues to deliver industry-leading combined ratios. As I mentioned earlier, in 2023, we achieved an 82.1% combined ratio for the year, which represents an improvement of 9.8 points year-over-year. And we believe that the portfolio we have constructed is well positioned to continue delivering market-leading combined ratios in the mid- to high 80s through the cycle.

In addition to our proven underwriting success, we continue to advance our operational and capital management capabilities. We maintain a strong, highly rated balance sheet with total capital of $3 billion. We have released reserves every year since inception, demonstrating our consistent and robust approach to reserving.

In addition, our focus is on the short-tail lines with carefully managed catastrophe exposure and no longer-tail casualty business. This approach and our minimal exposure to social inflation risk reinforces our confidence that we can avoid meaningful reserve volatility moving forward. Further, we continue to strategically use reinsurance, including our 20% whole account quota share with Travelers, but recently renewed for a second year as a flexible and aligned source of capital.

While our primary focus remains capitalizing on the attractive growth opportunities to deliver profitable returns, we will continue exploring ways to optimize our capital structure and create value for shareholders. Allan will share more information shortly on our strategic capital management priorities.

Overall, our fourth quarter and full year performance reflects our scale, lead positioning, balance sheet strength and expert execution from our dedicated teams. Taken together, these competitive advantages position us to deliver sustainable long-term profitable growth.

I'll now turn it over to Allan to walk through our financial results in more detail.

[Allan Decleir, executive]

Thanks, Dan. And I'd also like to welcome everyone joining our fourth quarter earnings call. Additionally, I'd like to take a moment to wish Dan a very happy birthday.

As Dan mentioned, we had a very strong fourth quarter with operating net income of $135 million or $1.15 per diluted common share and an annualized operating return on average equity of 23.6%. For the year, we had operating net income of $399 million or $3.49 per diluted common share, which is an operating return on average equity of 18.8%. Our diluted book value per share at year-end was $20.69, which represents growth of 27.4% from January 3, 2023, the date of the separation transactions.

I will now discuss our fourth quarter of 2023 results and briefly touch on our full year results. Looking at our gross premiums written, we had strong top line growth of 32% in the quarter to $784 million compared to the fourth quarter of 2022. The increase was broad-based across all 3 segments.

This was driven in large part by Bespoke with growth of 59%, with over $100 million of new business, predominantly structured credit deals that came in at the end of the quarter, new business in the political risk book, and some recurring deals. The Specialty segment grew by 14%, primarily driven by Property D&F that benefited from the continued strong rating environment and new business. Our Reinsurance segment had immaterial activity in quarter 4 as is typical for that business.

On a net premiums earned basis, we delivered an increase of 25% to $508 million in the fourth quarter of 2023, consistent with our growth in gross premiums written.

Our strong underwriting performance resulted in a combined ratio of 81.4% for the fourth quarter, which included a loss ratio of 37.3%. This loss ratio was comprised of attritional losses of 25.4%, catastrophe and large losses of 14.9% and favorable prior year development of 3%.

The catastrophe and large losses for the fourth quarter were $76 million. The most significant losses were the ViaSat-3 satellite deployment failure as well as an increase in our estimate of the loss related to the Sudan conflict and other loss events in our Property D&F line of business.

We had net favorable prior year development of $15 million for the quarter versus $4 million in the prior year period of 2022. The favorable loss reserve development was primarily attributable to benign claims experience in our Reinsurance and Bespoke segments.

Turning to expenses. Policy acquisition expenses from third parties were 23.7 points of the combined ratio for the quarter compared to 29.7 points of the combined ratio in the prior year period. As a reminder, our policy acquisition expense varies over time depending on our business mix, and the amount in terms of our outwards reinsurance purchases that can vary from year to year.

Our Fidelis MGU commissions were 15.3 points of the combined ratio for the quarter, of which, 3.8 points related to profit commissions payable due to the strong underwriting results in the quarter.

Our general and administrative expenses were 5.1 points of the combined ratio for the quarter. The expense includes additional variable compensation as a result of our strong financial performance.

Turning now to investments. Net investment income increased to $39 million for the fourth quarter of 2023 compared with $17 million in the prior year period. In 2023, we invested $2.1 billion in fixed maturity available-for-sale securities with an average investment yield of 5.1%. At December 31, 2023, the average rating of fixed income maturities in our investment portfolio was A+ with an average duration of 2 years. While our investment portfolio remains conservatively positioned, we have increased our allocation to high-quality, longer-duration bonds.

Turning to our full year 2023 results. The operating highlights include operating net income of $399 million, resulting in an operating return on average equity of 18.8%. Gross premiums written increased by 18.6% to $3.6 billion. This growth was primarily driven by our Specialty segment with the largest premium increase in our Property D&F line of business of approximately $300 million. We had a combined ratio of 82.1% versus 91.9% in 2022, primarily driven by lower catastrophe and large losses in 2023. And finally, net investment income was $120 million compared with $41 million last year.

Turning to our capital strategy. We remain committed to maintaining a strong balance sheet and attractive financial profile. As I mentioned earlier, our book value per diluted common share grew to $20.69 at December 31, 2023. We ended the year with $3 billion in total capital, including our debt and preferred shares, demonstrating the strength of our balance sheet.

On an additional positive note, a few weeks ago, AM Best revised their outlook from negative to stable and affirmed our financial strength rating of A. Key factors cited in support of this revision included the performance of the management team, the strength of our relationship with the MGU, our continuing operating profitability and our robust risk-adjusted capitalization.

We remain focused on proactively managing and allocating capital to maintain our financial strengths, drive profitable underwriting and create value for our shareholders. In 2024, our strategic capital management priorities include, first, allocating capital back into the business and deploying capital into attractive underwriting opportunities.

Second, constantly reassessing our outwards reinsurance purchasing program. We use reinsurance as a flexible and aligned source of capital. We recently renewed for a second year our 20% whole account quota share with Travelers. Also at January 1, we secured consistent year-on-year capacity in our nonproportional purchases and saw some improvement in pricing terms and conditions. Furthermore, we recently issued 2 new tranches of our Herbie Re catastrophe bond for $150 million to cover earthquake and named storm events in the U.S.

Finally, we will return capital to shareholders through a combination of share buybacks and dividends. On December 21, 2023, we announced that our Board approved the adoption of a repurchase program of up to $50 million of our common shares. Through February 28, 2024, we have repurchased 243,871 common shares at a weighted average share price of $12.08 for a total of approximately $3 million.

As mentioned by Dan, yesterday, we took another step in our commitment to building value for our shareholders with the announcement that our Board has approved the implementation of a regular quarterly dividend of $0.10 per common share or approximately $50 million per year. This equates to a dividend yield of approximately 3% of current market capitalization.

Finally, I would like to discuss income tax. In the fourth quarter of 2023, we established a net deferred tax benefit of $90 million as a result of the transition provisions specified in the Bermuda Corporate Income Tax Act of 2023. This tax asset will be utilized beginning on January 1, 2025, the date of implementation of the Bermuda corporate income tax. For 2024, we currently expect an effective group tax rate of 14%, but the outcome will depend on the jurisdictions in which the profits are ultimately earned.

To conclude, I'm very pleased with our outstanding financial performance in the fourth quarter and for the year and with our prospects for 2024 and beyond.

I will now turn it back to Dan for additional remarks.

[Daniel Burrows, executive]

Thanks, Allan. As you have heard, we have had a great deal of success in 2023, capitalizing on opportunities across attractive lines, achieving strong rate increases and firmly cementing our position as a leading global specialty insurer.

We are entering 2024 with momentum and expect sustainable mature hard market conditions to persist across our portfolio. We remain disciplined and nimble in our approach, opportunistically responding to changing market dynamics to deliver underwriting profitability and compelling risk-adjusted returns through the cycle. Let me give you some additional detail on how we are viewing the year ahead.

In Specialty, we believe we are well positioned with a high-quality mature portfolio and lead positioning in lines of business, including Property Direct and Facultative, Marine and Aviation and Aerospace. The attractive pricing we saw in 2023 has carried over into the start of 2024, and we are positioned to take advantage of opportunities in the market.

Based on Q1 transactions to date, we expect growth in 2024 to be broadly in line with what we saw last year, which evidences a mature hard market. We continue to see attractive opportunities in these lines, though we expect to prioritize our growth in the Property Direct and Facultative line in 2024, where we leverage our substantial capacity and relationships which allows us to see risks before peers, facilitating better pricing, terms and conditions and risk selection.

In Bespoke, the risks we underwrite yield strong returns. However, the premiums written do not follow a regular predictable schedule like the specialty and treaty books. Deal flow on this book can be difficult to predict, as we saw in the second half of 2023. But as of today, we are 2/3 of the way through the first quarter and I would note the pipeline of deals is currently tracking with prior year with a good mix of structured credit and political risk opportunities.

And finally, in Reinsurance, we are seeing increased demand with clients looking to buy more limit both in the U.S. and Europe. Through our portfolio optimization, we are able to take advantage of this without compromising our view of risk. We write approximately 1/3 of our reinsurance book at 1/1. And in 2024, we saw strong 1/1 renewals with our reinsurance team seeing RPIs of 118%.

In total, we wrote $276 million of reinsurance business at 1/1. This compares to premiums of $230 million in 2023 for the same period. This 20% increase in premiums year-on-year was driven by strong retention rates with our core quality clients, where we were able to continue to increase rates and achieve differentiated terms. Across our broader portfolio, we are successfully underwriting attractive risks, driving increased profitability and generating compelling returns all while maintaining prudent capital levels and a strong balance sheet.

We are committed to creating value by delivering operating ROAE of 13% to 15% through the cycle. Given where the market is for 2024, we expect to again deliver returns above this long-term target in the 14% to 16% range.

In closing, we are pleased with the progress we've made in 2023 and confident in the outlook for our business. We have the team, portfolio and balance sheet needed to drive continued above-market returns and create meaningful value for our shareholders.

With that, I'll turn it back to the operator.

[Operator]

[Operator Instructions] With that, our first question comes from the line of Matt Carletti with JMP.

I'm sorry. Your first question comes from Meyer Shields with KBW.

[Meyer Shields, analyst]

Thank you for all the detail in terms of expectations for 2024. One question I'm getting is if you can give us a sense of the catastrophe load that's embedded in the loss ratio.

[Daniel Burrows, executive]

Thanks, Meyer. Great question. And I think we've explained previously, we stepped back in 2021, we didn't think the models were adequately reflecting climate change and the impact of inflation. So we formed our own view of risk. When we look at how that differs from our peer group, we think the loads that we're putting in are roughly about 160%, and that will depend on geography and peril. But if you think -- that's how we kind of think about it. It's about that sort of benchmark.

[Meyer Shields, analyst]

Perfect. And then this is probably a little bit detailed, but I was wondering given the sort of history of rushing in when there are pricing opportunities, I was hoping you could talk about the exposures that you have to Middle East Marine.

[Daniel Burrows, executive]

To? Pardon me.

[Meyer Shields, analyst]

I'm sorry. Marine...

[Daniel Burrows, executive]

I think, firstly, I'd start by saying we, as a business, have no concentration of exposure in the region. We have no known reported losses of materiality. But there is obviously an opportunity in political violence and war policies. So we think specifically about marine, war, bridge. So we have seen some opportunities, but not to the same degree as what we saw post-Ukraine. So we're taking advantage of that. But I'd say we don't really have a concentration of exposure in the Middle East.

[Operator]

Your next question comes from Matt Carletti with JMP.

[Matthew Carletti, analyst]

Hopefully you guys can hear me now.

[Daniel Burrows, executive]

Hey, Matt.

[Matthew Carletti, analyst]

Happy birthday, Dan. I'm sure there's nothing you'd rather be doing than...

[Daniel Burrows, executive]

Thanks, Matt. No, no. This is what I've wanted to do with my birthday.

[Matthew Carletti, analyst]

Look, you gave a lot of great color on expectations by segment for the year. I guess if I could just ask you a high-level question of you guys have always been very agile in reacting to market conditions, recent history kind of pulling back on property and reinsurance, putting that capital to work through insurance means to get the same exposure. Is there anything like that taking place in the market that we should think of as kind of shifting exposures? Or do you expect, at least at this juncture '24, to kind of look a lot like '23?

[Daniel Burrows, executive]

We've built a lead position across the three pillars of our business. I think if you break down the gross written premium, it's 62% Specialty, 20% Bespoke and 18% Reinsurance. I would expect that to be very similar for 2024. We always evaluate new opportunities. And when they hit those risk-adjusted returns, then we execute. But I think we see very positive movement in all lines of business. So I would expect the portfolio to look very similar as to 2023.

[Matthew Carletti, analyst]

Okay, great. And then just a second question, if I could, probably for Allan. I noticed the expense ratio -- policy acquisition ratio in Specialty was quite low this quarter. Is that just mix of business line being written in the quarter? Or is there anything to note there that we should think about going forward?

[Daniel Burrows, executive]

Good question, Matt. And Dan again. It really is, as you say, it's all about business mix in that line of business, or in that neighborhood.

[Operator]

Your next question comes from Andrew Andersen with Jefferies.

[Andrew Andersen, analyst]

Maybe going back to the growth commentary. And I think I heard you say within Bespoke, tracking with the prior year for 2024. I guess I'm trying to think about 4Q is very strong, and that is a seasonally higher quarter with perhaps a different business mix, but ended the year strong. So kind of why are we thinking about maybe flattish growth in '24 for this segment?

[Daniel Burrows, executive]

Actually, great question. Dan again here. I mean, obviously, I'll remind everyone, Bespoke is a really profitable line. And as you say, the deal flow is a lot less predictable than our other pillars, Specialty and Reinsurance, which have nominated renewal seasons throughout the year.

So what we really wanted to do today is give you a bit more color around the dynamic within a quarter. So that's give you a better sense of direction because we know it's hard to model. So that's why we say we're tracking with Q1 in terms of momentum.

We do have a very robust pipeline. And again, that's what we saw in the back end of '23, deals that come back, some new business that hit those benchmarks, and we're able to execute on them. So we've got a very strong pipeline, but they've got to hit those risk-adjusted returns. So that's why we're really looking to follow a similar pattern where the second half of the year will be heavier. But as we stand now, we're bang on line with where we want to be and where we were last year.

[Andrew Andersen, analyst]

And then I guess on the other side of that, it sounds like the Specialty opportunity is perhaps a lot better than where we were thinking it would be for '24, and growth in that segment could be upwards of 30%-plus. Kind of how did the environment change throughout the second half of the year? And does it sound like there's better opportunity within -- I guess broadly within Specialty across all the subsegments?

[Daniel Burrows, executive]

Yes, I think we see potential to expand existing lines, and that could be geographically as well. I think we're looking at other regions. Obviously, the BRIC economies are expanding, so that creates opportunity.

But we're a top 3 market in those lines of business. So we see plenty of opportunity. We're seeing deals before peer groups, so we're able to structure and benefit from differential pricing and terms. So again, just a very positive movement for Specialty and those 3 core lines. I would say, if you think about Specialty, Marine, Aviation and Aerospace and then Property D&F, Property Direct and Facultative is where we will focus most of the growth in 2024.

[Operator]

Your next question comes from Leon Cooperman with Omega Family Office.

[Leon Cooperman, analyst]

I have a few questions. One is on capital adequacy. Looking at your income statement, your balance sheet, it seems that we have more capital than we need. And I'm just curious, what is your view of your capital adequacy? Would you rather write more business in this environment or buy back your stock? Which is more attractive use of your capital?

[Daniel Burrows, executive]

I think that we're in a strong position. We've had a great performance and we've got a very strong balance sheet. But what I'll do is I'll pass over to Allan to let him talk a little bit further about capital management in 2024.

[Allan Decleir, executive]

Thanks, Dan. Yes, currently, as I said in my prepared remarks, that our primary focus is investing back in the business with outstanding returns, deploying capital into underwriting opportunities and opportunistically taking advantage of some of the pricing dynamics. We believe that this deployment will deliver strong returns for our investors.

As I mentioned, we also always look at our outwards reinsurance program. When we look at our capital, there are opportunities there to look at whether we want to retain more risk or less risk given what we see in the market.

But as you mentioned, right now, share buybacks are certainly the best way to return value back to shareholders. We have the $50 million plan that's out there that we put in place in December. We've utilized only $3 million of it, but we do plan to fully utilize that plan going forward. Once that plan is utilized, we will certainly assess the share price at that point in time and decide whether we should implement a new share buyback program.

[Leon Cooperman, analyst]

Second question is a follow-up. We're still at a very attractive price relative to our competition. Does our unusual structure discourage potential buyers from bidding for us? Because it would seem to me, you've built a hell of a company selling at a ridiculously low multiple. And I'm just curious whether our relationship with MGU makes it highly unlikely that anybody would try to buy us.

[Daniel Burrows, executive]

Thanks, Lee. It's Dan here. It's a great question. So obviously, when we look at the share price, we don't feel it's reflecting or aligned to our performance. We've got one of the market-leading combined ratios for the year at just over 82%.

I think what it shows to us is we need to spend more time with investors, getting them more comfortable with the structure because it is the structure that has resulted in this great outperformance. Let's not be -- let's be clear about that. We're very proud of it. Our relationship with the MGU has worked exactly as it intended, and we have delivered outstanding results. So we have to be a little patient, but we're certainly dedicating more and more time to that investor engagement so they get more comfortable with the structure.

[Leon Cooperman, analyst]

I'm not an insurance expert, but I'm just curious, when you take away the pushes and pulls, do you expect to earn more money in 2024 than you earned in 2023? I'm not asking you for a specific forecast, but directionally, would you expect to have improved results in 2024 versus the outstanding results in 2023?

[Daniel Burrows, executive]

Yes. I think you know our long-term ROE target throughout the market -- is through the cycle is 13% to 15%. But I think at this particular moment, we can up that a little bit, and we'd expect to own a bit more. So we're going more in the range of 14% to 16%. But we are seeing positive movement as well, and we expect to grow. So we'd factor that into that -- into those comments.

[Operator]

Your next question comes from Pablo Singzon with JPMorgan.

[Pablo Singzon, analyst]

Dan, first of all, I hear you on no signs of new capacity entering the market, but we've been hearing that in certain lines, Property D&F for example, it seems like price increases in '24, there's a chance that we could not of the same magnitude as in '23. Do you think that's an accurate comment...

[Daniel Burrows, executive]

Sorry, that's a really bad line. We couldn't -- can't really hear the question. It's breaking up.

[Pablo Singzon, analyst]

Is this better, Dan?

[Daniel Burrows, executive]

Yes, that's much better.

[Pablo Singzon, analyst]

Sorry about that. I'll speak louder. So I was saying, I hear you on no signs of new capacity entering the market. But we've been hearing that in certain lines, Property D&F, for example, price increases in '24 are unlikely to be of the same magnitude as in '23. Do you think that's an accurate commentary about the market? And therefore, will most of your, let's call it, 30%-plus Specialty growth in '24 come from exposure?

[Daniel Burrows, executive]

No, no, no. We're still seeing positive rate movement in that line of business. Yes, we've had compounding increases over the last 4 or 5 years, and we are very much in a mature hard market. So we still see plenty of opportunity to grow with positive price movement year-over-year in '24.

We are in a lead market. It's a verticalized market. So you have to factor that in, that price makers get better terms than price takers. So we're seeing the deals before other people. We're structuring them. A lot of them are private layers or private arrangements, so we get much better terms and conditions. And it's not all about premium, terms, conditions, coverage, that's an important proportion of any RPI when we look at that and model it.

[Pablo Singzon, analyst]

And then for Allan just on taxes, I guess this is a 2-for-1, but they're short. One, was just hoping for more color on the 14% tax rate for '24. I think you were running in the high single digits in '23. And then for this quarter specifically, it seems like the tax rate x the days was lower than normal as well.

[Allan Decleir, executive]

Thanks, Pablo, you picked up some tax numbers here very appropriately. Yes, 2023, to answer that question first, is our profits for 2023 were mainly in jurisdictions with a lower tax rate. So Bermuda, for example, rather than in the U.K. or Ireland, where the tax rate is higher. Hence, our decrease in our expected tax rate for 2023.

For 2024, as I said in my prepared remarks, we're expecting a tax rate of approximately 14%. But again, that will depend greatly on where the profits arise. Again, we are diversified across jurisdictions as well as lines of business.

Looking beyond that, it becomes a little more complicated. As you know, the Bermuda Corporate Tax Act was just enacted at the end of 2023. It's at a 15% baseline tax rate. However, there are many transitions and other credits that would be provided against that. We know of the transition adjustment, which we booked in the quarter for $90 million. However, all the other items that are going to play into that rate are not yet concluded upon by the Bermuda tax authorities. They're going to be rolled out through 2024, and we'll know more about those.

So as we think about 2025, we think it will be broadly in line in terms of the tax rate with 2024. However, again, it's to be determined based on things that happen in the upcoming year.

[Operator]

Your next question comes from Mike Ward with Citi.

[Michael Ward, analyst]

I was just wondering if you could maybe expand on the structured credit product growth in the quarter. And any update on the IP finance line in terms of risk or growth?

[Daniel Burrows, executive]

Thanks, Mike. Dan here. I'll take those questions. So firstly, when we look at Q4, we wrote about $102 million of new business, and that was predominantly through the aircraft leasing, so the AFIC deal, which is contract frustration. Then some structured credit and some mortgage.

The structured credit really is regulatory capital relief transactions with some of the major European banks on their asset-backed portfolio. So as they get to the end of the year, they could be rolling up those portfolios and insurance can step in and kind of give them some regulatory capital relief, and that's the sort of product that we're looking at. So that's really traditionally why those deals happen towards the end of the year, as institutions roll up the portfolio and are looking to buy out some capital relief, solvency relief, regulatory capital, that sort of thing.

And then moving on to IP. It's a really good question. I think what we can say, there's been no movement in the losses to our portfolio. It is a new line of business. And certainly, we've ensured a feedback loop from our claims data into the underwriting process. And we're not afraid to change our assumptions and change pricing accordingly. So that's just resulted in fewer deals hitting our hurdle rate than originally planned, and we believe this is the right approach with any new line of business. And I'd just like to underline again, we don't have any exposure to Vesttoo unlike others in this space.

[Michael Ward, analyst]

And then maybe just kind of a high-level question. Just curious if you could discuss any business that you might have rejected from the MGU in the quarter? And then, I guess, after the split, like, I'm curious if there's been business that maybe the MGU wanted, but you didn't, so they booked it elsewhere. Just kind of trying to think about the relationship so far.

[Daniel Burrows, executive]

Yes, I think that we have a very aligned approach and show a very similar view of risk. So fundamentally, the portfolio, we're very pleased with. But yes, we've had discussions around certain lines. It could be a primary D&F where we don't really have appetite for attrition. We helped work with them on our construction portfolio, where our Chief Underwriting Officer and myself have experience of that. So that was more kind of shaping risk.

[ Neither party or Re ] currently that interest in writing lines like casualty. So yes, there are deals occasionally we discuss in more detail and they may not be within our appetite. But I wouldn't disclose any more than that.

[Operator]

Your next question comes from Meyer Shields with KBW.

[Meyer Shields, analyst]

With all the puts and takes on reinsurance, should the 2024 ratio of net to gross written premium go up or down compared to 2023, do you think?

[Allan Decleir, executive]

Yes, I'll take that, Meyer. Thanks. It's Allan here. No. I mean, as I mentioned in our prepared remarks, a lot of reinsurance on our reinsurance portfolio has been purchased already. So we believe that our outwards program is pretty similar to how it was last year in terms of retention. We're pleased with how the program worked last year. And so as Dan mentioned, we wrote 1/3 of our reinsurance book at Jan 1. Our outwards reinsurance program has been partially placed; and our quota shares, a lot of those are in place. So we would expect generally the same retention in 2024 as 2023 broadly. Although, of course, we do have the renewals in Japan in April and then in the U.S. market in middle of the year.

[Operator]

[Operator Instructions] Your next question comes from Pablo Singzon with JPMorgan.

[Pablo Singzon, analyst]

Can you hear me?

[Daniel Burrows, executive]

Yes. Hi, Pablo.

[Pablo Singzon, analyst]

So the first one, just for Allan, has the entire book renewed into the commission arrangement with Fidelis MGU at this point? In other words is the 15% MGU expense ratio a good run rate to think of for '24?

[Allan Decleir, executive]

Thanks, Pablo. That's a great question. Our strategy and structure was designed to work in the long term with the MGU. Again, it's a long-term binder agreement to work with some of the best underwriters in the industry. And it's worked as intended and we produced a fabulous 82.1% combined ratio for 2023. And we believe that the portfolio as a whole is well positioned going forward through the cycle to produce a combined ratio in the mid to high 80s through the cycle.

We work closely and collaborate closely with the MGU on all aspects of our inwards and outwards portfolio. In 2023, we were -- we had outstanding underwriting performance. And as a result, the profit commissioned to the MGU was higher than in a normal year, in a 13% to 15% ROE year. So broadly speaking, yes, the fees to the MGU will be similar going forward. It is pretty much baked into our returns -- or is baked into our returns. It will be slightly less if we only have slightly lower returns, obviously, but I think it will be broadly in line with this year going forward.

[Pablo Singzon, analyst]

And then second and last. For Dan, I just want to confirm, when you say growth in Specialty will be broadly in line with '23, we're talking about the 40% GPW growth this year, right? So that's sort of your expectation for '24? Just wanted to make sure that's clear.

[Daniel Burrows, executive]

Yes, that's what we would be projecting to '24. That's correct, Pablo.

[Operator]

Thank you. That concludes today's question-and-answer session. I'd like to turn the call back to Dan Burrows for closing remarks.

[Daniel Burrows, executive]

Well, thank you, and thanks for joining today's call. I'd just like to say we're very confident in our current position and excited about the prospects of 2024 and we look forward to sharing our continued progress with you in future earnings calls.

It's a special day today, not only because it's my birthday. And in closing, I would like to extend a heartfelt thanks to all our colleagues and partners for their exceptional performance throughout the year, especially today on Employee Appreciation Day. It's important to acknowledge the hard work, dedication and unwavering commitment of the team at Fidelis Insurance Group, so I thank them all.

So thanks, and have a great day.

[Operator]

Thank you. That concludes today's conference call. Thank you for participating. You may now disconnect.