By David Bull

Feb 19 - (The Insurer) - Fidelis Insurance Group revealed on Wednesday that its fourth-quarter and full-year results will be affected by a $287.2 million net adverse development charge in its aviation and aerospace line of business related to the 2021 and 2022 underwriting years impacted by ongoing Russia-Ukraine aviation litigation.

The Bermudian carrier also announced a preliminary catastrophe loss estimate for the January 2025 California wildfires of $160 million to $190 million, net of expected recoveries, reinstatement premiums and tax.

The losses from the wildfires will affect its Q1 2025 earnings and are based on an insured industry loss estimate of $40 billion to $50 billion, said the company.

Fidelis added that it now expects to report net income of $100 million to $120 million and operating net income in the range of $120 million to $140 million.

In a note, KBW analyst Meyer Shields said the full-year operating net income disclosure implies a Q4 2024 operating loss of $115.4 million to $135.4 million, or $1.05 to $1.23 a share, compared to Wall Street forecasts of a $0.84 per share operating profit.

Commenting on the ongoing aviation litigation, Fidelis said that it has been “judiciously” settling claims to derisk its overall exposure and that it had strengthened reserves to make allowance for ongoing settlement discussions and “also to reflect recent developments and new information received”.

The insurer has so far settled or is in settlement discussions in relation to around two-thirds of its total exposure to lessor policy claims that are currently in litigation.

It explained that of the remaining lessor policy claims in litigation, a “significant portion” relate to the English trial that began in October 2024 and concluded on February 14, 2025. A court judgment is expected in the coming months.

For those exposures, Fidelis continues to hold reserves based on a probabilistic model of potential court outcomes.

The company’s group CEO Dan Burrows commented: “We have meaningfully reduced our overall exposure to the complex and evolving Russia-Ukraine aviation litigation, lowered the potential downside risk associated with this event and provided increased certainty to our shareholders.”

He added that stripping out the impact of the prior year development in aviation and aerospace, the carrier’s full-year results would have exceeded its long-term operating return on adjusted equity target.

“Our balance sheet remains strong, and our business is well-positioned to support future growth and deliver long-term value for shareholders,” said Burrows.

In his note, KBW’s Shields said: “We think the Q4 2024 reserve charge partly removes what has been a material overhang on the shares, but the (perhaps understandable, given ongoing negotiations) limited quantification of (Fidelis’) remaining exposure still leaves a lot of uncertainty.”

He added that given the carrier’s “intentional focus” on relatively volatile shorter-tailed lines, he doesn’t view the wildfire losses as “particularly outsized”.