Good morning, everyone, and welcome to the Fidelis Insurance Holdings Third Quarter and First Nine Months 2023 Earnings Conference Call. This call is being recorded for replay purposes. After the formal remarks, management will hold a question-and-answer session where instructions will be provided. Now, I would like to turn the call over to Jillian Benson, Group Head of Reporting. Jillian, please proceed.

Good morning, and thank you for joining us to discuss Fidelis Insurance Group's 2023 third quarter earnings results. With me today are Dan Burrows, our CEO, Allan Decleir, our CFO, Jonny Strickle, our Chief Actuarial Officer, and Ian Houston, our Chief Underwriting Officer. We will start with prepared comments by Dan and Allan, and then we will take your questions. Before we begin, I'd like to remind everyone that certain statements in our press release and discussed on this call do constitute forward-looking statements under federal securities laws within the meaning of Private Securities Litigation Reform Act of 1995. We intend our forward-looking statements to be subject to the Safe Harbor created thereby. 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 28th 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 that 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 by us with the SEC from time to time. Management will also make reference to certain non-GAAP measures of financial performance. The reconciliations to U.S. GAAP for each non-GAAP financial measure can be found on our current report on Form 6-K furnished to the SEC yesterday, which contains our earnings press release and is also available on our Investor Relations website at investors.fidelisinsurance.com and on the SEC's website. With that, I'll turn it over to Dan.

Thank you, Jillian. Good morning, everyone, and thanks for joining us today. We have spoken in the past about how our unique business model, capabilities, and expertise allow us to be nimble and opportunistic and generate consistent compelling performance. This was evident in our third quarter year-to-date results. On a year-to-date basis, we have delivered an annualized operating ROAE of 17.7% and a combined ratio of 82.4%, demonstrating continued superior underwriting returns. We remain focused on writing a short-term portfolio across our three pillars: Specialty, Bespoke, and Reinsurance, preserving underwriting integrity while adapting to market conditions and the broader macroeconomic and geopolitical landscapes. We leverage our relationship with Fidelis MGU to strategically capture underwriting opportunities, and we are focused on allocating capital to the areas that deliver the best risk-adjusted returns. From a macro perspective, we believe that the market remains robust and will provide an opportunity to deliver attractive returns for the foreseeable future. We expect continued durability across the portfolio in addition to compound year-on-year rate increases already achieved over the last five years. Market dynamics continue to be fueled by loss activity with $100 billion of net capital recorded so far in 2023, which we believe is beginning to look like the new expected annual aggregate of losses. This has been compounded by sustained capital constraints with no new significant capital injections into the industry. We will continue to take advantage of the opportunities these factors will create. The leverage created through our leadership and relevance to clients enables us to deliver superior underwriting margin, deploying our significant line size to take advantage of differential pricing in an increasingly verticalized market. I will now give a brief highlight of our performance and strategy across our three pillars. Compared to prior year, gross written premiums for the nine months up to September 30th increased 15% to $2.8 billion. Strong top-line growth has been coupled with compelling bottom-line profitability. Our combined ratio improved year-on-year from 101.6% to 82.4% for the first nine months, and our year-to-date annualized operating ROAE is 17.7%. Our growth in 2023 continues to be driven by our Specialty Insurance portfolio, where following years of compound increases across multiple lines of business and a continued momentum in pricing, we were able to leverage our market lead position, scale, and line size to achieve favorable participation on targeted accounts. Year-to-date, gross written premium is up 46% in the Specialty segment, with Property D&F a significant driver with RPIs of over 140% for this class, as demand and pricing in the vertical remain robust. Specialty now represents 65% of year-to-date gross written premium versus 51% for the first nine months of 2022. We continue to focus as a Specialty and Bespoke insurance carrier, where we see the best returns in the current market environment. While Bespoke was down on the quarter year over year, we remain confident in this pillar of our business over the long term. Our lead position, along with the nonrecurring nature of contracts, allows us to be particularly selective. This segment is more insulated to traditional insurance market cycles than Specialty and Reinsurance, and the deal flow is impacted by underlying transactional activity and sensitivities to economic and geopolitical trends. Given the lingering concerns around the current environment, we are deliberately taking a measured approach within this segment assessing deal dynamics. This is a strategy we have deployed successfully before, where in 2020 we took a similar approach when COVID created uncertainty in the market. The portfolio performed well and enabled us to take advantage of opportunities as market conditions changed. Our strategy is to operate nimbly across our three pillars to achieve the best risk-adjusted returns as demonstrated by the company's overall strong year-over-year growth, and we remain well-positioned to respond to any changing conditions. Finally, in our reinsurance portfolio, we continue to experience favorable ratings and have been able to maintain year-on-year gross written premium levels despite significant optimization and repositioning of the portfolio in line with our view of risk. We continue to carefully manage our capital deployment, managing volatility and exposures with targeted participation on select programs and in select geographies. Premium levels in this space have been significantly rate-driven with a year-to-date RPI of 168%. Overall, we delivered another quarter of profitable underwriting by focusing on risk-adjusted returns across the portfolio while leveraging the momentum established in the first half-year to deliver significant year-on-year growth. Our strong market position across our lines of business means we can achieve differential pricing and terms, and our expertise across underwriting and capital management enables us to opportunistically navigate the market and respond to prevailing conditions in conjunction with our partners at the MGU. Our relationship enables the MGU to fully focus on current underwriting opportunities. I've asked Richard Brindle, Chief Executive Officer and Chairman of Fidelis MGU, to join us for a prerecorded segment to outline his views of the market and to provide commentary during this critical time of year.

Thanks, Danny. Can I start by saying how delighted I am to be here at your invitation? As a business company, we work very closely together. The MGU is now laser-focused on the underwriting and origination functions, and I'm able to spend 90% of my time on underwriting. The great results for the quarter demonstrate that we can continue to deliver top-tier performance under the new model. It is worth mentioning our daily underwriting calls. We have pretty much every deal of any consequence come through one of the daily underwriting calls, where we take a multifaceted decision on the risk in the room; just diving into the different areas of business a little bit, property, treaty, and catastrophe, the frequency of floods and convective storm losses as well as wildfires from Canada to Hawaii, Portugal to Australia, even Hurricane Hillary hitting California, continues to reflect the increase and ongoing impacts of climate change. Clients, in particular in response to this, are looking to buy more limits both in the U.S. and Europe, and our ability to offer private layers helps secure our places on programs. Pricing, we anticipate, will continue to improve, and this is driven by the lack of any new capital coming to our industry. By seeing risk before peers and with substantial capacity to deploy, we not only get the better allocation that I talked about before, but we get better pricing, terms and conditions, and overall metrics. This monetizes our ability to shape deals and work with our clients and brokers to secure the maximum participation. This also allows us to cross-sell lines of business with brokers and clients. Our bespoke book does not have a regular predictable schedule of business. There are longer gestation periods to closure on deals, but the client base is very diverse and the business is very profitable as you will see from the results. We did hold back a couple of years ago as inflation and rising interest rates became a factor for the first time in many years; we think that was the right thing to do. A lot of people were talking at that time about a major global recession, and I think we should all be honest and say we didn't know how that would shake out. So, we felt it was prudent to hold back. We've had great success with Alpenics, political risk, and credit Pine Walk sell, and high hopes for the next bespoke Pine Walk MGA, which is Hiscox; that's a partnership with a market leader in aviation finance, which further cements our position as a go-to-market for these colored solutions. So finally, before I take up too much time, as we look forward into 2024, it is very notable that despite strong pricing across many segments of the market that we write, there is no sign of new capital coming into the market in any meaningful way. The old view that the cycle responded to large losses followed by clean years just doesn't hold up anymore. The market is on track for another $100 billion loss year for camps without a major hurricane loss or earthquake, as increasing atmospheric moisture and temperatures drive increased frequency and severity of the secondary perils; it is clear that climate change is changing our market. The market will remain hard in many areas. We will continue to lead that market as thought leaders, price makers not price takers, and we will continue to respond to capacity dislocations in our nimble and unique manner.

Thanks, Richard. I'll now turn to Allan to walk through the financial results in more detail.

Thanks, Dan. And I'd also like to welcome everyone to our third quarter earnings call. Please note that while we began trading on the New York Stock Exchange on June 29th, the IPO and our primary capital raise of $100 million did not close until the 3rd of July, and as such, the IPO results are reflected in our third quarter results. As Dan touched on, we had a very strong third quarter performance with net income of $88 million equating to $0.74 per diluted common share. For the first nine months of 2023, we had net income of $1.9 billion or $16.82 per diluted common share. As a reminder, in the first quarter, we recognized a net gain on distribution of Fidelis MGU of $1.6 billion. Excluding this one-time accounting gain, our net income for the first nine months of 2023 was $265 million. For the third quarter of 2023, our operating return on average equity was 17.6% on an annualized basis compared with a negative 18.4% in the prior year period. For the first nine months of 2023, our operating return on average equity was 17.7% on an annualized basis compared with a negative 2.8% in the prior year period. Turning to our gross premiums written, we had $593 million in the quarter compared to $688 million in the third quarter of 2022. The change in the quarter was primarily related to Bespoke as Dan described earlier. Both the Specialty and Reinsurance segments remain consistent in the third quarter compared to the prior year period. For the first nine months of 2023, we had overall gross premiums written growth of 15% to $2.8 billion compared to the same period in 2022. The significant growth in our gross premiums written was primarily from our Specialty segment, which grew 46% to $1.8 billion. The increase relates to improved pricing as well as new business. The largest premium increases were in our Property D&F, marine, aviation, and aerospace lines of business. This year-to-date growth was partially offset by our Bespoke segment where gross premiums written were $367 million in the first nine months of 2023 compared to $573 million in the prior year period. In the Reinsurance segment, gross premiums written remained consistent at $610 million in the first nine months compared to $605 million in the prior year period. We have been able to take advantage of the improved rate environment and terms and conditions while moving away from attritional levels of our exposure. As you recall, we intentionally took a cautious and opportunistic approach to deploying capital and reinsurance by focusing on top-tier students and risks that meet our required pricing hurdles. When looking at net premiums, net premiums written were $313 million in the quarter compared to $495 million in the third quarter of 2022, with the change again due to the Bespoke segment. Net premiums increased by 11% to $1.6 billion for the first nine months of 2023, primarily driven by the increase in gross premiums written in specialty. On a net premium earned basis, our premium earned increased 18% to $510 million in the third quarter of 2023 and by 21% to $1.3 billion for the first nine months of 2023. The growth was a result of our decision to take advantage of opportunities, particularly in our specialty lines of business. Our strong performance resulted in our combined ratio improving to 85.4% for the third quarter of 2023 from 120.5% in the prior year period and to 82.4% for the first nine months of 2023 from 101.6% in the first nine months of 2022. The improvement was a result of a decrease in our loss ratio as a result of lower catastrophe and large losses for both the quarter year-to-date periods. Despite another quarter of increased loss activity for the industry, we have seen a significant reduction in our year-on-year losses. Our total catastrophe and large losses were $76 million, of which $21 million related to wildfires in Hawaii in our Specialty and Insurance segments, with the remainder related to other loss events in various lines of business including energy, credit and political risk, marine and aviation, and aerospace. This compares to the third quarter of 2022, where catastrophe large losses amounted to $238 million, related to Hurricane Ian and the Ukraine conflict. For the first nine months of 2023, the total catastrophe and large losses were $140 million, which included losses related to the Sudan conflict, severe convective storms in the U.S., the Hawaii wildfires, Cyclone Gabriel in New Zealand, and smaller loss events in various lines of business. This compares to catastrophe and large losses in the first nine months in 2022 of $382 million related to Hurricane Ian, the Ukraine conflict, European storms, and Australian floods. It has been an active year and we are pleased with the measures taken to optimize our portfolio demonstrated by our superior combined ratio. Moving on to our prior year reserve development, we had net favorable prior year development of $43 million and $48 million for the quarter and first nine months of 2023 versus $3 million and $18 million in the prior year periods. The loss reserve development in 2023 was primarily attributable to favorable development on Hurricane Ian and favorable attritional loss experience across our reinsurance and bespoke segments. Moving on to expenses across all of our segments, policy acquisition expenses from third parties were $151 million or 29.6 points of the combined ratio for the quarter compared to $113 million or 25.9 points of the combined ratio in the prior year period. For the first nine months of 2023, policy acquisition expenses from third parties were $378 million or 28.5 points of the combined ratio compared to $263 million were 24.1 points of the combined ratio. Our policy acquisition expense varies over time depending on our business mix. Our Fidelis MGU commissions were $71 million or 13.9 points of the combined ratio for the quarter and $147 million or 11.1 points of the combined ratio for the first nine months of 2023. The MGU Commission relates to ceding, portfolio management, and profit commissions agreed as part of the framework agreement with Fidelis MGU effective from January 1, 2023. Our general and administrative expenses were $22 million or 4.3 points of the combined ratio for the quarter, a decrease from $59 million or 13.5 points of the combined ratio in the prior year period. For the first nine months of the year, general and administrative expenses were $57 million or 4.3 points of the combined ratio, a decrease from $136 million or 12.5 points of the combined ratio. The decreases were primarily related to the reduced headcount following the consummation of the separation transactions. Combined Fidelis MGU commissions in general and administrative expense ratios are in line with our expectations as set out in the noted framework agreement and our operating model. Turning now to investments. Our strong results reflect net investment income of $33 million for the third quarter of 2023 compared with $11 million in the prior year period. For the first nine months of 2023, our net investment income was $81 million compared with $24 million in the first nine months of 2022. These increases were primarily due to increases in interest rates during 2022 and 2023 where the short-duration nature of our portfolio means that we are reinvesting at higher rates. During the first nine months of 2023, we invested $2 billion in fixed-maturity available-for-sale securities with an average investment yield of 5.1%. We remain conservatively positioned and our strategy allows us to prioritize taking risks on the underwriting side of our balance sheet. Turning to our balance sheet and financial condition, our book value per diluted common share was $18.25 at September 30, 2023, an increase of 12.4% from the adjusted book value per diluted common share following the separation transactions, which was completed on January 3, 2023. The increase was a result of net income and net unrealized gains reported in our other comprehensive income. To conclude, I'm very pleased with our superior financial performance in the third quarter and through the first nine months of the year.

I will now turn it back to Dan for additional remarks. To echo Allan, I am pleased with the results for the quarter and importantly, the first nine months of the year, where we outperformed on our key metrics of combined ratio, ROAE, and gross written premium growth. As market dislocation and a challenging risk environment persists, our ability to deploy capital and the experience and expertise of underwriting talent in a constrained market puts us in a strong position. Whilst we see significant growth potential in the current market, we are strongly aligned with the MGU and our underwriting philosophy. With both parties focused on delivering underwriting profitability across the cycle to preserve the bottom line. We continue to evaluate the best areas to achieve risk-adjusted returns across our three-pillar portfolio with the ability to be opportunistic in response to market dynamics. As we consider the balance of the year, we are well positioned with significant year-to-date growth driven by the Specialty market environment and a strong pipeline of opportunity in front of us. Assistant hard market conditions, in addition to already achieved compound increases, continue to present an attractive specialty marketplace with our lead positioning in major product lines such as Property D&F, Marine, and Aviation, allowing us to achieve differential pricing, terms, and conditions, and capture significant rate increases, which results in above market terms. This forms part of our underwriting advantage, which helps differentiate us from our peers. In Bespoke, we are still seeing a strong pipeline of future opportunities, and we continue to evaluate this portfolio on a case-by-case basis in line with the economic and geopolitical environment and deal dynamics. The portfolio is strategically important to us, and whilst there may be fluctuations quarter-to-quarter, we remain focused on our long-term view of the opportunity and the nimble approach our lead positioning and expertise allow for. And in reinsurance, we continue to capitalize on favorable market dynamics, deploying capacity at targeted levels without increasing portfolio exposures or compromising our view of risk. The Fidelis Insurance Group strategy remains consistent. To proactively manage and allocate capital to opportunities, to maintain financial strength, to continue to be nimble and target areas of growth, and to focus on profitable underwriting. Our approach remains disciplined, and we continue to demonstrate our ability to create value for shareholders through our platform, which ensures a strong balance sheet and a prudent approach to capital management and investment return to deliver results across both top and bottom lines. I'm proud of the talented team of 80 individuals we have brought together at The Insurance Group. With a wide range of expertise, our performance is only made possible through their commitment and dedication to our business. Now, I'll turn to the operator for your questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Our first question comes from the line of Matt Carletti from JMP. Please go ahead.

Hi, thanks. Good morning. Dan, last quarter, there was some talk, you talked a bit about some of the Russia-Ukraine exposure and your reserving philosophy, and so on. Since then, there have seemed like major developments, referencing the AerCap settlement and a couple other follow-ons. Can you just update us on kind of your view of that exposure, particularly in light of those developments?

Yes, I think fundamentally, we take, we monitor that situation, and I think we see a trajectory that's in line with our expectation. Obviously, three or four negotiations between operators and lessors have come with a positive result, and that long-term has an effect on the exposure to the market. So, whilst there's no definitive answer we can give you yet, I think we are very pleased with the trajectory, and we'll continue to monitor.

And then one other, if I could. I was hoping you could just kind of dig into specialty a little bit more and just give us your updated thoughts on there's lots of various lines of business in there, kind of where you see the greatest opportunity, and then maybe just remind us of where those renewal dates fall. So, in other words, in the coming quarters, where you might, you'll have the most opportunity because there's a lot of seasonality in that business.

And thanks for that question. Specialty, as you know, is the biggest pillar within the portfolio. It's driven primarily by three lines of business, which are direct Property D&F, Marine, and Aviation. I think when we look at the Property D&F, which is the biggest component, it is a portfolio that revolves across the year. There are some key renewal dates, one-one for midyear, but there is a regular flow and a regular pipeline throughout the year. Marine and Aviation are probably a little bit more seasonal. When we look at Aviation, that's heavily loaded towards Q4; Marine, more around one-one although again it does revolve throughout the year, but there's a lot of business at one-one. So, when we think about Specialty and growth, year-to-date or year-over-year, we're up 46%. We're 26% ahead of our plan, so I'm very pleased with that pillar. But opportunities to grow in Marine and Aviation are really coming up in the next couple of quarters. What we see here are compound increases over the last four or five years; we have seen no signs of softening in that market. Quite the contrary, we continue to see increases and improvements in terms, and additions. So, I'm very pleased with the performance. As we say, you look at our combined ratio year-to-date, and that's heavily driven by the Specialty pillar. So, lots of opportunity, a very big pipeline, so we can see continued growth in the future in that pillar.

Our next question comes from the line of Meyer Shields from KBW. Please go ahead.

Thanks, and good morning. This is an operational question, I guess, in Bespoke. It sounds like it's less about fewer deals coming to you and more about concerns about rate adequacy. And I was hoping you could take us through what actually happens when you've worked on a deal and your sense is that it's not priced adequately. How often does that translate into a better price deal? How often does it just go away?

That's a great question. I think when we look at the growth pillar, we don't manage that on a quarter-to-quarter basis. It's a long-term view, as we do with our whole portfolio. It's a long-term view through the cycle, but it's particularly important when looking at Bespoke; you have to have a long-term view. So Bespoke is also more sensitive than any other pillar to geopolitical and economic landscape changes. So, we take a very deliberate and measured approach to how we underwrite that book of business. What we can say, and I think Richard said it in his remarks, when we think about COVID, we had a similar approach, and COVID was probably the ultimate stress test in the portfolio, certainly when we think about aviation financing, and that came through with flying colors. So, it validates all of your assumptions. We have a high hurdle rate for Bespoke. We're just not willing to compromise that in any way for top-line growth. It's all about bottom-line profitability, and that's how we manage the underwriting process. I think it's a great demonstration of the alignment between the MGU and the insurance group. They could write for top-line growth, but between us, we kind of reset the hurdle. That will evolve as the dynamics change, and that's all about projecting the bottom-line profitability and maintaining underwriting integrity.

And just a quick follow-up on Aviation. I guess you have a sense that it's fourth quarter heavy; is there any approximation of how much of the Aviation market actually is reduced in the fourth quarter?

Yes. The airlines is a Q4. There are some manufacturers that renew in the middle of the year, but it's the majority of the major airline fleets, both with global and international and regional carriers.

Our next question comes from the line of Tracy Benguigui from Barclays. Please go ahead.

My first question relates to your decline in gross premiums year-over-year, which is mostly driven by Bespoke. I appreciate both, Dan, your commentary in which your results recorded commentary on bespoke. And I get this business is lumpy. But, Dan, I'm intrigued by your comment that you're deliberately taking a measured approach, given the lingering concerns around the current environment. It is not clear to me if that was a Fidelis decision or an MGU decision. I'm just trying to get a sense if this is an example of your right of first refusal.

Yes. Tracy, we always look to collaborate. As you know and as we've explained before, we do on the daily underwriting calls. So, we're involved from the very beginning when deals are sourced, how they're going to be structured, and how they're going to be underwritten. So, it's very collaborative. That is a joint decision. Richard really wants to protect the integrity of the underwriting. The bottom line is very important to them, so it's all about bottom-line profitability, but neither party is here to grow top-line just for the sake of it. It's all about bottom-line profitability.

Okay. So, it's a collaborative decision?

Yes. Absolutely.

Year-over-year, your underlying loss ratio deteriorated, and I guess part of that is business mix. While you sounded upbeat about pricing, can you contextualize if any of this deterioration is due to maybe a more narrow spread of pricing versus loss trend?

I wouldn't say, Tracy, it was a narrowing of the spread between pricing and loss trends. I think we tend to look at it over a longer time period. So, if you look at the year-to-date run rate, we're pretty much in line year-on-year. This quarter last year was particularly low on the attritional side. We also tend to focus on the overall loss ratio, and there are a number of reasons for that. I mean if I look at the difference between prior year development and current year to kick that off. On the attritional side, we tend to hold classes around our plan expectation for the current year. Unless something there made us increase, really. So, it really can only go up on the current accident year typically. And then what you get is all the favorable development will come through the next year as prior year development. So, for me, on the attritional side, you really need to put the current and prior accident years together to get a view of that. I appreciate you can't get that split currently in what we report. Moving over to attritional versus catastrophic, there are a couple of points there. One is mix; I mean mix does impact us more than some others because we're a nimble company, so it's constantly changing. And if I give some live examples of how that impacts attritional versus large split, if you think about a war account, that would have a very low attritional run rate but more loading awards on the large side. And if you compare that to an airline's account or marine hold, that would have a much higher attritional run rate. So, the mix between those different lines even within a single pillar such as specialty can change how attritional versus large looks. In addition, as the actuals come through, we often see some quarters where we have two medium-sized losses and no large losses, which makes the attritional look inflated when compared to the large in cap. And if one of those increased a bit, then it would flip over and the story would be the other way. So, while I think you can look through the buckets at this level of detail over a longer time period is something that we expect some variation quarter-to-quarter for those reasons.

Could you, because you mentioned it, can you define the threshold for large losses?

Yes, Tracy, it's Allan. We currently don't define that. I think for there is a clue in the fact that we have disclosed that the wildfires in Hawaii are $21 million. So that's a threshold that you can think about in terms of what we disclose as not cut.

Just to clarify, we do define it internally. It's just not something we've shared externally at this point.

Our next question comes from the line of Mike Zaremski from BMO. Please go ahead.

I'm just sticking with the Bespoke segment. So, the loss ratio was approximately 10 points above consensus expectations. And I usually only ask the question this way, but just since your more recent IPO, just trying to understand was the loss ratio this quarter normal volatility, is this considered normal? And any help you could provide? You gave good color on why the premiums are down, so maybe that's what's correlated with the loss ratio being a bit higher. But if you could offer any context on the loss ratio, that would be helpful.

Yes, sure. I'll take that one. So, on the Bespoke segment, we've got a couple of large losses that have come through this quarter. I mean again, if we look at it over a slightly longer time horizon and you look at the year-to-date loss ratio, we're well ahead of our own expectations there. So, for me, it's just a timing issue. If we had one large loss, we probably would have been on plan this quarter, zero ahead of plan. And if you look over a wider time period, those losses have been more evenly distributed through the year, then you wouldn't have seen this impact on the quarter. So, there's no trend or anything we're reacting to in that pillar, and I would call it normal quarter-to-quarter variation in the loss ratio in line with our expectations.

Okay. And those large losses are geopolitical-related losses?

They're on the intellectual property account, so no, they're not geopolitical-related.

And maybe just switching gears to the expense ratio, it looks like something from the prepared commentary. This is like the obviously, there's moving parts on business mix, but would you say at this level of ROE, this is the type of expense ratio we should be thinking including the MGU ceding commission ratio?

Yes. I think that both the MGU expenses and our general and administrative expenses are in line with expectations given the framework agreement we have in place and given our current operating model. Ultimately, we believe our combined ratio represents the best measure of our performance, and year-to-date performance is clearly above what we had in our original target ROE that we disclosed in our IPO. So as a result, there is an increased profit commission to the MGU, and there is some increase in expenses as a result of above planned performance. There is variation in fees from quarter to quarter. However, the ceding commission should be relatively known going forward, and as a result of, again, as a result of good performance going for the first nine months, there is a commission payable under the profit commission structure, but otherwise, it's totally in line with what we would expect.

And maybe, Allan, one last follow-up. Just on, I think there's still some points that need to be hammered out on Bermuda and the tax agreement. But should we be kind of directionally thinking, closer to 15% tax rate in '25 or still TBD and we need to keep our ears peeled for how the framework comes together?

Yes. Still too early to comment, but we continue to engage with our trade group, the Association of Bermuda Insurers and Reinsurance, as well as the Bermuda government. We will evaluate the tax proposal as it develops. There's still a lot of moving parts on this, the proposed taxes, and we'll provide more clarity as time moves forward.

I guess just as a follow-up, what do you say, Allan, if the headline comes in as 15%, will there be potential offsets that we should be thinking that could make it less than 15%? Oh sorry, that's my last follow-up.

Yes. Clearly, there are offsets coming even in the latest press release from the government a couple of weeks ago indicated that the offsets are being worked on, but that is the one area that is the least developed. So, we're not clear on those offsets. Hence why our caution in terms of communicating how it affects us. But everyone knows the headline rate, but it's the offsets that we are not clear on at this point.

Our next question comes from the line of Yaron Kinar from Jefferies. Please go ahead.

I wanted to turn back to the Bespoke segment. So, I understand you're being prudent here with choosing maybe to or not maybe, but choosing to prioritize profits and margins over growth. That said, I think part of the story, as you came to market, was improving the operating leverage, and given that these are very long-term contracts, multiyear contracts. The earning of premiums takes a while. So, as you prioritize profits here, ultimately how are you thinking about the ability to get to targeted operating leverage?

Absolutely. As we have communicated previously, the Bespoke segment premium does take a little longer to earn than certainly, reinsurance Nat Cat or specialty lines, and hence why we are very measured in terms of that line of business. And as we communicated previously, they can be lumpy, in terms of when they come in from quarter-to-quarter. Certainly, our operating leverage is an area that we continue to look at. We're in line with our peers, we believe, in terms of our underwriting leverage, underwriting premium written versus our equity. However, as we've pivoted from more of a reinsurance, Nat Cat entity to a specialty and bespoke company going forward, we believe that there are some efficiencies that we can develop in terms of underwriting leverage, and bespoke is certainly one area where you get certain capital efficiency when you write that business. But ultimately, it's about risk versus reward, and we're not going to put new premium on the books that we're not comfortable with.

Yes. And just to add, we have a very, very significant pipeline in the bespoke pillar. So as with COVID, we took a very measured approach, and then you're able to take the upside. You're able to go risk on when you know there's more certainty in the market, and I think that's the approach we'll be taking over the next couple of quarters.

Got it. And maybe one follow-up on the Bespoke side. So, I would have thought, and please correct me if I'm wrong here, but I would have thought that at a time of greater uncertainty, geopolitical and other, we actually create greater opportunities, and maybe would be an opportunity to really see an acceleration of growth. So, can you help us think about that?

Yes. And I think that's what we saw post-COVID. So, it was a kind of short-term pause. We saw the deals come back with better prices, better terms and conditions, and better structures. That's exactly what we expect to see this time. So, with this, I'd be more worried if there was no pipeline, but it has created a pipeline. It's now about executing on those trades as they hit our hurdle rate.

Our next question comes from the line of Pablo Singzon from JPMorgan. Please go ahead.

Hi, thank you. So, the first question I have is on Bespoke. I appreciate your more cautious stance in writing new business there, but I was curious if the economic uncertainty today affects any of the loss picks that we're serving on your enforced book given that these policies were priced several years ago?

We factor that in when we write the underlying risks. So, we're comfortable with the portfolio we've already written. It's, and the best stress test it had was through the COVID process. So, we've taken a similar approach as what we did there. We'll go back, we'll revisit the underlying assumptions, and we'll decide if we want to make any adjustments and how that should flow through to reserving. But because when we price that business originally, we tend to include loadings around current economic conditions. So, we kind of take a more prudent view anyway. Then quite often, we're comfortable with the overall level or reserves that and don't need to make any adjustments. So, I take the most comfort on how we came through COVID on that, which had a wide economic impact over a number of lines of businesses and a very specific economic impact for things like our AFIC account, which was loans on aircraft which are heavily impacted by COVID, for example. So, this time around, it feels like it's not quite as intense as COVID. I don't think, but we're well prepared to react to anything as it happens. But no, we haven't felt the need to make any adjustments on the reserving side today.

Got it, okay. And then my follow-up question was on the Specialty business. So, Dan, recognizing your comments that net revenue premiums there have grown more than 40% year-to-date, but 3Q growth did slow from the first half of the year, right? And from your comments, it seems like market conditions have not deteriorated. And while Aviation and Marine have key renewal dates, Property D&F gets placed more evenly. So, as you just focus on this quarter, I think about the year-on-year growth here. Is that just a reflection of more challenging comparisons, maybe some other factor? Or do you just chalk it up to the seasonality and normal variation?

Yes, I think we chalk it up to seasonality. We don't run the business quarter to quarter. We look at the year-to-date. We're above plan or well above where we were this time last year. So, that's pleasing, and we're more profitable. So, when we look at our key metrics, we're outperforming and outdelivering. And that's how I look at the business, not on a quarter to quarter basis.

And would it be fair to assume, given what you've said about Aviation, that there should be an uptick from the third quarter number as we look into 4Q?

Yes, I think it's heavily focused on renewal dates that kind of Q4 period. So, we would expect to see an active season for the Aviation portfolio.

Our next question comes from the line of Mike Wasser from Citi. Please go ahead.

Maybe on the IP space, some losses this quarter, some headlines elsewhere on IP. Just wondering if that is impacting your appetite in Bespoke and if you could help us quantify the total exposure reserves for IP?

Well, I'll take the first part. I think when we look at Bespoke, what we try and build is a very diversified portfolio. So, we try and have product lines that don't correlate. So yes, we have an IP loss or two in the quarter. That doesn't really impact our view on the other lines of business. IP is a new product line. The innovation is kind of growing in that space. Obviously, it had some impact from the industry as well. But maybe I'll pass to Jonny to talk about the reserving.

Yes. It's a higher rate online product than some of the other products we write in the bespoke pillars. So, what that means is we'd expect a higher run rate of claims as a result of that. Given there's a small number of deals done today, we're able to monitor them at an individual level, so we can look at the individual economics of some of the ongoing deals and react to that from a reserving point of view as we go. So, that helps with reserving in that area. In terms of claims, the main ones we've had to date are the two that we've disclosed this quarter in the bespoke. So comfortable where we're reserved because we can actively monitor things quarter-to-quarter; it's a small number of deals so far.

And then I think you mentioned some economic slowdown in some of the commentary. Just wondering if anything has changed in the quarter that sort of caused you to be a little bit more cautious? Or is there any overall shift in the targeted mix?

No, I think we're consistent with the plan, and we're out delivering against that plan. So, whilst there are tensions in the Middle East to consider now, I think we just continue to take that kind of very deliberate measured view. But I think to the earlier question, it creates a lot of opportunity. We saw that of Russia-Ukraine. So, we're well positioned to take advantage of that as well.

We have a follow-up question coming from the line of Mike Zaremski from BMO. Please go ahead.

Just one quick follow-up on the IP losses. Since you said it's a new line of business, maybe you could just give us a really quick education on what is an IP claim and what maybe I'm being asked just what type of insurance you're offering so we better understand how to think about this line of business for IP?

So, these are loans that are backed by intellectual property assets. So, it's similar to sort of our AFIC product where we back a loan backed by an underlying aircraft as the collateral, but here the collateral is the IP. So, we think about it in a similar way. We look at the credit risk of the company when we're pricing it and also look at the valuation around the IP. And then as the claim materializes, it's about looking at ways to restructure to minimize that claim to us. It's looking about how we can realize any value from the underlying IP assets. And then quite similar to other lines of business we write in the bespoke pillar; really, the difference is the type of asset that's backing the loan here is intellectual property rather than something like an aircraft.

Our next question comes from the line of Pablo Singzon from JPMorgan. Please go ahead.

So, any major changes back in your reinsurance program, your outward reinsurance program? And I guess more specifically, if you could touch your expectations on the Travelers' Hold account holders here as we approach the beginning of…

I'm glad to address that, Pablo. The straightforward answer is that our strategy remains largely consistent from year to year. We already see signs that the Holy Cowen Credit Share Partnership will extend into 2024. We plan to uphold our core quota share relationships and are grateful to our partners who share the risks with us. Additionally, as we head into 2024, we will aim to renew certain aspects for you. So overall, it will be a very similar strategy compared to previous years.

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

Thank you. And thank you again, everyone, for joining us today. In closing, we have built on our strong first half-year performance with an excellent third quarter that demonstrated the value of our market lead positioning, our business model on our structure, which allows for strong execution across all aspects of our strategy. Looking ahead, we believe we have a unique and diverse portfolio mix with scale across our three business pillars. Our differentiated underwriting positions us well to take advantage of the opportunities we see in markets today as well as to navigate across market cycles, and our highly experienced management team brings valuable relationships spanning across multiple disciplines in the insurance ecosystem. We remain focused on deploying capital towards profitable underwriting opportunities while increasing our scale to drive long-term sustainable growth and value for all of our shareholders. So again, thank you for joining us and have a great day.

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