Hamilton Insurance Group, Ltd. — FY2023 Form 10-K Summary
Business context and reporting period
Hamilton Insurance Group is a Bermuda-headquartered global specialty insurance and reinsurance company operating through the International and Bermuda segments. Its principal platforms are Hamilton Global Specialty, Hamilton Select and Hamilton Re. The filing covers the fiscal year ended December 31, 2023. The company changed its fiscal year-end from November 30 to December 31, so the primary comparable period is the twelve months ended December 31, 2022.
Hamilton completed its initial public offering in November 2023, with Class B common shares trading on the NYSE under the symbol HG. The company issued 6.25 million shares and received approximately $80.6 million of net proceeds.
Key financial metrics
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Gross premiums written | $1.951 billion | $1.647 billion | 18.5% increase |
| Net premiums written | $1.480 billion | $1.222 billion | 21.2% increase |
| Net premiums earned | $1.319 billion | $1.144 billion | 15.3% increase |
| Total revenues | $1.571 billion | $1.233 billion | 27.4% increase |
| Underwriting income | $129.9 million | $(31.7) million | Improved by $161.6 million |
| Net income attributable to common shareholders | $258.7 million | $(98.0) million | Returned to profitability |
| Diluted earnings per share | $2.44 | $(0.95) | Improved |
| Combined ratio | 90.1% | 102.8% | Improved 12.7 points |
| Return on average common equity | 13.9% | (5.7)% | Improved |
| Operating cash flow | $283.2 million | $190.9 million | Increase |
Net realized and unrealized investment gains plus net investment income were $239.9 million, compared with $64.9 million in 2022. The TS Hamilton Fund generated $143.7 million of investment gains and income before non-controlling interest in 2023, while other investments generated $96.2 million, compared with an $80.4 million loss from other investments in 2022.
Total assets were $6.671 billion and shareholders’ equity was $2.048 billion at December 31, 2023. Tangible book value per common share was $17.75, up 16.0% from $15.30, and book value per common share was $18.58, up 15.1% from $16.14.
Underwriting and segment performance
| Segment | FY2023 gross premiums | FY2023 underwriting income | FY2023 combined ratio | FY2022 combined ratio |
|---|---|---|---|---|
| International | $1.106 billion | $37.0 million | 94.7% | 96.7% |
| Bermuda | $845.5 million | $92.9 million | 84.9% | 109.9% |
| Total | $1.951 billion | $129.9 million | 90.1% | 102.8% |
International premium growth was driven primarily by specialty insurance, casualty insurance and improved pricing. Bermuda growth was led by casualty reinsurance and property insurance. The company continued to emphasize specialty and casualty business and reduced reliance on property reinsurance in selected areas.
Current-year catastrophe losses were $42.1 million, or 3.2% of net premiums earned, compared with $186.3 million, or 16.3%, in 2022. Major 2023 events included Hawaii wildfires, U.S. wind and thunderstorm events, severe convective storms, Hurricane Idalia and Vermont floods. Net prior-year reserve development was favorable by $15.6 million, compared with favorable development of $20.6 million in 2022.
Liquidity, investments and debt
- Total cash and investments were $4.012 billion at year-end, including $2.260 billion of fixed maturity and short-term investments, $851.5 million invested in Two Sigma Funds, $794.5 million of unrestricted cash and $106.4 million of restricted cash.
- Approximately 100% of the fixed maturity and short-term investment portfolio was investment grade, with an average credit rating of Aa3 and expected duration of 3.3 years.
- The TS Hamilton Fund represented approximately $1.8 billion of managed assets and produced a 7.6% return net of management and incentive fees in 2023, compared with 4.6% in 2022.
- The company has a $150 million term loan maturing June 23, 2025. Debt-to-capital was 6.8%, and the company reported compliance with all debt and credit facility covenants.
- Available letter-of-credit and revolving facilities totaled $995.0 million, of which $694.7 million was in use at year-end. These facilities support reinsurance collateral and Funds at Lloyd’s.
- Management expects operating cash flows and liquid investments to meet foreseeable requirements, but significant catastrophe losses could require investment sales, withdrawals from the TS Hamilton Fund or use of credit facilities.
Material changes versus the prior comparable period
- Gross premiums written increased 18.5%, reflecting rate increases, new business and growth in casualty reinsurance and specialty classes.
- Underwriting performance improved materially, with underwriting income of $129.9 million versus a $31.7 million underwriting loss in 2022.
- The combined ratio improved to 90.1%, principally because catastrophe losses declined sharply. Bermuda’s combined ratio improved by 25.0 points to 84.9%.
- Investment performance improved substantially as fixed-income mark-to-market losses in 2022 reversed and the Two Sigma Fund generated positive returns.
- Corporate expenses increased to $76.7 million from $20.1 million, primarily due to $34.5 million of Value Appreciation Pool share-based compensation and higher variable performance compensation.
- Cash flow from investing activities was an outflow of $652.1 million, primarily reflecting increased deployment into fixed maturity investments and investment activity within the Two Sigma structure.
- The company recorded a $25.1 million income tax benefit, substantially driven by a $35.1 million deferred tax benefit related to Bermuda’s newly enacted corporate income tax transition provisions.
Guidance, outlook, management commentary and risks
The filing does not provide formal quantitative earnings or premium guidance. Management characterizes current insurance and reinsurance market conditions as favorable, citing hard-market pricing, constrained industry capacity, increased demand for specialty coverage, higher interest rates and growth in the U.S. excess and surplus market. Management intends to pursue disciplined growth across all three underwriting platforms while prioritizing underwriting profitability and capital management.
Hamilton expects to benefit from expansion in U.S. E&S, casualty reinsurance, property-exposed reinsurance, specialty insurance and newer lines such as marine hull. Management also expects to retain sufficient flexibility to return excess capital through dividends or share repurchases over time, although the company does not intend to pay cash dividends on Class B shares in the foreseeable future.
- Loss reserves remain estimates subject to claims inflation, social inflation, litigation, changing legal interpretations, long-tail casualty development and catastrophe uncertainty. Gross loss reserves were $3.030 billion, including $2.178 billion of IBNR.
- Recorded net reserves related to the Ukraine conflict were $64.9 million and COVID-19 reserves were $14.1 million at December 31, 2023; ultimate losses may differ materially.
- The company relies significantly on the TS Hamilton Fund and Two Sigma. Hamilton has limited control over investment decisions and is committed to maintain an investment of up to the lesser of $1.8 billion or 60% of net tangible assets through June 30, 2026, subject to specified exceptions.
- The TS Hamilton Fund uses leverage, derivatives, short selling and systematic strategies, creating risks that may be greater than those associated with traditional insurer portfolios.
- Catastrophe exposure remains material. Modeled January 1, 2024 100-year Atlantic Hurricane occurrence exceedance probability in Florida was $180.6 million, and modeled 250-year U.S. Mainland Earthquake occurrence exceedance probability in California was $272.4 million.
- Other key risks include reinsurance counterparty default, availability of letters of credit, rating downgrades, regulatory capital and dividend restrictions, competition, inflation, foreign exchange, cybersecurity, climate change, taxation and dependence on key personnel and brokers.
- Hamilton Select reported three NAIC IRIS “Unusual Values” in 2023, primarily reflecting its start-up growth, personnel costs and technology investments.
- Management concluded that disclosure controls were effective. The filing does not include management’s internal-control effectiveness assessment or an external Section 404(b) attestation because of the transition period applicable to newly public companies.
Important facts for investors to verify
- Whether favorable catastrophe experience and the 90.1% combined ratio are sustainable as catastrophe frequency, severity and social inflation evolve.
- The adequacy and development of the $3.030 billion gross loss reserve, particularly the $2.178 billion IBNR component and long-tail casualty reserves.
- The terms, liquidity restrictions, performance and risk concentration of the TS Hamilton Fund and the company’s continuing commitment through June 2026.
- The renewal terms and availability of approximately $995 million of letter-of-credit and revolving facilities, including facilities expiring in 2024 and 2025.
- The effect of Bermuda’s 15% corporate income tax regime beginning in 2025 or 2030, depending on eligibility for the transition exemption, and related U.K. and Irish Pillar 2 exposure.
- The sustainability of premium growth and underwriting margins if insurance and reinsurance pricing softens.
- The company’s ability to generate parent-company liquidity given regulatory restrictions on subsidiary dividends and the absence of planned common-share dividends.
- Potential dilution from outstanding equity awards, the 2023 equity plan, the Value Appreciation Pool and approximately 810,000 remaining warrants at year-end.