Hamilton Insurance Group, Ltd. — Q1 2024 Form 10-Q Summary
Business context and reporting period
Hamilton Insurance Group is a Bermuda-based global specialty insurance and reinsurance group operating through International and Bermuda segments. Its platforms write property, casualty and specialty business through Lloyd’s, Ireland, Bermuda and the United States. The filing covers the three months ended March 31, 2024, with comparisons to the three months ended March 31, 2023. Financial statements are unaudited and prepared under U.S. GAAP.
Key financial metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Gross premiums written | $721.9 million | $538.2 million | 34.1% increase |
| Net premiums written | $514.9 million | $348.5 million | 47.8% increase |
| Net premiums earned | $385.3 million | $283.9 million | 35.7% increase |
| Total revenues | $658.6 million | $322.4 million | 104.3% increase |
| Underwriting income | $32.5 million | $34.1 million | 4.5% decrease |
| Net income attributable to common shareholders | $157.2 million | $51.5 million | 205.3% increase |
| Diluted earnings per share | $1.38 | $0.49 | Increase |
| Combined ratio | 91.5% | 87.9% | 3.6 percentage-point deterioration |
| Return on average common equity | 7.4% | 3.0% | Increase |
| Operating cash flow | $158.2 million | $12.1 million | Increase |
Revenue and earnings benefited substantially from investment performance. Net realized and unrealized investment gains plus net investment income were $268.0 million, compared with $37.5 million in Q1 2023. The TS Hamilton Fund generated $262.8 million of pre-non-controlling-interest investment income and gains, including an 8.3% return net of management fees and performance incentive allocations. The related incentive allocation was $120.1 million and was recorded in net income attributable to non-controlling interests.
Underwriting remained profitable, but performance weakened year over year. The consolidated loss and loss adjustment expense ratio was 60.3%, acquisition cost ratio was 21.9%, and other underwriting expense ratio was 9.3%.
Financial condition, debt and liquidity
- Total assets were $7.35 billion at March 31, 2024, compared with $6.67 billion at December 31, 2023.
- Total shareholders’ equity increased to $2.21 billion from $2.05 billion. Book value per common share was $19.90, up 7.1%; tangible book value per common share was $19.07, up 7.4%.
- Total investments were $3.18 billion, including $1.88 billion of fixed maturities, $352.1 million of short-term investments and $953.7 million invested in Two Sigma Funds.
- Cash and cash equivalents were $1.09 billion, with restricted cash of $95.6 million. Total cash and investments were $4.36 billion, compared with $4.01 billion at year-end 2023.
- Fixed maturity and short-term investments were 100% investment grade, with an average credit quality of Aa3, average yield to maturity of 4.9% and expected average duration of 3.3 years, excluding short-term investments held by the TS Hamilton Fund.
- The company had a $150.0 million term loan, net carrying value of $149.9 million, maturing June 23, 2025. It was in compliance with debt covenants.
- Letter-of-credit and revolving facilities had $995.0 million of commitments and $746.0 million in use. The company reported compliance with applicable facility covenants.
- Net cash increased by $279.7 million during the quarter. Cash provided by investing activities was $194.1 million, while financing activities used $68.4 million, primarily reflecting activity related to TS Hamilton Fund incentive allocations.
Material changes versus the prior comparable period
- Premium growth was driven by new business, increased participation on existing accounts and favorable pricing across property reinsurance, specialty reinsurance and casualty business. International gross premiums written increased 29.8%, while Bermuda increased 37.8%.
- Underwriting income declined despite premium growth because the consolidated combined ratio increased from 87.9% to 91.5%. The International combined ratio increased from 89.1% to 97.2%; Bermuda improved from 86.9% to 85.5%.
- Current-year attritional loss ratio increased to 57.2% from 49.1%, primarily due to $37.9 million of net reserves related to the Francis Scott Key Baltimore Bridge collapse. No comparable loss was recorded in Q1 2023.
- Prior-year loss development was unfavorable by $12.1 million, compared with $4.0 million of unfavorable development in Q1 2023. The 2024 development was primarily attributable to specialty and casualty claims, including two specific large claims.
- Investment results improved sharply, led by the TS Hamilton Fund. Other investments produced $5.2 million of gains and income, down from $27.4 million, as higher investment income was largely offset by negative price returns from rising Treasury rates.
- Corporate expenses increased to $11.5 million from $6.7 million, driven by $3.7 million of Value Appreciation Pool expense, higher headcount, performance compensation and public-company costs.
- On April 30, 2024, A.M. Best upgraded the financial strength ratings of Hamilton Re and HIDAC to “A” from “A-” and their issuer credit ratings to “a” from “a-”; the outlook changed to stable from positive.
Guidance, outlook, commentary and risks
Management did not provide a specific numerical earnings or premium guidance range in the filing. Management expects continued opportunities in specialty insurance, U.S. excess and surplus lines and reinsurance, citing favorable pricing, high interest rates, economic and social inflation, and market discipline. The company intends to pursue disciplined growth while maintaining underwriting profitability and capital adequacy.
- Loss reserves remain estimates subject to significant uncertainty. Recorded net reserves included $37.9 million for the Baltimore Bridge collapse, $64.4 million for the Ukraine conflict and $15.8 million for COVID-19 at March 31, 2024.
- Actual ultimate losses for these events may differ materially from current estimates. Inflation could increase claims severity, operating costs and reserve requirements.
- The company has substantial exposure to catastrophe events, underwriting mispricing, reserve inadequacy, cyclical insurance pricing, climate change and emerging coverage issues.
- Investment results are materially affected by the TS Hamilton Fund, which uses hedged and leveraged systematic strategies and is managed by Two Sigma. Hamilton has limited control over investment allocation and faces related-party, liquidity, concentration and performance risks.
- The company depends on reinsurance recoverables, letters of credit and access to capital markets. Reinsurer defaults, facility non-renewal or adverse rating actions could affect liquidity and operating capacity.
- The holding company relies on distributions from regulated subsidiaries, which are subject to statutory capital, solvency and dividend restrictions.
- The TS Hamilton Fund commitment period runs through June 30, 2026 and is subject to a minimum investment commitment and specified liquidity provisions.
Important facts for investors to verify
- Whether the unusually strong investment gains and the 8.3% TS Hamilton Fund return are repeatable, given the fund’s volatility, leverage and Two Sigma-related risks.
- Subsequent development of the $37.9 million Baltimore Bridge reserve and other uncertain reserves for Ukraine, COVID-19 and large specialty claims.
- Whether the combined ratio can remain below 100% as premium growth continues and current-year attritional loss ratios normalize.
- Renewal terms and availability of letter-of-credit facilities expiring in 2024 and 2025, including the $745.96 million currently in use.
- Capital and liquidity impacts of the May 8, 2024 agreement to repurchase 9,124,729 Class A shares for $109.5 million, expected to close May 10, 2024 subject to customary conditions.
- The effect of the Bermuda 15% corporate income tax enacted for future periods, including the conditions supporting a potential deferral until 2030.
- Future distributions from regulated subsidiaries and compliance with statutory solvency, rating-agency and debt covenants.