Hamilton Insurance Group, Ltd.

Today's call are Tina Albo, Group Chief Executive Officer, and Craig Howey, Group Chief Financial Officer. We are also joined by other members of the Hamilton Management Team. Before we begin, please note that Hamilton financial disclosures, including our earnings release, include important disclosures regarding forward-looking statements. Management comments regarding potential future developments are subject to the risks and uncertainties as noted in these disclosures. Management may also refer to certain non-GAAP financial measures. These items are reconciled in our earnings release and financial supplement. With that, I turn the call over to Pina Aldo, Hamilton CEO.

Thank you, John, and hello, everyone. Let me start by extending my warm welcome to all of you joining us for Hamilton's second quarter 2024 conference call. Getting straight to the punchline. This was an outstanding quarter for Hamilton by all metrics, but let me share a few. We reported 131 million of net income, equating to an annualized return on average equity of 23.6%. We recorded an all-time low combined ratio of 84.4%, had strong net investment income of 95.7 million, and 19.5% growth in our top line in this favorable market environment. I'm exceptionally proud of the Hamilton team for remaining laser focused on delivering underwriting profitability and strategic growth, our top two strategic priorities, as well as realizing the objectives we shared with investors in the context of our IPO in November of last year. I will first turn to the topics of underwriting profitability and strategic growth. Regarding underwriting profitability, not only did we produce record results this quarter with an 84.4% combined ratio, but Q2 also marks the seventh quarter in a row of underwriting profit for Hamilton. Importantly, both of our reporting segments contributed to the strong underwriting bottom line. Our international segment, which is primarily specialty insurance business, produced a combined ratio of 91%, and our Bermuda segment, which is primarily reinsurance business, finished the quarter with a combined ratio of 77.4%. These results were achieved against the backdrop of another active loss period for the industry. with approximately $60 billion of insured natural catastrophes in the first six months of 2024. Severe convective storms, including tornadoes in the U.S., were the largest contributor to these losses, representing nearly $40 billion of that total. And while we recorded some attritional claims from these events this quarter, no individual loss reached our $5 million threshold of an identifiable catastrophe event. Turning to strategic growth, which for us means growth in the right lines and at the right time, as mentioned, Hamilton's top line grew 19.5% this quarter, with international growing 12.2%, and Bermuda up 28.4%. In our international segment, where we write a diversified specialty portfolio, we saw the greatest growth in property insurance, followed by increases in classes such as U.S. Energy, Personal Accident, BC, and Fine Art. The key drivers of growth in our Bermuda segment were our new property quota share reinsurance offering, where we are gaining access to well-priced U.S. E&S business, at the same time as providing broader support to our key clients. Regarding casualty reinsurance, we grew casualty quota share business both by increasing line sizes with key clients and getting on new deals with targeted clients. Our rating upgrade to A from AMBEST was very helpful in this regard, and we expect access to this and other business to be more pronounced into 2025. In addition to executing on our strategic initiatives, we also delivered on the objectives we set in the context of our IPO. As you may recall, these included quickly deploying the IPO proceeds as well as our organically generated capital by leaning into the current favorable market conditions, Expanding our core classes of business, increasing line sizes with select clients, and retaining more well-priced business on our books. Being responsible stewards of capital. In May of this year, we repurchased shares from a longstanding investor, utilizing some of our excess capital generated by the strong Two Sigma Hamilton Fund investment returns. This transaction was done on favorable terms, increasing book value and earnings per share, while still leaving us with a strong balance sheet to support our profitable growth ambitions. On this note, Craig will tell you more about our latest authorization. Finally, on the topic of balance sheet, ensuring that our balance sheet remains strong and that our reserve position robust by exercising prudency, both in establishing and releasing reserves. We also continue to increase and optimize our investment portfolio, reduce our operating expense ratios, reflecting increased size, scale, and efficiency in our business, and we continue to keep our low financial leverage as dry powder. And last, but by no means least, We improved our ratings profile with an upgrade from AM Best received at the end of April, affirmed ratings from Kroll, and a recently announced rating from Fitch. All this to say, in addition to being entrepreneurial and collaborative, ours is a culture of execution and delivering on our objectives. Turning now to market conditions. A lot of airtime has already been given to this topic by our peers and the brokers, so I'll keep my comments brief. For Hamilton's book of business, the rate environment remains strong and supportive of our targeted growth ambitions and positive underwriting returns. More specifically, on the reinsurance side, starting with property cap, pricing, terms, conditions, and importantly, attachment points, remain attractive and we expect this to remain the case going into 2025. in casualty reinsurance we are seeing increased opportunity to grow our book with select clients in the context of improving underlying rates and more favorable commission terms given con evidence around inflation including social inflation we expect this trend to continue On the insurance side, starting with Hamilton Global Specialty, our recognized underwriting expertise in the lawyers' market and our well-diversified insurance book allows us to grow in classes which we perceive as more attractive and reduce participations in classes where we see lower risk-adjusted returns, for example, cyber business. A couple of comments specific to Hamilton Select, our dedicated US E&S carrier, which focuses on small-account, hard-to-place casualty and specialty classes. Similar to what you have heard from our larger peers in this market, we continue to see a strong flow of business into the E&S space, business that meets or exceeds our underwriting hurdles, particularly with respect to excess and general casualty. Professional lines is the one outlier with competition that requires more diligence in underwriting and, in turn, less new business written. Across all of our business, it is our underwriting culture and the ability to manage cycles within the market which gives me confidence in our ability to effectively manage, grow, and underwrite a very profitable book. Coupled with that culture, it is also important to note our strong and transparent relationships with clients and brokers. We make it a point to stay in close and regular contact with them to clearly communicate our strategy, our risk appetite, and the capacity we wish to deploy. Our clarity, reliability, and responsiveness go a long way in building and maintaining the strong relationships we have. We believe that our investment in these relationships will ensure we continue to see an even greater flow of attractive business going forward. All this to say, we are very pleased with the opportunities we are seeing in this market. across all of our businesses and are of the view that macro factors such as climate change, geopolitical tensions, and inflation, including social inflation, should continue to support favorable market conditions in which we can continue to grow. On the topic of inflation, a few words about casualty underwriting and loss reserves. Starting with our casualty reinsurance underwriting. With the improvements in this class over the recent past, we have been selectively building a casualty portfolio with key clients, which we have worked hard to develop over the years. These are carriers who have a strong underwriting culture, good data, and keep a large portion of their exposure net. As we are seeing on the insurance side of our business, the underlying rate environment in our key casualty classes continues to be strong which helps to mitigate some of our concerns with this class. Our actuarial teams are heavily involved in the underwriting process and develop an independent view of loss ratios used for pricing. Embedded in that pricing are explicit assumptions for inflation and social inflation, and the latter is something we have been monitoring closely for a number of years now and will continue to monitor. Turning to the reserving aspect of casualty business, While no one can give any guarantees when it comes to casualty business, at Hamilton, we have taken a number of corrective actions on our book since I arrived in 2018 to strengthen our casualty reserve position. We have the benefit of adverse development covers in place over a material portion of our casualty reserves, and we have taken what we believe is a cautious approach to reserve setting for casualty lines. We have also been and will always be quicker to recognize adverse claims trends than to take the benefit of favorable trends. I'd now like to share a few comments on the mid-year renewals, which, as you know, are predominantly property focused and which we would categorize as successful. The increased demand, which we noted last quarter, continued and met adequate supply. Terms, conditions, and attachment points were favorable and consistent with the improvements that began two years ago. While there was more competition on the top end of programs, particularly earlier on in the renewal season, we chose to hold our powder dry until the end of the renewal season where capacity was more limited and pricing was firmer. We also focused our writings on targeted global and national carriers And again, we were pleased with the results. To conclude my remarks, with seven quarters in a row of underwriting profitability and an underwriting culture that I believe is capable of navigating all market cycles, Hamilton continues to build upon a track record of thoughtful, targeted growth, more importantly, profitability that we view as sustainable into the future. Our diversified, scalable underwriting platforms, our outstanding team, and our strong balance sheet will allow us to continue leaning in while market conditions remain attractive. Craig, now over to you.

Thank you, Pina, and hello, everyone. Hamilton had a very strong second quarter and first six months of results with excellent investment returns, record underwriting income, and record gross premiums written. For the second quarter of 2024, as Pina mentioned, Hamilton reported net income of $131 million equal to $1.20 per diluted share, producing an annualized return on average equity of 23.6%. This compares to net income of $37 million, or 35 cents per diluted share, and an annualized return on average equity of 8.5% in the second quarter of 2023. With those numbers as highlights, let me provide additional detail around our underwriting and investment income components for the quarter and for the first six months. Starting with the underwriting results, Hamilton continues to grow at an impressive double-digit rate. For the first six months of 2024, gross premiums written increased to a record $1.3 billion compared to $1 billion this time last year, an increase of 27%. All three of our underwriting platforms, Hamilton Global Specialty, Hamilton Select, and Hamilton Re, continue to take advantage of favorable market conditions and our increasing relevance in markets that we serve, all of which contributed to our profitable growth. As a reminder, these record premium figures were produced largely without the benefit of our AM Best rating upgrade to A, which was assigned on April 30th. As Pina mentioned earlier, the full impact of the upgrade and the increased business opportunities will be more pronounced into 2025. Underwriting income for the group was $65 million for the second quarter compared to underwriting income of $35 million in the second quarter of last year. The group combined ratio was 84.4% compared to 89.5% in the second quarter of 2023. In terms of combined ratio components, Both the loss ratio and the expense ratio were lower this year. The loss ratio decreased 2.9 points to 51.2% compared to 54.1% in the prior period. The decrease was primarily driven by no catastrophe losses compared to $16 million or five points of catastrophe losses in the second quarter last year. Similar to last quarter, we saw several lines showing benign claims activity but generally chose to hold our reserve position and maintain our prudent initial expected loss ratios rather than reacting to shorter-term good news in the quarter. Turning to our expense ratio, which decreased 2.2 points to 33.2% compared to 35.4% in the second quarter last year. Year to date, the expense ratio decreased 3.2 points to 32.3% compared to 35.5% in the first half last year. The decrease in the expense ratio was mainly driven by improved operating leverage due to growth in our earned premium base as well as third-party fee income, which is offset against expenses. I'll discuss the expense ratio on a year-to-date basis in more detail in the segment results section, which I'll turn to now. Let's start with the international segment, which includes our specialty insurance businesses, Hamilton Global Specialty and Hamilton Select. For the first six months, international gross premiums written grew to $632 million from $525 million, an increase of 20%. This was primarily driven by increased opportunities or business flow, improved pricing, and new business and casualty insurance, specialty insurance, and property insurance classes. I would also point out that Hamilton Select nearly doubled gross premiums written in 2023 compared to the full year 2022. In 2024, Hamilton Select continues to see a very healthy flow of business and is growing nicely and completely in line with expectations, albeit not at the same percentage rate as the prior year. For the second quarter, international had an underwriting gain of $19 million and a combined ratio of 91.0% compared to an underwriting gain of $15 million and a combined ratio of 91.8% in the second quarter last year. The international attritional loss ratio decreased 0.4 points to 52.5% in the second quarter compared to 52.9% in the prior quarter. Moving to some year-to-date numbers, for the first six months, the international acquisition expense ratio decreased 1.4 points to 24.5% compared to 25.9% in the first half last year. The decrease was primarily related to business mix in the casualty and specialty insurance classes. The other underwriting expense ratio decreased 2.2 points to 14.0% compared to 16.2% in the first half last year as a result of growth in the premium base. I will now turn to the Bermuda segment, which houses Hamilton Re and Hamilton Re US, the entities that predominantly write reinsurance business. For the first six months, Bermuda gross premiums written grew to $693 million from $518 million, an increase of 34%. The increase was primarily driven by new business, expanded participations, and rate increases in the property and casualty reinsurance classes. Specialty reinsurance also increased, primarily driven by new business. For the second quarter, Bermuda had an underwriting gain of $46 million and a combined ratio of 77.4%, compared to an underwriting gain of $20 million and an 86.9% combined ratio in the second quarter last year. The decrease in combined ratio was primarily related to having no catastrophe losses in the quarter. The Bermuda attritional loss ratio increased 1.6 points to 50.5% compared to 48.9% in the prior quarter. The increase was primarily related to a change in business mix. As mentioned, given underlying rate increases, we targeted and broke more property and casualty quota share business which carry higher attritional loss ratios. Moving to some year-to-date figures, for the first six months, the Bermuda acquisition expense ratio increased 0.5 points to 20.4% compared to 19.9% in the prior period. This increase was expected as it was largely driven by our desire to write more proportional business as underlying rates improved and an increase in casualty premiums both which carry higher commissions than property. The other underwriting expense ratio decreased 2.9 points to 5.3% compared to 8.2% in the first half last year as a result of growth in our premium base and the performance-based fee income from our ILS platform, which offsets expenses. I encourage you to look at our full-year 2023 results as a gauge for many of our underwriting ratios. Now turning to investment income. Total net investment income for the second quarter was $96 million compared to investment income of $22 million in the second quarter of 2023. The fixed income portfolio, short-term investments, and cash produced a gain of $20 million for the quarter compared to a loss of $3 million in the second quarter of 2023. This includes the realized and unrealized gains and losses that Hamilton reports through net income as part of our trading investment portfolio. The fixed income portfolio had a return of 0.8% or $16 million and a new money yield of 4.9% on investments purchased during this quarter. The duration of the portfolio was unchanged at 3.3 years. The average yield to maturity of this portfolio was 5.0% compared to 4.5% at year-end 2023. The average credit quality of the portfolio remains strong at AA3. The Two Sigma Hamilton Fund produced a gain of $76 million and had a net return of 4.3% for the second quarter of 2024. The fund had a net return of 12.9% for the first six months. The latest estimate we have for the Two Sigma Hamilton Fund year-to-date performance is 10.9% through July 31, 2024. The Two Sigma Hamilton Fund made up about 42% of our total investments, including cash investments, at June 30, 2024, compared to 44% at March 31, 2024. Turning to capital management, Please note the press release that we issued yesterday announcing Hamilton's common share repurchase authorization in the amount of $150 million. This follows the sizable repurchase transaction completed in May with a single significant shareholder, which demonstrated Hamilton's ability and willingness to repurchase shares for the benefit of shareholders. This new repurchase authorization is a logical and important next step. A number of factors will go into our decision as to when and how to repurchase shares, including the market price of the shares, the book value per share, and our current and projected view of our excess capital position. I'd like to conclude my remarks with some comments on our strong balance sheet. Total assets were $7.6 billion at June 30, 2024, up 13% from $6.7 billion at year-end 2023. Total investments in cash were $4.4 billion at June 30th, an increase of 10% from $4.0 billion at year end 2023. Shareholders' equity for the group was $2.2 billion at the end of the second quarter, which was a 9% increase from year end 2023. Our book value per share was $21.96 at June 30th, 2024, up 18% from year end 2023. Thank you, and with that, we'll open up the call for your questions.