Hamilton Insurance Group Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
December 6, 2023

There are 10 speakers on the call.

Operator

Good day, and welcome to the Hamilton Insurance Group Earnings Conference Call. As a reminder, this call is being webcast and will also be available for replay with links on the Hamilton Investor Relations website. I'd now like to turn the call over to John Levinson, SVP of Finance and Investor Relations. Please go ahead.

Speaker 1

Thank you, operator, and good morning. We welcome you to the Hamilton Insurance Group Third Quarter 2023 Earnings Conference Call. The Hamilton executives leading today's call are Tina Albo, Group Chief Executive Officer and Craig Howie, 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.

Speaker 1

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's CEO.

Speaker 2

Thank you, John. Good morning, everyone, and welcome to the inaugural earnings call for Hamilton Insurance Group. It's great to be with you here today. I welcome our long standing shareholders, the new shareholders who joined us in the context of our recent IPO and those who are considering investing in Hamilton. I also see a number of employees, equity analysts, customers, brokers and advisers on the line.

Speaker 2

You have all contributed to the success of our journey to date and are essential to our continued success. So again, welcome and thank you. To begin, a little bit about Hamilton for those of you who may be new to our story. We are a global specialty insurance and reinsurance company with our primary underwriting businesses at Lloyd's, in Bermuda and most recently in the U. S.

Speaker 2

We are guided by 4 simple imperatives. 1st, underwriting profitability and that on a sustainable basis. 2nd, strategic growth, growth at the right time in the right lines. 3rd, technology enablement, This is technology to empower our businesses and 4th, being a magnet for talent. These imperatives apply to everybody in our organization.

Speaker 2

The topic of talent, we are over 500 people strong. Our headquarters are in Bermuda, and we also have significant concentrations in London, Dublin and the U. S. I am incredibly proud of the Hamilton team. They are talented, hardworking, laser focused on our imperatives and collaborative.

Speaker 2

It is a privilege to work alongside this team. We've been in business since 2013. Our 10th anniversary is in fact in a couple of weeks. And since I joined Hamilton in 2018, we have undergone a significant business transformation to become the company we are today. As you've gathered from our first imperative, achieving consistent and sustainable underwriting profitability is paramount and our trailing 12 month combined ratio of 89.5% demonstrates our ability to deliver.

Speaker 2

We have 2 business reporting segments, International and Bermuda, and 3 underwriting platforms: Hamilton Global Specialty and Hamilton Select, both under the International Reporting segment and Hamilton Re under the Bermuda reporting segment. Our business is global, nimble and scalable and allows Hamilton to lean in to the best price classes of business across both insurance and reinsurance in the current market, while giving us the ability to manage across market cycles over the longer term. International is our largest business reporting segment with most underwriting done in London and focused on commercial casualty, specialty and property lines. Hamilton Global Specialty is the largest underwriting platform under the international umbrella and is led by CEO, Adrian Dawes, who has over 20 years experience in the Lloyd's market. Hamilton Select, our U.

Speaker 2

S. Excess and Surplus Lines Company, is our newest underwriting platform based in Richmond, Virginia. Hamilton Select is consolidated into the results of our International segment and is led by my long time colleague, Anita Kuchma, who has over 35 years industry experience. For the 1st 9 months of 2023, International produced $832,000,000 of gross premiums written, up 19% over the same period in 2022 with a combined ratio of 93.1% compared to 99% in the prior year. These are strong results and demonstrate the earnings power of this diversified and growing segment.

Speaker 2

Bermuda is the business reporting segment that houses Hamilton Re and is focused mainly on reinsurance for global customers, but also rights excess casualty, financial lines and property insurance business. Megan Thomas, our Bermuda CEO has over 20 years of industry experience and is a lawyer with a strong underwriting background and pedigree from successful peers. Bermuda generated $685,000,000 of gross premiums written for the 1st 9 months of the year, up 13% over the same period in 2022, a combined ratio of 86.8% versus 119.6 percent for the prior year. I am very pleased with these results as they demonstrate our success in transforming the risk and underwriting profile of this business. As you know, we became a public company just a few short weeks ago, now trading under the symbol HG on the New York Stock Exchange.

Speaker 2

This was a significant milestone for our company and I want to note the tireless efforts of Craig Howie, our group CFO and Gemma Carreiro, our General Counsel as well as many others at Hamilton who helped us accomplish this feat. With that as a brief introduction to Hamilton, I'll turn the call over to Craig to take you through the numbers and then I'll come back to provide some more insight into our business and strategy. Craig?

Speaker 3

Thank you, Pina, and good morning, everyone. It's great to see so many familiar names on our call today. For the Q3 of 2023, our Q1 as a public company, Hamilton reported a solid quarter of financial results with net income of $44,000,000 This compares to a net loss of $136,000,000 in the Q3 of 2022. On a year to date basis, net income was $132,000,000 compared to a net loss of $39,000,000 during the 1st 9 months of 2022. The 2022 results were heavily impacted by loss estimates of the Ukraine Conflict and Hurricane Ian.

Speaker 3

The 2023 results were driven by a strong underwriting performance across the group, stable investment income and low catastrophe losses. If you haven't seen it already, I want to note that in addition to our earnings release, Hamilton published a financial supplement, which is available on our Investor Relations website. Many of the numbers I'm sharing today, plus supporting details are available in the financial supplement. With those numbers as highlights, Let me provide additional details around our income components for the quarter. Starting with underwriting income, The overall underwriting gain for the group was $25,000,000 for the Q3 $94,000,000 for the 1st 9 months of 2023, compared to an underwriting loss of $70,000,000 in the 1st 9 months of 2022.

Speaker 3

The company continues to grow premium in 2023. Year to date gross premiums written were $1,500,000,000 of $212,000,000 or 16% compared to the 1st 9 months of 2022. I'm pleased to note that this reflects growth in both reporting segments with International up 19% and Bermuda up 13% compared to last here. The growth story continues as Hamilton has delivered double digit premium growth each year for the last 5 years. The group combined ratio was 92.6 percent for the quarter compared to 122.5 percent in the Q3 last year, reflecting significant improvement in the loss ratio.

Speaker 3

Lower catastrophe losses were the primary driver of the improved loss ratio at 2.1 points for the current quarter compared to 27.7 points for the same period during 2022. The largest cat events in the Q3 of 2023 were the Hawaii wildfires and Hurricane Idalia. This compares to the Q3 of 2022 where Hamilton incurred $82,000,000 of estimated catastrophe losses with the bulk of these loss estimates from Hurricane Ian. Let's look at the results by segment. As Pina noted, Hamilton reports its underwriting results through 2 reporting business segments, the International segment and the Bermuda segment.

Speaker 3

We currently include the results of the Hamilton Select platform in the International segment. Over time, as Hamilton Select continues to grow and develop, We may consider providing these results in a separate reporting segment. Starting with the International segment. International had an underwriting gain of $4,000,000 and a combined ratio of 97.7 percent for the 3rd quarter, compared to a combined ratio of 100.9 percent in the Q3 last year. The international attritional loss ratio for the current quarter was 7.9 points higher than 2022 at 54.6% compared to 46.7% last year.

Speaker 3

Current quarter attritional results were impacted by 3 individual risk losses. 1 was the Gulf of Mexico oil platform explosion And there were 2 satellite losses. Together, these three events contributed 8.4 points to the loss ratio. Hamilton includes large non catastrophe losses in its attritional results. Any natural catastrophe losses greater than or equal to $5,000,000 are included in our catastrophe loss calculations.

Speaker 3

We had favorable prior year Reserve development in the International segment of $9,500,000 or 5.3 points, primarily driven by our specialty insurance and property insurance classes. Turning to the Bermuda segment, Bermuda had an underwriting gain of $21,000,000 and a combined ratio of 86.9 percent for the 3rd quarter. The Bermuda attritional loss ratio for the current quarter was 2.1 points higher than 2022, at 55.1% compared to 53.0 percent last year. This increase reflects the change in business mix with more casualty reinsurance business, which carries a higher loss ratio compared to property. For prior year reserves, in the Bermuda segment, we added $9,000,000 or 5.7 points primarily related to discontinued property reinsurance business.

Speaker 3

Now turning to investment income. Total net investment income for the quarter was $46,000,000 compared to an investment loss of $57,000,000 in the Q3 of 2022. Note that our total net investment return includes realized and unrealized gains and losses on investments, plus net investment income, less non controlling interest. Hamilton's accounting treatment of fixed income securities classifies these assets as a trading portfolio, which requires reporting at fair value each quarter. This is similar to our peers, but with the difference that unrealized gains and losses flow through net income.

Speaker 3

Most of our peers use the available for sale accounting treatment where unrealized results flow directly through shareholders' equity as accumulated other comprehensive income or AOCI. The fixed income portfolio, short term investments and cash produced a loss of $5,000,000 for the quarter, compared to a loss of $36,000,000 in the Q3 of 2022. The fixed income book yield for the quarter was 3.3% with a new money rate of 5.1 percent on investments purchased during the quarter. Those numbers are significantly increased compared to the Q3 of 2022 when the book yield was 2.1% and the new money yield was 4.1%. Portfolio duration was 3.3 years as of September 30, 2023, consistent with the duration from 1 year ago.

Speaker 3

The average yield to maturity on this portfolio was 5.4% at the end of the 3rd quarter compared to 4.7% at year end 2022. The average credit quality of the portfolio remains strong at AA3. We expect to maintain our fixed income asset allocation and a conservative, well diversified, high credit quality bond portfolio with conservative duration to match our liability provision. The 2 Sigma Hamilton Fund produced a gain of $51,000,000 and had a net return of 3.1 percent for the quarter. The Fund had a net return of 5.3% for the 1st 9 months of 2023, and this information is provided on the financial highlights page of our financial supplement.

Speaker 3

The latest estimate we have for 2 Sigma Hamilton Fund year to date performance is 8.2% through November 30, 2023. The 2 Sigma Hamilton Fund makes up about 45% of our total investments, including cash investments, compared to 49% at year end 2022. So to conclude my remarks with some comments on our strong balance sheet metrics, total assets were $6,500,000,000 at September 30, were $3,800,000,000 at September 30, an increase of 9% from year end 2022 of $3,400,000,000 Shareholders' equity for the group was $1,800,000,000 at the end of the 3rd quarter, which was an 8% increase from year end 2022. Please note that our Q3 shareholders' equity does not include the $81,000,000 of net primary capital raised in our IPO as that transaction closed on November 14. This will be included in our Q4 financial results.

Speaker 3

We plan to deploy our new equity proceeds at the January 1 renewals and beyond into the robust reinsurance and insurance markets. Hamilton continues to maintain a strong capital position with industry low debt leverage of less than 8% and a highly liquid investment portfolio. Thank you. And now I'll turn it back over to Pina.

Speaker 2

Thanks, Craig. As Craig detailed, Hamilton had strong growth this quarter year to date in both our international and Bermuda segments. This growth reflects new or expanded relationships with clients and brokers by virtue of Hamilton's capacity, consistency and reliability as well as significant rate change in the market. Starting with the market, I'm not sure there's much more for me to to the wealth of detailed information provided over the past few weeks months by broker and customer surveys, peer earnings, call commentary and other industry sources. Overall, however, I can tell you that these are the best sustained market conditions that I have witnessed in my more than 30 year career in the industry.

Speaker 2

That said, in terms of rates, the sweeping increases that have occurred In most of the insurance and reinsurance lines, we're absolutely necessary to reflect increased loss costs stemming from a number of factors, including, for example, economic inflation and social inflation, which we at Hamilton expect to continue for the and sellers can earn an adequate return on risk capital should be in everyone's interest. So yes, rates have increased significantly over this time period. And particularly in reinsurance, terms, conditions and structures have also seen much needed improvement. I don't have a crystal ball to predict how long these market conditions will last, but I will say 2 things. First, the underlying factors inflation, geopolitical tensions, increased nat cat activity, These factors that contributed to the current market dynamic still exist.

Speaker 2

And second, Given that underwriting discipline is inherent in our first business imperative, I can assure you that we will continue to focus on writing business that has sufficient rate for the risk we take and will allow us to generate an appropriate return on capital throughout all market cycles. Moving to our scale. Hamilton is now at the size and importantly has the line of business diversification to Effectively adapt to the market and manage the underwriting cycles as they arise. Our scale also allows us ample room to grow. As mentioned, our underwriting platform span both specialty insurance and reinsurance with a balance of 55% insurance and 45% reinsurance.

Speaker 2

And our business is also well diversified across classes with 42% casual. As mentioned, our underwriting platform span both specialty insurance and reinsurance with a balance of 55% insurance and 45% reinsurance. And our business is also well diversified across classes with 42% casualty, 31% specialty and 27% property, all figures for the 9 months year to date. This compares favorably to more established peers and allows us to nimbly adjust our portfolio to focus on the classes of business where we see the best returns. Moving on to our expanding market profile and relationships, These have really kicked into high gear over the last 24 months as customers and brokers sought more capacity and solutions from reliable partners in the market such as Hamilton.

Speaker 2

In our International Reporting segment, we continue to see strong growth at Hamilton Global Specialty, benefiting from our reputation as a recognized specialty insurance provider at Lloyd's. Our Syndicate 4,000 has seen an increased flow of business from Several specialty insurance lines reflecting our leading position in these core classes of business. Another engine of growth in our international segment is Hamilton Select, our newest underwriting venture. Again, Hamilton Select is a U. S.

Speaker 2

Focused excess and surplus lines writer of small to midsize hard to place commercial risks. Our founding team joined us from leading surplus lines companies. Hamilton Select has had a strong market acceptance and we see a bright future for this business, which wrote $40,000,000 of gross premiums during 2022, its 1st full year of operation. For the 1st 9 months of 2023, Hamilton Select wrote $54,000,000 of premium, more than double what it wrote during the 1st 9 months of 2022. As with all our other platforms, We are focused on sustainable underwriting profitability at Hamilton Select.

Speaker 2

The outcome, which is facilitated by the fact that all of our underwriting and claims handling is done in house. The loss ratio has been tracking well with the combined ratio elevated as expected for a start up where operating expenses are running ahead of earned premium ramp up. Turning to our BRBUDDA reporting segment, given our broad client base and the improved underlying rate environment, We have written more casualty reinsurance business and expanded our overall relationships with and relevance to our key customers. We have also complemented our valuable property catastrophe reinsurance capacity by now writing property quota share business for select clients as well as offering capacity through our 3rd party capital vehicle, ADA Re, which provides high rate online, low attaching natural catastrophe covers to select clients. We expect to continue expanding our existing reinsurance relationships and generating new client relationships into 2024 as we deploy the additional capital raise during our IPO predominantly for property cat and quota share business where we see continued demand and strong returns.

Speaker 2

Beyond our nimble structure, our underwriting culture and processes have really taken hold in transforming our business. The Group Underwriting Committee, our GUC, embodies our underwriting discipline and the culture of continuous improvement at Hamilton, allowing for regular and detailed portfolio reviews, deep dives into certain classes or accounts and comprehensive reviews of underwriting policies and procedures. Alex Baker, our Chief Risk Officer, chairs the GUC And Craig and I, along with our platform CEOs and COOs, are standing members. The GUC has helped us make some important decisions, both restrictive, for example, reducing or exiting certain classes of business, Also decisions aimed at strategic growth, for example, seeking to do more in a particular class or entering new lines of business. The GUC's current main focus is ensuring we capitalize on the strong market opportunities we see in 2024 by writing the optimal book of business for Hamilton.

Speaker 2

The combination of our coordinated approach to underwriting, Investments in proprietary technology and the leadership team's commitment to underwriting profitability is demonstrated in our results. Again, Craig provided the details, but 3rd quarter wind season combined ratio was 92.6% 90.2% for the 9 month year to date. These are some of the best results Hamilton has posted since I joined the company in early 2018. Craig provided the details, But Q3 wind season combined ratio was 92.6% 90.2% for the 9 month year to date. These are some of the best results Hamilton has posted since I joined the company in early 2018.

Speaker 2

Specific to our technology platforms, the improvements in our data analytics, management information and our underwriting workbenches Have positioned Hamil's technology and data officer in these efforts. Those who know me know I will continue to push, pull and cajole our team to continually improve these results. In some cases, Improved underwriting will result from more focus and growth in the classes of business where we see the best opportunities. In other cases, it may mean reducing line sizes or participations where returns by class or account don't meet acceptable hurdles. In all cases, it will be driven by our view towards long term sustainable underwriting profitability.

Speaker 2

To end my prepared remarks, I want to touch a bit on the unique culture that Hamilton has embodied in our tagline, in good company. We want everyone we interact with, whether employee, client, broker, business partner or shareholder to feel like they are in good company when they interact with us. We intentionally hire people who fit our culture as well as being great at their jobs, and we regularly survey the pulse of employees to ensure we are delivering on our promises. Daniel Fisher, Our London based group Head of HR, Communications and Culture ensures this is the case. Our culture is inclusive, entrepreneurial and collaborative.

Speaker 2

By inclusive, I encourage everyone to be themselves at Hamilton and to respect and embrace the different perspectives and backgrounds we all bring to the table. By entrepreneurial, We encourage people to take ownership and responsibility for their roles, our business and the company as a whole. Again, we are all driven by the same four business imperatives. And by collaborative, I will always continue to push for us to work together as a team. Culture has been an important component of our success to date and an essential reason why I'm so optimistic for the future of Hamilton.

Speaker 2

With that, we will open the call for your questions.

Operator

Thank you. We will now begin the question and answer We ask that you limit your questions to 1 question and one follow-up question and then rejoin the queue for any further questions. Your first question comes from the line of Bob Huang with Morgan Stanley. Please go ahead.

Speaker 4

Thank you all. I'm glad to see the company continues to achieve a consistent underwriting profit. My first question is really about The reinsurance pricing environment going forward, right? Some other reinsurers felt that heading into 2024 Property catastrophe pricing will continue to be strong, maybe all the way till 2026. Just curious how you are thinking about The property catastrophe pricing environment heading into 2024 and beyond and what maybe could disrupt the current pricing regime, so to speak?

Speaker 4

And also curious as to how you think about the other components of reinsurance pricing environment as well? Thank you.

Speaker 2

Thanks, Bob. Tina here. Great question. As we are in the middle of looking at our oneone and renewals coming up on the reinsurance side. Just focusing first on property cat, we continue to see opportunity there at favorable market terms and conditions and primarily because the underlying factors that are supporting this.

Speaker 2

And I mentioned those earlier, geopolitical tensions, inflation, etcetera, still continue. So we See that opportunity going into oneone. We also see some increased demand from clients going into oneone And we look very, very forward to deploying the additional capital that we raised in that environment. In terms of other lines, so on the casualty and the specialty front, we've also seen some dynamics on the casualty side, as I think I've mentioned in other calls or other interactions, we've seen some of the larger players who were very heavily involved in Casualty reinsurance in the U. S.

Speaker 2

Pulled back and because they've seen some development on 2019 and prior, we really were not Involved in the market very heavily in those years. So as they pull back, it is an opportune time for us to show up and provide solutions for those clients. So we're looking at select opportunities to grow on the casualty side. And the same is the case on the specialty side. We've had some markets pull back on the specialty reinsurance side, different classes With the improved structures that we've seen starting already last year, with the Ukraine loss, there we also see opportunity to grow our franchise at 1:1.

Speaker 4

Thanks a lot. My follow-up is on reserving. On Bermuda, regarding the $9,100,000 of unfavorable reserve related to discontinued operation, is it fair to assume that There should be no more reserving true ups from discontinued operations going forward in that segment. Just curious how like if that's basically all set and done?

Speaker 3

Bob, this is Craig, what I would say to you is, although I do not have a crystal ball, what I would say to you is this was an opportunity for us to look at a discontinued line. This was a U. S. Property business that we started over a couple of years ago. We have Since discontinued that business, we did not gain a lot of traction trying to write regional clients in the United States.

Speaker 3

We saw some losses coming through that were coming through on small weather events, nothing that would be considered a catastrophe, but we saw those losses. We discontinued these lines. And what we did was we put up a loss reserve this quarter of about $10,000,000 to cover those losses. So although I don't have a crystal ball to tell you that there won't be anything in the future, these are very short tail lines and you typically would be able to see these losses and take the opportunity to put up a charge for those at the immediate point in time.

Speaker 4

Thank you very much. Really appreciate it. And congratulations again on the underwriting program. Thank you. Thanks, Bob.

Speaker 4

Thank you.

Operator

Your next question comes from the line of Michael Zaremski with BMO Capital Markets. Please go ahead.

Speaker 5

Hey, good morning. First question, for likely for Craig, a bit technical, but I think it might be important for us to figure out. You mentioned your book value Is you know, use different accounting than most peers in terms of the trading accounts. I believe only Renri uses your methodology too. So, if I look at the amortized cost of fixed maturity securities, it looks like It would if we were to calculate book value and amortized cost, it'd be about 5% higher.

Speaker 5

But Mike, I guess that that's correct too. But my question is, do we also if we're looking to try to get apples to apples with peers that we look at Oak Valley, Oxy ACI, should we also be offsetting that $100,000,000 delta from the investments in 2 Sigma funds, which or above their cost.

Speaker 3

Hi, Mike. This is Craig. So very technical issue for Call like this, but I will try to do my best to simplify it for you. What I would say to you is the point I was trying to make in my prepared remarks was the fact that book value ends up being about the same, when you get all the way down to book value. It's just a question of geography.

Speaker 3

Our geography is that these unrealized gains and losses are coming through our net income statement, where most of our peers, as you mentioned, most of our peers Are doing available for sale accounting and it goes through shareholders' equity through AOCI. So at the end of the day, book value is the same. It's just geography as to where it goes through the financial statements.

Speaker 5

Okay. That's got it. So I think I was thinking about it incorrectly. That's helpful. Okay.

Speaker 5

And just switching gears to the underwriting, is my follow-up question. Growing in double digits, just raised capital. I heard some of the commentary, Pina, from you about property cat looks Like it could be exciting and some and quota share. So just want to make sure, you know, is business mix will be taking it into When we're thinking about the combined ratio, how is business mix impacting the combined ratio lately? And on a prospective basis, is that Is there a pattern there or if you do grow any prop cat and quota share that we should be kind of taking into account when we're thinking about the combined ratio?

Speaker 5

Thanks.

Speaker 2

So why don't I start high level and then I'll pass the baton over to Craig. Yes, as you noted, we did raise Capital, we raised it for a reason because we think it's a very we believe it's a very favorable margin that we're going into. We have A hybrid platform reinsurance and insurance, we intend to lean in on the reinsurance side as we have over the past 12 months, but we intend to continue to lean in on the reinsurance side predominantly as you said property cat, property quota share. By the way, also our property D and S business Is an interesting place to deploy this capital. So that's going to be the primary focus on the reinsurance side.

Speaker 2

However, we see growth prospects across our business platform. So you will also see our specialty insurance operations increasing over the course of the year. That's month by month, policy by policy. So not as quick as you're going to see on the reinsurance side where we have a 11, a 41, a 61 and a 71, just to name a few. With that, I'll pass over to Craig.

Speaker 3

Yes. So Mike, I think you've hit the nail on the head. We sit here with respect to how are we going to deploy this capital and we want to deploy it as quickly as possible. And as Pina said, The very first and foremost aspect of this would be property, property reinsurance and at January 1 renewals. So I think That's the way to look at this.

Speaker 5

Okay. Which if I'm thinking about correctly comes with impacts the cat load, but comes with a lower combined ratio.

Speaker 3

That's exactly right.

Speaker 5

Okay. Thank you.

Speaker 3

We have Plenty of room. Just to clarify, we do have plenty of room. You may have seen in our financial supplement. We put some guidance out there with respect to where our PMLs, Probable maximum loss indications are right now. We are certainly below where our tolerances are.

Speaker 3

So we have plenty of room to write more of that business.

Speaker 5

Thank you.

Operator

Your next question comes from the line of Elyse Greenspan with Wells Fargo. Please go ahead.

Speaker 6

Hi, thanks. Good morning. I wanted to go back, I guess, to the pricing discussion around January 1. Sounds like you guys are pretty positive about putting the capital you raised to work there. So we're sitting right a few weeks out from the renewal.

Speaker 6

Do you guys have a sense of what rate increases we could see at January 1? And then from an overall demand perspective, Are you seeing, you know, I know there was a lot of changes to programs last year. Are you seeing, you know, cedents, you know, want to come back and buy Incremental coverage, is that something we'll see at January 1 or maybe something that you expect to see transpire throughout 2024?

Speaker 2

Great, Elyse. Great hearing from you. I'll take that. In terms of rate, let me say this. It is Still, although we're seeing a good inflow of business and it's come in earlier than perhaps in previous years, it's still early in the game in terms of telling you where things are going to end up.

Speaker 2

Having said that, given the underlying factors I mentioned earlier that are still it still exists, economic and social inflation, geopolitical tensions, and increased nat cat activity, Which by the way, it's still trending high this year, more on the severe convective storm sign, but still all of those Factors are elements that will go into driving our view of rate and our pricing of these deals, which we expect to be. And I think this is consistent with what you've heard from my peers over what we saw last year, but not perhaps to the same extent as we saw last year. Moving to the demand side, yes, we started hearing about increased demand as we started the various industry conferences and That demand we are going to see beginning at 1:1, but it will also continue throughout the course of the year.

Speaker 6

Thanks. And then my follow-up on the margin side, is there any kind of Guidance or forward view that you guys want to give in terms of just underlying margin improvement or expectations for Remuter International in 'twenty four, and I mean more when I say underlying, on the underlying loss ratio side.

Speaker 3

Hi, Elyse. This is Craig. We're not going to give any forward looking guidance. What I will tell you is we're constantly focused on growing the book so that we can gain scale across the book. So that will bring our ratios down and we're certainly focused on expense management.

Speaker 3

So those are the things that we will look at for those ratios and we'll continue to do that going forward as well.

Speaker 6

Thank you.

Operator

Your next question comes from the line of Matt Carletti with JMP Securities. Please go ahead.

Speaker 7

Thanks. Good morning. Pina, I was hoping you could maybe dig into Hamilton Global a little bit. Just When we think about kind of the classic London, Lloyd's specialty lines of business, are there any Particular spots that you see a real opportunity, 1 or 2 spots? And likewise, are there ones where you still kind of have your foot on the brake or staying away from you think more needs to change?

Speaker 2

Yes. Happy to take that, Matt. Thanks. Hamilton Global Specialty has a very recognized franchise Across the multiple lines of business that we write predominantly casualty and specialty, we see on their front Some very good prospects on the property D and S side where we have a recognized franchise and where we're seeing significant rate increases, so we see opportunity there. And also in some of our other core classes like political violence, which is seeing an uptick.

Speaker 2

In terms of classes that we are perhaps staying away from or are not focusing as much on, I mean, they wouldn't be anything different than what you've heard from others. Cyber, While still having adequate rates is not it's something which we've scaled back a little bit just to give you an example on that front. Overall, we look at what do we expect the rate to be and does it meet that hurdle, then we know to write or grow. If It doesn't meet that hurdle. It tells us to do something else and that's exactly how we run this business.

Speaker 7

Perfect. And then a quick one for Craig. Corporate expenses obviously elevated this quarter, assuming the IPO and things related. Can you help us maybe understand what is kind of related to IPO and kind of one time things versus what might be more run rate?

Speaker 2

So Matt, normally I defer all those number of questions to Craig. So let me just give you this by way of introduction because one of the elements that has Contributed to the elevated corporate expenses now is something we call the value appreciation pool or the VAP. With the support of our Board as we were undergoing this transformation, we wanted to put a program in place that really aligned the entirety of our operations. Every single member of this organization aligned it to the interest of Hamilton and also give them give our operations or our employees the ability to have some upside. So that's one component of this VAP.

Speaker 2

And the second component of the VAP was really to create a retention for this talented team that has delivered this transformation. So that I just wanted to give you that by way of background because that is one of the topics that have contributed to the elevated expense road.

Speaker 3

Matt, this is Craig. With respect to that, essentially with this plan, the IPO Triggered a portion of this plan. So essentially all of our employees will eventually own shares of the organization. What you saw this quarter was an expense charge where we have to account for that in our financial statements. So again, after a 2 year vesting period, management, employees and the Board of Directors will own almost 5% of the company.

Speaker 3

So what a great way to ensure that everyone is aligned with future direction of the company. What I will tell you is It's not a one time event. This expense will come in over time as those shares vest. In the Q4, we will expect to See another $19,000,000 This will be a catch up because we had the trigger event of the IPO in the Q4. And then in 2024, we'll see another $10,000,000 and in 2025, we'll see another $4,000,000 going forward.

Speaker 7

All right, great. Helpful. Thank you very much.

Speaker 3

But other than that, Matt, from an overall corporate expense standpoint, We don't expect to see more than modest changes going forward for corporate expenses as a public company. This was the key feature.

Speaker 4

Got it. Thank you.

Operator

Your next question comes from the line of Tommy McJoynt with KBW. Please go ahead.

Speaker 8

Hey, good morning guys. Thanks for taking my questions. Looking at the international segment, It looks like the retention on the rent premium increased modestly year over year. Is that simply a function of Business mix and if so, what changed? Or is that an increased appetite to retain more or just better utilize your excess capital and really generally low premium leverage.

Speaker 3

Yes. So one thing I would tell you is although my prepared remarks We talked about the quarterly numbers and the attritional numbers and giving you details about those loss ratios. What I would encourage you to do is take a look at the year to date numbers. You'll see much less noise than in any of the quarters. If you look at our financial supplement and we show you the previous 5 quarters, what I would tell you to do is encourage you to focus on the year to date numbers.

Speaker 3

That will give you a much better indication about where we are for all these ratios.

Speaker 8

Okay. That's fair. Just on the topic though of premium leverage, you obviously have a diversified book of business. It sounds like you're going to be leaning certainly into the reinsurance side here at 1:1 renewals. Just how do you think about the kind of appropriate premium leverage that you guys would be comfortable running at.

Speaker 3

So right now, our current premium leverage is less than 0.8:one. As you know, many of our peers are 1:one or higher than that than where we are today. I will tell you that that is one of the things that we want to do is grow this book of business. We have plenty of room to grow this book of business. We have a history, you heard me say in my prepared remarks of double digit premium growth.

Speaker 3

We've done that each and every year for the last 5 years. We're doing it again this year in 2023. So certainly that is one of our topics that will give us scale. And back to one of the previous questions That will also bring down our ratios. So not only are we looking at, for example, dollar expense, corporate management of expenses And bringing down the dollars, but we will also bring down the ratios as well when we can scale this book up.

Speaker 4

Got it. Thank you.

Operator

Your next question comes from the line of Mike Ward with Citi. Please go ahead.

Speaker 9

Thanks guys. Good morning. Congrats on the first public quarter. I was wondering If you can sort of remind us if there are renewals in 4Q, and if there's any kind of like seasonal concentrations That

Speaker 3

we should think about ahead of oneone.

Speaker 2

Sorry, can you repeat the question? Renewals In sorry, nothing significant going on in the Q4. We are really just all eyes on Q1 Where we renew almost 40% of our business. So all eyes are on Q1 right now.

Speaker 9

Okay. Thanks, Pina. And then I was wondering if there was any update on the progress with the rating agency upgrade, and if you have any sort of Time line expectations there.

Speaker 3

Mike, this is Craig. I would say here we have our rating meetings scheduled for the spring. We give the rating agencies each and every quarter, we give them an update on our quarterly results. So we've been keeping them up to date. You may recall that we have positive outlooks from both our rating agencies right now.

Speaker 3

When we meet with them, again, we go through our results, We give them an update. They're very aware of where we stand. And again, we'll meet with them early in the springtime and gain an understanding. The positive outlooks that they typically give us typically remain meaning that they remain positive outlook for a year or 2. We got those positive outlooks about a year and a half ago.

Speaker 3

So we would expect them to make a decision about our ratings as we go into the meetings with them this spring. Thanks, Craig. Thank you, Mike.

Operator

Your next question comes from the line of Michael Zaremski with BMO Capital Markets. Please go ahead.

Speaker 5

Great. Just a quick follow-up. I heard the answer on premium leverage. Should we be thinking about debt to cap or any refi of the term loan or how are you all thinking about your debt to cap ratio in the coming quarters and years. Thanks.

Speaker 3

So, Mike, Great question. Certainly, it's nothing that I feel the need or the urgency to do anything with right away. As you know, as Part of the initial public offering, we were able to take away primary proceeds from that. So we've been able to grow our capital base right now and put that to work. The time that we would need to worry about our debt leverage is when we would need to grow even more.

Speaker 3

So right now, I think we're in a good position for the near future. Thank you.

Operator

At this time, there are no further questions. I will now turn the call back over to management for closing remarks.

Speaker 2

Well, thank you, everybody. During our IPO roadshow meetings, I frequently noted that Hamilton was on a journey and it's a journey of Profitable growth, increasing market profile and materially improved financial results. I want to thank all of you who've joined us on this call today. I hope we provided some additional insight into our journey and our most recent results

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Earnings Conference Call
Hamilton Insurance Group Q3 2023
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