Hamilton Insurance Group, Ltd. (HG) Earnings Call Transcript & Summary

Hello, 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 Jon Levenson, Group Treasurer and Head of Investor Relations. Please go ahead.

Thank you, operator, and welcome all to the Hamilton Insurance Group Fourth Quarter and Year-End 2024 Earnings Conference Call. The Hamilton executives leading today's call are Pina 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, note that Hamilton financial disclosures, including our earnings release, include important information regarding forward-looking statements. Management comments regarding potential future developments are subject to the risks and uncertainties as detailed. 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 Albo, Hamilton's CEO.

Thank you, Jon, and hello, everyone. Let me start by welcoming you to Hamilton's Full Year and Fourth Quarter 2024 Earnings Call. In terms of previewing our call today, I will focus my comments on the full year with Craig providing more details on our financial results in a moment. Before covering our results, though, it's important to note that the risks we cover remain prevalent around the world, and we are unfortunately reminded of this all too often. The devastating and deadly wildfires, which recently took place in Los Angeles represent just one of the many risks affecting individuals, families and communities. Our thoughts are with all those who have been affected and our heartfelt thanks to the first responders. We are doing our part by working swiftly to compensate our clients for their financial losses, and we take pride in delivering on our promises and helping those affected. We are still assessing our loss estimates, but our early views indicate a range of $120 million to $150 million net of reinsurance and reinstatement premiums. This is based on an industry insured loss range of $35 billion to $45 billion. Our loss estimate for this event is within our modeled expectations for market share, in this case, about 0.3%. The estimated losses for this event will be reported in the company's first quarter 2025 financial results. Turning to 2024. There was no shortage of similarly destructive natural catastrophes with approximately $140 billion in insured industry catastrophe losses. Despite this backdrop and the collapse of the Francis Scott Key Bridge in Baltimore earlier in the year, Hamilton completed an outstanding first full year as a public company. Our financial results were excellent for both of our reporting segments, International and Bermuda, and both segments continue to grow thoughtfully and profitably. As a group, we had gross premiums written of over $2.4 billion, an increase of 24% over 2023. Our combined ratio was an impressive 91.3%, resulting in nearly $150 million of underwriting income, again, in a year with significant insured loss activity. One of the reasons for this underwriting result is the diversification of our business. For the full year 2024, Hamilton's business was split 45% Casualty, 30% Specialty and 25% Property. Investment results were also exceptional with total investment return of $360 million. The combined result was a net income to common shareholders of $400 million, representing an 18.3% return on average equity and a 23.5% growth in book value per share for the year. We are very proud of these results as they are a testament to the disciplined execution of our strategy and our strong underwriting culture. During 2024, we focused specifically on executing the objectives we set out during our IPO process, namely strategic growth achieved by raising and then deploying capital into a robust insurance and reinsurance marketplace. Second, maintaining a sharp eye on underwriting profitability; third, achieving ratings upgrades; and fourth, being good stewards of capital. Let me touch on each of these in turn. Both of our underwriting segments, International, which houses our insurance-focused platforms, Hamilton Global Specialty and Hamilton Select; and Bermuda, which houses our reinsurance-focused platform, Hamilton Re, had strong results, reflecting a growing and well-diversified book of business. For the full year 2024, our larger segment, International, wrote $1.3 billion of gross premiums and reported a 95.6% combined ratio, an excellent result, which is also reflective of the diversified lower volatility portfolio that we have built there over time. As mentioned, within International, where we write the majority of our specialty insurance business, we have 2 underwriting platforms: Hamilton Global Specialty, which includes Lloyd's Syndicate 4000 and Hamilton Select, our specialized underwriting platform for hard-to-place U.S. E&S business. Hamilton Global Specialty wrote $1.2 billion of gross premiums during 2024, continuing a path of thoughtful double-digit growth. Hamilton Select, which is still in its early stages of development, wrote $117 million in premiums during the year, a number which is slightly ahead of where we thought it would be and reflective of the momentum they have achieved in the strong U.S. E&S market where they source their business. Our Bermuda segment, which is comprised of Hamilton Re and Hamilton Re U.S., wrote $1.1 billion in gross premiums and reported a combined ratio of 87% for the full year 2024, the second consecutive year with a combined ratio in the 80s. Hamilton Re's business is predominantly reinsurance and well balanced between casualty, property and specialty classes. Our very strong relationships with key global and national clients has allowed us to put together a very well-diversified book of business. Bermuda remains one of the key global centers for reinsurance and insurance, and we have a strong team in place for both offerings. Specific to Bermuda Insurance, we wrote approximately $130 million in gross premiums during 2024, split roughly 50-50 property and casualty. In addition to posting excellent financial results in 2024, we were also gratified by the recognition provided to Hamilton by the 3 global rating agencies, A.M. Best, Fitch and KBRA. In April of this year, Hamilton Re received an upgrade to A from A.M. Best that in July received an initial published rating of A- from Fitch. In July, Hamilton Re also had its A rating affirmed by KBRA. Ratings are very important to our customers and broker partners. And as we have discussed in prior calls, these higher ratings, which are now on par with many of our larger global peers have and will continue to afford Hamilton opportunities for additional profitable business. Our fourth significant objective for 2024 was to be responsible stewards of shareholder capital. To that end, we repurchased a number of shares below book value, an action which resulted in a notable increase in shareholder value. During 2024, we repurchased 10.6 million shares at a total cost of $138 million. This includes both open market repurchases and a large single repurchase from a founding investor. We, of course, hope that our shares will not always be undervalued, but when they are, we have the capital and are well positioned to act decisively. Turning now to the important January 1 reinsurance renewals, an annual renewal date for a sizable percentage of the global reinsurance treaty market. By this time, you will have heard quite a bit about the movement in rates across various classes and territories, so I will only provide brief comments on this in a few moments. What I would like to say now is that Hamilton fared very well at our January 1 renewals. The work we have done in establishing and nurturing relationships with key clients resulted in strong signings and enabled us to continue building a diverse portfolio that we believe will deliver attractive returns. For property cat, we saw the dynamics described by many of our peers with an oversupply of capacity at 1/1 and rates experiencing some downward pressure. That said, the step change in terms of terms and conditions and specifically the elevated attachment points remained intact, a very important point. For Casualty Re, while commissions generally remained flat, underlying rates continue to improve and will flow through to us since the majority of our business is quota share. Regarding specialty reinsurance, this segment has a number of diverse lines of business and the results were, therefore, a mixed bag with some classes more competitive than others. One area where we did well involves our recently launched credit bond and political risk reinsurance offering, which met with keen interest from many of our clients and was entered into at an opportune time in the market. While we will provide more detail in our first quarter call, for now, suffice it to say that the take-up on our new offering exceeded our expectations. Looking ahead to the mid-year property cat renewals, we anticipate a higher level of demand. Also, given that many programs impacted by the wildfires and 2024 hurricanes renew midyear, we expect an increase in rates for loss-affected accounts. Otherwise, we expect stable renewals. Given the strength of our balance sheet and our strong talent base as well as the client relationships we have built, we are well positioned for the year ahead. Moving away from Bermuda and back to our International segment. Although January 1 is not the same milestone date given that insurance business renews throughout the year, the first quarter is still important in setting the tone. In the early days of 2025, we continue to see attractive opportunities across many classes within our international portfolio, in particular, in some of the specialty insurance lines of business, which have long had a natural home in Lloyd's. We will, for example, continue to expand our marine offering, which includes hull, liability and cargo lines. The Lloyd's market has a robust ecosystem for marine classes built over many years and Syndicate 4000 is an active participant with a skilled team in place. We also see opportunities to grow our property insurance lines and have recently added underwriting talent in this area. Syndicate 4000's long-term performance versus the market has been strong with profitable and stable returns. We are home to a well-regarded team of specialist underwriters who are, in many cases, considered leaders in their field. The team is laser-focused on bottom line profitability and has developed a resilient and diversified book focused on specialty and casualty insurance lines. The delivery of low volatility and cross-cycle profitability has been achieved by enforcing underwriting discipline across over 20 lines of business spanning casualty, specialty, including marine and property classes. As for our Hamilton Select platform, which again is focused on hard-to-place small to midsized commercial casualty risks in the U.S. E&S market, we continue to see strong and increasing submission flow and attractive opportunities, particularly in general and excess casualty. Despite increased competition in the E&S space, pricing levels remain attractive for the risks we are writing, and we see sufficient growth opportunities for our business. I will conclude with a few comments on our loss reserves. We are proud of the continued strength of our reserves, which stems from our disciplined reserving philosophy. In this context, we are happy to report that 2024 marks the 11th consecutive year of favorable reserve development for Hamilton. As you know, we have our reserves reviewed by an external actuary twice a year, and it was gratifying to see that following their recently completed fourth quarter review of our reserves, our surplus above their best estimate has increased. We continue to monitor and adjust for inflationary trends, notably U.S. social inflation in a number of our casualty lines and have well-established processes to ensure that our reserving, planning and pricing incorporates what we believe to be appropriate loss trend assumptions. In conclusion, I feel proud of what Hamilton has achieved, and I am excited about our business prospects and the potential to continue producing strong financial returns. The hard work the team has put in over the years and its culture of underwriting and operational discipline has positioned us well. We have a well-diversified global book of business focused on some of the best price classes of business, efficient operating platforms in the locations that matter to our customers, a very strong balance sheet and a world-class team who are collaborative and motivated to achieve our shared goals. With that, I'll now turn the call over to Craig.

Thank you, Pina, and hello, everyone. Hamilton had a record year with 2024 net income of $400 million, up 55% over the prior year and a return on average equity of 18.3% compared to 13.9% in the prior year. As a result of active share repurchases, we also grew book value per share by 24% over the prior year. The company had another very strong year of premium growth in an attractive market environment, record underwriting income and strong investment returns to close out an excellent full year financial result in 2024. For the fourth quarter of 2024, Hamilton reported net income of $34 million, equal to $0.32 per diluted share, producing an annualized return on average equity of 5.8%, this compares to net income of $127 million or $1.15 per diluted share and an annualized return on average equity of 26.4% in the fourth quarter of 2023. As a reminder, the fourth quarter of 2023 included an income tax benefit of 7.1% on annualized return on equity or $35 million and significantly lower catastrophe losses. With those numbers as highlights, let me provide some additional detail around our underwriting and investment income components for the quarter and for the full year. Starting with underwriting results. Hamilton continues to grow its top line at an impressive double-digit rate. In fact, our compound annual growth rate from 2020 to 2024 was 22%, for the full year 2024, gross premiums written increased to a record $2.4 billion compared to $2 billion this time last year, an increase of 24%. All 3 of our underwriting platforms, Hamilton Global Specialty, Hamilton Select and Hamilton Re continue to take advantage of attractive market conditions, all of which contributed to our profitable growth. Starting with some quarterly underwriting figures. Underwriting income for the group was $22 million for the fourth quarter compared to underwriting income of $36 million in the fourth quarter last year. The group combined ratio was 95.4% compared to 90.2% in the fourth quarter of 2023. In terms of combined ratio components, the loss ratio increased due to catastrophe losses in the quarter, partially offset by a decrease in the overall expense ratio. In the fourth quarter, the loss ratio increased 6.8 points to 60.1% compared to 53.3% in the prior period. The increase was primarily driven by $49 million or 10.2 points of net current and prior year catastrophe losses made up of Hurricane Milton for $38 million and Hurricane Helene for $19 million, partially offset by favorable prior year development of $8 million. This compares to $7 million or 1.8 points of catastrophe losses reported in the fourth quarter last year. We had favorable prior year attritional development of 1.3 points, driven mostly by property lines. This compares to 1.7 points of favorable development in the fourth quarter last year. So as Pina highlighted earlier, we continue our track record of favorable loss reserve development each year since the inception of the company. Next, I'd like to go through some of our 2024 year-end underwriting metrics. For the full year 2024, underwriting income for the group was a record $149 million compared to underwriting income of $130 million in 2023. The group combined ratio was 91.3% compared to 90.1% in 2023. The nominal increase in the combined ratio was due to increased catastrophe losses and attritional losses, partially offset by a decrease in the expense ratio. The loss ratio increased 4 points to 58.2% compared to 54.2% in 2023. The increase was primarily driven by $88 million or 5.1 points of net current and prior year catastrophe losses made up of Hurricane Helene for $53 million, Hurricane Milton for $38 million, the Calgary hailstorms for $13 million and Hurricane Debby for $6 million, partially offset by favorable prior year development of $21 million. This compares to $37 million or 2.8 points of net current and prior year catastrophe losses in 2023. The attritional loss ratio was 53.1%, an increase of 0.9 points compared to the full year 2023. The primary reason for the increase was due to 2.2 points related to the Baltimore bridge loss in the first quarter of the year. The expense ratio decreased 2.8 points to 33.1% compared to 35.9% in the full year 2023. The decrease in the full year 2024 expense ratio was mainly driven by improved operating leverage due to growth in our earned premium base. As always, I'd encourage you to use the full year 2024 attritional loss and expense ratios as an indication for where we expect the current book to perform. As for corporate expenses, there was an increase in the variable expenses. However, this is associated with our long-term incentive compensation plan, which is based on performance over a 3-year period and compensation costs related to the value appreciation pool. For the full year 2024, corporate expenses were $61 million. Going forward, this number should come down to about $50 million to $55 million per year. Next, let's look at the results by segment. Let's start with the International segment, which includes our specialty insurance businesses, Hamilton Global Specialty and Hamilton Select. For the full year 2024, International gross premiums written grew to $1.3 billion from $1.1 billion, an increase of 18%. This was primarily driven by growth in both new and existing business and improved pricing in casualty and property insurance classes and specialty reinsurance and insurance classes. In 2024, International had record underwriting income of $39 million and a combined ratio of 95.6% compared to underwriting income of $37 million and a combined ratio of 94.7% in 2023, a very stable result year-over-year, which is what we expect from the diversified insurance portfolio that we've constructed. The attritional loss ratio increased 0.3 points to 53.5% compared to 53.2% in 2023. In other words, very consistent year-over-year. The international acquisition expense ratio decreased 2 points to 24.5% compared to 26.5% for the full year 2023. The decrease was primarily driven by reduced profit commissions and higher ceding commission income. The other underwriting expense ratio decreased 1.8 points to 14.9% compared to 16.7% in the full year 2023 as a result of growth in the premium base. Moving to some quarterly figures. For the fourth quarter, International had underwriting income of $9 million and a combined ratio of 96.3% compared to underwriting income of $2 million and a combined ratio of 99.1% in the fourth quarter last year. The international current year attritional loss ratio decreased 3.7 points to 50.8% in the fourth quarter compared to 54.5% in the fourth quarter last year. The decrease was primarily driven by favorable experience on the property classes as the fourth quarter is when we do our property reserve reviews. I'll now turn to the Bermuda segment, which houses Hamilton Re and Hamilton Re U.S., the entities that predominantly write our reinsurance business. For the full year 2024, Bermuda gross premiums written grew to $1.1 billion from $846 million last year, an increase of 32%. The increase was primarily driven by new business, expanded participations on existing business and rate increases in casualty, property and specialty reinsurance classes. Approximately $80 million of growth during 2024 was directly tied to our A.M. Best rating upgrade. We expect a similar dollar amount of growth resulting from the upgrade during 2025 for total growth of about $160 million in gross premiums written. In 2024, Bermuda had record underwriting income of $110 million and a combined ratio of 87.0% compared to underwriting income of $93 million and an 84.9% combined ratio in 2023. The increase in the full year combined ratio was primarily related to catastrophe… [Audio Gap]