Hamilton Insurance (HG) - 2023 Q4 - Annual Results

Financial Highlights Consolidated Highlights – Fourth Quarter 2023 In the fourth quarter of 2023, Hamilton reported a significant turnaround with a net income of $126.9 million, compared to a loss in the prior year, driven by strong underwriting performance and substantial net investment income. The results were also positively impacted by a one-time income tax benefit from the enactment of the Bermuda Corporate Income Tax Act of 2023 Q4 2023 Key Financial Metrics | Metric | Value | | :--- | :--- | | Net Income | $126.9 million | | Annualized Return on Average Equity (ROAE) | 26.4% | | Gross Premiums Written | $433.8 million | | Net Premiums Earned | $366.1 million | | Combined Ratio | 90.2% | | Underwriting Income | $36.0 million | | Net Investment Income | $113.8 million | | Income Tax Benefit | $35.1 million | - Corporate expenses for the quarter were $44.9 million, which included $18.9 million in compensation costs related to the Value Appreciation Pool[5] Consolidated Highlights – Full Year 2023 For the full year 2023, Hamilton achieved a net income of $258.7 million and a return on average equity of 13.9%, marking a substantial improvement from the net loss in 2022. Growth was robust, with gross premiums written approaching $2 billion, alongside a strong combined ratio of 90.1% and significant underwriting and investment income Full Year 2023 Key Financial Metrics | Metric | Value | | :--- | :--- | | Net Income | $258.7 million | | Return on Average Equity (ROAE) | 13.9% | | Gross Premiums Written | $1,951.0 million | | Net Premiums Earned | $1,318.5 million | | Combined Ratio | 90.1% | | Underwriting Income | $129.9 million | | Net Investment Income | $218.3 million | | Income Tax Benefit | $35.1 million | - Full-year corporate expenses were $76.7 million, including $30.3 million in compensation costs from the Value Appreciation Pool[5] Consolidated Financial Results Fourth Quarter 2023 Consolidated Results In Q4 2023, Hamilton's gross premiums written grew 27.1% year-over-year to $433.8 million, driven by growth in both the International and Bermuda segments. Despite a slight increase in the combined ratio to 90.2% due to catastrophe losses, the company reported a net income of $126.9 million, a stark reversal from the $59.0 million loss in Q4 2022, largely due to strong investment gains Q4 2023 vs Q4 2022 Consolidated Performance | Metric | Q4 2023 | Q4 2022 | Change | | :--- | :--- | :--- | :--- | | Gross Premiums Written | $433.8M | $341.3M | +27.1% | | Net Premiums Earned | $366.1M | $312.2M | +17.3% | | Underwriting Income | $36.0M | $38.6M | -6.7% | | Combined Ratio | 90.2% | 87.6% | +2.6 pts | | Net Income (Loss) | $126.9M | ($59.0M) | +$185.9M | | Diluted EPS | $1.15 | ($0.57) | +$1.72 | - Gross premiums written increased by $92.5 million, with the International Segment growing 16.7% and the Bermuda Segment growing 49.9%[7] - Catastrophe losses, net of reinsurance, were $6.5 million, or 1.8 points on the combined ratio, primarily from the Hawaii wildfires and March storms[7] Full Year 2023 Consolidated Results For the full year 2023, Hamilton demonstrated significant improvement, with gross premiums written increasing 18.5% to nearly $2.0 billion. The combined ratio improved dramatically by 12.7 points to 90.1%, driven by lower catastrophe losses compared to 2022. This led to a substantial underwriting income of $129.9 million and a net income of $258.7 million, reversing the prior year's losses Full Year 2023 vs Full Year 2022 Consolidated Performance | Metric | FY 2023 | FY 2022 | Change | | :--- | :--- | :--- | :--- | | Gross Premiums Written | $1,951.0M | $1,646.7M | +18.5% | | Net Premiums Earned | $1,318.5M | $1,143.7M | +15.3% | | Underwriting Income (Loss) | $129.9M | ($31.7M) | +$161.6M | | Combined Ratio | 90.1% | 102.8% | -12.7 pts | | Net Income (Loss) | $258.7M | ($98.0M) | +$356.7M | | Diluted EPS | $2.44 | ($0.95) | +$3.39 | - The significant improvement in the combined ratio was primarily due to a decrease in the catastrophe loss ratio from 16.3% in 2022 to 3.2% in 2023[8] - Full-year catastrophe losses were $36.9 million (2.8 points), driven by events including the Hawaii wildfires, March storms, and Hurricane Idalia[9] Segment Underwriting Results Fourth Quarter 2023 Segment Results In Q4 2023, the Bermuda Segment was the primary driver of profitability with $34.2 million in underwriting income and a strong combined ratio of 79.6%. The International Segment's underwriting income decreased significantly to $1.9 million, with its combined ratio rising to 99.1% due to higher expenses and less favorable prior year development International Segment Q4 2023 International Segment Performance | Metric | Q4 2023 | Q4 2022 | Change | | :--- | :--- | :--- | :--- | | Gross Premiums Written | $273.5M | $234.3M | +16.7% | | Underwriting Income | $1.9M | $15.7M | -87.9% | | Combined Ratio | 99.1% | 90.9% | +8.2 pts | - Premium growth was driven by specialty and casualty insurance and reinsurance classes[11] - The increase in the combined ratio was primarily due to a 4.3 point rise in the other underwriting expense ratio from higher incentive compensation costs and less favorable prior year reserve development compared to Q4 2022[11][12] Bermuda Segment Q4 2023 Bermuda Segment Performance | Metric | Q4 2023 | Q4 2022 | Change | | :--- | :--- | :--- | :--- | | Gross Premiums Written | $160.3M | $107.0M | +49.9% | | Underwriting Income | $34.2M | $23.0M | +48.9% | | Combined Ratio | 79.6% | 83.6% | -4.0 pts | - Strong premium growth was attributed to expanded participation, improved pricing in casualty reinsurance, and new business[14] - The combined ratio improved due to a lower other underwriting expense ratio and a better attritional loss experience, despite incurring 4.1 points of current year catastrophe losses[13][14] Full Year 2023 Segment Results For the full year 2023, both segments delivered strong growth and improved profitability. The Bermuda Segment saw a remarkable turnaround, posting $92.9 million in underwriting income compared to a loss in 2022, with its combined ratio improving by 25 points. The International Segment also grew underwriting income to $37.0 million and improved its combined ratio to 94.7% International Segment Full Year 2023 International Segment Performance | Metric | FY 2023 | FY 2022 | Change | | :--- | :--- | :--- | :--- | | Gross Premiums Written | $1,105.5M | $933.2M | +18.5% | | Underwriting Income | $37.0M | $20.2M | +83.2% | | Combined Ratio | 94.7% | 96.7% | -2.0 pts | - The combined ratio improved due to a significantly lower catastrophe loss ratio (1.5% vs 7.2% in 2022) and a lower acquisition cost ratio[15] Bermuda Segment Full Year 2023 Bermuda Segment Performance | Metric | FY 2023 | FY 2022 | Change | | :--- | :--- | :--- | :--- | | Gross Premiums Written | $845.5M | $713.4M | +18.5% | | Underwriting Income (Loss) | $92.9M | ($51.9M) | +$144.8M | | Combined Ratio | 84.9% | 109.9% | -25.0 pts | - The dramatic improvement in the combined ratio was driven by a 22.0 point reduction in the current year catastrophe loss ratio compared to 2022[17] - Premium growth was driven by new business and rate increases in casualty reinsurance and property insurance classes[18] Financial Condition and Statements Investments and Shareholders' Equity As of December 31, 2023, Hamilton's financial position strengthened significantly, with total invested assets and cash increasing to $4.0 billion. Total shareholders' equity grew to $2.0 billion, and book value per share rose by 15.1% to $18.58 during the year Key Balance Sheet Items (Year-End 2023 vs 2022) | Metric | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Invested Assets and Cash | $4.0 billion | $3.4 billion | | Total Shareholders' Equity | $2.0 billion | $1.7 billion | | Book Value Per Share | $18.58 | $16.14 | Consolidated Balance Sheet The consolidated balance sheet as of December 31, 2023, shows total assets of $6.67 billion, up from $5.82 billion at year-end 2022. The growth was supported by increases in investments and premiums receivable. Total liabilities also increased to $4.62 billion, primarily due to higher reserves for losses and unearned premiums, while total shareholders' equity rose to $2.05 billion Consolidated Balance Sheet Summary (As of Dec 31) | ($ in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Total Investments | $3,111,616 | $2,286,323 | | Cash and cash equivalents | $794,509 | $1,076,420 | | Total Assets | $6,671,355 | $5,818,965 | | Reserve for losses and loss adjustment expenses | $3,030,037 | $2,856,275 | | Total Liabilities | $4,623,372 | $4,154,663 | | Total Shareholders' Equity | $2,047,850 | $1,664,183 | Consolidated Statement of Operations The full-year 2023 statement of operations reflects a significant turnaround, with total revenues reaching $1.57 billion compared to $1.23 billion in 2022. This was driven by higher net premiums earned and a substantial increase in investment gains. The company swung from a net loss of $98.0 million in 2022 to a net income of $258.7 million attributable to common shareholders in 2023 Consolidated Statement of Operations Summary (Years Ended Dec 31) | ($ in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net Premiums Earned | $1,318,533 | $1,143,714 | | Total Net Investment Gains | $239,855 | $64,870 | | Total Revenues | $1,571,045 | $1,233,028 | | Losses and loss adjustment expenses | $714,603 | $758,333 | | Total Expenses | $1,315,824 | $1,259,859 | | Net Income (Loss) Attributable to Common Shareholders | $258,727 | ($97,999) | Non-GAAP Financial Measures Reconciliation This section provides reconciliations for non-GAAP financial measures used by the company, such as Underwriting Income, Third Party Fee Income, and Other Underwriting Expenses, to their most comparable U.S. GAAP figures. The company believes these measures enhance the understanding of its core operational performance by excluding factors like investment market conditions and corporate overhead Underwriting Income (Loss) Underwriting income is a non-GAAP measure calculated as net premiums earned less losses, acquisition costs, and other underwriting expenses. For the full year 2023, underwriting income was $129.9 million, a significant improvement from a loss of $31.7 million in 2022. This measure is reconciled to the GAAP measure of net income Reconciliation of Underwriting Income to Net Income | ($ in thousands) | For the Year 2023 | For the Year 2022 | | :--- | :--- | :--- | | Underwriting income (loss) | $129,851 | ($31,717) | | Total net investment gains | $239,855 | $64,870 | | Corporate expenses | ($76,691) | ($20,142) | | Interest expense | ($21,434) | ($15,741) | | Income tax benefit (expense) | $25,066 | ($3,104) | | Other adjustments | ($16,386) | ($24,081) | | Net income (loss), prior to non-controlling interest | $280,287 | ($29,935) | Third Party Fee Income Third party fee income, which is included in underwriting income, consists of fees from management services provided to third-party syndicates and performance fees from its third-party capital manager. This income increased to $18.2 million in 2023 from $11.6 million in 2022 Reconciliation of Third Party Fee Income to Other Income | ($ in thousands) | For the Year 2023 | For the Year 2022 | | :--- | :--- | :--- | | Third party fee income | $18,234 | $11,631 | | Other income (loss), excluding third party fee income | $397 | ($315) | | Other income (loss) | $18,631 | $11,316 | Other Underwriting Expenses Other underwriting expenses are general and administrative costs directly attributable to underwriting operations, excluding corporate holding company costs. For 2023, these expenses were $183.2 million, reconciled from the total GAAP general and administrative expenses of $259.9 million Reconciliation of Other Underwriting Expenses to G&A Expenses | ($ in thousands) | For the Year 2023 | For the Year 2022 | | :--- | :--- | :--- | | Other underwriting expenses | $183,165 | $157,540 | | Corporate expenses | $76,691 | $20,142 | | General and administrative expenses | $259,856 | $177,682 | Forward-Looking Statements This section contains forward-looking statements regarding the company's future performance and events. It cautions that actual results may differ materially from expectations due to various risks and uncertainties inherent in the insurance and reinsurance business Key Risk Factors The company identifies several key risk factors that could impact its financial results. These include the unpredictability of catastrophic events, inaccuracies in underwriting risk assessment, the cyclical nature of the insurance market, risks associated with its investment in the Two Sigma Hamilton Fund, and potential changes in the regulatory environment - Key operational risks include unpredictable catastrophic events, climate change, inadequate loss reserves, and reliance on models for pricing risk[37] - Investment risks are highlighted, particularly the lack of control over the Two Sigma Hamilton Fund's portfolio and potential conflicts of interest with Two Sigma[37] - The company also notes risks related to macroeconomic conditions, competition, rating agency actions, dependence on key executives, and regulatory changes[37][39] Company and Contact Information About Hamilton Insurance Group, Ltd. Hamilton is a Bermuda-based company that underwrites specialty insurance and reinsurance globally through its three platforms: Hamilton Global Specialty, Hamilton Re, and Hamilton Select. These platforms provide access to diverse and profitable markets worldwide - Hamilton is headquartered in Bermuda and operates globally in specialty insurance and reinsurance[22] - The company's business is conducted through three main underwriting platforms: Hamilton Global Specialty, Hamilton Re, and Hamilton Select[22] Conference Call and Additional Information Hamilton will host a conference call on March 7, 2024, at 10:00 a.m. ET to discuss its financial results. A live webcast and supplementary financial information will be available on the company's investor relations website - A conference call to discuss the results is scheduled for Thursday, March 7, 2024, at 10:00 a.m. ET[19] - Supplementary financial information and an investor presentation are available on the company's website at investors.hamiltongroup.com[21]