KBRA Affirms Ratings for Hamilton Re, Ltd. and Hamilton Insurance Group, Ltd.
25 Jul 2023 | New York
KBRA affirms the A insurance financial strength rating of Hamilton Re, Ltd. (Hamilton Re). Hamilton Re is the lead operating company for Hamilton Insurance Group, Ltd. (Hamilton Group) and writes property, casualty and specialty insurance and reinsurance on a global basis. KBRA also affirms the BBB+ issuer rating of Hamilton Group, a Bermuda domiciled holding company. The companies are collectively referred to as Hamilton. The Outlook remains Positive for both ratings, reflective of the sustained improvement in Hamilton Re’s attritional loss ratio from persistent underwriting discipline, prompt corrective action on underperforming business, broader earnings diversification, and the continued favorable reinsurance pricing environment.
Key Credit Considerations
The ratings reflect Hamilton’s sound risk-based capitalization, conservative financial leverage, decreasing investment risk, adequate financial flexibility, very strong liquidity, seasoned management team, and comprehensive enterprise risk management program. Hamilton Group and Hamilton Re’s BSCR coverage ratios of 224% (2021: 230%) and 247% (2021: 254%), respectively, compare favorably to Bermuda peers with similar risk profiles. KBRA views Hamilton Group’s financial leverage of 8.3% (2021: 7.7%) as conservative with interest expense solidly covered by dividend capacity at Hamilton Re. At end-2022, 60% (2021: 47%) of Hamilton Re’s cash and invested assets consisted of high credit quality fixed income securities with an average credit quality of AA- and an average duration of 3.2 years. While KBRA views favorably the reduction of the TS Hamilton Fund as a percentage of cash and invested assets, KBRA believes that the assets in the underlying vehicles in the fund present high investment risk. In addition to an unsecured term loan, Hamilton Group has access to a revolver facility. The group sources cost-effective third-party capital to support its outward property catastrophe reinsurance program. Hamilton holds significant amounts of unrestricted cash and cash equivalents. KBRA believes that the probability of Hamilton needing to sell investments to pay an influx of claims following a natural catastrophe is low. Hamilton has experienced, proven leaders across the organization with growing bench strength for key positions. Hamilton has a strong, integrated risk management framework across the organization. The group’s proprietary model evaluates underwriting, market, and operational risk holistically against embedded risk tolerances and guidelines.
Balancing these strengths are unfavorable underwriting results and exposure to event risk. While Hamilton Re has reported net income of $395 million from 2018 through 2022, the company has only reported a combined ratio below 100% in one of the past five years. KBRA expects that companies at higher rating levels will report underwriting gains, inclusive of catastrophes, through both hard and soft underwriting cycles, on a more consistent basis. Hamilton Re is exposed to both natural catastrophe and market event risk. Natural catastrophe event risk continues to negatively impact the company’s reported results. Market risk is presented by both the trading vehicles in the TS Hamilton Fund and the fixed income portfolio. While exposure to event risk is viewed unfavorably, KBRA believes that the company appropriately manages the risk within stated risk tolerances by using the group’s proprietary model.
Sustained attritional loss ratios of in the low to mid-50% range and combined ratios under 100% over the medium term could result in a positive rating action.
An elevated attritional loss ratio, material decline in risk-based capitalization, unfavorable change in risk profile, or loss of a key member of the management team without a suitable replacement could result in a negative rating action.
A full report will soon be available on kbra.com.
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