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 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 second quarter 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, 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 on our earnings release and financial supplement. With that, I turn the call over to Pina Albo, Hamilton CEO.

Thank you, Jon, 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%, a strong net investment income of $95.7 million and 19.5% growth in our top line in this favorable market environment. I am 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 US, 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…

Thank you, Pina, and hello, everyone. Hamilton had a very strong second quarter and first six months 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 $0.35 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 30. 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 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…

Thank you. The floor is now open for questions. [Operator Instructions] Your first question comes from the line of Hristian Getsov of Wells Fargo. Your line is open.

Hi. Good morning. With the new $150 million buyback authorization, which doesn't have an expiration date, I guess, how are you guys thinking about the pace of buybacks? And can we see some activity as soon as this quarter, given your current stock price is still well below book value?

Good question. So, first of all, the share repurchase authorization really demonstrates our ability and willingness to repurchase undervalued shares for the benefit of all shareholders. It really is a natural next step for us, given our current stock valuation. And look we have plenty of capital still left and confidence to be able to continue to even grow our book of business in this favorable market environment. We're not going to comment on timing right now. There are a number of factors that influence the timing in that decision on any repurchases. What I would say to you is, there is no expiration date, as you noted. We will look at current and expected capital position of the company. We'll take a look at how much capital we need to hold during wind season and how much capital we need to hold to continue to grow our book at double-digit rates, again, given the current market environment. And then we'll also take a look, of course, at the market price of our shares. But yes, you could see activity this quarter, depending on how wind season goes.

Yes. Makes sense. And then for my follow-up, how are you thinking about leverage kind of going forward? I know your leverage ratio is well below peers. And now that you have the AM Best upgrade, which was kind of the reason why you kind of kept your leverage low and you recently got this Fitch rating, which I think was last month, is there like an opportunity for you guys to potentially kind of lever up going into one-ones? Or is it more of a -- I guess, if you were to lever up, like what would be like the use of that? Is it more towards organic growth, or is there a potential to maybe, I don't know, buy something small? Or I guess, how are you guys thinking about the flexibility in the leverage ratio?

First of all, thanks for the question, and thanks for answering the question for me. Essentially, I would say yes, we did get a new Fitch rating. We got an A- rating from Fitch this quarter, so that would allow us to issue debt, because we want to issue debt. What I would say to you is, we like to keep our powder dry where we are right now, but we do have the availability to do that. Currently, we are going to use the capital and or debt to grow organically. That would be our primary purpose for use of any capital or debt at this point in time.

Our next question comes from the line of Tommy McJoynt of KBW. Your line is open.

Hey, good morning guys. Thanks for taking our questions here. I heard some of your commentary on being confident in the casualty reserves, but I just want to ask, pretty simply, was there any casualty development on the recent year vintages that you guys have taken this quarter, or even kind of year-to-date?

First of all, Tommy, thanks. The real answer is there's always ups and downs in each quarter, but there is nothing significant in this quarter at all. You probably saw the overall prior period development movement in this quarter was about $1 million, a 1.5 million dollars, I think. Relatively speaking, really nothing unusual in this quarter.

Okay. Got it. And then switching over to thinking about the go-forward, you guys talked about the terms and conditions on the casualty reinsurance both being more favorable than they've been in the past. Can you actually walk through just mechanically what are some of those changes that is driving some of the more favorable terms and conditions on the casualty side?

Sure, I'll take that, Tommy. Essentially, I think you start with this. You're hearing the same commentary. We're hearing about inflation and social inflation. You've seen some developments on the side of many carriers and that's largely driving the rate increases and the terms and conditions improvement and also the limit management that many of our clients are employing now. We have found an opportunity to grow in this market. Our growth is very targeted with key clients and we are looking -- and look for clients with strong underwriting culture that data and the ability to eat their cooking and keep that business on their book net. We began growing casualty in 2021 as some of the markets that were maybe overexposed or had larger participation in this class and were experiencing some of that development themselves as they started pulling back, we saw an opportunity to step up at that time when terms and conditions were improving. Again, our line sizes in this class are small. I think we've mentioned that to you before. But in this market, we've seen opportunity to increase those line sizes with clients that we know well. We saw opportunity for new business that we have targeted over the years. These are clients that we support in other classes, where we've been trying to get on their casualty business, so we've seen opportunity there. And then we saw some opportunity this quarter because of our AM Best upgrades seeing some deals that we wanted to see and now got to see. What you should know though is, we manage the clients that we support and the line sizes that we give out and we work very, very closely with our actuaries in pricing and reserving this class. We take account of inflation and social inflation that's embedded in our pricing, so we feel comfortable with our approach to cash receipt quota share in this market.

Thanks. And then just one quick one for Craig here to finish up. To the extent that you do lean into using some of this $150 million authorization for buybacks, would that be funded by -- just with cash on hand or liquidating investments? Do you have a preference if you had to liquidate investments out of the fixed income portfolio or the Two Sigma portfolio?

I guess it's a good question. Honestly it depends, Tommy and it really depends on first of all the amount, the timing and the type of the actual repurchase transaction. So I can't answer that question right now, until we know what the actual transaction would look like or transactions.

Our next question comes from the line of Bob Huang of Morgan Stanley. Your line is open.

Thanks. Good morning. Maybe a little bit of a question around the International segment. Obviously, you talked about reducing exposure where risk or reward doesn't appear attractive. Now that being said, you also talked about a lot of opportunities in that line. Can you maybe talk about going forward, what should we think about in terms of growth trajectory? Is it going to be more similar to the second quarter where it's more low to mid-teens or is it that newer businesses, newer opportunity will pop up and it would normalize to more of a historical level?

Bob, this is Craig. I think first of all, we're pleased with the overall growth across all our platforms. Again, 19% in the quarter, 27% year-to-date, but specifically on the International segment, they've been able to grow strong double-digit growth. They grew 12% in the quarter. They've grown 20% year-to-date. For expectations, what I would say is that, that International segment, we would expect that segment to grow probably 15% to 20% for the full year.

Okay. Got it. That's very helpful. Thank you. My second one I actually don't know if you have an answer to this, so apologies. You said year-to-date, Two Sigma had very strong returns as of July 31. With the recent market volatility, Two Sigma has historically been able to handle that type of volatility relatively well. Can you maybe help us think about just in the recent call it past week that the volatilities in the market and the potential changes in the rate environment things of that nature, do you still expect the earnings to be relatively smooth from the Two Sigma side?

You're right. I don't have an answer to that question as of what happened over the last week. But what I can tell you is, we've seen this before. We've been in the Two Sigma Hamilton Fund for over 10 years now. There's certainly been plenty of volatility in the market over that time period and they've performed very, very well over that entire time period. Inception to date, our net returns from this fund have been 13%. I can tell you that we are ahead of plan for the year. As you know, we plan about 2.5% per quarter and we're already at 10.9% through the end of July. So it has been a good year for them already. They've shown profits each and every year since inception of the company and for the quarter, we're still going to plan for our 2.5% this quarter. So that's what I can tell you for now.

Our next question comes from the line of Matt Carletti of Citizens JMP. Your line is open.

Thank. Good morning. Craig, I wanted to circle back to your commentary which is very helpful on the expense ratio and I guess particularly international with the kind of the leverage you're getting from the growth. As we think about the back part of the year, is there any seasonality for lack of a better term around like bonus approvals and things like that? Should we think about, is that something that you tend to look at I don't know after we get through wind season or something like that or is it more spread across the year?

that's a great question. So what we do is we typically plan for 100% bonus for the target for the year unless we see any material changes, but you hit the nail on the head. With respect to wind season, what we have to do is plan. There is an active forecast for hurricane season, so certainly we did not increase even with the results that we had through the first half of the year, we certainly did not increase the approval for bonuses at this point in time until we get through the wind season. So you would see that either at the tail end of the third quarter or into the fourth quarter would be my expectation.

Okay, great. That's helpful. And then just one other question just on the cap the lack of cap in the quarter, which is obviously a great result. Can you just comment a little bit on what drove that? A zero is quite an exceptional result in a quarter that was pretty active. Personally we didn't expect you guys to have a ton of caps but expected something. Can you just talk a little bit about how that result came to be? Anything would be helpful. Thanks.

Yes, I would love to answer that question. This is a testament to the underwriting of our team. As you know, we've been attaching higher in this market, particularly in the US but also in our international business, where we support some global clients. Our higher attachment points certainly protected us from these frequency-type events in our book or what could have been in our book. Particularly for the US market, we shut down a book of business in November of 2022, when we started seeing some activity that we just didn't like. So there's two prongs to that; number one, where we attach much higher up the chain and two, a strategic decision to get out of certain business in the US that would have been subject to some of the activity we saw this quarter.

Our next question comes from the line of Michael Zaremski of BMO Capital Markets. Your line is open.

Hi, good morning. It’s Dan on for Mike. Thanks. First one is on reserves. During the pre-IPO process, you all hired some third-party actuaries to increase your loss trend assumption in certain lines. Can you just elaborate maybe on how those trend lines are playing out since and how that's unfolding there?

Certainly yes, we did hire third-party actuaries but it wasn't just for the IPO then. We actually have our reserves reviewed by an outside third-party twice a year. So we do it after mid-year and then again with year-end results. So those trends have helped throughout. The reason we use the outside actuaries is to give us those trends for what they're seeing in the industry and what they're seeing from their other clients. It gives us an indication of whether we're booking our reserves accurately. We take the time. We're very cautious about how we set up our reserves. We react quickly, when we see adverse trends in data but we act very slow to recognize any favorable trends in that data as well. So then what we do is we see and compare that to the outside actuaries to make sure that we're still on target.

Great. Thanks. And then Craig just another one on maybe the corporate expense $50 million guide. Is that still the right number to be thinking about or are we trending a little bit higher there if we run rate this quarter? Thanks.

Look, we're still on target for the $50 million annualized guidance. What's really driving that number Dan, is salary and related expenses, professional fees including corporate insurance costs and accounting fees now as a public company. So those are the things that are – and of course, our value appreciation pool that we've talked about in the past and mentioned in the past. But what I would say is yes, the guidance of $50 million is still accurate.

Thank you. With no further questions, that will conclude our question-and-answer session for today. I would now like to pass the call back over to management for closing remarks

Thank you. In closing, I would just like to say congratulations to the entire Hamilton team for delivering such outstanding results this quarter. Again a record quarter for this company and it's a testament to the people and the culture that we have in place. I want to thank you all for attending our call today and we look forward to sharing our next set of results with you in a few months.

This concludes today's conference call. You may now disconnect.