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Hamilton’s investments with Two Sigma help generate consistent net income: KBRA

13th December 2018 - Author: Matt Sheehan

Kroll Bond Rating Agency (KBRA) has assigned a stable outlook and an insurance financial strength rating (IFSR) of A to Bermudian property and casualty (P&C) reinsurer Hamilton Re, citing the strengths of its investment fund.

Hamilton Re logoThe company’s TS Hamilton Fund is managed by Two Sigma and has allowed Hamilton Re to consistently generate net income since its inception in 2013, KBRA explained.

The rating agency noted that the fund is weighted towards globally listed equity securities with the balance focused on futures, future options and foreign currency options.

KBRA believes that funds comprised of these asset classes tend to be vulnerable to market fluctuations, but it maintained that the overall quality of the TS Hamilton Fund remains strong due to its liquidity profile, as well as its meaningful allocations to government securities, cash and fixed income securities.

Hamilton Re’s combined ratio exceeded 100% in 2016 and 2017 and the reinsurer experienced underwriting losses in excess of $100 million last year due to the impact of catastrophes such as Hurricanes Harvey, Irma and Maria.

However, investment income during these periods was sufficient to offset underwriting loss, and KBRA claimed that underwriting losses were within risk tolerance and lower than most of Hamilton Re’s peers.

KBRA also gave a stable outlook and issuer rating of BBB+ to Hamilton Insurance Group, Ltd, the Bermuda-based holding company for Hamilton Re.

Analysts said the ratings also reflect Hamilton’s sound financial condition, diversified risk profile and seasoned management team.

The agency explained that the re/insurer embraces data science and technology on both the asset and liability sides of the balance sheet and boasts a diversified fund that is focused on liquid strategies in global equity, futures and foreign exchange markets.

Hamilton also employs disciplined underwriting of a balanced portfolio of property, casualty and specialty risks, KBRA added, and its Hamilton Analytics and Risk Platform provides a comprehensive view of its portfolio and allows for the measured assumption and pricing of risk.

Balancing these strengths is significant execution risk for planned business initiatives, including further development of Hamilton’s capital markets capabilities and the launch of Hamilton Re U.S., planned for first quarter 2019.

Analysts said that the overall stable outlooks reflect their expectation that Hamilton will continue to maintain sound capitalisation while prudently executing its business plan.

They also anticipate that Hamilton Re will maintain sufficient liquidity to cover projected liability cash flows.

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