Key Takeaways
- • Kroll Bond Rating Agency (KBRA) assigned an A insurance financial strength rating with stable outlook to Hamilton Re, citing the strength and consistent performance of its Two Sigma-managed TS Hamilton Fund since 2013 inception.
- • The TS Hamilton Fund generates sufficient investment income to offset underwriting losses; Hamilton Re's combined ratio exceeded 100% in 2016 and 2017 with underwriting losses exceeding $100 million in 2017 due to catastrophes (Hurricanes Harvey, Irma, Maria), yet investment performance maintained net income generation.
- • The TS Hamilton Fund allocates heavily to globally listed equities, futures, futures options, and foreign currency options, with meaningful positions in government securities, cash, and fixed income to maintain liquidity and reduce volatility exposure.
- • KBRA also assigned a BBB+ issuer rating to Hamilton Insurance Group, Ltd., the Bermuda-based holding company, reflecting sound financial condition, diversified risk profile, and management's embrace of data science and technology across asset and liability management.
- • Hamilton's investment strategy demonstrates how alternative asset allocation and systematic fund management can serve as a reliable earnings stabilizer in the volatile reinsurance sector, offsetting underwriting cycle volatility.
Summary
Kroll Bond Rating Agency assigned an A insurance financial strength rating with a stable outlook to Hamilton Re, the Bermuda-based property and casualty reinsurer, on December 13, 2018. The rating reflects the company's consistent net income generation, substantially driven by its TS Hamilton Fund, which is managed by Two Sigma and has been operational since 2013. KBRA's decision underscores how sophisticated investment management can provide earnings stability in an inherently cyclical business.
The TS Hamilton Fund's portfolio composition reveals a strategy emphasizing liquid, globally diversified positions. The fund maintains substantial allocations to globally listed equity securities alongside meaningful exposure to futures, futures options, and foreign currency options. To mitigate volatility inherent in this allocation, the fund also carries meaningful positions in government securities, cash, and fixed income securities. While KBRA acknowledged that asset classes like equities and derivatives are vulnerable to market fluctuations, the agency determined that the fund's overall quality remains strong due to its liquidity profile and conservative fixed income anchor.
Hamilton Re's underwriting performance during 2016 and 2017 proved challenging, with combined ratios exceeding 100% both years and underwriting losses surpassing $100 million in 2017 alone, driven by major catastrophic events including Hurricanes Harvey, Irma, and Maria. However, investment income from the Two Sigma fund proved sufficient to offset these underwriting losses and maintain positive net income. KBRA noted that Hamilton's underwriting losses, while significant, remained within the company's risk tolerance parameters and were lower than those experienced by most peers during the same period.
KBRA also assigned a BBB+ issuer rating with stable outlook to Hamilton Insurance Group, Ltd., Hamilton Re's Bermuda-based holding company. The broader holding company rating reflects Hamilton's sound financial condition, diversified risk profile, and seasoned management team. The agency specifically highlighted management's strategic embrace of data science and technology across both the asset and liability sides of the balance sheet, positioning the group to optimize underwriting decisions while maintaining disciplined investment management through Two Sigma's systematic approach to global liquid strategies spanning equities, futures, and foreign exchange markets.
The TS Hamilton Fund's portfolio composition reveals a strategy emphasizing liquid, globally diversified positions. The fund maintains substantial allocations to globally listed equity securities alongside meaningful exposure to futures, futures options, and foreign currency options. To mitigate volatility inherent in this allocation, the fund also carries meaningful positions in government securities, cash, and fixed income securities. While KBRA acknowledged that asset classes like equities and derivatives are vulnerable to market fluctuations, the agency determined that the fund's overall quality remains strong due to its liquidity profile and conservative fixed income anchor.
Hamilton Re's underwriting performance during 2016 and 2017 proved challenging, with combined ratios exceeding 100% both years and underwriting losses surpassing $100 million in 2017 alone, driven by major catastrophic events including Hurricanes Harvey, Irma, and Maria. However, investment income from the Two Sigma fund proved sufficient to offset these underwriting losses and maintain positive net income. KBRA noted that Hamilton's underwriting losses, while significant, remained within the company's risk tolerance parameters and were lower than those experienced by most peers during the same period.
KBRA also assigned a BBB+ issuer rating with stable outlook to Hamilton Insurance Group, Ltd., Hamilton Re's Bermuda-based holding company. The broader holding company rating reflects Hamilton's sound financial condition, diversified risk profile, and seasoned management team. The agency specifically highlighted management's strategic embrace of data science and technology across both the asset and liability sides of the balance sheet, positioning the group to optimize underwriting decisions while maintaining disciplined investment management through Two Sigma's systematic approach to global liquid strategies spanning equities, futures, and foreign exchange markets.
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