Executive Summary / Key Takeaways

• The AM Best Upgrade as a Structural Inflection Point: Hamilton's 2024 upgrade to an 'A' rating was not merely a validation but a "gamechanger" that unlocked approximately $160 million in gross premiums written over two years, fundamentally altering its competitive positioning and enabling disciplined growth in casualty reinsurance where it previously lacked scale.

• The Two Sigma Investment Moat: A unique, non-correlated investment strategy through the TS Hamilton Fund generated $54 million in Q3 2025 alone (2.6% return) and is tracking 14% year-to-date through October, providing a durable advantage over peers who rely on traditional fixed-income portfolios in a volatile rate environment.

• Underwriting Discipline as a Recession-Proof Engine: With an 87.8% combined ratio in Q3 2025 and 27.36% ROE, Hamilton has demonstrated that its diversified specialty and casualty focus—combined with eleven consecutive years of favorable reserve development—creates earnings power that remains resilient even as property cat markets soften and E&S competition intensifies.

• Capital Allocation Excellence at a Discount: Management repurchased $85.8 million of shares in the first nine months of 2025 at an average price below book value, with $186 million in remaining authorization, signaling both confidence in intrinsic value and a tangible catalyst for per-share value creation while maintaining a fortress balance sheet with $5.8 billion in cash and investments.

• The Critical Risk/Reward Asymmetry: Trading at 0.98x book value despite generating mid-20% ROE, the market is pricing Hamilton as a cyclical insurer while its transformation toward specialty lines, non-correlated investment income, and disciplined cycle management suggests a higher-quality, more durable earnings stream that could command a premium multiple as the story matures.

Setting the Scene: A Bermuda-Based Insurer Engineered for a Harder Market

Hamilton Insurance Group, founded in 2013 and headquartered in Bermuda, is not a legacy insurer burdened by decades of legacy liabilities and outdated technology. It is a purpose-built specialty insurance and reinsurance platform designed from inception to leverage data, technology, and a unique investment partnership to generate superior risk-adjusted returns. The company operates through two main segments: International (London, Dublin, and U.S. E&S operations) and Bermuda (Hamilton Re and Hamilton Re US), with a Corporate segment housing its investment income and corporate expenses.

What makes Hamilton different from traditional reinsurers like RenaissanceRe (RNR) or Everest Group (EG) is its origin story. In 2013, Hamilton Re entered into a limited liability company agreement with Two Sigma, establishing a long-term investment management relationship with an SEC-registered adviser specializing in quantitative analysis. This was not a typical investment mandate—it was a commitment to a dedicated fund-of-one designed to provide low-correlated absolute returns through diversified, hedged, and leveraged systematic strategies. While peers were building traditional fixed-income portfolios, Hamilton was engineering an investment edge that would prove invaluable in a low-rate, volatile environment.

The strategic transformation began in earnest in 2018 with the arrival of Group CEO Pina Albo, who initiated a comprehensive re-underwriting of the entire portfolio. This was not a cosmetic repositioning but a fundamental exit from underperforming lines and a disciplined reallocation toward casualty and specialty classes where Hamilton could apply its data-driven underwriting culture. The company divested non-core operations, including a third-party syndicate management business in July 2025, and entered into a loss portfolio transfer agreement in 2020 to retrocede legacy casualty risks from 2016-2018 Lloyd's years. These moves were painful but necessary, creating a clean slate that would later support the rating upgrade and growth acceleration.

Hamilton's place in the industry structure is nuanced. It competes directly with larger, more diversified reinsurers like RNR, EG, Axis Capital (AXS), and Arch Capital (ACGL) in property cat and casualty treaty markets. However, its scale—TTM revenue of $2.38 billion versus EG's $17.28 billion and ACGL's $17.44 billion—means it cannot compete on volume or breadth. Instead, Hamilton has carved out a defensible niche in specialty lines like marine energy, fine art specie, M&A, and political risk, where underwriting expertise and responsiveness matter more than balance sheet size. The company's ability to provide solutions when larger peers retrench, as management notes, has become a key differentiator, particularly in the U.S. E&S market where Hamilton Select focuses on small to mid-sized hard-to-place risks.

The broader industry dynamics favor Hamilton's positioning. The U.S. E&S market has experienced strong growth and rate increases, attracting increased competition from both traditional carriers and MGAs exhibiting "irresponsible behavior." However, this is a nuanced market where large accounts face pricing pressure while small to mid-market accounts hold up better. Hamilton's established expertise and strong underwriting culture allow it to navigate this environment responsibly, writing only the business it wants at attractive terms. Similarly, in reinsurance, supply is outpacing demand in property cat, creating rate pressure on upper layers, but absolute pricing levels remain attractive due to the 2023 market reset. Hamilton's disciplined approach—reducing exposure on larger property accounts while expanding in casualty and specialty—positions it to maintain profitability through the cycle.

Technology, Products, and Strategic Differentiation: The Two Sigma Edge and Underwriting Discipline

Hamilton's core technological differentiation is not a software platform but its investment management relationship with Two Sigma. The TS Hamilton Fund represents $2.3 billion of the company's $5.8 billion in total cash and investments as of September 30, 2025, and generated $54 million in income in Q3 2025 alone, returning 2.6% net of fees. Year-to-date performance of 14% through October 31, 2025, is well ahead of the planned 10% annual target. The fund provides a non-correlated source of investment income that is not dependent on interest rate cycles or credit spreads, which dominate traditional insurer portfolios. While peers like RNR and EG reported investment income of $438.4 million and similar figures in Q3 2025, their returns are more exposed to fixed-income market volatility. Hamilton's Two Sigma partnership acts as a natural hedge against rate risk, smoothing earnings and supporting ROE even when underwriting margins compress.

The underwriting technology is equally important but less visible. Hamilton emphasizes a "data-driven and disciplined underwriting process" that positions it to intelligently price and structure products across its diversified portfolio. This is not marketing fluff—it is reflected in eleven consecutive years of favorable reserve development, a track record that demonstrates the actuarial soundness of its pricing assumptions. In Q2 2025, when a regularly scheduled casualty reserve review resulted in an $18 million charge on discontinued lines from 2020 and prior, management emphasized this represented only 1% of casualty reserves and 0.5% of total reserves. The charge was based on Hamilton's own review, not a third-party critique, and was promptly addressed. This proactive approach to reserve strengthening, while painful in the short term, preserves the company's ability to continue generating favorable development, which is a key driver of ROE and investor confidence.

Product innovation is another pillar of differentiation. The recently launched credit, bond, and political risk reinsurance offering exceeded expectations at the January 1, 2025 renewals, tapping into growing demand driven by geopolitical uncertainty. This is not a commoditized property cat line but a specialty product where Hamilton's expertise and rating upgrade create a competitive moat. Similarly, the company's marine energy, fine art specie, and accident health offerings provide diversification away from crowded property markets. The ability to launch new products successfully demonstrates underwriting agility that larger, more bureaucratic competitors struggle to match.

The strategic implications of these advantages are significant. The Two Sigma investment edge allows Hamilton to generate mid-teens returns on a substantial portion of its investment portfolio without taking on equity market beta. This supports a higher overall ROE—27.36% TTM—than would be achievable with a traditional fixed-income portfolio. The disciplined underwriting culture, evidenced by the 87.8% Q3 2025 combined ratio, ensures that the company grows profitably rather than chasing market share. The rating upgrade amplifies this by putting Hamilton on par with larger peers, enabling it to compete for business that was previously inaccessible. The combination of these factors creates a flywheel: better investments support higher ROE, which supports the rating, which enables more premium growth, which provides more funds to invest.

Financial Performance & Segment Dynamics: Evidence of a Working Strategy

Hamilton's financial results in Q3 2025 provide compelling evidence that its strategy is working. Net income of $136 million represented a 21% annualized ROE, while underwriting income of $64 million produced a combined ratio of 87.8%. This is not a one-off result but part of a consistent pattern: the full-year 2024 combined ratio was 91.3%, generating nearly $150 million of underwriting income. The improvement in Q3 2025 was driven by a decrease in the catastrophe loss ratio to zero, partially offset by a 1.9-point increase in the expense ratio to 34.5% due to higher acquisition costs and performance-based compensation. The current year attritional loss ratio rose 2.2 points to 55.4%, primarily due to a specific large loss in Bermuda's specialty and property reinsurance classes (the Martinez refinery fire) and a shift toward more proportional casualty business. However, favorable prior year attritional development of 2.1 points helped offset this, demonstrating the value of Hamilton's reserving discipline.

Segment performance reveals the strategic mix shift in action. The International segment, which includes Hamilton Global Specialty and Hamilton Select, grew gross premiums written by 16.7% in Q3 2025 to $380 million, driven by growth in casualty, specialty, and property insurance. Hamilton Select, the U.S. E&S carrier, grew 26% in Q3, led by 50% growth in casualty lines where submission flows remain strong and rates attractive. The segment's combined ratio improved to 95.4% from 97.6% a year ago, reflecting the benefit of no catastrophe losses and favorable development in property classes. The improvement demonstrates that Hamilton can grow its E&S business profitably even as competition increases, by focusing on small to mid-sized accounts where its expertise and responsiveness create differentiation.

The Bermuda segment, comprising Hamilton Re and Hamilton Re US, delivered even stronger results. Gross premiums written surged 39.9% to $319 million, while the combined ratio improved dramatically to 80.7% from 89.4% a year ago. This was driven by no catastrophe losses and growth in casualty and specialty reinsurance, particularly general liability and professional liability on a proportional basis. The segment's underwriting income of $52 million in Q3 2025 more than doubled from $24 million a year ago. The AM Best upgrade's impact is evident here: approximately $50 million of Q2 2025 growth was directly tied to the rating, and management expects a similar amount in 2025, totaling about $160 million over two years. This is not a one-time benefit but a structural expansion of addressable market that will continue to support growth even as the initial upgrade effect moderates.

The investment portfolio's performance is equally impressive. Total net investment income of $98 million in Q3 2025 was up from $83 million a year ago, with the TS Hamilton Fund contributing $54 million and the fixed income portfolio generating $43 million. The fund's 2.6% quarterly return came from single-name equities trading (U.S. and East Asia) and macro trading, partially offset by losses in NTV and KTV. Year-to-date performance of 14% through October is well ahead of the 10% planned target, providing a significant earnings tailwind. The performance demonstrates the durability of the Two Sigma edge in a variety of market conditions. While peers' investment income is more dependent on fixed-income yields, which have been volatile, Hamilton's diversified strategy provides smoother, more predictable returns.

Capital allocation decisions reinforce the quality of the franchise. In Q3 2025, Hamilton repurchased $40 million of shares that were accretive to book value per share, earnings per share, and ROE. For the nine months ended September 30, 2025, the company repurchased 3.9 million shares at an aggregate cost of $85.8 million, at an average price of $21.83, below the September 30 book value of $22.95 per share. The Board authorized an additional $150 million in repurchases on November 4, 2025, bringing total remaining authorization to $186 million. Such actions demonstrate that management is both confident in intrinsic value and disciplined about capital deployment. Buying back shares below book value while growing the business and maintaining a strong capital position is a textbook value creation strategy that directly benefits remaining shareholders.

The balance sheet provides ample firepower for this strategy. Total cash and investments increased from $4.9 billion at December 31, 2024, to $5.8 billion at September 30, 2025.

The dividend distribution capacity of subsidiaries was estimated at $547 million at year-end 2024, providing sufficient liquidity for the foreseeable future. Consolidated shareholders' equity grew 14.3% to $2.7 billion, driven by net income partially offset by share repurchases. With debt-to-equity of just 0.05 and an enterprise value of $1.58 billion, Hamilton has one of the strongest balance sheets in the sector, providing flexibility to invest through market cycles and capitalize on dislocations.

Outlook, Management Guidance, and Execution Risk

Management's guidance reveals a company that is confident but realistic about the evolving market environment. For the U.S. E&S market, which accounts for a significant portion of Hamilton's insurance portfolio, management expects increased competition but believes small to mid-market property accounts will hold up better than large accounts, which will continue experiencing pricing pressure. Casualty E&S business is expected to maintain momentum with attractive rate increases, albeit at a slower clip. Hamilton is not chasing growth in commoditized lines but is selectively deploying capacity where it can achieve adequate returns. The company's ability to reduce writings in professional lines where rates are less attractive demonstrates underwriting discipline that will protect margins as the cycle matures.

For reinsurance renewals, management expects more of the same: supply outpacing demand in property cat, leading to rate pressure similar to 2025, especially on upper layers. However, they believe absolute pricing levels will remain attractive due to the significant rate increases since the 2023 market reset, with terms, conditions, and attachment points intact. For casualty reinsurance, the outlook is more differentiated: poorer performing books will see commission decreases, while better performing books will see flat commissions. Having increased the portfolio significantly on the back of the AM Best upgrade, management expects growth to be more moderate going forward. Hamilton is managing the cycle proactively, not getting overexposed to softening markets and recognizing that the rating upgrade's benefits will naturally moderate over time.

The specialty reinsurance market is viewed as a mixed bag, but management expects many peers and new entrants to target growth given good historical performance. Hamilton's response is to remain selective, focusing on clients with strong underwriting cultures, significant retentions, and modest line sizes. As Pina Albo noted, "We ensure they have skin in the game." This focus on quality over quantity is exactly what should give investors confidence that Hamilton will not sacrifice margins for market share.

Investment guidance is particularly noteworthy. The TS Hamilton Fund is ahead of its planned 10% annual target, with 14% year-to-date performance through October. While management does not provide explicit forward guidance on investment returns, the track record suggests the Two Sigma partnership continues to deliver value. Corporate expenses are expected to decline to $50-55 million annually from $61 million in 2024, reflecting improved operating leverage as the company scales.

The key execution risk is whether Hamilton can maintain its underwriting discipline and expense control while growing premiums at a mid-teens rate. The 1.9-point increase in the expense ratio in Q3 2025, driven by higher acquisition costs and performance-based compensation, bears watching. If this trend continues, it could erode the benefit of the rating upgrade. However, management's guidance on expense reduction suggests they are aware of this risk and are taking action.

Risks and Asymmetries: What Could Break the Thesis

The most material risk to Hamilton's thesis is a deterioration in underwriting discipline as competition intensifies. The U.S. E&S market is experiencing increased interest from both traditional carriers and MGAs, some exhibiting "irresponsible behavior." If Hamilton were to chase growth in this environment, sacrificing rate adequacy or terms to maintain premium growth, the combined ratio could deteriorate quickly. The 95.4% combined ratio in the International segment, while improved, is still higher than the Bermuda segment's 80.7%, suggesting less pricing power in insurance versus reinsurance. If E&S competition drives combined ratios above 100%, the investment thesis would be severely compromised.

Catastrophe risk remains a key vulnerability. While Q3 2025 benefited from no cat losses, Q1 2025 included $143 million in net losses from the California wildfires, contributing to a 30.2% catastrophe loss ratio. The Martinez refinery fire, a Q1 2025 event, saw its industry loss estimate nearly double by September, adding 2.8 points to Bermuda's attritional loss ratio in Q3. This demonstrates how quickly large losses can emerge and impact results. Hamilton's smaller scale compared to RNR and EG means it has less diversification to absorb such shocks. A series of major cat events could overwhelm the company's reinsurance protections and pressure capital.

The Two Sigma investment strategy, while a key differentiator, also introduces risk. The TS Hamilton Fund's 14% year-to-date performance is impressive, but it relies on quantitative strategies that can perform poorly in certain market regimes. The Q3 2025 gains were driven by single-name equities and macro trading, but losses in NTV and KTV show the strategy is not immune to volatility. If the fund were to experience a significant drawdown, investment income could swing from a tailwind to a headwind, pressuring ROE at the same time as underwriting margins face cyclical pressure.

Reserve development risk is ever-present. While Hamilton has an eleven-year track record of favorable development, the $18 million casualty charge in Q2 2025 and the $6 million Air India airline loss in the same quarter remind us that reserves can develop adversely. Management's comment that "actual ultimate losses for these events may differ materially from the Company's current estimates" is not boilerplate—it's a recognition that long-tail casualty lines carry inherent uncertainty. Social inflation, geopolitical events like the Ukraine conflict ($64.8 million in net reserves), and tariff-driven loss cost inflation could all pressure future development.

The rating upgrade, while a gamechanger, also creates expectations. If Hamilton fails to deliver the expected $160 million in premium growth over two years, or if that growth comes at inadequate margins, investors could question the durability of the rating advantage. Larger peers like ACGL and EG could use their scale to compete away Hamilton's newly won business, particularly in casualty reinsurance where relationships and capacity matter.

Finally, valuation risk cuts both ways. At 0.98x book value, the stock appears cheap for a 27% ROE business. However, if ROE were to compress into the mid-teens due to combined ratio deterioration or investment underperformance, the multiple could contract further. The market may be correctly pricing in cyclical headwinds that Hamilton's management is too optimistic about.

Valuation Context: Discounted Quality with a Catalyst

At a current stock price of $26.50, Hamilton trades at 0.98x book value per share of $27.06, despite generating a 27.36% ROE over the trailing twelve months. This disconnect is the core of the valuation opportunity. Most insurers with mid-20% ROE trade at 1.2-1.5x book value, implying a potential 20-50% upside if the market recognizes the quality of Hamilton's earnings stream.

The P/E ratio of 6.28x is deceptively low, but this is typical for insurers where earnings can be lumpy due to cat activity. More meaningful is the price-to-free-cash-flow ratio of 3.16x and enterprise value-to-revenue of 0.56x, both of which suggest the market is pricing Hamilton as a cyclical commodity player rather than a specialty franchise. By comparison, RNR trades at 7.39x earnings and 1.03x sales, while ACGL trades at 8.60x earnings and 1.80x sales. Hamilton's discount to peers is not justified by its growth rate (28% quarterly revenue growth) or profitability (15.97% net margin, 27.46% operating margin).

The balance sheet strength further supports the valuation case. With debt-to-equity of just 0.05 and $5.8 billion in cash and investments against a market cap of $2.63 billion, Hamilton has substantial excess capital that can be deployed for growth or returned to shareholders. The $186 million in remaining buyback authorization represents 7% of the market cap, providing a clear near-term catalyst for per-share value creation. If management continues to repurchase shares at discounts to book value, the accretion to ROE and book value per share will be substantial.

The key valuation question is whether Hamilton's earnings quality deserves a premium multiple. The evidence suggests it should: the Two Sigma investment edge provides non-correlated income, the AM Best upgrade provides a durable competitive moat, and the underwriting discipline has produced eleven years of favorable development. These are not characteristics of a cyclical commodity insurer. If Hamilton can maintain mid-20% ROE through a softening market cycle, the market will likely re-rate the stock toward 1.2-1.3x book value, implying 20-30% upside excluding the impact of buybacks and investment outperformance.

Conclusion: A Transformed Insurer Priced for Mediocrity

Hamilton Insurance Group has engineered a durable competitive advantage through a combination of strategic transformation, unique investment management, and disciplined underwriting that is rare in the insurance sector. The 2018 re-underwriting under Pina Albo's leadership created a clean, focused portfolio; the Two Sigma partnership provides a non-correlated investment edge that smooths earnings and supports superior ROE; and the 2024 AM Best upgrade unlocked a structural growth opportunity that is still being realized. The result is a company generating 27% ROE with a combined ratio under 90% while trading below book value.

The market's skepticism appears rooted in two concerns: cyclical headwinds in property cat and E&S markets, and Hamilton's smaller scale relative to peers like RNR, EG, and ACGL. These concerns are not unfounded, but they miss the nuance of Hamilton's positioning. The company is not trying to compete on scale; it is competing on expertise, responsiveness, and underwriting discipline in specialty lines where these factors matter more. The rating upgrade has not just enabled growth but has attracted the right kind of growth—proportional casualty reinsurance with strong underlying rate improvements and specialty lines with attractive risk-adjusted returns.

The critical variables to monitor are expense ratio discipline, reserve development trends, and the performance of the TS Hamilton Fund. If the expense ratio continues to rise due to acquisition costs and compensation, or if reserve development turns adverse due to social inflation or large losses, the thesis will weaken. Conversely, if the Two Sigma fund continues to generate mid-teens returns and management executes on its $186 million buyback authorization, the per-share value creation could be substantial.

Hamilton's story is one of transformation completed but not yet fully recognized. The company has the underwriting culture of a Berkshire Hathaway (BRK.B) specialty insurer, the investment edge of a hedge fund, and the capital allocation discipline of a private equity firm. Trading at 0.98x book value, the market is pricing it as a cyclical commodity when it has become a high-quality specialty franchise. For investors willing to look past the softening property cat market and focus on the durability of Hamilton's earnings power, the risk/reward is highly asymmetric: limited downside given the discount to book value and strong balance sheet, with significant upside as the market recognizes the quality of this transformed insurer.