Investments

9 Months Ended

Sep. 30, 2024

Investments, Debt and Equity Securities [Abstract]

Fixed Maturity and Short-Term Investments - Trading

The Company’s fixed maturity and short-term investments are as follows:


	September 30, 2024
($ in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Fixed maturities:
U.S. government treasuries	$	761,334	$	9,273	$	(5,679)	$	764,928
U.S. states, territories and municipalities	13,528		114		(175)		13,467
Non-U.S. sovereign governments and supranationals	74,679		3,029		(532)		77,176
Corporate	1,118,605		24,677		(9,485)		1,133,797
Residential mortgage-backed securities - Agency	258,788		3,069		(10,343)		251,514
Residential mortgage-backed securities - Non-agency	5,790		109		(540)		5,359

Commercial mortgage-backed securities - Non-agency	33,189		535		(615)		33,109
Other asset-backed securities	40,255		660		(81)		40,834
Total fixed maturities	2,306,168		41,466		(27,450)		2,320,184
Short-term investments	506,244		1,709		(6)		507,947
Total	$	2,812,412	$	43,175	$	(27,456)	$	2,828,131


	December 31, 2023
($ in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Fixed maturities:
U.S. government treasuries	$	717,134	$	5,137	$	(14,021)	$	708,250
U.S. states, territories and municipalities	4,656		—		(286)		4,370
Non-U.S. sovereign governments and supranationals	55,662		2,175		(1,591)		56,246
Corporate	877,493		8,443		(22,060)		863,876
Residential mortgage-backed securities - Agency	180,661		435		(12,583)		168,513
Residential mortgage-backed securities - Non-agency	5,639		16		(671)		4,984

Commercial mortgage-backed securities - Non-agency	11,473		—		(1,050)		10,423
Other asset-backed securities	14,781		20		(195)		14,606
Total fixed maturities	1,867,499		16,226		(52,457)		1,831,268
Short-term investments	427,437		1,441		—		428,878


Total	$	2,294,936	$	17,667	$	(52,457)	$	2,260,146

Contractual Maturities Summary

The following table presents contractual maturities of fixed maturity securities. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	September 30, 2024
($ in thousands)	Amortized Cost		Fair Value
Due less than one year	$	149,305	$	148,136
Due after one through five years	1,590,516		1,607,936
Due after five through ten years	224,518		229,859
Due after ten years	3,807		3,437
Mortgage-backed securities	297,767		289,982
Asset-backed securities	40,255		40,834
Total	$	2,306,168	$	2,320,184

Investments in Two Sigma Funds

The Company’s investments in Two Sigma Funds are as follows:


	September 30, 2024						December 31, 2023
($ in thousands)	Cost		Net Unrealized Gains (Losses)		Fair Value		Cost		Net Unrealized Gains (Losses)		Fair Value
Two Sigma Futures Portfolio, LLC (FTV)	$	352,138	$	7,017	$	359,155	$	433,911	$	(38,105)	$	395,806
Two Sigma Spectrum Portfolio, LLC (STV)	337,247		55,581		392,828		193,299		88,228		281,527
Two Sigma Equity Spectrum Portfolio, LLC (ESTV)	140,221		40,583		180,804		142,981		31,156		174,137
Total	$	829,606	$	103,181	$	932,787	$	770,191	$	81,279	$	851,470

The Company, through its investments in FTV, STV and ESTV, seeks to achieve absolute dollar-denominated returns on a substantial capital base, primarily by combining multiple hedged and leveraged systematic investment strategies with proprietary risk management and execution techniques. These systematic strategies include, but are not limited to, technical and statistically-based, fundamental-based, event-based, market condition-based and spread-based strategies as well as contributor-based and/or sentiment-based strategies and blended strategies. FTV primarily utilizes systematic strategies to gain broad macro exposure to FX, fixed income, equity and credit indices, and commodities, predominantly by trading futures, spots, forwards, options, swaps, cash bonds and exchange traded products. STV primarily utilizes systematic strategies to trade U.S.-listed equity securities and related instruments and derivatives. ESTV primarily utilizes systematic strategies to trade non-U.S.-listed equity securities and related instruments and derivatives. At September 30, 2024, the Company owns an 18.5%, 17.9% and 9.8% interest in each of the FTV, STV and ESTV funds, respectively.

The following table summarizes certain investments of FTV, STV and ESTV where TS Hamilton Fund’s proportionate share of the fair value of the investment represents more than 5% of TS Hamilton Fund’s members’ equity:


	September 30, 2024
($ in thousands)	Principal / Shares (1)	Fair Value (1)		% of Members' Equity
State Street Treasury Obligations Money Market Fund	185,175	$	185,175	9.9	%
U.S. Treasury Securities, 0.0000% - 4.2500%, due 10/29/2024 - 8/15/2044	2,049,275	$	2,073,372	110.3	%
State Street Institutional Treasury Plus Money Market Fund	98,599	$	98,599	5.3	%
U.S. Treasury Securities, 3.5000% - 4.2500%, due 9/30/2026 - 8/15/2054	(852,058)	$	(850,202)	(45.2)	%

(1) Values represent TS Hamilton Fund’s proportionate share of the aggregate of FTV, STV and ESTV total holdings.

Two Sigma and the Managing Member are related parties to the Company as described further in Note 1, Organization. Effective July 1, 2023, a revised investment management agreement with Two Sigma requires TS Hamilton Fund to incur a management fee of 2.5% of the non-managing members' equity in the net asset value of the TS Hamilton Fund per annum (previously 3%). The management fee for the three months ended September 30, 2024 and 2023 was $11.8 million and $10.4 million, respectively, and the management fee for the nine months ended September 30, 2024 and 2023 was $35.0 million and $34.4 million, respectively.

Under the terms of the revised limited liability company agreement between Hamilton Re and the Managing Member, the Managing Member remains entitled to an incentive allocation equal to 30% of TS Hamilton Fund’s net profits, subject to high watermark provisions, and adjusted for withdrawals and any incentive allocation to the Managing Member. In the event there is a net loss during a quarter and a net profit during any subsequent quarter, the Managing Member is entitled to a modified incentive allocation whereby the regular incentive allocation will be reduced by 50% until subsequent cumulative net profits are credited in an amount equal to 200% of the previously allocated net losses. The Managing Member is also entitled to receive a revised additional incentive allocation as of the end of each fiscal year (or on any date Hamilton Re withdraws all or a portion of its capital), in an amount equal to 25% of the Excess Profits (previously 20%). "Excess Profits" for any given fiscal year (or other such accounting period) means the net profits over 10% for such fiscal year (previously 15%), net of management fees and expenses and gross of incentive allocations, but only after recouping previously unrecouped net losses. To the extent Hamilton Re contributes capital other than at the beginning of a fiscal year or withdraws capital other than at the end of a fiscal year, the additional incentive allocation hurdle with respect to such capital is prorated. The aggregate incentive allocation (inclusive of the additional incentive allocation) for the three months ended September 30, 2024 and 2023 was $(17.2) million and $9.1 million, respectively, and the aggregate incentive allocation (inclusive of the additional incentive allocation) for the nine months ended September 30, 2024 and 2023 was $172.2 million and $15.1 million, respectively.

Hamilton Re has a commitment with TS Hamilton Fund to maintain an amount up to the lesser of (i) $1.8 billion or

(ii) 60% of Hamilton Insurance Group’s net tangible assets in TS Hamilton Fund, such lesser amount, the "Minimum Commitment Amount", for a three-year period (the "Initial Term") and for rolling three-year periods thereafter (each such three-year period the "Commitment Period"), subject to certain circumstances and the liquidity options described below, with the Commitment Period ending on June 30, 2027. The Commitment Period consists of a 3-year rolling term that automatically renews on an annual basis unless Hamilton Re or the Managing Member provide advance notice of non-renewal.

The TS Hamilton Fund generally has two liquidity options, subject to Hamilton Re’s minimum investment commitment, which are as follows:

•Monthly liquidity - Subject to certain conditions, Hamilton Re may request a whole or partial withdrawal of its capital account, no later than fifteen days prior to the end of a calendar month, effective as of the last day of such calendar month.

•Daily liquidity - Subject to certain limited circumstances, including the need to meet obligations pursuant to Hamilton Re’s underwriting operations, Hamilton Re may request a withdrawal of all or a portion of its capital account upon at least one business day’s written notice of such withdrawal request date to the Managing Member.

At its discretion, the Managing Member may permit or require Hamilton Re to withdraw all or any portion of its respective capital account at other times, or waive or reduce certain notice periods, or allow a notice to be revoked. The Managing Member may withdraw all or any portion of its capital account at any time.

Total Net Realized and Unrealized Gains (Losses) on Investments and Net Investment Income (Loss)

The components of total net realized and unrealized gains (losses) on investments and net investment income (loss) are as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
($ in thousands)	2024		2023		2024		2023
Net realized and unrealized gains (losses) on investments:
Net realized gains (losses) on investments	$	93,711	$	42,403	$	382,646	$	32,363
Change in net unrealized gains (losses) on investments	(45,483)		4,940		72,205		69,518
Net realized and unrealized gains (losses) on investments	48,228		47,343		454,851		101,881

Net investment income (loss):
Fixed maturities	22,067		12,208		58,025		31,178
Short-term investments	10		38		50		287
TS Hamilton Fund	3,108		3,121		9,040		13,033
Cash and cash equivalents	4,384		4,029		12,594		8,752
Other	306		(104)		1,473		1,015
Interest and other	29,875		19,292		81,182		54,265

Management fees	(12,207)		(10,958)		(36,640)		(35,806)
Other expenses	(338)		(265)		(875)		(740)
Net investment income (loss)	17,330		8,069		43,667		17,719

Total net realized and unrealized gains (losses) on investments and net investment income (loss)	$	65,558	$	55,412	$	498,518	$	119,600

Net Realized Gains (Losses) on Investments

The components of net realized gains (losses) on investments are as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
($ in thousands)	2024		2023		2024		2023
Fixed maturities and short-term investments	$	2,769	$	(7,688)	$	(1,866)	$	(10,796)
TS Hamilton Fund	90,942		50,091		384,228		42,948
Other	—		—		284		211
Net realized gains (losses) on investments	$	93,711	$	42,403	$	382,646	$	32,363

Net Unrealized Gains (Losses) on Investments

The components of net unrealized gains (losses) on investments are as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
($ in thousands)	2024		2023		2024		2023
Fixed maturities and short-term investments	$	64,903	$	(12,818)	$	50,304	$	(9,800)
TS Hamilton Fund	(110,386)		17,758		21,901		79,318

Net unrealized gains (losses) on investments	$	(45,483)	$	4,940	$	72,205	$	69,518

Pledged Assets

At September 30, 2024 and December 31, 2023, pledged investments at fair value were comprised of $250.3 million and $232.2 million, respectively, securing a portion of the capital requirements for business written at Lloyd's, $89.1 million and $54.1 million, respectively, held in trust accounts for the benefit of U.S. state regulatory authorities and $32.5 million and $37.2 million respectively, securing other underwriting obligations. In addition, certain investments were pledged as security for letter of credit facilities as described further in Note 10, Debt and Credit Facilities.

At September 30, 2024 and December 31, 2023, restricted cash and cash equivalents balances were comprised of $89.6 million and $97.4 million, respectively, securing other underwriting obligations, $2.7 million and $7.2 million, respectively, securing a portion of the capital requirements for business written at Lloyd's, $1.6 million and $1.5 million, respectively, in trust accounts for the benefit of regulatory authorities, and $Nil and $0.3 million, respectively, of escrow funds.

Total cash and cash equivalents and restricted cash and cash equivalents of $1.1 billion presented in the statement of cash flows was comprised of cash and cash equivalents of $1.0 billion and restricted cash and cash equivalents of $93.9 million on the balance sheet at September 30, 2024. Total cash and cash equivalents and restricted cash and cash equivalents of $900.9 million presented in the statement of cash flows at December 31, 2023 was comprised of cash and cash equivalents of $794.5 million and restricted cash and cash equivalents of $106.4 million on the balance sheet.