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KBRA Affirms Ratings for Hamilton Re and Hamilton Insurance Group
[March 20, 2019]

KBRA Affirms Ratings for Hamilton Re and Hamilton Insurance Group

On March 14, Kroll Bond Rating Agency (KBRA) affirmed the insurance financial strength rating (IFSR) of A for Hamilton Re, Ltd. (Hamilton Re), a class 4 Bermuda specialty reinsurer. KBRA also affirmed the issuer rating of BBB+ for the organization's ultimate holding company, Hamilton Insurance Group, Ltd. (Hamilton Group). Hamilton Re and Hamilton Group are collectively referred to as Hamilton. These actions followed the announcement by Hamilton that it had signed a definitive agreement to acquire the Pembroke Managing Agency Limited (Pembroke) platform at Lloyd's and Ironshore Europe DAC (IEDAC) from Liberty Mutual Group. The Outlook for both ratings is Stable.

The ratings reflect the fact that the 2018 results for Hamilton are in line with KBRA's expectations, as well as the strategic benefits to be provided by the announced acquisition. The announced transaction is consistent with Hamilton's strategic vision to grow - both organically and inorganically - as a global specialty insurer and reinsurer. The acquisition will roughly double the size of Hamilton's premium base and diversify its underwriting portfolio with low volatility and high-quality specialty business. Additionally, Hamilton will earn fee-based income from managing third-party Syndicates which will reduce earnings volatility and enhance overall returns.

KBRA believes the transaction will materially enhance Hamilton's presence at Lloyd's as well as provide it with a Dublin-domiciled carrier with a UK branch. The non-Lloyd's platform provides Hamilton with primary insurance capabilities in the E.U. as well as in the U.S., including U.S. excess and surplus lines licenses. KBRA expects the transaction to have a slightly favorable impact on Hamilton's earnings in 2020, with significant accretion thereafter. Moreover, KBRA does not expect Hamilton's financial leverage to increase materially as the proposed acquisition is to be funded mainly with internal resources.

To the fullest extent possible, the proposed acquisition is structured so that Liberty Mutual Group etains responsibility for prior year business at both Lloyd's and the Dublin-domiciled carrier, thereby reducing uncertainty surrounding prior year reserve development for Hamilton. The trade-off for Hamilton is reduced underwriting revenue in 2019 and 2020 due to the time required to restore earned premium levels within the acquired business.

Balancing these strengths is significant execution risk for planned business initiatives, including integration of the newly acquired entities upon closing and further development of Hamilton's capital markets capabilities, partially offset by management's proven track record in M&A execution and integration.

The Stable Outlook reflects KBRA's expectation that, in addition to successful integration of Pembroke and IEDAC post-closing, Hamilton will continue to maintain sound capitalization while prudently executing its business plan. Additionally, KBRA expects Hamilton Re to maintain sufficient liquidity to cover projected liability cash flows.

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About KBRA and KBRA Europe

KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus, is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider, and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.

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