Hamilton Insurance: BMO Capital says multiple re-rating now less likely

Investing.com -- BMO Capital downgraded Hamilton Insurance Group to Market Perform from Outperform in a note Thursday, citing pressure on pricing power and reduced confidence in valuation multiple expansion.

“We are recommending investors take some post-IPO profits off the table,” BMO analysts wrote, highlighting a more challenging market environment.

The firm noted “soft pricing-power pressures” in the “large-account ‘shared&layered/syndicated’ marketplace where HG has a meaningful presence.”

Coupled with ongoing concerns about “lawsuit/social inflation,” BMO revised its forward EPS run-rate down 8% and now sits “10% below the consensus.”

While BMO maintained a neutral stance, analysts explained why they stopped short of a more negative call: “We are not moving to ’Underperform’ despite BMO’s EPS estimates resting ~10% below the consensus,” due to valuation continuing to “embed too much skepticism.”

However, the previous Outperform rating had assumed a “post-IPO valuation multiple closer to ~0.85x re-rating higher,” but that thesis has weakened.

“We are no longer as confident in valuation multiple expansion in the face of continued soft pricing-power pressures,” the note said.

The firm now forecasts a 2026 combined ratio about 170 basis points worse than consensus, driven by “a higher underlying loss ratio forecast (~100bps), a modestly higher expense ratio (~40bps), and catastrophe loss ratio (~40bps), partially offset by more reserve releases (~10bps).”

BMO also flagged a potential near-term catalyst: “2Q casualty reserve review,” which has historically been significant for Hamilton. Although last year’s 2Q reserve action was muted, “the following quarter Hamilton raised its casualty loss assumptions $6 million or ~1.3%,” said the firm.

Despite the downgrade, BMO acknowledged upside risks, including “accretive share repurchases below book value” and “superior investment returns” via Hamilton’s Two Sigma hedge fund strategy.

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