Hamilton Insurance Group, Ltd. Class B (HG) Risk Analysis

We operate in multiple jurisdictions and are subject to extensive and evolving regulatory frameworks, including insurance and financial regulations, solvency and capital requirements, data privacy and cybersecurity rules, and emerging standards for AI. For example, the European Union's AI Act, which was ratified in 2024 with phased implementation beginning in 2025, imposes risk-based compliance obligations on AI systems used in the EU, even by non-EU companies, and could require significant changes to model development, vendor contracts and data management practices. Additionally, recent NAIC proposals on risk-based capital and U.S. state privacy laws such as the California Privacy Rights Act impose additional compliance obligations. See also our separate risk factor on cybersecurity risks, which addresses operational vulnerabilities and third-party vendor exposure. The rate of legal and regulatory change, particularly in the U.K. and Ireland, has been increasing in recent years, with initiatives such as Consumer Duty in the U.K. and the Individual Accountability Framework in Ireland adding to the regulatory burden on our operating entities. New laws or amendments to existing regulations may increase compliance costs, restrict underwriting or pricing practices, require modifications to models and systems, or limit our ability to introduce new products. Inconsistent regulatory approaches across jurisdictions may create operational complexity and raise the risk of non-compliance. Failure to comply with new or amended laws could result in fines, penalties, reputational harm or other consequences that materially adversely affect our business, financial condition and results of operations. In addition, changes in accounting standards or interpretations issued by standard-setting bodies such as the FASB, IASB, or NAIC could significantly affect how we recognize revenue, measure liabilities, value investments or present financial results. New pronouncements may require system modifications, additional resources and could introduce volatility in reported earnings or equity. Certain proposals under review by the NAIC could alter statutory accounting principles and capital requirements for insurance subsidiaries. We cannot predict the timing or nature of future regulatory or accounting changes, and any such changes could materially adversely affect our business, financial condition and results of operations.

In general, a non-U.S. corporation will be a PFIC during a given year if (i) 75% or more of its gross income constitutes "passive income" (the "75% test") or (ii) 50% or more of its assets produce (or are held for the production of) passive income (the "50% test"). If the Company were characterized as a PFIC during a given year, each U.S. Holder would be subject to a penalty tax at the time of the taxable disposition of a gain of, or receipt of an "excess distribution" with respect to its shares, unless such person is a 10% U.S. Holder subject to tax under the CFC rules or such person made a "qualified electing fund" ("QEF") election or, if the Class B common shares are treated as "marketable stock" in such year, such person made a mark-to-market election. In addition, if the Company were considered a PFIC, upon the death of any U.S. individual owning shares, such individual's heirs or estate would not be entitled to a "step-up" in the basis of the shares that might otherwise be available under U.S. federal income tax laws. In addition, a distribution paid by the Company to U.S. Holders that is characterized as a dividend and is not characterized as an excess distribution would not be eligible for reduced rates of tax as qualified dividend income if the Company were considered a PFIC in the taxable year in which such dividend is paid or in the preceding taxable year. A U.S. Person that is a shareholder in a PFIC may also be subject to additional information reporting requirements, including the filing of an IRS Form 8621. For the above purposes, passive income generally includes interest, dividends, annuities and other investment income. The PFIC rules provide that income derived in the active conduct of an insurance business by a qualifying insurance corporation is not treated as passive income (the "insurance income exception"). However, the 2017 Tax Cuts and Jobs Act (the "TCJA") limits the insurance income exception to a non-U.S. insurance company that is a qualifying insurance corporation that would be taxable as an insurance company if it were a U.S. corporation and maintains insurance liabilities of more than 25% of such company's assets for a taxable year (the "25% Test") or maintains insurance liabilities that at least equal or exceed 10% of its assets, is predominantly engaged in an insurance business and satisfies a facts-and-circumstances test that requires a showing that the failure to exceed the 25% threshold is due to runoff-related or rating-related circumstances (the "10% Test", and together with the 25% Test, the "Reserve Test"). The Company believes that the Company's non-U.S. insurance subsidiaries have met this Reserve Test and will continue to do so in the foreseeable future, in which case the Company would not be expected to be a PFIC, although no assurance may be given that the Reserve Test will be met by the Company's non-U.S. insurance subsidiaries in future years. Further, the Treasury Department issued final and proposed regulations intended to clarify the application of the insurance income exception to the classification of a non-U.S. insurer as a PFIC and provide guidance on a range of issues relating to PFICs (the "2021 Regulations"). The 2021 Regulations add additional requirements that must be met to satisfy the "active conduct of an insurance business" test. The Company believes that, based on the implementation of its business plan and the application of the look-through rule and the exceptions set out under Section 1297 of the Internal Revenue Code of 1986, as amended (the "Code"), none of the income and assets of the Company's non-U.S. insurance company subsidiaries should be treated as passive pursuant to the 25% Test, and thus the Company should not be characterized as a PFIC under current law for the current taxable year or for foreseeable future years, but because of the legal uncertainties, as well as factual uncertainties with respect to the Company's planned operations, there is a risk that the Company will be characterized as a PFIC for U.S. federal income tax purposes. In addition, because of the legal uncertainties relating to how the 2021 Regulations will be interpreted and the form in which the proposed 2021 Regulations may be finalized, no assurance can be given that the Company will not qualify as a PFIC under final IRS guidance or any future regulatory proposal or interpretation that may be subsequently introduced and promulgated. If the Company is considered a PFIC, it could have material adverse tax consequences for an investor that is subject to U.S. federal income taxation. Investors should consult their tax advisors as to the effects of the PFIC rules and the possibility of making a "protective" QEF election or "mark-to-market" election.

The U.K. has passed legislation conforming to the OECD BEPS Pillar 2 framework, which generally requires that U.K. domiciled entities pay a top-up tax for subsidiary companies in non-U.K. jurisdictions whose effective tax rate is less than 15% (the Income Inclusion Rule or "IIR") and a top-up tax for U.K. domiciled entities whose effective rate is less than 15%, (the Qualified Domestic Top-up Tax or "QDMTT"). A top-up tax must also be paid by U.K. entities on related non-U.K. entities of a consolidated group that are not already subject to a top-up tax pursuant to the IIR and QDMTT and have not achieved a minimum tax rate of 15% (Under-Taxed Payment Rule or "UTPR"). The law includes transitional provisions that exempt consolidated groups from the UTPR, so long as they operate in six or fewer jurisdictions and have less than EUR 50 million in tangible assets. Ireland has also passed similar conforming legislation, which is substantially similar to the U.K. legislation. The effect of the UTPR to the Company could be to require the Group's Irish and U.K. entities to pay a top-up tax to Ireland and/or the U.K., respectively, pursuant to an allocation formula prescribed in the applicable legislation unless the Group is eligible for the respective exemption under that jurisdiction's legislation. The exemption is similar to the exemption allowed in Bermuda and accordingly the Company intends to meet the exemption requirements and be exempt from applying the UTPR to its Bermuda entities until January 1, 2030. However, no assurance can be made that the Company will meet the requirement in all applicable jurisdictions in future years and could become subject to the UTPR if it does not achieve a 15% effective tax rate, inclusive of any corporate income taxes paid to Bermuda. The Bermuda corporate income tax is expected to limit the Company's exposure to UTPR. On January 15, 2025, the OECD issued guidance relating to the calculation of tax liabilities pursuant to the UTPR. Specifically, it provides that the reductions of tax due to the economic transition adjustment ("ETA") allowed under Bermuda tax law will be limited for calculating the UTPR. The ETA is a provision in the Bermuda law which was intended to provide a fair and equitable transition into the tax regime. As prescribed in the Bermuda law, a fair value calculation of the Company's Bermuda assets and liabilities (including certain intangible assets not included in the GAAP balance sheet) was conducted as of September 30, 2023, and to the extent the fair value exceeded the book value, a deferred tax asset ("DTA") was booked on the Bermuda balance sheet. The DTA is expected to reduce the Company's Bermuda tax liability in future years when it becomes subject to the Bermuda Corporate Income Tax regime. The OECD guidance provides that taxable income used to calculate UTPR top-up tax shall only allow for 20% of the total DTA recorded as part of the ETA adjustment and may only recognize this over a two-year period (2025 and 2026). When the Company becomes subject to the UTPR on its Bermuda earnings, it is possible that it will incur a top-up tax liability if the Bermuda constituent entities do not achieve a 15% minimum effective tax rate. On January 5, 2026, the OECD issued additional guidance introducing various safe harbors from the OECD Pillar 2 rules, effective from January 1, 2026, including a "side-by-side" regime for consolidated groups whose ultimate parent is in a jurisdiction with an eligible tax regime, which eliminates the application of the IIR and UTPR to such consolidated groups. At this time, there remains uncertainty as to how these safe harbors will develop and be implemented by jurisdictions, or their scope and applicability to the Company, and any adverse outcome could result in additional tax liabilities, compliance costs, or limitations on our ability to benefit from such safe harbors, which could have a material adverse effect on our financial condition and results of operations.

The Government of Bermuda has recently passed the Corporate Income Tax Act 2023, conforming to the OECD BEPS Pillar 2 framework, which will impose corporate income tax on certain Bermuda-based entities for fiscal years beginning on or after January 1, 2025. The Corporate Income Tax Act 2023 will apply to any entity incorporated or formed in Bermuda, or that has a permanent place of business in Bermuda, if that entity is a member of an "In Scope MNE Group" (i.e. a group of entities related through ownership and control that has an annual revenue of 750 million euros or more in a fiscal year, pursuant to the consolidated financial statements of the ultimate parent entity, in at least two of the four fiscal years immediately preceding the fiscal year beginning on or after January 1, 2025, and such group includes at least one entity located in a jurisdiction that is not the parent entity's jurisdiction). The Corporate Income Tax Act 2023 provides an exemption (for up to five years) from the tax charging provisions of the legislation for "MNE Groups" with a limited international footprint. This exemption is only available to an "MNE Group" (i) that has constituent entities located in five or fewer jurisdictions outside the "reference jurisdiction" (ii) that has, with respect to all constituent entities in all jurisdictions except the "reference jurisdiction", less than EUR 50 million in tangible assets, and (iii) no parent entity is required to apply an income inclusion rule ("IIR") with respect to a constituent entity of the "MNE Group" located in Bermuda. The Company intends to operate in a way that will satisfy these requirements with a view to qualifying for the exemption until January 1, 2030. If the Company does not continually qualify for the exemption described above during the five-year period, the Company could, prior to January 1, 2030, become subject to the tax charging provisions of the Corporate Income Tax Act 2023 which could have a material adverse effect on the Company's financial condition and results of operations.

The tax treatment of a holder of Class B common shares, or of a person treated as a holder of such shares for U.S. federal income, state, local or non-U.S. tax purposes, may vary depending on the holder's particular tax situation. Legislative, judicial or administrative changes or interpretations may be forthcoming that could be retroactive and could affect the tax treatment of the Company and its subsidiaries, or a shareholder's investment in the Company. Accordingly, the holders of Class B common shares may be adversely impacted by changes in tax rules or changes in the interpretation of existing tax rules in the multiple jurisdictions in which the Company and its subsidiaries operate. The Company and its non-U.S. subsidiaries may become subject to additional taxation, including in the U.S. Whether a trade or business is being conducted in the U.S. (or whether a non-U.S. subsidiary is otherwise subject to U.S. federal income taxation) is an inherently factual determination, and the Company cannot be certain that the IRS will not contend successfully that the Company or its subsidiaries are or will be engaged in a trade or business in the U.S. In addition, the Company or its subsidiaries may be subject to withholding or other taxes on certain payments, including in circumstances where exemptions or treaty reductions are unavailable. The Company and its subsidiaries may also be subject to additional taxation and compliance obligations in other jurisdictions, including the U.K. and Bermuda. In the U.K., a non-U.K. incorporated company may be subject to U.K. corporation tax if it carries on a trade in the U.K. through a permanent establishment or is centrally managed and controlled from the U.K., and HMRC might contend successfully that the Company or its subsidiaries are trading in the U.K. through a permanent establishment (or otherwise exposed to U.K. corporation tax) in circumstances where treaty protection is unavailable. In Bermuda, corporate income tax may apply to certain Bermuda-based entities, and the Company, its operations, or shareholders may become subject to additional tax compliance in Bermuda and other countries.

The Council of the European Union temporarily added Bermuda to the list of non-cooperative jurisdictions for tax purposes from March 2019 until May 2019, at which time Bermuda adopted economic substance legislation that the Council of the European Union deemed compliant with its requirements. The Council of the European Union also temporarily added Bermuda to its "grey list" from February 2022 until October 2022. The "grey list" is a list of jurisdictions that have made sufficient commitments to reform their tax practices but remain subject to close monitoring while they are executing on their commitments.

Our profitability is dependent on our ability to accurately assess the risks associated with the business we underwrite. We rely on the experience of our underwriting staff in assessing those risks, the accuracy of pricing tools and the clarity of our contract wording. If we misunderstand and/or inadequately quantify the nature and extent of the risks, we may fail to establish appropriate premium rates which could materially adversely affect our business, financial condition and results of operations. In addition, our employees, including members of management and underwriters, make decisions and choices in the ordinary course of business that involve exposing us to risk. Such challenges of assessing risk and pricing premiums are often increased in our U.S. E&S business lines, where there may be more limited historical claims and underwriting data than in admitted insurance markets. Beyond the risks associated with natural and non-natural catastrophe accumulations, underwriting risk may arise from incorrect assumptions about inflation, claims practices, or social trends. Many of our lines lack sufficient historical claims data to accurately estimate future costs, requiring significant underwriting and actuarial judgment. This risk is heightened in low-frequency, high-severity classes and in our U.S. E&S business, where pricing data is often more limited than in admitted markets. If we misunderstand or inadequately quantify underwriting risk, fail to identify accumulations or misprice risks due to inflation, social trends or other factors, our business, financial condition and results of operations could be materially adversely affected. In addition, increasing adoption of AI technologies by our insureds may create new or evolving sources of risk. AI systems can produce unintended or unpredictable outcomes, automate decisions that lead to errors, or otherwise cause losses that may fall within the scope of our policies, including where coverage was not originally intended. To the extent our policies implicitly or explicitly respond to such exposures, losses arising from our insureds' use of AI may be difficult to assess, model or price due to rapidly developing liability standards and limited historical loss data. These factors could result in higher-than-expected claims, unforeseen risk accumulations or inadequate pricing, which could materially adversely affect our business, financial condition and results of operations.

Hamilton Group is an insurance holding company with no business operations of its own and is a legal entity separate from its subsidiaries. As a result, our ability to pay corporate expenses, service debt, meet tax obligations and fund investments depends largely on dividends and other permitted payments from our insurance and reinsurance subsidiaries, including Hamilton Re, Hamilton U.K. (Hamilton UK Holdings Limited, Hamilton UK Holdings II Limited and HMA), HIDAC and Hamilton Select. These subsidiaries are subject to regulatory requirements in Bermuda, the U.K., Ireland and Delaware that mandate minimum levels of capital and surplus and restrict dividend payments to amounts derived from net profits. Insurance regulators have broad authority to prevent reductions in capital and surplus and may impose restrictions beyond current requirements. Future changes in applicable laws or interpretations could further limit distributions. If we are unable to receive dividends or other payments from our subsidiaries due to regulatory or other constraints, we could face liquidity shortfalls that materially adversely affect our business, financial condition, and results of operations.

Many of our contracts are written for one-year terms. In our financial forecasting process, we make assumptions about the renewal of our prior year's contracts and other terms and conditions. The insurance industry has historically been a cyclical business with intense competition, often based on price. If actual renewals do not meet expectations or if we choose not to write a renewal (including in connection with the early termination of insurance policies), our business, financial condition and results of operations could be materially adversely affected.