James River Announces Fourth Quarter And Full Year 2022 Results

PEMBROKE, Bermuda, Feb. 27, 2023 (GLOBE NEWSWIRE) -- James River Group Holdings, Ltd. ("James River" or the "Company") (NASDAQ: JRVR) today reported fourth quarter 2022 net income available to common shareholders of $15.1 million ($0.40 per diluted share), compared to a net loss available to common shareholders of $66.3 million ($1.78 per diluted share) for the fourth quarter of 2021. Adjusted net operating income¹ for the fourth quarter of 2022 was $20.2 million ($0.53 per diluted share), compared to an adjusted net operating loss¹ of $67.5 million ($1.81 per diluted share) for the fourth quarter of 2021.

Fourth Quarter 2022 Highlights:

• Group combined ratio of 91.7% and Excess and Surplus Lines ("E&S") segment combined ratio of 84.5% on business not subject to retroactive reinsurance accounting for loss portfolio transfers (the "combined ratio"). Unless specified otherwise, all underwriting performance ratios presented herein are for our business not subject to retroactive reinsurance accounting for loss portfolio transfers.
• E&S segment gross and net written premium growth of 11.3% and 20.5%, respectively, due to broad based growth, renewal rate increases and increased net retention.
• Net investment income increased 88.1% compared to the prior year quarter, and 31.9% sequentially compared to the third quarter of 2022, due to stronger returns from all asset classes.
• Adjusted net operating return on tangible common equity¹ of 23.5%.

Full Year 2022 Highlights:

• Group combined ratio of 93.5% was the lowest since 2014, and E&S segment combined ratio of 85.1% was the lowest since 2016.
• E&S segment gross and net written premium growth of 10.5% and 17.5%, respectively, with renewal rate increases averaging 10%.
• Underwriting profit of $49.6 million is the highest in the Company's history and compares to the previous high of $29.5 million in 2016.
• Adjusted net operating return on tangible common equity¹ of 17.4%.

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¹ Adjusted net operating income (loss) and adjusted net operating return on tangible common equity are non-GAAP financial measures. See “Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” at the end of this press release.

Frank D'Orazio, the Company’s Chief Executive Officer, commented, “The fourth quarter of 2022 capped a year of significant progress and profitable momentum for James River, while positioning the Company extremely well for the future. We continue to take advantage of compelling underwriting conditions in our insurance businesses, generating attractive growth, and validating the strength of our underwriting franchise. Moreover, we have decided to suspend underwriting activities in our Casualty Reinsurance segment, which we believe repositions the Company around its core strengths."

Fourth Quarter 2022 Operating Results

• Gross written premium of $378.4 million, consisting of the following:
  

• Net written premium of $187.7 million, consisting of the following:
  

• Net earned premium of $199.9 million, consisting of the following:
  

• E&S gross written premium for the fourth quarter of 2022 increased 11.3% compared to the prior year quarter, while net written premium increased 20.5% due to higher net retention within our excess casualty unit. Premium growth was broad based, with nine of thirteen underwriting divisions experiencing growth, led by general casualty, excess casualty and manufacturers and contractors. Renewal rate increases were 6.5% during the fourth quarter of 2022. This represents the twenty-fourth consecutive quarter of renewal rate increases compounding to 64.2%.
• Gross written premium for the Specialty Admitted Insurance segment increased 1.7% from the prior year quarter. During the quarter there was a combined 8.0% reduction to premium from our individual risk workers' compensation business and our large workers' compensation fronted program. The remaining segment premium increased 7.5% despite the loss of a fronting partner that was acquired at the end of 2021.
• Gross written premium in the Casualty Reinsurance segment decreased 76.8% compared to the prior year quarter primarily driven by the non-renewal of several treaties, as discussed previously. For the full year 2022, gross written premium declined 53.2% and was approximately in-line with our previously disclosed plan. The earning patterns of the business can extend over multiple years, so declines in net earned premium for this segment will lag the expected decline in gross and net written premium and for that reason, we expect to continue to have earned premium during 2023.
• Pre-tax favorable (unfavorable) reserve development by segment on business not subject to retroactive reinsurance accounting for loss portfolio transfers was as follows:

• During the fourth quarter of 2022, the Company reported modest favorable reserve development in E&S and Specialty Admitted segments. The Casualty Reinsurance segment experienced higher reported loss trends during the fourth quarter of 2022, which resulted in adverse development on treaties subject to the Casualty Reinsurance loss portfolio transfer retrocession agreement (the "Casualty Reinsurance LPT") and select treaties not subject to the Casualty Reinsurance LPT. Adverse development on treaties not subject to the Casualty Reinsurance LPT totaled $6.6 million. The Company also recognized a $6.1 million increase in losses subject to the Casualty Reinsurance LPT.
• Gross fee income was as follows:

• The consolidated expense ratio was 23.9% for the fourth quarter of 2022, and increased from 13.9% in the prior year fourth quarter. The expense ratio in the prior year period benefited from favorable commission expense adjustments related to prior accident year losses in the Casualty Reinsurance segment that had a 6.6 point impact on the consolidated expense ratio, as well as higher ceding commission in our E&S segment prior to our change in retention effective in the third quarter of 2022 and lower compensation expenses.
  

Investment Results

Net investment income for the fourth quarter of 2022 was $22.8 million, an increase of 88.1% compared to $12.1 million for the same period in 2021. Growth in income from fixed maturities, bank loans and equities was 66.4% compared to the prior year quarter, and was driven by higher yields and growth in the portfolio from positive operating cash flow. During the fourth quarter of 2022, a portion of the Company's renewable energy investments were sold and resulted in a gain of approximately $1.0 million. This sale increased income from renewable energy investments during the period.

The Company’s net investment income consisted of the following:

The Company’s annualized gross investment yield on average fixed maturity, bank loan and equity securities for the three months ended December 31, 2022 was 4.0% (as compared to 2.8% for the three months ended December 31, 2021). The investment yield increased primarily as a result of higher market yields on fixed maturity securities and bank loans.

Net realized and unrealized gains on investments of $1.6 million for the three months ended December 31, 2022 compares to net realized and unrealized gains on investments of $1.8 million in the prior year quarter. The majority of the realized and unrealized gains during the fourth quarter of 2022 were related to changes in fair values of our small portfolio of common equity securities.

Taxes

The Company's effective tax rate fluctuates from period to period based on the relative mix of income reported by country and the respective tax rates imposed by each tax jurisdiction. The effective tax rate for the year ended December 31, 2022 was 37.3%. The tax rate is impacted by the geographic mix of income, as losses in Bermuda do not create tax deductions for the Company.

Tangible Equity

Tangible equity² of $501.2 million at December 31, 2022 increased 5.6% compared to tangible equity of $474.9 million at September 30, 2022, due to net income available to common shareholders and a decrease in unrealized losses in the Company's fixed maturity portfolio. Accumulated other comprehensive (loss) income ("AOCI") improved by $12.2 million during the fourth quarter of 2022, due to an increase in the value of the Company's fixed maturity securities.

Tangible equity excluding AOCI was $664.3 million at December 31, 2022 compared to $477.5 million at December 31, 2021, with the increase driven by positive net income and proceeds from the Series A preferred shares issued during the first quarter of 2022.

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² Tangible equity is a non-GAAP financial measure. See “Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” at the end of this press release.

Capital Management

The Company announced that its Board of Directors declared a cash dividend of $0.05 per common share. This dividend is payable on March 31, 2023 to all shareholders of record on March 13, 2023.

Conference Call

James River will hold a conference call to discuss its fourth quarter results tomorrow, February 28, 2023 at 8:30 a.m. Eastern Time. Investors may access the conference call by dialing (800) 715-9871, Conference ID 3314205, or via the internet by visiting www.jrvrgroup.com and clicking on the “Investor Relations” link. A webcast replay of the call will be available by visiting the company website.

Forward-Looking Statements

This press release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. In some cases, such forward-looking statements may be identified by terms such as believe, expect, seek, may, will, should, intend, project, anticipate, plan, estimate, guidance or similar words. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Although it is not possible to identify all of these risks and uncertainties, they include, among others, the following: the inherent uncertainty of estimating reserves and the possibility that incurred losses may be greater than our loss and loss adjustment expense reserves; inaccurate estimates and judgments in our risk management may expose us to greater risks than intended; downgrades in the financial strength rating of our regulated insurance subsidiaries impacting our ability to attract and retain insurance and reinsurance business that our subsidiaries write, our competitive position, and our financial condition; the potential loss of key members of our management team or key employees and our ability to attract and retain personnel; adverse economic factors resulting in the sale of fewer policies than expected or an increase in the frequency or severity of claims, or both; the impact of a persistent high inflationary environment on our reserves, the values of our investments and investment returns, and our compensation expenses; exposure to credit risk, interest rate risk and other market risk in our investment portfolio; reliance on a select group of brokers and agents for a significant portion of our business and the impact of our potential failure to maintain such relationships; reliance on a select group of customers for a significant portion of our business and the impact of our potential failure to maintain, or decision to terminate, such relationships; our ability to obtain reinsurance coverage at prices and on terms that allow us to transfer risk, adequately protect our company against financial loss and that supports our growth plans; losses resulting from reinsurance counterparties failing to pay us on reinsurance claims, insurance companies with whom we have a fronting arrangement failing to pay us for claims, or a former customer with whom we have an indemnification arrangement failing to perform its reimbursement obligations, and our potential inability to demand or maintain adequate collateral to mitigate such risks; inadequacy of premiums we charge to compensate us for our losses incurred; changes in laws or government regulation, including tax or insurance law and regulations; changes in U.S. tax laws and the interpretation of certain provisions of the 2017 Tax Act (including associated regulations), which may be retroactive and could have a significant effect on us including, among other things, by potentially increasing our tax rate, as well as on our shareholders; in the event we do not qualify for the insurance company exception to the passive foreign investment company (“PFIC”) rules and are therefore considered a PFIC, there could be material adverse tax consequences to an investor that is subject to U.S. federal income taxation; the Company or any of its foreign subsidiaries becoming subject to U.S. federal income taxation; a failure of any of the loss limitations or exclusions we utilize to shield us from unanticipated financial losses or legal exposures, or other liabilities; losses from catastrophic events, such as natural disasters and terrorist acts, which substantially exceed our expectations and/or exceed the amount of reinsurance we have purchased to protect us from such events; the effects of the COVID-19 pandemic and associated government actions on our operations and financial performance; potential effects on our business of emerging claim and coverage issues; the potential impact of internal or external fraud, operational errors, systems malfunctions or cyber security incidents; our ability to manage our growth effectively; failure to maintain effective internal controls in accordance with the Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley”); changes in our financial condition, regulations or other factors that may restrict our subsidiaries’ ability to pay us dividends; and an adverse result in any litigation or legal proceedings we are or may become subject to. Additional information about these risks and uncertainties, as well as others that may cause actual results to differ materially from those in the forward-looking statements, is contained in our filings with the U.S. Securities and Exchange Commission ("SEC"), including our most recently filed Annual Report on Form 10-K. These forward-looking statements speak only as of the date of this release and the Company does not undertake any obligation to update or revise any forward-looking information to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.

Non-GAAP Financial Measures

In presenting James River Group Holdings, Ltd.’s results, management has included financial measures that are not calculated under standards or rules that comprise accounting principles generally accepted in the United States (“GAAP”). Such measures, including underwriting profit (loss), adjusted net operating income (loss), tangible equity, tangible common equity, adjusted net operating return on tangible equity (which is calculated as annualized adjusted net operating income (loss) divided by the average quarterly tangible equity balances in the respective period), and adjusted net operating return on tangible common equity (which is calculated as annualized adjusted net operating income (loss) divided by the average quarterly tangible common equity balances in the respective period), are referred to as non-GAAP measures. These non-GAAP measures may be defined or calculated differently by other companies. These measures should not be viewed as a substitute for those measures determined in accordance with GAAP. Reconciliations of such measures to the most comparable GAAP figures are included at the end of this press release.

About James River Group Holdings, Ltd.

James River Group Holdings, Ltd. is a Bermuda-based insurance holding company that owns and operates a group of specialty insurance and reinsurance companies. The Company operates in three specialty property-casualty insurance and reinsurance segments: Excess and Surplus Lines, Specialty Admitted Insurance and Casualty Reinsurance. Each of the Company’s regulated insurance subsidiaries are rated “A-” (Excellent) by A.M. Best Company.

Visit James River Group Holdings, Ltd. on the web at www.jrvrgroup.com

For more information contact:

Brett Shirreffs
SVP, Finance, Investments and Investor Relations
InvestorRelations@jrgh.net

James River Group Holdings, Ltd. and Subsidiaries
Condensed Consolidated Balance Sheet Data
(Unaudited)

James River Group Holdings, Ltd. and Subsidiaries
Condensed Consolidated Income (Loss) Statement Data
(Unaudited)

James River Group Holdings, Ltd. and Subsidiaries
Segment Results

EXCESS AND SURPLUS LINES

SPECIALTY ADMITTED INSURANCE

CASUALTY REINSURANCE

Underwriting Performance Ratios

The following table provides the underwriting performance ratios of the Company inclusive of the business subject to retroactive reinsurance accounting for loss portfolio transfers. There is no economic impact to the Company over the life of a loss portfolio transfer contract so long as any additional losses subject to the contract are within the limit of the loss portfolio transfer and the counterparty performs under the contract. Retroactive reinsurance accounting is not indicative of our current and ongoing operations. Management believes that providing loss ratios and combined ratios on business not subject to retroactive reinsurance accounting for loss portfolio transfers gives the users of our financial statements useful information in evaluating our current and ongoing operations.

RECONCILIATION OF NON-GAAP MEASURES

Underwriting Profit

The following table reconciles the underwriting profit by individual operating segment and for the entire Company to consolidated income before taxes. We believe that the disclosure of underwriting profit by individual segment and of the Company as a whole is useful to investors, analysts, rating agencies and other users of our financial information in evaluating our performance because our objective is to consistently earn underwriting profits. We evaluate the performance of our segments and allocate resources based primarily on underwriting profit. We define underwriting profit as net earned premiums and gross fee income (in specific instances when the Company is not retaining insurance risk) less losses and loss adjustment expenses, excluding the impact of loss portfolio transfers accounted for as retroactive reinsurance and other operating expenses. Other operating expenses include the underwriting, acquisition, and insurance expenses of the operating segments and, for consolidated underwriting profit, the expenses of the Corporate and Other segment. Our definition of underwriting profit may not be comparable to that of other companies.

Adjusted Net Operating Income

We define adjusted net operating income as income available to common shareholders excluding a) the impact of loss portfolio transfers accounted for as retroactive reinsurance, b) net realized and unrealized gains (losses) on investments, c) certain non-operating expenses such as professional service fees related to a purported class action lawsuit, various strategic initiatives, and the filing of registration statements for the offering of securities, and d) severance costs associated with terminated employees. We use adjusted net operating income as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance. Adjusted net operating income should not be viewed as a substitute for net income calculated in accordance with GAAP, and our definition of adjusted net operating income may not be comparable to that of other companies.

Our income (loss) available to common shareholders reconciles to our adjusted net operating income (loss) as follows:

Tangible Equity (per Share) and Tangible Common Equity (per Share)

We define tangible equity as shareholders' equity plus mezzanine Series A preferred shares and the unrecognized deferred retroactive reinsurance gain on loss portfolio transfers less goodwill and intangible assets (net of amortization). We define tangible common equity as tangible equity less mezzanine Series A preferred shares. Our definition of tangible equity and tangible common equity may not be comparable to that of other companies, and it should not be viewed as a substitute for shareholders’ equity calculated in accordance with GAAP. We use tangible equity and tangible common equity internally to evaluate the strength of our balance sheet and to compare returns relative to this measure. The following table reconciles shareholders’ equity to tangible equity and tangible common equity for December 31, 2022, September 30, 2022, and December 31, 2021.