James River Group Holdings, Ltd. (“James River” or the “Company”) (NASDAQ: JRVR) reported second quarter 2023 net income available to common shareholders of $21.1 million ($0.54 per diluted share), compared to net income available to common shareholders of $5.0 million ($0.13 per diluted share) for the second quarter of 2022. Adjusted net operating income1 for the second quarter of 2023 was $20.6 million ($0.53 per diluted share), compared to adjusted net operating income1 of $20.0 million ($0.52 per diluted share) for the second quarter of 2022.
Second Quarter 2023 Highlights:
- Group combined ratio of 94.6% and Excess and Surplus Lines (“E&S”) segment combined ratio of 87.8% 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 (“LPTs”).
- Core E&S (excluding commercial auto) gross written premium growth of 9.0% compared to the prior year quarter, and E&S segment gross written and net earned premium growth of 7.3% and 15.3% compared to the prior year quarter, respectively, due to strong growth from our larger underwriting divisions, broad based renewal rate increases and increased net retention in excess casualty. Fronting and Program gross written premium growth of 11.0% compared to the prior year quarter.
- E&S segment renewal rate change increased 11.0% from the prior year quarter, with nearly all underwriting divisions reporting positive pricing increases.
- Net investment income increased 71.2% compared to the prior year quarter, with most asset classes reporting meaningfully higher income.
- Shareholders’ equity per share of $15.84 increased 1.1%2 sequentially from March 31, 2023. Tangible common equity per share1 excluding accumulated other comprehensive loss (“AOCI”) increased 4.4%2 sequentially and 15.9%2 from the prior year quarter.
- Adjusted net operating return on tangible common equity excluding AOCI1 of 14.8% for the second quarter and 15.5% for the six months ended June 30, 2023.
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1 Adjusted net operating income, tangible common equity per share, and adjusted net operating return on tangible common equity excluding AOCI are non-GAAP financial measures. See “Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” at the end of this press release.
2 Percent change before common dividends paid.
Frank D’Orazio, the Company’s Chief Executive Officer, commented on the second quarter, “Our results continue to demonstrate our focus on generating strong, consistent earnings for shareholders and an ability to take advantage of sustained robust E&S market conditions, while managing our portfolio for optimal risk and return. Rising E&S renewal rates of 11% in the second quarter provide encouraging signs of persistent market strength in our core business.”
Second Quarter 2023 Operating Results
- Gross written premium of $427.7 million, consisting of the following:
| Three Months Ended June 30, |
||||||||
| ($ in thousands) | 2023 | 2022 | % Change | |||||
| Excess and Surplus Lines | $ | 286,126 | $ | 266,635 | 7 | % | ||
| Specialty Admitted Insurance | 136,924 | 124,967 | 10 | % | ||||
| Casualty Reinsurance | 4,691 | 8,112 | (42 | )% | ||||
| $ | 427,741 | $ | 399,714 | 7 | % | |||
- Net written premium of $218.2 million, consisting of the following:
| Three Months Ended June 30, |
||||||||
| ($ in thousands) | 2023 | 2022 | % Change | |||||
| Excess and Surplus Lines | $ | 184,768 | $ | 166,004 | 11 | % | ||
| Specialty Admitted Insurance | 29,116 | 18,390 | 58 | % | ||||
| Casualty Reinsurance | 4,295 | 10,297 | (58 | )% | ||||
| $ | 218,179 | $ | 194,691 | 12 | % | |||
- Net earned premium of $209.7 million, consisting of the following:
| Three Months Ended June 30, |
||||||||
| ($ in thousands) | 2023 | 2022 | % Change | |||||
| Excess and Surplus Lines | $ | 159,002 | $ | 137,884 | 15 | % | ||
| Specialty Admitted Insurance | 23,858 | 18,141 | 32 | % | ||||
| Casualty Reinsurance | 26,798 | 30,237 | (11 | )% | ||||
| $ | 209,658 | $ | 186,262 | 13 | % | |||
- Core E&S (excluding commercial auto) gross written premium grew 9.0%, while the E&S segment gross written premium increased 7.3% compared to the prior year quarter. Net earned premium increased 15.3% due to strong growth in most of our underwriting divisions and higher net retention within our excess casualty unit. Premium growth for the segment was led by our larger underwriting divisions, with particular strength in excess casualty, excess property, general casualty and manufacturers and contractors. Renewal rate increases were 11.0% during the second quarter of 2023, representing the twenty-sixth consecutive quarter of renewal rate increases compounding to 72.3%.
- Gross written premium for the Specialty Admitted Insurance segment increased 9.6% from the prior year quarter, including an 11.0% increase in fronting and program premium. During the quarter there was a combined 3.9% reduction to premium from our individual risk workers’ compensation business and our large workers’ compensation fronted program, which was partially offset by strong growth in our remaining fronting and program business.
- Gross written premium in the Casualty Reinsurance segment totaled $4.7 million and was solely related to premium adjustments. As announced earlier this year, we have suspended underwriting business in our Casualty Reinsurance segment and have not written or renewed any treaties this year. The earning pattern of the business can extend over multiple years and declines in net earned premium for this segment will lag written premium. We expect to continue to report earned premium over the next several quarters.
- Pre-tax favorable (unfavorable) reserve development by segment on business not subject to retroactive reinsurance accounting for loss portfolio transfers was as follows:
| Three Months Ended June 30, |
||||||
| ($ in thousands) | 2023 | 2022 | ||||
| Excess and Surplus Lines | $ | (118 | ) | $ | 32 | |
| Specialty Admitted Insurance | 839 | 1,545 | ||||
| Casualty Reinsurance | (3,009 | ) | — | |||
| $ | (2,288 | ) | $ | 1,577 | ||
- Additionally, the Company recognized adverse prior year development of $12.6 million on the reserves subject to the Commercial Auto LPT, which provides unlimited coverage, and $5.8 million on the reserves subject to the Casualty Reinsurance LPT. Retroactive benefits of $17.8 million were recorded in loss and loss adjustment expenses during the second quarter and the deferred retroactive reinsurance gain on the Balance Sheet is $37.6 million as of June 30, 2023.
- Gross fee income was as follows:
| Three Months Ended June 30, |
||||||||
| ($ in thousands) | 2023 | 2022 | % Change | |||||
| Specialty Admitted Insurance | $ | 5,800 | $ | 5,875 | (1 | )% | ||
- The consolidated expense ratio was 27.5% for the second quarter of 2023, which was an increase from 25.8% in the prior year second quarter. The expense ratio was primarily impacted by changes in reinsurance cessions in both E&S and Specialty Admitted segments that resulted in a lower level of ceding commissions in the current period.
Investment Results
Net investment income for the second quarter of 2023 was $25.2 million, an increase of 71.2% compared to $14.7 million in the prior year quarter. Growth in income was broad-based across the portfolio, as positive operating cash flow and portfolio cash flow was deployed at higher yields. On a sequential basis, income increased modestly for all asset classes with the exception of our private investments.
The Company’s net investment income consisted of the following:
| Three Months Ended June 30, |
|||||||||
| ($ in thousands) | 2023 | 2022 | % Change | ||||||
| Private Investments | 232 | (490 | ) | NM | |||||
| All Other Investments | 24,943 | 15,195 | 64 | % | |||||
| Total Net Investment Income | $ | 25,175 | $ | 14,705 | 71 | % | |||
The Company’s annualized gross investment yield on average fixed maturity, bank loan and equity securities for the three months ended June 30, 2023 was 4.3% (versus 3.4% for the three months ended June 30, 2022). 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 $2.1 million for the three months ended June 30, 2023 compared to net realized and unrealized losses on investments of $17.1 million in the prior year quarter. The majority of the realized and unrealized gains during the second quarter of 2023 were related to changes in fair values of our secured bank loan portfolio and, to a lesser extent, our common equity investments.
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 six months ended June 30, 2023 was 23.9%.
Tangible Equity
Tangible equity3 of $561.1 million at June 30, 2023 increased 1.0% compared to tangible equity of $555.4 million at March 31, 2023, as strong earnings was partially offset by unrealized investment losses. AOCI declined by $16.5 million during the second quarter of 2023, due to a decrease in the value of the Company’s fixed maturity securities.
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 Friday, September 29, 2023 to all shareholders of record on Monday, September 11, 2023.