James River Group Holdings, Ltd. Price & Performance (JRVR)

Lastly, unless otherwise specified, the reasons described in our earnings press release, all underwriting performance ratios referred to [indiscernible] For our continuing operations, and business that is not subject to retroactive reinsurance accounting, or loss portfolio transfers. I will now turn the call over to Frank D'Razio, Chief Executive Officer of James River Group. Thank you for that introduction, Zach. Good morning, everyone, and welcome to our fourth quarter twenty twenty four earnings call. I'm pleased to be joining you today to provide additional color on our fourth quarter and full year 2024 results but just as importantly, to impart our thoughts on the direction and opportunities that lie ahead for the organization. James River, 2024 was a costly year. But also a transformative step forward in our efforts to put our legacy issues behind the organization and position it to prosper and thrive as a top tier E and S franchise. We successfully executed several transactions and initiatives that will enable us to focus on our insurance business having completed the divestiture of our Bermuda reinsurance operation. We completed two legacy reinsurance transactions and added a key strategic partner achieving our goal of validating our balance sheet and meaningfully walling off casualty reserves from 2010 through 2023.

Our investment portfolio also continues to perform very well with the portfolio generating $93,100,000 of net investment income from continuing operations. A 10.8% increase over 2023. Additionally, we continue to invest in our maturing framework and performance monitoring discipline key underpinnings of our organization today that have been significantly fortified over the last four years with the sole purpose of providing the organization and its shareholders with better performance improved outcomes and a vastly refocused company. Taken in concert, these actions position James River very well for long term stability and profitable growth. We believe we can continue to improve our organizational efficiency through actions like our planned redomestication continual improvements in our technology and processes, and our rededicated focus as an outstanding underwriting company. Fortunately, favorable market conditions have continued to provide robust tailwinds for our business As new and renewal submissions have reached record highs for the last four years, including 2024, which marked the most submissions the company has ever received. In the fourth quarter, submission growth trends were led by meaningful increases in manufacturers and contractors, and general casualty. Our team has demonstrated exceptional resilience and we have seen unwavering support from our wholesale distribution partners reinforcing our position as a top 25 E and S carrier.

More broadly, we believe continued industry reserve concerns and a prolonged tightening of the casualty reinsurance market will continue to allow E and S underwriters like James River to continue to push rate in excess of loss trend. We our results this quarter were complicated by the transactions we announced in November, I'd like to pare back some key data points to frame our prospective E and S business. Particular. Our accident year combined ratio for the E and S segment 2024 was 91.8%, Excluding the legacy structure purchases, our accident year combined ratio would have been 89.3%. Our 2024 E and S accident year loss ratio of 64.3% is 2.4 points higher than the previous year reflecting a cautious and prudent approach. For 2025, our loss picks assume a very slight rise in loss trend most notable in our excess casualty and general casualty line. That said, given the strength of the E and S rate environment, we expect the positive rate we are achieving on the overall portfolio will more than offset that trend. As a reminder, we saw positive renewal rate change of 09/2024 which was virtually at the same level as 2023, reflecting strong market momentum and a continued positive outlook for the E and S sector. [indiscernible] For James River, the positive rate environment is even more impactful considering the significant underwriting changes we have implemented in several of our underwriting divisions like general casualty, and excess casualty over the last two to three years.

Which appear to be driving materially lower reported loss ratios in prior years. We plan to be patient in recognizing these improvements in the performance of the portfolio. Turning to production. Our $1,000,000,000 E and S business grew by 2% for the fourth quarter but was negatively impacted by continued vigilance in our excess casualty as we continue to take a conservative approach on accounts with significant auto exposure. APCINEX's casualty arm growth for the fourth quarter would have been 11.2% for the quarter. Across the remaining 14 underwriting divisions. For the full segment, December's monthly production saw one of the most significant year over year increases and we expect our growth rate to accelerate in 2025 as we move beyond the strategic review that concluded in November 2024, especially as technology innovations and efficiency initiatives take hold. Finally, on reserves for the E and S segment, the year end increase in reserves for the quarter of $38,400,000 prior to session [indiscernible] and $8,900,000 on a net basis was driven by continued higher severity observed especially in primary GC and higher frequency in manufacturers and contractors leading us to increase our estimates. These segments primarily focused on the period from 2019 to 2022.

We are monitoring certain claims trends specific to our construction portfolio where there was an influx of James, particularly from Florida, which we believe may likely be attributable to the enactment of Senate Bill three sixty which shortened Florida statute of repose from ten to seven years. But in the process may have created an artificial spike in claim reporting during the quarter. Regardless, we chose to respond to the activity prudently and conservatively in the quarter and we'll continue to monitor the development closely. With the exception of manufacturers and contractors, frequency was down across the segment for the remaining 14 underwriting divisions over the course of the year. Perhaps most notably, reported claims frequency is down 25% from 2022 and our habitational primary GC portfolio. A segment of the portfolio that has undergone significant underwriting and rate actions since 2023. As of year end 2024, B and S segment now has $116,200,000 of reserve cover remaining after significantly increasing the reserve balance over course of the past year. In essence, the charges for these legacy purchases were accounted for in 2024 and the remaining balance of coverage represents an additional 13.3% of protection over the subject E and S reserve base.

Having taken these actions, we believe our balance sheet is strong and better protected from adverse development on prior accident years that has been in the company's recent history. We also have the benefit of receiving additional outside data points in the fourth quarter to confirm our view. While we are cautiously optimistic about the profitability of the twenty twenty four year, we will prudently monitor loss emergence as that accident year seasons before recognizing any favorable development. Now turning to Specialty Admitted in Q4, the segment generated a combined ratio of 95.392.2% for the full year underwriting profit growth of 68.6% over the prior year. Additionally, during the year, the segment experienced $607,000 of favorable development on prior accident years, the expense ratio for the segment improved from 19.6% in 2023 fourteen point four percent in 2024, as we carefully manage expenses in the face of declining premiums in the segment resulting from our decision to exit our workers' comp business while also taking actions to reduce elements of our commercial auto program portfolio in 2024. Despite these dynamics, the segment grew its top line gross premiums by 8.3% over the course of 2024. With 2024 behind us, we feel fortunate to have executed on a handful of truly critical transactions for future success.

We are thankful for the strategic partnerships formed over the course of the year the continued support of our distribution partners and loyalty of our staff. Perhaps an understatement, we are very excited about 2025 as we further distance ourselves from the strategic review and focus on delivering our financial goals and objectives for the year. Appreciating both the significance and future implications of the reserve protections we have in place, and the opportunities that lie ahead in the E and S sector for vastly improved and reengineered company to profitably succeed in favorable market conditions. And with that, I'm going to hand it over to Sarah for further commentary on our financial performance and guidance for the year ahead. Thanks very much, Frank. Good morning, everyone, and thanks for joining us today.

I wanted to focus my comments on key dynamics that are driving our results for the quarter. As well as provide high level guidance for 2025. For the fourth quarter, [indiscernible] available to common shareholders of $92,700,000 or $2.25 per share. The loss was largely attributed to the two items we announced in November, These were the $52,800,000 of consideration paid for the top up adverse development cover which we closed in late December, and accounted for as an increase in ceded premium as well as a $27,000,000 deemed dividend resulting from the amendment to the Series A preferred shares. As a reminder, we also sold $12,500,000 of primary common stock for $6.4 per share in late December. First, I'd like to peel apart our performance and view for the year ahead and then I'll come back to spend a minute on the deemed dividend. Clearly 2024 as Frank said was costly year for James River. And the two retroactive reinsurance structures we purchased significantly distort the run rate performance of the underlying E and S operations particular. Our flagship E and S operations are simple and straightforward and perform well at meaningful scale. They're poised for profitable growth especially given market conditions submission growth and the many underwriting changes we've made over the last few years.

The $52,800,000 payment for the top up adverse development cover reduced net written and earned premium pressuring the loss and expense ratios. Absent the impact of the retroactive structures, E and S would have generated an 89.3% accident year combined ratio a compelling result for a business experiencing very robust condition, with a strong following for its casually focused SME product. Rather than 115.1% we reported for the calendar year. The group accident year combined ratio would have been 94.9% rather than the 17.6% calendar year combined ratio Trent pointed out, our 2024 E and S accident year loss ratio of 64.3% to 2.4% higher than the previous year and this sustained increase reflects our cautious approach [indiscernible] going into 2025. Our retroactive coverage which not only covers the overwhelming majority of the 2010 through 2023 reserves, but also incidentally provided a meaningful betting of our current year loss picks by best in class outsiders provides us with significant comfort with our balance sheet. We also completed our year end with the benefit of multiple external reviews of our reserves, validating our current reserve position following the significant actions taken in 2024 to strengthen E and S reserves. Our 10 ks will be available later today showing meaningful strengthening across E and S for all accident years 2016 through 2022.

We entered 2025 with $116,200,000 of aggregate limit available to us in the future. Which effectively means we prepaid for $116,200,000 of future losses potential future losses that is, Attributed to the 2010 through 2023 E and S accident years. We believe our reserve position is certainly as strong as it has been in many years And while I would be hesitant to look at any one of these metrics in isolation, the additional $116,200,000 of available limit means that we could increase IV and R on the subject business by 20% and not exhaust our coverage. We're set another way we could increase total subject reserves by 13% and not exhaust our coverage. For 2025, expect to generate a mid teen operating return on tangible common equity. This should be underpinned by a similar accident year loss ratio what we saw in 2024, as we continue to take a prudent view to our initial loss picks despite the significant changes in underwriting appetite. We continue to focus on changes we can made during the year to manage our expenses and in particular our external casualty reinsurance renewals which come up at midyear. To briefly close out operating performance for 2024, this quarter we earned net investment income of $22,000,000 Included in prior year net investment income was a contingent payment of $2,500,000 associated with one of our renewable energy investments which have been previously sold.

Absent this one off benefit, our net investment income declined a bit impacted by a lower asset base as we funded the retroactive reinsurance transaction. We were again able to put a significant amount of cash to work in our core fixed income portfolio with attractive yield averaging in excess of 5% and well above our embedded portfolio book yield. Looking into 2025, we expect to continue to see attractive yields above that level. As we both continue to put cash up to work and grow our operating cash flow, And before I hand it over for questions, I wanted to come back and spend a minute on the deemed dividend as it impacted our net loss and our tangible comp equity. As we announced in November, we negotiated significant changes to Series A preferred. Which included converting $37,500,000 of the $150,000,000 then outstanding to common equity and thus lowering and capping the fixed charge for preferred dividend This was very beneficial to our capital. As expected, we accounted for this as an extinguishment of the preferred and therefore revalued the security at its new term. The result was an increase to the value of the preferred security. As we did not bring additional proceeds onto the balance sheet, simply said, we accounted for a portion of the valuation increase as a deemed dividend.

If the terms had not changed, the simple result would have been a preferred on our balance sheet at $112,500,000 and additional common equity from the conversion of the $37,500,000 as preferred at $6.4 per share. But largely due to the revaluation The preferred increase in value by $27,000,000 and the net net was to record the deemed dividend. Which reduced shareholders' equity. By an offsetting twenty seven point Capital on our balance sheet on a total capital basis including total shareholders' equity, and preferred mezzanine, is unchanged. As is the amount of tangible equity. But the impact of the deemed dividend is effectively to reduce the amount of tangible common equity by about $0.6 a share and to reduce net income to common shareholders. By the same amount. This is an accounting dynamic. It does not impact our underwriting capital. We continue to have more than ample capital to add profitable growth to our E and S business in particular as well as very healthy operating and financial leverage ratios of 1.3 times and 26% respectively. And lastly, James River did not experience any net losses due to the California wildfires and we do not expect given our conservative property stance.

But with that, I'll turn it back to the operator Thank you. Thank you. We will now begin the question and answer session. First comes from the line of Meyer Shields from KBW. Hi, good morning. It's you for taking my question. My first question is on the submittal. [indiscernible] guys reported 9% submission growth I'm just wondering like how is the trend looking in 2025? Are you seeing any changes in the competitive dynamics in the market?

Thanks for your question. So yes, we have seen an increase just relative to submissions. I think overall, Several of our divisions, I think, demonstrated pretty healthy growth in 2024 despite competition in the ex property market specifically.

We saw very healthy growth in sports and entertainment. Environmental general casualty and small business, just to name a few.

Auto accounts. We've been pretty transparent about our activities in excess casualty related to heavy commercial auto accounts. We've been pretty transparent about our activities in excess casualty related to heavy commercial auto accounts. We've been pretty transparent about our activities in excess casualty related to heavy commercial auto accounts.

But when you exclude our excess casualty division, our growth for the quarter would have been 11.2%. To your point, we reported submission growth of 9% for the quarter. Definitely not isolated to any single line. Allied Health was up environmental submissions were up, general casualty submissions up. So Overall, fairly healthy in terms of well rounded opportunities for the underwriting platform. Gross premium for December, the first full months following the conclusion of our strategic review, we saw 7.5% growth compared to the prior year quarter. So think with the conclusion of the strategic review and the re provide our distribution partners and insurers with more certainty which should provide additional tailwind into 2025. Just relative to overall competition, again, we are seeing it specifically In the property marketplace, maybe a little bit stronger relative to some of the larger accounts that we run into. But overall, I don't know that's been necessarily a change what we've experienced over the course of 'twenty four.

Got it.

Makes sense. I have a follow-up on I guess, the loss picks. To be more conservative You mentioned that you've seen some trend in excess casualty and drone on drone casualty unsecured is the same Is it the same frequency trend that you're seeing from manufacturer Yes, any comment on that will be great. Thank you.

Sure. So I think if you're asking about loss trends in our view relative to 2025, which we have recently refreshed. I would say overall, our view is slightly higher across the portfolio, call it just under a point higher. Primarily driven by increases in excess casualty and general casualty, but in the aggregate we're projecting loss trend to remain in that same high single digit range Several of our underwriting divisions are in the mid digit range. And on the other end of the spectrum, we have one or two in the low double digit range. Now that's offset as you know by exposure trend. And it certainly varies across our divisions, but for 2025, again rolled up, it remains virtually unchanged in the low single digit range.

Okay.

Got you so much.

Sure. Please There are no further questions at this time.

Frank Fioracio, I'll turn the call back over to you.

Okay.

Thank you, operator.

I want to thank everybody for their time today. Also want to point out that for James River, the significance of Q4 and really all of 2024 is more about the steps we've taken to simplify the company and derisk the balance sheet with significant legacy the legacy cover So clearly all items we had previously reported on, but critical because of the implications of that protection on future performance while the company operates in what is still a very attractive trading environment for E and S. Leveraging all the good underwriting and performance monitoring improvements we've made over the last few years. For us, it's very much about 2025. And the future for James River. More than anything else. Before we leave, I also want to acknowledge and thank Ollie Sherman, for his nine years of service to James River as both a non Executive Director and most recently as Chairman. Ali has chosen to retire from the Board at the April and will certainly we will miss his leadership and guidance. We're also very fortunate to have elected Christine Lozala as our new non executive chairperson and personally I look forward to working closely with her to chart the future of James River.

All right. We look forward to speaking with you all again in just a few weeks to discuss our first quarter results and progress. Enjoy the rest of your day.

This concludes today's call. Thank you for joining. You may now disconnect. [indiscernible] [indiscernible]