Press Release

James River Announces Second Quarter 2021 Results

08/04/21
  • Second Quarter 2021 Net Income of $20.8 million - ($0.60 per diluted share) and Adjusted Net Operating Income1 of $18.8 million - ($0.54 per diluted share)

  • Combined ratio of 89.7% for the Group and 77.2% in the E&S segment, an improvement of 5.3 and 6.8 points, respectively, over the prior year quarter. Record quarterly underwriting profit1 of $25.7 million for the combined operating segments

  • Adjusted Net Operating Return on Average Tangible Equity1 of 14.2% for the second quarter

  • 15.1% growth in Core (excluding Commercial Auto) Excess and Surplus Lines ("E&S") Gross Written Premium and 18.1% increase in E&S renewal pricing, each versus the prior year quarter

  • Fronting business gross premiums written grew 59.0% within the Specialty Admitted segment as recently added programs continue to mature and expand. Segment Gross Written Premium grew 46.1% versus the prior year quarter

  • Tangible Book Value per Share1 of $17.18, an increase of 25.4% from March 31, 2021, reflecting second quarter results and $192.1 million of net proceeds (6.5 million new shares issued) from the common share offering which closed on May 10, 2021

PEMBROKE, Bermuda, Aug. 04, 2021 (GLOBE NEWSWIRE) -- James River Group Holdings, Ltd. ("James River" or the "Company") (NASDAQ: JRVR) today reported second quarter 2021 net income of $20.8 million ($0.60 per diluted share), compared to net income of $35.6 million ($1.16 per diluted share) for the second quarter of 2020. Adjusted net operating income1 for the second quarter of 2021 was $18.8 million ($0.54 per diluted share), compared to adjusted net operating income1 of $17.4 million ($0.56 per diluted share) for the same period in 2020.

Earnings Per Diluted Share Three Months Ended
June 30,
  2021   2020
       
Net Income $ 0.60     $ 1.16  
Adjusted Net Operating Income 1 $ 0.54     $ 0.56  
       
1 See "Reconciliation of Non-GAAP Measures" below.

Frank D'Orazio, the Company’s Chief Executive Officer, commented, “The Company has delivered excellent second quarter results, reflecting the resilience of our business model and singular focus of responding to our trading partners during very robust market conditions. Our growth in Core E&S gross written premiums exceeded expectations while our 18.1% increase in E&S renewal rates marked the eighteenth consecutive quarter of rate growth, compounding to 42.5% over the same period. The fronting business and fee income in our Specialty Admitted Insurance segment also continues to scale meaningfully, as segment premium increased by 46.1% in the quarter. Overall, the Group produced a record underwriting profit in the quarter as commercial auto loss emergence was in line with our indications while our claims closure rate remained strong.”

Second Quarter 2021 Operating Results

  • Gross written premium of $380.1 million, consisting of the following:
  Three Months Ended
June 30,
 
($ in thousands) 2021   2020   % Change
Excess and Surplus Lines $ 214,014     $ 186,994     14 %
Specialty Admitted Insurance 129,189     88,440     46 %
Casualty Reinsurance 36,943     26,205     41 %
  $ 380,146     $ 301,639     26 %
  • Net written premium of $193.6 million, consisting of the following:
  Three Months Ended
June 30,
 
($ in thousands) 2021   2020   % Change
Excess and Surplus Lines $ 135,163     $ 126,814     7 %
Specialty Admitted Insurance 21,498     12,739     69 %
Casualty Reinsurance 36,943     26,204     41 %
  $ 193,604     $ 165,757     17 %
  • Net earned premium of $172.7 million, consisting of the following:
  Three Months Ended
June 30,
 
($ in thousands) 2021   2020   % Change
Excess and Surplus Lines $ 117,945     $ 100,849     17 %
Specialty Admitted Insurance 18,595     14,392     29 %
Casualty Reinsurance 36,165     33,574     8 %
  $ 172,705     $ 148,815     16 %
                     
  • Core E&S gross written premium increased 15.1% (ten out of twelve core underwriting divisions grew). Due to continued stronger relative growth in our Excess Casualty underwriting division, where we cede a larger portion of risk as compared to other lines, retention in this segment declined and net written premium increased at a lower rate than gross written premium;
  • Gross written premium for the Specialty Admitted Insurance segment increased from the prior year quarter due to a 59.0% increase in premiums written in our fronting business. While we continue to generally retain less than 20% of the risk in our fronting book, net written premium increased at a greater rate than gross written premium due to a higher premium retention on some fronted business;
  • Gross and net written premium in the Casualty Reinsurance segment increased from the prior year quarter primarily driven by higher renewal premiums on a few treaties;
  • There was overall favorable reserve development of $3.5 million (representing a 2.0 percentage point decrease to the Company’s loss ratio). Pre-tax favorable (unfavorable) reserve development by segment was as follows:
  Three Months Ended
June 30,
($ in thousands) 2021   2020
Excess and Surplus Lines $ 7,459     $ 2,849  
Specialty Admitted Insurance 1,000     1,000  
Casualty Reinsurance (5,009 )   (4,975 )
  $ 3,450     $ (1,126 )
  • The prior year reserve development in the quarter included $7.5 million of favorable development in Core E&S lines. Commercial auto loss emergence was in line with expectations following the adjustments made in the first quarter;
  • Gross fee income by segment was as follows:
  Three Months Ended
June 30,
 
($ in thousands) 2021   2020   % Change
Excess and Surplus Lines $     $ 296     (100 )%
Specialty Admitted Insurance 5,434     5,377     1 %
  $ 5,434     $ 5,673     (4 )%
  • Fee income in the E&S segment decreased from its level in the prior year quarter due to the 2019 cancellation of a large commercial auto account.
  • Net investment income was $14.3 million, a decrease of 6.5% from the prior year quarter. Further details can be found in the "Investment Results" section below.

Investment Results

Net investment income for the second quarter of 2021 was $14.3 million, which compares to $15.4 million for the same period in 2020. The decrease was principally caused by lower investment income from restricted cash and lower investment income from our bank loan portfolio resulting from the sale of a substantial part of that portfolio during the second quarter of 2020.

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

  Three Months Ended
June 30,
 
($ in thousands) 2021   2020   % Change
Renewable Energy Investments $ 399     $ 113     253 %
Other Private Investments 435     331     31 %
All Other Net Investment Income 13,514     14,906     (9 )%
Total Net Investment Income $ 14,348     $ 15,350     (7 )%

The Company’s annualized gross investment yield on average fixed maturity, bank loan and equity securities for the three months ended June 30, 2021 was 2.8% (versus 3.2% for the three months ended June 30, 2020). The yield decreased primarily as a result of the sale of floating rate bank loan investments during the second quarter of 2020.

Taxes

Generally 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 tax rate for the three months ended June 30, 2021 and 2020 was 35.8% and 10.4%, respectively (23.7% and 17.6% for the six months ended June 30, 2021 and 2020, respectively). The full year 2021 tax rate is expected to approximate the 23.7% reported for the first six months of 2021.

Tangible Equity

Pre-dividend tangible book value2 of $661.1 million at June 30, 2021 was an increase of 14.5% from tangible book value of $577.4 million after dividends at December 31, 2020 largely due to the common share offering completed in May 2021 (net proceeds of $192.1 million).

June 30, 2021 tangible book value of $640.4 million after dividends increased 10.9% from $577.4 million at December 31, 2020.

Capital Management

The Company announced that its Board of Directors declared a cash dividend of $0.30 per common share. This dividend is payable on Thursday, September 30, 2021 to all shareholders of record on Monday, September 13, 2021.

Conference Call

James River will hold a conference call to discuss its second quarter results tomorrow, August 5, 2021 at 8:00 a.m. Eastern Time. Investors may access the conference call by dialing (877) 930-8055, Conference ID# 6974487, or via the internet by visiting www.jrgh.net and clicking on the “Investor Relations” link. Please access the website at least 15 minutes early to register and download any necessary audio software. A replay of the call will be available until 11:00 a.m. (Eastern Time) on September 4, 2021 and can be accessed by dialing (855) 859-2056 or 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, 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 factors, 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; the downgrade in the financial strength rating of our regulated insurance subsidiaries announced on May 7, 2021, or further downgrades, 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; 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 and adequately protect our company against financial loss; 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 their reimbursement obligations; 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; the ongoing effect of Public Law No. 115-97, informally titled the Tax Cuts and Jobs Act, which may 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; exposure to credit risk, interest rate risk and other market risk in our investment portfolio; 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 Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley”); and changes in our financial condition, regulations or other factors that may restrict our subsidiaries’ ability to pay us dividends. 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 Annual Report on Form 10-K filed with the SEC on February 26, 2021 and our Quarterly Report on Form 10-Q filed with the SEC on May 5, 2021. 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 book value, adjusted net operating return on average tangible book value (which is calculated as annualized adjusted net operating income (loss) divided by average tangible book value), and pre-dividend tangible book value per share, 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.jrgh.net

For more information contact:

Sarah Casey Doran

Chief Financial Officer
InvestorRelations@jrgh.net

 
James River Group Holdings, Ltd. and Subsidiaries
Condensed Consolidated Balance Sheet Data
(Unaudited)
 
  June 30, 2021   December 31, 2020
  ($ in thousands, except for share data)
ASSETS      
Invested assets:      
Fixed maturity securities, available-for-sale, at fair value $ 1,845,054   $ 1,783,642
Equity securities, at fair value 95,346   88,975
Bank loan participations, at fair value 165,217   147,604
Short-term investments 39,663   130,289
Other invested assets 57,003   46,548
Total invested assets 2,202,283   2,197,058
       
Cash and cash equivalents 360,931   162,260
Restricted cash equivalents (a) 723,525   859,920
Accrued investment income 11,399   10,980
Premiums receivable and agents’ balances, net 413,647   369,577
Reinsurance recoverable on unpaid losses, net 935,561   805,684
Reinsurance recoverable on paid losses 52,932   46,118
Deferred policy acquisition costs 67,286   62,953
Goodwill and intangible assets 218,051   218,233
Other assets 406,201   330,289
Total assets $ 5,391,816   $ 5,063,072
       
LIABILITIES AND SHAREHOLDERS’ EQUITY      
Reserve for losses and loss adjustment expenses $ 2,447,002   $ 2,192,080
Unearned premiums 709,479   630,371
Funds held (a) 723,525   859,920
Senior debt 262,300   262,300
Junior subordinated debt 104,055   104,055
Accrued expenses 55,317   55,989
Other liabilities 231,639   162,749
Total liabilities 4,533,317   4,267,464
       
Total shareholders’ equity 858,499   795,608
Total liabilities and shareholders’ equity $ 5,391,816   $ 5,063,072
       
Tangible equity (b) $ 640,448   $ 577,375
Tangible equity per common share outstanding (b) $ 17.18   $ 18.84
Total shareholders’ equity per common share outstanding $ 23.03   $ 25.96
Common shares outstanding 37,275,562   30,649,261
       
(a) As of June 30, 2021, the cash equivalent collateral held in the Rasier collateral trust arrangement was approximately $820.8 million, a portion of which is held in a collateral trust account established in favor of the Company, and a portion of which was withdrawn from the collateral trust account in October of 2019 and is currently held on balance sheet. At June 30, 2021, the cash equivalent collateral held in the collateral trust account was approximately $97.3 million while the Company held collateral funds of $723.5 million on balance sheet.
(b) See “Reconciliation of Non-GAAP Measures”      


 
James River Group Holdings, Ltd. and Subsidiaries
Condensed Consolidated Income (Loss) Statement Data
(Unaudited)
 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
  2021   2020   2021   2020
  ($ in thousands, except for share data)
REVENUES              
Gross written premiums $ 380,146     $ 301,639     $ 753,401     $ 585,480  
Net written premiums 193,604     165,757     368,203     300,411  
Net earned premiums 172,705     148,815     333,298     294,733  
Net investment income 14,348     15,350     29,437     36,186  
Net realized and unrealized gains (losses) on investments (a) 3,483     21,593     9,755     (36,814 )
Other income 1,031     991     2,057     2,928  
Total revenues 191,567     186,749     374,547     297,033  
               
EXPENSES              
Losses and loss adjustment expenses 110,000     98,746     383,500     195,602  
Other operating expenses 45,840     43,397     93,221     95,018  
Other expenses 904     1,732     1,525     1,732  
Interest expense 2,249     2,965     4,465     5,841  
Amortization of intangible assets 91     149     182     298  
Total expenses 159,084     146,989     482,893     298,491  
Income (loss) before taxes 32,483     39,760     (108,346 )   (1,458 )
Income tax expense (benefit) 11,640     4,146     (25,729 )   (257 )
NET INCOME (LOSS) $ 20,843     $ 35,614     $ (82,617 )   $ (1,201 )
ADJUSTED NET OPERATING INCOME (LOSS) (b) $ 18,829     $ 17,379     $ (89,966 )   $ 32,797  
               
INCOME (LOSS) PER SHARE              
Basic $ 0.61     $ 1.17     $ (2.54 )   $ (0.04 )
Diluted $ 0.60     $ 1.16     $ (2.54 )   $ (0.04 )
               
ADJUSTED NET OPERATING INCOME (LOSS) PER SHARE            
Basic $ 0.55     $ 0.57     $ (2.76 )   $ 1.08  
Diluted (c) $ 0.54     $ 0.56     $ (2.76 )   $ 1.07  
               
Weighted-average common shares outstanding:              
Basic 34,418,472     30,529,241     32,576,463     30,502,774  
Diluted 34,586,997     30,782,609     32,576,463     30,502,774  
Cash dividends declared per common share $ 0.30     $ 0.30     $ 0.60     $ 0.60  
               
Ratios:              
Loss ratio 63.7 %   66.4 %   115.1 %   66.4 %
Expense ratio (d) 26.0 %   28.6 %   27.4 %   31.4 %
Combined ratio 89.7 %   95.0 %   142.5 %   97.8 %
Accident year loss ratio 65.7 %   65.6 %   65.1 %   65.7 %
               
(a) Includes gains (losses) of $1.4 million and $3.2 million for the change in net unrealized gains/losses on equity securities in the three and six months ended June 30, 2021, respectively ($4.0 million and $(9.3) million in the respective prior year periods), and $2.3 million and $6.3 million for the change in net unrealized gains/losses on bank loan participations ($26.6 million and $(17.4) million in the respective prior year periods).
(b) See "Reconciliation of Non-GAAP Measures".
(c) Common share equivalents of 281,405 were dilutive for the calculation of diluted adjusted net operating income per share for the six months ended June 30, 2020.
(d) Calculated with a numerator comprising other operating expenses less gross fee income (in specific instances when the Company is not retaining insurance risk) included in “Other income” in our Condensed Consolidated Income Statements of $954,000 and $1.9 million for the three and six months ended June 30, 2021, respectively ($744,000 and $2.4 million in the respective prior year periods), and a denominator of net earned premiums.


 
James River Group Holdings, Ltd. and Subsidiaries
Segment Results
 
EXCESS AND SURPLUS LINES
 
  Three Months Ended
June 30,
      Six Months Ended
June 30,
   
  2021   2020   %
Change
  2021   2020   %
Change
  ($ in thousands)
Gross written premiums $ 214,014     $ 186,994     14.4 %   $ 395,372     $ 323,191     22.3 %
Net written premiums $ 135,163     $ 126,814     6.6 %   $ 243,596     $ 219,020     11.2 %
                       
Net earned premiums $ 117,945     $ 100,849     17.0 %   $ 231,653     $ 200,588     15.5 %
Losses and loss adjustment expenses (69,594 )   (63,410 )   9.8 %   (311,336 )   (128,939 )   141.5 %
Underwriting expenses (21,434 )   (21,344 )   0.4 %   (44,346 )   (47,442 )   (6.5 )%
Underwriting profit (loss) (a), (b) $ 26,917     $ 16,095     67.2 %   $ (124,029 )   $ 24,207      
                       
Ratios:                      
Loss ratio 59.0 %   62.9 %       134.4 %   64.3 %    
Expense ratio 18.2 %   21.1 %       19.1 %   23.6 %    
Combined ratio 77.2 %   84.0 %       153.5 %   87.9 %    
Accident year loss ratio 65.3 %   65.7 %       64.8 %   65.7 %    
                       
(a) See "Reconciliation of Non-GAAP Measures".
(b) Underwriting results for the three and six months ended June 30, 2020 include gross fee income of $296,000 and $1.6 million, respectively, related to a former commercial auto account (none for the three and six months ended June 30, 2021). These amounts are included in “Other income” in our Condensed Consolidated Income Statements.
 

SPECIALTY ADMITTED INSURANCE

  Three Months Ended
June 30,
      Six Months Ended
June 30,
   
  2021   2020   %
Change
  2021   2020   %
Change
  ($ in thousands)
Gross written premiums $ 129,189     $ 88,440     46.1 %   $ 256,225     $ 191,242     34.0 %
Net written premiums $ 21,498     $ 12,739     68.8 %   $ 43,503     $ 26,095     66.7 %
                       
Net earned premiums $ 18,595     $ 14,392     29.2 %   $ 34,952     $ 27,675     26.3 %
Losses and loss adjustment expenses (13,366 )   (10,559 )   26.6 %   (24,108 )   (20,464 )   17.8 %
Underwriting expenses (3,091 )   (2,403 )   28.6 %   (7,440 )   (6,769 )   9.9 %
Underwriting profit (a), (b) $ 2,138     $ 1,430     49.5 %   $ 3,404     $ 442      
                       
Ratios:                      
Loss ratio 71.9 %   73.4 %       69.0 %   73.9 %    
Expense ratio 16.6 %   16.7 %       21.3 %   24.5 %    
Combined ratio 88.5 %   90.1 %       90.3 %   98.4 %    
Accident year loss ratio 77.3 %   80.3 %       74.7 %   81.2 %    
                       
(a) See "Reconciliation of Non-GAAP Measures".
(b) Underwriting results include gross fee income of $5.4 million and $10.6 million for the three and six months ended June 30, 2021, respectively ($5.4 million and $9.6 million for the same periods in the prior year).
 

CASUALTY REINSURANCE

  Three Months Ended
June 30,
      Six Months Ended
June 30,
   
  2021   2020   % Change   2021   2020   % Change
  ($ in thousands)
Gross written premiums $ 36,943     $ 26,205     41.0 %   $ 101,804     $ 71,047     43.3 %
Net written premiums $ 36,943     $ 26,204     41.0 %   $ 81,104     $ 55,296     46.7 %
                       
Net earned premiums $ 36,165     $ 33,574     7.7 %   $ 66,693     $ 66,470     0.3 %
Losses and loss adjustment expenses (27,040 )   (24,777 )   9.1 %   (48,056 )   (46,199 )   4.0 %
Underwriting expenses (12,446 )   (11,434 )   8.9 %   (23,583 )   (22,701 )   3.9 %
Underwriting loss (a) $ (3,321 )   $ (2,637 )   25.9 %   $ (4,946 )   $ (2,430 )   103.5 %
                       
Ratios:                      
Loss ratio 74.8 %   73.8 %       72.1 %   69.5 %    
Expense ratio 34.4 %   34.1 %       35.3 %   34.2 %    
Combined ratio 109.2 %   107.9 %       107.4 %   103.7 %    
Accident year loss ratio 60.9 %   59.0 %       60.8 %   59.2 %    
                       
(a) See "Reconciliation of Non-GAAP Measures".
                     

RECONCILIATION OF NON-GAAP MEASURES

Underwriting Profit (Loss)

The following table reconciles the underwriting profit (loss) by individual operating segment and for the entire Company to consolidated income (loss) before taxes. We believe that these measures are useful to investors in evaluating the performance of our Company and its operating segments because our objective is to consistently earn underwriting profits. We evaluate the performance of our operating segments and allocate resources based primarily on underwriting profit (loss) of operating segments. Our definition of underwriting profit (loss) of operating segments and underwriting profit (loss) may not be comparable to that of other companies.

  Three Months Ended
June 30,
  Six Months Ended
June 30,
  2021   2020   2021   2020
  (in thousands)
Underwriting profit (loss) of the operating segments:              
Excess and Surplus Lines $ 26,917     $ 16,095     $ (124,029 )   $ 24,207  
Specialty Admitted Insurance 2,138     1,430     3,404     442  
Casualty Reinsurance (3,321 )   (2,637 )   (4,946 )   (2,430 )
Total underwriting profit (loss) of operating segments 25,734     14,888     (125,571 )   22,219  
Other operating expenses of the Corporate and Other segment (7,915 )   (7,472 )   (15,971 )   (15,751 )
Underwriting profit (loss) (a) 17,819     7,416     (141,542 )   6,468  
Net investment income 14,348     15,350     29,437     36,186  
Net realized and unrealized gains (losses) on investments (b) 3,483     21,593     9,755     (36,814 )
Other expense (827 )   (1,485 )   (1,349 )   (1,159 )
Interest expense (2,249 )   (2,965 )   (4,465 )   (5,841 )
Amortization of intangible assets (91 )   (149 )   (182 )   (298 )
Consolidated income (loss) before taxes $ 32,483     $ 39,760     $ (108,346 )   $ (1,458 )
               
(a) Included in underwriting results for the three and six months ended June 30, 2021 is gross fee income of $5.4 million and $10.6 million, respectively ($5.7 million and $11.2 million in the respective prior year periods).
(b) Includes gains (losses) of $1.4 million and $3.2 million for the change in net unrealized gains/losses on equity securities in the three and six months ended June 30, 2021, respectively ($4.0 million and $(9.3) million in the respective prior year periods), and $2.3 million and $6.3 million for the change in net unrealized gains/losses on bank loan participations ($26.6 million and $(17.4) million in the respective prior year periods).

Adjusted Net Operating Income (Loss)

We define adjusted net operating income (loss) as net income (loss) excluding net realized and unrealized gains (losses) on investments, and certain non-operating expenses such as professional service fees related to various strategic initiatives and the filing of registration statements for the offering of securities, and severance costs associated with terminated employees. We use adjusted net operating income (loss) 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 (loss) should not be viewed as a substitute for net income (loss) calculated in accordance with GAAP, and our definition of adjusted net operating income (loss) may not be comparable to that of other companies.

Our income (loss) before taxes and net income (loss) reconciles to our adjusted net operating income (loss) as follows:

  Three Months Ended June 30,
  2021   2020
  Income Before
Taxes
  Net Income   Income Before
Taxes
  Net Income
  (in thousands)
Income as reported $ 32,483     $ 20,843     $ 39,760     $ 35,614  
Net realized and unrealized (gains) losses on investments (a) (3,483 )   (2,741 )   (21,593 )   (19,763 )
Other expenses 811     727     1,732     1,528  
Adjusted net operating income $ 29,811     $ 18,829     $ 19,899     $ 17,379  
               
  Six Months Ended June 30,
  2021   2020
  Loss Before
Taxes
  Net Loss   (Loss) Income
Before Taxes
  Net (Loss)
Income
  (in thousands)
Loss as reported $ (108,346 )   $ (82,617 )   $ (1,458 )   $ (1,201 )
Net realized and unrealized (gains) losses on investments (a) (9,755 )   (8,492 )   36,814     32,470  
Other expenses 1,338     1,143     1,732     1,528  
Adjusted net operating (loss) income $ (116,763 )   $ (89,966 )   $ 37,088     $ 32,797  
               
(a) Includes gains (losses) of $1.4 million and $3.2 million for the change in net unrealized gains/losses on equity securities in the three and six months ended June 30, 2021, respectively ($4.0 million and $(9.3) million in the respective prior year periods), and $2.3 million and $6.3 million for the change in net unrealized gains/losses on bank loan participations ($26.6 million and $(17.4) million in the respective prior year periods).

Tangible Equity (per Share) and Pre-Dividend Tangible Equity (per Share)

We define tangible equity as shareholders’ equity less goodwill and intangible assets (net of amortization). Our definition of tangible 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 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 for June 30, 2021, December 31, 2020, and June 30, 2020 and reconciles tangible equity to tangible equity before dividends for June 30, 2021.

  June 30, 2021   December 31, 2020   June 30, 2020
($ in thousands, except for share data) Equity   Equity per
share
  Equity   Equity per
share
  Equity   Equity per
share
Shareholders' equity $ 858,499   $ 23.03   $ 795,608   $ 25.96   $ 795,711   $ 26.04
Goodwill and intangible assets 218,051   5.85   218,233   7.12   218,473   7.15
Tangible equity $ 640,448   $ 17.18   $ 577,375   $ 18.84   $ 577,238   $ 18.89
Dividends to shareholders for the six months ended June 30, 2021 20,603   0.60                
Pre-dividend tangible equity $ 661,051   $ 17.78                

_________________

1 Adjusted Net Operating Income, Underwriting Profit, Adjusted Net Operating Return on Average Tangible Equity, and Tangible Book Value per Share 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 Pre-dividend tangible book value and tangible book value are non-GAAP financial measures. See “Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” at the end of this press release.


James River Group Holdings, Ltd.