Press Release

James River Group Holdings Reports 2016 Third Quarter Results

11/02/16

EARNINGS PER SHARE OF $0.71 PER DILUTED SHARE
_____________________________________________

NET OPERATING EARNINGS PER SHARE OF $0.72 PER DILUTED SHARE
_________________________________________

12.7% AND 12.6% GROWTH IN NET INCOME AND OPERATING EARNINGS
_____________________________________________

21.4% GROWTH IN E&S SEGMENT GROSS WRITTEN PREMIUMS
_____________________________________________

SUBSTANTIAL GROWTH IN SPECIALTY ADMITTED SEGMENT GROSS WRITTEN PREMIUMS
_____________________________________________

INCREASES QUARTERLY DIVIDEND TO $0.30 PER SHARE
_____________________________________________

DECLARES A $1.35 PER SHARE SPECIAL DIVIDEND
_____________________________________________

PEMBROKE, Bermuda, Nov. 02, 2016 (GLOBE NEWSWIRE) -- James River Group Holdings, Ltd. (NASDAQ:JRVR) today announced financial results for the third quarter and nine months ended September 30, 2016.

J. Adam Abram, Chairman and Chief Executive Officer of James River Group Holdings, Ltd. commented, “The combination of underwriting focus, expense discipline and new product development is continuing to produce strong returns for our Company. As a result, we delivered a 93.7% combined ratio for the quarter with a 3.1% increase in tangible equity per share. Our low volatility model continues to generate consistent returns.”

“Our profitable growth permitted our Board to increase our quarterly dividend to $0.30 per share and to supplement this quarter’s dividend with an additional special dividend of $1.35 per share to be paid in the fourth quarter.” 

Significant factors for the third quarter of 2016 include:

  • Each of the Company’s operating segments made an underwriting profit;
  • Fully diluted earnings per share of $0.71 compared to $0.64 in the prior year;
  • Diluted operating earnings per share of $0.72 compared to $0.65 in the prior year;
  • Net income of $21.4 million compared to $19.0 million in the prior year;
  • Net operating income of $21.6 million compared to $19.2 million in the prior year;
  • An expense ratio of 31.1% compared to 34.7% in the prior year;
  • A combined ratio of 93.7% compared to 89.0% in the prior year;
  • Favorable reserve development of $5.3 million compared to $9.6 million in the prior year (representing a 4.0 point and 7.8 point reduction of our loss and combined ratio, respectively);
  • Gross written premiums of $260.2 million, as follows:
     
  Three Months Ended September 30,  
($ in thousands)   2016       2015     Change 
Excess and Surplus Lines $ 99,882     $ 82,249       21.4 %
Specialty Admitted Insurance   56,119       22,898       145.1 %
Casualty Reinsurance   104,165       43,089       141.7 %
  $ 260,166     $ 148,236       75.5 %
                       
  • Net written premiums of $205.1 million, as follows:
     
  Three Months Ended September 30,  
($ in thousands)   2016       2015     Change 
Excess and Surplus Lines $ 86,193     $ 68,731       25.4 %
Specialty Admitted Insurance   14,774       11,110       33.0 %
Casualty Reinsurance   104,174       43,087       141.8 %
  $ 205,141     $ 122,928       66.9 %
                       
  • Our net premium retention decreased from 82.9% to 78.9% on a quarter-over-quarter basis as our fronting and program business continues to grow, the majority of which is ceded to third party reinsurers. Specifically, we ceded 73.7% of our Specialty Admitted Insurance segment’s business this quarter and 13.7% of our Excess and Surplus premiums.

Significant factors for the nine-month period ended September 30, 2016 include:

  • Each of the Company’s operating segments made an underwriting profit;
  • Fully diluted earnings per share of $1.64 compared to $1.40 in the prior year;
  • Diluted operating earnings per share of $1.61 compared to $1.48 in the prior year;
  • Net income of $48.8 million compared to $40.8 million in the prior year;
  • Net operating income of $48.1 million compared to $43.2 million in the prior year;
  • An expense ratio of 31.9% compared to 34.1% in the prior year;
  • A combined ratio of 95.2% compared to 94.6% in the prior year;
  • Favorable reserve development of $14.7 million compared to $14.6 million in the prior year (representing a 4.0 point and 4.2 point reduction of our loss and combined ratio, respectively);
  • Gross written premiums of $563.9 million, as follows:
     
  Nine Months Ended September 30,  
($ in thousands)   2016     % of Total     2015     % of Total   Change 
Excess and Surplus Lines $ 279,417         49.6 %   $ 235,384         50.8 %     18.7 %
Specialty Admitted Insurance   119,007         21.1 %     61,755         13.3 %     92.7 %
Casualty Reinsurance   165,484         29.3 %     166,366         35.9 %     (0.5 )%
  $ 563,908         100.0 %   $ 463,505         100.0 %     21.7 %
                                       
  • Net written premiums of $445.1 million, as follows:
     
  Nine Months Ended September 30,  
($ in thousands)   2016     % of Total     2015     % of Total   Change 
Excess and Surplus Lines $ 239,618         53.8 %   $ 191,951         49.2 %     24.8 %
Specialty Admitted Insurance   39,499         8.9 %     31,751         8.1 %     24.4 %
Casualty Reinsurance   165,983         37.3 %     166,699         42.7 %     (0.4 )%
  $ 445,100         100.0 %   $ 390,401         100.0 %     14.0 %
                                       
  • Our net premium retention decreased from 84.2% to 78.9% on a year-over-year basis as our fronting and program business continues to grow, the majority of which is ceded to third party reinsurers. Specifically, we ceded 66.8% of our Specialty Admitted Insurance segment’s business this year and 14.2% of our Excess and Surplus premiums.

The combined ratio for the quarter ended September 30, 2016 was 93.7% which compares to 89.0% in the prior year.  For the nine months ended September 30, 2016, our combined ratio was 95.2% which compares to 94.6% in the prior year.

The loss ratio for the quarter ended September 30, 2016 was 62.6% which compares to 54.4% in the prior year.  For the nine months ended September 30, 2016, the loss ratio was 63.3% compared to 60.5% in the prior year.  The increase in the loss ratio for the quarter was due to less favorable reserve development as explained in the paragraph below, as well as higher accident year loss picks for newer business lines such as commercial auto, where we have a higher initial loss pick but also a lower expense ratio than our Excess and Surplus Lines Segment as a whole.  The increase in the loss ratio for the year to date was also primarily due to the higher initial loss picks for newer business lines, which have the aforementioned lower expense ratio.

Results for the quarter ended September 30, 2016 include favorable prior year reserve development of $5.3 million, representing 4.0 combined ratio points, compared to favorable reserve development of $9.6 million in the third quarter of 2015, representing 7.8 combined ratio points. After-tax, favorable reserve development for the quarter was $4.6 million ($8.3 million in the prior year). Year-to-date, 2016 includes favorable prior year reserve development of $14.7 million ($13.0 million on an after-tax basis) representing 4.0 combined ratio points. For the nine months ended September 30, 2015, favorable reserve development was $14.6 million ($12.4 million on an after-tax basis) representing 4.2 combined ratio points. Of note are the percentage of net IBNR to total reserves, which grew from 68.0% at December 31, 2015 to 69.0% at September 30, 2016, and the accident year loss ratio, which increased from 64.7% for the nine months ended September 30, 2015 to 67.3% for the nine months ended September 30, 2016.

The pre-tax reserve development by segment was as follows:

  Three Months Ended
September 30,
      Nine Months Ended
September 30,
   
    2016       2015     Change     2016       2015     Change
                                               
  (in thousands)
Excess and Surplus Lines $ 5,774     $ 10,073     $ (4,299 )   $ 13,778     $ 18,447     $ (4,669 )
Specialty Admitted Insurance   1,571       1,970       (399 )     2,499       2,166       333  
Casualty Reinsurance   (2,012 )     (2,458 )     446       (1,529 )     (6,021 )     4,492  
  $ 5,333     $ 9,585     $ (4,252 )   $ 14,748     $ 14,592     $ 156  
                                               

The expense ratio for the quarter ended September 30, 2016 was 31.1% which compares to 34.7% in the prior year.  For the nine months ended September 30, 2016, our expense ratio was 31.9% which compares to 34.1% in the prior year.  The downward trend in our expense ratio is a result of scale, increasing fee income, and the lower expense ratio for some of our new business lines as mentioned above.

Tangible equity value increased 3.1% for the third quarter of 2016 from $508.8 million at June 30, 2016 to $524.9 million at September 30, 2016. The increase primarily reflects net income of $21.4 million offset by $1.7 million in other comprehensive loss and $5.9 million of dividends during the third quarter of 2016. Tangible equity per share was $18.03 at September 30, 2016.

On a year-to-date basis, tangible equity increased 14.2% from $459.7 million at December 31, 2015 to $524.9 million at September 30, 2016, resulting primarily from $48.8 million of net income and $26.7 million of other comprehensive income offset by $17.6 million of dividends.

Net investment income for the third quarter of 2016 was $15.8 million which compares to $9.5 million for the same period in 2015. On a year-to-date basis, net investment income for 2016 was $38.6 million which compares to $34.5 million for the same period in 2015. The details of the change in our net investment income are as follows:

  Three Months Ended
September 30,
      Nine Months Ended
September 30,
   
    2016       2015     %
Change
    2016       2015     %
Change
                                               
  ($ in thousands)
Renewable Energy Investments $ 2,745     $ (659 )     -     $ 1,976     $ 3,956       (50.1 )%
Other Private Investments   2,034       32       -       4,491       1,628       175.9 %
All Other Net Investment Income   11,018       10,137       8.7 %     32,155       28,912       11.2 %
Total Net Investment Income $ 15,797     $ 9,510       66.1 %   $ 38,622     $ 34,496       12.0 %
                                               

Our annualized gross investment yield on average fixed maturity securities for the three and nine months ended September 30, 2016 was 3.4% for both periods and the average duration of our portfolio was 3.6 years at the quarter-end.

During the third quarter, we recognized $210,000 of pre-tax net realized gains ($17,000 of losses in the same period in 2015). Year-to-date, we have recognized $2.4 million in pre-tax net realized gains ($2.5 million of realized losses in the same period in 2015).

Generally, our 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. Our tax rate for the three months ended September 30, 2016 and 2015 was 4.1% and 9.8%, respectively. For the nine months ended September 30, 2016 and 2015, our tax rate was 6.5% and 9.4%, respectively. The tax rate in the third quarter of 2016 was favorably impacted by higher than expected deductions on certain compensation expense items and the tax jurisdictions where we earned our profits.

Dividend

The Company announced that its Board of Directors had increased its cash dividend to $0.30 per common share. This dividend is payable on Thursday, December 29, 2016 to all shareholders of record on Friday, December 16, 2016. 

Special Dividend

The Company also announced that its Board of Directors declared a cash dividend of $1.35 per common share. This dividend is payable on Thursday, December 29, 2016 to all shareholders of record on Friday, December 16, 2016. 

Guidance

The Company has reaffirmed its guidance to achieve a 12.0% or better operating return on average tangible equity and a combined ratio of between 92% and 95% for 2016.

Conference Call

James River Group Holdings will hold a conference call to discuss this press release tomorrow, November 3, 2016, at 9:00 a.m. Eastern time. Investors may access the conference call by dialing (877) 930-8055 Conference ID# 93514437 or via the internet by going to www.jrgh.net and clicking on the “Investor Relations” link. Please visit the website at least 15 minutes early to register and download any necessary audio software. A replay of the call will be available at both the number above and the website until 11:00am (Eastern Standard Time) on December 3, 2016.

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 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: losses exceeding reserves or amounts of reinsurance purchased by the Company; loss of key members of our management or employees; adverse economic factors; a decline in our financial strength; loss of a group of brokers or agents that generate significant portions of our business; loss of a customer that generates a significant portion of our business; additional government or market regulation; a failure of any loss limitation or exclusions employed by the Company or from emerging claim and coverage issues; losses in our investment portfolio; potentially becoming subject to United States taxation and other risks described in the Company's filings with the Securities and Exchange Commission. 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’ 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, net operating income and tangible equity 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 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 which owns and operates a group of specialty insurance and reinsurance companies founded by members of our management team. The Company operates in three specialty property-casualty insurance and reinsurance segments: Excess and Surplus Lines, Specialty Admitted Insurance and Casualty Reinsurance. The Company tends to focus on accounts associated with small or medium-sized businesses in each of its segments. 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

   
James River Group Holdings, Ltd. and Subsidiaries  
Condensed Consolidated Balance Sheet Data  
(Unaudited)  
   
    September 30,
2016
  December 31,
2015
 
                       
    ($ in thousands, except for share amounts)  
ASSETS              
Invested assets:              
Fixed maturity securities, available-for-sale   $   978,034     $   899,660    
Fixed maturity securities, trading       5,068         5,046    
Equity securities, available-for-sale       89,708         74,111    
Bank loan participations, held-for-investment       211,355         191,700    
Short-term investments       23,256         19,270    
Other invested assets       52,432         54,504    
Total invested assets       1,359,853         1,244,291    
               
Cash and cash equivalents       90,873         106,406    
Accrued investment income       7,438         8,068    
Premiums receivable and agents’ balances       280,462         176,685    
Reinsurance recoverable on unpaid losses       156,286         131,788    
Reinsurance recoverable on paid losses       6,561         11,298    
Deferred policy acquisition costs       74,929         60,754    
Goodwill and intangible assets       220,912         221,359    
Other assets       150,597         94,848    
Total assets   $   2,347,911     $   2,055,497    
               
LIABILITIES AND SHAREHOLDERS’ EQUITY              
Reserve for losses and loss adjustment expenses   $   874,662     $   785,322    
Unearned premiums       414,009         301,104    
Senior debt       88,300         88,300    
Junior subordinated debt       104,055         104,055    
Accrued expenses       35,508         29,476    
Other liabilities       85,612         66,202    
Total liabilities       1,602,146         1,374,459    
               
Total shareholders’ equity       745,765         681,038    
Total liabilities and shareholders’ equity   $   2,347,911     $   2,055,497    
               
Tangible equity   $   524,853     $   459,679    
Total shareholders’ equity per common share
  Outstanding
  $   25.61     $   23.53    
Tangible equity per common share outstanding   $   18.03     $   15.88    
Common shares outstanding at end-of-period       29,116,496         28,941,547    
Debt to total capitalization ratio       20.5 %       22.0 %  
                       


James River Group Holdings, Ltd. and Subsidiaries
Condensed Consolidated Income Statement Data
(Unaudited)
 
  Three Months Ended
September 30,

    Nine Months Ended
September 30,

  2016   2015       2016     2015
                                       
  ($ in thousands, except for share data)
REVENUES              
Gross written premiums $ 260,166     $ 148,236     $ 563,908     $ 463,505  
Net written premiums $ 205,141     $ 122,928     $ 445,100     $ 390,401  
               
Net earned premiums $ 133,149     $ 122,705     $ 368,834     $ 345,776  
Net investment income   15,797       9,510       38,622       34,496  
Net realized investment gains (losses)   210       (17 )     2,376       (2,473 )
Other income   2,209       925       7,373       2,018  
Total revenues   151,365       133,123       417,205       379,817  
               
EXPENSES              
Losses and loss adjustment expenses   83,326       66,718       233,491       209,133  
Other operating expenses   43,579       43,387       124,732       119,764  
Other expenses   (43 )     69       36       207  
Interest expense   2,079       1,769       6,294       5,217  
Amortization of intangible assets   149       149       447       447  
Total expenses   129,090       112,092       365,000       334,768  
Income before taxes   22,275       21,031       52,205       45,049  
Income tax expense   (909 )     (2,070 )     (3,406 )     (4,222 )
NET INCOME $ 21,366     $ 18,961     $ 48,799     $ 40,827  
NET OPERATING INCOME $ 21,594     $ 19,177     $ 48,097     $ 43,230  
               
EARNINGS PER SHARE              
Basic $ 0.73     $ 0.66     $ 1.68     $ 1.43  
Diluted $ 0.71     $ 0.64     $ 1.64     $ 1.40  
               
NET OPERATING INCOME PER SHARE              
Basic $ 0.74     $ 0.67     $ 1.66     $ 1.51  
Diluted $ 0.72     $ 0.65     $ 1.61     $ 1.48  
               
Weighted-average common shares outstanding:              
Basic   29,101,550       28,735,087       29,030,284       28,608,398  
Diluted   29,935,152       29,418,251       29,834,686       29,244,520  
Cash dividends declared per common share $ 0.20     $ 0.16     $ 0.60     $ 0.48  
               
Ratios:              
Loss ratio   62.6 %     54.4 %     63.3 %     60.5 %
Expense ratio   31.1 %     34.7 %     31.9 %     34.1 %
Combined ratio   93.7 %     89.0 %     95.2 %     94.6 %
Accident year loss ratio   66.6 %     62.2 %     67.3 %     64.7 %
                               


James River Group Holdings, Ltd. and Subsidiaries
Segment Results
 
EXCESS AND SURPLUS LINES
 
  Three Months Ended
September 30,
      Nine Months Ended
September 30,
   
    2016     2015   %
Change
  2016   2015   %
Change
                                                 
  ($ in thousands)    
                       
Gross written premiums $ 99,882     $ 82,249       21.4 %   $ 279,417     $ 235,384       18.7 %
Net written premiums $ 86,193     $ 68,731       25.4 %   $ 239,618     $ 191,951       24.8 %
                       
Net earned premiums $ 81,672     $ 65,804       24.1 %   $ 217,742     $ 178,071       22.3 %
Losses and loss adjustment expenses   (50,733 )     (32,853 )     54.4 %     (137,457 )     (101,383 )     35.6 %
Underwriting expenses   (18,531 )     (15,904 )     16.5 %     (48,890 )     (46,429 )     5.3 %
Underwriting profit (a), (b) $ 12,408     $ 17,047       (27.2 )%   $ 31,395     $ 30,259       3.8 %
                       
Ratios:                      
Loss ratio   62.1 %     49.9 %         63.1 %     56.9 %    
Expense ratio   22.7 %     24.2 %         22.5 %     26.1 %    
Combined ratio   84.8 %     74.1 %         85.6 %     83.0 %    
Accident year loss ratio   69.2 %     65.2 %         69.5 %     67.3 %    
                       
(a) See "Reconciliation of Non-GAAP Measures."
(b) Underwriting results include fee income of $2.1 million and $(595,000) for the three months ended September 30, 2016 and 2015, respectively, and $7.2 million and $1.8 million for the respective nine month periods.  These amounts are included in “Other income” in our Condensed Consolidated Income Statements.
 


SPECIALTY ADMITTED INSURANCE
 
  Three Months Ended
September 30,
      Nine Months Ended
September 30,
   
    2016     2015   %
Change
  2016   2015   %
Change
                                                 
  ($ in thousands)    
                       
Gross written premiums $ 56,119     $ 22,898       145.1 %   $ 119,007     $ 61,755       92.7 %
Net written premiums $ 14,774     $ 11,110       33.0 %   $ 39,499     $ 31,751       24.4 %
                       
Net earned premiums $ 13,204     $ 10,743       22.9 %   $ 36,816     $ 30,448       20.9 %
Losses and loss adjustment expenses   (7,978 )     (6,448 )     23.7 %     (22,058 )     (18,377 )     20.0 %
Underwriting expenses   (4,524 )     (3,833 )     18.0 %     (13,456 )     (11,565 )     16.4 %
Underwriting profit (a), (b) $ 702     $ 462       51.9 %   $ 1,302     $ 506       157.3 %
                       
Ratios:                      
Loss ratio   60.4 %     60.0 %         59.9 %     60.4 %    
Expense ratio   34.3 %     35.7 %         36.5 %     38.0 %    
Combined ratio   94.7 %     95.7 %         96.5 %     98.3 %    
Accident year loss ratio   72.3 %     78.4 %         66.7 %     67.5 %    
                       
(a) See "Reconciliation of Non-GAAP Measures."
(b) Underwriting results include fee income of $938,000 and $404,000 for the three months ended September 30, 2016 and 2015, respectively, and $2.5 million and $1.2 million for the respective nine month periods.  These amounts are included in “Other operating expenses” in our Condensed Consolidated Income Statements.
 


CASUALTY REINSURANCE
 
  Three Months Ended
September 30,
      Nine Months Ended
September 30,
   
    2016     2015   %
Change
  2016   2015   %
Change
                                                 
  ($ in thousands)    
                       
Gross written premiums $ 104,165     $ 43,089       141.7 %   $ 165,484     $ 166,366       (0.5 )%
Net written premiums $ 104,174     $ 43,087       141.8 %   $ 165,983     $ 166,699       (0.4 )%
                       
Net earned premiums $ 38,273     $ 46,158       (17.1 )%   $ 114,276     $ 137,257       (16.7 )%
Losses and loss adjustment expenses   (24,615 )     (27,417 )     (10.2 )%     (73,976 )     (89,373 )     (17.2 )%
Underwriting expenses   (13,525 )     (18,465 )     (26.8 )%     (39,627 )     (46,973 )     (15.6 )%
Underwriting profit (a) $ 133     $ 276       (51.8 )%   $ 673     $ 911       (26.1 )%
                       
Ratios:                      
Loss ratio   64.3 %     59.4 %         64.7 %     65.1 %    
Expense ratio   35.3 %     40.0 %         34.7 %     34.2 %    
Combined ratio   99.7 %     99.4 %         99.4 %     99.3 %    
Accident year loss ratio   59.1 %     54.1 %         63.4 %     60.7 %    
                       
(a) See "Reconciliation of Non-GAAP Measures."
 

RECONCILIATION OF NON-GAAP MEASURES

Underwriting Profit

The following table reconciles the underwriting profit by individual operating segment and of the whole Company to consolidated income 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 the underwriting profit of operating segments.  Our definition of underwriting profit of operating segments and underwriting profit may not be comparable to that of other companies.

  Three Months Ended
September 30,
  Nine Months Ended
September 30,
    2016       2015       2016       2015  
                               
  ($ in thousands)
Underwriting profit of the operating segments:            
Excess and Surplus Lines $ 12,408     $ 17,047     $ 31,395     $ 30,259  
Specialty Admitted Insurance   702       462       1,302       506  
Casualty Reinsurance   133       276       673       911  
Total underwriting profit of operating segments   13,243       17,785       33,370       31,676  
Other operating expenses of the Corporate and
Other segment
  (4,870 )     (4,324 )     (15,597 )     (12,958 )
Underwriting profit (a)   8,373       13,461       17,773       18,718  
Net investment income   15,797       9,510       38,622       34,496  
Net realized investment gains (losses)   210       (17 )     2,376       (2,473 )
Other income and expenses   123       (5 )     175       (28 )
Interest expense   (2,079 )     (1,769 )     (6,294 )     (5,217 )
Amortization of intangible assets   (149 )     (149 )     (447 )     (447 )
Consolidated income before taxes $ 22,275     $ 21,031     $ 52,205     $ 45,049  
               
(a)  Included in underwriting results for the three months ended September 30, 2016 and 2015 is fee income of
  $3.1 million and $(191,000) respectively, and $9.7 million and $3.1 million for the respective nine month periods.
 

Net Operating Income

We define net operating income as net income excluding net realized investment gains and losses, expenses related to due diligence for various merger and acquisition activities, costs associated with our initial public offering, severance costs associated with terminated employees, impairment charges on goodwill and intangible assets and gains on extinguishment of debt. We use 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.  Net operating income should not be viewed as a substitute for net income calculated in accordance with GAAP, and our definition of net operating income may not be comparable to that of other companies.

Our income before taxes and net income for the three and nine months ended September 30, 2016 and 2015, respectively, reconciles to our net operating income as follows:

  Three Months Ended September 30,
    2016       2015  
  Income
Before
Taxes
  Net
Income
  Income
Before
Taxes
  Net
Income
                               
  ($ in thousands)
Income as reported $ 22,275     $ 21,366     $ 21,031     $ 18,961  
Net realized investment (gains) losses   (210 )     56       17       63  
Other expenses   (43 )     (28 )     69       45  
Interest expense on leased building the
   Company is deemed to own for
   accounting purposes
  308       200       166       108  
Net operating income $ 22,330     $ 21,594     $ 21,283     $ 19,177  
               


  Nine Months Ended September 30,
    2016       2015  
  Income
Before
Taxes
  Net
Income
  Income
Before
Taxes
  Net
Income
                               
  ($ in thousands)
Income as reported $ 52,205     $ 48,799     $ 45,049     $ 40,827  
Net realized investment (gains) losses   (2,376 )     (1,508 )     2,473       1,946  
Other expenses   36       91       207       135  
Interest expense on leased building the
   Company is deemed to own for  
  accounting purposes
  1,100       715       496       322  
Net operating income $ 50,965     $ 48,097     $ 48,225     $ 43,230  
               

Tangible Equity and 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 September 30, 2016, June 30, 2016 and December 31, 2015.

  September 30, 2016   June 30, 2016   December 31, 2015
($ in thousands, except for share data) Equity   Equity
per
share
  Equity   Equity
per
share
  Equity   Equity
per
share
Shareholders' equity $ 745,765     $ 25.61     $ 729,898     $ 25.09     $ 681,038     $ 23.53  
Goodwill and intangible assets   220,912       7.58       221,061       7.60       221,359       7.65  
Tangible equity $ 524,853     $ 18.03     $ 508,837     $ 17.49     $ 459,679     $ 15.88  
                                               

 

For more information contact:

Robert Myron
President and Chief Operating Officer
441-278-4583
InvestorRelations@jrgh.net

James River Group Holdings, Ltd.