SEC Filing | James River Group Holdings

View:

jrvr-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2023


☐			Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _______ to _______

Commission File Number: 001-36777


JAMES RIVER GROUP HOLDINGS, LTD.

(Exact name of registrant as specified in its charter)


Bermuda						98-0585280
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

Wellesley House, 2nd Floor, 90 Pitts Bay Road, Pembroke HM08, Bermuda

(Address of principal executive offices)

(Zip Code)

(441) 278-4580

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Names of each exchange on which registered

Common Shares, par value $0.0002 per share

JRVR

NASDAQ

Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No x

Number of shares of the registrant's common shares outstanding at August 4, 2023: 37,619,749

James River Group Holdings, Ltd.

Form 10-Q

Index


		Page Number
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets —June 30, 2023 and December 31, 2022	5

	Condensed Consolidated Statements of Income and Comprehensive Income (Loss)—Three and Six Months Ended June 30, 2023 and 2022	7

	Condensed Consolidated Statements of Changes in Shareholders’ Equity—Three and Six Months Ended June 30, 2023 and 2022	8

	Condensed Consolidated Statements of Cash Flows—Six Months Ended June 30, 2023 and 2022	10

	Notes to Condensed Consolidated Financial Statements	11

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	34

	Critical Accounting Policies and Estimates	36

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59

Item 4.	Controls and Procedures	59

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	59
Item 1A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3.	Defaults Upon Senior Securities	60
Item 4.	Mine Safety Disclosures	60
Item 5.	Other Information	60
Item 6.	Exhibits	60

Signatures		61

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements may be identified by the fact that they do not relate strictly to historical or current facts. You may identify forward-looking statements in this Quarterly Report by the use of words such as “anticipates,” “estimates,” “expects,” “intends,” “plans”, “seeks” and “believes,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could.” These forward-looking statements include, among others, all statements relating to our future financial performance, our business prospects and strategy, anticipated financial position and financial strength ratings, liquidity and capital needs and other similar matters. These forward-looking statements are based on management’s current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict.

Our actual results may differ materially from those expressed in, or implied by, the forward-looking statements included in this Quarterly Report as a result of various factors, many of which are beyond our control, including, among others:

•the inherent uncertainty of estimating reserves and the possibility that incurred losses may be greater than our loss and loss adjustment expense reserves;

•inaccurate estimates and judgments in our risk management may expose us to greater risks than intended;

•downgrades in the financial strength rating of our regulated insurance subsidiaries impacting our ability to attract and retain insurance and reinsurance business that our subsidiaries write, our competitive position, and our financial condition;

•the potential loss of key members of our management team or key employees, and our ability to attract and retain personnel;

•adverse economic factors resulting in the sale of fewer policies than expected or an increase in the frequency or severity of claims, or both;

•the impact of a persistent high inflationary environment on our reserves, the values of our investments and investment returns, and our compensation expenses;

•exposure to credit risk, interest rate risk and other market risk in our investment portfolio;

•reliance on a select group of brokers and agents for a significant portion of our business and the impact of our potential failure to maintain such relationships;

•reliance on a select group of customers for a significant portion of our business and the impact of our potential failure to maintain, or decision to terminate, such relationships;

•our ability to obtain reinsurance coverage at prices and on terms that allow us to transfer risk, adequately protect our Company against financial loss and that supports our growth plans;

•losses resulting from reinsurance counterparties failing to pay us on reinsurance claims, insurance companies with whom we have a fronting arrangement failing to pay us for claims, or a former customer with whom we have an indemnification arrangement failing to perform its reimbursement obligations, and our potential inability to demand or maintain adequate collateral to mitigate such risks;

•inadequacy of premiums we charge to compensate us for our losses incurred;

•changes in laws or government regulation, including tax or insurance law and regulations;

•changes in U.S. tax laws and the interpretation of certain provisions of the 2017 Tax Act (including associated regulations), which may be retroactive and could have a significant effect on us including, among other things, by potentially increasing our tax rate, as well as on our shareholders;

•in the event we do not qualify for the insurance company exception to the passive foreign investment company (“PFIC”) rules and are therefore considered a PFIC, there could be material adverse tax consequences to an investor that is subject to U.S. federal income taxation;

•the Company or any of its foreign subsidiaries becoming subject to U.S. federal income taxation;

•a failure of any of the loss limitations or exclusions we utilize to shield us from unanticipated financial losses or legal exposures, or other liabilities;

•losses from catastrophic events, such as natural disasters and terrorist acts, which substantially exceed our expectations and/or exceed the amount of reinsurance we have purchased to protect us from such events;

•potential effects on our business of emerging claim and coverage issues;

•the potential impact of internal or external fraud, operational errors, systems malfunctions or cyber security incidents;

•our ability to manage our growth effectively;

•failure to maintain effective internal controls in accordance with Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley”);

•changes in our financial condition, regulations or other factors that may restrict our subsidiaries’ ability to pay us dividends;

•an adverse result in any litigation or legal proceedings we are or may become subject to; and

•other risks and uncertainties discussed elsewhere in this Quarterly Report.

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 for the year ended December 31, 2022 filed with the SEC on February 28, 2023.

Forward-looking statements speak only as of the date of this Quarterly Report. Except as expressly required under federal securities laws and the rules and regulations of the SEC, we do not have any obligation, and do not undertake, to update any forward-looking statements to reflect events or circumstances arising after the date of this Quarterly Report, whether as a result of new information or future events or otherwise. You should not place undue reliance on the forward-looking statements included in this Quarterly Report or that may be made elsewhere from time to time by us, or on our behalf. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

Table of Contents

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

JAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets


	(Unaudited) June 30, 2023		December 31, 2022
	(in thousands)
Assets
Invested assets:

Fixed maturity securities, available-for-sale, at fair value (amortized cost: 2023 – $2,046,249; 2022 – $1,969,783)	$	1,875,695	$	1,783,417

Equity securities, at fair value (cost: 2023 – $117,920; 2022 – $117,169)	118,116		118,627
Bank loan participations, at fair value	143,762		154,991
Short-term investments	22,128		107,812
Other invested assets	27,415		27,447
Total invested assets	2,187,116		2,192,294

Cash and cash equivalents	227,239		173,164
Restricted cash equivalents	105,502		103,215
Accrued investment income	16,805		14,418
Premiums receivable and agents’ balances, net	364,842		340,525
Reinsurance recoverable on unpaid losses, net	1,545,736		1,520,113
Reinsurance recoverable on paid losses	181,956		114,242
Prepaid reinsurance premiums	279,507		274,165
Deferred policy acquisition costs	51,668		59,603
Intangible assets, net	35,494		35,676
Goodwill	181,831		181,831
Other assets	118,174		127,829
Total assets	$	5,295,870	$	5,137,075

See accompanying notes.

Table of Contents

JAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (continued)


	(Unaudited) June 30, 2023		December 31, 2022
	(in thousands, except share amounts)
Liabilities and Shareholders’ Equity
Liabilities:
Reserve for losses and loss adjustment expenses	$	2,885,379	$	2,768,995
Unearned premiums	665,189		676,016
Payables to reinsurers	170,004		123,502
Funds held	275,331		310,953
Deferred reinsurance gain	37,572		20,091
Senior debt	222,300		222,300
Junior subordinated debt	104,055		104,055
Accrued expenses	52,507		59,566
Other liabilities	142,712		152,933
Total liabilities	4,555,049		4,438,411
Commitments and contingent liabilities
Series A redeemable preferred shares – 2023 and 2022: $0.00125 par value; 20,000,000 shares authorized; 150,000 shares issued and outstanding	144,898		144,898
Shareholders’ equity:
Common shares – 2023 and 2022: $0.0002 par value; 200,000,000 shares authorized; 37,619,226 and 37,470,237 shares issued and outstanding, respectively	7		7
Additional paid-in capital	872,359		868,858
Retained deficit	(127,844)		(152,055)
Accumulated other comprehensive loss	(148,599)		(163,044)
Total shareholders’ equity	595,923		553,766
Total liabilities, Series A redeemable preferred shares, and shareholders’ equity	$	5,295,870	$	5,137,075

See accompanying notes.

Table of Contents

JAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIES

Condensed Consolidated Statements of Income and Comprehensive Income (Loss) (Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands, except share amounts)
Revenues
Gross written premiums	$	427,741	$	399,714	$	791,634	$	759,650
Ceded written premiums	(209,562)		(205,023)		(390,235)		(389,100)
Net written premiums	218,179		194,691		401,399		370,550
Change in net unearned premiums	(8,521)		(8,429)		16,372		5,536
Net earned premiums	209,658		186,262		417,771		376,086
Net investment income	25,175		14,705		50,947		30,972
Net realized and unrealized gains (losses) on investments	2,145		(17,110)		2,552		(22,120)
Other income	1,464		949		2,773		1,816
Total revenues	238,442		184,806		474,043		386,754
Expenses
Losses and loss adjustment expenses	141,308		121,369		296,596		256,977
Other operating expenses	58,865		49,036		119,124		99,097
Other expenses	223		—		826		368
Interest expense	6,941		4,049		13,557		6,341
Amortization of intangible assets	91		91		182		182
Total expenses	207,428		174,545		430,285		362,965
Income before taxes	31,014		10,261		43,758		23,789
Income tax expense	7,321		2,597		10,457		5,920
Net income	23,693		7,664		33,301		17,869
Dividends on Series A preferred shares	(2,625)		(2,625)		(5,250)		(3,500)
Net income available to common shareholders	$	21,068	$	5,039	$	28,051	$	14,369

Other comprehensive (loss) income:
Net unrealized (losses) gains, net of taxes of $(3,633) and $1,369 in 2023 and $(7,998) and $(19,648) in 2022	(16,457)		(58,600)		14,445		(144,571)
Total comprehensive income (loss)	$	7,236	$	(50,936)	$	47,746	$	(126,702)

Net income per common share:
Basic	$	0.56	$	0.13	$	0.75	$	0.38
Diluted	$	0.54	$	0.13	$	0.74	$	0.38
Dividend declared per common share	$	0.05	$	0.05	$	0.10	$	0.10
Weighted-average common shares outstanding:
Basic	37,642,289		37,449,621		37,587,359		37,428,385
Diluted	43,498,905		37,732,371		37,822,405		37,643,634

See accompanying notes.

Table of Contents

JAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)


	Number of Common Shares Outstanding	Common Shares (Par)		Additional Paid-in Capital		Retained Deficit		Accumulated Other Comprehensive Loss		Total
	(in thousands, except share amounts)
Balances at March 31, 2023	37,619,226	$	7	$	870,043	$	(146,993)	$	(132,142)	$	590,915
Net income	—	—		—		23,693		—		23,693
Other comprehensive loss	—	—		—		—		(16,457)		(16,457)


Compensation expense under share incentive plans	—	—		2,316		—		—		2,316
Dividends on Series A preferred shares	—	—		—		(2,625)		—		(2,625)
Dividends on common shares	—	—		—		(1,919)		—		(1,919)
Balances at June 30, 2023	37,619,226	$	7	$	872,359	$	(127,844)	$	(148,599)	$	595,923

Balances at December 31, 2022	37,470,237	$	7	$	868,858	$	(152,055)	$	(163,044)	$	553,766
Net income	—	—		—		33,301		—		33,301
Other comprehensive income	—	—		—		—		14,445		14,445

Vesting of RSUs	148,989	—		(1,507)		—		—		(1,507)
Compensation expense under share incentive plans	—	—		5,008		—		—		5,008
Dividends on Series A preferred shares	—	—		—		(5,250)		—		(5,250)
Dividends on common shares	—	—		—		(3,840)		—		(3,840)
Balances at June 30, 2023	37,619,226	$	7	$	872,359	$	(127,844)	$	(148,599)	$	595,923

Table of Contents

JAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)


	Number of Common Shares Outstanding	Common Shares (Par)		Additional Paid-in Capital		Retained Deficit		Accumulated Other Comprehensive (Loss) Income		Total
	(in thousands, except share amounts)
Balances at March 31, 2022	37,448,314	$	7	$	862,904	$	(159,241)	$	(55,993)	$	647,677
Net income	—	—		—		7,664		—		7,664
Other comprehensive loss	—	—		—		—		(58,600)		(58,600)


Vesting of RSUs	1,950	—		(19)		—		—		(19)
Compensation expense under share incentive plans	—	—		2,196		—		—		2,196
Dividends on Series A preferred shares	—	—		—		(2,625)		—		(2,625)
Dividends on common shares	—	—		—		(1,907)		—		(1,907)
Balances at June 30, 2022	37,450,264	$	7	$	865,081	$	(156,109)	$	(114,593)	$	594,386

Balances at December 31, 2021	37,373,066	$	7	$	862,040	$	(166,663)	$	29,978	$	725,362
Net income	—	—		—		17,869		—		17,869
Other comprehensive loss	—	—		—		—		(144,571)		(144,571)


Vesting of RSUs	77,198	—		(941)		—		—		(941)
Compensation expense under share incentive plans	—	—		3,982		—		—		3,982
Dividends on Series A preferred shares	—	—		—		(3,500)		—		(3,500)
Dividends on common shares	—	—		—		(3,815)		—		(3,815)
Balances at June 30, 2022	37,450,264	$	7	$	865,081	$	(156,109)	$	(114,593)	$	594,386

See accompanying notes.

Table of Contents

JAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)


	Six Months Ended June 30,
	2023		2022
	(in thousands)
Operating activities
Net cash provided by operating activities (a)	$	42,621	$	139,321
Investing activities
Securities available-for-sale:
Purchases – fixed maturity securities	(142,680)		(351,715)
Sales – fixed maturity securities	10,092		158,469
Maturities and calls – fixed maturity securities	55,520		109,184
Purchases – equity securities	(8,557)		(6,751)
Sales – equity securities	8,548		5,171
Bank loan participations:
Purchases	(17,119)		(59,450)
Sales	20,020		32,679
Maturities	12,650		11,360
Other invested assets:
Purchases	(375)		—
Return of capital	682		998
Proceeds from sales	1,153		—
Short-term investments, net	85,684		6,128
Securities receivable or payable, net	3,625		22,042
Purchases of property and equipment	(2,173)		(3,175)
Net cash provided by (used in) investing activities	27,070		(75,060)
Financing activities

Senior debt repayments	—		(40,000)
Issuance of Series A preferred shares (Note 12)	—		144,898


Payroll taxes withheld and remitted on net settlement of RSUs	(1,507)		(941)
Dividends on Series A preferred shares	(7,875)		(3,500)
Dividends on common shares	(3,931)		(4,007)
Other financing activities	(16)		—
Net cash (used in) provided by financing activities	(13,329)		96,450
Change in cash, cash equivalents, and restricted cash equivalents	56,362		160,711
Cash, cash equivalents, and restricted cash equivalents at beginning of period	276,379		292,128
Cash, cash equivalents, and restricted cash equivalents at end of period	$	332,741	$	452,839
Supplemental information
Interest paid	$	14,877	$	5,455

Restricted cash equivalents at beginning of period	$	103,215	$	102,005
Restricted cash equivalents at end of period	$	105,502	$	102,099
Change in restricted cash equivalents	$	2,287	$	94

(a) Cash provided by operating activities for the six months ended June 30, 2023 and 2022 includes the restricted cash activity above related to a former insured, per the terms of a collateral trust. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Amounts Recoverable from an Indemnifying Party and Reinsurer on Legacy Commercial Auto Book”. Excluding the restricted cash activity, cash provided by operating activities was $40.3 million and $139.2 million for the six months ended June 30, 2023 and 2022, respectively.

See accompanying notes.

Table of Contents

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

1. Accounting Policies

Organization

James River Group Holdings, Ltd. (referred to as “JRG Holdings” or, with its subsidiaries, the “Company”) is an exempted holding company registered in Bermuda, organized for the purpose of acquiring and managing insurance and reinsurance entities.

The Company owns five insurance companies based in the United States (“U.S.”) focused on specialty insurance niches and a Bermuda-based reinsurance company as described below:

•James River Group Holdings UK Limited (“James River UK”) is an insurance holding company formed in 2015 in the United Kingdom (“U.K.”). JRG Holdings contributed James River Group, Inc. (“James River Group”), a U.S. insurance holding company, to James River UK in 2015.

•James River Group is a Delaware domiciled insurance holding company formed in 2002 which owns all of the Company’s U.S.-based subsidiaries, either directly or indirectly through one of its wholly-owned U.S. subsidiaries. James River Group oversees the Company’s U.S. insurance operations and maintains all of the outstanding debt in the U.S.

•James River Insurance Company is an Ohio domiciled excess and surplus lines insurance company that, with its wholly-owned insurance subsidiary, James River Casualty Company, a Virginia domiciled company, is authorized to write business in every state and the District of Columbia.

•Falls Lake National Insurance Company (“Falls Lake National”) is an Ohio domiciled insurance company which wholly owns Stonewood Insurance Company (“Stonewood Insurance”), a North Carolina domiciled company, and Falls Lake Fire and Casualty Company, a California domiciled company. Falls Lake National and its subsidiaries primarily write specialty admitted fronting and program business and individual risk workers' compensation insurance.

•JRG Reinsurance Company Ltd. (“JRG Re”) was formed in 2007 and commenced operations in 2008. JRG Re, a Bermuda domiciled reinsurer, primarily provides non-catastrophe casualty reinsurance to U.S. third parties and, through December 31, 2017, to the Company’s U.S.-based insurance subsidiaries.

Basis of Presentation

The accompanying condensed consolidated financial statements and notes have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and do not contain all of the information and footnotes required by U.S. GAAP for complete financial statements. The condensed consolidated financial statements include the results of the Company and its subsidiaries from their respective dates of inception or acquisition, as applicable. Readers are urged to review the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 for a more complete description of the Company’s business and accounting policies. In the opinion of management, all adjustments necessary for a fair presentation of the condensed consolidated financial statements have been included. Such adjustments consist only of normal recurring items. Interim results are not necessarily indicative of results of operations for the full year. The consolidated balance sheet as of December 31, 2022 was derived from the Company’s audited annual consolidated financial statements.

Intercompany transactions and balances have been eliminated.

Estimates and Assumptions

Preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying disclosures. Those estimates are inherently subject to change, and actual results may ultimately differ from those estimates.

Table of Contents

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

Variable Interest Entities

Entities that do not have sufficient equity at risk to allow the entity to finance its activities without additional financial support or in which the equity investors, as a group, do not have the characteristic of a controlling financial interest are referred to as variable interest entities (“VIE”). A VIE is consolidated by the variable interest holder that is determined to have the controlling financial interest (primary beneficiary) as a result of having both the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company determines whether it is the primary beneficiary of an entity subject to consolidation based on a qualitative assessment of the VIE’s capital structure, contractual terms, nature of the VIE’s operations and purpose, and the Company’s relative exposure to the related risks of the VIE on the date it becomes initially involved in the VIE. The Company reassesses its VIE determination with respect to an entity on an ongoing basis.

The Company holds interests in VIEs through certain equity method investments included in “other invested assets” in the accompanying condensed consolidated balance sheets. The Company has determined that it should not consolidate any of the VIEs as it is not the primary beneficiary in any of the relationships. Although the investments resulted in the Company holding variable interests in the entities, they did not empower the Company to direct the activities that most significantly impact the economic performance of the entities. The Company’s investments related to these VIEs totaled $8.8 million at June 30, 2023 and $9.2 million at December 31, 2022, representing the Company’s maximum exposure to loss.

Income Tax Expense

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. For U.S.-sourced income, the Company’s U.S. federal income tax expense differs from the amounts computed by applying the federal statutory income tax rate to income before taxes due primarily to interest income on tax-advantaged state and municipal securities, dividends received income, and excess tax benefits or expenses on share based compensation. For the three and six months ended June 30, 2023, our U.S. federal income tax expense was 23.6% and 23.9%, respectively, of the income before taxes (25.3% and 24.9% in the respective prior year periods). The effective rate exceeded the 21.0% U.S. statutory rate in all periods due to projected annual losses in Bermuda that do not provide a tax benefit and due to discrete items in the respective periods primarily related to excess tax expenses associated with vested restricted share units (“RSUs”).

Adopted Accounting Standards

There were no new accounting standards adopted in 2023 that materially impacted the Company's financial statements.

Table of Contents

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

2. Investments

The Company’s available-for-sale fixed maturity securities are summarized as follows:


	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in thousands)
June 30, 2023
Fixed maturity securities:
State and municipal	$	381,802	$	1,420	$	(45,252)	$	337,970
Residential mortgage-backed	467,134		575		(37,461)		430,248
Corporate	784,248		1,217		(63,064)		722,401
Commercial mortgage and asset-backed	340,212		10		(24,716)		315,506

U.S. Treasury securities and obligations guaranteed by the U.S. government	72,853		—		(3,283)		69,570

Total fixed maturity securities, available-for-sale	$	2,046,249	$	3,222	$	(173,776)	$	1,875,695
December 31, 2022
Fixed maturity securities:
State and municipal	$	386,456	$	712	$	(56,316)	$	330,852
Residential mortgage-backed	437,702		801		(37,254)		401,249
Corporate	734,976		1,528		(66,292)		670,212
Commercial mortgage and asset-backed	335,066		76		(26,127)		309,015

U.S. Treasury securities and obligations guaranteed by the U.S. government	75,583		8		(3,502)		72,089

Total fixed maturity securities, available-for-sale	$	1,969,783	$	3,125	$	(189,491)	$	1,783,417

The amortized cost and fair value of available-for-sale investments in fixed maturity securities at June 30, 2023 are summarized, by contractual maturity, as follows:


	Cost or Amortized Cost		Fair Value
	(in thousands)
One year or less	$	94,222	$	92,437
After one year through five years	519,366		492,322
After five years through ten years	364,892		323,047
After ten years	260,423		222,135
Residential mortgage-backed	467,134		430,248
Commercial mortgage and asset-backed	340,212		315,506

Total	$	2,046,249	$	1,875,695

Actual maturities may differ for some securities because borrowers have the right to call or prepay obligations with or without penalties.

Table of Contents

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

The following table shows the Company’s gross unrealized losses and fair value for available-for-sale securities aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position:


	Less Than 12 Months				12 Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in thousands)
June 30, 2023
Fixed maturity securities:
State and municipal	$	61,424	$	(1,782)	$	237,616	$	(43,470)	$	299,040	$	(45,252)
Residential mortgage-backed	192,536		(7,046)		184,815		(30,415)		377,351		(37,461)
Corporate	204,182		(5,482)		443,535		(57,582)		647,717		(63,064)
Commercial mortgage and asset-backed	51,158		(1,508)		262,838		(23,208)		313,996		(24,716)

U.S. Treasury securities and obligations guaranteed by the U.S. government	17,925		(412)		51,326		(2,871)		69,251		(3,283)

Total fixed maturity securities, available-for-sale	$	527,225	$	(16,230)	$	1,180,130	$	(157,546)	$	1,707,355	$	(173,776)
December 31, 2022
Fixed maturity securities:
State and municipal	$	241,586	$	(34,840)	$	72,805	$	(21,476)	$	314,391	$	(56,316)
Residential mortgage-backed	225,870		(18,823)		98,594		(18,431)		324,464		(37,254)
Corporate	412,942		(33,417)		167,541		(32,875)		580,483		(66,292)
Commercial mortgage and asset-backed	184,985		(12,829)		114,955		(13,298)		299,940		(26,127)

U.S. Treasury securities and obligations guaranteed by the U.S. government	47,106		(1,699)		21,808		(1,803)		68,914		(3,502)

Total fixed maturity securities, available-for-sale	$	1,112,489	$	(101,608)	$	475,703	$	(87,883)	$	1,588,192	$	(189,491)

At June 30, 2023, the Company held fixed maturity securities of 552 issuers that were in an unrealized loss position with a total fair value of $1,707.4 million and gross unrealized losses of $173.8 million. None of the fixed maturity securities with unrealized losses has ever missed, or been delinquent on a scheduled principal or interest payment. At June 30, 2023, 99.9% of the Company’s fixed maturity security portfolio was rated “BBB-” or better (“investment grade”) by Standard & Poor’s or received an equivalent rating from another nationally recognized rating agency. Fixed maturity securities with ratings below investment grade by Standard & Poor’s or another nationally recognized rating agency at June 30, 2023 had an aggregate fair value of $2.3 million and an aggregate net unrealized loss of $160,000.

The Company reviews its available-for-sale fixed maturities to determine whether unrealized losses are due to credit-related factors. An allowance for credit losses is established for any credit-related impairments, limited to the amount by which fair value is below amortized cost. Changes in the allowance for credit losses are recognized in earnings and included in net realized and unrealized gains (losses) on investments. Unrealized losses that are not credit-related are recognized in other comprehensive income.

The Company considers the extent to which fair value is below amortized cost in determining whether a credit-related loss exists. The Company also considers the credit quality rating of the security, with a special emphasis on securities downgraded below investment grade. A comparison is made between the present value of expected future cash flows for a security and its amortized cost. If the present value of future expected cash flows is less than amortized cost, a credit loss is presumed to exist and an allowance for credit losses is established. Management may conclude that a qualitative analysis is sufficient to support its conclusion that the present value of the expected cash flows equals or exceeds a security’s amortized cost. As a result of this review, management concluded that there were no credit-related impairments of fixed maturity securities at June 30, 2023, December 31, 2022, or June 30, 2022. In the six months ended June 30, 2023, management recognized an impairment loss of $85,000 for one fixed maturity security due to an intent to sell the security. For the remainder of securities in an unrealized loss position, management does not intend to sell the securities, and it is not “more likely than not” that the Company will be required to sell these securities before a recovery in their value to their amortized cost basis occurs.

Table of Contents

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

Bank loan participations are measured at fair value pursuant to the Company's election of the fair value option, and changes in unrealized gains and losses in bank loan participations are reported in the income statement as net realized and unrealized gains (losses) on investments. Applying the fair value option to the bank loan portfolio increases volatility in the Company's financial statements, but management believes it is less subjective and less burdensome to implement and maintain than the requirements of ASU 2016-13. At June 30, 2023, the Company's bank loan portfolio had an aggregate fair value of $143.8 million and unpaid principal of $156.3 million. Investment income on bank loan participations included in net investment income was $4.4 million and $8.7 million for the three and six months ended June 30, 2023, respectively ($2.7 million and $5.1 million for the three and six months ended June 30, 2022, respectively). Net realized and unrealized gains (losses) on bank loan participations included losses of $2.1 million and gains of $3.5 million for the three and six months ended June 30, 2023, respectively (losses of $9.9 million and $12.0 million for the three and six months ended June 30, 2022, respectively). For the three and six months ended June 30, 2023, management concluded that $497,000 and $2.4 million, respectively, of the unrealized losses were due to credit-related impairments. For the three and six months ended June 30, 2022, management concluded that unrealized losses were largely market-driven and that none of the unrealized losses were due to credit-related impairments. Losses due to credit-related impairments are determined based upon consultations and advice from the Company's specialized investment manager and consideration of any adverse situations that could affect the borrower's ability to repay, the estimated value of underlying collateral, and other relevant factors.

Bank loan participations generally provide a higher yield than our portfolio of fixed maturities and have a credit rating that is below investment grade (i.e. below “BBB-” for Standard & Poor’s) at the date of purchase. These bank loans are primarily senior, secured floating-rate debt rated “BB”, “B”, or “CCC” by Standard & Poor’s or an equivalent rating from another nationally recognized rating agency. These bank loans include assignments of, and participations in, performing and non-performing senior corporate debt generally acquired through primary bank syndications and in secondary markets. Bank loans consist of, but are not limited to, term loans, the funded and unfunded portions of revolving credit loans, and other similar loans and investments. Management believed that it was probable at the time that these loans were acquired that the Company would be able to collect all contractually required payments receivable.

Interest income on bank loan participations is accrued on the unpaid principal balance, and discounts and premiums on bank loan participations are amortized to income using the interest method. Generally, the accrual of interest on a bank loan participation is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest. A bank loan participation may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. Generally, bank loan participations are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt. Interest received on nonaccrual loans generally is reported as investment income. There were no bank loans on nonaccrual status at June 30, 2023 or December 31, 2022.

Table of Contents

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

The Company’s net realized and unrealized gains and losses on investments are summarized as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)
Fixed maturity securities:
Gross realized gains	$	45	$	1,332	$	45	$	1,698
Gross realized losses	(322)		(278)		(414)		(442)
	(277)		1,054		(369)		1,256
Bank loan participations:
Gross realized gains	24		18		105		113
Gross realized losses	(3,142)		(122)		(4,353)		(306)
Changes in fair values of bank loan participations	5,234		(9,791)		7,779		(11,800)
	2,116		(9,895)		3,531		(11,993)
Equity securities:
Gross realized gains	353		5		935		29
Gross realized losses	—		—		(267)		(381)
Changes in fair values of equity securities	(41)		(8,250)		(1,262)		(10,992)
	312		(8,245)		(594)		(11,344)
Short-term investments and other:
Gross realized gains	—		—		3		—
Gross realized losses	(6)		(24)		(19)		(39)
Changes in fair values of short-term investments and other	—		—		—		—
	(6)		(24)		(16)		(39)
Total	$	2,145	$	(17,110)	$	2,552	$	(22,120)

Realized investment gains or losses are determined on a specific identification basis.

Table of Contents

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

The Company invests selectively in private debt and equity opportunities. These investments, which together comprise the Company’s other invested assets, are primarily focused in renewable energy, limited partnerships, and bank holding companies.


	Carrying Value				Investment Income
	June 30,		December 31,		Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022		2023		2022
	(in thousands)
Renewable energy LLCs (a)
Excess and Surplus Lines	$	8,849	$	9,159	$	(305)	$	81	$	698	$	2,361
Corporate & Other	—		—		—		15		170		259
	8,849		9,159		(305)		96		868		2,620
Renewable energy notes receivable (b)
Excess and Surplus Lines	1,202		1,202		36		70		72		140
Corporate & Other	1,503		1,503		45		87		90		174
	2,705		2,705		81		157		162		314
Limited partnerships (c)
Excess and Surplus Lines	10,297		10,019		370		(828)		621		(696)
Corporate & Other	1,064		1,064		—		—		—		—
	11,361		11,083		370		(828)		621		(696)
Bank holding companies (d)
Excess and Surplus Lines	4,500		4,500		86		86		172		172
Corporate & Other	—		—		—		—		—		—
	4,500		4,500		86		86		172		172
Total other invested assets
Excess and Surplus Lines	24,848		24,880		187		(591)		1,563		1,977
Corporate & Other	2,567		2,567		45		102		260		433
	$	27,415	$	27,447	$	232	$	(489)	$	1,823	$	2,410

(a)The Company's Excess and Surplus Lines segment owns equity interests ranging from 2.6% to 4.9% in various LLCs whose principal objective is capital appreciation and income generation from owning and operating renewable energy production facilities (wind and solar). The Corporate and Other segment also held an interest in one of the LLCs until the fourth quarter of 2022. The LLCs are managed by an entity for which two former directors served as officers, and the Company’s Non-Executive Chairman has invested in certain of these LLCs. The equity method is used to account for the Company’s LLC investments. Income for the LLCs primarily reflects adjustments to the carrying values of investments in renewable energy projects to their determined fair values. The fair value adjustments are included in revenues for the LLCs. Expenses for the LLCs are not significant and are comprised of administrative and interest expenses. The Company received cash distributions from these investments totaling $24,000 and $951,000 in the six months ended June 30, 2023 and 2022, respectively. During the fourth quarter of 2022, the underlying projects in two of our LLCs were sold at the manager's discretion. In the three months ended March 31, 2023, the Company received additional proceeds from the sales of $1.2 million comprised of $984,000 in the Excess and Surplus Lines segment and $170,000 in the Corporate and Other segment. We could receive additional contingent payments in the future according to terms of the transaction.

(b)The Company's Excess and Surplus Lines and Corporate and Other segments have invested in notes receivable for renewable energy projects. At June 30, 2023, the Company held two notes issued by an entity for which two of our former directors serve as officers. Interest on the notes, which mature in 2025, is fixed at 12%.

(c)The Company owns investments in limited partnerships that invest in concentrated portfolios including publicly-traded small cap equities, loans of middle market private equity sponsored companies, private equity general partnership interests, commercial mortgage-backed securities, and tranches of distressed home loans. Income from the partnerships is recognized under the equity method of accounting. At June 30, 2023, the Company’s Excess and Surplus Lines segment has outstanding commitments to invest another $5.0 million in the limited partnerships and a $20.0 million commitment to invest in a new limited partnership.

Table of Contents

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

(d)The Company's Excess and Surplus Lines segment holds $4.5 million of subordinated notes issued by a bank holding company for which the Company’s Non-Executive Chairman was previously the Lead Independent Director and an investor and for which one of the Company’s directors is also an investor (the "Bank Holding Company"). Interest on the notes, which mature on August 12, 2023, is fixed at 7.6% per annum.

3. Goodwill and Intangible Assets

On December 11, 2007, the Company completed an acquisition of James River Group by acquiring 100% of the outstanding shares of James River Group common stock, referred to herein as the “Merger”. The transaction was accounted for under the purchase method of accounting, and goodwill and intangible assets were recognized by the Company as a result of the transaction. Goodwill resulting from the Merger was $181.8 million at June 30, 2023 and December 31, 2022.

The gross carrying amounts and accumulated amortization for each major specifically identifiable intangible asset class were as follows:


		June 30, 2023				December 31, 2022
	Life (Years)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
		($ in thousands)
Intangible Assets
Trademarks	Indefinite	$	22,200	$	—	$	22,200	$	—
Insurance licenses and authorities	Indefinite	8,964		—		8,964		—
Identifiable intangible assets not subject to amortization		31,164		—		31,164		—
Broker relationships	24.6	11,611		7,281		11,611		7,099
Identifiable intangible assets subject to amortization		11,611		7,281		11,611		7,099
		$	42,775	$	7,281	$	42,775	$	7,099

Table of Contents

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

4. Earnings Per Share

The following represents a reconciliation of the numerator and denominator of the basic and diluted earnings (loss) per common share computations contained in the condensed consolidated financial statements:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands, except share and per share amounts)
Net income	$	23,693	$	7,664	$	33,301	$	17,869
Less: Dividends on Series A preferred shares	(2,625)		(2,625)		(5,250)		(3,500)
Net income available to common shareholders	$	21,068	$	5,039	$	28,051	$	14,369

Weighted average common shares outstanding:
Basic	37,642,289		37,449,621		37,587,359		37,428,385
Dilutive potential common shares	5,856,616		282,750		235,046		215,249
Diluted	43,498,905		37,732,371		37,822,405		37,643,634

Net income per common share:
Basic	$	0.56	$	0.13	$	0.75	$	0.38
Dilutive potential common shares	(0.02)		—		(0.01)		—
Diluted	$	0.54	$	0.13	$	0.74	$	0.38

For the three months ended June 30, 2023, all potential common shares were dilutive. Dividends on the Series A preferred shares were added back to the numerator and 5,640,158 common shares from an assumed conversion of the Series A preferred shares were included in the denominator for the diluted earnings per common share calculation. For the six months ended June 30, 2023, potential common shares of 5,640,158, representing the outstanding Series A preferred shares, were anti-dilutive and excluded from the calculation of diluted earnings per common share. For the three and six months ended June 30, 2022, potential common shares of 5,928,132 and 4,089,627, respectively, were excluded from the calculation of diluted earnings per common share as their effects were anti-dilutive.

Table of Contents

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

5. Reserve for Losses and Loss Adjustment Expenses

The following table provides a reconciliation of the beginning and ending reserve balances for losses and loss adjustment expenses, net of reinsurance, to the gross amounts reported in the condensed consolidated balance sheets. Reinsurance recoverables on unpaid losses and loss adjustment expenses are presented gross of an allowance for credit losses on reinsurance balances of $670,000 at June 30, 2023, $661,000 at March 31, 2023, $612,000 at December 31, 2022, $601,000 at June 30, 2022, $604,000 at March 31, 2022, and $631,000 at December 31, 2021.


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)
Reserve for losses and loss adjustment expenses net of reinsurance recoverables at beginning of period	$	1,299,835	$	1,131,700	$	1,248,270	$	1,399,214
Add: Incurred losses and loss adjustment expenses net of reinsurance:
Current year	138,402		122,945		275,465		251,749
Prior years - retroactive reinsurance	618		—		17,481		—
Prior years - excluding retroactive reinsurance	2,288		(1,576)		3,650		5,228
Total incurred losses and loss and adjustment expenses	141,308		121,369		296,596		256,977
Deduct: Loss and loss adjustment expense payments net of reinsurance:
Current year	5,859		6,832