Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8‑K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):      May 1, 2018            
JAMES RIVER GROUP HOLDINGS, LTD.

(Exact name of registrant as specified in its charter)

Bermuda    001-36777    98-0585280

(State or other jurisdiction    (Commission    (IRS Employer
of incorporation)    File Number)    Identification No.)

Wellesley House, 2nd Floor, 90 Pitts Bay Road, Pembroke Bermuda    HM 08

(Address of principal executive offices)    (Zip Code)

Registrant’s telephone number, including area code:      +1-441-278-4580            


(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8‑K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):
o
Written Communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)



o
Soliciting material pursuant to Rule 14a‑12 under the Exchange Act (17 CFR 240.14a‑12)
o
Pre‑commencement communications pursuant to Rule 14d‑2(b) under the Exchange Act
(17 CFR 240.14d‑2(b))
o
Pre‑commencement communications pursuant to Rule 13e‑4(c) under the Exchange Act
(17 CFR 240.13e‑4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
Emerging Growth Company o
 
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. o





Item 2.02
Results of Operations and Financial Condition.
On May 2, 2018, James River Group Holdings, Ltd. (the “Company”) issued a press release announcing its financial results for its first quarter of 2018. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8‑K (this “Form 8‑K”).
The information in this Item 2.02 and in Exhibit 99.1 furnished herewith shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act unless specifically stated by the Company.
Item 5.07
Submission of Matters to a Vote of Security Holders.
On May 1, 2018, the Company held its annual general meeting of shareholders (the “Annual Meeting”). At the Annual Meeting, the Company’s shareholders (i) elected David Zwillinger as a Class I director to hold office until the 2021 annual general meeting of shareholders, (ii) approved the re-appointment of Ernst & Young LLP as the Company’s independent auditor to serve until the Company’s 2019 annual general meeting of shareholders and authorized the Company’s Board of Directors, acting by the Audit Committee, to determine the independent auditor’s remuneration, (iii) approved, on a non-binding, advisory basis, the 2017 compensation of the Company’s named executive officers, and (iv) approved on a non-binding, advisory basis, an annual advisory vote on the compensation of the Company’s named executive officers.
The following is a summary of the voting results for each matter presented to the shareholders:
Proposal 1 - Election of a director to hold office until the 2021 annual general meeting of shareholders:
Director
For
Withhold
Broker Non-Votes
David Zwillinger
16,308,631
11,453,466
883,635
Proposal 2 - The re-appointment of Ernst & Young LLP as the Company’s independent auditor to serve until the Company’s 2019 annual general meeting of shareholders and to authorize the Company’s Board of Directors, acting by the Audit Committee, to determine the independent auditor’s remuneration:
For
Against
Abstain
Broker Non-Votes
28,554,663
90,489
580

    





Proposal 3 - The approval, on a non-binding, advisory basis of the 2017 compensation of the Company’s named executive officers:
For
Against
Abstain
Broker Non-Votes
24,024,034
3,656,893
81,170
883,635
Proposal 4 - The Non-binding, advisory vote on the frequency of future shareholder votes on the compensation of our named executive officers:
One
Two
Three
Abstain
Broker Non-Votes
26,860,081
12,986
873,501
15,529
883,635
Based on the results of the non-binding, advisory vote on the frequency of future shareholder votes on the compensation of the Company’s named executive officers, and consistent with the Board of Directors’ recommendation, the Board has determined that the Company will hold a non-binding, advisory vote on named executive officer compensation every year until the next advisory vote on the frequency of such votes.
Item 8.01
Other Events.
On May 2, 2018, the Company announced that its Board of Directors declared a cash dividend of $0.30 per common share of the Company to be paid on June 29, 2018 to shareholders of record on June 11, 2018.
Item 9.01    Financial Statements and Exhibits.
(d)    Exhibits
The following Exhibit is furnished as a part of this Form 8-K:
Exhibit No.
 
Description
99.1
 


    




SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
JAMES RIVER GROUP HOLDINGS, LTD.
Dated: May 2, 2018    By: /s/ Sarah C. Doran    
Sarah C. Doran
Chief Financial Officer






EXHIBIT INDEX
Exhibit No.
 
Description
99.1
 


Exhibit
Exhibit 99.1

http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12225214&doc=3    
JAMES RIVER ANNOUNCES FIRST QUARTER
2018 RESULTS

First Quarter 2018 Net Income of $15.6 million -- $0.52 per diluted share, and Adjusted Net Operating Income of $16.6 million -- $0.55 per diluted share

Three month annualized Adjusted Net Operating Return on Average Tangible Equity of 14.1%

Combined Ratio of 96.4% and Underwriting Income of $7.2 million, improvements of 0.8 points and 69% respectively over the prior year quarter

Net Investment Income of $13.3 million as compared to $16.7 million the prior quarter, which had included an exceptional performance by the renewable energy portfolio

39.7% growth in core Excess and Surplus Lines Net Written Premiums driven by strong growth in the Allied Health, General Casualty and Energy divisions

Favorable loss reserve development in all three business segments

Pembroke, Bermuda, May 2, 2018 - James River Group Holdings, Ltd. ("James River" or the "Company") (NASDAQ: JRVR) today reported first quarter 2018 net income of $15.6 million ($0.52 per diluted share), compared to $18.5 million ($0.61 per diluted share) for the first quarter of 2017. Adjusted net operating income for the first quarter of 2018 was $16.6 million ($0.55 per diluted share), compared to $17.7 million ($0.58 per diluted share) for the same period in 2017.
Earnings Per Diluted Share
Three Months Ended
March 31,
 
2018
 
2017
 
 
 
 
Net Income 1
$
0.52

 
$
0.61

Adjusted Net Operating Income 2
$
0.55

 
$
0.58

 
 
 
 
1 2018 results include unrealized losses on equity securities and related taxes. See "Recently Adopted Accounting Standard" below.
2 See "Reconciliation of Non-GAAP Measures" below.
Robert P. Myron, the Company’s Chief Executive Officer, commented “I am pleased with our first quarter results. Our team delivered a 14.1% annualized Adjusted Net Operating Return on Average Tangible Equity and attractive combined ratios in all of our underwriting segments for the quarter.

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Wellesley House, 90 Pitts Bay Road, Pembroke HM 08, Bermuda
Mailing address l P.O. Box 1502, Hamilton HM FX, Bermuda
Tel 441.278.4580 l Fax 441.278.4588


JRVR Announces First Quarter Results
Page 2

May 2, 2018


Our two U.S. primary segments had strong growth in gross written premiums. Core E&S renewal rates increased 13% during the quarter, our second consecutive quarter of meaningful rate increases. These rate increases, along with continued increases in submission flow, provide strong momentum as we look toward the remainder of the year. ”
First Quarter 2018 Operating Results
Net written premiums of $211.0 million, consisting of the following:

 
Three Months Ended
March 31,
 
($ in thousands)
2018
 
2017
 
% Change
Excess and Surplus Lines
$
153,931

 
$
96,971

 
59
 %
Specialty Admitted Insurance
13,818

 
18,059

 
-23
 %
Casualty Reinsurance
43,229

 
42,880

 
1
 %
 
$
210,978

 
$
157,910

 
34
 %

Net earned premiums of $200.9 million, consisting of the following:

 
Three Months Ended
March 31,
 
($ in thousands)
2018
 
2017
 
% Change
Excess and Surplus Lines
$
129,971

 
$
93,849

 
38
 %
Specialty Admitted Insurance
13,340

 
16,253

 
-18
 %
Casualty Reinsurance
57,631

 
44,585

 
29
 %
 
$
200,942

 
$
154,687

 
30
 %

The Excess and Surplus Lines segment grew due to increases in its Commercial Auto division amid a rate increase on the renewal of the Company's largest contract, as well as 39.7% growth in core (non-Commercial Auto) lines net written premium, as nine out of twelve underwriting divisions grew, driven in part by an average rate increase of 13% across core lines;
The Specialty Admitted Insurance segment decreased as a result of the October 1, 2017 inception of a new third party 50% quota share reinsurance agreement on its individual risk Workers' Compensation line, partially offset by an increase in both individual risk Workers’ Compensation and fronting premium;
Net written premium in the Casualty Reinsurance segment was relatively flat compared to the prior year quarter, but net earned premium increased as a result of a higher level of net written premium during 2017. The Company expects net written premium in this segment to decrease meaningfully for the full year 2018, but its net earned premium will lag given the earning patterns of the business, which can extend to 24 months;
Favorable reserve development of $2.6 million compared to favorable reserve development of $3.4 million in the prior year quarter (representing a 1.3 and 2.2 percentage point reduction to the Company’s loss ratio in each period, respectively), with favorable reserve development occurring in all three segments.


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JRVR Announces First Quarter Results
Page 3

May 2, 2018


Pre-tax favorable reserve development by segment was as follows:

 
Three Months Ended
March 31,
($ in thousands)
2018
 
2017
Excess and Surplus Lines
$
1,112

 
$
3,227

Specialty Admitted Insurance
1,322

 
42

Casualty Reinsurance
176

 
145

 
$
2,610

 
$
3,414

    

IBNR as a percentage of total net reserves increased from 65.0% as of December 31, 2017 to 65.6%;
Group accident year loss ratio of 72.8% was up from 70.3% in the prior year quarter due to changes in mix of business, specifically growth in the Commercial Auto division within the Excess and Surplus Lines segment which carries a higher initial loss pick but also a lower expense ratio than the segment as a whole;
Group combined ratio of 96.4% improved from 97.2% in the prior year quarter;
Group expense ratio of 24.9% improved from 29.1% in the prior year quarter, driven by increased net earned premium and fee income, as well as continued growth in lines of business which carry relatively low expenses;
Gross fee income of $8.2 million increased from $5.9 million in the prior year quarter;
Gross fee income by segment was as follows:
 
Three Months Ended
March 31,
 
($ in thousands)
2018
 
2017
 
% Change
Excess and Surplus Lines
$
4,848

 
$
3,849

 
26
%
Specialty Admitted Insurance
3,329

 
2,052

 
62
%
 
$
8,177

 
$
5,901

 
39
%

Net investment income of $13.3 million, a decrease of 20.8% from the prior year quarter. Further details can be found in the "Investment Results" section below.

Investment Results
Net investment income for the first quarter of 2018 was $13.3 million, which compares to $16.7 million for the same period in 2017. The difference was driven by exceptional performance of the Company's renewable energy portfolio in the prior year quarter. The performance of this portfolio has varied significantly from quarter to quarter, which is expected due to the nature of the underlying investments, and its market value is generally influenced negatively by rising interest rates.

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JRVR Announces First Quarter Results
Page 4

May 2, 2018


The Company’s net investment income consisted of the following:
 
Three Months Ended
March 31,
 
($ in thousands)
2018
 
2017
 
% Change
Renewable Energy Investments
$
1,211

 
$
5,594

 
(78
)%
Other Private Investments
609

 
468

 
30
 %
All Other Net Investment Income
11,436

 
10,671

 
7
 %
Total Net Investment Income
$
13,256

 
$
16,733

 
(21
)%
The Company’s annualized gross investment yield on average fixed maturity and bank loan securities for the three months ended March 31, 2018 was 3.4% (unchanged from the three months ended March 31, 2017) and the average duration of the fixed maturity and bank loan portfolio was 3.5 years at March 31, 2018 (unchanged from March 31, 2017). Renewable energy and other private investments produced an annualized return of 10.4% for the three months ended March 31, 2018 (42.1% for the three months ended March 31, 2017).
During the first quarter, the Company recognized $810,000 of pre-tax net realized losses ($1.0 million of net realized gains in the same period in 2017), including $1.7 million of losses, gross of tax, resulting from fair value changes in the Company's equity investment portfolio which were recognized in accordance with Financial Accounting Standards Board ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which became effective January 1, 2018 (please see "Recently Adopted Accounting Standard" below for further details).
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 March 31, 2018 and 2017 was 8.7% and 7.7%, respectively.

Tangible Equity
Tangible equity before dividends increased 0.1% from $474.5 million at December 31, 2017 to $474.8 million at March 31, 2018, due to $15.6 million of net income and $3.0 million related to option exercise activity and stock compensation. These items were partially offset by $18.5 million of after tax unrealized losses in the Company's fixed income investment portfolio resulting from increased market interest rates. Tangible equity after dividends decreased 1.8% from $474.5 million at December 31, 2017 to $465.8 million at March 31, 2018. Tangible equity per common share was $15.59 at March 31, 2018, net of $0.30 of dividends per share the Company paid during the first three months of 2018. The annualized adjusted net operating income return on average tangible equity was 14.1%, which compares to 14.8% for the first quarter of 2017.
Capital Management
The Company announced that its Board of Directors declared a cash dividend of $0.30 per common share, equal to the prior quarter. This dividend is payable on Friday, June 29, 2018 to all shareholders of record on Monday, June 11, 2018. James River Group Holdings, Ltd. has paid cumulative

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JRVR Announces First Quarter Results
Page 5

May 2, 2018


dividends, including this upcoming payment, of $182.6 million since its December 2014 initial public offering, or 39.1% of its tangible equity at initial public offering.
Recently Adopted Accounting Standard
As discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2017, the Company adopted Financial Accounting Standards Board ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, effective January 1, 2018. As a result of this new accounting standard, equity investments are now required to be measured at fair value with changes in fair value recognized in net income. For the first quarter of 2018, the Company recognized $1.7 million of losses, gross of tax, as a result of the adoption of this accounting standard. These losses were a component of the Company's net realized and unrealized losses for the quarter, and as such were excluded from the Company's net operating income. The Company's January 1, 2018 other comprehensive income was decreased by $4.7 million and retained earnings increased by the same amount to reflect the cumulative effect of this accounting standard on prior periods.
Conference Call
James River Group Holdings, Ltd. will hold a conference call to discuss its first quarter results tomorrow, May 3, 2018, at 9:00 a.m. Eastern Daylight Time. Investors may access the conference call by dialing (877) 930-8055, Conference ID# 9885449, 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 until 12:00 p.m. (Eastern Daylight Time) on June 2, 2018 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 which may expose us to greater risks than intended; 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 frequency or severity of claims, or both; a decline in our financial strength rating resulting in a reduction of new or renewal business; 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 such relationships; 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 which substantially exceed our expectations and/or exceed the amount of

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JRVR Announces First Quarter Results
Page 6

May 2, 2018


reinsurance we have purchased to protect us from such events; 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; changes in laws or government regulation, including tax or insurance law and regulations; 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 or insurance companies with whom we have a fronting arrangement failing to pay us for claims; the potential impact of internal or external fraud, operational errors, systems malfunctions or cyber security incidents; our ability to manage our growth effectively; inadequacy of premiums we charge to compensate us for our losses incurred; the recently enacted Public Law No. 115-97, informally titled the Tax Cuts and Jobs Act, 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; failure to maintain effective internal controls in accordance with Sarbanes-Oxley Act of 2002, as amended; 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 March 1, 2018. 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, adjusted net operating income, tangible equity, adjusted net operating return on average tangible equity, and pre-dividend tangible equity 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 which 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

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JRVR Announces First Quarter Results
Page 7

May 2, 2018


For more information contact:
Kevin Copeland
SVP Finance & Chief Investment Officer
Investor Relations
441-278-4573
InvestorRelations@jrgh.net

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JRVR Announces First Quarter Results
Page 8

May 2, 2018


James River Group Holdings, Ltd. and Subsidiaries
Condensed Consolidated Balance Sheet Data
(Unaudited)

 
March 31, 2018
 
December 31, 2017
 
($ in thousands, except for share data)
ASSETS
 
 
 
Invested assets:
 
 
 
Fixed maturity securities, available-for-sale
$
1,043,251

 
$
1,016,098

Fixed maturity securities, trading
3,805

 
3,808

Equity securities, available-for-sale
85,957

 
82,522

Bank loan participations, held-for-investment
257,426

 
238,214

Short-term investments
26,235

 
36,804

Other invested assets
74,974

 
70,208

Total invested assets
1,491,648

 
1,447,654

 
 
 
 
Cash and cash equivalents
151,046

 
163,495

Accrued investment income
8,713

 
8,381

Premiums receivable and agents’ balances
391,456

 
352,436

Reinsurance recoverable on unpaid losses
331,245

 
302,524

Reinsurance recoverable on paid losses
16,501

 
11,292

Deferred policy acquisition costs
70,769

 
72,365

Goodwill and intangible assets
220,016

 
220,165

Other assets
180,616

 
178,383

Total assets
$
2,862,010

 
$
2,756,695

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Reserve for losses and loss adjustment expenses
$
1,369,548

 
$
1,292,349

Unearned premiums
432,248

 
418,114

Senior debt
98,300

 
98,300

Junior subordinated debt
104,055

 
104,055

Accrued expenses
35,138

 
39,295

Other liabilities
136,951

 
109,883

Total liabilities
2,176,240

 
2,061,996

 
 
 
 
Total shareholders’ equity
685,770

 
694,699

Total liabilities and shareholders’ equity
$
2,862,010

 
$
2,756,695

 
 
 
 
Tangible equity (a)
$
465,754

 
$
474,534

Tangible equity per common share outstanding (a)
$
15.59

 
$
15.98

Total shareholders’ equity per common share
   outstanding
$
22.96



$
23.39

Common shares outstanding
29,866,705

 
29,696,682

Debt (b) to total capitalization ratio
22.8
%
 
22.6
%
(a)    See “Reconciliation of Non-GAAP Measures”.
(b)    Includes senior debt and junior subordinated debt.
 
 
 

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JRVR Announces First Quarter Results
Page 9

May 2, 2018


James River Group Holdings, Ltd. and Subsidiaries
Condensed Consolidated Income Statement Data
(Unaudited)
 
Three Months Ended
March 31,
 
2018
 
2017
 
($ in thousands, except for share data)
REVENUES
 
 
 
Gross written premiums
$
298,116

 
$
224,179

Net written premiums
210,978

 
157,910

 
 
 
 
Net earned premiums
200,942

 
154,687

Net investment income
13,256

 
16,733

Net realized and unrealized (losses) gains on investments (a)
(810
)
 
1,047

Other income
4,956

 
3,935

Total revenues
218,344

 
176,402

 
 
 
 
EXPENSES
 
 
 
Losses and loss adjustment expenses
143,772

 
105,369

Other operating expenses
54,783

 
48,893

Other expenses
4

 
(114
)
Interest expense
2,522

 
2,123

Amortization of intangible assets
149

 
149

Total expenses
201,230

 
156,420

Income before taxes
17,114

 
19,982

Income tax expense
1,481

 
1,532

NET INCOME
$
15,633

 
$
18,450

ADJUSTED NET OPERATING INCOME (b)
$
16,569

 
$
17,719

 
 
 
 
EARNINGS PER SHARE
 
 
 
Basic
$
0.53

 
$
0.63

Diluted
$
0.52

 
$
0.61

 
 
 
 
ADJUSTED NET OPERATING INCOME PER SHARE
 
 
 
Basic
$
0.56

 
$
0.60

Diluted
$
0.55

 
$
0.58

 
 
 
 
Weighted-average common shares outstanding:
 
 
 
Basic
29,764,320

 
29,289,588

Diluted
30,193,303

 
30,327,423

Cash dividends declared per common share
$
0.30

 
$
0.30

 
 
 
 
Ratios:
 
 
 
Loss ratio
71.5
%
 
68.1
%
Expense ratio (c)
24.9
%
 
29.1
%
Combined ratio
96.4
%
 
97.2
%
Accident year loss ratio
72.8
%
 
70.3
%
(a) 2018 includes net realized gains on investment sales of $0.9 million, reduced by a change in unrealized losses on equity securities of $1.7 million. The change in unrealized losses on equity securities was effective January 1, 2018 due to the Company's adoption of ASU 2016-01.
(b) See "Reconciliation of Non-GAAP Measures".

(c) Calculated with a numerator comprising other operating expenses less gross fee income of the Excess and Surplus Lines segment and a denominator of net earned premiums.


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JRVR Announces First Quarter Results
Page 10

May 2, 2018



James River Group Holdings, Ltd. and Subsidiaries
Segment Results

EXCESS AND SURPLUS LINES
 
Three Months Ended
March 31,
 
 
 
2018
 
2017
 
% Change
($ in thousands)
 
 
 
 
 
Gross written premiums
$
167,486

 
$
108,995

 
53.7
 %
Net written premiums
$
153,931

 
$
96,971

 
58.7
 %
 
 
 
 
 
 
Net earned premiums
$
129,971

 
$
93,849

 
38.5
 %
Losses and loss adjustment expenses
(100,619
)
 
(66,568
)
 
51.2
 %
Underwriting expenses
(18,053
)
 
(18,481
)
 
(2.3
)%
Underwriting profit (a), (b)
$
11,299

 
$
8,800

 
28.4
 %
 
 
 
 
 
 
Ratios:
 
 
 
 
 
Loss ratio
77.4
%
 
70.9
%
 
 
Expense ratio
13.9
%
 
19.7
%
 
 
Combined ratio
91.3
%
 
90.6
%
 
 
Accident year loss ratio
78.3
%
 
74.4
%
 
 
 
 
 
 
 
 
(a) See "Reconciliation of Non-GAAP Measures".
 
 
 
 
 
(b) Underwriting results include fee income of $4.8 million and $3.8 million for the three months ended March 31, 2018 and 2017, respectively. These amounts are included in “Other income” in our Condensed Consolidated Income Statements.


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JRVR Announces First Quarter Results
Page 11

May 2, 2018


SPECIALTY ADMITTED INSURANCE
 
Three Months Ended
March 31,
 
 
 
2018
 
2017
 
% Change
($ in thousands)
 
 
 
 
 
Gross written premiums
$
87,401

 
$
72,464

 
20.6
 %
Net written premiums
$
13,818

 
$
18,059

 
(23.5
)%
 
 
 
 
 
 
Net earned premiums
$
13,340

 
$
16,253

 
(17.9
)%
Losses and loss adjustment expenses
(7,611
)
 
(9,981
)
 
(23.7
)%
Underwriting expenses
(4,106
)
 
(5,430
)
 
(24.4
)%
Underwriting profit (a), (b)
$
1,623

 
$
842

 
92.8
 %
 
 
 
 
 
 
Ratios:
 
 
 
 
 
Loss ratio
57.1
%
 
61.4
%
 
 
Expense ratio
30.7
%
 
33.4
%
 
 
Combined ratio
87.8
%
 
94.8
%
 
 
Accident year loss ratio
67.0
%
 
61.7
%
 
 
 
 
 
 
 
 
(a) See "Reconciliation of Non-GAAP Measures".
 
 
 
 
 
(b) Underwriting results include fee income of $3.3 million and $2.1 million for the three months ended March 31, 2018 and 2017, respectively.

CASUALTY REINSURANCE
 
Three Months Ended
March 31,
 
 
 
2018
 
2017
 
% Change
($ in thousands)
 
 
 
 
 
Gross written premiums
$
43,229

 
$
42,720

 
1.2
%
Net written premiums
$
43,229

 
$
42,880

 
0.8
%
 
 
 
 
 
 
Net earned premiums
$
57,631

 
$
44,585

 
29.3
%
Losses and loss adjustment expenses
(35,542
)
 
(28,820
)
 
23.3
%
Underwriting expenses
(20,345
)
 
(14,672
)
 
38.7
%
Underwriting profit (a)
$
1,744

 
$
1,093

 
59.6
%
 
 
 
 
 
 
Ratios:
 
 
 
 
 
Loss ratio
61.7
%
 
64.6
%
 
 
Expense ratio
35.3
%
 
32.9
%
 
 
Combined ratio
97.0
%
 
97.5
%
 
 
Accident year loss ratio
62.0
%
 
65.0
%
 
 
 
 
 
 
 
 
(a) See "Reconciliation of Non-GAAP Measures".
 
 
 
 
 


-MORE-

JRVR Announces First Quarter Results
Page 12

May 2, 2018


RECONCILIATION OF NON-GAAP MEASURES

Underwriting Profit

The following table reconciles the underwriting profit (loss) by individual operating segment and for the entire 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 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
March 31,
 
2018
 
2017
 
(in thousands)
Underwriting profit of the operating segments:
 
 
 
Excess and Surplus Lines
$
11,299

 
$
8,800

Specialty Admitted Insurance
1,623

 
842

Casualty Reinsurance
1,744

 
1,093

Total underwriting profit of operating segments
14,666

 
10,735

Other operating expenses of the Corporate and Other segment
(7,431
)
 
(6,461
)
Underwriting profit (a)
7,235

 
4,274

Net investment income
13,256

 
16,733

Net realized and unrealized (losses) gains on investments (b)
(810
)
 
1,047

Other income and expenses
104

 
200

Interest expense
(2,522
)
 
(2,123
)
Amortization of intangible assets
(149
)
 
(149
)
Consolidated income before taxes
$
17,114

 
$
19,982

 
 
 
 
(a)    Included in underwriting results for the three months ended March 31, 2018 and 2017 is fee income of $8.2 million and $5.9 million, respectively.
(b)    2018 includes net realized gains on investment sales of $0.9 million, reduced by a change in unrealized losses on equity securities of $1.7 million. The change in unrealized losses on equity securities resulted from the Company's adoption of ASU 2016-01, effective January 1, 2018.

Adjusted Net Operating Income

We define adjusted net operating income as net income excluding net realized and unrealized (losses) gains on investments (net realized investment (losses) gains and the change in unrealized (losses) gains on equity securities per the adoption of ASU 2016-01), as well as non-operating expenses including those that relate to due diligence costs for various merger and acquisition activities, professional fees related to the filing of a registration statement for the sale of our securities, and costs associated with former employees. We use adjusted 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. Adjusted net operating income should not be viewed as a substitute for net income calculated in accordance with GAAP, and our definition of adjusted net operating income may not be comparable to that of other companies.


-MORE-

JRVR Announces First Quarter Results
Page 13

May 2, 2018


Our income before taxes and net income for the three months ended March 31, 2018 and 2017, respectively, reconciles to our adjusted net operating income as follows:
 
 
 
Three Months Ended March 31,
 
 
 
2018
 
2017
 
Income Before Taxes
 
Net Income
 
Income Before Taxes
 
Net Income
 
(in thousands)
Income as reported
$
17,114

 
$
15,633

 
$
19,982

 
$
18,450

Net realized and unrealized losses (gains) on investments (a)
810

 
665

 
(1,047
)
 
(834
)
Other expenses
4

 
20

 
(114
)
 
(100
)
Interest expense on leased building the Company is deemed to own for accounting purposes
318

 
251

 
312

 
203

Adjusted net operating income
$
18,246

 
$
16,569

 
$
19,133

 
$
17,719

(a)    2018 includes net realized gains on investment sales of $0.9 million, reduced by a change in unrealized losses on equity securities of $1.7 million. The change in unrealized losses on equity securities resulted from the Company's adoption of ASU 2016-01, effective January 1, 2018.

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 March 31, 2018, December 31, 2017, and March 31, 2017 and reconciles tangible equity to tangible equity before dividends for March 31, 2018.

 
March 31, 2018
 
December 31, 2017
 
March 31, 2017
($ in thousands, except for share data)
Equity
 
Equity per share
 
Equity
 
Equity per share
 
Equity
 
Equity per share
Shareholders' equity
$
685,770

 
$
22.96

 
$
694,699

 
$
23.39

 
$
708,260

 
$
24.14

Goodwill and intangible assets
220,016

 
7.37

 
220,165

 
7.41

 
220,613

 
7.52

Tangible equity
$
465,754

 
$
15.59

 
$
474,534

 
$
15.98

 
$
487,647

 
$
16.62

Dividends to shareholders for the three months ended March 31, 2018
9,049

 
0.30

 
 
 
 
 
 
 
 
Pre-dividend tangible equity
$
474,803

 
$
15.89

 
 
 
 
 
 
 
 

-END-