SEC Filing | James River Group Holdings

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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):

August 3, 2016

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):

Written Communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02

Results of Operations and Financial Condition.

On August 3, 2016, James River Group Holdings, Ltd. (the “Company”) issued a press release announcing its financial results for the second quarter and the six month period ended June 30, 2016. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on 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 8.01

Other Events.

On August 3, 2016, the Company announced that its board of directors declared a cash dividend of $0.20 per common share of the Company to be paid on September 30, 2016 to shareholders of record on September 12, 2016.

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		Press Release of the Company dated August 3, 2016

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: August 3, 2016	By:	/s/ Gregg T. Davis
		Gregg T. Davis
		Chief Financial Officer

EXHIBIT INDEX

Exhibit No.		Description

99.1		Press Release of the Company dated August 3, 2016

Exhibit 99.1

FOR IMMEDIATE RELEASE

JAMES RIVER GROUP HOLDINGS REPORTS 2016 SECOND QUARTER RESULTS

EARNINGS PER SHARE OF $0.49 PER DILUTED SHARE

______________________________

NET OPERATING EARNINGS PER SHARE OF $0.46 PER DILUTED SHARE

______________________________

16.9% AND 10.5% GROWTH IN NET INCOME AND OPERATING EARNINGS

_______________________________

25.8% GROWTH IN E&S SEGMENT GROSS WRITTEN PREMIUMS

_______________________________

3.4% INCREASE IN SHAREHOLDERS’ EQUITY AND 4.7% INCREASE IN TANGIBLE EQUITY PER SHARE

________________________________

DECLARES A $0.20 PER SHARE QUARTERLY DIVIDEND

________________________________

Pembroke, Bermuda, August 3, 2016 -- James River Group Holdings, Ltd. (NASDAQ: JRVR) today announced financial results for the second quarter and six months ended June 30, 2016.

J. Adam Abram, Chairman and Chief Executive Officer, said, “We are growing. Underwriting profits are increasing. Our balance sheet is strong. A.M. Best just recognized our long history of underwriting profits and financial strength by upgrading our financial strength ratings to “A”.”

“Net operating income, underwriting profits and net operating income per share all increased compared to last year.”

“This quarter, our total net earned premium from the excess and surplus lines market, which includes all of our Excess and Surplus Lines segment and a portion of our Casualty Reinsurance segment, represented 79.5% of net earned premiums (this had been 75.3% last year). We believe this bodes well for future profitability.”

“We also made good progress in the quarter growing our fee income.”

“The combination of strong growth and increasing fee income is having a positive effect on our expense ratio, which declined by 2.4 percentage points compared to the second quarter of last year.”

“I commend our entire team for these good results.”

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Mr. Abram concluded, “In keeping with our Board’s emphasis on capital efficiency and management, the Directors voted to declare a dividend of $0.20 per share to be paid September 30, 2016.”

Significant factors underpinning our increased earnings in the second quarter of 2016 include:

Each of the Company’s operating segments made an underwriting profit;

A combined ratio of 96.1% compared to 97.8% in the prior year;

Each of the Company’s operating segments had favorable reserve development during the period;

Gross written premiums of $170.7 million, as follows:

	Three Months Ended June 30,
($ in thousands)	2016		2015		Change
Excess and Surplus Lines	$	97,427	$	77,417		25.8	%
Specialty Admitted Insurance		34,201		17,931		90.7	%
Casualty Reinsurance		39,043		88,663		(56.0)	%
	$	170,671	$	184,011		(7.2)	%

Net written premiums of $133.1 million, as follows:

	Three Months Ended June 30,
($ in thousands)	2016		2015		Change
Excess and Surplus Lines	$	81,890	$	60,924		34.4	%
Specialty Admitted Insurance		11,679		9,167		27.4	%
Casualty Reinsurance		39,489		88,723		(55.5)	%
	$	133,058	$	158,814		(16.2)	%

Net income for the second quarter of 2016 was $14.6 million compared to $12.5 million in 2015;

Net operating income in 2016 of $13.7 million compared to $12.4 million in 2015;

Fully diluted earnings per share of $0.49 compared to $0.43 in the prior year;

Diluted operating earnings per share of $0.46 compared to $0.42 in the prior year; and

Our expense ratio decreased by 2.4 points from 33.8% in the second quarter of 2015 to 31.4%.

Despite significant growth in our E&S and Specialty Admitted Insurance segments, gross and net written premiums for the total Company are lower than last year due to timing differences of new and renewal business in our Casualty Reinsurance segment.

Our E&S Segment’s gross written premiums grew 25.8% compared to the prior quarter. E&S submissions were up 14.0% and quotes were up 19.0%. We grew significantly in our Manufacturers and Contractors, General Casualty, Excess Casualty and Commercial Auto divisions over the prior year.

We found opportunities for profitable growth in our Specialty Admitted Insurance segment, where gross written premiums grew by 90.7% for the quarter. This was principally due to our fronting and program business which grew from $9.4 million in the second quarter of 2015 to $25.1 million in 2016. Our retentions on this business are generally low. Net written premiums in fronting and programs was a modest $3.4 million in the quarter. Fee income from the Specialty

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Admitted Insurance segment’s fronting and program business grew from $454,000 to $742,000 during the second quarter.

Significant factors underpinning our increased earnings for the six-month period ended June 30, 2016 include:

Each of the Company’s operating segments made an underwriting profit;

A combined ratio of 96.0% compared to 97.6% in the prior year;

Each of the Company’s operating segments had favorable reserve development during the period;

Gross written premiums of $303.7 million as follows:

	Six Months Ended June 30,
($ in thousands)	2016		2015		Change
Excess and Surplus Lines	$	179,535	$	153,135		17.2	%
Specialty Admitted Insurance		62,888		38,857		61.8	%
Casualty Reinsurance		61,319		123,277		(50.3)	%
	$	303,742	$	315,269		(3.7)	%

Net written premiums of $240.0 million, as follows:

	Six Months Ended June 30,
($ in thousands)	2016		2015		Change
Excess and Surplus Lines	$	153,425	$	123,220		24.5	%
Specialty Admitted Insurance		24,725		20,641		19.8	%
Casualty Reinsurance		61,809		123,612		(50.0)	%
	$	239,959	$	267,473		(10.3)	%

Net income in 2016 of $27.4 million compared to $21.9 million in 2015;

Net operating income in 2016 of $26.5 million compared to $24.1 million in 2015;

Fully diluted earnings per share of $0.92 compared to $0.75 in the prior year;

Diluted operating earnings per share of $0.89 compared to $0.82 in the prior year; and

Our expense ratio decreased by 1.5 points from 33.8% in the first half of 2015 to 32.3%.

Tangible equity increased 5.1% in the second quarter of 2016 from $484.4 million at March 31, 2016 to $508.8 million at June 30, 2016. The increase reflects net income of $14.6 million and $12.8 million in other comprehensive income offset by $5.9 million of dividends during the second quarter of 2016. Tangible equity per share was $17.49 at June 30, 2016.

On a year-to-date basis, tangible equity increased 10.7% from $459.7 million at December 31, 2015 to $508.8 million at June 30, 2016, resulting from $27.4 million of net income and $28.4 million of other comprehensive income offset by $11.7 million of dividends.

Results for the quarter ended June 30, 2016 include favorable prior year reserve development of $4.7 million, representing 4.0 points of our combined ratio, compared to favorable reserve development of $2.5 million in the second quarter of 2015, representing 2.4 combined ratio points. After-tax, favorable reserve development for the quarter was $4.3 million ($2.1 million in the prior year). Year-to-date, 2016 includes prior year favorable reserve development of $9.4 million ($8.5 million on an after-tax basis) representing 4.0 combined ratio points. In 2015, favorable reserve development was $5.0 million ($4.1 million on an after-tax basis) representing 2.2 combined ratio points.

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The pre-tax development by segment was as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2016		2015		Change		2016		2015		Change
	(in thousands)
Excess and Surplus Lines	$	3,611	$	3,439	$	172	$	8,004	$	8,374	$	(370)
Specialty Admitted Insurance		617		189		428		928		196		732
Casualty Reinsurance		520		(1,110)		1,630		483		(3,563)		4,046
	$	4,748	$	2,518	$	2,230	$	9,415	$	5,007	$	4,408

Net investment income for the second quarter of 2016 was $11.6 million compared to $13.0 million for the same period in 2015. On a year-to-date basis, net investment income for 2016 was $22.8 million compared to $25.0 million for the same period in 2015. The details of the change in our net investment income are as follows:

	Three Months Ended June 30,							Six Months Ended June 30,
	2016		2015		% Change			2016		2015		% Change
	($ in thousands)
Renewable Energy Investments	$	(1,451)	$	2,162			-	$	(769)	$	4,615		-
Other Private Investments		1,972		1,046		88.5	%		2,457		1,597		53.9	%
All Other Net Investment Income		11,032		9,792		12.7	%		21,137		18,774		12.6	%
Total Net Investment Income	$	11,553	$	13,000		(11.1)	%	$	22,825	$	24,986		(8.6)	%

Our annualized gross investment yield on average fixed maturity securities for the three and six months ended June 30, 2016 was 3.5% and 3.4%, respectively, and the average duration of our portfolio was 3.7 years.

During the second quarter of 2016, we recognized $1.6 million of pre-tax net realized gains ($350,000 of gains in the same period in 2015). Year-to-date, we have recognized $2.2 million in pre-tax net realized gains ($2.5 million of realized losses in the same period in 2015).

Dividend

The Board of Directors declared a cash dividend of $0.20 per common share. This dividend is payable on Friday, September 30, 2016 to all shareholders of record on Monday, September 12, 2016.

Conference Call

James River Group Holdings will hold a conference call to discuss this press release tomorrow, August 4, 2016, at 9:00 a.m. Eastern time. Investors may access the conference call by dialing (877) 930-8055 Conference ID# 29221106 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 will be available shortly after the

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call and through the end of business on September 3, 2016 at the number and website referenced above.

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, 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; 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 significant customer; losses in our investment portfolio; additional government or market regulation; failure of any loss limitation or the effect on our business of emerging claims and coverage issues; loss settlements made by ceding companies and fronting carriers; the Company or its non-United States based subsidiaries 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 we do 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 Holding’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, net operating income and return on 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

For more information contact:

Robert Myron

President and Chief Operating Officer

1-441-278-4583

InvestorRelations@jrgh.net

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James River Group Holdings, Ltd. and Subsidiaries

Condensed Consolidated Balance Sheet Data

(Unaudited)

	June 30, 2016		December 31, 2015
	($ in thousands, except for share amounts)
ASSETS
Invested assets:
Fixed maturity securities, available-for-sale	$	952,572	$	899,660
Fixed maturity securities, trading		5,064		5,046
Equity securities, available-for-sale		92,692		74,111
Bank loan participations, held-for-investment		205,957		191,700
Short-term investments		14,906		19,270
Other invested assets		48,032		54,504
Total investments		1,319,223		1,244,291

Cash and cash equivalents		80,654		106,406
Accrued investment income		7,613		8,068
Premiums receivable and agents’ balances		219,186		176,685
Reinsurance recoverable on unpaid losses		153,706		131,788
Reinsurance recoverable on paid losses		5,973		11,298
Deferred policy acquisition costs		55,800		60,754
Goodwill and intangible assets		221,061		221,359
Other assets		126,645		94,848
Total assets	$	2,189,861	$	2,055,497

LIABILITIES AND SHAREHOLDERS’ EQUITY
Reserve for losses and loss adjustment expenses	$	843,337	$	785,322
Unearned premiums		322,323		301,104
Senior debt		88,300		88,300
Junior subordinated debt		104,055		104,055
Accrued expenses		28,812		29,476
Other liabilities		73,136		66,202
Total liabilities		1,459,963		1,374,459

Total shareholders’ equity		729,898		681,038
Total liabilities and shareholders’ equity	$	2,189,861	$	2,055,497

Tangible equity	$	508,837	$	459,679
Tangible equity per common share outstanding	$	17.49	$	15.88
Total shareholders’ equity per common share outstanding	$	25.09	$	23.53
Common shares outstanding		29,091,496		28,941,547
Debt to total capitalization ratio		20.9%		22.0%

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James River Group Holdings, Ltd. and Subsidiaries

Condensed Consolidated Income Statement Data

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
	($ in thousands, except for share data)
REVENUES
Gross written premiums	$	170,671	$	184,011	$	303,742	$	315,269
Net written premiums	$	133,058	$	158,814	$	239,959	$	267,473

Net earned premiums	$	118,555	$	106,060	$	235,685	$	223,071
Net investment income		11,553		13,000		22,825		24,986
Net realized investment gains (losses)		1,619		350		2,166		(2,456)
Other income		2,784		817		5,164		1,093
Total revenues		134,511		120,227		265,840		246,694

EXPENSES
Losses and loss adjustment expenses		76,659		67,931		150,165		142,415
Other operating expenses		39,974		36,580		81,153		76,377
Other expenses		91		69		79		138
Interest expense		2,041		1,744		4,215		3,448
Amortization of intangible assets		149		149		298		298
Total expenses		118,914		106,473		235,910		222,676
Income before taxes		15,597		13,754		29,930		24,018
Federal income tax expense		1,001		1,265		2,497		2,152
NET INCOME	$	14,596	$	12,489	$	27,433	$	21,866
NET OPERATING INCOME	$	13,665	$	12,362	$	26,503	$	24,053

EARNINGS PER SHARE
Basic	$	0.50	$	0.44	$	0.95	$	0.77
Diluted	$	0.49	$	0.43	$	0.92	$	0.75

NET OPERATING INCOME PER SHARE
Basic	$	0.47	$	0.43	$	0.91	$	0.84
Diluted	$	0.46	$	0.42	$	0.89	$	0.82

Weighted-average common shares outstanding:
Basic		29,035,512		28,547,616		28,994,260		28,544,003
Diluted		29,825,914		29,214,859		29,784,083		29,156,604
Cash dividends declared per common share	$	0.20	$	0.16	$	0.40	$	0.32

Ratios:
Loss ratio		64.7%		64.0%		63.7%		63.8%
Expense ratio		31.4%		33.8%		32.3%		33.8%
Combined ratio		96.1%		97.8%		96.0%		97.6%
Accident year loss ratio		68.7%		66.4%		67.7%		66.1%

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James River Group Holdings, Ltd. and Subsidiaries

Segment Results

EXCESS AND SURPLUS LINES

	Three Months Ended June 30,							Six Months Ended June 30,
	2016		2015		% Change			2016		2015		% Change
	($ in thousands)

Gross written premiums	$	97,427	$	77,417		25.8	%	$	179,535	$	153,135		17.2	%
Net written premiums	$	81,890	$	60,924		34.4	%	$	153,425	$	123,220		24.5	%

Net earned premiums	$	70,565	$	52,867		33.5	%	$	136,070	$	112,267		21.2	%
Losses and loss adjustment expenses		(46,061)		(32,688)		40.9	%		(86,724)		(68,530)		26.5	%
Underwriting expenses		(14,721)		(14,410)		2.2	%		(30,359)		(30,525)		(0.5)	%
Underwriting profit (a), (b)	$	9,783	$	5,769		69.6	%	$	18,987	$	13,212		43.7	%

Ratios:
Loss ratio		65.3%		61.8%					63.7%		61.0%
Expense ratio		20.9%		27.3%					22.3%		27.2%
Combined ratio		86.1%		89.1%					86.0%		88.2%
Accident year loss ratio		70.4%		68.3%					69.6%		68.5%

(a)

See "Reconciliation of Non-GAAP Measures."

(b)

Underwriting results include fees of $2.7 million and $2.1 million for the three months ended June 30, 2016 and 2015, respectively, and $5.0 million and $2.4 million for the respective six month periods. These amounts are included in “Other income” in our Condensed Consolidated Income Statements.

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SPECIALTY ADMITTED INSURANCE

	Three Months Ended June 30,							Six Months Ended June 30,
	2016		2015		% Change			2016		2015		% Change
	($ in thousands)

Gross written premiums	$	34,201	$	17,931		90.7	%	$	62,888	$	38,857		61.8	%
Net written premiums	$	11,679	$	9,167		27.4	%	$	24,725	$	20,641		19.8	%

Net earned premiums	$	12,207	$	10,150		20.3	%	$	23,612	$	19,705		19.8	%
Losses and loss adjustment expenses		(7,480)		(6,133)		22.0	%		(14,080)		(11,929)		18.0	%
Underwriting expenses		(4,602)		(3,818)		20.5	%		(8,932)		(7,732)		15.5	%
Underwriting profit (a), (b)	$	125	$	199		(37.2	)%	$	600	$	44		-

Ratios:
Loss ratio		61.3%		60.4%					59.6%		60.5%
Expense ratio		37.7%		37.6%					37.8%		39.2%
Combined ratio		99.0%		98.0%					97.5%		99.8%
Accident year loss ratio		66.3%		62.3%					63.6%		61.5%

(a)

See "Reconciliation of Non-GAAP Measures."

(b)

Underwriting results include fees of $742,000 and $454,000 for the three months ended June 30, 2016 and 2015, respectively, and $1.6 million and $839,000 for the respective six month periods. These amounts are included in “Other operating expenses” in our Condensed Consolidated Income Statements.

CASUALTY REINSURANCE

	Three Months Ended June 30,							Six Months Ended June 30,
	2016		2015		% Change			2016		2015		% Change
	($ in thousands)

Gross written premiums	$	39,043	$	88,663		(56.0	)%	$	61,319	$	123,277		(50.3	)%
Net written premiums	$	39,489	$	88,723		(55.5	)%	$	61,809	$	123,612		(50.0	)%

Net earned premiums	$	35,783	$	43,043		(16.9	)%	$	76,003	$	91,099		(16.6	)%
Losses and loss adjustment expenses		(23,118)		(29,110)		(20.6	)%		(49,361)		(61,956)		(20.3	)%
Underwriting expenses		(12,459)		(13,339)		(6.6	)%		(26,102)		(28,508)		(8.4	)%
Underwriting profit (a), (b)	$	206	$	594		(65.3	)%	$	540	$	635		(15.0	)%

Ratios:
Loss ratio		64.6%		67.6%					64.9%		68.0%
Expense ratio		34.8%		31.0%					34.3%		31.3%
Combined ratio		99.4%		98.6%					99.3%		99.3%
Accident year loss ratio		66.1%		65.1%					65.6%		64.1%

(a) See "Reconciliation of Non-GAAP Measures."

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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 June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
	(in thousands)
Underwriting profit of the operating segments:
Excess and Surplus Lines	$	9,783	$	5,769	$	18,987	$	13,212
Specialty Admitted Insurance		125		199		600		44
Casualty Reinsurance		206		594		540		635
Total underwriting profit of operating segments		10,114		6,562		20,127		13,891
Other operating expenses of the Corporate and Other segment		(5,475)		(4,255)		(10,727)		(8,634)
Underwriting profit (a)		4,639		2,307		9,400		5,257
Net investment income		11,553		13,000		22,825		24,986
Net realized investment gains (losses)		1,619		350		2,166		(2,456)
Other income and expenses		(24)		(10)		52		(23)
Interest expense		(2,041)		(1,744)		(4,215)		(3,448)
Amortization of intangible assets		(149)		(149)		(298)		(298)
Income before taxes	$	15,597	$	13,754	$	29,930	$	24,018

(a)

Included in underwriting results for the three months ended June 30, 2016 and 2015 is fee income of $3.5 million and $2.6 million, respectively, and $6.6 million and $3.3 million for the respective six 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.

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

	Three Months Ended June 30,
	2016				2015
	Income Before Taxes		Net Income		Income Before Taxes		Net Income
	(in thousands)
Income as reported	$	15,597	$	14,596	$	13,754	$	12,489
Net realized investment gains		(1,619)		(1,257)		(350)		(279)
Other expenses		91		127		69		45
Interest expense on leased building the Company is deemed to own for accounting purposes		306		199		165		107
Net operating income	$	14,375	$	13,665	$	13,638	$	12,362

	Six Months Ended June 30,
	2016				2015
	Income Before Taxes		Net Income		Income Before Taxes		Net Income
	(in thousands)
Income as reported	$	29,930	$	27,433	$	24,018	$	21,866
Net realized investment (gains) losses		(2,166)		(1,564)		2,456		1,883
Other expenses		79		119		138		90
Interest expense on leased building the Company is deemed to own for accounting purposes		792		515		330		214
Net operating income	$	28,635	$	26,503	$	26,942	$	24,053

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 June 30, 2016, March 31, 2016 and December 31, 2015.

	June 30, 2016				March 31, 2016				December 31, 2015
($ in thousands, except for share data)	Equity		Equity per share		Equity		Equity per share		Equity		Equity per share
Shareholders' equity	$	729,898	$	25.09	$	705,570	$	24.34	$	681,038	$	23.53
Goodwill and intangible assets		221,061		7.60		221,210		7.63		221,359		7.65
Tangible equity	$	508,837	$	17.49	$	484,360	$	16.71	$	459,679	$	15.88

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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