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): October 31, 2017
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 x
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. x
| |
Item 2.02 | Results of Operations and Financial Condition. |
On November 1, 2017, James River Group Holdings, Ltd. (the “Company”) issued a press release announcing its financial results for the quarter ended September 30, 2017. 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 5.02 | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
Chief Executive Officer Retirement
On October 31, 2017, J. Adam Abram, Chief Executive Officer and Chairman of the Board of Directors, announced his retirement as Chief Executive Officer effective January 1, 2018. Mr. Abram will continue to serve as non-executive Chairman of the Company’s Board of Directors (the “Board”) following his retirement as Chief Executive Officer.
At the recommendation of the Company’s Compensation Committee (the “Compensation Committee”), on October 31, 2017, the Board approved compensation to be payable to Mr. Abram in his role as non-executive Chairman. Mr. Abram will be paid $350,000 per annum in cash and be granted restricted share units (“RSUs”) with a fair market value of $150,000 on the date of grant, which amounts include the compensation that is otherwise payable to non-employee directors generally. At the same meeting, the Board, at the recommendation of the Compensation Committee, increased the cash compensation to be paid to non-employee directors from $75,000 per annum to $125,000 per annum. Additionally the annual RSU grant made to non-employee directors was increased from an annual grant with a fair market value of $25,000 on the date of grant, to an annual grant with a fair market value of $50,000. The increased non-employee director compensation will become effective January 1, 2018.
In connection with Mr. Abram’s announced retirement, the Board approved, at the recommendation of Compensation Committee, the acceleration of RSUs for 19,540 common shares of the Company upon the effectiveness of Mr. Abram’s retirement. The acceleration of the RSUs
is contingent upon Mr. Abram entering into a Separation and Release Agreement with the Company and its subsidiary, James River Group, Inc. (“JRG”).
Appointment of New Chief Executive Officer
Also on October 31, 2017, the Company’s Board of Directors appointed Robert P. Myron, the Company’s President and Chief Operating Officer, as the Company’s new Chief Executive Officer, effective upon Mr. Abram’s retirement. Mr. Myron, age 48, has served as the Company’s President and Chief Operating Officer since September 2014 and has served as a director since December 2010. He is also an administrator of one of the Company’s Delaware statutory trusts and a director of its U.K. holding company. Mr. Myron previously served as the Company’s Chief Executive Officer from October 2012 to September 2014, and before that as the Company’s Chief Financial Officer from June 2010 until September 2012. Prior to that time, Mr. Myron served as Senior Vice President, Treasurer and Chief Risk Officer of The Hanover Insurance Group, Inc., a property-casualty insurance company, from 2007 until 2010, and before that, as Executive Vice President and Chief Financial Officer of Argo Group International Holdings Ltd., an insurance and reinsurance company, from August 2007 to October 2007. Prior to that, Mr. Myron was Executive Vice President and Chief Financial Officer of PXRE Group, Ltd., a property reinsurer, from 2005 to August 2007, and before that, served as Treasurer from 2003 to 2005. Prior to PXRE Group Ltd., Mr. Myron was the President of Select Reinsurance Ltd., a privately-held Bermuda-based property-casualty reinsurer, from 1999 to 2003.
In connection with his appointment as Chief Executive Officer, on October 31, 2017, the Board of Directors of the Company, upon the recommendation of the Compensation Committee, approved an increase in Mr. Myron’s salary from $636,540 per annum to $750,000 per annum, effective at the time of Mr. Abram’s retirement. The Company and JRG expect to enter into a new employment agreement with Mr. Myron reflecting Mr. Myron’s increased salary, his new title and otherwise on substantially similar terms as his existing employment agreement.
Also on October 31, 2017, the Board, at the recommendation of the Compensation Committee approved an award of RSUs with a fair market value of $3,000,000 to Mr. Myron in connection with his promotion to Chief Executive Officer. The RSUs will be granted to Mr. Myron at the effective time of Mr. Abram’s retirement and will vest in three substantially equal installments on the first three anniversaries of the grant date.
Chief Financial Officer Compensation
On October 31, 2017, the Board, at the recommendation of the Compensation Committee, approved (i) an increase in the base salary of Sarah C. Doran, the Company’s Chief Financial
Officer, from $400,000 per annum to $450,000 per annum effective January 1, 2018, and (ii) a grant of RSUs with a fair market value of $750,000. The RSUs will vest in three substantially equal installments on the first three anniversaries of the grant date.
On November 1, 2017, 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 December 28, 2017 to shareholders of record on December 15, 2017. The Company also announced that its Board of Directors declared a special cash dividend of $0.50 per common share of the Company, also to be paid on December 28, 2017 to shareholders of record on December 15, 2017.
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: November 1, 2017 By: /s/ Sarah C. Doran
Name: Sarah C. Doran
Title: Chief Financial Officer
EXHIBIT INDEX
|
| | |
Exhibit No. | | Description |
99.1 | | |
Exhibit
JAMES RIVER ANNOUNCES THIRD QUARTER 2017 RESULTS
| |
▪ | Third Quarter 2017 Net Income of $10.4 million -- $0.34 per diluted share, and Adjusted Net Operating Income of $10.7 million -- $0.36 per diluted share -- Includes previously announced $10 million ($0.33 per diluted share) pre-tax impact of Hurricanes Harvey, Irma and Maria, net of reinsurance |
| |
▪ | 6.7% growth in Pre-Dividend Shareholders' Equity per share since December 31, 2016; 10.3% growth in Pre-Dividend Tangible Equity per share since December 31, 2016 |
| |
▪ | 11.8% nine month annualized Adjusted Net Operating Return on Average Tangible Equity |
| |
▪ | Declared a $0.50 per share special dividend in addition to $0.30 per share quarterly dividend |
| |
▪ | Robert P. Myron to transition to CEO on January 1, 2018; J. Adam Abram to remain as Chairman |
Pembroke, Bermuda, November 1, 2017 - James River Group Holdings, Ltd. ("James River" or the "Company") (NASDAQ: JRVR) today reported third quarter 2017 net income of $10.4 million ($0.34 per diluted share), compared to $21.4 million ($0.71 per diluted share) for the third quarter of 2016. Adjusted net operating income for the third quarter of 2017 was $10.7 million ($0.36 per diluted share), compared to $21.6 million ($0.72 per diluted share) for the same period in 2016.
|
| | | | | | | | |
Earnings Per Diluted Share | Three Months Ended September 30, | |
| 2017 | | 2016 | |
| | | | |
Net Income | $ | 0.34 |
| | $ | 0.71 |
| |
Adjusted Net Operating Income | $ | 0.36 |
| | $ | 0.72 |
| |
J. Adam Abram, the Company’s Chairman and Chief Executive Officer, commented “We remain on pace to achieve a 12% or better operating return on tangible equity for the year. We are pleased with these results, particularly in the context of the broad industry capital losses.”
-MORE-
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 Third Quarter Results
Page 2
November 1, 2017
J. Adam Abram announced that he will be stepping down from the Chief Executive Officer role effective January 1, 2018, and remaining with the Company as non-executive Chairman of the Board of Directors. Robert P. (Bob) Myron is assuming the Chief Executive Officer role effective as of the same date.
Mr. Abram commented, “The Company is in a strong position today, and this is a natural time for Bob Myron to make the transition to CEO. Bob has led operations at every level of the Company for over seven years. He was CEO for two years prior to our going public, so the Board and I anticipate this will be an easy and natural transition for James River. I congratulate Bob.”
Bob Myron, commented, “I am pleased to be assuming this position from Adam, who has been a mentor to me and has built a great company over the last 15 years. I have tremendous respect for the Company’s values and its talented employees. I look forward to continuing to work with Adam, the rest of the Board of Directors and our management team in the future, as we build on our strong foundation and seek to drive increased value for our shareholders.”
Third Quarter 2017 Operating Results
| |
• | Net written premiums of $256.8 million, consisting of the following: |
|
| | | | | | | | | | |
| Three Months Ended September 30, | |
($ in thousands) | 2017 | | 2016 | | % Change |
Excess and Surplus Lines | $ | 125,188 |
| | $ | 86,193 |
| | 45 | % |
Specialty Admitted Insurance | 18,503 |
| | 14,774 |
| | 25 | % |
Casualty Reinsurance | 113,073 |
| | 104,174 |
| | 9 | % |
| $ | 256,764 |
| | $ | 205,141 |
| | 25 | % |
| |
• | Net earned premiums of $202.1 million, consisting of the following: |
|
| | | | | | | | | | |
| Three Months Ended September 30, | |
($ in thousands) | 2017 | | 2016 | | % Change |
Excess and Surplus Lines | $ | 123,606 |
| | $ | 81,672 |
| | 51 | % |
Specialty Admitted Insurance | 19,324 |
| | 13,204 |
| | 46 | % |
Casualty Reinsurance | 59,186 |
| | 38,273 |
| | 55 | % |
| $ | 202,116 |
| | $ | 133,149 |
| | 52 | % |
| |
• | The Excess and Surplus Lines segment grew largely due to increases in its Commercial Auto division (with a focus on the Company’s rideshare business); |
| |
• | The Specialty Admitted Insurance segment grew largely as a result of continued expansion in its fronting business, where the Company only retains a small portion of the underwriting risk; |
| |
• | The Casualty Reinsurance segment grew largely as a result of increased third party quota share excess and surplus lines premium from renewed treaties and adjustments to premium estimates from treaties written in prior periods; |
JRVR Announces Third Quarter Results
Page 3
November 1, 2017
| |
• | Group accident year loss ratio of 78.2% increased from 66.6% in the prior year quarter. This includes 4.9 percentage points of losses due to Hurricanes Harvey, Irma and Maria. The remaining 6.7 points of difference is due to growth in the Commercial Auto division, which carries a higher initial loss pick but also a lower expense ratio as compared to other lines of business within the Excess and Surplus Lines segment; |
| |
• | Group combined ratio of 99.3% (94.4% excluding the impact of the catastrophes), as compared to 93.7% in the prior year quarter; |
| |
• | Group expense ratio of 24.9% improved from 31.1% in the prior year quarter, driven by increased net earned premium and fee income, as well as growth in lines of business which carry relatively low expense ratios; |
| |
• | Favorable reserve development of $7.6 million compared to $5.3 million in the prior year quarter (representing a 3.7 and 4.0 percentage point reduction to the Company’s loss ratio in each period, respectively). Pre-tax favorable (unfavorable) reserve development by segment was as follows: |
|
| | | | | | | |
| Three Months Ended September 30, |
($ in thousands) | 2017 | | 2016 |
Excess and Surplus Lines | $ | 5,108 |
| | $ | 5,774 |
|
Specialty Admitted Insurance | 3,037 |
| | 1,571 |
|
Casualty Reinsurance | (581 | ) | | (2,012 | ) |
| $ | 7,564 |
| | $ | 5,333 |
|
| |
• | Gross fee income of $7.0 million, an increase of 129.6% over the prior year quarter as a result of increased fronting volume in the Specialty Admitted Insurance segment and increased fee-for-service business in the Excess and Surplus Lines segment. This gross fee income resulted in a 3.5 and 2.3 percentage point reduction to the Company’s third quarter 2017 and 2016 expense ratios, respectively. Gross fee income by segment was as follows: |
|
| | | | | | | | | | |
| Three Months Ended September 30, | |
($ in thousands) | 2017 | | 2016 | | % Change |
Excess and Surplus Lines | $ | 3,946 |
| | $ | 2,129 |
| | 85 | % |
Specialty Admitted Insurance | 3,097 |
| | 938 |
| | 230 | % |
| $ | 7,043 |
| | $ | 3,067 |
| | 130 | % |
| |
• | Net investment income of $14.9 million, a decrease of 5.8% from the prior year quarter. Further details can be found in the ‘Investment Results’ section below; |
| |
• | The Company's results this quarter include $10 million of pre-tax net losses from Hurricanes Harvey, Irma and Maria. Approximately $2.7 million of these losses were included in the Casualty Reinsurance segment and were due primarily to nonstandard auto losses in Texas. The balance of the losses were included in the Excess and Surplus Lines segment and were due primarily to property losses in Florida. The Company retains 100% of the risk it assumes in its Casualty Reinsurance segment. |
JRVR Announces Third Quarter Results
Page 4
November 1, 2017
Investment Results
Net investment income for the third quarter of 2017 was $14.9 million, which compares to $15.8 million for the same period in 2016. The prior year quarter investment income was driven by the exceptional performance of both the Company's renewable energy and other private investment portfolios, specifically an investment in collateralized loan obligation equity tranches. The performance of these portfolios has varied significantly from quarter to quarter, which is expected due to the nature of the underlying investments.
The Company’s net investment income consisted of the following:
|
| | | | | | | | | | |
| Three Months Ended September 30, | |
($ in thousands) | 2017 | | 2016 | | % Change |
Renewable Energy Investments | $ | 1,516 |
| | $ | 2,745 |
| | (45 | )% |
Other Private Investments | 800 |
| | 2,034 |
| | (61 | )% |
All Other Net Investment Income | 12,564 |
| | 11,018 |
| | 14 | % |
Total Net Investment Income | $ | 14,880 |
| | $ | 15,797 |
| | (6 | )% |
The Company’s annualized gross investment yield on average fixed maturity and bank loan securities for the three months ended September 30, 2017 was 3.5% (3.4% for the three months ended September 30, 2016) and the average duration of the fixed maturity and bank loan portfolio was 3.4 years at September 30, 2017 (3.6 years at September 30, 2016). Renewable energy and other private investments produced an annualized return of 14.1% for the three months ended September 30, 2017 (38.1% for the three months ended September 30, 2016).
During the third quarter, the Company recognized $171,000 of pre-tax net realized losses ($210,000 of net realized gains in the same period in 2016).
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 September 30, 2017 and 2016 was 23.8% and 4.1%, respectively, while the tax rate for the nine months ended September 30, 2017 and 2016 was 11.8% and 6.5%, respectively. The full year tax rate for 2017 is expected to be closer to that of the nine month year-to-date tax rate. The Company’s tax rate is influenced by the jurisdiction in which it earns underwriting and investment income. The catastrophe losses this quarter reduced underwriting income in both the Excess and Surplus Lines and Casualty Reinsurance segments, and this caused a larger proportion of the Group's income to be taxed at a higher rate applicable to earnings in the United States.
Tangible Equity
Tangible equity before dividends increased 11.6% from $472.5 million at December 31, 2016 to $527.3 million at September 30, 2017, largely due to net income of $43.3 million and $11.5 million of unrealized gains, net of taxes, on available-for-sale securities. Tangible equity after dividends increased 6.0% from $472.5 million at December 31, 2016 to $500.7 million at September 30, 2017. Tangible equity per common share was $16.92 at September 30, 2017, net of $0.90 of dividends
JRVR Announces Third Quarter Results
Page 5
November 1, 2017
per share the Company paid during the first nine months of 2017. The year-to-date annualized adjusted net operating income return on average tangible equity was 11.8%, which compares to 14.6% for the full year 2016.
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. The Company also announced that its Board of Directors declared a special dividend of $0.50 per common share. These dividends are payable on Thursday, December 28, 2017 to all shareholders of record on Friday, December 15, 2017.
For the full year 2017, the Company expects to pay $50.4 million in dividends, as compared to $66.3 million in 2016. Year to date, the Company has grown net earned premiums 46.6% over the comparable period in 2016. Operating leverage (the ratio of trailing twelve month net earned premium to tangible equity at September 30, 2017) was 1.4x as of September 30, 2017 as compared to 0.9x as of September 30, 2016. James River Group Holdings, Ltd. has paid cumulative dividends, including this upcoming payment, of $164.4 million since its December 2014 initial public offering, or 35.3% of its tangible equity at initial public offering.
Conference Call
James River Group Holdings, Ltd. will hold a conference call to discuss its third quarter results tomorrow, November 2, 2017, at 8:00 a.m. Eastern Daylight Time. Investors may access the conference call by dialing (877) 930-8055, Conference ID# 98513216, 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 10:00 a.m. (Eastern Daylight Time) on December 2, 2017 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; 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 employ; 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,
JRVR Announces Third Quarter Results
Page 6
November 1, 2017
including tax or insurance laws and regulations; our ability to obtain reinsurance coverage at reasonable prices or on terms that adequately protect us; 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; 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 10, 2017. 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 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 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
JRVR Announces Third Quarter Results
Page 7
November 1, 2017
For more information contact:
Kevin Copeland
SVP Finance & Chief Investment Officer
Investor Relations
441-278-4573
InvestorRelations@jrgh.net
JRVR Announces Third Quarter Results
Page 8
November 1, 2017
James River Group Holdings, Ltd. and Subsidiaries
Condensed Consolidated Balance Sheet Data
(Unaudited)
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| ($ in thousands, except for share data) |
ASSETS | | | |
Invested assets: | | | |
Fixed maturity securities, available-for-sale | $ | 1,016,818 |
| | $ | 941,077 |
|
Fixed maturity securities, trading | 3,812 |
| | 5,063 |
|
Equity securities, available-for-sale | 78,705 |
| | 76,401 |
|
Bank loan participations, held-for-investment | 245,741 |
| | 203,526 |
|
Short-term investments | 42,331 |
| | 50,844 |
|
Other invested assets | 66,205 |
| | 55,419 |
|
Total invested assets | 1,453,612 |
| | 1,332,330 |
|
| | | |
Cash and cash equivalents | 106,500 |
| | 109,784 |
|
Accrued investment income | 8,062 |
| | 7,246 |
|
Premiums receivable and agents’ balances | 390,534 |
| | 265,315 |
|
Reinsurance recoverable on unpaid losses | 283,949 |
| | 182,737 |
|
Reinsurance recoverable on paid losses | 14,221 |
| | 2,877 |
|
Deferred policy acquisition costs | 84,530 |
| | 64,789 |
|
Goodwill and intangible assets | 220,315 |
| | 220,762 |
|
Other assets | 159,929 |
| | 160,693 |
|
Total assets | $ | 2,721,652 |
| | $ | 2,346,533 |
|
| | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Reserve for losses and loss adjustment expenses | $ | 1,187,248 |
| | $ | 943,865 |
|
Unearned premiums | 469,214 |
| | 390,563 |
|
Senior debt | 88,300 |
| | 88,300 |
|
Junior subordinated debt | 104,055 |
| | 104,055 |
|
Accrued expenses | 40,276 |
| | 36,884 |
|
Other liabilities | 111,590 |
| | 89,645 |
|
Total liabilities | 2,000,683 |
| | 1,653,312 |
|
| | | |
Total shareholders’ equity | 720,969 |
| | 693,221 |
|
Total liabilities and shareholders’ equity | $ | 2,721,652 |
| | $ | 2,346,533 |
|
| | | |
Tangible equity (a) | $ | 500,654 |
| | $ | 472,459 |
|
Tangible equity per common share outstanding (a) | $ | 16.92 |
| | $ | 16.15 |
|
Total shareholders’ equity per common share outstanding | $ | 24.37 |
|
| $ | 23.69 |
|
Common shares outstanding | 29,582,656 |
| | 29,257,566 |
|
Debt (b) to total capitalization ratio | 21.1 | % | | 21.7 | % |
(a) See “Reconciliation of Non-GAAP Measures”. (b) Includes senior debt and junior subordinated debt. | | | |
JRVR Announces Third Quarter Results
Page 9
November 1, 2017
James River Group Holdings, Ltd. and Subsidiaries
Condensed Consolidated Income Statement Data
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| ($ in thousands, except for share data) |
REVENUES | | | | | | | |
Gross written premiums | $ | 338,351 |
| | $ | 260,166 |
| | $ | 844,005 |
| | $ | 563,908 |
|
Net written premiums | 256,764 |
| | 205,141 |
| | 622,498 |
| | 445,100 |
|
| | | | | | | |
Net earned premiums | 202,116 |
| | 133,149 |
| | 540,880 |
| | 368,834 |
|
Net investment income | 14,880 |
| | 15,797 |
| | 45,327 |
| | 38,622 |
|
Net realized investment (losses) gains | (171 | ) | | 210 |
| | 1,183 |
| | 2,376 |
|
Other income | 4,041 |
| | 2,209 |
| | 12,272 |
| | 7,373 |
|
Total revenues | 220,866 |
| | 151,365 |
| | 599,662 |
| | 417,205 |
|
| | | | | | | |
EXPENSES | | | | | | | |
Losses and loss adjustment expenses | 150,445 |
| | 83,326 |
| | 386,898 |
| | 233,491 |
|
Other operating expenses | 54,260 |
| | 43,579 |
| | 156,189 |
| | 124,732 |
|
Other expenses | 119 |
| | (43 | ) | | 351 |
| | 36 |
|
Interest expense | 2,304 |
| | 2,079 |
| | 6,651 |
| | 6,294 |
|
Amortization of intangible assets | 149 |
| | 149 |
| | 447 |
| | 447 |
|
Total expenses | 207,277 |
| | 129,090 |
| | 550,536 |
| | 365,000 |
|
Income before taxes | 13,589 |
| | 22,275 |
| | 49,126 |
| | 52,205 |
|
Income tax expense | 3,238 |
| | 909 |
| | 5,784 |
| | 3,406 |
|
NET INCOME | $ | 10,351 |
| | $ | 21,366 |
| | $ | 43,342 |
| | $ | 48,799 |
|
ADJUSTED NET OPERATING INCOME (a) | $ | 10,731 |
| | $ | 21,594 |
| | $ | 43,314 |
| | $ | 48,097 |
|
| | | | | | | |
EARNINGS PER SHARE | | | | | | | |
Basic | $ | 0.35 |
| | $ | 0.73 |
| | $ | 1.47 |
| | $ | 1.68 |
|
Diluted | $ | 0.34 |
| | $ | 0.71 |
| | $ | 1.43 |
| | $ | 1.64 |
|
| | | | | | | |
ADJUSTED NET OPERATING INCOME PER SHARE | | | | | | |
Basic | $ | 0.36 |
| | $ | 0.74 |
| | $ | 1.47 |
| | $ | 1.66 |
|
Diluted | $ | 0.36 |
| | $ | 0.72 |
| | $ | 1.43 |
| | $ | 1.61 |
|
| | | | | | | |
Weighted-average common shares outstanding: | | | | | | | |
Basic | 29,524,243 |
| | 29,101,550 |
| | 29,407,762 |
| | 29,030,284 |
|
Diluted | 30,220,077 |
| | 29,935,152 |
| | 30,285,733 |
| | 29,834,686 |
|
Cash dividends declared per common share | $ | 0.30 |
| | $ | 0.20 |
| | $ | 0.90 |
| | $ | 0.60 |
|
| | | | | | | |
Ratios: | | | | | | | |
Loss ratio | 74.4 | % | | 62.6 | % | | 71.5 | % | | 63.3 | % |
Expense ratio | 24.9 | % | | 31.1 | % | | 26.7 | % | | 31.9 | % |
Combined ratio | 99.3 | % | | 93.7 | % | | 98.2 | % | | 95.2 | % |
Combined ratio excluding catastrophe impact (b) | 94.4 | % | | 93.7 | % | | 96.3 | % | | 95.2 | % |
Accident year loss ratio | 78.2 | % | | 66.6 | % | | 73.2 | % | | 67.3 | % |
(a) See "Reconciliation of Non-GAAP Measures".
| | | | | | |
(b) Ratio excludes $10.0 million of pre-tax catastrophe losses for the three and nine months ended September 30, 2017.
|
JRVR Announces Third Quarter Results
Page 10
November 1, 2017
James River Group Holdings, Ltd. and Subsidiaries
Segment Results
EXCESS AND SURPLUS LINES
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change |
($ in thousands) | | | | | | | | | | | |
Gross written premiums | $ | 140,425 |
| | $ | 99,882 |
| | 40.6 | % | | $ | 387,424 |
| | $ | 279,417 |
| | 38.7 | % |
Net written premiums | $ | 125,188 |
| | $ | 86,193 |
| | 45.2 | % | | $ | 346,356 |
| | $ | 239,618 |
| | 44.5 | % |
| | | | | | | | | | | |
Net earned premiums | $ | 123,606 |
| | $ | 81,672 |
| | 51.3 | % | | $ | 334,723 |
| | $ | 217,742 |
| | 53.7 | % |
Losses and loss adjustment expenses | (95,855 | ) | | (50,733 | ) | | 88.9 | % | | (248,944 | ) | | (137,457 | ) | | 81.1 | % |
Underwriting expenses | (17,805 | ) | | (18,531 | ) | | (3.9 | )% | | (55,304 | ) | | (48,890 | ) | | 13.1 | % |
Underwriting profit (a), (b) | $ | 9,946 |
| | $ | 12,408 |
| | (19.8 | )% | | $ | 30,475 |
| | $ | 31,395 |
| | (2.9 | )% |
| | | | | | | | | | | |
Ratios: | | | | | | | | | | | |
Loss ratio | 77.5 | % | | 62.1 | % | | | | 74.4 | % | | 63.1 | % | | |
Expense ratio | 14.5 | % | | 22.7 | % | | | | 16.5 | % | | 22.5 | % | | |
Combined ratio | 92.0 | % | | 84.8 | % | | | | 90.9 | % | | 85.6 | % | | |
Combined ratio excluding catastrophe impact (c) | 86.0 | % | | 84.8 | % | | | | 88.7 | % | | 85.6 | % | | |
Accident year loss ratio | 81.7 | % | | 69.2 | % | | | | 77.3 | % | | 69.5 | % | | |
Accident year loss ratio excluding catastrophe impact (c) | 75.8 | % | | 69.2 | % | | | | 75.1 | % | | 69.5 | % | | |
| | | | | | | | | | | |
(a) See "Reconciliation of Non-GAAP Measures". | | | | | | | | | | |
(b) Underwriting results include fee income of $3.9 million and $2.1 million for the three months ended September 30, 2017 and 2016, respectively, and $12.0 million and $7.2 million for the respective nine month periods. These amounts are included in “Other income” in our Condensed Consolidated Income Statements. |
(c) Ratio excludes $7.3 million of pre-tax catastrophe losses for the three and nine months ended September 30, 2017. |
JRVR Announces Third Quarter Results
Page 11
November 1, 2017
SPECIALTY ADMITTED INSURANCE |
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change |
($ in thousands) | | | | | | | | | | | |
Gross written premiums | $ | 84,838 |
| | $ | 56,119 |
| | 51.2 | % | | $ | 234,073 |
| | $ | 119,007 |
| | 96.7 | % |
Net written premiums | $ | 18,503 |
| | $ | 14,774 |
| | 25.2 | % | | $ | 53,462 |
| | $ | 39,499 |
| | 35.4 | % |
| | | | | | | | | | | |
Net earned premiums | $ | 19,324 |
| | $ | 13,204 |
| | 46.3 | % | | $ | 53,337 |
| | $ | 36,816 |
| | 44.9 | % |
Losses and loss adjustment expenses | (12,506 | ) | | (7,978 | ) | | 56.8 | % | | (34,354 | ) | | (22,058 | ) | | 55.7 | % |
Underwriting expenses | (5,967 | ) | | (4,524 | ) | | 31.9 | % | | (16,737 | ) | | (13,456 | ) | | 24.4 | % |
Underwriting profit (a), (b) | $ | 851 |
| | $ | 702 |
| | 21.2 | % | | $ | 2,246 |
| | $ | 1,302 |
| | 72.5 | % |
| | | | | | | | | | | |
Ratios: | | | | | | | | | | | |
Loss ratio | 64.7 | % | | 60.4 | % | | | | 64.4 | % | | 59.9 | % | | |
Expense ratio | 30.9 | % | | 34.3 | % | | | | 31.4 | % | | 36.5 | % | | |
Combined ratio | 95.6 | % | | 94.7 | % | | | | 95.8 | % | | 96.5 | % | | |
Accident year loss ratio | 80.4 | % | | 72.3 | % | | | | 68.4 | % | | 66.7 | % | | |
| | | | | | | | | | | |
(a) See "Reconciliation of Non-GAAP Measures". | | | | | | | | | | |
(b) Underwriting results include fee income of $3.1 million and $938,000 for the three months ended September 30, 2017 and 2016, respectively, and $7.8 million and $2.5 million for the respective nine month periods. |
JRVR Announces Third Quarter Results
Page 12
November 1, 2017
CASUALTY REINSURANCE |
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change |
($ in thousands) | | | | | | | | | | | |
Gross written premiums | $ | 113,088 |
| | $ | 104,165 |
| | 8.6 | % | | $ | 222,508 |
| | $ | 165,484 |
| | 34.5 | % |
Net written premiums | $ | 113,073 |
| | $ | 104,174 |
| | 8.5 | % | | $ | 222,680 |
| | $ | 165,983 |
| | 34.2 | % |
| | | | | | | | | | | |
Net earned premiums | $ | 59,186 |
| | $ | 38,273 |
| | 54.6 | % | | $ | 152,820 |
| | $ | 114,276 |
| | 33.7 | % |
Losses and loss adjustment expenses | (42,084 | ) | | (24,615 | ) | | 71.0 | % | | (103,600 | ) | | (73,976 | ) | | 40.0 | % |
Underwriting expenses | (20,035 | ) | | (13,525 | ) | | 48.1 | % | | (53,083 | ) | | (39,627 | ) | | 34.0 | % |
Underwriting (loss) profit (a) | $ | (2,933 | ) | | $ | 133 |
| | - |
| | $ | (3,863 | ) | | $ | 673 |
| | - |
|
| | | | | | | | | | | |
Ratios: | | | | | | | | | | | |
Loss ratio | 71.1 | % | | 64.3 | % | | | | 67.8 | % | | 64.7 | % | | |
Expense ratio | 33.9 | % | | 35.3 | % | | | | 34.7 | % | | 34.7 | % | | |
Combined ratio | 105.0 | % | | 99.7 | % | | | | 102.5 | % | | 99.4 | % | | |
Combined ratio excluding catastrophe impact (b) | 100.5 | % | | 99.7 | % | | | | 100.8 | % | | 99.4 | % | | |
Accident year loss ratio | 70.1 | % | | 59.1 | % | | | | 66.1 | % | | 63.4 | % | | |
Accident year loss ratio excluding catastrophe impact (b) | 65.6 | % | | 59.1 | % | | | | 64.3 | % | | 63.4 | % | | |
| | | | | | | | | | | |
(a) See "Reconciliation of Non-GAAP Measures". | | | | | | | | | | |
(b) Ratio excludes $2.7 million of pre-tax catastrophe losses for the three and nine months ended September 30, 2017. |
JRVR Announces Third Quarter Results
Page 13
November 1, 2017
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 September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in thousands) |
Underwriting profit (loss) of the operating segments: | | | | | | | |
Excess and Surplus Lines | $ | 9,946 |
| | $ | 12,408 |
| | $ | 30,475 |
| | $ | 31,395 |
|
Specialty Admitted Insurance | 851 |
| | 702 |
| | 2,246 |
| | 1,302 |
|
Casualty Reinsurance | (2,933 | ) | | 133 |
| | (3,863 | ) | | 673 |
|
Total underwriting profit of operating segments | 7,864 |
| | 13,243 |
| | 28,858 |
| | 33,370 |
|
Other operating expenses of the Corporate and Other segment | (6,507 | ) | | (4,870 | ) | | (19,063 | ) | | (15,597 | ) |
Underwriting profit (a) | 1,357 |
| | 8,373 |
| | 9,795 |
| | 17,773 |
|
Net investment income | 14,880 |
| | 15,797 |
| | 45,327 |
| | 38,622 |
|
Net realized investment (losses) gains | (171 | ) | | 210 |
| | 1,183 |
| | 2,376 |
|
Other income and expenses | (24 | ) | | 123 |
| | (81 | ) | | 175 |
|
Interest expense | (2,304 | ) | | (2,079 | ) | | (6,651 | ) | | (6,294 | ) |
Amortization of intangible assets | (149 | ) | | (149 | ) | | (447 | ) | | (447 | ) |
Consolidated income before taxes | $ | 13,589 |
| | $ | 22,275 |
| | $ | 49,126 |
| | $ | 52,205 |
|
| | | | | | | |
(a) Included in underwriting results for the three months ended September 30, 2017 and 2016 is fee income of $7.0 million and $3.1 million, respectively, and $19.8 million and $9.7 million for the respective nine month periods. |
Adjusted Net Operating Income
We define adjusted net operating income as net income excluding net realized investment gains and losses, 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.
Our income before taxes and net income for the three and nine months ended September 30, 2017 and 2016, respectively, reconciles to our adjusted net operating income as follows:
JRVR Announces Third Quarter Results
Page 14
November 1, 2017
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2017 | | 2016 |
| Income Before Taxes | | Net Income | | Income Before Taxes | | Net Income |
| (in thousands) |
Income as reported | $ | 13,589 |
| | $ | 10,351 |
| | $ | 22,275 |
| | $ | 21,366 |
|
Net realized investment losses (gains) | 171 |
| | 82 |
| | (210 | ) | | 56 |
|
Other expenses | 119 |
| | 93 |
| | (43 | ) | | (28 | ) |
Interest expense on leased building the Company is deemed to own for accounting purposes | 315 |
| | 205 |
| | 308 |
| | 200 |
|
Adjusted net operating income | $ | 14,194 |
| | $ | 10,731 |
| | $ | 22,330 |
| | $ | 21,594 |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
| Income Before Taxes | | Net Income | | Income Before Taxes | | Net Income |
| (in thousands) |
Income as reported | $ | 49,126 |
| | $ | 43,342 |
| | $ | 52,205 |
| | $ | 48,799 |
|
Net realized investment gains | (1,183 | ) | | (1,000 | ) | | (2,376 | ) | | (1,508 | ) |
Other expenses | 351 |
| | 361 |
| | 36 |
| | 91 |
|
Interest expense on leased building the Company is deemed to own for accounting purposes | 940 |
| | 611 |
| | 1,100 |
| | 715 |
|
Adjusted net operating income | $ | 49,234 |
| | $ | 43,314 |
| | $ | 50,965 |
| | $ | 48,097 |
|
| | | | | | | |
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 September 30, 2017, December 31, 2016, and September 30, 2016 and reconciles tangible equity to tangible equity before dividends for September 30, 2017.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 | | September 30, 2016 |
($ in thousands, except for share data) | Equity | | Equity per share | | Equity | | Equity per share | | Equity | | Equity per share |
Shareholders' equity | $ | 720,969 |
| | $ | 24.37 |
| | $ | 693,221 |
| | $ | 23.69 |
| | $ | 745,765 |
| | $ | 25.61 |
|
Goodwill and intangible assets | 220,315 |
| | 7.45 |
| | 220,762 |
| | 7.54 |
| | 220,912 |
| | 7.58 |
|
Tangible equity | $ | 500,654 |
| | $ | 16.92 |
| | $ | 472,459 |
| | $ | 16.15 |
| | $ | 524,853 |
| | $ | 18.03 |
|
Dividends to shareholders for the nine months ended September 30, 2017 | 26,670 |
| | 0.90 |
| | | | | | | | |
Pre dividend tangible equity | $ | 527,324 |
| | $ | 17.82 |
| | | | | | | | |