James River Group Holdings, Ltd. Announces Second Quarter 2017 Results

SECOND QUARTER 2017 NET INCOME OF $14.5 MILLION -- $0.48 PER DILUTED SHARE, AND ADJUSTED NET OPERATING INCOME OF $14.9 MILLION -- $0.49 PER DILUTED SHARE

GROSS FEE INCOME OF $6.9 MILLION; 99% INCREASE OVER THE SECOND QUARTER OF 2016

8.6% GROWTH IN PRE DIVIDEND TANGIBLE EQUITY PER SHARE SINCE DECEMBER 31, 2016; 13.4% SIX MONTH ANNUALIZED ADJUSTED NET OPERATING RETURN ON AVERAGE TANGIBLE EQUITY

RECORD LOW EXPENSE RATIO OF 26.5%; 4.9 PERCENTAGE POINT IMPROVEMENT OVER SECOND QUARTER OF 2016

PEMBROKE, Bermuda, Aug. 01, 2017 (GLOBE NEWSWIRE) -- James River Group Holdings, Ltd. (NASDAQ:JRVR) today reported second quarter 2017 net income of $14.5 million ($0.48 per diluted share), compared to $14.6 million ($0.49 per diluted share) for the second quarter of 2016.  Adjusted net operating income for the second quarter of 2017 was $14.9 million ($0.49 per diluted share), compared to $13.7 million ($0.46 per diluted share) for the same period in 2016.

J. Adam Abram, Chairman and Chief Executive Officer of James River Group Holdings, Ltd., commented, “We are pleased with our second quarter results.  Our low expense ratio allows us to maintain our focus on underwriting profit while still growing.  This quarter we also reacted to some negative developments in our business; it is our practice to do so quickly. With our 13.4% annualized operating return on tangible equity based on year-to-date results, we reiterate our guidance of a 12% or greater return.”

Second Quarter 2017 Operating Results

• Net written premiums of $207.8 million, consisting of the following:

• Net earned premiums of $184.1 million, consisting of the following:

• The Excess and Surplus Lines segment grew largely due to increases in Commercial Auto (with a focus on the Company’s rideshare business), Environmental and Allied Health divisions, which were partially offset by declines in Manufacturing & Contractors and Excess Casualty;
• The Specialty Admitted Insurance segment grew largely due to the June 2016 addition of a significant fronting contract, 90% of which is reinsured to third parties;
• The Casualty Reinsurance Segment grew largely due to a timing difference of a renewal treaty;
• Accident year loss ratio of 70.3% increased from 68.7% 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;
• Combined ratio of 97.7% increased from 96.1% in the prior year quarter principally due to a prior period commission adjustment for three profitable contracts in the Casualty Reinsurance segment.  As a result of this adjustment, other operating expense was increased by $2.0 million, or 4.0 combined ratio points on the segment and 1.1 points on the Company as a whole;
• Expense ratio of 26.5% improved from 31.4% in the prior year quarter, driven principally by increased net earned premium and fee income, as well as growth in lines of business which carry relatively low expense ratios, partially offset by the commission adjustment in the Casualty Reinsurance segment;
• Unfavorable reserve development of $1.7 million compared to favorable reserve development of $4.7 million in the prior year quarter (representing a 0.9 point increase and 4.0 point reduction to the Company’s loss ratio in each period, respectively).  The current year quarter's unfavorable development was largely driven by reported losses in the Casualty Reinsurance segment from the 2010 and 2012 treaty years of one reinsurance program which the Company no longer writes and adverse development from canceled programs in the Specialty Admitted segment, offset partially by favorable development in the Excess and Surplus Lines segment and workers' compensation business.  Pre-tax favorable (unfavorable) reserve development by segment was as follows:

• Gross fee income of $6.9 million, an increase of 99% over the prior year quarter as a result of increased program and fronting volume in the Specialty Admitted Insurance segment and increased fee-for-service business in the Excess and Surplus Lines segment.  This fee income resulted in a 3.7 percentage point reduction to the Company’s second quarter 2017 expense ratio;
• Net investment income of $13.7 million, an increase of 19% over the prior year quarter, driven by an increased contribution from renewable energy investments which significantly exceeded our expectations.  Further details can be found in the ‘Investment Results’ section below.

Investment Results

Net investment income for the second quarter of 2017 was $13.7 million, which compares to $11.6 million for the same period in 2016.  The increase was principally driven by fair value gains in the Company’s renewable energy portfolio which significantly exceeded our expectations.  The Company’s net investment income consisted of the following:

The Company’s annualized gross investment yield on average fixed maturity and bank loan securities for the three months ended June 30, 2017 was 3.6% (3.5% for the three months ended June 30, 2016) and the average duration of the fixed maturity and bank loan portfolio was 3.4 years at June 30, 2017 (3.7 years at June 30, 2016).

During the second quarter, the Company recognized $307,000 of pre-tax net realized gains ($1.6   million of net realized gains in the same period in 2016) which included $321,000 of realized gains on bank loan participations.

Taxes

The tax rate for the three months ended June 30, 2017 and 2016 was 6.5% and 6.4%, respectively.

Tangible Equity

Tangible equity before dividends increased 9.4% from $472.5 million at December 31, 2016 to $517.0 million at June 30, 2017, largely due to net income of $33.0 million and $10.7 million of unrealized gains, net of taxes, on available-for-sale securities.  Tangible equity after dividends increased 5.7% from $472.5 million at December 31, 2016 to $499.3 million at June 30, 2017.  Tangible equity per common share was $16.94 at June 30, 2017, net of $17.7 million of dividends the Company paid during 2017.  The year-to-date annualized adjusted net operating income return on average tangible equity was 13.4%, which compares to 10.9% for the same period in 2016.

Capital Management

The Company announced that its Board of Directors declared a cash dividend of $0.30 per common share, the same amount as the prior quarter.  This dividend is payable on Friday, September 29, 2017 to all shareholders of record on Monday, September 11, 2017.  James River Group Holdings, Ltd. has paid cumulative dividends, including this upcoming payment, of approximately $140 million since its December 2014 initial public offering.

Conference Call

James River Group Holdings, Ltd. will hold a conference call to discuss its second quarter results tomorrow, August 2, 2017, at 8:00 a.m. Eastern Daylight Time. Investors may access the conference call by dialing (877) 930-8055 Conference ID# 53066366 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 11:00 a.m. (Eastern Daylight Time) on September 1, 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, 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. (or “the Company”) 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

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.

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 severance costs associated with terminated 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 six months ended June 30, 2017 and 2016, respectively, reconciles to our adjusted net operating income as follows:

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 June 30, 2017, December 31, 2016, and June 30, 2016 and reconciles tangible equity to tangible equity before dividends for June 30, 2017.