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spk00: Thanks, Frank. Good morning, everyone. Given Frank's extensive comments on the current quarter as well as the past 12 months, I'm going to focus my comments on a few discrete parts of the quarter as well as some other key financial items. Last night, we reported a net loss of $23.9 million for the quarter and had a $26.8 million operating loss. This loss was impacted by the aforementioned commercial auto LPT that we executed at the end of September, bringing economic finality to substantially all of our commercial auto runoff portfolio. We also had two other unique impacts on the quarter, which I will further explain in a moment. Frank has already commented on the adverse development in the casualty reinsurance segment. So, to sum the unique impacts of the quarter in ENS, first, As we mentioned in conjunction with our 8K filing and the signing of the commercial auto LPT, there is the impact of the transaction of which the majority is related to claims expense. Second, there is the $5 million net impact of the IDA CAD losses. We have a small, geographically diversified excess property portfolio that the company has written for many years, which is heavily reinsured. Our reinsurance incepts at $5 million of losses and provides for $40 million of limit. We also benefit from a substantial surplus share treaty. For that reason, the $5 million of net losses should not grow. Last, this quarter was unique in that we had $8.1 million of reinstatement premiums for casualty treaties in different years caused by losses we experienced in those accident years. Reinstatement premiums are a function of excessive loss reinsurance, which is what these treaties are. Generally, our casualty treaties work such that the first reinstatement premium is due on first loss of the treaty, but thereafter, we have a few free reinstatement premiums to provide coverage should further losses arise. As these treaties protect losses in prior accident years, the $8.1 million is a straight reduction to net written and net earned premium in the current quarter. Absent these three impacts, as Frank mentioned, the combined ratio for the ENS segment would have been 83.4%, which is improved by about two points as compared to the 85.2% in the comparable quarter last year. The ENS ex-CAT accident year loss ratio adjusted for the casualty-related reinstatement premiums and the commercial auto LPT would have been 64.6% consistent with our performance year-to-date and in excess of our historical fully developed loss ratios for prior years in core E&S. Absent the casualty-related reinstatement premiums, which again served to reduce net written and net earned premium in E&S by $8.1 million, Net written and net earned premium in ENS would have grown 25 and 22% respectively over the prior year quarter, a meaningful acceleration from the growth rate of last quarter. Moving on to our group-wide expenses, our group expense ratio was 24.8% this quarter as compared to 24.8% in the third quarter of last year, and 26% last quarter. We had favorable adjustments to bad debt expense and certain accruals for taxes, licenses, and fees within the specialty admitted segment this quarter, which served to lower the segment expense ratio by about five points. This was partially offset by a higher expense ratio in casualty re due to lower sliding scale commission reductions and less premium earned. It also benefited meaningfully from the scale we continue to build in our ENS and specialty admitted segments. Finally, on to investments. Net investment income for the third quarter was $15.3 million, an increase of 2% from the third quarter of last year and about 7% from the prior quarter. The increase is due to increased returns from both our renewable energy portfolio and some other private investments. We ended the quarter well within our target operating and leverage ratios of 1.2 times and 29% respectively. So with that, I will hand it back to Frank.
spk02: Thank you, Sarah. Operator, please open the lines for questions from our listeners.
spk03: Certainly. Ladies and gentlemen, if you once again, if you have a question, please press star then one. Our first question comes from the line of Mark Hughes from Truist. Your question, please. Yeah, thank you. Good morning.
spk07: Good morning, Mark. Is there any impact? You mentioned the new chief actuary and chief claims officer. Did that influence in any way the approach to the casualty reserve development?
spk02: No, not necessarily. Dave joined the organization just this quarter, as you know, joined in August in our prior year. Our chief actuary retired at the end of September. So while he was a key part of the Q3 review, he's not been with us for a full quarter, not completely finished his initial review. In essence, what you saw relative to the quarter and casualty review was no change relative to methodology.
spk07: Okay. Okay. And then the reinstatement premium, could you talk a little bit more about that, the particular circumstances that drove that? That, at least in my experience, seems unusual that you would have that magnitude of a loss that would trigger the reinstatement premium. Just a little more detail on that would be helpful.
spk00: Sure, Mark. It's Sarah. I can help to conceptualize that a bit more. As I mentioned, they're both casualty XOL treaties that we have in ENS, that we've had in ENS for many, many years, the same structure, et cetera. And if I think about those, for lack of a better term, the randomness here is that we had losses from two different years on the treaty, so we triggered two different reinstatement premiums. As I mentioned, typically you pay for the first reinstatement premium, and then you get a number of free reinstatements. So to the extent we had further losses on those particular accident years, there would likely be, you know, a 0% financial impact from any future reinstatement premium. But what that does is, you know, conceptually net down our losses to a, call it a $1 million to $2 million range on anything we're writing. which obviously protects our balance sheet, kind of plays through the low volatility focus of our ENS business. This cover largely helps with, I would say, four or five divisions within ENS. And one of the things to consider here with regard to XOL treaties and the way these are priced is there is going to be a factor for our growth, but a different way. We have grown a fair amount, which point of fact makes the reinstatement premiums, um, you know, relatively large compared to where they have been, may have been a few years ago when we weren't growing as much. But I think the import here is there is some randomness in that they both came through in the same quarter. Uh, and I would not expect to see those, uh, triggered, um, you know, for the foreseeable future.
spk07: Anything on the, uh, nature of the loss, what sort of end market, um, What industry, perhaps? Is this social inflation? Just a little more characterization of the underlying issue?
spk02: Yeah, sure. So the two reinstatement losses that you're referencing came out of the energy segment. Not sure how familiar you are with our energy underwriting unit there, but it's not a large unit. I think we did roughly about $15 million in premium last year. primarily focused on oil field services. We are not a big E&P or coal underground mining type of underwriting shop, certainly. There has been a push within that underwriting department to cut our limits, take some of the volatility out of the underwriting segment. It has historically been a very profitable line of business for us, but we have pushed policy limits down. So now I would say roughly a little more than half of the policies that we write out of that unit have limits under $5 million, $5 million or less, I should say.
spk07: Male Speaker Okay. And then, any commentary in terms of business flow activity early in the fourth quarter?
spk02: Male Speaker So, sure. I mean, I would say that, and we referenced this, I guess, in Q2, right? So, we saw some slowdown in terms of growth in E&S in May, but it picked right back up in June and July, and that really continued, you know, through the rest of the quarter and into the fourth quarter as well. So, policies in force, that count is up about 24%. Numbers of binders on our small business initiative is up 11%. We continue to see the benefit of strong support from our wholesalers. The negative outlook removed, so... You know, it's all been quite positive, particularly since the outlook was stabilized.
spk03: Thank you very much.
spk02: Thanks, Mark.
spk03: Thank you. Our next question comes from the line of Matt Carletti from GMP. Your question, please.
spk04: Hi, thanks. Good morning. Frank, I was hoping to circle back to your commentary on casualty reads. I caught what you said about expect the pop line to significantly shrink, particularly starting in Q1. What I was hoping you could give us some more color on is what you plan to do to address the back book, because shrinking it forward isn't going to take care of prior reserve issues. I know it's reinsurance. Is an ADC or an LPT a possibility or something that's being considered? You commented that you've always kept it. you know, at or above actuarial indications. But, I mean, if we look back over many quarters and years, like those actuarial indications have consistently been short. Is there a deeper reserve study, or are you considering kind of changing the actuarial approach? I'm just trying to get at are you willing to make a commitment to kind of as you brought economic finality to the Uber issue, is there a commitment to bring economic finality to the back book here on casualty rates?
spk02: No, Matt, it's a good question. So, you're right, it's a two-step process relative to the strategic action, relative to underwriting operations, but then also, you know, to use your terminology, to back book. So, we're going to finish our actuarial review for the segment. So, again, this is Dave's first full quarter working with the Cassidy Re portfolio. But to your point, I'm going to be open to exploring our options, you know, fairly thoughtfully. some more complex than others, but I'm going to be open to options, particularly if we can improve the certainty associated with that portfolio, especially after what we were able to accomplish on the commercial auto runoff block and the value that it added to our organization. And we're doing that now.
spk04: Okay, great. And on the deeper dive that's taking place, any sense on timing? Is that something we could expect alongside or with Q4 reporting, or do you suspect it would take longer than that to get through the numbers?
spk02: We're expecting to complete our review of the reserves in the fourth quarter. Okay, great. Thank you. Yeah, this is underway.
spk03: Understood. Thank you. Thanks, Matt. Thank you. Our next question comes from the line of Brian Meredith from UBS. Your question, please.
spk06: Yeah, thanks. A couple moments here. Just quickly, the wind down of the reinsurance or taking it down, any tax implications that you need to be aware of will have any effect on tax rate going forward? Is that at all a limiting factor to doing some type of a transaction?
spk00: No, we want to do what's right for the business, Brian, and I wouldn't think that we're not going to you know, drive the business base on tax implications. I think there's many different things we could think about here, and that's what the team is committed to doing. I wouldn't hold tax out as a reason not to be full force on kind of looking at the segment going forward.
spk06: Understood, but will it have an implication for your tax rate here going forward?
spk00: Yeah, again, I don't see it, Brian. We're early days in this, but I am not seeing a meaningful implication. Right?
spk06: Okay. Great. And then second question, I'm just curious, the cat loss you had in the quarter on, I guess what you said, an excess property, maybe you can kind of, it's something that obviously unfamiliar with, you know, cat losses with James River. And I understand you've got a lot of great reinsurance protection. Can you maybe describe kind of what it was, what happened, you know, why, you know, it was so unusual?
spk02: Sure, Brian. So, As you know, our excess property book, it's always been fairly small, less than $50 million in GWP, about 5% to 7% of our core E&S business. It's a pretty well-diversified book geographically, heavily reinsured, as you mentioned, to the 1 in 1,000 level on an OEP basis. It's engineered to perform very well, and our loss here was really driven by the fact that this was a $30 billion event. I think that's how we think about this underwriting unit, is it performs very well. When you have a very noteworthy or large event, we're going to have some loss. And I think that we were fairly conservative in terms of how we evaluated our potential loss from this event. We are into, based on where our protections attach, from a property standpoint, this event can't get worse for us.
spk06: Great. Thank you.
spk03: Thanks, Brian. Thank you. Our next question comes from the line of Cullen Johnson from B. Riley. Your question, please. Hey, good morning.
spk05: Thanks for taking my questions. Looking at the higher retention ratio in the fronting book, was that just a pretty standard fluctuation quarter to quarter, you think, or was that more of an intentional move there?
spk00: Yeah, that's a great question, Colin. There was not an intentional move. As Frank said, as we've characterized, that book is just lumpy depending on when certain deals come on and when they don't. And I think on average, as we've said, our retention there is probably going to be 10% to 20% over the whole book, but you're going to feel that at different points in time. Obviously, there'd be some that might go up to 30%, but that should be our average overall, as I've stated.
spk05: Okay, great. Thank you. And then I think last quarter we kind of talked about lost cost trends at roughly mid-single digits, you know, broadly across the entire portfolio. Is that still a reasonable way to think about that figure here?
spk02: Yeah, no, I think so. I don't think anything's changed. When we think about the portfolio at a high level, mid-single digits is a good way to think about it. Maybe slightly above that on excess casualty and kind of right there for the primary million dollar limits. Again, if you take a look at The rate that we've experienced over the last 19 quarters, 46% over that period of time, we feel very good about where we are versus our view of trend. Okay, great.
spk03: Thank you. That's my question. Thanks, Colin. Thank you. Our next question comes from Derek from KBW. Your question, please.
spk01: Good morning. Thanks, Colin. I know you talked a lot about the consistent adverse development and casualty rate in detail, but I was hoping that you could provide some color on what that implies for social inflation within the ENF lines. And how do your accident year loss picks kind of reflect that? I know you're still kind of doing the reserve study, but I was hoping for some details on that.
spk02: Yeah, sure. So listen, I think all insurance companies have some exposure to social inflation and You know, we've certainly seen some aspects of it. I think overall, if you're talking about the ENS book, based on our focus on SME business, I think we're probably a little bit more insulated than most. I also think that the industry talks about social inflation like it, you know, like the 2020-2021 phenomena. I think it's been something that has been kind of ticking up over the last five to seven years. And so to some extent, you've got a little bit of this exposure baked into, you know, your loss history. But I think we're fine. We obviously take a look at it on a pretty close basis, and that's factored into our overall views relative to the loss picks.
spk01: Got it. That's helpful. And then my second question is on the fronting business. I know you've had pretty good growth there in the past year or so, but are you seeing any increased competition from peers? I know there were some recent launches of startups and other carriers kind of getting into the space.
spk02: Yeah, no, I think you're right. There have been some new entrants in the space, particularly over the last 18 months. I would say Falls Lake is considered a leader in the space. I would suggest our fronting pipeline is very strong. Submission growth has been strong and is up 30% for the quarter. At any given point in time, we've got as many as three to six programs in various stages of diligence. And like I said during my prepared comments, it oftentimes takes several months to actually onboard a program. But right now, we're very bullish about the prospects for the segment. Q4 activity is good. We've actually bound a new program. We expect to onboard two more over the quarter. And we're just given another notice on a fourth that I think has got a little bit more of a lead time because It's a book roll, and there's a notice of cancellation provision to the incumbent. So, again, I'm very excited about the prospects for growth in this segment.
spk01: Got it. Thanks for all the color.
spk02: Sure. Thank you for the question.
spk03: Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Frank for any further remarks.
spk02: Okay, thank you, Operator. I want to thank everyone listening on the call for their time today and for the questions we received this morning. I'll wrap up the call by reiterating my appreciation for the staff of James River and our ability to continue to grow our U.S. insurance segments profitably while continuing to deliver on our corporate objectives to make this a stronger and more profitable company. I look forward to speaking with you again early next year to discuss our Q4 results. Thank you and enjoy your day.
spk03: Thank you, ladies and gentlemen, for your participation at today's conference. This does conclude the program. You may now disconnect. Good day.
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