James River Group Holdings, Inc.

Welcome to the James River Group second quarter 2022 earnings conference call. My name is Hilda and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press 0-1 using your touchstone phone. And now I would like to turn the call over to Mr. Brett Tipper, Head Investor Relations. Mr. Shepherd, you may begin.

Thank you. Good morning, everyone, and welcome to the James River Group second quarter 2022 earnings conference call. During the call, we will be making forward-looking statements. These statements are based on the current beliefs, intentions, expectations, and assumptions that are subject to various risks and uncertainties, which may cause actual results to differ materially. For a discussion of such risks and uncertainties, please see the cautionary language regarding forward-looking statements in yesterday's earnings release and the risk factors of our most recent Form 10-K and Form 10-Qs and other reports and filings we have made with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements. I will now turn the call over to Frank D'Orazio, Chief Executive Officer of James River Group.

Thank you for that introduction, Brett. Good morning and welcome to everyone on the call. I'm pleased to be back with all of you today to provide additional color on our second quarter as our strong operating momentum has continued throughout the first half of the year. Undoubtedly, we remain a leader in the E&S market and our teams across the entire organization have executed exceptionally well on their business plans. We've been able to capitalize on market opportunities while optimizing portfolios that haven't met our profitability expectations. We've done this while also building out our enterprise risk management framework and making other investments across the platforms to make sure James River becomes a stronger and more profitable underwriting company. These efforts have resulted in very strong financial results for both the second quarter and for the first half of the year, as we posted a 91% combined ratio in Q2 and a 94.2% at the midway point of the year. Our adjusted net operating return on tangible common equity came in at 19.9% for the second quarter and 15.5% on a year-to-date basis. These are excellent results by any measure and are driven by our focus on delivering consistent underwriting profits. To that end, I'm extremely pleased that all three of our segments produced an underwriting profit during the second quarter, demonstrating the strong earnings potential of our company. I referenced enterprise risk management just a moment ago, And to just expand a bit on that topic, ERM has been a key priority for the executive team and our board since I joined the company almost two years ago. We've remained focused on building out our enterprise risk management discipline by adding staff and functional expertise while embedding our new risk framework into the fabric of the organization. We expect that integrating these processes throughout our business will continue to enhance the organization and lead to more stable returns across the company over the longer term. Turning to macro conditions briefly and remaining mindful of the state of the broader economy, the majority of the markets that we operate in remain quite healthy. We are confident in our near-term outlook for growth at attractive margins, and our balance sheet remains strong. Our renewal retention levels remain extremely high, and we feel certain that we are producing positive rate change well in excess of our view of loss-cost trend. Clearly, the Excess and Surplus Lines marketplace continues to benefit from pockets of industry dislocation, as admitted market underwriting discipline remains broadly in force, driving sustained pricing improvement in the E&S sector. Rate increases in our book during the second quarter were the strongest level that we've seen in a year. In aggregate, we've experienced renewal rate increases for 22 consecutive quarters, or five and a half years, compounding to 58.1 percent. As a reminder, the rate change information that we have historically cited is exposure adjusted, level setting any changes in limits, attachments, and exposure basis that occur at the transaction level. This is a pure rate change model. We have not seen any overall change in market dynamics that would lead us to believe that our pricing momentum in E&S should not persist through at least the end of this year, if not longer. Our franchise value, relationships with wholesale distribution, and expertise in the SME space leave us well-positioned to serve our clients and generate attractive returns for shareholders. Before I turn it over to Sarah, let me share some additional highlights from the results of our second quarter. In our E&S segment, we experienced strong rate increases, significant premium growth, and notable profitability. Driven by a 14.1% positive renewal rate change, gross premiums increased 24.6%, while net premiums grew by 22.8%. Consistent with our results last quarter, we saw broad-based positive growth and rate trends across the segment, with 10 of our 13 underwriting divisions experiencing double-digit premium growth for the second consecutive quarter. Our largest underwriting divisions led the way in terms of growth. Excess casualty and general casualty were both up more than 30 percent from the prior year quarter, with continued strong trends in our renewal book. Submission activity continues to remain robust, particularly in our renewal portfolio where we have a much higher conversion ratio. As alluded to previously, renewal rate change increased sequentially from 8.4% in the first quarter to 14.1% in the second quarter. As we've experienced over the last few years, rate changes have fluctuated a bit from quarter to quarter, and we expect that dynamic is likely to continue. On a year-to-date basis, our renewal rate change is 12%. which is comfortably ahead of both our planned rate increase and expected loss cost trends for the segment. For the quarter, the headline rate increase is driven by some of our larger underlying divisions like excess casualty, but we also had double-digit rate increases in a number of product lines, including general casualty, sports and entertainment, healthcare, and excess property. From our perspective, we think it's safe to say that for a few of these classes, certainly for excess property and excess casualty, Capacity still remains fairly tight for many industries. Carriers have reduced their risk appetite and are offering compressed limits, and that hasn't abated. This dynamic has allowed us to push rate, and I think the organization has done a very good job of making our underwriters aware of the rate thresholds they need to meet or exceed based on our 2022 plan. From a profitability perspective, our ENS combined ratio was 83.8%, again, broadly consistent with our results from the first quarter of this year. Underwriting income came in at $22 million, our third consecutive quarter of segment underwriting profit greater than $20 million. In specialty admitted, results followed many of the same trends we shared last quarter as our top line was impacted by continued rate pressure in the workers' compensation market. This was particularly evident in our program focused on the California marketplace. In total, our workers' compensation-related premiums declined approximately 14 percent during the second quarter, and 13% on a year-to-date basis. We have been carefully managing through what has been a counter-cyclical workers' compensation market for several years and have remained disciplined to reduce our top line when and where appropriate. The remainder of our ongoing fronting and program business experienced solid growth during the second quarter and continues to build scale and diversification. Excluding workers' compensation and a program partner that was acquired late last year, our fronting and program business premiums have increased approximately 20 percent during the first half of the year. We have continued to add new programs in the quarter, while fee income for the segment increased 8 percent from the prior year quarter to $5.9 million. Turning to casualty reinsurance, we wrote $8 million of premium during the second quarter as we non-renewed or reduced our participation from several treaties. We continue to be very selective with our authorizations and prospective participations in this segment. The combined ratio for the segment was 93.2% and included no reserve development, resulting in $2 million of underwriting profit for the second quarter. Overall, we're excited by the performance of the group and the broad contributions to earnings from each of our underwriting segments, as well as the growth in our investment income. Market conditions remain favorable for our business, particularly in the E&S sector, and we are investing in our platform with the goal of continuing to generate attractive long-term returns for shareholders. For all these reasons, we firmly believe the outlook for James River is very strong. And with that, let me turn the call over to Sarah.