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Operator
Good day, everyone, and welcome to the James River Group Q1 2023 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star 1 again. For operator's assistance throughout the call, press star 0. And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Brett Sheriff, Head of Investor Relations, to begin the conference. Over to you.
Brett Sheriff
Thanks, and good morning, everyone. Welcome to the James River Group first quarter 2023 earnings conference call. During the call, we will be making forward-looking statements. These statements are based on 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 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. In addition, during this presentation, we may reference non-GAAP financial measures such as adjusted net operating income, underwriting profit, tangible equity, tangible common equity, and adjusted net operating return on tangible common equity. Please refer to our earnings press release for a reconciliation of these numbers to GAAP, a copy of which can be found on our website at www.jrvrgroup.com. Lastly, unless otherwise specified, for reasons described in our earnings press release, all underwriting performance ratios referred to are for our business that is not subject to retroactive reinsurance accounting for lost portfolio transfers. I will now turn the call over to Frank D'Orazio, Chief Executive Officer of James River Group.
Frank D'Orazio
Frank D' Thank you for that introduction, Brett. Good morning and welcome to everyone on the call. I'm pleased to be joining you today to provide additional color on our strong first quarter results while also sharing some thoughts on market conditions and growth opportunities for our company. The results we released last night demonstrate a continuation of the positive momentum we established five quarters ago as we delivered another strong quarter of consistent mid-double-digit returns on tangible equity. We delivered impressive premium growth in our flagship E&S segment in concert with solid underwriting profitability and a meaningful increase in our investment income. Additionally, our shareholders continue to benefit from the strategic actions we executed in prior quarters to protect our balance sheet. All in, we produced adjusted net operating income of $21.6 million, our highest quarterly total in more than three years. Our adjusted net operating return on tangible common equity, XAOCI, was 16.3% in the first quarter, which is consistent with the guidance we provided on our fourth quarter call, and by all means, a very strong result. Tangible common equity per share increased 15% from year end 2022. In short, we're off to a very strong start to the year. As I have frequently commented, our focus remains on producing consistent earnings and returns for shareholders, and I believe we're delivering on that objective. We are also experiencing numerous positive developments throughout the organization that inspire confidence in our future, whether through investments in technology to amplify our efficiency and growth or our plans to further diversify our E&S product offerings. The momentum we are seeing in the market reinforces our decision to focus our resources on the core strengths of our business, We believe our franchise has few public company peers relative to its concentration of true E&S business, and we remain optimistic about the outlook for James River and confident in our ability to produce returns in line with our expectations, as we've now done for the last five consecutive quarters. Turning to the market for a moment, during the first quarter in our E&S segment, we were pleased to achieve renewal rate increases of 8.9%, which was almost 250 basis points higher than the rate change we received in Q4 2022, and moderately higher than the prior year quarter. Further support that demonstrates the strength of the market conditions in our core product lines and reaffirms our view that we are achieving rate increases ahead of our view of loss trends, as well as the assumptions in our business plan for 2023. As many of our peers have discussed, pricing in the property market led the way during the first quarter. Our excess property book experienced renewal rate increases of 45%, while all of our remaining underwriting units achieved positive rate increases in the first quarter, with the vast majority of our ENS segment reporting increases in the high single or low double-digit range. As we have noted in the past, headline pricing metrics will fluctuate from quarter to quarter, but I am encouraged by the breadth of the market strength to begin the year, particularly after 25 consecutive quarters of positive rate, now compounding to upwards of 68%. These conditions continue to support our outlook for profitable growth. Looking at our ENS results more closely, gross premium written increased 12.1 percent, while net premium increased 17.3 percent during the first quarter. Submission activity remained strong and increased year over year for both new and renewal submissions, while our policy count grew by 13 percent. The combined ratio in ENS was 86.8 percent during the first quarter, and we reported $20 million of underwriting profit for the period. Our combined ratio increased three points from the prior year quarter, with approximately two points of this driven by the change in our retention in the excess casualty unit and its impact on the expense ratio. Our accident year loss ratio increased one point from the prior year quarter. Much of this increase is related to business mix, but we also continue to be patient in reflecting the rate increases we have achieved in our initial loss picks. We believe we are prudently building an attractive reserve base for the future. From a commercial auto standpoint, We did recognize $41 million of adverse prior year development on the business subject to the commercial auto LPT that we put in place during the third quarter of 2021. We believe the development is fully covered by the LPT, which has been provided without an aggregate limit. Overall, ENS has had a great start to the year with strong top-line momentum and a continued focus on profitability. Just as importantly, we remain excited about the market opportunities for the business going forward. Moving to the specialty admitted segment, gross premiums written were down less than 1%, while net premium increased 32%. On a gross basis, our workers' compensation premium declined 7%, while the remainder of our fronting business grew a little bit more than 2%, as fee income increased by 3% relative to the prior year quarter. In workers' compensation during the quarter, we saw some stabilization in rates in our individual risk unit, with pricing up 1%, while rates in our California workers' compensation program continue to experience more pressure. The market remains competitive, and we have proactively reduced these portfolios as a result of our pricing and underwriting discipline. The increase in our net premium this quarter is due to a change in the reinsurance structure on January 1st within the primary layer of our individual risk book. While we have a long track record of profitability in this business, we will continue to actively manage the portfolio to navigate changing market conditions and ensure long-term profitability. In our fronting business, we continue to have an active pipeline of opportunities in front of us, while several of our existing programs continue to gain scale and push rate increases. During a period where the reinsurance market has tightened for new programs and operational issues have been exposed to several competitors, our focus remains on underwriting profitability and tightly managed collateral and security requirements. Turning briefly to our casualty reinsurance segment, JRG RE, the results this quarter reflect earned premium on enforced treaties that were written in prior years, as well as $10 million of premium adjustments recorded in the quarter. These adjustments are unplanned, but a normal occurrence in our business and are generally earned as written. The segment reported a small underwriting profit during the quarter, despite some modest reserve strengthening. Reserve movements amounted to a few small changes in IV&R on older accident years. We also experienced some development on treaties that are subject to the casualty re-LPT totaling $7.8 million. At the end of the first quarter, we had an aggregate limit of $51 million remaining on the casualty re-LPT. To summarize, our first quarter 2023 results further demonstrate the strength and earnings potential of our franchise, as well as the underwriting culture we have worked to develop and enhance over the past two years. We are thrilled to be back on our front foot with a refocused energy expanding our valuable and unique franchise through attractive market conditions, and select new products. We will continue to deploy our capital where we have the most confidence in generating consistent profitability and attractive returns for shareholders. The E&S market continues to show signs of strength, and we remain very excited about the opportunities ahead of us. And with that, let me turn the call over to Sarah.
Frank D '
Thanks very much, Frank, and good morning to everybody. Thanks for joining us today. We're starting out the year in a very strong financial position, a continuation of our powerful momentum these last five quarters. This quarter, we're reporting adjusted net operating income of $0.56 per share, an increase of over 50% as compared to the prior year quarter. Tangible book value per common share increased 14.7% from last quarter to $10.91, carrying strong momentum forward into 2023. We are delivering $21.6 million of adjusted net operating income this quarter, which included $10.6 million of underwriting profit and $25.8 million of net investment income, each on a pre-tax basis. For the quarter, adjusted net operating return on tangible common equity, excluding AOCI, was 16.3%, as Frank mentioned, an increase of over 60 basis points from last quarter and over 230 basis points from the full year 2022. Including AOCI, our annualized return moves from 16.3% to 22.5%. Our expense ratio for the quarter was 28.4%, in line with what we cited from this year during our earnings, our last earnings call in February. Our expense ratio is higher from a year ago for two primary reasons. Most impactfully, as previously discussed, we decided to increase the retention in our excess casualty line within ENS. That line represents about a third of the segment. We did this at mid-year last year by reducing the quota share we purchased by about 10%. This is a line that's taken on about 135% of cumulative rate over the last six years, roughly double the increase that we've seen in the full ENS segment. We believe this is meaningfully in excess of our loss costs, and given our long and positive experience in this line, we wanted to retain more of our underwriting profits. In the meantime, this will mean less of an expense offset in the form of reduced overall seating commission. Second, and to a much lesser extent given the amount of earned premium in the segment, the changes we made to our reinsurance structure within our specialty admitted segment at 1-1 will have a similar impact of reducing seating commission and its resultant reduction of expenses. Taken together, These two items increase the group expense ratio by about two and a half points compared to the prior year quarter in line with what we discussed back in February. Turning to investment income, as mentioned earlier, the level of NII was the second consecutive record this quarter at $25.8 million. It grew 12.9 percent from the sequential quarter and 58.4 percent from the prior year quarter. Reinvestment rates moved higher with interest rates. We've had strong cash flow, and we also continue to benefit from the opportunistic sale of a portion of our renewable energy portfolio, which we announced last quarter. Approximately $1.2 million of this total NII is related to the sale of two of our renewable energy investments above carrying value. Reinvestment yields in the core fixed income portfolio averaged 4.8% during the quarter, and we continue to see rates in excess of our average 3.9% book yields. I would note that our reinvestment rates were higher during the fourth quarter of last year, above 5%, so we've ticked down a bit during the first quarter. The combination of our growing base of invested assets, natural portfolio turnover, and exposure to floating rate assets positions us well to continue to deliver strong NII. I would note, however, that we trimmed a bit of our bank loan portfolio during the quarter, given the strength in that market earlier in the year. We've also seen reinvestment rates move a little bit lower to 4.5 percent during April. Altogether, with the $1.2 million non-recurring gain in our renewable energy portfolio, This was an exceptionally strong NII quarter. Let me take a second now to just make a few comments on investments given recent economic and market events. We continue to maintain our conservative approach to our investment process, and our portfolio remains high quality with an average credit quality of A+. Our overall exposure to banks is about 10% of invested assets, and the majority of that is in G-CIFIs. We have no exposure to Silicon Valley Bank, Signature, or First Republic banks, nor exposure to contingent convertibles. Our exposure to regional banks is less than 2% of our invested assets and is in high-quality names. Finally, regarding our tax rate, our tax rate for the quarter was 24.6%, and as always, is impacted by the geographic location of profits across our business. We do expect our effective tax rate to be modestly lower than it was this quarter on a full year basis. We're off to a great start in 2023 and continue to see very attractive opportunities to invest and continue to scale our company. So with that, I'll turn it back to the operator to open the line for questions.
Frank
Thank you.
Operator
At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for a moment to compile the Q&A roster.
Frank
Your first question comes from Brian Meredith.
Operator
Brian, your line is open.
Brian
Yes, thank you. A couple questions here for you, Frank and Sarah. The first one, maybe talk a little bit about business mix in the E&S business and the growth you're putting on there, particularly when it comes to the excess property business. Geographically, where is that business? Is it cat-exposed? Is this something we should think about going forward with James River that maybe, given the opportunities at market, you may have a little bit of more cat volatility in your results, or am I thinking that the wrong way?
Frank D'Orazio
Sure, Brian. Thanks for the question. So let me talk first, I guess, just more broadly about the opportunities that we're seeing, and then I want to address your property question more specifically. So we saw very healthy growth opportunities across most of our UNS platform during the first quarter, with the majority of our underwriting divisions reporting solid growth and all divisions reporting positive renewal rate changes. We also saw continued strong growth in renewal submissions. In particular, they were up 8%, while new submission activity also showed growth. I would say that most of our underwriting divisions have experienced continued renewal submission growth, and our three largest divisions, Texas Casity, General Casity, and Manufacturers and Contractors, all experienced renewal submission growth of more than 10%, with General Casity coming in above 20%. We saw a similar dynamic from a policy count perspective across the segment. Policies in force increased nearly 13%, as I said earlier. That was led by excess casualty that was up 19%, general casualty also up 19%, and manufacturers and contractors up 17%. And we would expect to see these trends continue certainly through 2023. From a gross premium standpoint in Q1, Some of our larger underlying divisions experienced strong growth, like Exus Casity, which was up 16%. Manufacturers and Contractors, which was up 18%. And we also saw some growth in some of our smaller underlying units, like Small Business, up 14.5%. Sports and Entertainment, up 23.1%. And maybe to your point, Exus Property, which grew 68.6%, with most of that coming from rate. You know, the first quarter, just relative to your question on property, the first quarter has historically been a quarter where we've seen growth opportunities in property, and that was very much the case in Q1-23. As I suggested, premiums were up significantly due to very strong rate increases. Although premiums were up almost 70%, they were off of a relatively small base in comparison to the segment. So we wrote $16.5 million of DWP in excess property. That represents about 7% of our ENS premium and less than 5% of the total group premium. Policy count actually declined 7% from the prior year quarter. So this is a market where you can see some significant growth based on rate, but not necessarily increase your exposure all that much. And we're not expecting to make any significant changes to our appetite for property exposure. We have a continued focus on our target classes and achieving meaningful rate increases. So again, market is definitely facing capacity distress. I expect we'll see some growth around the edges there relative to premium volume, but again, driven by rate. In terms of the portfolio and the location from the risk, so I would say CAT exposed southeast in Gulf Wind. We see some Texas wind to a lesser extent. California and Pacific Northwest quake but as I said policy count is actually down we're not putting on commensurate exposure with the premium increase that we're seeing and our attachment strategy hasn't really changed quite frankly we were at year-end 2021 I want to say attaching on average at about 33.2 million I think that moved down 1 million dollars as of year-end 22 so staying the course, if anything, probably being more selective just relative to the industry classes that we're pursuing.
Brian
Excellent. Thank you. That was helpful. And then my second question, just pivoting over to the admitted segment, you know, 102.3% combined ratio, is that a level of the combined ratio that you're kind of comfortable with? Are you earning an acceptable, you know, return on capital, you know, above 100 combined ratio in that segment?
Frank D'Orazio
So, Brian, what I'd say is on a calendar year basis, the specialty admitted segment has generally had a long track record of profitable results, which has been aided over time by favorable reserve development. We have a strong team leading this business, and they've carefully managed the top line through the cycle. We obviously can't control what happens in the market, particularly in the workers' comp market, but we can actively manage our portfolio and navigate marketing conditions And that doesn't end with some decision that we make on a reinsurance structure. So longer term, we certainly expect the business to continue to be profitable. So the fundamentals, as you know, Brian, it's two separate business units. The fundamentals of the workers' compensation market are challenged right now, but the fronting program business does provide some nice balance for our U.S. segment based on the strong fee income and the capital aid structure of the segment.
Frank
Great, thank you. Your next question comes from Mayor Shields.
Operator
Mayor, your line is open.
Shields
Thanks. First question, I don't know if this is for Frank or for Sarah, but based on the evolution of business mix, specifically, I guess, the growth with an excess casualty, Is the duration of your liabilities and therefore the duration of your targeted investment portfolio changing over the last two, three years?
Frank D '
I don't think so, Mayor. I think most of our E&S book is longer duration business, and our investment portfolio has had a duration of around four for quite some time. I don't think we feel like we need to manage the asset liability mix exactly with the business mix. But I think we're very close. And continuing to grow in excess casually, which is now a third of the book, as we've said, is probably making it a little bit longer.
spk01
But I would say it's largely a rounding error compared to the rest of the business mix in the segment.
Shields
Okay. Understood. Thanks. Second question, I guess, when I look at either the net underwriting expenses or the expenses growth of fee income and specialty admitted, They're up something like 20% on a year-over-year basis. And I was hoping you could talk through what's driving that and whether we should expect that growth to persist.
Frank D '
Sure. And you're just focused on the net underwriting expenses and specialty admin, just to be super clear on your question, right?
Shields
In net or growth.
Frank D '
Yeah, yeah. I mean, I think much of it is really just due to the change in the reinsurance structure that we mentioned. not having the quota share at 1-1 on the workers' comp business. That was providing a significant amount of offset towards expenses in that segment in the form of the Seeding Commission. And I think that will continue to call it grade down as the business earns in over the next couple quarters. So we certainly had some contribution from Seeding Commission in this first quarter, but I think there will be less of that going forward considering that was a 1-1 non-renewal. So that's really the biggest dynamic. I think, you know, there's small things around just regular GNA, but it is really being driven by the change in the reinsurance structure. And you see, to some degree, an offset there in the form of the loss ratio and some of the structure contributes as it kind of feeds into some other components of that. And, of course, the increase on the net overall, just given that we've moved away from that structure.
Mark
Okay, perfect. That was my follow-up, so I'm all set. Thank you.
Frank
Thank you. Next question comes from Tracy.
Operator
Tracy, your line is open.
Tracy
Thank you. Sticking with the expense ratio, I'm just wondering, a lower seating commission, was that considered in your 28% guidance for the year, or is that something you may want to revisit as we go through the remainder of the year?
Frank D '
No, when I gave that guidance in our February call, Tracy, and thank you for the clarifying question of around 28%, and we consider the 28.4% around 28% that we delivered this quarter. So the change in the reinsurance structures, both that we've mentioned, were incorporated in that guidance.
Tracy
Perfect. And I also realize it's tough just to completely exit business. I did see you had some gross written premium in your reinsurance business this quarter. How should we think about that through the course of the year? Is that something where we could expect that to go closer to zero in the near term?
Frank D '
Yeah, that's a great question. I appreciate you clarifying that. We had about $10 million of audit premium, premium adjustments in that line this quarter, so that's what you're seeing. Otherwise, the business is effectively grading down through the suspension of underwriting activities. I would say that premium adjustments, premium driven by premium audits, et cetera, are a very consistent thing in that business for us, for anyone. And those are coming from multiple treaties, multiple lines, et cetera. I would say it was a little bit, and we don't typically budget those because you don't have line of sight into them. And they're also earned as they're written, so they're having really an immediate effect on the quarter. I would also say that $10 million is a little higher than it has been in previous quarters as well. Again, there's really no pattern to it. It just happens as a normal course of the business. i would expect and we have expected that the top line um that there's you know little to no gwp nwp and then the earned continues to grade down as i think we've said but just to take a moment to clarify the business that we write in that segment does earn over a multi-year period so we we certainly were expecting earned premium in the segment to continue for the year um but the the gross and the written um I think those were entirely driven by the auto premium adjustments.
Frank
Perfect. Thank you. Thanks for the question.
Operator
Again, if you would like to ask a question, press star, then the number one on your telephone keypad. Your next question comes from Mark Hodges.
Frank
Mark, your line is open.
Mark
Yeah, thank you. Good morning.
Mark
Sarah, the seeded premium in the ENS, it's 36%, I assume that's influenced by mix. Is that a good run rate if excess casualty continues to grow more quickly? Will that grade up over time?
Frank D '
I think that's a good run rate, Mark. I think we We would expect kind of a similar mix as we look at the balance of the year and certainly in our plan we do. But, you know, speak a little bit out of both sides of my mouth, certainly given rate and dynamics, every quarter it can bump around. But I think that's a fine assumption. There's no other kind of one-off or anomaly that I'm seeing in the quarter that would make me give you different advice.
Mark
Yeah. And then in specialty admitted, the earned this quarter around 21 million, your gross written has been relatively stable. If one were to assume it was to remain stable, would the earned also remain stable at about 21 million? I'm just trying to understand the relationship between the written and earned more clearly. Would that be the case?
Frank D '
I think that's right. The relationship should be pretty straightforward. I think we certainly would expect and hope to continue to put on new programs as we did this quarter. But I think that those develop in terms of premium impact. They can develop slowly as they come online.
Mark
Yeah. A question for Frank. Is this the right growth rate in this environment of Low double digits is very healthy growth. I know you've been bringing in new people, and I think your appetite around what you retain and what you write has been maybe evolving over time. Does it feel like with what you're seeing with submission growth, with the book of business you're finding attractive that's in front of you, is this a sensible growth rate for you?
Mark
I'll ask if that works.
Frank D'Orazio
Yeah, Mark, thanks for the question. I would say that we're very pleased with the growth opportunities that we see in front of us. We're pleased with where the rate environment is across the portfolio. And we are starting to think about broadening out our product set and diversifying it. And we announced a new initiative over the course of the quarter. So I'd say that... you know, growth rates will fluctuate, obviously, from quarter to quarter. But given where the rate environment is right now, you know, we feel comfortable with the current rate.
Frank
Understood. Thank you. Again, if you would like to ask a question, please press star, then the number one on your telephone keypad.
Operator
So there are no further questions at this time. I turn back the call over to Brett.
Frank D'Orazio
Actually, I'll take that. I want to thank everyone listening on the call for their time today and for the questions we received this morning. We look forward to speaking with you again in just a few months to discuss our second quarter results.
Mark
Thank you and enjoy your day.
Frank
This concludes today's conference call. You may now disconnect. © transcript Emily Beynon Thank you. you Thank you. Thank you. Thank you. Thank you. you you Thank you. you Thank you. © transcript Emily Beynon Thank you. Thank you. Thank you. Thank you. Thank you. you
Emily Beynon
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Operator
Good day everyone and welcome to the James River Group Q1 2023 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star 1 again. For operator's assistance throughout the call, press star 0. And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Brett Sheriff, Head of Investor Relations, to begin the conference. Over to you.
Brett Sheriff
Thanks and good morning, everyone. Welcome to the James River Group first quarter 2023 earnings conference call. During the call, we will be making forward-looking statements. These statements are based on 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 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. In addition, during this presentation, we may reference non-GAAP financial measures such as adjusted net operating income, underwriting profit, tangible equity, tangible common equity, and adjusted net operating return on tangible common equity. Please refer to our earnings press release for a reconciliation of these numbers to GAAP, a copy of which can be found on our website at www.jrvrgroup.com. Lastly, unless otherwise specified, for reasons described in our earnings press release, all underwriting performance ratios referred to are for our business that is not subject to retroactive reinsurance accounting for lost portfolio transfers. I will now turn the call over to Frank D'Orazio, Chief Executive Officer of James River Group.
Frank D'Orazio
Frank D' Thank you for that introduction, Brett. Good morning and welcome to everyone on the call. I'm pleased to be joining you today to provide additional color on our strong first quarter results while also sharing some thoughts on market conditions and growth opportunities for our company. The results we released last night demonstrate a continuation of the positive momentum we established five quarters ago as we delivered another strong quarter of consistent mid-double-digit returns on tangible equity. We delivered impressive premium growth in our flagship E&S segment in concert with solid underwriting profitability and a meaningful increase in our investment income. Additionally, our shareholders continue to benefit from the strategic actions we executed in prior quarters to protect our balance sheet. All in, we produced adjusted net operating income of $21.6 million, our highest quarterly total in more than three years. Our adjusted net operating return on tangible common equity, XAOCI, was 16.3% in the first quarter, which is consistent with the guidance we provided on our fourth quarter call, and by all means, a very strong result. Tangible common equity per share increased 15% from year end 2022. In short, we're off to a very strong start to the year. As I have frequently commented, our focus remains on producing consistent earnings and returns for shareholders, and I believe we're delivering on that objective. We are also experiencing numerous positive developments throughout the organization that inspire confidence in our future, whether through investments in technology to amplify our efficiency and growth or our plans to further diversify our E&S product offerings. The momentum we are seeing in the market reinforces our decision to focus our resources on the core strengths of our business, We believe our franchise has few public company peers relative to its concentration of true E&S business, and we remain optimistic about the outlook for James River and confident in our ability to produce returns in line with our expectations, as we've now done for the last five consecutive quarters. Turning to the market for a moment, during the first quarter in our E&S segment, we were pleased to achieve renewal rate increases of 8.9%, which was almost 250 basis points higher than the rate change we received in Q4 2022, and moderately higher than the prior year quarter. Further support that demonstrates the strength of the market conditions in our core product lines and reaffirms our view that we are achieving rate increases ahead of our view of loss trends, as well as the assumptions in our business plan for 2023. As many of our peers have discussed, pricing in the property market led the way during the first quarter. Our excess property book experienced renewal rate increases of 45%, while all of our remaining underwriting units achieved positive rate increases in the first quarter, with the vast majority of our ENS segment reporting increases in the high single or low double-digit range. As we have noted in the past, headline pricing metrics will fluctuate from quarter to quarter, but I am encouraged by the breadth of the market strength to begin the year, particularly after 25 consecutive quarters of positive rate, now compounding to upwards of 68%. These conditions continue to support our outlook for profitable growth. Looking at our ENS results more closely, gross premium written increased 12.1 percent, while net premium increased 17.3 percent during the first quarter. Submission activity remained strong and increased year over year for both new and renewal submissions, while our policy count grew by 13 percent. The combined ratio in ENS was 86.8 percent during the first quarter, and we reported $20 million of underwriting profit for the period. Our combined ratio increased three points from the prior year quarter, with approximately two points of this driven by the change in our retention in the excess casualty unit and its impact on the expense ratio. Our accident year loss ratio increased one point from the prior year quarter. Much of this increase is related to business mix, but we also continue to be patient in reflecting the rate increases we have achieved in our initial loss picks. We believe we are prudently building an attractive reserve base for the future. From a commercial auto standpoint, We did recognize $41 million of adverse prior year development on the business subject to the commercial auto LPT that we put in place during the third quarter of 2021. We believe the development is fully covered by the LPT, which has been provided without an aggregate limit. Overall, ENS has had a great start to the year with strong top-line momentum and a continued focus on profitability. Just as importantly, we remain excited about the market opportunities for the business going forward. Moving to the specialty admitted segment, gross premiums written were down less than 1%, while net premium increased 32%. On a gross basis, our workers' compensation premium declined 7%, while the remainder of our fronting business grew a little bit more than 2%, as fee income increased by 3% relative to the prior year quarter. In workers' compensation during the quarter, we saw some stabilization in rates in our individual risk unit, with pricing up 1%, while rates in our California workers' compensation program continue to experience more pressure. The market remains competitive, and we have proactively reduced these portfolios as a result of our pricing and underwriting discipline. The increase in our net premium this quarter is due to a change in the reinsurance structure on January 1st within the primary layer of our individual risk book. While we have a long track record of profitability in this business, we will continue to actively manage the portfolio to navigate changing market conditions and ensure long-term profitability. In our fronting business, we continue to have an active pipeline of opportunities in front of us, while several of our existing programs continue to gain scale and push rate increases. During a period where the reinsurance market has tightened for new programs and operational issues have been exposed to several competitors, our focus remains on underwriting profitability and tightly managed collateral and security requirements. Turning briefly to our casualty reinsurance segment, JRG RE, the results this quarter reflect earned premium on enforced treaties that were written in prior years, as well as $10 million of premium adjustments recorded in the quarter. These adjustments are unplanned, but a normal occurrence in our business and are generally earned as written. The segment reported a small underwriting profit during the quarter, despite some modest reserve strengthening. Reserve movements amounted to a few small changes in IV&R on older accident years. We also experienced some development on treaties that are subject to the casualty re-LPT totaling $7.8 million. At the end of the first quarter, we had an aggregate limit of $51 million remaining on the casualty re-LPT. To summarize, our first quarter 2023 results further demonstrate the strength and earnings potential of our franchise, as well as the underwriting culture we have worked to develop and enhance over the past two years. We are thrilled to be back on our front foot with a refocused energy expanding our valuable and unique franchise through attractive market conditions, and select new products. We will continue to deploy our capital where we have the most confidence in generating consistent profitability and attractive returns for shareholders. The E&S market continues to show signs of strength, and we remain very excited about the opportunities ahead of us. And with that, let me turn the call over to Sarah.
Frank D '
Thanks very much, Frank, and good morning to everybody. Thanks for joining us today. We're starting out the year in a very strong financial position, a continuation of our powerful momentum these last five quarters. This quarter, we're reporting adjusted net operating income of $0.56 per share, an increase of over 50% as compared to the prior year quarter. Tangible book value per common share increased 14.7% from last quarter to $10.91, carrying strong momentum forward into 2023. We are delivering $21.6 million of adjusted net operating income this quarter, which included $10.6 million of underwriting profit and $25.8 million of net investment income, each on a pre-tax basis. For the quarter, adjusted net operating return on tangible common equity excluding AOCI was 16.3%, as Frank mentioned, an increase of over 60 basis points from last quarter and over 230 basis points from the full year 2022. Including AOCI, our annualized return moves from 16.3% to 22.5%. Our expense ratio for the quarter was 28.4%, in line with what we cited from this year during our earnings, our last earnings call in February. Our expense ratio is higher from a year ago for two primary reasons. Most impactfully, as previously discussed, we decided to increase the retention in our excess casualty line within ENS. That line represents about a third of the segment. We did this at mid-year last year by reducing the quota share we purchased by about 10%. This is a line that's taken on about 135% of cumulative rate over the last six years, roughly double the increase that we've seen in the full ENS segment. We believe this is meaningfully in excess of our loss costs, and given our long and positive experience in this line, we wanted to retain more of our underwriting profits. In the meantime, this will mean less of an expense offset in the form of reduced overall seating commission. Second, and to a much lesser extent given the amount of earned premium in the segment, the changes we made to our reinsurance structure within our specialty admitted segment at 1-1 will have a similar impact of reducing seating commission and its resultant reduction of expenses. Taken together, These two items increase the group expense ratio by about two and a half points compared to the prior year quarter in line with what we discussed back in February. Turning to investment income, as mentioned earlier, the level of NII was the second consecutive record this quarter at $25.8 million. It grew 12.9 percent from the sequential quarter and 58.4 percent from the prior year quarter. Reinvestment rates moved higher with interest rates. We've had strong cash flow, and we also continue to benefit from the opportunistic sale of a portion of our renewable energy portfolio, which we announced last quarter. Approximately $1.2 million of this total NII is related to the sale of two of our renewable energy investments above carrying value. Reinvestment yields in the core fixed income portfolio averaged 4.8% during the quarter, and we continue to see rates in excess of our average 3.9% book yields. I would note that our reinvestment rates were higher during the fourth quarter of last year, above 5%, so we've ticked down a bit during the first quarter. The combination of our growing base of invested assets, natural portfolio turnover, and exposure to floating rate assets positions us well to continue to deliver strong NII. I would note, however, that we trimmed a bit of our bank loan portfolio during the quarter, given the strength in that market earlier in the year. We've also seen reinvestment rates move a little bit lower to 4.5 percent during April. Altogether, with the $1.2 million non-recurring gain in our renewable energy portfolio, This was an exceptionally strong NII quarter. Let me take a second now to just make a few comments on investments given recent economic and market events. We continue to maintain our conservative approach to our investment process, and our portfolio remains high quality with an average credit quality of A+. Our overall exposure to banks is about 10% of invested assets, and the majority of that is in G-CIFIs. We have no exposure to Silicon Valley Bank, Signature, or First Republic banks, nor exposure to contingent convertibles. Our exposure to regional banks is less than 2% of our invested assets and is in high-quality names. Finally, regarding our tax rate, our tax rate for the quarter was 24.6%, and as always, is impacted by the geographic location of profits across our business. We do expect our effective tax rate to be modestly lower than it was this quarter on a full year basis. We're off to a great start in 2023 and continue to see very attractive opportunities to invest and continue to scale our company. So with that, I'll turn it back to the operator to open the line for questions.
Operator
Thank you. At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We'll pause for a moment to compile the Q&A roster. Your first question comes from Brian Meredith. Brian, your line is open.
Brian
Yes, thank you. A couple questions here for you, Frank and Sarah. The first one, maybe talk a little bit about business mix in the E&S business and the growth you're putting on there, particularly when it comes to the excess property business. geographically, where is that business? Is it cat-exposed? Is this something we should think about going forward with James River that maybe, given the opportunities at market, you may have a little bit of more cat volatility in your results, or am I thinking that the wrong way?
Frank D'Orazio
Sure, Brian. Thanks for the question. So let me talk first, I guess, just more broadly about the opportunities that we're seeing, and then I want to address your property question more specifically. So We saw very healthy growth opportunities across most of our UNS platform during the first quarter, with the majority of our underwriting divisions reporting solid growth, and all divisions reporting positive renewal rate changes. We also saw continued strong growth in renewal submissions. In particular, they were up 8%, while new submission activity also showed growth. I would say that most of our underwriting divisions have experienced continued renewal submission growth, and our three largest divisions, Excess casualty, general casualty, and manufacturers and contractors all experienced renewal submission growth of more than 10%, with general casualty coming in above 20%. We saw a similar dynamic from a policy count perspective across the segment. Policies in force increased nearly 13%, as I said earlier. That was led by excess casualty. That was up 19%. General casualty also up 19%, and manufacturers and contractors up 17%. And we would expect to see these trends continue certainly through 2023. From a gross premium standpoint in Q1, some of our larger underlying divisions experienced strong growth, like Exus Casity, which was up 16%, manufacturers and contractors, which was up 18%. And we also saw some growth in some of our smaller underlying units, like small business, up 14.5%. Sports and entertainment, up 23.1%. And maybe to your point, Exus Property, which grew 68.6%, with most of that coming from rate. The first quarter, just relative to your question on property, the first quarter has historically been a quarter where we've seen growth opportunities in property, and that was very much the case in Q1-23. As I suggested, premiums were up significantly due to very strong rate increases. Although premiums were up almost 70%. They were off of a relatively small base in comparison to the segment. So we wrote $16.5 million of GWT in excess property. That represents about 7% of our ENS premium and less than 5% of the total group premium. Policy count actually declined 7% from the prior year quarter. So this is a market where you can see some significant growth based on rate, but not necessarily increased your exposure all that much. And we're not expecting to make any significant changes to our appetite for property exposure. We have a continued focus on our target classes and achieving meaningful rate increases. So again, market is definitely facing capacity distress. I expect we'll see some growth around the edges there relative to premium volume, but again, driven by rate. In terms of the portfolio, and the location from a risk. So I would say cat exposed southeast and gulf wind. We see some Texas wind to a lesser extent, some California and Pacific Northwest quake. But as I said, policy count is actually down. We're not putting on commensurate exposure with the premium increase that we're seeing. And our attachment strategy hasn't really changed. Quite frankly, We were at year end 2021, I want to say attaching on average at about 33.2 million. I think that moved down $1 million as of year end 22. So staying the course, if anything, probably being more selective just relative to the industry classes that we're pursuing.
Brian
Excellent. Thank you. That was helpful. And then my second question, just pivoting over to the admitted segment, you know, 102.3% combined ratio. Is that a level of the combined ratio that you're kind of comfortable with? Are you in the acceptable return on capital above 100 combined ratio in that segment?
Frank D'Orazio
So, Brian, what I'd say is on a calendar year basis, the specialty admitted segment has generally had a long track record of profitable results, which has been aided over time by favorable reserve development. We have a strong team leading this business, and they've carefully managed the top line through the cycle. We obviously can't control what happens in the market, particularly in the workers' comp market, but we can actively manage our portfolio and navigate market conditions. And that doesn't end with some decision that we make on a reinsurance structure. So longer term, we certainly expect the business to continue to be profitable. So the fundamentals, as you know, Brian, it's two separate business units. The fundamentals of the workers' compensation market are challenged right now, but the fronting program business does provide some nice balance for our E&S segment based on the strong fee income and the capital aid structure of the segment.
Mark
Great. Thank you.
Operator
Your next question comes from Mayor Shields. Mayor, your line is open.
Shields
Thanks. First question. I don't know if this is for Frank or for Sarah, but based on the evolution of business mix, specifically, I guess, the growth with an excess casualty, is the duration of your liabilities and therefore the duration of your targeted investment portfolio changing over the last two, three years?
Frank D '
I don't think so, Mayor. I think most of our E&S book is longer-duration business, and our investment portfolio has had a duration of around four for quite some time. I don't think we feel like we need to manage the asset liability mix exactly with the business mix. But I think we're very close. And continuing to grow in excess casually, which is now a third of the book, as we've said, is probably making it a little bit longer.
spk01
But I would say it's largely a rounding error compared to the rest of the business mix in the segment.
Shields
Okay. Understood. Thanks. The second question, I guess, when I look at either the net underwriting expenses or the expenses growth of fee income and specialty admitted, they're up something like 20% on a year-over-year basis. And I was hoping you could talk through what's driving that and whether we should expect that growth to persist.
Frank D '
Sure. And you're just focused on the net underwriting expenses and specialty admitted, just to be super clear on your question, right?
Shields
In net or growth, so seeing similar growth rates.
Frank D '
Yeah, I mean, I think much of it is really just due to the change in the reinsurance structure that we mentioned, not having the quota share at 1-1 on the workers' comp business. That was providing a significant amount of offset towards expenses in that segment in the form of the Seating Commission. And I think you'll, you know, that will continue to call it gray down as the business earns in over the next couple of quarters. So we certainly had some contribution from cheating commission in this first quarter, but I think there will be less of that going forward considering that was a one, one non-renewal. So that's really the biggest dynamic. I think, you know, there's small things around just regular GNA, but it is, it is really being driven by the change in the reinsurance structure and And you see to some degree an offset there in the form of the loss ratio and some of the structure, that some of the structure contributes as it kind of feeds into some other components of that. And of course, the increase on the net overall, just given that we've moved away from that structure.
Mark
Okay, perfect. That was my follow-up, so I'm all set. Thank you.
Frank
Thank you. Next question comes from Tracy.
Operator
Tracy, your line is open.
Tracy
Thank you. Sticking with the expense ratio, I'm just wondering, a lower seating commission, was that considered in your 28% guidance for the year or is that something you may want to revisit as we go through the remainder of the year?
Frank D '
No, when I gave that guidance in our February call, Tracy, and thank you for the clarifying question of around 28%, and we consider the 28.4% around 28% that we delivered this quarter. So the change in the reinsurance structures, both that we've mentioned, were incorporated in that guidance.
Tracy
Perfect. And I also realize it's tough just to completely exit business. I did see you had some gross written premium in your reinsurance business this quarter. How should we think about that through the course of the year? Is that something where we could expect that to go closer to zero in the near term?
Frank D '
Yeah, that's a great question. I appreciate you clarifying that. We had about $10 million of audit premium, premium adjustments in that line this quarter, so that's what you're seeing. Otherwise, the business is effectively grading down through the suspension of underwriting activities. I would say that premium adjustments, premium driven by premium audits, et cetera, are a very consistent thing in that business for us, for anyone. And those are coming from, you know, multiple treaties, multiple lines, et cetera. I would say it was a little bit – and we don't typically budget those because you don't have line of sight into them. And they're also earned as they're written, so they're having really an immediate effect on the quarter. I would also say that $10 million is a little higher than it has been in previous quarters as well. Again, there's really no pattern to it. It just happens as a normal course of the business, so – i would expect and we have expected that the top line um that there's you know little to no gwp nwp and then the earned continues to grade down as i think we've said but just to take a moment to clarify the business that we write in that segment does earn over a multi-year period so we we certainly were expecting earned premium in the segment to continue for the year um but the the gross and the written um I think those were entirely driven by the auto premium adjustments.
Frank
Perfect. Thank you. Thanks for the question.
Operator
Again, if you would like to ask a question, press star, then the number one on your telephone keypad. Your next question comes from Mark Hodges. Mark, your line is open.
Mark
Yeah, thank you. Good morning.
Mark
Sarah, the seeded premium in the ENS, it's 36%, I assume that's influenced by mix. Is that a good run rate if excess casualty continues to grow more quickly? Will that grade up over time?
Frank D '
I think that's a good run rate, Mark. I think we We would expect kind of a similar mix as we look at the balance of the year and certainly in our plan we do. But, you know, speak a little bit out of both sides of my mouth, certainly given rate and dynamics, every quarter it can bump around. But I think that's a fine assumption. There's no other kind of one-off or anomaly that I'm seeing in the quarter that would make me give you different advice.
Mark
Yeah. And then in specialty admitted, the earned this quarter around $21 million, your gross written has been relatively stable. If one were to assume it was to remain stable, would the earned also remain stable at about $21 million? I'm just trying to understand the relationship between the written and earned more clearly. Would that be the case?
Frank D '
I think that's right. The relationship should be pretty straightforward. I think we certainly would expect and hope to continue to put on new programs as we did this quarter. But I think that those develop in terms of premium impact. They can develop slowly as they come online.
Mark
Yeah. A question for Frank. Is this the right growth rate in this environment of Low double digits is very healthy growth. I know you've been bringing in new people, and I think your appetite around what you retain and what you write has been maybe evolving over time. Does it feel like with what you're seeing with submission growth, with the book of business you're finding attractive that's in front of you, is this a sensible growth rate for you?
Mark
I'll ask if that works.
Frank D'Orazio
Yeah, Mark, thanks for the question. I would say that we're very pleased with the growth opportunities that we see in front of us. We're pleased with where the rate environment is across the portfolio. And we are starting to think about broadening out our product set and diversifying it. And we announced a new initiative over the course of the quarter. So I'd say that... growth rates will fluctuate obviously from quarter to quarter. But given where the rate environment is right now, we feel comfortable with the current rate.
Mark
Understood. Thank you.
Operator
Again, if you'd like to ask a question, please press star then the number one on your telephone keypad. So there are no further questions at this time. I turn back the call over to Brett.
Frank D'Orazio
Actually, I'll take that. I want to thank everyone listening on the call for their time today and for the questions we received this morning. We look forward to speaking with you again in just a few months to discuss our second quarter results.
Mark
Thank you and enjoy your day.
Operator
This concludes today's conference call. You may now disconnect. Thank you.
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