James River Group Holdings, Inc.

Welcome everyone to the James River Group Quarter 3, 2023 Earnings Conference Call. I'd now like to turn the call over to Brett Sherps, our Head of Investor Relations. You may begin your conference.

Good morning, everyone, and welcome to the James River Group Third 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 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 the 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.

Thank you for that introduction, Brett. Good morning, everyone, and welcome to our third quarter 2023 earnings call. I'm pleased to be joining you today to provide additional color on our third quarter results while also sharing some thoughts around marketing additions and the strategic priorities that James River continues to focus on. In addition to reporting our third quarter results, this morning we're excited to announce the sale of our casualty reinsurance business, JRG Re, to Fleming Insurance Holdings, a portfolio company of Altamont Capital Partners. This transaction marks a significant milestone for the organization, as it will bring ultimate finality to our exposure from our legacy reinsurance platform. Having also sold the renewal rights to our individual risk workers' compensation business during the third quarter, moving forward, James River will be focused on the E&S and fronting markets, sectors where we have scale, market leadership, and strong teams in place to take advantage of market opportunities. This transaction will provide a clean exit from the reinsurance business, eliminate future reserve volatility, and freeze up capital to focus on our areas of growth. We also believe that sales simplifies the James River story. while paving the way for more consistent earnings. Turning to our results, the third quarter continued to show the positive momentum we have as an organization and strong underlying trends in our ongoing businesses. We again delivered profitable underwriting results in both our E&S and specialty admitted segments, while our investment portfolio continues to perform well with record investment income during the third quarter. We have seen a modest acceleration of some already positive trends in our E&S business including renewal rate increases and submission growth, clearly a favorable indication of the strength and durability of this market cycle, while we also continue to execute on portfolio management actions across our business as we remain focused on bottom-line profitability. For the third quarter, we reported adjusted net operating income of $18.3 million, or 48 cents per share. Our return on tangible common equity, XAOCI, was 13% for the quarter. Tangible common equity per share of $10.25 has increased 9.3% before dividends through the first nine months of the year, as both our underwriting profit and strong investment returns have contributed to this growth. Our tangible common equity per share, including AOCI, was $15.27 at the end of the third quarter, and up 11.2% year-to-date. Now, let me provide a little more color on our segment results and market conditions. As I have stated previously, we continue to view the ENS environment as highly attractive. Competition remains rational across most of our ENS underwriting units, and we have seen renewal rate change trend higher in each sequential quarter this year, topping out at 12.4 percent in the third quarter. This increase is the latest of 27 consecutive quarters of positive pricing bringing the compound renewal rate change to 77.2 percent since 2017. Renewal rate increases remain broad-based across our portfolio, with most underwriting divisions achieving rate change in the high single or low double-digit range through nine months. While rate increases in our excess property division continue to lead the segment, the remainder of our E&S business, all casualty lines, achieved rate increases of 9.1 percent during the third quarter. consistent both with our experience during 2022 and another indicator that our non-property divisions are producing healthy increases in rate. Excess property, excess casualty, and energy all showed meaningful double-digit rate increases, while general casualty rates increased 8.9% during the third quarter. Our 15 underwriting divisions continue to build on our strong relationships with wholesale distribution. Total submission growth of 8% during the third quarter was driven by new business submission activity and was our strongest submission growth rate in three years. Excess casualty and general casualty both recorded double-digit submission growth in the quarter at 14% and 24% respectively, with several other units in the high single digits. Policy count increased 9% during the third quarter, again supported by some of our larger underwriting units. General casualty policy count increased 25%, while excess casualty was up 19% and manufacturers and contractors increased by 12%. Overall, we continue to be encouraged by pricing and market trends, which suggest that the current attractive market conditions should lead us well into 2024. Consistent with our actions last quarter, we have deliberately been more cautious on certain classes of commercial auto, particularly food delivery, and have made efforts to reduce exposure. These actions led to a 44% decline in commercial auto gross written premium, representing a $7 million reduction relative to the prior year. We believe this action is prudent as we look to continue to generate strong profitability across our portfolio. Our core E&S gross written premium growth was 10.3% in the third quarter, excluding commercial auto, and 10.8% on a year-to-date basis. This performance was driven by strong growth in general casualty manufacturers and contractors, energy, excess property, and sports and entertainment. Throughout the third quarter, we saw year-over-year growth rates accelerate in each month. We closed the quarter with nearly 16% growth in core E&S premium in September, which is one of our strongest monthly growth rates during 2023. Looking across our underlying visions and reflecting on the rate improvements we have achieved throughout 2023, we are confident in our outlook for profitable growth. The E&S segment reported a combined ratio of 88.4% and underwriting profit of $18.3 million for the third quarter. We did not record any catastrophe losses in the period. However, we did experience $7.8 million in adverse prior year development as we made the decision to shore up reserves from older accident years from 2015 to 2018 in our general casualty line of business where the industry has seen some adverse emergence trends. Partially offsetting this strengthening, was a reduction to estimated losses in the current accident year based on general rate trends and significant portfolio management actions and improved risk selection as we've exited several loss-leading classes over the last few years and have taken other underwriting actions. As a result of these favorable pricing dynamics, as well as our portfolio management actions, we reduced our current accident year losses by $8 million in the quarter to reflect these trends and the impact on year-to-date results. Our E&S accident year loss ratio for the first nine months was 65.8% or 64.1% excluding the impact of reinstatement premiums. This compares to an accident year loss ratio of 65% excluding catastrophes in the prior year period or 90 basis point improvement year over year. All in, we remain excited about the opportunities set in front of our E&S segment and we have an exceptional team in place to continue to execute on our growth plans while maintaining attractive margins. Turning to specialty admitted, as I mentioned earlier, during the third quarter, we announced the sale of the renewal rights of our individual risk workers' compensation business to the AMINTA group. The sale encompassed the full operations, including underwriting, loss control, and claims. This business had generated $48.5 million of gross rent and premium on a trailing 12-month basis. This strategic action immediately followed the non-renewal of our large California workers' compensation program that we discussed last quarter and was a natural next step allowing our specialty admitted segment to focus on fronting and program business moving forward. We believe there is a strong opportunity for disciplined growth within the space. As has been the case throughout our history, we will continue to focus on supporting profitable programs with a conservative approach to reinsurance security and collateral. Segment results for the quarter included 10% growth in fronting and program gross written premium, excluding workers' compensation. We saw growth from several new programs initiated during the third quarter and also experienced continued growth from existing programs, which included meaningful rate increases in certain areas. Specialty-admitted underwriting profit in the third quarter was $2 million, and the combined ratio came in at 92.5%. Lastly, turning to our casualty reinsurance segment, results for the quarter continue to reflect the earnings of treaties written in prior years, as well as various premium adjustments. The underwriting loss was $4.2 million and included $4.7 million of reserve strengthening from business not subject to the LPT. Reserve development was driven by movement on a few specific treaties, primarily from treaty years 2016 to 2019, driven by primary GL exposure. There were also several treaties that experienced a modest level of favorable reserve movements during the quarter as a result of claim settlements and loss experience. Additionally, we experienced $7 million of reserve strengthening on treaties covered under the LPT, reflecting deterioration from construction and construction defect exposures. The remaining limit on the retroactive reinsurance that we put in place two years ago is now $38.3 million. Our third quarter results reflect the continued effort of our dedicated employees to refocus James River around our core competencies. Our underwriting franchises remain leaders in their respective specialties and remain well-positioned to take advantage of attractive E&S market conditions and fronting market dislocations. As I've said before, our focus remains on deploying capital where we can achieve consistent and attractive returns for shareholders. And with that, let me turn the call over to Sarah.