James River (US:JRVR)2023-05-03 20:09PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for the three months ended March 31, 2023, providing a comprehensive overview of the company's financial position and performance Notes to Condensed Consolidated Financial Statements These notes provide detailed disclosures on critical accounting policies, investment portfolio valuation, loss reserve reconciliations, segment performance, debt structure, and equity details, including significant loss portfolio transfers and preferred shares - The company has entered into two significant loss portfolio transfers (LPTs): the Commercial Auto LPT with Aleka and the Casualty Re LPT with Fortitude Re. Both are in gain positions, requiring retroactive reinsurance accounting, which defers gains and impacts reported losses and loss adjustment expenses687374 - For Q1 2023, the company recognized adverse prior year development of $48.9 million on reserves subject to the LPTs ($41.0M for Commercial Auto, $7.8M for Casualty Re). This resulted in a retroactive reinsurance benefit of $32.0 million being recorded in losses and loss adjustment expenses7375 - On March 1, 2022, the company issued 150,000 shares of 7% Series A Perpetual Cumulative Convertible Preferred Shares for an aggregate price of $150.0 million. These shares are classified as mezzanine equity due to a holder repurchase option upon certain change of control events119129 Condensed Consolidated Balance Sheet Highlights (as of March 31, 2023) | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total Invested Assets | $2,213,862 | $2,192,294 | | Total Assets | $5,205,087 | $5,137,075 | | Reserve for Losses | $2,841,993 | $2,768,995 | | Total Liabilities | $4,469,274 | $4,438,411 | | Total Shareholders' Equity | $590,915 | $553,766 | Condensed Consolidated Statement of Income Highlights (Three Months Ended March 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Gross Written Premiums | $363,893 | $359,936 | | Net Earned Premiums | $208,113 | $189,824 | | Total Revenues | $235,601 | $201,948 | | Net Income | $9,608 | $10,205 | | Net Income Available to Common Shareholders | $6,983 | $9,330 | | Diluted EPS | $0.18 | $0.25 | Condensed Consolidated Statement of Cash Flows Highlights (Three Months Ended March 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $19,452 | $65,355 | | Net Cash Provided by (Used in) Investing Activities | $17,126 | $(87,134) | | Net Cash (Used in) Provided by Financing Activities | $(8,805) | $101,855 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's Q1 2023 financial performance, focusing on underwriting profit, adjusted net operating income, segment results, investment income, strategic actions, and liquidity and capital resources - The company has suspended writing new business in the Casualty Reinsurance segment to focus on growing its higher-returning U.S. insurance businesses. The segment will continue to earn premiums from existing business in run-off166 - Net investment income increased by 58.4% to $25.8 million in Q1 2023 from $16.3 million in Q1 2022, primarily driven by higher yields on fixed maturities, bank loans, and cash equivalents177198 Key Performance Metrics (Three Months Ended March 31, in millions) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Underwriting Profit (Non-GAAP) | 10.6 | 5.0 | | Adjusted Net Operating Income (Non-GAAP) | 21.6 | 13.9 | | Combined Ratio | 94.9% | 97.4% | | Loss Ratio | 66.5% | 71.4% | Segment Results This section details segment performance, highlighting strong growth and profitability in Excess and Surplus Lines, an underwriting loss in Specialty Admitted Insurance, and improved results in the run-off Casualty Reinsurance segment Combined Ratio by Segment (Three Months Ended March 31) | Segment | 2023 | 2022 | | :--- | :--- | :--- | | Excess and Surplus Lines | 86.8% | 83.7% | | Specialty Admitted Insurance | 102.3% | 98.9% | | Casualty Reinsurance | 99.2% | 122.5% | - Excess and Surplus Lines segment GWP increased 12.1% to $228.9 million, driven by favorable market conditions and an 8.9% increase in renewal rates181190 - Casualty Reinsurance GWP decreased 65.1% to $10.4 million, reflecting the suspension of underwriting activities. The current period's written premiums are adjustments to prior year treaties181184195 Investing Results Net investment income significantly increased in Q1 2023 due to higher yields, with the portfolio primarily comprising investment-grade fixed maturity securities Net Investment Income Breakdown (Three Months Ended March 31, 2023) | Category | Income (in thousands) | | :--- | :--- | | Fixed maturity securities | $16,427 | | Bank loan participations | $4,312 | | Equity securities | $1,665 | | Other invested assets | $1,591 | | Cash and short-term investments | $2,862 | | Gross Investment Income | $26,857 | - The annualized gross investment yield on fixed maturity securities increased to 4.1% in Q1 2023 from 2.7% in Q1 2022199 Liquidity and Capital Resources The company's liquidity is primarily driven by premiums and investment income, with operating cash flow decreasing due to strategic changes, while maintaining a strong leverage ratio and extensive reinsurance programs - The company's leverage ratio was 22.8% as of March 31, 2023, comfortably below the maximum 35.0% permitted by its senior credit agreements230 - The company's insurance subsidiaries have an A.M. Best financial strength rating of "A-" (Excellent) with a stable outlook255 - The company details its collateral arrangements for the legacy Rasier commercial auto book, with a total of $245.0 million securing Rasier's indemnity obligations and $108.7 million securing Aleka's obligations under the Commercial Auto LPT as of March 31, 2023250251 Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risk profile from the prior year, with primary risks remaining interest rate and equity price fluctuations - There have been no material changes in market risk from the information provided in the Annual Report on Form 10-K for the year ended December 31, 2022273 Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2023274 - No material changes to internal control over financial reporting were identified during the quarter ended March 31, 2023275 PART II. OTHER INFORMATION Legal Proceedings The company is involved in a class action lawsuit alleging inadequate disclosures regarding reserves for Rasier LLC policies, which it intends to vigorously defend - A purported class action lawsuit alleges inadequate disclosures regarding reserves for policies covering Rasier LLC (Uber) for the period between February 22, 2019, and October 25, 2021278279 - The company believes the plaintiffs' claims are without merit and is actively defending against the lawsuit279 Risk Factors No material changes to the company's risk factors were reported for the quarter ended March 31, 2023, compared to the prior annual report - No material changes in risk factors were reported for the quarter ended March 31, 2023280 Other Information This section provides administrative details, including the scheduled date for the 2023 annual general meeting of shareholders and related deadlines - The 2023 annual general meeting of shareholders is scheduled for July 27, 2023283