James River (US:JRVR)2019-11-10 08:57Financial Data and Key Metrics Changes - The company reported a significant loss this quarter, primarily due to the unprofitable Uber account, marking the largest loss in its 17-year history [6][7] - Net earned premium grew over 16% in the E&S segment this quarter and 30% in the core E&S business alone [23] - Operating cash flow was $145.7 million for the quarter, with a year-to-date total of $213.8 million, reflecting strong growth in core E&S gross written premium [27] Business Line Data and Key Metrics Changes - The core E&S business grew by 72% compared to the same period last year, with submissions up by 22% year-to-date [15][16] - The Specialty Admitted business reported a 94.1% combined ratio, with underwriting profits of $837,000 for the quarter [21][22] - The company expects to write approximately $500 million in core E&S this year, with a loss ratio above 70% [16][24] Market Data and Key Metrics Changes - Rates in the core E&S segment have increased for 10 consecutive quarters, with a 3.2% increase in the third quarter [15] - The company noted significant rate increases in habitational risk liability, with some policies seeing increases over 500% [18][19] - The Allied Health division experienced strength in smaller nursing home accounts, with increases exceeding 50% [20] Company Strategy and Development Direction - The company has decided to focus on its core E&S business and Specialty Admitted segment, moving away from the Uber account due to evolving risks and profitability concerns [14][8] - Management aims to resume producing low-double-digit annual returns on tangible equity in 2020 [8][23] - The company plans to actively manage expenses while transitioning away from the commercial auto book [31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the pricing for 2018 and 2019, despite the losses from the Uber account [10][11] - The company anticipates that the core E&S business will generate attractive returns, supported by strong pricing and historical performance [24][30] - Management is aware of potential social inflation but has not observed it affecting the core E&S business to date [89][90] Other Important Information - The company has brought approximately $1.2 billion of assets onto its balance sheet from a collateralized trust related to the Uber account, which will generate investment income [28] - The collateral is invested in short-term government securities, and the company is entitled to request additional collateral if necessary [28] Q&A Session Summary Question: Can you provide insight into the reserve charge this quarter? - Management indicated that the reserve charge was based on losses exceeding expectations, particularly concentrated on the 2017 underwriting year [39][40] Question: Are you considering any reinsurance protection for the commercial auto book? - Management acknowledged the potential value of such options and stated they are continuously evaluating them [44] Question: How will the core E&S segment look in terms of loss and expense ratios moving forward? - Management expects to maintain a mid-to-high 20s expense ratio for the core E&S business, with some additional expenses initially due to claims management [46][47] Question: What is the timeline for paying down the $1.2 billion claims-related collateral? - Management indicated that it is difficult to predict, but they assume it will be utilized over the next year [72] Question: Are you seeing any social inflation affecting your core E&S business? - Management has not observed social inflation impacting the core E&S book but remains vigilant [89][90]