James River Group Holdings, Ltd. (NASDAQ:JRVR) Q1 2024 Earnings Call Transcript

James River Group Holdings, Ltd. (NASDAQ:JRVR) Q1 2024 Earnings Call Transcript May 11, 2024

James River Group Holdings, Ltd. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by. My name is Benjamin, and I will be your conference operator today. At this time, I'd like to welcome everyone to James River Group Q1 2024 Earnings Call. All lines have been placed in mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I would like to turn the call over to Brett Shirreffs, Investor Relations. Please go ahead.

Brett Shirreffs: Good morning, everyone, and welcome to the James River Group first quarter 2024 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 the reasons described in our earnings press release, all underwriting performance ratios referred to are for our continuing operations and business that is not subject to retroactive reinsurance accounting for loss portfolio transfers. I will now turn the call over to Frank D'Orazio, Chief Executive Officer of James River Group.

Frank D'Orazio: Thank you for that introduction, Brett. Good morning, everyone, and welcome to our first quarter 2024 earnings call. I'm pleased to be joining you today to provide additional color on our first quarter results in addition to providing some commentary on market conditions and the future outlook for James River. Before we get into the results for the quarter, I'd like to take a moment to briefly acknowledge the closing of the previously announced sale of JRG Re. As we have discussed, this was a critical strategic transaction for James River that we believe creates a more focused and profitable organization moving forward. We are pleased to have closed the transaction on the original terms of the stock purchase agreement, and our focus remains on consistently producing profitable results within our E&S and Specialty Admitted segments, areas where we have meaningful scale and credibility with distribution partners to take advantage of market opportunities.

I should also note that the strategic review process that we began at the end of last year remains ongoing. The Board continues to consider a wide range of options, and there is no set timeline for the completion of this process. As you might imagine, the delay in the closing of the sale of JRG Re created some downstream impacts with regard to the status and overall timing of the strategic process. Now turning to our results for the quarter. We have started the year on a strong note, reporting net income from continuing operations of $0.53 per share, adjusted net operating income of $0.39 per share, a combined ratio of 95.3% and a 17.4% adjusted operating return on tangible common equity, which is in line with the guidance we have provided for 2024.

In terms of our E&S business, we continue to benefit from strong and accelerating rate and submission growth, creating numerous opportunities to profitably grow our heavily weighted SME business. Submission growth continued at a strong pace during the first quarter, increasing 9% with meaningful growth in both new and renewal submissions. This is an increase from the 6% submission growth of the first quarter of last year. In total, we saw over 90,000 submissions during the first quarter, the largest quarterly total in our company's history. I would highlight general casualty submission growth of 45% in the first quarter, while excess casualty submissions increased 8%, and Allied Health and Environmental division saw submission growth of 6%.

As I will discuss further momentarily, both our General Casualty and Excess Casualty divisions also experienced the strongest pricing acceleration and had the highest renewal rate increases within core E&S. Alongside strong submission growth, pricing conditions remain broadly attractive in our core E&S business. And having both of these dynamics in sync enables us to be selective about the risks we put on our balance sheet. Our focus remains on delivering consistent earnings and returns for shareholders. This quarter, we saw several larger accounts come up for renewal, many with a meaningful commercial auto component that did not meet our profitability rate hurdles, and we made the decision to not renew the accounts. As we have previously discussed over the last few years, we have implemented additional process and rigor around our performance monitoring and underwriting oversight, and we believe actions like these will produce better margins over the long run.

As previewed, our E&S business continues to experience broadly favorable pricing conditions. Renewal rates for the quarter were up 10.7% across the segment and have accelerated to be meaningfully higher than the first quarter of last year as well as higher than the full year 2023, with the majority of our underwriting divisions recording pricing increases in the high-single or low-double-digit range. We saw particular strength in some of our larger underwriting divisions with rates in excess casualty get more than 20%, General Casualty and Energy divisions up nearly 9% and excess property rates increased 16%. In our view, rate change continues to exceed loss trends as well as the pricing assumptions in our 2024 plan, and we remain confident that we are continuing to generate attractive margins on this portfolio.

We have long maintained that smaller accounts where we have a steady submission flow of new opportunities and premium growth have been more profitable for us. This quarter, we made the active decision to non-renew several larger accounts, primarily in the Excess Casualty division as a result of some of the underwriting actions I spoke about earlier. Other competitors in the market were offering more aggressive pricing than we were willing to offer. And while we may see these accounts again in the future, we thought it was prudent to let them go for this renewal term. These actions had a direct impact on the decline in E&S gross written premiums of 6.6% during the first quarter. Offsetting the large account non-renewals in excess casualty, we did see continued growth in other divisions with general casualty premiums up 16% from the prior year and growth of more than 40% from Environmental and Sports & Entertainment.

We believe our strong submission flow demonstrates the meaningful opportunity set our underwriters take advantage of each day. And while it's clearly still very early in the second quarter, in April, we have seen strong premium growth over the prior year and an increasingly attractive rate environment, with the segment now showing premium growth over prior year through the first four months. The E&S segment combined ratio was strong at 87.3%, producing $18.5 million of underwriting income. The accident year loss ratio was 64.3% for the first quarter, which was an improvement of 140 basis points from the prior year. Reserve development for the E&S segment was de minimis during the quarter, and we did not have any reported losses related to catastrophes or the Baltimore Bridge tragedy.

Turning to Specialty Admitted. Gross written premiums in our fronting and programs business increased 23% compared to the prior year quarter, excluding the impact of workers' compensation. Many of our existing programs showed substantial growth and continue to benefit from the positive renewal rate changes available in the market. The segment produced a combined ratio of 97% and an underwriting profit of $800,000 for the first quarter. We are pleased with this performance and the segment's continued execution of our objectives to start the year. Overall, the E&S market continues to be characterized by strong rate increases in excess of expected loss trend and meaningful new and renewal submission opportunities. We continue to believe that 2024 will provide ample opportunities for growth as we focus on profitable underwriting to generate consistent and attractive returns for shareholders.

Before I turn the call over to Sarah, I do want to take a moment to acknowledge and commend the hard-working and resilient employee base of our company who continue to progress against our stated goal of making James River an even better company in the markets we serve. Our overall voluntary employee turnover for the first quarter was 3 percentage points better than the same period in 2022 and exactly the same as our group turnover rate for the first quarter of 2023. Clearly, our people continue to be the greatest advantage we have in this market, and we are both pleased and grateful to have such strong employee retention. And with that, I'll ask Sarah to provide some additional color on the quarter.

Sarah Doran: Thank you very much, Frank. Good morning, everyone, and thanks for joining us today. As you've seen, we started out 2024 on a strong note with net income available to common shareholders of $20.9 million or $0.53 per diluted share, compared to $5.3 million or $0.14 per diluted share for the same period a year ago. On an adjusted net operating basis, we are reporting $14.8 million or $0.39 of income per share as compared to $14.97 million or $0.40 per diluted share for the same period a year ago. Turning to our underwriting results. The first quarter combined ratio of 95.3%, compares to 94% a year ago. Our loss ratio improved slightly 66.4% from 66.7% a year ago. And as Frank mentioned, we did not experience any catastrophe losses.

There was really no net impact from prior year development. At 28.9%, our expense ratio ticked up slightly from 27.3% a year ago. And as mentioned previously, upon renewal last summer, we changed the key E&S reinsurance treaty to cover more of the portfolio, limit volatility, and maximize underwriting income, while more efficiently managing reinstatement premiums. This has had the impact of pushing our net to gross retention to 55% this quarter, down from 64% in the prior year period, but consistent with the second half of last year. We've also continued to make investments in people and technology. And finally, it's worth mentioning that our operating expense ratios are elevated in the first quarter of the year due to compensation expenses, including equity-based grants for retirement eligible employees that were made in March, which reside in our corporate and other expense line.

For the first quarter, we recorded net investment income of $22.6 million from continuing operations, an increase of 23% or $4.2 million from the prior year quarter. Our embedded book yield was 4.6%, compared to 3.9% at this time last year. We've been holding a fair amount of our portfolio in our short-term our cash strategies, which are returning in excess of 5% as we work through the close of our M&A transaction. Going forward, as we begin to allocate some of this to our core fixed income portfolio, reinvestment rates remain attractive in the mid to low 5% range. We experienced $4.6 million of net realized gains on investments, the majority of which were related to changes in fair values of our common and preferred stock portfolios. Overall, our portfolio remains well-positioned to take advantage of the strong market dynamics and attractive yields.

And with that, I'll turn the call back to the operator to open the line for questions.

Operator: Thank you. We'll now begin the question-and-answer session. [Operator Instructions]. And your first question comes from the line of Casey Alexander with Compass Point. Please go ahead.

See also

10 Worst-Performing Stocks Insiders are Buying in 2024 and

20 Best AI Content Detectors in 2024.

To continue reading the Q&A session, please click here.