Q2 2020 James River Group Holdings Ltd Earnings Call

July 30, 2020

[music].

At this time, all participants are in English and only mode.

Later, we will conduct a question and answer session and instructions will follow at that time.

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As a reminder, this conference is being recorded I would now like to turn the conference over to your host Mr., Kevin Kopelman at at the Investor Relations. Please go ahead.

Thank you Tiffany.

Good morning, everyone and welcome to the James Rubber group second quarter 2020.

Earnings Conference call.

During the call, we'll 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.

Risk factor section of our most recent form 10-K form 10-Q's, and other reports and filings we make with the Securities Exchange Commission.

We do not undertake any duty to update any forward looking statements.

I'll now turn the call Overture, Adam neighbor, Chairman and Chief Executive Officer, James rubber good.

Thank you very much Kevin and good morning, everyone and welcome to our.

Second quarter conference call I'm joined here. This morning, but there were a door and our chief financial Officer, and Bob Myron, Our President and Chief operating Officer.

And assets are useful way will sovereign libel folks have a few comments.

And then all three of US would enjoy answering any questions that you may have.

A number of things.

Worth mentioning and pointing out from my perspective.

First our return for strong.

We're reporting a group combined ratio was 95%.

Our return on tangible equity this quarter was 12.9%.

12% for the six months.

Yeah, our calculation and investor in our IPO has enjoyed a 22.3% internal rate of return, including dividends from our IPO in December of 2014.

Through the middle of last week.

Our tangible book value per share grew 14.9% during the quarter.

Our prospects.

I think are excellent R.E.N.S. segment grew gross written premiums by 18% for the quarter and 25% for the six months.

Our enforced policy counts in core N.S. grew by 28% from June 2019, So this past June.

We had a 16% increasing submissions in the N.S. during the first half of the or.

One of our 12 units divisions had increased submission flow.

The trend of greater submissions continues early in the third quarter.

Well, we are growing we're not changing our mixed dramatically and I think that's important average premiums remain below 20000 dollar.

Level.

Year to date nine to 12 divisions within the enough for growth.

[music].

For the quarter just ended June 30, yet.

That was the 14th.

Consecutive quarter in which we had rate increases import you enough.

The pace of rate increases is accelerating in the first quarter, we reported a 13% rate increase one renewal policies.

In this most recent quarter art you enough team achieved.

20% increase one renewal policies.

Turning to our specialty admitted buckets performing very well the segment reported a combined ratio at 90.1% for the second quarter.

98.4% for the first six months of year.

During the first half of the or our specialty admitted segment had signed new fronting deals that we expect will generate annual premiums of approximately $200 million.

And the annual fees of about $6 million. So we're making steady progress on building the highly diversified book of fee income producing programs that won't burn in over the next year.

One of the things that we all feel lot of attention to is the strength of our balance sheet and I believe that our balance sheet strength this increasing quarter over quarter.

Our loss in L.A., he ratio in core excess and surplus lines.

For the 15 years 2003 through 2018 is 57.1%.

We are currently writing more of this business than any previous year.

Better rates that at any time in our past and we're booking our current year at 65.7%.

I know that the run off a bar large commercial account.

There's always a matter that has gotten some attention in recent quarters and that's proceeding well we closed an additional 15% up the claims associated with the canceled covers your account during the quarter and that means that we've closed approximately 40% of the claims liberal feeling of the times, we stopped writing read account.

We continue to expect it will take two to three years to complete the run off of the book, but we're pleased with the pace and claims are being resolved.

Cost within our expectations.

The claims environment in general is relatively benign.

Combined with what we're seeing a brakes is a really powerful combination.

Claims frequency in R&D inasmuch as down 21.4% in the second quarter compared to a year ago and.

And down 19.2% in our specialty admitted segment.

We have no contempt football cope it might seem claims reported in our E. N S unit more in our reinsurance segment.

And as we've talked about in our last call. The flashes of BNS business, we write as well as our policy language and structure insulate us against liability for coated claims.

In our specialty admitted segment our individual.

Risk workers compensation book has received for corporate coated claims one of which works compensable and we had a net obligation of $750 on that claim.

We do right workers compensation policies that are fronted dismiss under the specialty admitted segment.

And today, we have had approximately 55 cobot 19 claims from this program unit.

However, our retentions are low there between 11 and 20% on the first million dollars per occurrence and so our maximum liabilities 110000 to $200000 per claim.

To date, our average total net incurred for the few cobot claims we've had is less than $13000 per claim.

We just don't currently expecting that liabilities from cope it might seem to be material to us.

Our reinsurance segment suffers from a lack of scale, but it contributes to the overall profitability relatively small amounts of adverse development from prior years, when our book puts March or April.

Overwhelmed the profitable underwriting in a much smaller book right there today.

The book, we write in Bermuda today is overwhelmingly E.N.S. casualty with with good margins.

However, we have allocated less capital to our reinsurance unit then to our primary segments, because we'll be outsized opportunities available in our primary segments.

Consequently.

Movements in prior year development in reinsurance.

Hi.

Kim calls losses in the current your underwriting process there.

Looking forward.

I think the momentum of the first half of the year.

It's shaping up to continue.

And our plan is to stick to our plan to continue to write business, we understand that prices, we expect to produce material underwriting margin.

We're focused on increasing our fee business and expect those fees to become a larger contributor to our margin over the next 12 months.

No we recognize a at the same time to seeming disconnect between the meaning many leading economic indicators. So unemployment for example.

And our expanding business still we don't see slow signs of a slow down in our business. We think the general Dms market is expanding its admitted markets retreat from more classes of business and pricing is definitely increasing as a reactions are part of your losses in the industry and low prevailing market rates of interest.

And so with that if I could turn to Sarah the at her roughly.

Quarter.

The first half of your Sarah.

Thanks, Adam Let me highlight a few of the financial claims from the quarter.

Last night, we reported first quarter operating earnings of 56 cents per share and annualized adjusted net operating return on average tangible equity.

The first half of the year, 12%. It was a very strong quarter in first half of the Aries items noted.

We jump right into investments our portfolio has recovered meaningfully since since March 31st with a total return a 4.3% for the quarter, excluding our restricted cash balance in private investments.

Our fixed maturity investment portfolio had unrealized gains a $53.5 million what the bank loan portfolio had unrealized gains at the $26.6 million offset partially by realized losses of $9.4 million incurred on the sale of approximately.

40%.

Senior secured bank loans.

As we mentioned in April you made the decision to meaningfully reduce your exposure to bank lines by selling into the rally in this asset class.

We look to tamped down or volatility.

Given the current low yield environment, we expect net investment income to be at similar levels this quarter throughout the year.

Moving on from investments this quarter, we posted a loss ratio, that's 56.4% and accident year loss ratio at 65.6% largely in line with the first quarter of this year, despite powerful rate increases low loss emergence and meaningfully reduce claims frequency.

It's Adam highlighted the core N.S. renewal rate increases we benefited from for over three years now accelerate its 20% this quarter.

Reported losses have remained benign for multiple quarters.

Again this quarter.

Korea that makes up approximately 70% of the company's net written premiums and close to half of our net reserves.

As Adam mentioned, we've received Kobin related claims, but given our policies and exclusions and ongoing review. These claims you did not put up in additional indemnity estimate related because it for the corridor.

The run off of what was formally our largest account continues to perform within our expectations at the end of the first half of the year open claims for all years with the account represented a little bit less than 3% of the total reported claims for this account.

At the end of the fourth quarter 2019, I had reported to you that at that point open claims for all your for the accounts represented over 5% of reported claims.

Or approximately $1.3 billion total group wide net loss reserves at quarter end.

Approximately $300 million supports this run off block of business.

This quarter, we had $2.8 million a favorable development from enough most of which came from our core enough business.

We had adverse development of about $5 billion in our casualty reinsurance book.

The development was concentrated in a few treaties related to general liability and commercial auto business.

Each of which we no longer right.

We also had a million dollars a favorable reserve development from our individual risk workers compensation Buck.

As a reminder, our internal reserving processes are identical each quarter and we don't include any expectations of development in our planning thought.

Last but not least expenses.

French ratio decreased to 28.6% this quarter from 34.2% in the first quarter of this year.

We've been working to reduce expenses and gain efficiency and as part of that reduced personnel during the quarter in areas, where we were overstaffed.

Also included in the corner with a onetime reversal of an accrual which had the impact of increasing fee income.

Lowering expenses.

All that said, we continue to expect that our expense ratio for the full year, we'll be in the low thirtys an improvement from the first quarter.

With that I'll hand, it back to Adam.

Thank you Sarah and before we take your questions, which were eager to get too.

I just would like to have.

I have a little settled out if I might to the employees and colleagues all around James River.

We've been working remotely.

Since March and doing a really terrific job you know we're aware of all the strange slip remote working calls for everybody in America Who's doing it right now, but we're thinking about all of our employees, who are home with children and working one school arrangements and nonetheless.

Yes.

Generating more polyp more policies more premium more underwriting more claims handling.

While the do it and it's a remarkable feat.

And we're thinking about them Fortunately for us right now.

As far at our last report only one of our 800 plus or approximately 800 employees.

Tested positive for corporate so we're thankful for that too.

And we're mindful of.

Everybody itself and very grateful for the team work that's one for.

I'm very proud of all of our colleagues wanted to say that anybody who might be listening.

Thank you so let's open up a questions operator can you help us.

Ladies and gentlemen, if you have a question at this time. Please press the star and then the number one key on your Touchtone telephone. If your question has been answered.

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Hold for the first question.

Your first question comes from the line of Matt Carletti with JMP Securities.

Hey, Thanks, good morning.

Morning, Matt.

Adam you mentioned in your opening comments.

About kind of where historically and your core units businesses running the loss ratio and then how you're picking it a bit more conservatively today.

Can you give us a little bit of color or how you guys think about kind of that the timing or the how long you typically weight and kind of let those years develop you know before you might.

Did you kind of take a look at that loss ratio with regard to if things are going the right way you know look to bring that 65 down towards a more historical level.

You know we look every we look at our reserves every quarter.

And we're careful about it it's just that I you know honestly the our culture is not to declare victory early.

And so it's not a specific amount of time that masterpass, but it's the overall facts and circumstances leased with a conservative.

You about what might arise that causes us to bring it down so.

Generally.

We're waiting.

Pending and it also depends on that one the line of business. So I don't want to give you a.

Right.

But I want to say that our approach is to try to be.

Careful and conservative to.

No not put ourselves in a position where we face later weakness, but to play from strength and I think one thing I would like to say is that I would say is I believe that as I mentioned, we're building quite a bit of strengthened the balance sheet today.

And well that's a position that we.

Enjoy doing it.

Great and then just a couple others one is on.

You know could you comment a little bit just on what you saw in the quarter in terms of.

A lot of other companies the notice it kind of reduce claim frequencies feel a lot driven by the current situation. We're in but I'd be curious what you saw across your book both both the core book I'm as well as you know with respect to the run off commercial auto book.

You know if it's kinda knows what's going on in the economy and otherwise it is helping the situation there.

Well I think there are two things going on.

Simultaneously I mentioned that we had closed.

15% of the.

Claims that were outstanding and they closed in the you know just continued commercial auto book.

During the during the most recent quarter and that follows having a close 25% in the first quarter and I definitely think that pieces faster than we expected, but we're not again I don't want to declare victory early there. So we're still anticipating a two to three year run off of that book.

In general as I mentioned, you know 20 plus percent decline in claims frequency in both.

Our core, yes book and our specialty admitted book.

And I.

I think that is.

Clearly the result of you know.

Suppressed activity.

In the you know people or at home more in restaurants were having to take out.

All of those things that we all know what valves that are slowing activity are slowing claims and yet that is happening at a time.

When rates are rising.

Because of a lack of capacity in the market because of.

Inadequate pricing by large parts of the market for many many years and the withdrawal of the largest CNS writer.

From much of the N.S. business and admitted companies, leaving the enough.

Market, so well having depressed claims.

Increasing rates.

And yet we're holding very.

Very high I don't see over the type of work, we're holding conservative reserve positions. So I think I'd say, it's one of its a vortex and it's a very possible positive one for US right now the wins are blowing and I'm sure.

One last numbers question on the on on the the only a few million, but the adverse development in the casualty segment, if I recall correctly that the kind of ongoing development. We've had there has really related to a small handful lines and older accident years that.

You guys have exited a while ago and I was hoping you might be able to its kind of frame that in terms of you know what's the reserve base lots, there kind of where we and the maturing of those those lines of business that you you largely gotten out of the kinda how much more but we have to go it's kind of question.

Well you know, we I'm I'm going ask there are too it's a jump in here, but in general luck.

These you're exactly right. These are policies from long ago, and if you're talking you're talking about the casualty read segment I just wanted to make sure that that correct, yes, that's where you're gone. Okay. These are policies from long ago later risings.

And.

Right so.

So they are.

They come up as a little bit of a surprise.

We also have have shrunk the book.

Yeah, and casualty rate, it's a very profitable Ns quota share book that we're writing there and it's underwritten very well by our leadership there.

But it's a small book and so a relatively small claim from an over a year, where we had a lot of premium lot more premium can overwhelm.

The current year.

Results.

But overall you know we see that trailing.

Off.

I would the other thing I would say is that if I and we do we we look very carefully at our entire.

Reinsurance arrangement and over the years.

Historically.

Our Bermuda operation has generated about five years.

Worth of income.

Net income for our shareholders.

Right.

Adam as referencing kind of the benefits of our overall structure that got it is added kind of income that that's not obvious to be attributed specifically to the underwriting operations of the casualty reinsurance business overtime.

Just in thinking about that kind of additional years worth of <unk> stake one thing I'd add is.

A fair amount of the adverse development. This year was as Adam said, you know due to business that treaties that we no longer right.

As it was business. That's continued that has that has been profitable for us as well and it looks to be profitable in later years.

So I think there there are two parts of the story, there, but definitely a decent part of it. It is stuff that we're no longer on so you know is that it said it really the theme here is it is difficult to manage a book that is much smaller than it was two years ago. Some of that is what you're seeing in the movement of the numbers.

Our pretty stable at the amount of writings that we haven't there and that we've had an over that business for the last two years. It's Adam said in his opening comments, we've allocated our capital more to our primary businesses just given the opportunity. There. So I think the overall level of writings, where we are now where we spent the last year. So it's pretty stable with regard to this.

Yes.

Okay, great. Thank you so much for the color and that Buck on port.

Thanks very much thank you.

Your next question comes from the line of Mark Hughes Suntrust.

Thank you good morning.

Oh, the EUR 100 million you described as the new business in the specialty admitted it any of that show up in the Twoq or is that a on the code.

Hi, it's almost all on the call.

Okay.

The loss pick the current accident year losses in specialty admitted that 80% this quarter, 82% that core last quarter.

Hey, elevated or is that it right run rate on a go forward.

That's the right.

[laughter], sorry, Mark run rates for where we are for where right now obviously, a big part of that bucket is isn't workers comp that we right there.

And then the expenses.

Please go ahead, yeah markets Bopara, just it's worth mentioning.

That with respect to specialty admitted workers compensation, you know for individual risk workers compensation business.

We moved to the quota share up for that business from 50% the 70% on January 1st as a result, and we like the ceding Commission that we're getting paid for that but in terms of the net loss ratio that we're booking there we that.

Number is elevated relative to say 2019, because we have to include 100% that you away right at affect our overhead and cleanup claims handling costs and the like for that line of business. So the loss ratio went up but then we're getting up you know where we're having more ceding commission come back through as a reduction to the expense ratio. So there.

There's a little bit of a technical reason for why that loss pick has has increased and why it you know why it seems high.

And then it to that point your expense ratio was the with low this quarter.

I assume that included some of the reversal you mentioned, Sarah what should the normal expense ratio the in that business leased for the near term Yep.

Yes. Thank you for asking that question and that is the big Delta This quarter Mark.

Last quarter, we had a delta on the other side I'm sure I think the normalized what I'm thinking about as a normalized expense ratio for that business is indeed, a low to mid twentys.

Thank you and then the a.

In the.

Yeah, So segment.

The.

Ceded premium ratio, it's been the kind of in the low thirtys, 32% last couple of quarters I think.

If I understand it properly you've had a little more growth in excess property, where you see the before.

The mix of excess no relative to that overall segment in there what should the ceded premium ratio look like going forward.

Yeah, I think I will admit and not really admit but that business is by design, it's going to be lumpy, we've seen a great opportunity to grow the excess casualty book and have done that really really well for many quarters. This quarter that was the book that grew the most within core CNS and it's been that way and other quarters for that.

Causing the Delta and that's a little bit you know situational, we're going to take advantage from a bad as it sits in front of.

I would say that right now that book at least for the quarter is a little bit more than 25% of the overall Koreana book.

And I don't have a reason to think that that's going to change significantly by the ended the year. Although again episodic. So I would think that that seeded ratio would be pretty stable, that's about where it was in the first quarter as well.

Low 30.

That's right.

Kinda.

Lower early Thirtys Yep.

What is the kind of the tax situation, though with the I think a number moving parts as you what else. So youre overall profitability was helped by the casual theory, which helps the strain is what what should we think about taxes for say the back half going into next year.

Well a lot of assumptions, obviously go into the tax rate I think about it no from a a practical perspective, it's being in the low teens.

For this year.

So a bit and then set a different way it was 10% for the quarter.

I think that's being a little bit higher than that.

For the for the balance of the here.

Right.

We think about the growth in the three Q U.

Mentioned the trend in submission strong submission continued early into Threeq you I think.

So.

As I understand a good business would have been a little bit tougher early in the quarter gonna with some strength building as good as of June.

I think your 18% growth, you're comping against 81% growth I remember properly.

Second quarter last year.

How do we think about be great dynamic you need all the moving parts going into a.

Threeq you see.

Hard to get the I know you don't get projections in that way, but also a lot of moving parts, India just kind of rough.

I thought you might have around the.

Growth picture late in Q2 and early in Q3.

Yeah, I think right now we're feeling that the growth.

That we've experienced in the.

First and second quarter continues.

Early in and of course, it's early days into the third or into the third quarter. So.

Plus we're adding in the specialty.

I think we'll see some of that 100 million I referred to in the field income associated with it slowly began.

To filter its way into.

Second half of the year, but in the DNS side of the business I.

I think we're feeling that it's good steady.

And our growth rate is not.

You know is not threatened.

By events and indeed, we see.

We continue to have.

Pricing opportunities.

We continue to have a really good flow of business one thing I haven't mentioned yet is.

We're also seeing improvements in our efficiency and this is another reason commend.

Our employees, who are working so hard.

But the throughput Andy.

Buildup of.

Policies in force.

Over time over the first half a year and this is supported by the way buys her.

And on the part of our I T team.

Not only got us remote but at the same time started introducing new technologies.

Steve that throughput of application so that our underwriters can more efficiently look at more applications.

For insurance and to quote them faster.

No for example in our small business unit I think.

I'll be within a point or two if you you allow me a little range here, but I think that our throughput there it's about 26% higher.

It was a year ago because of new technology introduced by.

All righty group and supported by.

Our underwriting group and that's being rolled out similar technology is being rolled out to other divisions within that space. So we're becoming more efficient we're seeing more applications, where we've got better.

Right I don't see any sign but the rate is decreasing.

In some signs that you know the strength continues and so without predicting what it'll be I'm, just saying I feel for good about the second half the year as I sit here today and I think our whole team goes.

Very good thank you for all that.

Your next question comes from the line of Randy Banner with Riley.

Hey, good morning. Thanks.

I guess.

You know the observation is that on your.

GAAP on its growing a lot inquiry announcements coming down overall and the business is increasingly profitable. So you're you're you're operating leverage is decreasing quite a bit on a four basis and so I guess, how do you think about that.

Yes.

Can you fill up that that operating leverage with underwriting or you know.

There'd be a thought that.

Perhaps you'd returned to kind of a higher level of capital return.

We I'll take that first and I'm happy to have my colleagues jump and we are doing everything that we can to take advantage of this great opportunity that we have especially in core DNS.

In writing is much good and profitable business. This is coming across the transom and that's a lot.

The show that is that is our number one goal I think we have more than enough capital to do it and and certainly you know I think you've known US I know you notice for a while Randy if if we see it seems like we don't have enough opportunities will be judicious in returning that capital, but right now.

We're trying to put as much of that to work as possible and we think we've got a great opportunity in front of us to do it in a good runway.

Okay.

I you know the other question I have is it's a little that maybe its philosophical or high level, but so.

I agree that this could firemen looks good from a hard market perspective for all the reasons you laid out.

But since the early O is which was truly a hard market theres been a few kind of false starts where we thought because of you know low interest rates or whatever issue was that pricing was gonna from and then that's the then all the capital in the World came into the insurance marketing kind of room at the party and so my question is.

You know why why is this feeling different because I I feel different about it but yeah I'm curious how your comments seem to me to be saying, Yeah. We think there's there's a sustainable sustainably firmer market here.

Why why is this out of false start everything you know were seen in the current environment as it relates to a hard on pricing environment.

You know really you are a very good student.

The market.

And.

Before I begin like you sometimes.

With thinking about the history.

And the first piece of history that I'd I did bring to this.

Examination or this analysis as we said 14 quarters in a row.

Rate increases and then if you read about.

What some very large DNS players are are doing in terms of resetting their capital positions and restricting.

There are writings right now because there are tending to other problems, but they have arduous DNS marketing, though.

The country is retrenching.

And that is.

That is continuing and that is opening up new opportunities for us and then the admitted market just continuing to discourse large books of business, which our classic DNS rights that we right.

And so.

I I.

I think we're about a year into this you know and 14 months, we've started to see rainy increases and there's more pressure coming the cold and claims are coming to low interest rate claims are coming I don't believe all the prior year losses of underpriced business had been recognized.

Yeah, and then so for all of those reasons.

I am.

Encouraged that thinks that this market that we're seeing.

Has has legs.

And.

You know when we can deploy capital.

So this quarter we reported.

12% return on tangible equity, 12.9% of prior quarter and.

When we can deploy capital in an interest rate environment, That's you know 2%.

And make a 12% return on tangible equity I think thats a good use.

Of our capital, especially when we see ourselves growth.

And continuing to grow.

And then we're doing that I think.

While being prudent about what we're reserving for the future.

So those are all appreciate that they're going to our mind I I, absolutely concede every point that.

I I think there was a strong factual basis for your question is stuff. This is our analysis of the situation today.

No it's going to just one just one quick clarification, you said low interest rate claims you did you mean, there's pressure from lower interest rates.

Well I think that low interest rates low interest rates for this industry means that the industry has to be very diligent about as pricing and yet markets that might be tempted or things that they could underprice a long tail risk.

And cover copper themselves.

Interest income there's no possible they don't have that argument to make to themselves today, that's not a strategy, but they.

Pursuit today.

Right understood. Thanks, so much.

Your next question comes from the line of Sean Reichenbach with KBW.

Huh.

Hi, I'm morning.

I just love another question on the kind of corn, yes growth or thinking about you know getting a feel for modeling going forward. We you know obviously it was another strong growth this quarter and just trying to get a sense of how much of that was but it decelerated and how much of that was due to the pandemic versus kind of you guys.

At 81% growth last two Q2, Q 19, how much it is kind of just a a growing premium beverage base that you're a kind of.

Growing on top of.

You know I'm not sure do you want to take that when she takes I'm not sure that I understood exactly.

And it may be me I'm, sorry I.

Sorry, if I can refrain from <unk>, Yeah, you guys that 18% growth this QQ, which decelerated from 65% and Fourq you 19, 37%, one Q 20, and how much of that is pandemic pressure versus just the premium base is a lot bigger in the prior year than it has done in past calls.

Orders.

Oh, you mean, we have on larger comp Oh, yeah, yeah, yes.

You want to do that yeah look I I think that what's important here as we look out is kind of adamant three we've had great policy in force growth. This corner, we've really stopped at 20000 in and around that ties rose excuse me Premiumbeat premium account size.

It's going to be a tough comparison when you have a quarter was at 81% growth. That's just kind of the law of large number and the fact that we've doubled the korigan AST business.

Over the last two years. It is I think that the most important point, we have died and I would just kind of answered the question a little bit more.

Directly on the first part of it Sean we have not seen a slowdown in our growth Kobe just to kind of hit that this is just this is very regular growth that we're seeing I would've expected necessarily a bigger percentage number pretty happy to see the outsized kits number.

That goes along with them.

The strong growth in that the topline.

No if that gives you. Thanks that's helpful.

Yeah.

Yeah. Thank you and then also can you just give an update on everything about investment strategy with the you know pressured.

Interest rates.

Yeah, Great Great question, I think one of the things that we did which we talked about on this call last quarter is we are we sold out of a portion of our bank loan portfolio, just because we had gone through so much volatility there and we wanted you to remove take some of that off the table and not market has recovered substantially.

Had a great opportunity to do that as we really focus on the underwriting that's in front of us in that part of our business.

Say that you know no one's really happy with where the investment opportunities are these days in our sector or overall, but we're looking we're looking into something I would say overall I would not expect.

Our eni or our investment strategy to change very much from where it sits right now because again our focus is on the underwriting and doing everything we can there I think will stay in the bank loans for the most part for where we are at least some part of it the taking that volatility off the table has been very useful to us we think.

All right. Thank you that's all I have.

Thank you.

And again, if you would like to ask a question. Please press Star then the number one on your telephone keypad again that is star wine.

Your next question comes from the line of Ron Bobman capital returns.

Hi, Thanks can you hear me.

Yes, we can hi, Rob.

Great.

Good morning, good to hear of his voice, especially bobs.

Two questions any change in retention.

It was the first question and then the second question, maybe you can address that maybe by by line and then secondarily are you seeing any change in claims settlement values. Thanks. It. Thank you.

Yes. So there are some changes and retention that we've spoken about in prior.

In France calls, we've reduced and Bob Bob.

They have made reference to this in an earlier answer, but we reduced our.

Net retention in both our individual.

Written workers' comp so.

That's.

That is material, but not its not going to make a huge difference overall in the.

All of the premium.

Right, but per claim for example.

We would we will happen smaller retention.

And I've mentioned that we keep a very small portion of the workers comp business. It's in our program.

Division, either 10, or 20% 11 or 20%.

The.

One other.

We have opportunistically.

Taken.

Larger positions, one particular risk occasionally during.

The last quarter or too.

Where weve, but it's an individual account underwriting decision.

Where weve you know for example in that a couple of excess casualty accounts that came to us where.

We've we felt the pricing was good.

Client customer that we liked a lot the history of the account was good we knew it.

They were having difficulty filling out in excess casualty position.

Which is a sign of a very very hard market.

So we stepped down at good pricing to take larger ones occasionally form that we constantly review and are always open to reviewing our retentions were mindful that we have reinsurance partners, who have done with us for a long long time.

And arrangements that we've had in place for a long long time, so we want to make sure that everybody.

Yes.

Fairly treated across a long period of time.

So I hope that answers your question, Bob you want to add something.

Yeah, Ron Oh, good to talk to you again and you may have also been asking about policy retention or renewal retentions.

Candidly I was but I appreciate dump Adams, providing more informed me that all right.

Yeah that the you know, but maybe the best way to look at it is by count and you know we have we've seen in this business in our core U.S. business. It it's really been pretty consistent it it has been in it stays and though in the low sixtys. So we haven't really seen a significant change in.

In policy retention in Q2 is you know right right at that level, and that's where has been for [noise].

Just about every year that we spend in this business.

So no significant change there and then I think on the on the average claim that you know value.

I'll just want to give a little bit more of a qualitative answer I think two things.

In in across our businesses, it's been a pretty.

But nine claims environment in the first six months of the year, we've really seen pretty light paid and incurred loss emergence and that's been and that's been great. I do think that that [noise]. There there is definitely link to economic activity and the pandemic and.

There are definitely is a situation where by.

You know plaintiffs and or their council are.

There, there's more of a willingness and ability to get claims settled that otherwise might be.

Stretching on for a while as you know.

The plan would have been previously maybe take something to court well of course were closed and as they reopened a lot of them are going to be focusing on.

Criminal related matters and not civil matter. So are there has been a really good opportunity across our business to get you know claims settled.

Faster at the you know what might be lower average values and we've been taken advantage of that.

So new claims frequency is down overall dollars of paid and incurred loss emergence have been modest and we're continuing to see good opportunities just got things quickly mediated settled that otherwise might not have happened before.

Yeah. Thanks.

I would.

Yeah, the only thing I'd Wanna add to that Brian is that.

It is important to us that we settled at the fair value.

These claims so you know aren't we are in business to to protect our insurance and so I would not want it to be interpreted that we were taking advantage in any way of of.

Close courts or.

Unemployment or anything else.

Our view as we come to a fair value for each claim and and we work hard to settle.

The claim and two attuned to the claim it.

Fair way for the fair value exactly.

Understood. Thank you.

We will.

Thank you.

And your next question comes from the line of Mark Hughes Suntrust.

Yes. Thank you Adam I interpreted that question the same way.

The retention I did make me think I think your attention so typically a million.

Her.

The risk you're correct, yeah earn I think one of your.

Public competitors, who had a similar policy increase their retention to 2 million leased for public consumption I'm not sure how broadly the applied.

Is that something you have Ah considered as well just as a general matter or increasing the.

The retention is this the tend to do it and do you know have the capital base and profitability to do it.

Well, we we have a capital base that would allow us to increase retentions.

And the market it is good.

Right now the overwhelming part of our core DNS book, though.

You should know is only buying a million millions.

So it's a smaller part of the book, it's fine excess you know policy limits in excess of a million dollars. So for a large part of our book for many of our classes.

What that split the customers buying.

On a million and so you you know this goes back to the fact that our average premium.

Account sizes in that 20000 dollar level. So we got this is what we're doing is taking more market share in a very profitable market.

Let's see some forced going up.

The places, where we could take more retention would be.

An excess casualty.

For example, or excess property.

For example, we're we're pretty cautious about property as you know and we have taken occasionally and we look at taking.

Q2 2020 James River Group Holdings Ltd Earnings Call

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