Q1 2024 James River Group Holdings Ltd Earnings Call
Thank you for standing by my name is Benjamin and I'll be your conference operator today.
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's Q1 2024 earnings call. All lines have been placed on mute to prevent any background noise.
Benjamin: At this time I'd like to welcome everyone to James River Group Q1, 'twenty 'twenty four earnings call.
Benjamin: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would like to turn the call over to Brett Shirreff, Investor Relations. Please go ahead.
Benjamin: If you'd like to ask a question. During this time simply press star one on your telephone keypad.
Benjamin: If you'd like to withdraw your question Press Star one again.
Benjamin: Thank you I would like to turn the call over to Brett Sharaf 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.
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 statement.
Brett Shirreffs: May cause actual results to differ materially.
Brett Shirreffs: 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.
Brett Shirreffs: We do not undertake any duty to update any forward looking statements.
Frank N. DOrazio: 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 lost portfolio transfers. I will now turn the call over to Frank Dorazio, Chief Executive Officer of James River Group.
Brett Shirreffs: 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.
Brett Shirreffs: 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 Dot Jr. VR group Dot com.
Brett Shirreffs: 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.
Brett Shirreffs: I'll now turn the call over to Frank Dorazio, Chief Executive Officer of James River Group.
Brett Shirreffs: Yeah.
Frank N. DOrazio: 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 REITs.
Frank N. DOrazio: Thank you for that introduction, Brad good morning, everyone and welcome to our first quarter 2024 earnings call.
Frank N. DOrazio: I am 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.
Frank N. DOrazio: Future outlook for James River.
Frank N. DOrazio: 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 <unk>.
Frank N. DOrazio: 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.
Frank N. DOrazio: As we've discussed this was a critical strategic transaction for James River that we believe creates a more focused and profitable organization moving forward.
Frank N. DOrazio: We are pleased to have closed the transaction on the original terms of the stock purchase agreement.
Frank N. DOrazio: 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.
Frank N. DOrazio: Okay.
Frank N. DOrazio: 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.
Frank N. DOrazio: 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 <unk> created some downstream impacts with regard to the status and overall.
Frank N. DOrazio: 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 2025.
Frank N. DOrazio: Timing of the strategic process.
Frank N. DOrazio: Now turning to our results for the quarter we.
Frank N. DOrazio: We have started the year on a strong note reporting net income from continuing operations of <unk> 53 per share adjusted net operating income of 39 per share a combined ratio of 95, 3%.
Frank N. DOrazio: The 17, 4% adjusted operating return on tangible common equity, which is in line with the guidance we've provided for 2024.
Frank N. DOrazio: 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 SMA business.
Frank N. DOrazio: 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.
Frank N. DOrazio: Submission growth continued at a strong pace during the first quarter, increasing 9% with meaningful growth in both new and renewal submissions.
Frank N. DOrazio: This is an increase from the 6% submission growth of the first quarter of last year.
Frank N. DOrazio: In total we saw over 90000 submissions during the first quarter the largest quarterly total in our company's history I.
Frank N. DOrazio: I would highlight general casualty submission growth at 45% in the first quarter, while excess casualty submissions increased 8%, and allied health and environmental divisions saw submission growth of 6%. As I will discuss further momentarily, both our General Casualty and Nexus 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.
Frank N. DOrazio: I would highlight general casualty submission growth of 45% in the first quarter, while excess casualty submissions increased 8% and Allied health and environmental divisions saw submission growth of 6%.
Frank N. DOrazio: 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.
Frank N. DOrazio: Alongside strong submission growth pricing conditions remained broadly attractive in our core E&S business.
Frank N. DOrazio: And having both of these dynamics in sync enables us to be selective about the risks we put on our balance sheet.
Frank N. DOrazio: Our focus remains on delivering consistent earnings and returns for shareholders.
Frank N. DOrazio: 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 not to renew the account. As we have previously discussed, over the last few years, we have implemented additional processes 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. 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.
Frank N. DOrazio: 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 non renew the accounts.
Frank N. DOrazio: 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.
Frank N. DOrazio: And we believe actions like these will produce better margins over the long run.
Frank N. DOrazio: As previewed our E&S business continues to experience broadly favorable pricing conditions.
Frank N. DOrazio: <unk> rates for the quarter were up 10, 7% across the segment and have accelerated to be meaningfully higher in the first quarter of last year as well as higher than the full year 2023, with the majority of our underwriting divisions reporting pricing increases in the high single or low double digit range.
Frank N. DOrazio: We saw particular strength in some of our larger underlying divisions, with rates in excess casualty up more than 20%, general casualty in energy divisions up nearly 9%, and excess property rates increasing 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 flow of new opportunities and premium growth, have been more profitable for us.
Frank N. DOrazio: We saw particular strength in some of our larger underlying divisions with rates in excess casualty up more than 20%.
Frank N. DOrazio: General casualty and energy divisions up nearly 9% in excess property rates increased 16%.
Frank N. DOrazio: And our view right 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.
Frank N. DOrazio: We have long maintained that smaller accounts, where we have a steady submission flow of new opportunities in premium growth had been more profitable for us.
Frank N. DOrazio: This quarter, we made the active decision not to 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.
Frank N. DOrazio: 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.
Frank N. DOrazio: Other competitors in the market, we're offering more aggressive pricing and 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.
Frank N. DOrazio: These actions had a direct impact on the decline in E&S gross written premiums of six 6% during the first quarter.
Frank N. DOrazio: 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 and entertainment.
Frank N. DOrazio: Offsetting the large account non-renewals and 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 and entertainment. We believe our strong submission flow demonstrates the meaningful opportunities that our underwriters take advantage of each day. And while it's clearly still very early in the second quarter, in April, we saw strong premium growth over the prior year and an increasingly attractive rate environment, with the segment now showing premium growth over the prior year through the first four months.
Frank N. DOrazio: We believe our strong submission flow demonstrates a meaningful opportunity set our underwriters take advantage up each day.
Frank N. DOrazio: 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.
Frank N. DOrazio: The E&S segment combined ratio was strong at 87.3%, producing $18.5 million of underwriting. 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.
Frank N. DOrazio: The E&S segment combined ratio was strong at 87, 3% producing $18 $5 million of underwriting income.
Frank N. DOrazio: Excellent year loss ratio was 64, 3% for the first quarter, which was an improvement of 140 basis points from the prior year.
Frank N. DOrazio: Reserve development for the E&S segment was de Minimis during the quarter and we did not have any reported losses related to catastrophes for the Baltimore Bridge tragedy.
Frank N. DOrazio: Turning to specialty admitted.
Frank N. DOrazio: 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.
Frank N. DOrazio: Gross written premiums in our fronting and program business increased 23% compared to the prior year quarter, excluding the impact of workers' compensation.
Frank N. DOrazio: Many of our existing programs showed substantial growth and continued to benefit from the positive renewal rate changes available in the market.
Frank N. DOrazio: The segment produced a combined ratio of 97% and an underwriting profit of $800000 for the first quarter.
Frank N. DOrazio: We are pleased with this performance in the segments continued execution of our objectives to start the year.
Frank N. DOrazio: 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.
Frank N. DOrazio: Overall, the E&S market continues to be characterized by strong rate increases, an excess of expected loss trends, 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 hardworking 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.
Frank N. DOrazio: 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.
Frank N. DOrazio: Before I turn the call over to Sarah.
Sarah: I do want to take a moment to acknowledge and commend the hardworking and resilient employee base of our company who continue.
Sarah: Progress against our stated goal of making James River, an even better company in the markets we serve.
Frank N. DOrazio: 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.
Sarah: Our overall voluntary employee turnover for the first quarter was three percentage points better than the same period in 2022 and exactly the same as our group turnover rate for the first quarter of 2023.
Sarah: 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.
Frank N. DOrazio: And with that I'll ask Sarah to provide some additional color on the quarter.
Sarah: Thank you very much Frank good morning, everyone and thanks for joining us today.
Sarah Casey Doran: Thank you very much, Frank. Good morning, everyone, and thanks for joining us today.
Sarah Casey Doran: 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 per share, as compared to $14.97 million, or $0.40 per diluted share, for the same period a year ago.
Sarah: As you've seen we started out 2024 on a strong note with net income available to common shareholders of $29 million.
Sarah: <unk> 53 per diluted share compared to $5 $3 million or 14 cents per diluted share for the same period a year ago.
Sarah: On an adjusted net operating basis, we're reporting $14 $8 million or <unk> 39, tenths of income per share as compared to $14 $97 million.
Sarah: Or <unk> 40 per diluted share for the same period a year ago.
Sarah Casey Doran: 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.
Sarah: Turning to our underwriting results the first quarter combined ratio of 95, 3% compares to 94% a year ago.
Sarah: Our loss ratio improved slightly to.
Sarah: 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.
Sarah: At 28, 9% our expense ratio ticked up slightly from 27, 3% a year ago.
Sarah Casey Doran: 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 a 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.
Sarah: 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.
Sarah: This has had the impact of pushing our net to gross retention to 55% this quarter.
Sarah: From 64% in the prior year period, but consistent with the second half of last year.
Sarah Casey Doran: 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 lines. 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.
Sarah: We've also continued to make investments in people and technology.
Sarah: 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.
Sarah: 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.
Sarah Casey Doran: 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 or 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. With that, I'll turn the call back to the operator to open the line for questions.
Sarah: Our embedded book yield was four 6% compared to three 9% at this time last year.
Sarah: We've been holding a fair amount of our portfolio and our short term our cash strategies, which are returning in excess of 5% as we worked through the close of our M&A transaction.
Sarah Casey Doran: <unk> 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.
Sarah: 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.
Sarah Casey Doran: Overall, our portfolio remains well positioned to take advantage of the strong market dynamics and attractive yields.
Speaker Change: And with that I will turn the call back to the operator to open the line for questions.
Speaker Change: Thank you we will now begin the question and answer session.
Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening through a loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. And their first question comes from the line of Casey Alexander with Compass Point. Please go ahead.
Casey Jay Alexander: <unk> land or if you have dialed in and we'd like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue.
Casey Jay Alexander: If you'd like to withdraw your question simply press Star one again.
Casey Jay Alexander: If you are called upon to ask your question and they're listening they're loud speaker UE device. Please pickup your handset and ensure that your phone is not immediate when asking your question.
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Operator: And your first question comes from the line of Casey Alexander.
Casey Jay Alexander: <unk> with Compass point.
Casey Jay Alexander: Please go ahead.
Casey Jay Alexander: Hi, good morning.
Casey Jay Alexander: Hi, good morning, and congratulations on the speedy resolution of the casualty resale, and it's great to see no additional adverse developments in E&S. I appreciate the discipline in the non-renewals of the larger accounts. I'd like to dig into it a little bit more, Frank. Are you developing a strategy of working towards smaller policies, lower limits, and trying to get away from types of issues that could lead to larger claims and potentially nuclear verdicts?
Casey Jay Alexander: Grant's on the speedy resolution of the casualty re sale.
Casey Jay Alexander: And it's great to see.
Casey Jay Alexander: No additional adverse development in E&S it's.
Casey Jay Alexander: Really great to see I appreciate the discipline in the non renewals of the larger accounts I'd like to dig into it a little bit more Frank is.
Casey Jay Alexander: Are you developing a strategy of working towards smaller policies lower limits and trying to get away from.
Casey Jay Alexander: Types of issues that could lead to.
Casey Jay Alexander: Larger claims and potentially nuclear verdicts.
Frank: Yes, Casey thanks for the question.
Frank N. DOrazio: Yeah, Casey, thanks for the question. Good morning.
Speaker Change: Good morning, and let.
Frank N. DOrazio: And let me first kind of speak about the underwriting action that we took because I think it'll provide some additional context on what we're trying to accomplish here and answer your questions. So, as we've spoken about it in the past, portfolio management is an ongoing process for us, and at times it's not. It's caused our writing to decrease in specific quarters, and this is exactly what you're seeing in our results for the first quarter.
Frank: Let me, let me first speak about the underwriting actions that we took because I think it will it'll provide some additional context on what we're trying to accomplish here in answer to your question. So.
Frank N. DOrazio: As we've spoken about it in the past portfolio management is an ongoing process for us and at times it.
Frank N. DOrazio: It's cause our writings to decrease in specific quarters and this is exactly what youre seeing in our results for the first quarter, we took specific underwriting actions to preserve rate and maintain underwriting profitability.
Frank N. DOrazio: We took specific underwriting actions to preserve rates and maintain underwriting profitability in a very specific area of the portfolio. As a result, we nominated several large accounts that didn't meet our profitability hurdles. And these were primarily excess casualty accounts with a heavy commercial auto. So in some instances, we may not have agreed with the proposed underlying attachment, or a specific account could have had. [inaudible] on our 2024 loss trend assumptions associated with excess commercial auto, and it's in the high teens. I believe it's our highest view of loss trend of any line we currently write.
Frank N. DOrazio: In a very specific area of the portfolio. So as a result, we non renewed several large accounts that didnt meet our profitability hurdles and these were primarily excess casualty accounts with a heavy commercial auto components. So in some instances we may not have agreed with the proposed underlying attachment or specific account could.
Frank N. DOrazio: Have had significant loss emergence, but really in all instances, we just have a very specific view on our 2020 for loss trend assumptions associated with excess commercial auto and it's it's in the high teens I believe its our highest view of loss trend of any line, we currently right and so.
Frank N. DOrazio: In essence, we held our ground on pricing and we saw it impact several of our larger accounts that included a $5 million account of $2 million kind of number of of larger accounts.
Frank N. DOrazio: We held our ground on pricing, and we saw it impact several of our larger accounts, including a $5 million account, a $2 million account, a number of larger accounts in our Excess Casualty Division alone. And so you'll notice, I mean, we have over 32,000 policies in force, but we only have a few dozen accounts that are greater than a million dollars. So if you don't renew a few of these for underwriting reasons, you have to write a lot of $24,000 accounts to replace them, or you'll see the impact pretty directly in the quarter. So we're comfortable we made the right decision in prioritizing profitability over production.
Frank N. DOrazio: In our excess casualty division alone and so youll notice I mean, we have over 32000 policies in force, but we only have a few dozen accounts that are greater than $1 million. So if you non renew a few of these for underwriting reasons you have to write a lot of 24000 dollar accounts replace them Youll see the impact.
Frank N. DOrazio: Pretty directly in the quarter. So we're comfortable we've made the right decision and prioritizing profitability over production and we have found I think to your point that smaller accounts have just been more profitable for us over time.
Frank N. DOrazio: And we have found, I think to your point, that smaller accounts have just been more profitable for us over time for a number of reasons. And so we made those underwriting calls and have moved on, certainly to the next quarter. In terms of the impact going forward and how to think about how it will impact us in future quarters, we actually started taking a hard look at large commercial vehicles across our E&S segment in the middle of last year, and so much of this review has already been done. By and large, we had this quarter and maybe the second quarter to complete. And I want to be clear on this. Not every outcome is binary.
Frank N. DOrazio: For a number of reasons and so we made those underwriting calls and have moved on certainly to the next quarter.
Frank N. DOrazio: But.
Frank N. DOrazio: In terms of.
Frank N. DOrazio: The impact kind of going forward and how to think about how it will impact us in future quarters. We actually started taking a hard look at large commercial auto across our E&S segment in the middle of last year and so much of this review has already been done.
Frank N. DOrazio: By and large we had this quarter and maybe the second quarter to complete.
Frank N. DOrazio: We aren't automatically non-renewing these accounts by any means. We underwrite, we loss rate them, we get input from our actuaries and our C.U.O., and in some instances, we get the terms and pricing that we need.
Frank N. DOrazio: And I don't want to be clear on this not every outcome is binary we arent automatically non renewing these accounts by any means we underwrite we loss rate down we get input from our actuaries and our CEO and in some instances, we get the terms and pricing that we need in other instances, we may choose to cut back or limit our raise our attachment.
Frank N. DOrazio: In other instances, we may choose to cut back our limit or raise our attachment or explore additional reinsurance. So, in discussing this issue that we're talking about now with our E&S segment president, there was a higher concentration of larger dollar, heavy auto-driven excess casualty accounts in the quarter. But we don't have much more than maybe another quarter of these accounts to review with this same lens, and he had identified a handful of excess casualty accounts that were seven-figure premium items, heavy auto components that we're going to take a hard look at.
Frank N. DOrazio: Explore additional reinsurance so in discussing this issue that we're talking about now with our E&S segment President.
Frank N. DOrazio: There was a higher concentration of larger dollar heavy auto driven excess casualty accounts in the quarter, but we don't have.
Frank N. DOrazio: Much more than maybe another quarter of these accounts review with this same lens and <unk> identified a handful of excess casualty accounts that were seven figure premium items heavy auto component that we're going to take a hard look at some of them. We may have already looked at last year quite frankly, but irrespective. We don't expect the same concentration that we have.
Frank N. DOrazio: Some of them we may have already looked at last year, quite frankly. But irrespective, we don't expect the same concentration that we just experienced in January and March. So, a long way of kind of explaining the underwriting actions that we took in the quarter, kind of where they were focused. But yeah, I think it still spells out, you know, our real comfort with the S in SME because it makes up the vast majority of the portfolio.
Frank N. DOrazio: <unk> experienced in January and March so long way of kind of explaining.
Frank N. DOrazio: Underwriting actions that we took in the quarter kind of where it was focus but yes, I think it's still spells out.
Frank N. DOrazio: Our real comfort with the S. In SMA because it makes up the vast majority of the portfolio.
Frank N. DOrazio: Okay.
Casey Jay Alexander: That's a great caller. My second question is, you had a great, excellent combined ratio in excess and surplus, but especially admitted, it's still 97. It's profitable, but I think, how do you drive better margin through specialty admitted? I think people are not unhappy to see workers comp exposure go, and also how do you get fee income from specialty admitted running at a growth rate as opposed to just side costs.
Speaker Change: Well, that's great color Mike.
Casey Jay Alexander: My second question is you.
Casey Jay Alexander: You had great excellent combined ratio in excess and surplus but in specialty admitted is still 97, it's profitable, but it's but I think how do you drive better margins through specialty admitted.
Speaker Change: I think.
Casey Jay Alexander: People are not unhappy to see workers' comp exposure go and also how do you get fee income from specialty admitted running at a at a growth rate as opposed to just sideways.
Speaker Change: Yeah, so listen I think that.
Frank N. DOrazio: Yeah, so listen, I think that some of the metrics and the numbers coming out, especially admitted, are gonna be a little bit noisy right now because of the actions that we took over the last couple of quarters in terms of the non-renewal of the California Workers Comp Program and then the sale of individual risk comp units, the renewal rights transaction that certainly impacted the top line, especially admitted through 2024. But in essence, what we've done is refocused the segment to make it a pure fronting and programs business.
Frank N. DOrazio: Some of the metrics and the numbers coming out, especially admitted are going to be a little bit noisy right now because of the actions that we took over the last couple of quarters in terms of the.
Frank N. DOrazio: The non renewal of the California workers comp program and then the sale of the individual risks comp unit the renewal rights transaction that.
Frank N. DOrazio: Certainly impact of tablet the topline in specialty admitted through 2024, but in essence, what we've done is we've refocused the segment to make it a pure fronting and program business.
Frank N. DOrazio: And it has been historically profitable for us; we expect to continue to generate attractive returns going forward. We need to continue to scale it now that we're solely focused. So we saw great growth of 23% in the first quarter. Again, that's XCOM.
Frank N. DOrazio: And it has been historically profitable for us we expect to continue to generate attractive returns going forward, we need to continue to scale. It now that we're solely focused so we saw great growth 23%.
Frank N. DOrazio: In the first quarter again, Thats ex comp, we continue to experience solid growth from our existing programs.
Frank N. DOrazio: We continue to experience solid growth from our existing programs, and they have gained scale and benefit from the positive rating environment, but I think the answer to your question is continuing to get additional scale in the space, particularly in this kind of awkward period where we've just made some pretty strategic moves relative to what makes up specialty admitted. So the good news is that we do have a pipeline; we have some large programs that we're looking at right now. They're in various stages of development. So we'll continue to diligence them, work with the reinsurance market, and hopefully, have more to speak about relative to new production there in future quarters.
Frank N. DOrazio: <unk> gained scale and benefit from the positive rating environment, but I think the answer to your question is continuing to get additional scale in the space, particularly in this kind of awkward period, where we've just made some pretty strategic moves relative to what makes up our specialty admitted so.
Frank N. DOrazio: The good news areas, we do have a.
Frank N. DOrazio: Pipeline, we have some large programs that we're looking at right now they are in various stages of diligence.
Frank N. DOrazio: So.
Frank N. DOrazio: We will continue to diligence and work with the reinsurance market.
Frank N. DOrazio: Hopefully have more to kind of speak about relative to new production there in future quarters.
Speaker Change: Alright, Thank you and my last question and then I'll step out is is could you just kind of review where the remaining a state of James River sits with the rating agencies.
Casey Jay Alexander: My last question, and then I'll step out, is, could you just kind of review where the remaining estate of James River sits with the rating agency?
Casey Jay Alexander: Okay.
Frank N. DOrazio: I'm not sure exactly what you mean by the remaining; do you mean the company as it sits now? Casey, I'm happy to take that question. Yes, the company as it sits now with casualty relief finally out of the way, and you know, where do you sit and what are your conversations? Sure, no; I appreciate that.
Speaker Change: I'm not sure exactly what you mean by the remaining asset do you mean by.
Speaker Change: Our company as it sits now Casey I'm happy to take the company as it sits at the company as it sits now with casualty re finally out of the way in.
Speaker Change: Where do you sit in and what are your what are your conversations with rating agencies sure no I appreciate that so we have in our regular quarterly conversations with the rating agency. So we've done that by now it's just typically part of our quarterly process and.
Frank N. DOrazio: So we have, you know, regular quarterly conversations with the rating agencies. So we've done that by now; it's just typically part of our quarterly process. And we do that at a minimum. And I would say it's a very healthy dynamic. And, you know, they're, they're, well apprised of kind of where we sit both on a capital and going forward and certainly current performance perspective. And we feel very good about that dialogue. That's probably how I'd leave it, if that makes sense.
Frank N. DOrazio: And we do that at a minimum and I would say, it's a very healthy dynamic.
Frank N. DOrazio: There they are well apprised of kind of where we set both on a capital and go forward and certainly current performance perspective, and we feel very good about that dialogue.
Speaker Change: That's probably how I'd leave it that makes sense. Okay. Alright. Thank you for taking my questions and appreciate the underwriting discipline that youre showing on those accounts.
Casey Jay Alexander: Thank you for taking my questions, and I appreciate the underwriting discipline that you are showing on those accounts. Thank you, Casey; have a good day.
Speaker Change: Thank you chase have a good day.
Casey Jay Alexander: Your next question comes from the line of Mark Hughes with <unk> Securities. Please go ahead.
Mark Douglas Hughes: Your next question comes from the line of Mark Hughes with Truist Securities. Please go ahead.
Mark Douglas Hughes: Okay. Thank you and good morning.
Frank N. DOrazio: Yeah, thank you. Good morning. Frankly, kind of the few remaining larger accounts that you're taking a closer look at, is that, if that appears, a 2Q issue or is that going to be spread through the year?
Mark Douglas Hughes: Good morning.
Frank N. DOrazio: The few remaining larger.
Frank N. DOrazio: Accounts that you are taking a closer look at.
Frank N. DOrazio: Well, yeah, we started the process in the middle of last year, so there may be a quarter of these accounts that maybe have not kind of gone through the same level of scrutiny, but accounts that we started the process with last year will be up for renewal again. But I think the answer to your question is there's maybe one more quarter of reviewing these accounts. But the point I maybe I need to kind of reemphasize is that it's not necessarily a binary outcome.
Frank N. DOrazio: We had some binary outcomes this quarter where we actually just non-renewed the business, but there are other outcomes like cutting back the limit, raising the attachment point, and buying additional reinsurance where you still retain the account. We just had a concentration of non-renewals.
Frank N. DOrazio: Right, and it sounds like April is pretty strong, so the quarter is starting off with good momentum. Let me just touch on that for a second because it's not the first time, certainly since I've been with James River, that we've taken portfolio management actions that have impacted the top line. I think the most recent quarter where we had a similar dynamic was in the third quarter of 2022, and ENS segment premiums declined.
Frank N. DOrazio: It was pretty strong.
Frank N. DOrazio: Yes.
Frank N. DOrazio: So the quarter starting off with the good momentum.
Speaker Change: Yeah, Let me, let me just touch on that for a second I mean.
Frank N. DOrazio: I believe it was 6%, so directly related to underwriting actions impacting a few divisions. But we reported healthy growth for the full year in 2022 and then again in 2023. And as I said in the prepared comments, we continue to see a robust set of new and renewal business opportunities, so submission activity is up 9%. We saw 8,000 more submissions in the prior year quarter, so we're continuing to receive, This is very encouraging and speaks well to the opportunities for the year.
Frank N. DOrazio: Yeah, on that point, did I hear you properly? I think you said general general casualty submissions were up. Is it 45%? That's right. Did you kind of increase your appetite? Did you let distribution know that you were... interested in a wider range of business, or is that just the organic, that's what's coming out of the, or that's the opportunity set these days?
Frank N. DOrazio: General casualty submissions were up.
Frank N. DOrazio: Is it 45%.
Frank N. DOrazio: That's right.
Frank N. DOrazio: Did you kind of increase your appetite could you let distribution know that you are.
Frank N. DOrazio:
Frank N. DOrazio: Interested in a wider range of of business or is that just the organic.
Frank N. DOrazio: What's coming out of the.
Frank N. DOrazio: That's the opportunity set these days.
Frank N. DOrazio: No, I think it's probably more the latter just in terms of... I think the combination of real concerns around social inflation with the reality of the overhang from the last years of the soft market are still playing out reserve balances, as well as a tighter re-insurance market environment for casualty-related risks. So I would say it's not only keeping opportunities, maybe with the exception of like D&O, so third party opportunities.
Frank N. DOrazio: No I think it's probably more of the latter just in terms of.
Frank N. DOrazio: Broader market dynamics, I think the combination of real concerns around social inflation with.
Frank N. DOrazio: The reality of the overhang from the last years of soft market are still playing out reserve balances.
Frank N. DOrazio: Well as well as tighter reinsurance market environment for.
Frank N. DOrazio: Casualty related risks.
Frank N. DOrazio: I would say, it's not only keeping.
Frank N. DOrazio: Opportunities, maybe with the exception of like D&O, So third party opportunities.
Frank N. DOrazio: <unk>.
Frank N. DOrazio: In the E&S market, we're just benefiting from seeing more growth in the submission opportunities. So you're not seeing the admitted market tempted to come back in. We're seeing more kind of come into the..., the E&S sector.
Frank N. DOrazio: In the E&S market. We're just we're benefiting from seeing more growth in the submission opportunities. So youre not seeing the admitted market tempted to come back in we're seeing more kind of come into the.
Frank N. DOrazio: Into the E&S sector.
Frank N. DOrazio: Okay and then the.
Frank N. DOrazio: Okay, and then the Current accident year loss ratio in ENFs was down year over year. Would you say that was a mix? Was that better pricing? How would you characterize that?
Frank N. DOrazio: Current accident year loss ratio in E&S.
Frank N. DOrazio: Down year over year.
Frank N. DOrazio: Would you say that was the mix was that better pricing.
Frank N. DOrazio: How would you characterize that.
Speaker Change: Yeah. So.
Frank N. DOrazio: Yeah, so, um... The year-over-year for the quarter you're talking about is primarily a mix issue, right? So we talked about the growth in general casualty, which has a higher loss ratio, and then some movement in excess, excuse me, in excess casualty as well. And, of course, a refreshed view of both expected losses as well as trend assumptions that are baked into the plan for 2014.
Frank N. DOrazio: The year over year for the quarter Youre talking about is.
Frank N. DOrazio: 140 basis points.
Frank N. DOrazio: Primarily a mix issue right. So we talked about the growth in general casualty, which has a higher loss ratio and then.
Frank N. DOrazio: Some movement in excess excuse me in excess casualty as well.
Frank N. DOrazio: And of course, a refreshed view of <unk>.
Frank N. DOrazio: Both expected loss as well as trend assumptions.
Frank N. DOrazio: Baked into the plan for 'twenty four.
Speaker Change: Thank you for that I appreciate it.
Mark Douglas Hughes: Thank you for that. I appreciate it.
Mark Douglas Hughes: Again, if he would like to ask a question press star one on your telephone keypad and your next question comes from the line of Meyer Shields with <unk>. Please go ahead.
Operator: Again, if you would like to ask a question, press star 1 on your telephone keypad. And your next question comes from the line of Meyer Shields with KVW. Please go ahead.
Meyer Shields: Thank you so much. I apologize. I missed some of the earlier comments, but Sarah, when you said that there was higher compensation in the first quarter, is that something new? Because we don't see a higher expense ratio in the past couple of years in the first quarter.
Meyer Shields: Great. Thank you so much I apologize I missed some of the earlier comments, but.
Meyer Shields: Sara when you said that there is higher compensation.
Meyer Shields: In the first quarter is that something new because we don't see a higher expense ratio in the past couple of years in the first quarter.
Sarah Casey Doran: Yeah, that's a good question, Mayor. We redid ours, you may remember, about a year and a half plus ago. The company adopted a compensation plan that had a number of changes, and specifically, it had directed targets as to how compensation would be earned in the short-term plan versus a high degree of variability and a lack of targets. And I think that was designed to better align us with investors and certainly the market. as it stands now.
Meyer Shields: Yeah. That's a good question there we redid our.
Sarah Casey Doran: You may remember about a year and a half plus ago.
Sarah Casey Doran: The company adopted.
Sarah Casey Doran: A compensation plan that had a number of changes and specifically it had directed targets as to how compensation would be earned in the short term plan versus a high degree of variability and the lack of target and I think that was designed to better align us with investors and certainly.
Sarah Casey Doran: So we made that change with regard to our STI. At the same time, we made a change to institute a retirement function where, you know, it's based on age and years of service. And we have a number of folks who, theoretically, are eligible for that. So that changes the way that the LTI is an expense through the year, basically more of its expense in the first quarter rather than ratably for those eligible. So that's what's causing that dynamic, and that is a more recent phenomenon.
Sarah Casey Doran: The market as it stands so we made that change with regard to our STI at the same time, we made a change to institute.
Sarah Casey Doran: Retirement function, where it's based on age and years of service and we have a number of folks who theoretically you're eligible for that so that changes the way that the LTI is is expensed through out through the year basically more of its expansion in the first quarter rather than ratably for those eligible so that's what's causing that dynamic.
Sarah Casey Doran: And that is a more recent phenomenon.
Speaker Change: Okay perfect that's very helpful.
Meyer Shields: Okay, perfect. That's very helpful. The press release also talks about higher professional fees. Is that something that we should expect to continue over the course of the year?
Meyer Shields: We've also talked about higher professional fees, but thats something that we should expect to continue over the course of the year.
Sarah Casey Doran: Yeah, another great question. That's going to be a little bit lumpy. Some of that is obviously related to, you know, a little bit of what we experienced in the first quarter with regard to, you know, some of the back and forth and the close of JRG REIT. So I would expect that to come down. Just to spend a moment on that, if you look at where that's flowing through in our RP&L, in the corporate and other operating expenses, and you see that this quarter being about $11 million as compared to $9.3 million in the first quarter of last year, I would expect, and that number is encompassing both the equity comp for the whole company as well as all those professional fees, etc.
Speaker Change: Yeah. Another great question, that's going to be a little bit lumpy. Some of that is obviously related to.
Sarah Casey Doran: Little bit of what we experienced in the first in the first quarter with regard to.
Sarah Casey Doran: Some of the back and forth in the close of <unk>.
Sarah Casey Doran: So I would expect for that to come down to just spend a moment on that if you look at where that is flowing through in our P&L is in the corporate and other operating expenses and you see that this quarter at being about $11 million as compared to $9 $3 million in the first quarter of last year I would expect and that number is encompassing both.
Sarah Casey Doran: Both the equity comp for the whole company as well as all of those professional fees et cetera.
Sarah Casey Doran: So that number is a little bit elevated. I think it's more than elevated. It's 20% elevated over the same first quarter of last year, i.e., the 11.1 versus the 9.3. And I would expect for the rest of this year, Mayor, that number to be down closer to where it was in the first quarter of last year.
Sarah Casey Doran: So that number is a little bit elevated I think it's more of an elevated 20% elevated over the last first the same quarter of last year.
Sarah Casey Doran: Hi E. The 11, one versus the nine three and I would expect for the rest of this year mirror that number to be down closer to where it was in the first quarter of last year.
Speaker Change: Okay perfect.
Meyer Shields: Okay, perfect. And then one last question. And I don't know if this is answerable at this point in time, but I'm guessing there's a little bit of discontinued operations in the second quarter for the period before the casualty deal closes. Is there any way of quantifying that yet?
Meyer Shields: Then one last question and I don't know if this is an answerable at this point in time, but.
Meyer Shields: I'm guessing, there's a little bit of discontinued operations in the second quarter.
Meyer Shields: For the period before the.
Meyer Shields: Casualty re deal closed is there any you quantified that yet.
Sarah Casey Doran: Not yet because that would not be public, but I would imagine that to be pretty small for the 16 days that we own the business. Okay, perfect. Thanks so much.
Speaker Change: Not yet because that that would not be public, but I would imagine that to be pretty small for the 16 days that we owned the business mirror.
Sarah Casey Doran: Okay perfect. Thanks, so much.
Sarah Casey Doran: Sure.
Sarah Casey Doran: Yeah.
Sarah Casey Doran: Okay.
Sarah Casey Doran: That concludes our Q&A session I will now turn the conference back over to Frank <unk> for closing remarks.
Operator: That concludes our Q&A session. I will now turn the conference back over to Frank Nerazio for closing remarks.
Frank N. DOrazio: Thank you Benjamin before we end today's call I want to acknowledge and thank Patricia Roberts, who has been a director of the board of James River since 2019, serving on multiple committees and sharing our compensation committee for the last few years the.
Frank N. DOrazio: Thank you, Benjamin. Before we end today's call, I want to acknowledge and thank Patricia Roberts, who's been a director of the Board of James River since 2019, serving on multiple committees and chairing our compensation committee for the last few years. The company has benefited greatly from her leadership and knowledge of the E&S sector, and while we will miss her insight and wisdom, we certainly wish her all the best in her upcoming retirement.
Frank N. DOrazio: The company has benefited greatly from her leadership and knowledge of the E&S sector and while we will miss her insight and wisdom, we certainly wish you all the best in our upcoming retirement.
Speaker Change: Okay I want to thank everyone for their time today and for the questions. We received this morning, we look forward to speaking with you all again in a few months to discuss our second quarter results.
Frank N. DOrazio: Okay, I want to thank everyone for their time today and for the questions we received this morning. We look forward to speaking with you all again in a few months to discuss our second quarter results. Thank you, and enjoy the rest of your day.
Frank N. DOrazio: Thank you and enjoy the rest of your day.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now disconnect.
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