Q4 2024 James River Group Holdings Ltd Earnings Call
James Swither: Hello and thanks for standing by. At this time, I would like to welcome you to the James River Group Q42024 Learning School.
James Swither: All lines in the place of view prevent any background noise. After the speakers remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star call by the number one on your telephone keypad. If you would like to withdraw your question, press star one again.
James Swither: I would now like to turn to conference over to Zachary Shytle, investor relations. Please go ahead.
Zachary Shytle: Good morning, everyone, and welcome to the James River Group 4th quarter, 2024 Earnings Conference Call. During the call, we may 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 different materially.
Zachary Shytle: or 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.
Zachary Shytle: of our most recent form, 10K 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.
Zachary Shytle: In addition, during this presentation, we may reference non-GAAP financial measures.
Zachary Shytle: Please refer to our earnings press release for a reconciliation of these numbers to get. A copy of which can be found on our website at www.jrvrgroup.com
Zachary Shytle: 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 re-entrance accounting for loss portfolio transfers.
Zachary Shytle: I will now turn the call over to Frank DOrazio, Chief Executive Officer of James River Group.
Frank DOrazio: Thank you for that introduction, Zach. Good morning everyone and welcome to our fourth quarter [inaudible]
Frank DOrazio: Pleased to be joining you today to provide additional color on our fourth quarter and full year 2024 results, but just as importantly to impart our thoughts on the direction and opportunities that lie ahead for the organization,
Frank DOrazio: For James River, 2024 was a costly year, but also a transformative step forward in our efforts to put our legacy issues behind the organization and position it to prosper and thrive as a top jury in S franchise.
Frank DOrazio: We successfully executed several transactions and initiatives that will enable us to focus on our insurance business.
Frank DOrazio: We completed two legacy re-insurance transactions and added a key strategic partner achieving our goal of validating our balance sheet and meaningfully walling off casualty reserves from 2010 through 2023.
improved outcomes, and a vastly refocus company.
Frank DOrazio: We believe we can continue to improve our organizational efficiency through actions like our planned re-domestication, continual improvements in our technology and processes, and our re-dedicated focus as an outstanding underwriting company.
[inaudible]
Frank DOrazio: Fortunately, favorable marking conditions have continued to provide robust tailwinds for our business, as new and renewal submissions have reached record highs for the last four years, including 2024, which marked the most submissions the company has ever received.
Frank DOrazio: In the fourth quarter, submission growth trends were led by meaningful increases in manufacturers and contractors and general casualty.
Frank DOrazio: Our team has demonstrated exceptional resilience and we have seen on wavering support from our wholesale distribution partners reinforcing our position as a top 25 E and S carrier.
Frank DOrazio: While our results this quarter were complicated by the transactions we announced in November , I'd like to pair back some key data points to frame our perspective in as business in particular.
Dr. Meredith, Mark Hughes, Sarah Doran,
Speaker Change: Our Accident Ear Combined Ratio for the EMS segment for 2024 was 91.8% Excluding the legacy structure purchases, our Accident Ear Combined Ratio would have been 89.3%
Speaker Change: Our 2024 ENS Accident Ear Loss Ratio of 64.3% is 2.4 points higher than the previous year reflecting a cautious and prudent approach.
Speaker Change: for 2025. Our loss picks assume a very slight rise in loss trend, most notable in our practice, casualty and general casualty line.
Speaker Change: That said, given the strength of the ENS rate environment, we expect the positive rate we are achieving on the overall portfolio, but more than offset that trend.
Speaker Change: As a reminder, we saw positive renewal rate change of 9 percent in 2024, which was virtually at the same level as 2023, reflecting strong market momentum, and a continued positive outlook for the EMS sector.
Dr. Meredith Carletti.
Speaker Change: For James River, the positive rate environment is even more impactful considering the significant underwriting changes we have implemented in several of our underwriting divisions like General Cassidy and Exist Cassidy over the last two to three years.
Speaker Change: which appeared to be driving materially lower reported loss ratios in prior years.
Speaker Change: We plan to be patient in recognizing these improvements in the performance of the portfolio.
Speaker Change: Turning to production, our billion-dollar E&S business grew by 2% for the fourth quarter, but was negatively impacted by continued vigilance and or access capacity unit.
Speaker Change: as we continue to take a conservative approach on accounts of significant auto exposure. Apps in X's casualty, our growth for the fourth quarter would have been 11.2% for the quarter, across the remaining 14 underwriting division.
for the full segment.
Speaker Change: December's monthly production saw one of the most significant year-over-year increases and we expect our growth rate to accelerate in 2025 as we move beyond the strategic review that concluded in November of 2024, especially as technology innovations and efficiency initiatives take hold.
Speaker Change: Finally, on reserves for the ENS segment, the year end increase in reserves for the quarter of $38.4 million prior to sessions for the LPT ADC.
and $8.9 million on a net basis.
Speaker Change: was driven by continued higher severity observed, especially in primary GC and higher frequency and manufacturers and contractors leading us to increase our estimates in these segments primarily focused on the period from 2019 for 2022.
Speaker Change: We are monitoring certain claim trends specific to our construction portfolio.
Speaker Change: where there was an influx of claims, particularly from Florida, which we believe may likely be attributable to the enactment of Senate Bill 360, which shortened Florida's statute of repose from 10 to 7 years. But in the process, may have created an artificial spike in claim reporting during the quarter.
Speaker Change: Regardless, we chose to respond to the activity prudently and conservatively in the quarter and will continue to monitor the development closely.
Perhaps most notably.
Speaker Change: Reported Frame, claims frequency is down 25% from 2022 in our habitational primary G.C. portfolio. A segment of the portfolio that has undergone significant underwriting and rate action since 2023.
Speaker Change: As of year on 2024, the EMS segment now has $116.2 million of reserve cover remaining after significantly increasing the reserve balance over the course of the past year.
Speaker Change: In essence, the charges for these legacy purchases were accounted for in 2024 and the remaining balance of coverage represents an additional 13.3% of protection over the subject E and S reserve
Dr. Prima, Dr. Prima, Dr. Prima,
Speaker Change: Having taken these actions, we believe our balance sheet is strong and better protected from adverse development on prior action years that it has been in the company's recent history.
Speaker Change: We also have the benefit of receiving additional outside data points in the fourth quarter to confirm our view.
Speaker Change: While we are cautiously optimistic about the profitability of the 2024 year, we will prudently monitor the law's emergence as that accident ear seasons before recognizing any favorable development.
Unknown Speaker
Speaker Change: 14.4% in 2024. As we carefully manage expenses in the face of declining premiums in the segment, resulting from our decision to exit our workers' comp business, also taking actions to reduce elements of our commercial auto program portfolio in 2024.
Speaker Change: We are thankful for the Strategic Partnerships formed over the course of the year. The continued support of our distribution partners and loyalty of our staff.
Speaker Change: Perhaps an understatement, but we are very excited about 2025 as we further distance ourselves from the strategic review and focus on delivering our financial goals and objectives for the year.
Speaker Change: appreciating both the significance and future implications of the reserve protections we have in place and the opportunities that lie ahead in the NS sector for vastly improved and re-engineered company to profitably succeed in favorable market condition.
Speaker Change: and with that I'm going to hand it over to Sarah for the commentary on our financial performance and guidance for the year ahead.
Sarah: Thanks very much, Frank. Good morning, everyone, and thanks for joining us today.
Sarah: I wanted to focus my comments on key dynamics that are driving our results for the quarter, as well as provide high level guidance for 2025.
Sarah: For the fourth quarter, we're reporting an adjusted that operating loss of $40.8 million or 99 test per share and a net loss from continuing operation available to common shareholders of $92.7 million or $2.25 test per share.
Sarah: The loss was largely attributed to the two items we announced in November .
Sarah: as well as a $27 million deemed dividend resulting from the amendment to the Series A preferred shares.
Sarah: As a reminder, we also sold 12.5 million of primary comments docked to NSTAR for $6.40 per share in late December .
Sarah: First, I'd like to peel apart our performance and view for the year ahead and then I'll come back to spend a minute on the Dean DOZ.
Sarah: Clearly, 2024, as Frank said, was a costly year for James River, and the two retroactive reinsurance structures we purchased significantly distort the run rate performance of the underlying E&S operations in particular.
Sarah: The $52.8 million payment for the top up at first development cover of this quarter reduced net written in urban premium, pressuring the loss and expense ratios.
Sarah: Absence the impact of the retroactive structures, ENS would have generated an 89.3% accident-ear combined ratio, a compelling result for a business experiencing very robust conditions.
with a strong following for its casually focused SME product.
Rather than 115.1% we reported for the calendar year.
Sarah: The group Accident Year Combined Ratio would have been 94.9% rather than the 117.6% calendar year Combined Ratio that we reported.
Sarah: As Frank pointed out, our 2024 E&S Accident Hear loss ratio of 64.3% is 2.4% high, 2.4% higher than the previous year. And this sustained increase reflects our cautious approach of loss cut dynamics going into 2025.
Sarah: Our retroactive coverage, which not only covers the overwhelming majority of the 2010 through 2023 reserves, but also incidentally provided a meaningful vetting of our current year-loss picks by best-in-class outsiders.
Provides us with significant comfort with our balance sheet.
Sarah: We also completed our year end with the benefit of multiple external reviews of our reserves, validating our current reserve position, following the significant actions taken in 2024 to strengthen ENF's reserve.
Sarah: Our 10K will be available later today showing meaningful strengthening across DNS for all accident years 2016 through 2022.
Sarah: We enter 2025 with $116.2 million of aggregate limit available to us in the future.
Sarah: which effectively means we prepaid for 116.2 million of future losses, potential future losses as that is. Attributed to the 2010 through 2023 ENF accident years.
[inaudible]
Dr. Prada.
Speaker Change: While I would be hesitant to look at any one of these metrics in isolation, the additional $116.2 million of available limit means that we could increase IV&R on the subject business by 20% and not exhaust our coverage.
Speaker Change: We're set another way. We could increase total subject reserves by 13% and not exhaust our coverage.
Speaker Change: For 2025, we expect to generate a mid-teen operating return on tangible common equity.
Despite the significant changes in under-aiding apathy.
Speaker Change: We continue to focus on changes we can we may during the year to manage our expenses and in particular our external casually reinsurance renewals which come up at mid-year.
Speaker Change: to reach a close-out operating performance for 2024. This quarter we earned net investment income of $22 million.
Speaker Change: Absent this one off benefit, our net investment income declined a bit impacted by a lower asset base as we funded the retroactive reinsurance transaction.
Speaker Change: Looking into 2025, we expect to continue to see attractive yields above that level, as we both continue to put cash up to work and grow our operating cash flow.
Speaker Change: and before I hit it over for questions, I wanted to come back and spend a minute on the theme dividend as it impacted our net law at our Cantual Complexity.
Speaker Change: As expected, we accounted for this as an extinguishment of the preferred and therefore re-value the security at a new term.
Speaker Change: As we did not bring additional proceeds on to the balance sheet, simply said, we accounted for a portion of the valuation increase as a deemed dividend.
If the term had not changed...
But, largely due to the revaluation.
[inaudible]
Speaker Change: Capital on our balance sheet on a total capital basis, including total shareholders equity and preferred resonate is unchanged.
as is the amount of tangible equity.
Speaker Change: But the impact of the deep dividend is effectively to reduce the amount of tangible common equity by about 60 cents a share and to reduce net income to common shareholders by the same amount.
Speaker Change: This is an accounting dynamic. It does not impact our underwriting capital.
Speaker Change: We continue to have more than ample capital to add profitable growth to our EMS business in particular, as well as very healthy operating and financial leverage ratios of 1.3 times in 26.6% respectively.
Speaker Change: https://www.youtube.com or the link in the description to watch more videos.
Speaker Change: But with that, I'll turn it back to the operator. Question.
Thank you.
Speaker Change: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, again, please press star one on your telephone deepest, raise your hand and join in the queue. If you would like to withdraw your question, please press star one again.
[inaudible]
Speaker Change: First question comes from the Light of Meyer Shields from KBW
Speaker Change: Hi, good morning, it's James from here. Thank you for taking my question.
Jane Vermeer: My first question is on the submission growth. You guys reported 9% submission growth. I'm just wondering like how is the trend looking in 2025? I use being any changes in the competitive dynamics in the market.
Dr. Martin Meredith, Dr. Martin Meredith, Dr. Martin
Speaker Change: Thanks for your question. So yes, we have seen an increase just relative to submissions.
I think overall.
Speaker Change: Competition in the ex-property market specifically. We saw very healthy growth and sports in entertainment.
Speaker Change: But when you exclude our, our exes-casuality division, our growth for the quarter would have been 11.2%. To your point, we reported submission growth to 9% for the quarter.
Speaker Change: Definitely not isolated to any single line. Allied health was up. Environmental submissions were up. General casual submissions up. So overall fairly healthy in terms of well-rounded opportunities for the under-running platform. If you look at Groke's premium for December .
Speaker Change: for the first full month following the conclusion of our strategic review we saw.
Speaker Change: Seven and a half percent growth compared to the prior year quarter. So I think with the conclusion of the strategic review and the reaffirmation of our rating we feel we can.
provide our distribution partners and insurance with more certainty.
Speaker Change: which should provide, you know, additional tail end into 2025. Just relative to overall competition. Again, we are seeing it specifically.
Speaker Change: in the property marketplace, maybe a little bit stronger relative to some of the larger accounts we run into. But overall, I don't know that it's been necessarily a change versus what we've experienced over the course of 24.
God, it makes sense. Thank you for that.
I have a follow-up on, I guess, the last fix.
Guests rate the last day.
to be more conservative. [inaudible]
Yeah, any any come out that will be great. Thank you you.
Sure, so I think if you're asking about lost friends in our view relative to 2025, which we have recently refreshed, I would say overall
Speaker Change: Our view is slightly higher across the portfolio, call it just under a point higher, primarily driven by increases in excess casualty and general casualty, but in the aggregate we're projecting lost trend to remain in that same high single digit range.
Speaker Change: Several of our underwriting divisions are in the mid single digit range and on the other end of the
Speaker Change: Now that's offset as you know by exposure trend and it certainly varies across our divisions, but for 2025, again rolled up it remains virtually unchanged in the low single digit range.
[inaudible]
Okay, Carl, thank you so much.
Dr. Paul
Speaker Change: Again, if you would like to ask a question, please press R1.
Administrator: Dr. Martin, Dr. Martin, Dr. Martin, Dr. Martin
There are no further questions at this time.
Frank DOrazio, I'll turn the call back to the team.
Speaker Change: So, clearly all items we had previously reported on, but critical because of the implications of that protection on future performance
Speaker Change: Leveraging all the good underwriting and performance monitoring improvements we've made over the last few years.
Speaker Change: For us, it's very much about 2025 and the future for James River more than anything else.
Speaker Change: Before we leave, I also want to acknowledge and thank Ali Sherman for his nine years of service to James River as both a non-executive director and most recently as chairman. Ali has chosen a retire from the board at the end of April and will certainly we will miss his leadership and guidance.
Speaker Change: We're also very fortunate to have elected Christine LaSalla as our new non-executive chairperson and personally I look forward to working closely with her to chart the future of James River.
Speaker Change: Alright, we look forward to speaking with you all again in just a few weeks to discuss our first quarter results and progress. Enjoy the rest of your day.
Speaker Change: Fish concludes those call. Thank you for joining. You may now disconnect.