Q1 2025 James River Group Holdings Ltd Earnings Call
Good morning and welcome to the James River Group Quarter 1 2025 earnings call. I am friends and I'll be the operator assisting you today. All lines have been placed on mute to prevent any background noise.
After the speakers are marked, there will be a question and answer session. If you would like to ask a question at the time, simply press all one on your telephone keypad. If you would like to withdraw your press star one again. Thank you.
Speaker Change: I would now like to turn the call over to Zachary Shytle with investor relations. Please go ahead.
Zachary Shytle: Good morning, everyone, and welcome to the James River Group first quarter 2025 earnings conference call.
Speaker Change: 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 entities which may cause actual results to different materially.
Speaker Change: 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, 10K, and other reports and filings we have made with the Securities and Exchange
Speaker Change: We do not undertake any duty to update any forward-looking statements.
Speaker Change: Lastly, unless otherwise specified for the reasons described in our earnings press release, all underwriting performance ratios referred to are for continuing operations in business that is not subject to retroactive reintegrates accounting for lost portfolio transfers.
Speaker Change: 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 first quarter
Frank DOrazio: This morning on the game in the discussion with some high level commentary regarding James River and then provide more specific details on the quarter before Sarah provides in prepared comments.
Frank DOrazio: For Q1, we are pleased to report a profitable and more stable quarter. We entered 2025 focused on long-term stability and profitability driven by focus on our ENS business. We believe we are taking a first step toward meeting those objectives. [inaudible]
Frank DOrazio: While overarching global headlines are increasingly focused on market volatility, fears of recession and uncertainty around economic policy, our approach continues to focus on core competencies and risk mitigation across both our insurance segments as well as the investment portfolio.
Frank DOrazio: Relative to the new administration's emerging terror policy we believe we may be fortuitously positioned are relative basis given our deliberate and sole focus on U.S. based SME insurance, as well as our more limited exposure to property and auto. Underlying businesses that along with construction commonly rely on imported materials and goods.
Frank DOrazio: That said, we will continue to monitor the new administration policy changes as well as any potential that will observe impact on our business.
Frank DOrazio: Before we delve further into the court's performance, I'd like to address a few very positive developments for James River.
Frank DOrazio: First off in late April , the company successfully concluded the post-closed purchase price adjustment process for a former commuter reinsurance segment that was sold last April in accordance with the stock purchase agreement between the parties.
Frank DOrazio: While James River had previously disclosed the quantum of that dispute between the parties amounted to a $54 million downward price adjustment claimed by the purchaser, the final and
Frank DOrazio: We are pleased the purchase price adjustment process has concluded as we believe it is a very significant step towards closing the chapter on the sale of JRG rate.
Frank DOrazio: Secondly, the company experienced a minimus overall prior to reserve activity during the first quarter across both segments.
Frank DOrazio: As a result, we did not utilize any additional retroactive legacy capacity of this quarter.
Frank DOrazio: and so the balance of unused coverage remains at $116 million.
Frank DOrazio: We move forward into the remainder of 2025 with what has effectively prepaid legacy coverage.
Frank DOrazio: And finally, last night, we announced the independent retirement of our long standing unit as segment leader Richard Schmitzer will step down from his position at the end of July and be succeeded by Todd Sutherland, who joined James River in 2023, with over 30 years of underwriting and large T&L management experience.
Speaker Change: I've known Todd for over 20 years. I'm confident that he will do a fantastic job leading our A&S business forward as we strive to continue to improve our profitability, efficiency and product diversification, while becoming more meaningful to our distribution partners.
Speaker Change: So with that, turning to the court's performance, 2025 was off to a solid start as we were reporting 18 cents per share of net income from continuing operations and adjusted net operating income of 19 cents per share for the first quarter.
Speaker Change: We generated an 11.5% adjusted net operating return on tangible common equity driven by E&S and investment portfolio returns and brutangible common book value per share by 6.6% to $7.11.
Speaker Change: Folks in our UNS segment first, we continue to see robust support from our wholesale distribution partners as well as strong overall market conditions.
Speaker Change: New and Old Submissions, each group is 6% during the quarter, establishing a new quarterly record of over 91,000 submissions.
Speaker Change: of particular note, we saw submission growth of 26% in environmental, 18% in manufacturers and contractors, and 10% in small business which drove strong departmental premium growth for the latter two divisions in particular.
Speaker Change: Pricing conditions remain broadly attractive across Canada's EMS, allowing us to actively pick our spots and take-rate or selectively move away from opportunities that do not meet your own writing appetite.
Speaker Change: Renewal rates for the first quarter were up 7.8% across the segment with several divisions experiencing double digit increases, including environmental, energy, and excess
Speaker Change: We believe the level of rate increase that we're able to achieve continues to meaningfully exceed our view of loss trend. However, we continue to remain cautious in certain areas of the portfolio, such as commercial auto-hamby exposures within excess casualty. We're pricing to not align with our expectations.
Speaker Change: In the aggregate, across the entire segment our average premium declined 8.4% for policy compared to the prior year quarter.
Speaker Change: Drilling down into a few specific divisions, average premium size to climb 23% in life sciences, 90% in small business, and 12% in excess cash, please.
Speaker Change: This dynamic reflects our deliberate and focused approach on smaller accounts that have historically been more profitable for us.
Speaker Change: As a result, gross premium for the quarter was essentially flat to prior. That said, we saw premium growth in several under any divisions including allied health, manufacturers and contractors, professional liability and small business.
Speaker Change: In cross the segment, March was a particularly strong month, with written premium growth exceeding 9% compared to March of 2024.
Speaker Change: On the down the lead, we'll look to carry that momentum forward, as we expect to grow our total segment of premium base over the course of the year.
Speaker Change: In summary, the INS segment produced a combined ratio of 91.5% for the first quarter with $11.7 million of running income representing a solid start to the year.
Speaker Change: Our accident, your loss ratio of 63.4% from the first quarter was a slight improvement compared to the prior year's quarter.
Speaker Change: Attorney's Specialty has admitted growth for impremians in our prompting business to climb 21% compared to the prior year quarter.
Speaker Change: We have diligently been reducing our primary commercial auto exposure from the portfolio as we have now non-renews and majority of our commercial auto programs and have also reduced our overall net retention on our enforced portfolio to less than 10 percent.
Speaker Change: Challenges in capacity in terms of conditions in the reinsurance market, as well as increased competition, have led us to significantly de-risk our fronted program portfolio.
Speaker Change: while remaining focused on actively managing expenses in the face of declining program
taken at random.
Speaker Change: Sarah will touch on our planned expense savings across the company momentarily, but our GNA expense base and expense ratio for the specialty admin segment have improved over the prior
Speaker Change: Overall, the segment produced a combined ratio of 102.1% and a small underwriting loss for the quarter.
Speaker Change: In short, we're focused on creating value for stakeholders and believe this quarter is a positive step in demonstrating that we have a de-risk balance sheet and an increasingly focused organization. We are placing tremendous emphasis on profitability first, as well as taking a number of steps to reduce expenses to become a better and more efficient E&S insurer focused on the SME market. [inaudible]
Speaker Change: and with that I'll ask Sarah to provide some additional color on the corner.
Sarah: Thank you very much Frank. Good morning everyone and thanks for joining us today.
Speaker Change: We've started out 2025 on a strong note with net income from continuing operation available to common shareholders of $9 million or 18 cents per diluted share.
Sarah: on an adjusted not operating basis, we're reporting 9.1 million or 19 cents of income per share.
Sarah: Analyze Operating Return on Common Tangible Equity was 11.5% and Tangible Common Book Value per share grew meaningfully to $7.11 per share.
Sarah: Turning first to our underwriting results, the first quarter combined ratio of 99.5% is driven by a loss ratio of 66.8%, which is largely unchanged from 66.4% a year ago.
We did not experience any catastrophe losses over the quarter.
Frank DOrazio: and there was really no net impact from prior year development across the business, which means, as Frank said, that we move further into the year with a sizable amount of effectively prepaid cover.
Frank DOrazio: This cover provides protection across 92% of our total ENS IVNR, which means that we could increase IVNR on subject reserves by over 20%.
Frank DOrazio: The more recently underwritten quarters, while early, have shown to be stable and consistent a reflection of a conservative approach.
Frank DOrazio: At 32.7% our expense ratio ticked up from 28.9% a year ago.
Frank DOrazio: However, we anticipate improvements throughout the year and expect the full year 2025 expense ratio to be close to last year's 31%.
Frank DOrazio: We are taking actions across our business to improve efficiency while we balance negative leverage from a slight decline in earn premiums.
Frank DOrazio: Given the refinements in our risk appetite, as well as the impact of our large E&S prospective re-insurance program, which renews annually each June .
Frank DOrazio: Over the last several years, our effective tax rate has generally been above the US statutory rate driven by the jurisdictional mix of profit and losses.
Frank DOrazio: As previously discussed, we are taking actions to redomassile our holding company from Remuda to the United States, which is expected to be complete later this year, and we expect that this will reduce our effective tax rate to a level consistent with the U.S.
Frank DOrazio: This should result in an expense reduction of between $3 to $6 million on an annual go-forward basis and also a one-time benefit of between $10 and $13 million in the quarter that our down the silence is complete.
Frank DOrazio: Coming back to finish up with investments, for the first quarter we recorded net investment income of $20 million, a slight decrease from the prior year quarter due to reduce assets under management.
Frank DOrazio: As you know, we have meaningful outflows which were used to fund our two lost portfolio transfers in the third and fourth quarter of last year.
Frank DOrazio: New money yields on our portfolio continue to average in the low to mid-fives with book yields around 4.4%. So we should continue to see investment income benefit from higher rates.
Frank DOrazio: We continue to have a duration of approximately three-and-a-half years and the fixed-income portfolio benefits from an average credit rating of 8 plus.
Frank DOrazio: As economic uncertainty has increased, our high-quality conservative portfolio remains well-positioned in the current environment with relatively little exposure to investments that are fully impacted by tariffs.
Frank DOrazio: But with that, I'll turn the call back over to the operator to open the line for questions.
Speaker Change: Thank you, and we will now begin the question and answer session. And if you would like to ask a question, please press star one on your telephone keypad to raise your head and join the queue. If you would like to withdraw your question, simply press star one again.
Speaker Change: If you are called upon to ask your question and are listening by a loud speaker on your device please pick up your handset and ensure that your phone is not on mute when asking your question and just a reminder we ask you to please limit your...
yourself with one question and one follow-up only. Thank you.
Speaker Change: and your first question comes from the line of Mark Hughes from Truist. Please go ahead.
Yeah, thank you very much. Good morning.
Morning.
Speaker Change: Frank, you mentioned March up 9% a good strong month. You know, at the same time you've been shifting to focus on smaller accounts. I think that's dampen the top line a little bit. Are you through that process? Do you think of kind of a re underwriting so to speak and March ought to be? Thank you.
Speaker Change: Representative of a little more growthy posture through the balance of the year. Where do we stand on that?
Unknown Speaker
This is Mark Hughes, I'm still here.
Speaker Change: Yes, thank you so much, Mark. What I mean is that the line of the speaker got silent suddenly. So I apologize for this inconvenience. I'll try to fix this as soon as possible.
Speaker Change: and Ladies and Gentlemen, we are experiencing some technical difficulty. We will assume the conference shortly until that time. Your line will be placed on a music hold and thank you for your
[inaudible]
Ladies and gentlemen, thank you so much for patiently waiting.
Go ahead.
Speaker Change: Mark, I'm sorry for the technical difficulty we have had here so let me try to answer your question so we're going to continue to be good portfolio managers at the constant process. It doesn't end after an annual cycle of other rules because. Thank you very much.
The Portfolio constantly changes, losses and risks emerging.
We have to respond accordingly and responsibly, but yes…
Speaker Change: We want to grow the NS book profitably. We have a number of initiatives underway already.
in 2025 around profitability and efficiency.
Speaker Change: We want to get more quotes out the door to have a higher chance of finding business in the key areas that we have identified that we want to grow based on profit expectations and we're using innovation and technology like intelligent data processing to help us achieve our goals and beyond that we obviously now have a new [inaudible]
Speaker Change: Segment Leader in waiting in e.n.a. shortly will be charged with driving profitable growth and product diversification, so we should have more discussion in the future as Todd Sullivan transitions and do his new role.
Speaker Change: Very good. And then you've mentioned the E and F's re-inference program updates or renews on June 1st, any visibility around pricing on that?
Speaker Change: It's actually the end of June , Mark, so we'll expect to cover that when we have our call next quarter.
Speaker Change: Okay, very good. Thank you quite orderly. I would just heads up provide heads up on that but we're just in the early days of it. Thank you.
and your next question comes from Matt.
Carletti from Citizens Bank. Please go ahead.
Hey, good morning.
Speaker Change: Frank, last quarter you talked a little bit about spiking claims and construction in Florida. Have you been an update there in terms of if that was a one time phenomenon or you've seen it persist?
That's sure, so...
Speaker Change: I'm not certain we expected it to dissipate in one quarter, but we've continued to experience some level of elevated claim activity in Florida from the manufacturers and contractors book that we are at least, I would suggest partially attributing to
Speaker Change: the shortening of the state statute of repose caused by a bit of a rush by planning to attorney to file claims.
Speaker Change: So, frequency is up a bit there. Frequency is down across the remainder of the entire portfolio.
Speaker Change: but relative to this book, Severity is actually down about 8%.
Speaker Change: over the last 12 months and I think it just reflects the nature of the SB contractors that we write. But as you might imagine, we're watching it closely and we'll continue to monitor it and report as we see developments there.
Okay, great. That's helpful.
Speaker Change: I know you went through some of the high level stuff, could you just help maybe you take apart some of the moving pieces in the Q1 premiums?
Speaker Change: I know there's some reauthorizing taking place, but also was there any kind of one time impact on a premium or otherwise that we should be thinking about how material might have happened?
Speaker Change: Yeah, we'll be talking about some background on the quarter and then I'm not maybe Sarah can speak to the odd premium piece but
Speaker Change: You know, the fronting market I think has been commented on this quarter by some other competitors. I just want to maybe provide a little bit more commentary around what we've experienced there and
Speaker Change: So maybe at the expense of making a long story long right here, let me try to address some of this [inaudible]
Speaker Change: We all know that the fronting market environment has changed fairly significantly over the last several years.
Speaker Change: as a number of competitors has multiplied. I think when we enter the business that we're maybe...
You don't have dozen competitors, and now there's-
Speaker Change: Well, over 30. We also see the rate of re-insurance markets appetite and retracting for the sector.
Speaker Change: Large commercial auto or property ticket cat, and that's primarily where we've reduced exposure here.
Speaker Change: This is consistent with, I think, our appetite across the company in our commercial auto book and ENS.
Speaker Change: that is a higher non-owned portfolio, so it's a contingent liability book only and I think we've gone on record now for a number of quarters.
Speaker Change: Relative to the steps that we've taken with large auto and excess casualty, so it can be counterintuitive to take more risk and are especially admitted portfolio for large commercial auto. So we've been taking steps to de-risk the portfolio. You know mine.
Speaker Change: My belief is there's always a fine line between what is generally accepted as traditional fronting of programs.
versus simply placing re-insurance. [inaudible]
Speaker Change: on a commercial program to net down your own account. We're very much trying to keep our activity in line with the former.
Speaker Change: and not the latter. So one other piece I'll share with you, we've non-renewed or lost a number of these programs in doing so we've brought our average retention on the enforced programs.
Speaker Change: Celestin Tenpercent. That is significant in a sector where it's becoming more common to see retentions.
Hoeter 20% are higher.
Speaker Change: But as a result, we've been acutely focused on managing our expenses leading to a decline in expenses of about $2.3 million in the quarter. That's 48% versus the quarter of the first quarter of 2024.
and there's relative to the-
Otter premiums.
Speaker Change: Sir, I don't have any. Yeah, there's there's nothing in particular they're mad but if the question is, you know, how to, you know,
Speaker Change: regarding the 117 of the first quarter of last year versus the 81 on the top line this year. I think the biggest delta between those two is the continued runoff from the individual risk workers confidence and the other large workers cop program.
Speaker Change: and those had more of a contribution based on their own audit premiums.
Speaker Change: in the first quarter of last year than this year. Now they're really, you know, much further along in their own run-off. So I think you're seeing more, you know, of a normalization of what the book looks like at present, given Frank's comments and the dynamics and the changes there. Then what last quarter still had...
Speaker Change: and more significant contributions from programs that are in runoff if that helps.
Yeah, definitely helps. Great. Thank you for the color.
Thanks for the question.
Speaker Change: Again, if you want to join the queue, simply press star 1 and
Speaker Change: If you want to redraw your question, just simply press star one again.
Speaker Change: Okay, and your next question comes from Cassie Alexander from Compass Point. Please go ahead.
Cassie Alexander: Yeah, good morning. Just to kind of follow on on that specialty admitted, you've hammered your retained risk down to a...
Cassie Alexander: sort of very low level. I don't see much in the way of fee income. I'm not sure I understand what the economic proposition of being in this business is at all. I mean, I mean, I'm in
Cassie Alexander: Are you thinking of this in terms of effectively running it off entirely or where does it go from here?
Unknown Speaker .
Cassie Alexander: Yeah, thanks for the question, Casey. So, as you know, since we have to do workers comp, especially admitted it has been purely focused on funding because we've felt it providing diversification and balance the James River without consuming...
Cassie Alexander: Much additional capital, but, you know, from my earlier comments, we don't necessarily want to turn this into a traditional program operation that's not the goal of fronting business.
Cassie Alexander: has been and I think will continue to be deal driven and rather lumpy and we've obviously taken the the under running steps that I just went through.
Cassie Alexander: But spice itself, you know, we're constantly evaluating all of our businesses for scale and profitability where we believe will produce the best returns for shareholders. I think our recent history has demonstrated that practice, so, you know, we'll continue to do what we do relative to that evaluation. Thank you very much.
I'm not sure that's an answer to my questions.
Well,
Cassie Alexander: I think the answer is that the company will continue to evaluate, right? That's what we've done in the past relative to all of our businesses and we'll continue to do that.
All right, thank you.
Thanks, Casey.
There are no further questions at this time.
Cassie Alexander: I would now like to turn the call back over to Frank DOrazio for closing remarks. Please go ahead.
Cassie Alexander: Thank you, operator. To summarize, we continue to believe that 2025 will provide significant opportunities to generate attractive risk-adjustive returns for our shareholders. I want to thank everyone for their time this morning, for the questions we received. We look forward to speaking with you all again in a few months to discuss our second-point results.
Thank you and enjoy the rest of your day.