James River Announces Fourth Quarter and Full Year 2021 Results, Strategic Actions
James River Group Holdings, Ltd. (NASDAQ: JRVR) reported a fourth quarter 2021 net loss of $66.3 million ($1.78 per diluted share), a significant decline from $20.3 million ($0.66 per diluted share) in Q4 2020. Adjusted net operating loss rose to $67.5 million ($1.81 per diluted share). Despite the losses, the Core Excess and Surplus Lines segment achieved 14.1% growth in gross written premium and 9.5% increase in renewal pricing. The company announced a loss portfolio transfer agreement with Fortitude Re, affecting approximately $335 million in liabilities, and has issued $150 million in Convertible Preferred Shares to bolster capital.
- 14.1% growth in Core Excess and Surplus Lines gross written premium.
- E&S renewal pricing increased by 9.5%.
- Combined ratios of 82.1% for E&S and 84.7% for Specialty Admitted segments indicate strong underwriting profitability.
- $150 million in Convertible Preferred Shares issued to strengthen capital base.
- $66.3 million net loss for Q4 2021, compared to a $20.3 million loss in Q4 2020.
- Adverse reserve development of $115 million in Casualty Reinsurance segment, affecting profitability.
- Net investment income decreased by 45.4% compared to Q4 2020.
PEMBROKE, Bermuda, Feb. 28, 2022 (GLOBE NEWSWIRE) -- James River Group Holdings, Ltd. ("James River" or the "Company") (NASDAQ: JRVR) today reported a fourth quarter 2021 net loss of
| (Loss) Earnings Per Diluted Share | Three Months Ended December 31, | ||||||
| 2021 | 2020 | ||||||
| Net (Loss) Income | $ | (1.78 | ) | $ | (0.66 | ) | |
| Adjusted Net Operating (Loss) Income 1 | $ | (1.81 | ) | $ | (0.95 | ) | |
Fourth Quarter 2021 Highlights
14.1% growth in Core Excess and Surplus Lines ("E&S") gross written premium and9.5% increase in E&S renewal pricing, each versus the prior year quarter, with nearly all underwriting divisions reporting positive growth and rate increases. The segment experienced its twentieth consecutive quarter of renewal rate increases, compounding to49% over the same period.- Fronting gross written premium within the Specialty Admitted segment grew
11.1% driven by the expansion of recently added programs, while gross fee income increased27.1% over the prior year quarter. - Strong underwriting profitability in both E&S and Specialty Admitted segments with combined ratios of
82.1% and84.7% , respectively. $115.0 million of adverse reserve development in the Casualty Reinsurance segment, primarily related to underwriting years 2014-2018.
_______________
1 Adjusted Net Operating (Loss) Income is a non-GAAP financial measure. See “Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” at the end of this press release.
Full Year 2021 Highlights
19.4% growth in Core E&S gross written premium and13.3% increase in E&S renewal pricing, each versus the prior year, with broad strength across underwriting divisions.- Core E&S policies in force increased
21.9% from year end 2020 to year end 2021, driven by strong growth in renewal business. - Fronting gross written premium within the Specialty Admitted segment grew
25.9% , while gross fee income increased17.5% during 2021.
Strategic Actions
- One of the Company's primary operating subsidiaries, JRG Reinsurance Company Ltd. (“JRG Re”), has entered into a loss portfolio transfer retrocession agreement (the "Retrocession Agreement") with Fortitude Reinsurance Company Ltd. ("FRL"), under which FRL will reinsure the majority of the reserves from the Company's Casualty Reinsurance segment. Under the terms of the transaction, JRG Re will cede to FRL approximately
$335 million of liabilities for certain business written in the years 2011-2020 (the "Subject Business"). The coverage being provided by FRL is subject to an aggregate limit of$400 million . The Company will recognize an after-tax loss associated with the loss portfolio transfer of approximately$6.8 million during the first quarter of 2022. Adjusting for the$6.8 million expense, which is a consequence of increasing reserves to the inception of the reinsurance coverage, the transaction will provide the Company with$65 million of net limit above held reserves for the Subject Business. The closing of the Retrocession Agreement will occur upon receipt of required regulatory approvals by FRL and satisfaction of other customary closing conditions. - The Company has entered into an Investment Agreement with an affiliate of Gallatin Point Capital LLC (“Gallatin Point”) related to the issuance of
$150 million of Convertible Preferred Shares, with closing expected to occur on March 1, 2022. The Convertible Preferred Shares will pay a quarterly dividend in cash at an annualized rate of7.0% and will be convertible into common shares at an initial27.5% premium to the price established based on the lower of (a) the average of the daily volume weighted average prices for the five trading days immediately preceding this press release, or (b) the average of the daily volume weighted average prices over the five trading days immediately following this press release, through March 7, 2022. The Company's Board of Directors approved the appointment of Matthew Botein, the co-founder of Gallatin Point, to serve as a member of the Board, effective following receipt of any necessary regulatory approvals. Until applicable regulatory approvals are obtained, Mr. Botein will have board observer status. - The Company has also reduced its quarterly Common Dividend to
$0.05 per common share beginning with its next dividend payable on March 31, 2022 to shareholders of record as of March 14, 2022. The dividend reflects the Company's current growth profile, which remains robust. - See the Strategic Actions Frequently Asked Questions slides being made available simultaneously with this press release for further information on these Strategic Actions.
Frank D'Orazio, the Company’s Chief Executive Officer, commented, “During the last five quarters since I joined James River as CEO, we have been keenly focused on profitably growing our E&S and fronting businesses while taking significant steps to strengthen our balance sheet and bring economic finality to our legacy run off Commercial Auto portfolio and the majority of our historical Casualty Reinsurance reserves. With these significant reserving actions and legacy transactions behind us, and with the support of Gallatin Point fortifying our capital base, we believe we have unburdened the organization’s earnings potential, which should allow it to produce attractive future returns for shareholders. This quarter our E&S segment reported an
Fourth Quarter 2021 Operating Results
- Gross written premium of
$407.3 million , consisting of the following:
| Three Months Ended December 31, | ||||||||
| ($ in thousands) | 2021 | 2020 | % Change | |||||
| Excess and Surplus Lines | $ | 220,612 | $ | 196,494 | 12 | % | ||
| Specialty Admitted Insurance | 114,161 | 104,860 | 9 | % | ||||
| Casualty Reinsurance | 72,526 | 58,314 | 24 | % | ||||
| $ | 407,299 | $ | 359,668 | 13 | % | |||
- Net written premium of
$218.0 million , consisting of the following:
| Three Months Ended December 31, | ||||||||
| ($ in thousands) | 2021 | 2020 | % Change | |||||
| Excess and Surplus Lines | $ | 129,773 | $ | 122,156 | 6 | % | ||
| Specialty Admitted Insurance | 17,854 | 17,605 | 1 | % | ||||
| Casualty Reinsurance | 70,340 | 62,443 | 13 | % | ||||
| $ | 217,967 | $ | 202,204 | 8 | % | |||
- Net earned premium of
$191.7 million , consisting of the following:
| Three Months Ended December 31, | ||||||||
| ($ in thousands) | 2021 | 2020 | % Change | |||||
| Excess and Surplus Lines | $ | 134,587 | $ | 109,647 | 23 | % | ||
| Specialty Admitted Insurance | 20,715 | 14,845 | 40 | % | ||||
| Casualty Reinsurance | 36,386 | 34,619 | 5 | % | ||||
| $ | 191,688 | $ | 159,111 | 20 | % | |||
- E&S gross written premium increased
12.3% compared to the prior year quarter (ten out of twelve core underwriting divisions grew). Retention in the segment declined due to the impact of growth in underwriting units where we cede a larger share of risk as compared to other lines, resulting in net written premium increasing at a lower rate, but benefitting from an attractive ceding commission. - Gross written premium for the Specialty Admitted Insurance segment increased
8.9% from the prior year quarter due to an11.1% increase in premiums written in our fronting business. Net earned premium increased39.5% from the prior year quarter due to growth in gross premiums on fronted business. - Gross written premium in the Casualty Reinsurance segment increased
24.4% from the prior year quarter primarily driven by higher renewal and new business and a change in renewal timing of one treaty, which was partially offset by the non-renewal of certain treaties. The Company expects to meaningfully reduce gross written premium in the Casualty Reinsurance segment over the course of 2022. - There was overall adverse reserve development of
$115.0 million (representing a 60.0 percentage point increase to the Company’s loss ratio), which was entirely related to the Casualty Reinsurance segment. Pre-tax favorable (unfavorable) reserve development by segment was as follows:
| Three Months Ended December 31, | |||||||
| ($ in thousands) | 2021 | 2020 | |||||
| Excess and Surplus Lines | $ | 17 | $ | (62,262 | ) | ||
| Specialty Admitted Insurance | 0 | 1,000 | |||||
| Casualty Reinsurance | (115,013 | ) | (24,708 | ) | |||
| $ | (114,996 | ) | $ | (85,970 | ) | ||
- The prior year reserve development in the Casualty Reinsurance segment was primarily related to underwriting years 2014-2018. The increase to Casualty Reinsurance segment reserves comes following an in-depth review during the fourth quarter. A majority of the reserve additions related to general liability exposure, specifically construction and construction defect. The factors driving the increase included reported and paid losses in excess of expectations, which resulted in adjustments to our actuarial assumptions, including tail factors, as well as increased weighting of incurred loss development methodologies. Many of the treaties causing the reserve development have previously been terminated and will be subject to coverage under the loss portfolio transfer retrocession transaction.
- Prior year development in the E&S and Specialty Admitted segments was de minimis during the fourth quarter of 2021. For the full year 2021, the Core E&S business (excluding Commercial Auto) reported favorable development of
$9.4 million and Specialty Admitted reported favorable development of$2.5 million . - Gross fee income increased
27.1% during the fourth quarter of 2021 and is largely due to an increase in fronting gross written premium as new programs have come on over the last year. The Specialty Admitted segment continues to have a significant pipeline of new programs. Gross fee income was as follows:
| Three Months Ended December 31, | ||||||||
| ($ in thousands) | 2021 | 2020 | % Change | |||||
| Specialty Admitted Insurance | $ | 6,474 | $ | 5,093 | 27 | % | ||
- The consolidated expense ratio was
13.9% for the fourth quarter of 2021, and was down from19.9% in the prior year quarter. For the fourth quarter of 2021, the expense ratio was lower than the prior year quarter's result for each segment. Favorable commission expense adjustments in the Casualty Reinsurance segment related to prior accident year losses had a$12.6 million or 6.6 point impact on the consolidated expense ratio. Reduced performance related compensation expenses also benefitted the expense ratio during the fourth quarter.
Investment Results
Net investment income for the fourth quarter of 2021 was
The Company’s net investment income consisted of the following:
| Three Months Ended December 31, | |||||||||
| ($ in thousands) | 2021 | 2020 | % Change | ||||||
| Renewable Energy Investments | $ | (1,134 | ) | $ | 6,511 | — | |||
| Other Private Investments | 406 | 1,176 | (65 | )% | |||||
| All Other Net Investment Income | 12,867 | 14,536 | (11 | )% | |||||
| Total Net Investment Income | $ | 12,139 | $ | 22,223 | (45 | )% | |||
The Company’s annualized gross investment yield on average fixed maturity, bank loan and equity securities for the three months ended December 31, 2021 was
Total invested assets declined by
Taxes
Generally the Company's effective tax rate fluctuates from period to period based on the relative mix of income reported by country and the respective tax rates imposed by each tax jurisdiction. The Company had pre-tax losses and tax benefits for the year ended December 31, 2021, resulting in a tax rate of
Tangible Equity
December 31, 2021 tangible equity of
Capital Management
The Company announced that its Board of Directors declared a cash dividend of
Conference Call
James River will hold a conference call to discuss its fourth quarter results tomorrow, March 1, 2022 at 8:30 a.m. Eastern Time. Investors may access the conference call by dialing (877) 930-8055, Conference ID# 9085436, or via the internet by visiting www.jrgh.net and clicking on the “Investor Relations” link. Please access the website at least 15 minutes early to register and download any necessary audio software. A replay of the call will be available until 11:00 a.m. (Eastern Time) on March 31, 2022 and can be accessed by dialing (855) 859-2056 or by visiting the company website.
Forward-Looking Statements
This press release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. In some cases, such forward-looking statements may be identified by terms such as believe, expect, seek, may, will, should, intend, project, anticipate, plan, estimate, guidance or similar words. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Although it is not possible to identify all of these risks and uncertainties, they include, among others, the following: the inherent uncertainty of estimating reserves and the possibility that incurred losses may be greater than our loss and loss adjustment expense reserves; inaccurate estimates and judgments in our risk management may expose us to greater risks than intended; the downgrade in the financial strength rating of our regulated insurance subsidiaries announced May 7, 2021, or further downgrades, impacting our ability to attract and retain insurance and reinsurance business that our subsidiaries write, our competitive position, and our financial condition; the potential loss of key members of our management team or key employees and our ability to attract and retain personnel; adverse economic factors resulting in the sale of fewer policies than expected or an increase in the frequency or severity of claims, or both; a persistent high inflationary environment could have a negative impact on our reserves, the values of our investments and investment returns, and on our compensation expenses; reliance on a select group of brokers and agents for a significant portion of our business and the impact of our potential failure to maintain such relationships; reliance on a select group of customers for a significant portion of our business and the impact of our potential failure to maintain, or decision to terminate, such relationships; our ability to obtain reinsurance coverage at prices and on terms that allow us to transfer risk and adequately protect our company against financial loss; losses resulting from reinsurance counterparties failing to pay us on reinsurance claims, insurance companies with whom we have a fronting arrangement failing to pay us for claims, or a former customer with whom we have an indemnification arrangement failing to perform their reimbursement obligations; inadequacy of premiums we charge to compensate us for our losses incurred; changes in laws or government regulation, including tax or insurance law and regulations; the ongoing effect of Public Law No. 115-97, informally titled the Tax Cuts and Jobs Act, which may have a significant effect on us including, among other things, by potentially increasing our tax rate, as well as on our shareholders; in the event we do not qualify for the insurance company exception to the passive foreign investment company (“PFIC”) rules and are therefore considered a PFIC, there could be material adverse tax consequences to an investor that is subject to U.S. federal income taxation; the Company or any of its foreign subsidiaries becoming subject to U.S. federal income taxation; a failure of any of the loss limitations or exclusions we utilize to shield us from unanticipated financial losses or legal exposures, or other liabilities; losses from catastrophic events, such as natural disasters and terrorist acts, which substantially exceed our expectations and/or exceed the amount of reinsurance we have purchased to protect us from such events; the effects of the COVID-19 pandemic and associated government actions on our operations and financial performance; potential effects on our business of emerging claim and coverage issues; exposure to credit risk, interest rate risk and other market risk in our investment portfolio; the potential impact of internal or external fraud, operational errors, systems malfunctions or cyber security incidents; our ability to manage our growth effectively; failure to maintain effective internal controls in accordance with Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley”); and changes in our financial condition, regulations or other factors that may restrict our subsidiaries’ ability to pay us dividends. Additional information about these risks and uncertainties, as well as others that may cause actual results to differ materially from those in the forward-looking statements, is contained in our filings with the U.S. Securities and Exchange Commission ("SEC"), including our most recently filed Annual Report on Form 10-K, Quarterly Report on Form 10-Q and our other documents on file with the SEC. These forward-looking statements speak only as of the date of this release and the Company does not undertake any obligation to update or revise any forward-looking information to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.
Non-GAAP Financial Measures
In presenting James River Group Holdings, Ltd.’s results, management has included financial measures that are not calculated under standards or rules that comprise accounting principles generally accepted in the United States (“GAAP”). Such measures, including underwriting profit (loss), adjusted net operating income (loss), tangible equity, and pre-dividend tangible equity per share, are referred to as non-GAAP measures. These non-GAAP measures may be defined or calculated differently by other companies. These measures should not be viewed as a substitute for those measures determined in accordance with GAAP. Reconciliations of such measures to the most comparable GAAP figures are included at the end of this press release.
About James River Group Holdings, Ltd.
James River Group Holdings, Ltd. is a Bermuda-based insurance holding company that owns and operates a group of specialty insurance and reinsurance companies. The Company operates in three specialty property-casualty insurance and reinsurance segments: Excess and Surplus Lines, Specialty Admitted Insurance and Casualty Reinsurance. Each of the Company’s regulated insurance subsidiaries are rated “A-” (Excellent) by A.M. Best Company.
Visit James River Group Holdings, Ltd. on the web at www.jrgh.net
For more information contact:
Brett Shirreffs
SVP, Finance, Investments and Investor Relations
InvestorRelations@jrgh.net
James River Group Holdings, Ltd. and Subsidiaries
Condensed Consolidated Balance Sheet Data
(Unaudited)
| ($ in thousands, except for share data) | December 31, 2021 | December 31, 2020 | |||
| ASSETS | |||||
| Invested assets: | |||||
| Fixed maturity securities, available-for-sale, at fair value | $ | 1,677,561 | $ | 1,783,642 | |
| Equity securities, at fair value | 108,410 | 88,975 | |||
| Bank loan participations, at fair value | 156,043 | 147,604 | |||
| Short-term investments | 136,563 | 130,289 | |||
| Other invested assets | 51,908 | 46,548 | |||
| Total invested assets | 2,130,485 | 2,197,058 | |||
| Cash and cash equivalents | 190,123 | 162,260 | |||
| Restricted cash equivalents (a) | 102,005 | 859,920 | |||
| Accrued investment income | 11,037 | 10,980 | |||
| Premiums receivable and agents’ balances, net | 393,967 | 369,577 | |||
| Reinsurance recoverable on unpaid losses, net | 1,348,628 | 805,684 | |||
| Reinsurance recoverable on paid losses | 82,235 | 46,118 | |||
| Deferred policy acquisition costs | 68,526 | 62,953 | |||
| Goodwill and intangible assets | 217,870 | 218,233 | |||
| Other assets | 403,674 | 330,289 | |||
| Total assets | $ | 4,948,550 | $ | 5,063,072 | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||
| Reserve for losses and loss adjustment expenses | $ | 2,748,473 | $ | 2,192,080 | |
| Unearned premiums | 727,552 | 630,371 | |||
| Funds held (a) | 97,360 | 859,920 | |||
| Senior debt | 262,300 | 262,300 | |||
| Junior subordinated debt | 104,055 | 104,055 | |||
| Accrued expenses | 57,920 | 55,989 | |||
| Other liabilities | 225,528 | 162,749 | |||
| Total liabilities | 4,223,188 | 4,267,464 | |||
| Total shareholders’ equity | 725,362 | 795,608 | |||
| Total liabilities and shareholders’ equity | $ | 4,948,550 | $ | 5,063,072 | |
| Tangible equity (b) | $ | 507,492 | $ | 577,375 | |
| Tangible equity per common share outstanding (b) | $ | 13.58 | $ | 18.84 | |
| Total shareholders’ equity per common share outstanding | $ | 19.41 | $ | 25.96 | |
| Common shares outstanding | 37,373,066 | 30,649,261 | |||
| (a) Restricted cash equivalents and the funds held liability includes funds posted by the Company to a trust account for the benefit of a third party administrator handling the claims on the Rasier commercial auto policies in run-off. Such funds held in trust secure the Company's obligations to reimburse the administrator for claims payments, and are sourced from the collateral posted to the Company by Rasier and its affiliates to support their obligations under the indemnity agreements and the loss portfolio transfer reinsurance agreement with the Company. | |||||
| (b) See “Reconciliation of Non-GAAP Measures” | |||||
James River Group Holdings, Ltd. and Subsidiaries
Condensed Consolidated (Loss) Income Statement Data
(Unaudited)
| Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||
| ($ in thousands, except for share data) | 2021 | 2020 | 2021 | 2020 | |||||||||||
| REVENUES | |||||||||||||||
| Gross written premiums | $ | 407,299 | $ | 359,668 | $ | 1,507,299 | $ | 1,257,000 | |||||||
| Net written premiums | 217,967 | 202,204 | 744,380 | 647,774 | |||||||||||
| Net earned premiums | 191,688 | 159,111 | 695,594 | 606,806 | |||||||||||
| Net investment income | 12,139 | 22,223 | 56,865 | 73,368 | |||||||||||
| Net realized and unrealized gains (losses) on investments (a) | 1,826 | 11,855 | 15,564 | (16,030 | ) | ||||||||||
| Other income | 1,687 | 1,002 | 4,857 | 4,545 | |||||||||||
| Total revenues | 207,340 | 194,191 | 772,880 | 668,689 | |||||||||||
| EXPENSES | |||||||||||||||
| Losses and loss adjustment expenses | 242,774 | 176,788 | 792,352 | 478,545 | |||||||||||
| Other operating expenses | 28,278 | 32,256 | 164,692 | 165,498 | |||||||||||
| Other expenses | 354 | 346 | 2,585 | 2,138 | |||||||||||
| Interest expense | 2,230 | 2,063 | 8,922 | 10,033 | |||||||||||
| Amortization of intangible assets | 91 | 91 | 363 | 538 | |||||||||||
| Total expenses | 273,727 | 211,544 | 968,914 | 656,752 | |||||||||||
| (Loss) income before taxes | (66,387 | ) | (17,353 | ) | (196,034 | ) | 11,937 | ||||||||
| Income tax (benefit) expense | (94 | ) | 2,905 | (23,235 | ) | 7,113 | |||||||||
| NET (LOSS) INCOME | $ | (66,293 | ) | $ | (20,258 | ) | $ | (172,799 | ) | $ | 4,824 | ||||
| ADJUSTED NET OPERATING (LOSS) INCOME (b) | $ | (67,465 | ) | $ | (28,961 | ) | $ | (184,245 | ) | $ | 21,218 | ||||
| (LOSS) INCOME PER SHARE | |||||||||||||||
| Basic | $ | (1.78 | ) | $ | (0.66 | ) | $ | (4.94 | ) | $ | 0.16 | ||||
| Diluted | $ | (1.78 | ) | $ | (0.66 | ) | $ | (4.94 | ) | $ | 0.16 | ||||
| ADJUSTED NET OPERATING (LOSS) INCOME PER SHARE | |||||||||||||||
| Basic | $ | (1.81 | ) | $ | (0.95 | ) | $ | (5.27 | ) | $ | 0.69 | ||||
| Diluted | $ | (1.81 | ) | $ | (0.95 | ) | $ | (5.27 | ) | $ | 0.69 | ||||
| Weighted-average common shares outstanding: | |||||||||||||||
| Basic | 37,318,807 | 30,619,678 | 34,956,957 | 30,552,210 | |||||||||||
| Diluted | 37,318,807 | 30,619,678 | 34,956,957 | 30,884,416 | |||||||||||
| Cash dividends declared per common share | $ | 0.30 | $ | 0.30 | $ | 1.20 | $ | 1.20 | |||||||
| Ratios: | |||||||||||||||
| Loss ratio | 126.7 | % | 111.1 | % | 113.9 | % | 78.9 | % | |||||||
| Expense ratio (c) | 13.9 | % | 19.9 | % | 23.0 | % | 26.7 | % | |||||||
| Combined ratio | 140.6 | % | 131.0 | % | 136.9 | % | 105.6 | % | |||||||
| Accident year loss ratio | 66.7 | % | 57.1 | % | 67.1 | % | 63.7 | % | |||||||
| Accident year loss ratio ex-catastrophe losses | 66.7 | % | 57.1 | % | 66.4 | % | 63.7 | % | |||||||
| (a) Includes gains (losses) of | |||||||||||||||
| (b) See "Reconciliation of Non-GAAP Measures". | |||||||||||||||
| (c) Calculated with a numerator comprising other operating expenses less gross fee income (in specific instances when the Company is not retaining insurance risk) included in “Other income” in our Condensed Consolidated Income Statements of | |||||||||||||||
James River Group Holdings, Ltd. and Subsidiaries
Segment Results
EXCESS AND SURPLUS LINES
| Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||||||||
| ($ in thousands) | 2021 | 2020 | % Change | 2021 | 2020 | % Change | |||||||||||||||
| Gross written premiums | $ | 220,612 | $ | 196,494 | 12.3 | % | $ | 833,657 | $ | 699,143 | 19.2 | % | |||||||||
| Net written premiums (a) | $ | 129,773 | $ | 122,156 | 6.2 | % | $ | 501,250 | $ | 450,346 | 11.3 | % | |||||||||
| Net earned premiums (a) | $ | 134,587 | $ | 109,647 | 22.7 | % | $ | 486,000 | $ | 415,168 | 17.1 | % | |||||||||
| Losses and loss adjustment expenses | (87,749 | ) | (119,590 | ) | (26.6 | )% | (516,299 | ) | (318,467 | ) | 62.1 | % | |||||||||
| Underwriting expenses | (22,760 | ) | (20,093 | ) | 13.3 | % | (91,179 | ) | (86,949 | ) | 4.9 | % | |||||||||
| Underwriting profit (loss) (b), (c) | $ | 24,078 | $ | (30,036 | ) | — | $ | (121,478 | ) | $ | 9,752 | — | |||||||||
| Ratios: | |||||||||||||||||||||
| Loss ratio | 65.2 | % | 109.1 | % | 106.2 | % | 76.7 | % | |||||||||||||
| Expense ratio | 16.9 | % | 18.3 | % | 18.8 | % | 21.0 | % | |||||||||||||
| Combined ratio | 82.1 | % | 127.4 | % | 125.0 | % | 97.7 | % | |||||||||||||
| Accident year loss ratio | 65.2 | % | 52.3 | % | 67.0 | % | 62.4 | % | |||||||||||||
| Accident year loss ratio ex-catastrophe losses | 65.2 | % | 52.3 | % | 66.0 | % | 62.4 | % | |||||||||||||
| (a) Net written and earned premiums were negatively impacted by | |||||||||||||||||||||
| (b) See "Reconciliation of Non-GAAP Measures". | |||||||||||||||||||||
| (c) Underwriting results for the three and twelve months ended December 31, 2020 include gross fee income of $— and | |||||||||||||||||||||
SPECIALTY ADMITTED INSURANCE
| Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||||||||
| ($ in thousands) | 2021 | 2020 | % Change | 2021 | 2020 | % Change | |||||||||||||||
| Gross written premiums | $ | 114,161 | $ | 104,860 | 8.9 | % | $ | 491,561 | $ | 408,691 | 20.3 | % | |||||||||
| Net written premiums | $ | 17,854 | $ | 17,605 | 1.4 | % | $ | 83,935 | $ | 59,884 | 40.2 | % | |||||||||
| Net earned premiums | $ | 20,715 | $ | 14,845 | 39.5 | % | $ | 75,371 | $ | 57,505 | 31.1 | % | |||||||||
| Losses and loss adjustment expenses | (16,504 | ) | (10,719 | ) | 54.0 | % | (55,875 | ) | (41,928 | ) | 33.3 | % | |||||||||
| Underwriting expenses | (1,032 | ) | (2,242 | ) | (54.0 | )% | (9,829 | ) | (11,392 | ) | (13.7 | )% | |||||||||
| Underwriting profit (a), (b) | $ | 3,179 | $ | 1,884 | 68.7 | % | $ | 9,667 | $ | 4,185 | 131.0 | % | |||||||||
| Ratios: | |||||||||||||||||||||
| Loss ratio | 79.7 | % | 72.2 | % | 74.1 | % | 72.9 | % | |||||||||||||
| Expense ratio | 5.0 | % | 15.1 | % | 13.1 | % | 19.8 | % | |||||||||||||
| Combined ratio | 84.7 | % | 87.3 | % | 87.2 | % | 92.7 | % | |||||||||||||
| Accident year loss ratio | 79.7 | % | 78.9 | % | 77.5 | % | 81.6 | % | |||||||||||||
| (a) See "Reconciliation of Non-GAAP Measures". | |||||||||||||||||||||
| (b) Underwriting results include gross fee income of | |||||||||||||||||||||
CASUALTY REINSURANCE
| Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||||||||
| ($ in thousands) | 2021 | 2020 | % Change | 2021 | 2020 | % Change | |||||||||||||||
| Gross written premiums | $ | 72,526 | $ | 58,314 | 24.4 | % | $ | 182,081 | $ | 149,166 | 22.1 | % | |||||||||
| Net written premiums | $ | 70,340 | $ | 62,443 | 12.6 | % | $ | 159,195 | $ | 137,544 | 15.7 | % | |||||||||
| Net earned premiums | $ | 36,386 | $ | 34,619 | 5.1 | % | $ | 134,223 | $ | 134,133 | 0.1 | % | |||||||||
| Losses and loss adjustment expenses | (138,521 | ) | (46,479 | ) | 198.0 | % | (220,178 | ) | (118,150 | ) | 86.4 | % | |||||||||
| Underwriting expenses | 1,466 | (3,385 | ) | — | (31,571 | ) | (34,347 | ) | (8.1 | )% | |||||||||||
| Underwriting loss (a) | $ | (100,669 | ) | $ | (15,245 | ) | 560.3 | % | $ | (117,526 | ) | $ | (18,364 | ) | 540.0 | % | |||||
| Ratios: | |||||||||||||||||||||
| Loss ratio | 380.7 | % | 134.3 | % | 164.0 | % | 88.1 | % | |||||||||||||
| Expense ratio | (4.0 | )% | 9.7 | % | 23.6 | % | 25.6 | % | |||||||||||||
| Combined ratio | 376.7 | % | 144.0 | % | 187.6 | % | 113.7 | % | |||||||||||||
| Accident year loss ratio | 64.6 | % | 62.9 | % | 61.5 | % | 59.9 | % | |||||||||||||
| (a) See "Reconciliation of Non-GAAP Measures". | |||||||||||||||||||||
RECONCILIATION OF NON-GAAP MEASURES
Underwriting (Loss) Profit
The following table reconciles the underwriting (loss) profit by individual operating segment and for the entire Company to consolidated (loss) income before taxes. We believe that these measures are useful to investors in evaluating the performance of our Company and its operating segments because our objective is to consistently earn underwriting profits. We evaluate the performance of our operating segments and allocate resources based primarily on underwriting (loss) profit of operating segments. Our definition of underwriting (loss) profit of operating segments and underwriting (loss) profit may not be comparable to that of other companies.
| Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||
| ($ in thousands) | 2021 | 2020 | 2021 | 2020 | |||||||||||
| Underwriting (loss) profit of the operating segments: | |||||||||||||||
| Excess and Surplus Lines | $ | 24,078 | $ | (30,036 | ) | $ | (121,478 | ) | $ | 9,752 | |||||
| Specialty Admitted Insurance | 3,179 | 1,884 | 9,667 | 4,185 | |||||||||||
| Casualty Reinsurance | (100,669 | ) | (15,245 | ) | (117,526 | ) | (18,364 | ) | |||||||
| Total underwriting loss of operating segments | (73,412 | ) | (43,397 | ) | (229,337 | ) | (4,427 | ) | |||||||
| Other operating expenses of the Corporate and Other segment | (4,351 | ) | (5,862 | ) | (27,609 | ) | (29,418 | ) | |||||||
| Underwriting loss (a) | (77,763 | ) | (49,259 | ) | (256,946 | ) | (33,845 | ) | |||||||
| Net investment income | 12,139 | 22,223 | 56,865 | 73,368 | |||||||||||
| Net realized and unrealized gains (losses) on investments (b) | 1,826 | 11,855 | 15,564 | (16,030 | ) | ||||||||||
| Other expense | (268 | ) | (18 | ) | (2,232 | ) | (985 | ) | |||||||
| Interest expense | (2,230 | ) | (2,063 | ) | (8,922 | ) | (10,033 | ) | |||||||
| Amortization of intangible assets | (91 | ) | (91 | ) | (363 | ) | (538 | ) | |||||||
| Consolidated (loss) income before taxes | $ | (66,387 | ) | $ | (17,353 | ) | $ | (196,034 | ) | $ | 11,937 | ||||
| (a) Included in underwriting results for the three and twelve months ended December 31, 2021 is gross fee income of | |||||||||||||||
| (b) Includes gains (losses) of | |||||||||||||||
Adjusted Net Operating (Loss) Income
We define adjusted net operating (loss) income as net (loss) income excluding net realized and unrealized gains (losses) on investments, and certain non-operating expenses such as professional service fees related to various strategic initiatives and the filing of registration statements for the offering of securities, and severance costs associated with terminated employees. We use adjusted net operating (loss) income as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance. Adjusted net operating (loss) income should not be viewed as a substitute for net (loss) income calculated in accordance with GAAP, and our definition of adjusted net operating (loss) income may not be comparable to that of other companies.
Our (loss) income before taxes and net (loss) income reconciles to our adjusted net operating (loss) income as follows:
| Three Months Ended December 31, | |||||||||||||||
| 2021 | 2020 | ||||||||||||||
| ($ in thousands) | Loss Before Taxes | Net Loss | Loss Before Taxes | Net Loss | |||||||||||
| Loss as reported | $ | (66,387 | ) | $ | (66,293 | ) | $ | (17,353 | ) | $ | (20,258 | ) | |||
| Net realized and unrealized (gains) losses on investments (a) | (1,826 | ) | (1,378 | ) | (11,855 | ) | (8,806 | ) | |||||||
| Other expenses | 251 | 206 | 256 | 103 | |||||||||||
| Adjusted net operating loss | $ | (67,962 | ) | $ | (67,465 | ) | $ | (28,952 | ) | $ | (28,961 | ) | |||
| Twelve Months Ended December 31, | |||||||||||||||
| 2021 | 2020 | ||||||||||||||
| ($ in thousands) | Loss Before Taxes | Net Loss | Income Before Taxes | Net Income | |||||||||||
| (Loss) income as reported | $ | (196,034 | ) | $ | (172,799 | ) | $ | 11,937 | $ | 4,824 | |||||
| Net realized and unrealized (gains) losses on investments (a) | (15,564 | ) | (13,292 | ) | 16,030 | 14,840 | |||||||||
| Other expenses | 2,214 | 1,846 | 1,967 | 1,554 | |||||||||||
| Adjusted net operating (loss) income | $ | (209,384 | ) | $ | (184,245 | ) | $ | 29,934 | $ | 21,218 | |||||
| (a) Includes gains (losses) of | |||||||||||||||
Tangible Equity (per Share) and Pre-Dividend Tangible Equity (per Share)
We define tangible equity as shareholders’ equity less goodwill and intangible assets (net of amortization). Our definition of tangible equity may not be comparable to that of other companies, and it should not be viewed as a substitute for shareholders’ equity calculated in accordance with GAAP. We use tangible equity internally to evaluate the strength of our balance sheet and to compare returns relative to this measure. The following table reconciles shareholders’ equity to tangible equity for December 31, 2021, September 30, 2021, and December 31, 2020 and reconciles tangible equity to tangible equity before dividends for December 31, 2021.
| December 31, 2021 | September 30, 2021 | December 31, 2020 | |||||||||||||||
| ($ in thousands, except for share data) | Equity | Equity per share | Equity | Equity per share | Equity | Equity per share | |||||||||||
| Shareholders' equity | $ | 725,362 | $ | 19.41 | $ | 813,639 | $ | 21.82 | $ | 795,608 | $ | 25.96 | |||||
| Goodwill and intangible assets | 217,870 | 5.83 | 217,961 | 5.84 | 218,233 | 7.12 | |||||||||||
| Tangible equity | $ | 507,492 | $ | 13.58 | $ | 595,678 | $ | 15.98 | $ | 577,375 | $ | 18.84 | |||||
| Dividends to shareholders for the twelve months ended December 31, 2021 | 43,091 | 1.20 | |||||||||||||||
| Pre-dividend tangible equity | $ | 550,583 | $ | 14.78 | |||||||||||||
FAQ
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