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James River Group’s Q3 result hit by unfavourable reserve development

8th November 2019 - Author: Luke Gallin

James River Group Holdings, Ltd. recently announced a net loss of $25.2 million for the third-quarter of 2019 and an operating loss of $22.2 million, compared with net income of $19.6 million and an operating gain of $19.4 million in 2018.

James River Group HoldingsDuring the quarter, James River experienced unfavourable reserve development of almost $57 million, driven mostly by $50 million of unfavourable development in its excess and surplus lines and $7.9 million of unfavourable development in casualty reinsurance, somewhat offset by $1 million of favourable reserve development in speciality admitted insurance.

The impact hit the firm’s profits in the third-quarter of 2019, and compares with unfavourable reserve development of $12.2 million in the third-quarter of 2018, which was again mostly a result of unfavourable development experienced in its excess and surplus division.

J. Adam Abram, James River’s Chairman and Chief Executive Officer (CEO), commented: “At the beginning of October, we announced the early termination, effective December 31, 2019, of all insurance policies issued to our largest client. The results from this account were not consistent with our focus on underwriting profit.

“Our core Excess and Surplus Lines business, where we have earned compelling returns for many years, and our fronting business within our Specialty Admitted segment present us with superior opportunities to put capital to work. The most recent quarter was the 10th consecutive quarter in which we enjoyed renewal rate increases in the core E&S book (up 3.2%). New business pricing has also been strong. We also have attractive opportunities to grow our fronting business within our Specialty Admitted segment.”

The firm’s gross written premiums reached $388.2 million in Q3 2019, which is an increase of almost 40% on the same period in 2018. Excess and surplus lines recorded premium growth of 53% to $241 million, specialty admitted insurance premiums grew by 2% to $100 million, while casualty reinsurance premiums grew by a significant 94% to $46.7 million.

Net premiums written grew by 29% to $223.8 million, driven by 55% growth in casualty reinsurance, 4% growth in specialty admitted insurance premiums, and 27% growth in excess and surplus. James River’s net earned premiums also increased in the third-quarter, by 4% to $213.4 million as 16% growth in excess and surplus and 2% growth in specialty admitted insurance offset a 30% decline in casualty reinsurance net earned premiums.

The decline in casualty reinsurance net earned premiums was in line with the firm’s expectations, and is a result of planned reductions for the segment that started in 2018.

Overall, James River’s combined ratio weakened from 96% in Q3 2018 to 118.8% in Q3 2019, and includes an improved expense ratio of 18.5%.

Turning to investments, and the company’s net investment income came in slightly higher at $17.9 million, versus $16.4 million a year earlier. James River attributes this increase to a larger fixed maturity portfolio size.

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