James River Group Holdings Reports Second Quarter Net Operating Income of $12.4 Million

News Americas, PEMBROKE, Bermuda, Aug. 5, 2015: James River Group Holdings, Ltd. (NASDAQ:JRVR) today announced financial results for the second quarter and six months ended June 30, 2015.

Significant factors to consider when evaluating the second quarter of 2015 include:

– Each of the Company’s operating segments made an underwriting profit;

– Net investment income of $13.0 million in the second quarter of 2015, compared to $10.7 million for the same period of 2014;

– Net operating income in 2015 of $12.4 million compared to $10.9 million in the prior year;

– Diluted operating earnings per share of $0.42 compared to $0.38 in the prior year;

– Net income for the second quarter of 2015 was $12.5 million compared to $9.5 million in the prior year;

– Fully diluted earnings per share of $0.43 compared to $0.33 in the prior year;

– Overall increase in gross written premiums of 89.8% to $184.0 million from $97.0 million in gross written premiums in the second quarter of 2014 as follows:

– Growth in our Excess and Surplus Lines segment of 30.9% to $77.4 million from $59.1 million in the second quarter of 2014. Our Excess and Surplus Lines segment is on track to show substantial growth for the year;

– Growth in our Specialty Admitted Insurance segment of 42.8% to $17.9 million from $12.6 million in 2014. Our Specialty Admitted segment continues to make progress in building out its program and fronting businesses, and its traditional workers’ compensation book is growing as well;

– Reported growth in our Casualty Reinsurance segment of 250.9% to $88.7 million from $25.3 million in 2014. This growth is mainly a matter of timing as expiring contracts were renewed out of sequence. We anticipate annual gross written premium for the Casualty Reinsurance segment to be flat for calendar year 2015 when compared to the prior year;

– A combined ratio of 97.8% compared to 96.7% in the prior year; and

– An overall increase in net written premium for the quarter of 93.8% to $158.8 million compared to $81.9 million in the second quarter of 2014.

Significant factors to consider when evaluating the six-month period ended June 30, 2015, include:

– Each of the Company’s operating segments made an underwriting profit;

– Net investment income of $25.0 million, compared to $23.2 million in the same period in 2014;

– Net operating income in 2015 of $24.1 million compared to $21.4 million in the prior year;

– Diluted operating earnings per share of $0.82 compared to $0.74 in the prior year;

– Net income in 2015 of $21.9 million compared to $18.7 million in the prior year;

– Fully diluted earnings per share of $0.75 compared to $0.65 in the prior year;

– Overall increase in gross written premiums of 29.1% to $315.3 million from $244.2 million in gross written premiums as follows:

– Growth in our Excess and Surplus Lines segment of 26.9% to $153.1 million from $120.7 million for the first six months of 2014;

– Growth in our Specialty Admitted Insurance segment of 60.3% to $38.9 million from $24.2 million in 2014; and

– Growth in our Casualty Reinsurance segment of 24.2% to $123.3 million from $99.3 million in 2014. This growth is mainly a matter of timing as expiring contracts were renewed out of sequence. We anticipate annual gross written premium for the Casualty Reinsurance segment will be flat for calendar year 2015;

– A combined ratio of 97.6% equal to that of the prior year; and

– An overall increase in net written premium for the first six months of 2015 of 25.1% to $267.5 million compared to $213.8 million in the first half of 2014.

Tangible equity value decreased 1.1% for the second quarter of 2015 from $475.7 million at March 31, 2015 to $470.5 million at June 30, 2015. This was primarily due to a decrease in accumulated other comprehensive income (i.e. unrealized gains in our investment portfolio) which decreased $15.0 million from $22.3 million at March 31, 2015 to $7.3 million at June 30, 2015 as well as the dividend of $4.6 million paid during the quarter, partially offset by net income in the quarter. The decrease in unrealized gains was primarily driven by the change in market rates of interest.

On a year-to-date basis, our tangible book value increased 1.0% from $466.0 million at December 31, 2014 to $470.5 million at June 30, 2015. This increase was primarily due to our net income of $21.9 million offset by a decrease in accumulated other comprehensive income which decreased $11.1 million from $18.4 million at December 31, 2014 to $7.3 million at June 30, 2015 as well as the $9.2 million of dividends paid during 2015.

J. Adam Abram, Chairman and Chief Executive Officer, said, “We are pleased with our results. Each of our segments earned an underwriting profit in the quarter and for the six-month period. We are enjoying solid growth in our Excess and Surplus Lines segment, which has traditionally been a source of substantial underwriting profits for our group. We enter the second half of the year confident about the group’s prospects for solid underwriting profits.”

“We are also pleased with our investment results for the quarter. We benefited significantly this quarter from increases in the market value of equity investments we have made in renewable energy projects.”

“In keeping with our Board’s emphasis on capital efficiency and management, the Directors voted to declare a dividend of $0.16 per share to be paid September 30, 2015.”

Net operating earnings per diluted share for the second quarter of 2015 were $0.42 per share and excluded $116,000 (less than $.01 per share) of pre-tax costs related to realized gains and losses and other non-operating expenses. This amount compares to $0.38 for the same period in 2014. On a year-to-date basis, net operating earnings per diluted share for 2015 were $0.82 per share and excluded $0.07 per share of costs related to realized gains and losses and other non-operating expenses. This amount compares to $0.74 for the same period in 2014.

Fully diluted earnings per share for the second quarter of 2015 were $0.43 which compares to the $0.33 per share for the same period in 2014. On a year-to-date basis, fully diluted earnings per share for 2015 were $0.75 per share. This amount compares to $0.65 for the same period in 2014.

The combined ratio for the Company was 97.8% (comprised of a loss ratio of 64.0% and an expense ratio of 33.8%) for the second quarter of 2015. This compares to a combined ratio of 96.7% (comprised of a loss ratio of 63.2% and an expense ratio of 33.4%) in the prior year. On a year-to-date basis, the combined ratio for the Company was 97.6% (comprised of a loss ratio of 63.8% and an expense ratio of 33.8%) for 2015. This compares to a combined ratio in the prior year that was also 97.6% (comprised of a loss ratio of 63.1% and an expense ratio of 34.4%).

Results for the quarter ended June 30, 2015 include favorable reserve development on prior accident years of $2.5 million, representing 2.4 points of our loss and combined ratio, respectively, which compares to favorable reserve development in the prior year of $ 2.7 million, representing 2.7 points of our loss and combined ratio, respectively. On an after-tax basis, favorable reserve development for the quarter is $2.1 million ($2.2 million in the prior year). On a year-to-date basis, 2015 includes favorable reserve development on prior accident years of $5.0 million (or $4.1 million on an after-tax basis) representing 2.2 points of our loss and combined ratio, respectively. In 2014, this favorable reserve development was $3.7 million (or $3.0 million on an after-tax basis) representing 2.0 points of our loss and combined ratio, respectively.

The slight increase in the overall expense ratio in the second quarter of 2015 compared to the same period in prior year (33.8% in 2015 vs. 33.4% in the prior year) was primarily due to the increased costs of being a public company, offset by the increase in our earned premiums which grew 9.3% in the quarter from $97.0 million in 2014 to $106.1 million in 2015. For the six months ended June 30, 2015 our expense ratio decreased (to 33.8% in 2015 vs. 34.4% in the prior year) as a result of earned premiums increasing 19.9% from $186.1 million in 2014 to $223.1 million in 2015, offset by the increased costs of being a public company.

The Excess and Surplus Lines segment’s combined ratio was 89.1% for the second quarter of 2015, comprised of a loss ratio of 61.8% and an expense ratio of 27.3%. In the prior year, this segment’s combined ratio was 88.5% for the second quarter, comprised of a loss ratio of 61.3% and an expense ratio of 27.3%. For the year-to-date, the Excess and Surplus Lines segment’s combined ratio was 88.2%, comprised of a loss ratio of 61.0% and an expense ratio of 27.2%. In the prior year, this segment’s combined ratio on a year-to-date basis was 89.8%, comprised of a loss ratio of 61.4% and an expense ratio of 28.4%. In the second quarter, we recognized $3.4 million in pre-tax, favorable reserve development representing 6.5 points of our loss and combined ratio, respectively. In the same period in 2014, we recognized $3.9 million in pre-tax favorable reserve development representing 8.7 points of our loss and combined ratio, respectively. On a year-to-date basis, 2015 includes favorable reserve development on prior accident years of $8.4 million representing 7.5 points of our loss and combined ratio, respectively. In 2014, this favorable reserve development was $6.3 million representing 7.2 points of our loss and combined ratio, respectively.

The Specialty Admitted Insurance segment’s combined ratio was 98.0% for the second quarter of 2015, comprised of a loss ratio of 60.4% and an expense ratio of 37.6%. In the prior year, this segment’s combined ratio was 106.9%, comprised of a loss ratio of 57.6% and an expense ratio of 49.3%. For the year-to-date, the Specialty Admitted Insurance segment’s combined ratio was 99.8%, comprised of a loss ratio of 60.5% and an expense ratio of 39.2%. In the prior year, this segment’s combined ratio was 108.9%, comprised of a loss ratio of 56.5% and an expense ratio of 52.4%. In the second quarter, we recognized $189,000 in pre-tax, favorable reserve development representing 1.9 points of our loss and combined ratio, respectively. In the same period in 2014, we recognized $789,000 in pre-tax, favorable reserve development representing 12.1 points of the loss and combined ratio, respectively. On a year-to-date basis, 2015 includes favorable reserve development on prior accident years of $196,000 representing 1.0 points of our loss and combined ratio, respectively. In 2014, this segment had favorable reserve development of $1.1 million representing 9.2 points of our loss and combined ratio, respectively. The expense ratio for the second quarter and year-to-date 2015 of 37.6% and 39.2%, respectively, has begun to show the effects of the successful ramp up of the programs and fronting business along with an overall increase in earned premiums in this segment. For the same periods in the prior year, the expense ratio was 49.3% and 52.4%, respectively.

The Casualty Reinsurance segment’s combined ratio was 98.6% for the second quarter of 2015, comprised of a loss ratio of 67.6% and an expense ratio of 31.0%. In the prior year, this segment’s combined ratio was 99.2% comprised of a loss ratio of 66.0% and an expense ratio of 33.2%. For the year-to-date, the Casualty Reinsurance segment’s combined ratio was 99.3%, comprised of a loss ratio of 68.0% and an expense ratio of 31.3%. In the prior year, this segment’s combined ratio on a year-to-date basis was 99.5%, comprised of a loss ratio of 65.7% and an expense ratio of 33.8%. In the second quarter, we recognized $1.1 million of adverse reserve development representing (2.6) points of the loss and combined ratio, respectively. In the prior year, we recognized $2.0 million of adverse reserve development representing (4.5) points of the loss and combined ratio, respectively. On a year-to-date basis, 2015 includes adverse reserve development on prior accident years of $3.6 million representing (3.9) points of our loss and combined ratio, respectively. In 2014, this adverse reserve development was $3.6 million representing (4.1) points of our loss and combined ratio, respectively.

The increase in gross written premium at this segment for the second quarter of 2015 is principally due to the timing of renewals on two contracts:

– One contract which renewed as a 15 month treaty in the first quarter of 2014 was renewed in the second quarter of 2015. This contract contributed $36.7 million to this segment’s gross written premium in the first quarter of 2014 and $27.4 million to the second quarter of 2015; and

– Another contract which renewed in the third quarter of 2014 was renewed in the second quarter of 2015. This contract contributed $25.0 million to this segment’s gross written premium in the third quarter of 2014 and $16.0 million to the second quarter of 2015.

Net investment income for the second quarter of 2015 was $13.0 million which compares to $10.7 million for the same period in 2014. On a year-to-date basis, net investment income for 2015 was $25.0 million which compares to $23.2 million for the same period in 2014. These increases in net investment income were attributable to an increase in the fair value of our investments in certain renewable energy partnerships in the second quarter of $2.2 million compared to $724,000 in the prior year ($4.6 million and $4.0 million for the six months ended June 30, 2015 and 2014, respectively). Additionally the increase in net investment income is attributable to positive operating cash flow as evidenced by the increase in our balance of cash and invested assets which grew 4.9% and 2.1% from $1,276.1 million at June 30, 2014 and $1,310.6 million at December 31, 2014, respectively, to $1,338.6 million at June 30, 2015. Offsetting this increase was the $70 million dividend we paid on September 30, 2014, which reduced our investable assets, as well as declining portfolio yields. Our annualized gross investment yield on average fixed maturity securities for the three and six months ended June 30, 2015 was 3.4% and 3.2%, respectively, and the average duration of our portfolio was 3.5 years.

During the second quarter, we recognized $350,000 of pre-tax net realized gains. On a year-to-date basis for 2015, we recognized $2.5 million in pre-tax net realized losses. Included in this amount was $3.4 million in losses during the first quarter of 2015 relating to our energy portfolio, which at June 30, 2015 had a remaining carrying value of $24.5 million and a fair market value of $22.8 million.

Dividend

The Company also announced that its Board of Directors declared a cash dividend of $0.16 per common share. This dividend is payable on Wednesday, September 30, 2015 to all shareholders of record on Monday, September 14, 2015.

Conference Call

James River Group Holdings will hold a conference call to discuss this press release tomorrow, August 6, 2015, at 9:00 a.m. Eastern time. Investors may access the conference call by dialing (877) 930-8055 Conference ID# 59295869 or via the internet by going to www.jrgh.net and clicking on the “Investor Relations” link. Please visit the website at least 15 minutes early to register and download any necessary audio software. A replay will be available shortly after the call and through the end of business on September 6, 2015 at the number and website referenced above.

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, intend, project, anticipate, plan, estimate 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 factors, they include, among others, the following: losses exceeding reserves; loss of key members of our management or employees; adverse economic factors; a decline in our financial strength; loss of a group of brokers or agents that generate significant portions of our business; losses in our investment portfolio; additional government or market regulation; potentially becoming subject to United States taxation and other risks described in the Company’s filings with the Securities and Exchange Commission. These forward-looking statements speak only as of the date of this release and we do 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 Holding’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, net operating income and return on tangible equity 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 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 which owns and operates a group of specialty insurance and reinsurance companies founded by members of our management team. The company operates in three specialty property-casualty insurance and reinsurance segments: Excess and Surplus Lines, Specialty Admitted Insurance and Casualty Reinsurance. The company tends to focus on accounts associated with small or medium-sized businesses in each of its segments. Each of the Company’s regulated insurance subsidiaries are rated “A-” (Excellent) with a “positive outlook” by A.M. Best Company.