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FORM
CURRENT REPORT
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| Item 7.01 | Regulation FD Disclosure. |
James River Group Holdings, Ltd. (the “Company”) is furnishing a copy of its first quarter 2022 investor presentation as Exhibit 99.1 to this Current Report on Form 8-K (this “Form 8-K”). The Company intends to use the investor presentation from time to time in meetings with investors and analysts. The presentation will also be posted on the investor relations portion of the Company's website.
The information provided pursuant to this Item 7.01, including Exhibit 99.1 in Item 9.01, is “furnished” and shall not be deemed to be “filed” with the Securities and Exchange Commission or incorporated by reference in any filing under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in any such filings.
| Item 9.01 | Financial Statements and Exhibits. |
| (d) | Exhibits |
The following Exhibit is furnished as a part of this Form 8-K:
| Exhibit No. | Description | |
| 99.1 | Investor Presentation | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| JAMES RIVER GROUP HOLDINGS, LTD. | ||
| Dated: May 13, 2022 | By: | /s/ Sarah C. Doran |
| Name: | Sarah C. Doran | |
| Title: | Chief Financial Officer | |
Exhibit 99.1
Investor Presentation First Quarter 2022
Disclosure Forward - Looking Statements This presentation 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 ; the negative impact that a persistent high inflationary environment could have 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 This presentation contains non - GAAP financial measures as defined by Regulation G of the rules of the SEC . These non - GAAP measures, such as underwriting profit, adjusted net operating (loss) income, tangible equity, tangible common equity, tangible equity per share, and tangible common equity per common share are not in accordance with, nor are they a substitute for, GAAP measures . We believe these non - GAAP measures provide users of our financial information useful insight into our performance . Investors should consider non - GAAP measures in addition to, and not as a substitute for, or superior to, the comparable GAAP measures . Please refer to pages 22 & 23 of this presentation for a reconciliation of the non - GAAP financial measures to the equivalent GAAP equivalents . Ratings Disclaimer Notice Reproduction of any information, data or material, including ratings (“Content”) in any form is prohibited except with the prior written permission of the relevant party . Such party, its affiliates and suppliers (“Content Providers”) do not guarantee the accuracy, adequacy, completeness, timeliness or availability of any Content and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such Content . In no event shall Content Providers be liable for any damages, costs, expenses, legal fees, or losses (including lost income or lost profit and opportunity costs) in connection with any use of the Content . A reference to a particular investment or security, a rating or any observation concerning an investment that is part of the Content is not a recommendation to buy, sell or hold such investment or security, does not address the suitability of an investment or security and should not be relied on as investment advice . Credit ratings are statements of opinions and are not statements of fact . Market and Industry Data This presentation includes market and industry data, forecasts and projections . We have obtained certain market and industry data from publicly available industry publications . These sources generally state that the information they provide has been obtained from sources believed to be reliable, but that the accuracy and completeness of the information are not guaranteed . The forecasts and projections are based on historical market data, and there is no assurance that any of the forecasts or projected amounts will be achieved . 2
Executive Summary
4 Overview of James River x Renew our unrelenting focus on underwriting profitability x We seek to generate superior margins from our niche casualty focused underwriting risks, while growing fee income in our fronting and program business x We intend to continue to focus on the small and middle market, where we have earned superior returns over our 19 year history x Target low volatility casualty risk with low retentions and little property exposure x Enhanced enterprise risk management (ERM) profile, with a refined ERM framework and additional expertise brought to the organization x Highly efficient operator with leading expense ratio x Significantly de - risked balance sheet following reserve adjustments and loss portfolio transfer transactions, as well as additional capital raised x We anticipate a low double digit return on tangible common equity for 2022 (including the impact of certain adjustments for the Casualty Reinsurance related Loss Portfolio Transfer) We seek to deliver a consistent, top tier return on tangible common equity and generate sector leading value creation
Our Business 5 • We are a specialty, low volatility underwriting company with an attractive, sizeable Excess & Surplus (“E&S”) franchise and r api dly scaling “capital light” fronting business experiencing an extremely robust market for property and casualty risk. • Little catastrophe or cyber exposure, and effective use of reinsurance to limit volatility. • Our focus is small and medium sized commercial account E&S casualty business which we look to continue to complement with a g row ing fee business within our Specialty Admitted segment. • Our balance sheet has been significantly strengthened by two loss portfolio transfer (“LPT”) transactions on distinct books o f b usiness, as well as significant reserve strengthening, and capital raised, over the last 12 months. Our Key Growth Opportunities E&S Segment Specialty Admitted Segment Casualty Reinsurance Segment • Focus is on small and medium sized commercial account E&S casualty business; generally $1.0 MM per occurrence limits; ~$23,000 average premium per account • Significant strength in current market environment • “Core E&S” excludes commercial auto and has experienced 21 consecutive quarters of renewal rate increases; 52% CAGR over that time period • Underwritten by specialists in 13 divisions and distributed through ~110 broker groups • Segment includes (i) a growing, deal - driven, “capital light” fee business that fronts admitted and non - admitted business and (ii) a targeted book of workers’ compensation risks • Business is scaling, as fee and premium income grow with a stable expense and capital base • Experienced management team with a robust pipeline of new programs • Gross f ee income of $23 MM for Q1 2022 LTM increased 14% compared to Q1 2021 LTM • Segment being meaningfully downsized during 2022; expected to be less than 5% of Company GWP. Majority of legacy reserves significantly de - risked via LPT closed in March 2022 • Third - party proportional and working - layer casualty business focused on small and medium U.S. specialty lines • Experiencing significant positive renewal rate increases similar to the E&S segment • Loss mitigation features are widely utilized across the book PROFITABLE SPECIALTY UNDERWRITING A FOCUS ON FEE INCOME CONTINUED OPTIMIZATION IN 2022 57% of 1Q 2022 LTM Consolidated GWP 33% of 1Q 2022 LTM Consolidated GWP 10% of 1Q 2022 LTM Consolidated GWP $857 MM 1Q 2022 LTM GWP $490 MM 1Q 2022 LTM GWP $147 MM 1Q 2022 LTM GWP $80 MM 1Q 2022 LTM Underwriting Profit (1) $9 MM 1Q 2022 LTM Underwriting Profit Note: Last twelve months (“LTM”) for 1Q 2022 is the sum of 2Q 2021 through 1Q 2022, and for 1Q 2021 is the sum of 2Q 2020 thr oug h 1Q 2021. (1) Underwriting profit is shown for Core E&S and excludes adverse development of $34 MM related to the commercial auto business.
$190 $218 $235 $261 $282 $334 $517 $669 $799 $819 $21 $59 $91 $182 $316 $374 $388 $409 $492 $490 2013 2014 2015 2016 2017 2018 2019 2020 2021 1Q22 LTM Core E&S Specialty Admitted Commercial Auto Casualty Re 6 Attractive Growth Businesses Historical GWP ($M) (2) Quarterly Core E&S Renewal Rate Increases Growing businesses % of Consolidated GWP: 57% 53% 60% 55 % 57% 61 % 61% 86 % Compound aggregate rate increases on renewal book last 21 quarters = 52% (1) The term “Core E&S” used in this presentation refers to our Excess and Surplus lines segment excluding the commercial auto bu sin ess written in such segment. (2) The large commercial auto account in run off represents the bulk of our commercial auto gross written premiums through 12/31/ 201 9. None of the remaining commercial auto business we write is exposed to the “ride - share” sector. • Attractive E&S market poised for expected continued profitable growth as industry competitors retrench, and new businesses ar e f orced to find insurance coverage in the E&S market given their lack of insurance loss history. • Our primary businesses (Core E&S (1) and Specialty Admitted) have been profitable and consistently growing since 2013, and represented 88% of gross written premiums as of 1Q 2022 LTM. • Core E&S has grown substantially during recent market strength, with nearly a 3x increase from $282 MM in 2017 to $819 MM for 1Q 22 LTM. • Core E&S is benefiting from significant rate hardening and strong submission flow as major industry competitors retrench and sta ndard market writers recalibrate their risk appetite. 86 % 88 % 13% 2% 2% 10% 3% 5% 6% 6% 14% 19% 13% 9% 15% 18% 9% 10% 8% Q1 '18 Q2 '18 Q3 '18 Q4 '18 Q1 '19 Q2 '19 Q3 '19 Q4 '19 Q1 '20 Q2 '20 Q3 '20 Q4 '20 Q1 '21 Q2 '21 Q3 '21 Q4 '21 Q1 '22
7 What is Driving Growth in the E&S Market? The E&S market began experiencing rate hardening in late 2018 / early 2019 and the hardening significantly accelerated in 2020 driven by the Global Pandemic. Admitted market carriers have been tightening underwriting guidelines or non - renewing business, pushing it to the E&S market Increasing jury verdicts and social inflation Reopening economy in the wake of a recession Increased risk of cyber threats as the world becomes more digitized Emergence of novel health risks Increasing catastrophe losses and risk of climate change + We believe we have little exposure to social inflation in our Core E&S book given its small account nature, risk profile and limit deployment New business formation and small business revamp are our key clients; significant growth in contract binding business We have negligible cyber exposure as an underwriter The overwhelming majority of our Core E&S book has an organic pathogen exclusion We write little cat exposed property, and for the risks we do insure we have robust reinsurance protection up to the 1:1,000 per year level (1) (1) We have structured our reinsurance agreements so that our modeled net pre - tax loss from a 1:1,000 year probable maximum loss ("P ML") event would not exceed 2.5% of shareholders’ equity on a group - wide basis. Please refer to our 10 - K filing for a detailed description of our reinsurance program.
$25.4 $27.3 $28.9 $29.8 $29.9 $31.5 $34.6 $40.3 $47.6 $62.9 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 8 The E&S Market is Highly Attractive U.S. Excess & Surplus Lines DWP ($BN) Profitability of E&S Industry vs. Total P&C Industry: 10 Year Combined Ratio P&C Industry 2012 – 2021 Average Combined Ratio: 100% E&S Industry 2012 – 2021 Average Combined Ratio: 86% E&S industry DWP has grown at double digit rates the past 4 years driven by rising renewal rates and changes in risk appetite 2012 – 2017 Average Growth Rate: 5% E&S market generated 14 points of underwriting alpha compared to the broader P&C industry Source: S&P Global Market Intelligence (and its affiliates, as applicable). 88% 71% 75% 74% 83% 100% 94% 87% 95% 89% 103% 96% 97% 98% 101% 104% 99% 99% 99% 100% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 E&S Industry Combined Ratio P&C Industry Combined Ratio
E&S: Broad Risk Appetite Permits Us to ‘Pick Our Spots’ 9 • 13 separate underwriting divisions focused on growth in very attractive markets. • Renewal rates increased more than 13% in each of 2020 and 2021 across our E&S business. • The 8.4% renewal rate increase in 1Q 2022 was the twenty - first consecutive quarter of rate increases compounding to 52%. Our high caliber underwriting team, and use of technology, provide significant expertise to price our increased submission fl ow of skillfully underwritten risks $ in millions Lead U/W Years of Industry Division Experience 2020 2021 2021 2022 FY 2021 Q1 2022 Description Excess Casualty 39 $213.0 $285.1 $68.4 $70.2 34% 3% Following form excess on risks similar to GC and MC General Casualty 35 125.4 140.6 29.4 34.4 12% 17% Premises ops (e.g., apartments, offices & restaurants) Manufacturers & Contractors 39 122.9 139.7 31.9 35.8 14% 12% Products liability & completed operations exposure Excess Property 33 37.3 47.2 6.9 9.8 27% 43% CAT-exposed excess property > 1/100 year return period Energy 39 51.1 46.2 10.8 12.0 -10% 12% Oil field service contractors, mining, etc. Life Sciences 39 35.2 35.9 5.7 6.8 2% 20% Nutrition products, medical devices and human clinical trials Allied Health 29 26.9 35.2 8.2 8.1 31% -2% Long-term care, outplacement facilities & social services Commercial Auto 35 30.0 34.6 5.8 8.4 15% 45% Hired / non-owned auto Small Business 29 24.8 32.6 7.5 9.0 31% 21% Small accounts similar to GC and MC; includes contract binding Environmental 39 17.8 17.1 2.7 3.9 -4% 43% Environmental contractors and consultants Sports & Entertainment 35 6.1 9.4 1.6 2.8 54% 81% Amusement parks, campgrounds, arenas Professional Liability 29 6.9 8.1 2.1 2.6 18% 22% E&O for non-medical professionals (lawyers, architects, engineers) Medical Professionals 29 1.7 1.8 0.5 0.4 8% -22% Non-standard physicians and dentists Total E&S $699.1 $833.7 $181.4 $204.3 19% 13% Core E&S $669.1 $799.0 $175.6 $195.9 19% 12% Commercial Auto $30.0 $34.6 $5.8 $8.4 15% 45% Gross Written Premium Year Ended Dec. 31 Quarter Ended March 31 % Change
12.7 13.2 15.1 19.9 25.0 30.5 $20.0 $21.4 $21.5 $24.9 $26.1 $23.9 2016 2017 2018 2019 2020 2021 Policies in Force (000's) Avg. Premium Size ($000) Finding Profitable Growth Opportunities 10 Attractive underwriting conditions have allowed for meaningful growth in our Core E&S book at highly profitable margins $261 $282 $334 $517 $669 $799 0% 3% 10% 16% 32% 49% 2016 2017 2018 2019 2020 2021 Core E&S GWP ($ MM) Compound Rate Change Achieving meaningful scale at highly attractive rates – disciplined underwriting culture Highly profitable Core E&S underwriting margins, poised to benefit from expected rate increases in the current environment Remaining disciplined with quoting business, but binding a higher % as market capacity remains tight PIF growth has been strong as we maintain our core, profitable SME business focus 23% 23% 23% 21% 21% 21% 31% 29% 30% 34% 36% 41% 2016 2017 2018 2019 2020 2021 Quote to Submission % Bind to Quote % 85% 85% 94% 93% 75% 84% 2016 2017 2018 2019 2020 2021 Core E&S Combined Ratio
$330 $319 $320 $324 $323 $322 $334 $345 $370 $413 $424 $434 $433 Q1 '19 Q2 '19 Q3 '19 Q4 '19 Q1 '20 Q2 '20 Q3 '20 Q4 '20 Q1 '21 Q2 '21 Q3 '21 Q4 '21 Q1 '22 $15 $15 $15 $16 $16 $18 $18 $19 $20 $20 $21 $23 $23 Q1 '19 Q2 '19 Q3 '19 Q4 '19 Q1 '20 Q2 '20 Q3 '20 Q4 '20 Q1 '21 Q2 '21 Q3 '21 Q4 '21 Q1 '22 Specialty Admitted: Growth With Limited Risk Retention 11 Fronted Programs GWP (1) Fee Income (1) Fronted programs premium represent 88% of the GWP of our Specialty Admitted Segment Consistent and predictable stream of earnings $ in millions (1) Presented on an LTM basis as of the period indicated. Fronting business continues to experience meaningful growth as recently added programs mature and expand • Capital light, deal - driven business with limited risk retention. • Lower risk fee - income business complements our highly profitable Core E&S underwriting business. • Increased demand for fronting paper driven by hard market conditions as start - ups and MGAs / MGUs search for capacity. • Seeing an active flow of submissions for new fronting programs; new programs added are expected to continue to ramp. • Workers’ compensation gross written premium declined during 1Q22 due to prudent portfolio management in a competitive market. Excluding a large workers’ compensation program, fronted programs premium increased 6.5% in the first quarter of 2022 .
0% 27% 31% 33% 35% 59% 100% 0.7% 1.5% 1.8% 3.0% 4.2% 6.0% 8.7% 12 We Represent a Unique Investment Opportunity 2021 Cat Losses % of Loss Ratio (1) 2021 E&S DWP as a % of total GWP (2) Our focus on low volatility, niche casualty E&S business and prudent reinsurance purchasing results in little catastrophe exposure, differentiating us from specialty peers We are the 2 nd most concentrated company in terms of E&S exposure, providing investors concentrated exposure to an attractive market (3) 70% (3) Source: S&P Global Market Intelligence (and its affiliates, as applicable), SEC filings. (1) Represents total pre - tax catastrophe losses as disclosed in company filings divided by net earned premiums for the 12 months end ed December 31, 2021. (2) Statutory E&S direct written premium as defined and calculated by S&P Global Market Intelligence. Represents statutory E&S di rec t written premium divided by GAAP consolidated gross written premium. (3) 59% based on statutory E&S DWP as defined and calculated by S&P Global Market Intelligence. 70% based on GAAP E&S GWP (includ ing assumed business in our Casualty Reinsurance segment).
13 Capital Position Commentary • Completed common equity raise in 2Q 2021 and issuance of Series A preferred shares in 1Q 2022, along with loss portfolio transfer transactions covering run off commercial auto and the majority of Casualty Reinsurance segment reserves. • Have reduced debt and financial leverage ratio in recent periods. • These actions have bolstered the balance sheet and position the business for expected profitable growth at the current strong pace in order to generate a compelling return on tangible common equity. o 1Q 2022 operating leverage was 1.30x and financial leverage was 23%. • The decline in AOCI during 1Q 2022 primarily reflects the impact of a decline in market value of our fixed maturity securities due to a rise in interest rates. This change does not impact our leverage ratio, in accordance with our credit agreements. $ and shares in millions, except per share figures. (1) Excluding restricted cash equivalents. (2) Leverage ratio, in accordance with the Company’s credit agreements, is calculated as adjusted consolidated debt / total capit al. Adjusted consolidated debt treats hybrid securities as equity capital up to 15% of total capitalization. Total capital is defined as total debt plus tangible equity excluding accumulated other comprehe nsi ve income. (3) Net written premium presented on an LTM basis as of the period indicated. (1) (2) (3) Our balance sheet enables us to continue to capitalize on an extremely attractive P&C market 1Q 2021 2Q 2021 3Q 2021 4Q 2021 1Q 2022 Assets Total Invested Assets $2,159.0 $2,202.3 $2,061.4 $2,130.5 $2,125.0 Cash and Cash Equivalents 183.5 360.9 220.6 190.1 270.2 Goodwill and Intangible Assets 218.1 218.1 218.0 217.9 217.8 Total Assets 5,109.7 5,391.8 4,784.1 4,948.6 5,267.2 Liabilities and Shareholders' Equity Reserve for Losses and LAE 2,413.8 2,447.0 2,596.8 2,748.5 2,750.2 Senior Debt 262.3 262.3 262.3 262.3 222.3 Junior Subordinated Debt 104.1 104.1 104.1 104.1 104.1 Total Debt 366.4 366.4 366.4 366.4 326.4 AOCI 39.2 54.6 43.1 30.0 (56.0) Series A Redeemable Preferred Shares - - - - 144.9 Shareholders' Equity 639.6 858.5 813.6 725.4 647.7 Tangible Equity 421.5 640.4 595.7 507.5 574.8 Tangible Common Equity 421.5 640.4 595.7 507.5 429.9 Shareholders’ Equity per Share $20.78 $23.03 $21.82 $19.41 $17.30 Tangible Equity per Share $13.70 $17.18 $15.98 $13.58 $13.34 Tangible Common Equity per Share $13.70 $17.18 $15.98 $13.58 $11.48 Common Shares Outstanding 30.8 37.3 37.3 37.4 37.4 Leverage Ratio 35% 28% 29% 31% 23% Net Written Premium / Tangible Equity 1.63x 1.12x 1.22x 1.47x 1.30x Balance Sheet as of:
Investment Portfolio 14 Commentary • Balanced portfolio focused on high quality fixed maturities, with small allocation to unique strategies to enhance returns. • Weighted average rating of A+ across the portfolio, similar to recent periods. • Total invested assets declined by 2% from the prior year quarter, primarily due to the transfer of funds in connection with the LPT reinsurance agreement executed during 3Q21 and a reduction in market values during 1Q22. • Annualized gross investment yield declined primarily as a result of lower market yields on fixed maturity securities and bank loan participations. • Investment income increased from 1Q 2021 levels due to: i. Higher valuations of renewable energy investments, partially offset by a reduction in investment income from other private investments. ii. Lower yields on high grade fixed maturity portfolio and bank loan portfolio Investment Portfolio as of March 31, 2022 $ in millions First Quarter Change Net Investment Income 2021 2022 (%) Renewable Energy Investments ($0.7) $2.7 NM Other Private Investments 1.0 0.2 (79)% All Other Net Investment Income 14.8 13.4 (9)% Total Net Investment Income $15.1 $16.3 8% Portfolio Statistics 1Q21 1Q22 Gross Investment Yield (1) 3.2% 3.0% Average Duration 4.3 years 4.1 years Total Cash and Investments (excluding restricted cash): $2,395 MM The Company holds a conservative portfolio given its focus on underwriting risk $ in millions (1) Includes fixed maturity, bank loan and equity securities. 70% 4% 7% 6% 2% 11% Fixed Maturity Securities Equity Securities Bank Loans Short-Term Investments Other Invested Assets Cash and Cash Equivalents (excluding restricted cash)
Key Investment Highlights 15 Significant valuation upside when compared to public trading multiples of E&S focused peers Large and Expanding Addressable Market Valuation Upside Potential Strengthened reserves as well as LPT transactions covering run off commercial auto and the majority of historical Casualty Reinsurance reserves, result in a significantly de - risked balance sheet Large and Expanding Addressable Market Well Capitalized and Strong Balance Sheet Proven market leader with focus on the small and middle market; one of the highest E&S concentrations with minimal property catastrophe exposure Large and Expanding Addressable Market Market Leading E&S Carrier Robust E&S market poised for continued expansive growth driven by favorable macro trends and strong pricing conditions Large and Expanding Addressable Market Capitalizing on a ‘once in a generation’ pricing market Track record of generating superior underwriting margins from our core niche casualty focused risks Large and Expanding Addressable Market Strong Track Record of Profitable Underwriting in Core Business
Appendix: 1Q 2022 Earnings
17 Consolidated Performance Commentary • 4% decline in gross written premium, with continued growth in E&S offset by an expected reduction in Casualty Re premium. • Net written and net earned premium growth was 1% and 18%, respectively, reflecting growth in gross premium over the trailing twelve months and changes in retention. • Net investment income increased 8% due largely to stronger returns from renewable energy investments, while lower yields and fewer invested assets reduced income from all other investments. • The accident year loss ratio was 67.9% and increased from the prior year quarter due primarily to additional current accident year losses associated with the Casualty Reinsurance loss portfolio transfer. • Prior year development of $7 MM or 3.6 points due to previously announced strengthening in the Casualty Reinsurance segment related to the loss portfolio transfer, while development in the prior year quarter was primarily related to run off Commercial Auto business as well as Casualty Reinsurance. • The expense ratio of 26.0% declined from 28.9% in the prior year period, primarily due to growth in earned premium and fee income while continuing to manage expenses. $ in millions, except per share figures % 1Q21 1Q22 Change Key Income Statement Items Gross Written Premiums $373.3 $360.0 (4)% Net Written Premiums 174.6 175.9 1% Net Earned Premiums 160.6 189.8 18% Net Investment Income 15.1 16.3 8% Total Revenues 183.0 201.9 10% Total Expenses 323.8 188.4 (42)% Net (Loss) Income Available to Common Shareholders (103.5) 9.3 NM Net Realized and Unrealized (Gains) Losses on Investments (5.8) 4.2 NM Other Expenses 0.4 0.3 (17)% Adjusted Net Operating (Loss) Income (108.8) 13.9 NM Underwriting Ratios Accident Year Loss Ratio 64.4% 67.9% 3.5% Prior Year Development 105.9% 3.6% (102.3)% Loss Ratio 170.3% 71.4% (98.9)% Expense Ratio (1) 28.9% 26.0% (2.9)% Combined Ratio 199.2% 97.4% (101.8)% Accident Year Combined Ratio 93.3% 93.8% 0.6% Key Balance Sheet Items Shareholders’ Equity per Share (2) $20.78 $17.30 (12)% Tangible Equity per Share (2) $13.70 $13.34 4% Tangible Common Equity per Share (2) $13.70 $11.48 (9)% (1) 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 $0.8 million for the three months ended March 31, 2022 ($0.9 in the prior year pe rio d), and a denominator of net earned premiums. (2) % change is adjusted for dividends per common share paid from 2Q 2021 to 1Q 2022 totaling $0.95 per share.
18 E&S Segment Performance Commentary • Gross written premium growth of 13%, including double digit growth in ten of thirteen underwriting divisions. • Net written and net earned premium growth was 16% and 15%, respectively, and reflects gross growth as well as changes in business mix and net retention. • Renewal rates increased 8.4% across the segment during the first quarter of 2022. Nearly all underwriting divisions reported rate increases and positive growth. • The accident year loss ratio was 64.7% compared to 64.3% in the prior year quarter. • Prior year development was de minimis during the first quarter of 2022, while the prior year quarter included $169 MM or 148.3 points of reserve strengthening related to the run off Commercial Auto portfolio. • The expense ratio of 19.0% decreased 1.1 points compared to the prior year period, due to strong earned premium growth and continued expense management. $ in millions % 1Q21 1Q22 Change Key Segment Results Gross Written Premiums $181.4 $204.3 13% Net Written Premiums 108.4 125.7 16% Net Earned Premiums 113.7 131.3 15% Losses and Loss Adjustment Expenses 241.7 84.9 (65)% Underwriting Expenses 22.9 24.9 9% Underwriting (Loss) Profit (150.9) 21.5 NM Underwriting Ratios Accident Year Loss Ratio 64.3% 64.7% 0.4% Prior Year Development 148.3% 0.0% (148.3)% Loss Ratio 212.6% 64.7% (147.9)% Expense Ratio 20.1% 19.0% (1.1)% Combined Ratio 232.7% 83.7% (149.0)% Accident Year Combined Ratio 84.4% 83.7% (0.7)%
19 Specialty Admitted Segment Performance Commentary • Gross written premium declined 1%, reflecting a 4% reduction in individual risk works’ compensation and a 1% decline in fronting and program premium. • Excluding a large workers’ compensation focused program, fronting and program premium was up 6.5% in the first quarter of 2022. • Strong fronting and programs pipeline remains intact, including new programs bound during the first quarter of 2022. • Workers’ compensation gross written premium declined due to prudent portfolio management in a competitive market. • Net earned premium growth was 18% and gross fee income increased 8%, both compared to the prior year quarter, driving the expense ratio to 19.0% from 26.6% in the prior year quarter. • The accident year loss ratio of 79.6% during the first quarter of 2022, was approximately in - line with the accident year loss ratio during the second half of 2021. • There was de minimis prior year development in the first quarter of 2022, compared to $1 MM or 6.1 points of favorable development in the prior year quarter. $ in millions % 1Q21 1Q22 Change Key Segment Results Gross Written Premiums $127.0 $125.7 (1)% Net Written Premiums 22.0 20.2 (8)% Net Earned Premiums 16.4 19.3 18% Gross Fee Income 5.1 5.6 8% Losses and Loss Adjustment Expenses 10.7 15.4 44% Underwriting Expenses 4.3 3.7 (16)% Underwriting Profit (1) 1.3 0.2 (83)% Underwriting Ratios Accident Year Loss Ratio 71.8% 79.6% 7.8% Prior Year Development (6.1)% 0.3% 6.4% Loss Ratio 65.7% 79.9% 14.2% Expense Ratio 26.6% 19.0% (7.6)% Combined Ratio 92.3% 98.9% 6.6% Accident Year Combined Ratio 98.4% 98.6% 0.2% (1) Underwriting results include gross fee income of $5.6 million for the three months ended March 31, 2022 ($5.1 million for the sa me period in the prior year).
20 Casualty Reinsurance Segment Performance Commentary • Gross written premium decreased 54% compared to the prior year quarter due to the non - renewal of several treaties. • The segment gross written premiums are expected to be meaningfully downsized over the course of 2022. • Since the earning patterns of the business can extend over multiple years, changes in net earned premium for this segment will lag the expected decline in gross and net written premium. • As previously announced, the first quarter of 2022 included $6.8 MM or 17.3 points of prior year reserve development associated with the Casualty Reinsurance loss portfolio transfer. • Also related to the Casualty Reinsurance loss portfolio transfer, the first quarter of 2022 included $4.7 MM or 12.0 points of additional current accident year losses as the Company did not recognize any earnings on the portfolio during the quarter. • The accident year loss ratio during the first quarter of 2022 was 72.6% or 60.6% excluding the impact of the additional current accident year losses, which was approximately in - line with the prior year quarter. $ in millions % 1Q21 1Q22 Change Key Segment Results Gross Written Premiums $64.9 $29.9 (54)% Net Written Premiums 44.2 29.9 (32)% Net Earned Premiums 30.5 39.2 28% Losses and Loss Adjustment Expenses 21.0 35.2 68% Underwriting Expenses 11.1 12.8 15% Underwriting (Loss) Profit (1.6) (8.8) NM Underwriting Ratios Accident Year Loss Ratio 60.7% 72.6% 11.9% Prior Year Development 8.1% 17.3% 9.2% Loss Ratio 68.8% 89.9% 21.1% Expense Ratio 36.5% 32.6% (3.9)% Combined Ratio 105.3% 122.5% 17.2% Accident Year Combined Ratio 97.2% 105.2% 8.0%
Appendix: Non - GAAP Reconciliation
Non - GAAP Measures Reconciliation 22 $ in millions Source: Company filings. Underwriting Profit (Loss) 2019 2020 2021 1Q21 1Q22 Underwriting profit (loss) of the operating segments: Excess and Surplus Lines $19.2 $9.8 ($121.5) ($150.9) $21.5 Specialty Admitted Insurance 5.9 4.2 9.7 1.3 0.2 Casualty Reinsurance (7.2) (18.4) (117.5) (1.6) (8.8) Total underwriting profit (loss) of operating segments 17.9 (4.4) (229.3) (151.3) 12.8 Operating expenses of Corporate and Other segment (27.7) (29.4) (27.6) (8.1) (7.9) Underwriting profit (loss) (9.8) (33.8) (256.9) (159.4) 5.0 Net investment income 75.7 73.4 56.9 15.1 16.3 Net realized and unrealized (losses) gains on investments (2.9) (16.0) 15.6 6.3 (5.0) Other income and expenses 0.1 (1.0) (2.2) (0.5) (0.3) Interest expense (10.6) (10.0) (8.9) (2.2) (2.3) Amortization of intangible assets (0.6) (0.5) (0.4) (0.1) (0.1) Income (loss) before taxes $51.9 $11.9 ($196.0) ($140.8) $13.5 12 Months Ended Dec 31,
Non - GAAP Measures Reconciliation 23 $ in millions Source: Company filings. Adjusted Net Operating (Loss) Income 2019 2020 2021 1Q21 1Q22 Income (loss) available to common shareholders $38.3 $4.8 ($172.8) ($103.5) $9.3 Net realized and unrealized losses (gains) on investments 3.8 14.8 (13.3) (5.8) 4.2 Other expenses 0.8 1.6 1.8 0.4 0.3 Adjusted net operating (loss) income $42.9 $21.2 ($184.2) ($108.8) $13.9 Tangible Equity & Tangible Common Equity 2019 2020 2021 1Q21 1Q22 Shareholders’ equity $778.6 $795.6 $725.4 $639.6 $647.7 Plus: Series A redeemable preferred shares - - - - 144.9 Less: Goodwill and intangible assets (218.8) (218.2) (217.9) (218.1) (217.8) Tangible equity $559.8 $577.4 $507.5 $421.5 $574.8 Less: Series A redeemable preferred shares - - - - (144.9) Tangible common equity $559.8 $577.4 $507.5 $421.5 $429.9 Shares outstanding (000's) 30,424 30,649 37,373 30,775 37,448 Shares from conversion of Series A preferred - - - - 5,640 Shares outstanding after conversion of Series A preferred 30,424 30,649 37,373 30,775 43,088 Shareholders' equity per share $25.59 $25.96 $19.41 $20.78 $17.30 Tangible equity per share $18.40 $18.84 $13.58 $13.70 $13.34 Tangible common equity per share $18.40 $18.84 $13.58 $13.70 $11.48 12 Months Ended Dec 31, 12 Months Ended Dec 31,
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