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James River Announces Third Quarter 2019 Results

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  • Third Quarter 2019 Net Loss of $25.2 million -- $0.83 per diluted share and Adjusted Net Operating Loss of $22.2 million -- $0.73 per diluted share

  • 72% growth in Core (Non-Commercial Auto) Excess and Surplus Lines ("E&S") Gross Written Premium versus the prior year quarter

  • Tangible Equity per Share of $18.09, an increase of 16% from year-end 2018, inclusive of dividends

  • Net Investment Income of $17.9 million, an increase of 9%, or $1.5 million, over the prior year quarter

  • As previously disclosed, during the quarter, there was $50 million of unfavorable development in the Excess and Surplus Lines segment, driven by one large account (Rasier LLC) in two prior underwriting years and $8 million of unfavorable development in the Casualty Reinsurance segment

  • The Company announced that its Board of Directors declared its regular quarterly cash dividend of $0.30 per common share payable on Tuesday, December 31, 2019 to all shareholders of record on December 16, 2019

PEMBROKE, Bermuda, Nov. 06, 2019 (GLOBE NEWSWIRE) -- James River Group Holdings, Ltd. ("James River" or the "Company") (JRVR) today reported third quarter 2019 net loss of $25.2 million ($0.83 per diluted share), compared to net income of $19.6 million ($0.64 per diluted share) for the third quarter of 2018. Adjusted net operating loss for the third quarter of 2019 was $22.2 million ($0.73 per diluted share), compared to adjusted net operating income of $19.4 million ($0.64 per diluted share) for the same period in 2018.

Earnings Per Diluted Share

Three Months Ended
September 30,

2019

2018

Net (Loss) Income

$

(0.83

)

$

0.64

Adjusted Net Operating (Loss) Income 1

$

(0.73

)

$

0.64

1 See "Reconciliation of Non-GAAP Measures" below.

J. Adam Abram, the Company’s Chairman and Chief Executive Officer, 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.”

Third Quarter 2019 Operating Results

  • Gross written premium of $388.2 million, consisting of the following:

Three Months Ended
September 30,

($ in thousands)

2019

2018

% Change

Excess and Surplus Lines

$

241,045

$

157,237

53

%

Specialty Admitted Insurance

100,459

98,607

2

%

Casualty Reinsurance

46,724

24,125

94

%

$

388,228

$

279,969

39

%

  • Net written premium of $223.9 million, consisting of the following:

Three Months Ended
September 30,

($ in thousands)

2019

2018

% Change

Excess and Surplus Lines

$

171,715

$

135,141

27

%

Specialty Admitted Insurance

14,570

14,022

4

%

Casualty Reinsurance

37,584

24,278

55

%

$

223,869

$

173,441

29

%

  • Net earned premium of $213.4 million, consisting of the following:

Three Months Ended
September 30,

($ in thousands)

2019

2018

% Change

Excess and Surplus Lines

$

164,759

$

141,529

16

%

Specialty Admitted Insurance

14,242

13,898

2

%

Casualty Reinsurance

34,373

49,263

(30

)%

$

213,374

$

204,690

4

%

  • The Excess and Surplus Lines segment gross written premium and net written premium increased principally due to 72% growth in core (non-commercial auto) lines gross written premium and 61% growth in core lines net written premium, as all twelve core underwriting divisions grew. The Commercial Auto division also contributed to the segment's increase in gross written premium, growing 35% over the prior year quarter, although this division's net written premium only increased 3% over the prior year quarter given the impact of reinsurance on the Commercial Auto book, incepting March 1, 2019;

  • The Specialty Admitted Insurance segment gross written premium and net written premium increased as a result of increased individual risk Workers' Compensation premium. Premium from the fronting business was essentially flat versus the prior year quarter due to previously discussed rate declines in the Company's largest fronted arrangement. Year to date, the segment has added four new fronting transactions, representing expected annual gross written premium of over $50 million. The Company generally retains about 10% of its fronted gross written premium;

  • Net earned premium in our Casualty Reinsurance segment decreased from the prior year quarter, which was in line with our expectations and is consistent with our planned reductions for the segment that commenced last year. Gross written premium and net written premium increased significantly from the prior year quarter in the Casualty Reinsurance segment due to selected growth in some of the Company's renewed treaties and the inception of a fronted treaty (a 100% cession with no retained underwriting risk);

  • There was overall unfavorable reserve development of $57.0 million compared to unfavorable reserve development of $12.2 million in the prior year quarter (representing a 26.7 and 6.0 percentage point increase to the Company’s loss ratio in the periods, respectively);

  • Pre-tax (unfavorable) favorable reserve development by segment was as follows:

Three Months Ended
September 30,

($ in thousands)

2019

2018

Excess and Surplus Lines

$

(50,030

)

$

(10,401

)

Specialty Admitted Insurance

1,000

833

Casualty Reinsurance

(7,941

)

(2,651

)

$

(56,971

)

$

(12,219

)

  • The reserve development in the quarter included $50.0 million of adverse development in the Excess and Surplus Lines segment, driven by the 2016 and 2017 accident years of its commercial auto line. The Specialty Admitted Insurance segment experienced $1.0 million of favorable development in its workers' compensation business. The Company also experienced $7.9 million of adverse development in the Casualty Reinsurance segment, offset partially by commission slide adjustments;

  • Group combined ratio of 118.8% versus 96.0% in the prior year quarter;

  • Group expense ratio of 18.5% improved from 22.5% in the prior year quarter, driven by a larger portion of our consolidated net earned premium coming from the Excess and Surplus Lines segment, which has significant scale and a lower expense ratio than our other segments, and a reduction to sliding scale commissions in the Casualty Reinsurance segment;

  • Gross fee income by segment was as follows:

Three Months Ended
September 30,

($ in thousands)

2019

2018

% Change

Excess and Surplus Lines

$

2,169

$

2,998

(28

)%

Specialty Admitted Insurance

3,958

3,815

4

%

$

6,127

$

6,813

(10

)%

  • Fee income in the Excess and Surplus Lines segment decreased from its level in the prior year quarter as revenue from certain contracts that were previously fee for services revenue is now recognized as gross written premium due to insurance now being a component of these contracts. Fee income in the Specialty Admitted Insurance segment increased as a result of the continued growth of its fronting business during the previous twelve months;

  • Net investment income was $17.9 million, an increase of 9% from the prior year quarter. Further details can be found in the "Investment Results" section below.

Investment Results

Net investment income for the third quarter of 2019 was $17.9 million, which compares to $16.4 million for the same period in 2018. The increase was due to a larger fixed maturity portfolio size.

The Company’s net investment income consisted of the following:

Three Months Ended
September 30,

($ in thousands)

2019

2018

% Change

Renewable Energy Investments

$

1,602

$

329

387

%

Other Private Investments

(217

)

1,402

-

All Other Net Investment Income

16,493

14,679

12

%

Total Net Investment Income

$

17,878

$

16,410

9

%

The Company’s annualized gross investment yield on average fixed maturity, bank loan and equity securities for the three months ended September 30, 2019 was 3.9% (versus 4.1% for the three months ended September 30, 2018) and the average duration of the fixed maturity and bank loan portfolio was 3.5 years at September 30, 2019 (versus 3.4 years at December 31, 2018 and 3.6 years at September 30, 2018). Renewable energy and other private investments produced an annualized return of 8.1% for the three months ended September 30, 2019 (9.0% for the three months ended September 30, 2018). The portfolios are concentrated and the renewable energy portion in particular can be heavily influenced by portfolio sales and valuation factors, among other attributes. Collectively they represent less than 4% of invested assets as of September 30, 2019.

On October 8, 2019, the Company announced that it delivered a notice of early cancellation, effective December 31, 2019, of all insurance policies issued to its largest customer, Rasier LLC and its affiliates. Subsequent to delivering the notice of early cancellation, and as permitted under the indemnity agreements with this group of insured parties (non-insurance entities), the Company withdrew $1,170.7 million from the collateral trust arrangement that was established in favor of the Company by a captive insurance company affiliate of the insured group. The collateral funds may be used to reimburse the Company for a significant portion of the losses and loss adjustment expenses paid on behalf of the insured parties and other expenses incurred by the Company. These funds have been invested in short term U.S. Government securities.

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 a tax benefit for the three months ended September 30, 2019, driven by the pre-tax loss for the quarter. The tax rate for the nine months ended September 30, 2019 and September 30, 2018 was 22.4% and 9.6%, respectively. The tax rate is elevated for the nine month year to date period due to changes in reserve estimates in prior accident years which did not generate significant tax benefits. The Company expects that its full year 2019 tax rate will likely approximate the year to date rate.

Tangible Equity

Tangible equity before dividends increased 17.9% from $489.9 million at December 31, 2018 to $577.6 million at September 30, 2019, principally due to $17.9 million of net income, $50.4 million of after tax unrealized gains in the Company's fixed income investment portfolio, $8.3 million for derecognition of a build-to-suit lease and $10.7 million of option exercise activity and stock compensation.

September 30, 2019 tangible equity of $550.0 million after dividends increased 12.3% from $489.9 million at December 31, 2018. Tangible equity per common share was $18.09 at September 30, 2019, net of $0.90 of dividends per share the Company paid during the first nine months of 2019. The year-to-date annualized adjusted net operating income return on average tangible equity was 4.9%, which compares to 14.8% for the same period in 2018.

Capital Management

The Company announced that its Board of Directors declared a cash dividend of $0.30 per common share. This dividend is payable on Tuesday, December 31, 2019 to all shareholders of record on Monday, December 16, 2019.

Conference Call

James River Group Holdings, Ltd. will hold a conference call to discuss its third quarter results tomorrow, November 7, 2019, at 8:00 a.m. Eastern Time. Investors may access the conference call by dialing (877) 930-8055, Conference ID# 9952518, 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 December 7, 2019 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, 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 factors, 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 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 decline in our financial strength rating resulting in a reduction of new or renewal business; 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 such relationships; 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 an insured group of companies with whom we have an indemnification arrangement failing to perform their reimbursement obligations; 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 which substantially exceed our expectations and/or exceed the amount of reinsurance we have purchased to protect us from such events; 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; 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; the potential impact of internal or external fraud, operational errors, systems malfunctions or cyber security incidents; our ability to manage our growth effectively; inadequacy of premiums we charge to compensate us for our losses incurred; failure to maintain effective internal controls in accordance with Sarbanes-Oxley Act of 2002, as amended; 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 Annual Report on Form 10-K filed with the SEC on February 27, 2019. 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, adjusted net operating income, tangible equity, adjusted net operating return on average tangible equity (which is calculated as annualized adjusted net operating income divided by the average tangible equity for the trailing four quarters), 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 which 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


James River Group Holdings, Ltd. and Subsidiaries
Condensed Consolidated Balance Sheet Data
(Unaudited)



September 30,
2019

December 31,
2018

($ in thousands, except for share data)

ASSETS

Invested assets:

Fixed maturity securities, available-for-sale

$

1,377,323

$

1,184,202

Equity securities, at fair value

88,840

78,385

Bank loan participations, held-for-investment

249,907

260,972

Short-term investments

49,884

81,966

Other invested assets

65,864

72,321

Total invested assets

1,831,818

1,677,846

Cash and cash equivalents

256,302

172,457

Accrued investment income

13,603

11,110

Premiums receivable and agents’ balances

360,587

307,899

Reinsurance recoverable on unpaid losses

614,827

467,371

Reinsurance recoverable on paid losses

40,822

18,344

Deferred policy acquisition costs

60,970

54,450

Goodwill and intangible assets

218,921

219,368

Other assets

263,066

207,931

Total assets

$

3,660,916

$

3,136,776

LIABILITIES AND SHAREHOLDERS’ EQUITY

Reserve for losses and loss adjustment expenses

$

1,941,307

$

1,661,459

Unearned premiums

510,109

386,473

Senior debt

98,300

118,300

Junior subordinated debt

104,055

104,055

Accrued expenses

57,637

51,792

Other liabilities

180,539

105,456

Total liabilities

2,891,947

2,427,535

Total shareholders’ equity

768,969

709,241

Total liabilities and shareholders’ equity

$

3,660,916

$

3,136,776

Tangible equity (a)

$

550,048

$

489,873

Tangible equity per common share outstanding (a)

$

18.09

$

16.34

Total shareholders’ equity per common share
outstanding

$

25.29

$

23.65

Common shares outstanding

30,401,270

29,988,460

(a) See “Reconciliation of Non-GAAP Measures”.


James River Group Holdings, Ltd. and Subsidiaries
Condensed Consolidated Income Statement Data
(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019

2018

2019

2018

($ in thousands, except for share data)

REVENUES

Gross written premiums

$

388,228

$

279,969

$

1,095,565

$

871,463

Net written premiums

223,869

173,441

671,520

573,025

Net earned premiums

213,374

204,690

602,640

613,842

Net investment income

17,878

16,410

54,844

45,801

Net realized and unrealized (losses) gains on investments (a)

(2,357

)

467

331

(407

)

Other income

2,579

3,125

8,160

11,841

Total revenues

231,474

224,692

665,975

671,077

EXPENSES

Losses and loss adjustment expenses

214,084

150,387

501,064

448,754

Other operating expenses

41,692

49,180

132,287

155,714

Other expenses

372

(131

)

1,055

(34

)

Interest expense

2,594

2,991

8,086

8,459

Amortization of intangible assets

149

149

447

447

Total expenses

258,891

202,576

642,939

613,340

(Loss) income before taxes

(27,417

)

22,116

23,036

57,737

Income tax (benefit) expense

(2,250

)

2,535

5,168

5,539

NET (LOSS) INCOME

$

(25,167

)

$

19,581

$

17,868

$

52,198

ADJUSTED NET OPERATING (LOSS) INCOME (b)

$

(22,208

)

$

19,402

$

19,682

$

53,540

(LOSS) EARNINGS PER SHARE

Basic

$

(0.83

)

$

0.65

$

0.59

$

1.75

Diluted

$

(0.83

)

$

0.64

$

0.58

$

1.72

ADJUSTED NET OPERATING (LOSS) INCOME PER SHARE

Basic

$

(0.73

)

$

0.65

$

0.65

$

1.79

Diluted

$

(0.73

)

$

0.64

$

0.64

$

1.77

Weighted-average common shares outstanding:

Basic

30,382,105

29,935,216

30,230,490

29,861,467

Diluted

30,382,105

30,380,145

30,659,389

30,290,183

Cash dividends declared per common share

$

0.30

$

0.30

$

0.90

$

0.90

Ratios:

Loss ratio

100.3

%

73.5

%

83.1

%

73.1

%

Expense ratio (c)

18.5

%

22.5

%

20.8

%

23.5

%

Combined ratio

118.8

%

96.0

%

103.9

%

96.6

%

Accident year loss ratio

73.6

%

67.5

%

73.1

%

71.2

%

(a) Includes gains of $3.3 million and $8.7 million for the change in net unrealized gains/losses on equity securities in the three and nine months ended September 30, 2019, respectively, in accordance with ASU 2016-01 (gains of $494,000 and losses of $695,000 for the respective prior year periods).

(b) See "Reconciliation of Non-GAAP Measures".

(c) Calculated with a numerator comprising other operating expenses less gross fee income of the Excess and Surplus Lines segment and a denominator of net earned premiums.


James River Group Holdings, Ltd. and Subsidiaries
Segment Results

EXCESS AND SURPLUS LINES

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019

2018

%
Change

2019

2018

%
Change

($ in thousands)

Gross written premiums

$

241,045

$

157,237

53.3

%

$

687,871

$

490,121

40.3

%

Net written premiums

$

171,715

$

135,141

27.1

%

$

522,200

$

432,307

20.8

%

Net earned premiums

$

164,759

$

141,529

16.4

%

$

457,352

$

410,627

11.4

%

Losses and loss adjustment expenses

(176,154

)

(111,292

)

58.3

%

(399,996

)

(321,518

)

24.4

%

Underwriting expenses

(17,956

)

(18,935

)

(5.2

)%

(57,795

)

(56,391

)

2.5

%

Underwriting (loss) profit (a), (b)

$

(29,351

)

$

11,302

$

(439

)

$

32,718

Ratios:

Loss ratio

106.9

%

78.6

%

87.5

%

78.3

%

Expense ratio

10.9

%

13.4

%

12.6

%

13.7

%

Combined ratio

117.8

%

92.0

%

100.1

%

92.0

%

Accident year loss ratio

76.6

%

71.3

%

76.3

%

76.1

%

(a) See "Reconciliation of Non-GAAP Measures".

(b) Underwriting results include fee income of $2.2 million and $7.1 million for the three and nine months ended September 30, 2019, respectively ($3.0 million and $11.5 million for the respective prior year periods). These amounts are included in “Other income” in our Condensed Consolidated Income Statements.

SPECIALTY ADMITTED INSURANCE

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019

2018

% Change

2019

2018

% Change

($ in thousands)

Gross written premiums

$

100,459

$

98,607

1.9

%

$

292,884

$

283,108

3.5

%

Net written premiums

$

14,570

$

14,022

3.9

%

$

43,625

$

42,327

3.1

%

Net earned premiums

$

14,242

$

13,898

2.5

%

$

39,688

$

41,504

(4.4

)%

Losses and loss adjustment expenses

(9,481

)

(8,246

)

15.0

%

(25,085

)

(25,283

)

(0.8

)%

Underwriting expenses

(3,924

)

(3,883

)

1.1

%

(10,845

)

(11,841

)

(8.4

)%

Underwriting profit (a), (b)

$

837

$

1,769

(52.7

)%

$

3,758

$

4,380

(14.2

)%

Ratios:

Loss ratio

66.6

%

59.3

%

63.2

%

60.9

%

Expense ratio

27.5

%

28.0

%

27.3

%

28.5

%

Combined ratio

94.1

%

87.3

%

90.5

%

89.4

%

Accident year loss ratio

73.6

%

65.3

%

73.9

%

66.5

%

(a) See "Reconciliation of Non-GAAP Measures".

(b) Underwriting results include fee income of $4.0 million and $11.6 million for the three and nine months ended September 30, 2019, respectively ($3.8 million and $10.9 million for the respective prior year periods).

CASUALTY REINSURANCE

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019

2018

% Change

2019

2018

% Change

($ in thousands)

Gross written premiums

$

46,724

$

24,125

93.7

%

$

114,810

$

98,234

16.9

%

Net written premiums

$

37,584

$

24,278

54.8

%

$

105,695

$

98,391

7.4

%

Net earned premiums

$

34,373

$

49,263

(30.2

)%

$

105,600

$

161,711

(34.7

)%

Losses and loss adjustment expenses

(28,449

)

(30,849

)

(7.8

)%

(75,983

)

(101,953

)

(25.5

)%

Underwriting expenses

(10,212

)

(16,838

)

(39.4

)%

(33,678

)

(54,709

)

(38.4

)%

Underwriting (loss) profit (a)

$

(4,288

)

$

1,576

$

(4,061

)

$

5,049

Ratios:

Loss ratio

82.8

%

62.6

%

72.0

%

63.0

%

Expense ratio

29.7

%

34.2

%

31.8

%

33.9

%

Combined ratio

112.5

%

96.8

%

103.8

%

96.9

%

Accident year loss ratio

59.7

%

57.2

%

59.4

%

60.0

%

(a) See "Reconciliation of Non-GAAP Measures".

RECONCILIATION OF NON-GAAP MEASURES

Underwriting Profit

The following table reconciles the underwriting profit (loss) by individual operating segment and for the entire Company to consolidated 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 profit of operating segments. Our definition of underwriting profit of operating segments and underwriting profit may not be comparable to that of other companies.

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019

2018

2019

2018

(in thousands)

Underwriting (loss) profit of the operating segments:

Excess and Surplus Lines

$

(29,351

)

$

11,302

$

(439

)

$

32,718

Specialty Admitted Insurance

837

1,769

3,758

4,380

Casualty Reinsurance

(4,288

)

1,576

(4,061

)

5,049

Total underwriting (loss) profit of operating segments

(32,802

)

14,647

(742

)

42,147

Other operating expenses of the Corporate and Other segment

(7,302

)

(6,526

)

(22,641

)

(21,264

)

Underwriting (loss) profit (a)

(40,104

)

8,121

(23,383

)

20,883

Net investment income

17,878

16,410

54,844

45,801

Net realized and unrealized (losses) gains on investments (b)

(2,357

)

467

331

(407

)

Other (expenses) and income

(91

)

258

(223

)

366

Interest expense

(2,594

)

(2,991

)

(8,086

)

(8,459

)

Amortization of intangible assets

(149

)

(149

)

(447

)

(447

)

Consolidated (loss) income before taxes

$

(27,417

)

$

22,116

$

23,036

$

57,737

(a) Included in underwriting results for the three and nine months ended September 30, 2019 is fee income of $6.1 million and $18.7 million, respectively ($6.8 million and $22.4 million for the respective prior year periods).

(b) Includes gains of $3.3 million and $8.7 million for the change in net unrealized gains/losses on equity securities in the three and nine months ended September 30, 2019, respectively, in accordance with ASU 2016-01 (gains of $494,000 and losses of $695,000 for the respective prior year periods).

Adjusted Net Operating Income

We define adjusted net operating income as net income excluding net realized and unrealized gains (losses) on investments (net realized investment gains (losses) and the change in unrealized gains (losses) on equity securities per the adoption of ASU 2016-01), as well as non-operating expenses including those that relate to due diligence costs for various merger and acquisition activities, professional fees related to the filing of registration statements for the sale of our securities, costs associated with former employees and interest and other expenses on a leased building that we were previously deemed to own for accounting purposes. We use adjusted net operating 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 income should not be viewed as a substitute for net income calculated in accordance with GAAP, and our definition of adjusted net operating income may not be comparable to that of other companies.

Our income before taxes and net income reconciles to our adjusted net operating income as follows:

Three Months Ended September 30,

2019

2018

Income
Before Taxes

Net Loss

Income
Before Taxes

Net Income

(in thousands)

(Loss) income as reported

$

(27,417

)

$

(25,167

)

$

22,116

$

19,581

Net realized and unrealized losses (gains) on investments (a)

2,357

2,665

(467

)

(397

)

Other expenses

372

294

(131

)

(101

)

Interest expense on leased building the Company is deemed to own for accounting purposes

404

319

Adjusted net operating (loss) income

$

(24,688

)

$

(22,208

)

$

21,922

$

19,402

Nine Months Ended September 30,

2019

2018

Income
Before Taxes

Net Income

Income
Before Taxes

Net Income

(in thousands)

Income as reported

$

23,036

$

17,868

$

57,737

$

52,198

Net realized and unrealized (gains) losses on investments (a)

(331

)

980

407

366

Other expenses

1,055

834

(34

)

45

Interest expense on leased building the Company was previously deemed to own for accounting purposes

1,179

931

Adjusted net operating income

$

23,760

$

19,682

$

59,289

$

53,540

(a) Includes gains of $3.3 million and $8.7 million for the change in net unrealized gains/losses on equity securities in the three and nine months ended September 30, 2019, respectively, in accordance with ASU 2016-01 (gains of $494,000 and losses of $695,000 for the respective prior year periods).

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 September 30, 2019, December 31, 2018, and September 30, 2018 and reconciles tangible equity to tangible equity before dividends for September 30, 2019.

September 30, 2019

December 31, 2018

September 30, 2018

($ in thousands, except for share data)

Equity

Equity per
share

Equity

Equity per
share

Equity

Equity per
share

Shareholders' equity

$

768,969

$

25.29

$

709,241

$

23.65

$

697,408

$

23.29

Goodwill and intangible assets

218,921

7.2

219,368

7.31

219,718

7.34

Tangible equity

$

550,048

$

18.09

$

489,873

$

16.34

$

477,690

$

15.95

Dividends to shareholders for the nine months ended
September 30, 2019

27,557

0.9

Pre-dividend tangible equity

$

577,605

$

18.99

For more information contact:

Kevin Copeland

SVP Finance & Chief Investment Officer
Investor Relations
441-278-4573
InvestorRelations@jrgh.net