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James River Stock Down on Contract Termination With Uber

Zacks Equity Research

James River Group Holdings, Ltd. JRVR has announced an early cancellation of all insurance policies issued to its largest customer Rasier LLC and affiliates, which is Uber's (UBER) commercial auto insurance business.  

Per the notice, effective Dec 31, 2019, all insurance policies related to this customer are included in the company’s commercial auto line of business within its Excess and Surplus (E&S ) Lines segment, which contributes to nearly 75% of the company’s premiums. Majority of the insurance policies were due to expire on Feb 29, 2020.

The early termination of the policy is due to the subdued profitability of this business. Other insurers providing insurance coverage for Uber are Progressive Corp. PGR and Allstate Corp. ALL.

This announcement pulled down the company’s stock price by 22.6% on the last trading day. Despite the business that will be forgone was underperforming, the fact of the matter is that it generated approximately more than one-third of the past 12-month premiums in the E&S segment.

In a year’s time, the stock has shed 7.6% of value compared with the industry’s decline of 2.8%.

James River has also announced pretax, adverse development between $55 and $60 million, net of reinsurance recoveries and reinstatement premiums in third-quarter results.  These losses are primarily related to its commercial auto line of business within its Excess and Surplus Lines segment for the 2016 and 2017 underwriting years. The remainder of these losses — less than $10 million — is thanks to the prior underwriting years in its Casualty Reinsurance segment.

James River also expects 72% growth year over year in its core (Non-Commercial Auto) Excess and Surplus Lines gross written premium.

In 2018, net premium written in the company’s Excess and Surplus Lines segment grew 21.5% year over year to $571.1 million. Its combined ratio deteriorated 130 basis points year over year to 92.3%.

Albeit this business loss might provide a temporary blip to the company’s earnings trend, the downside would not ail the stock over the long term, given that it has a solid position in the excess and surplus lines market along with established diversification in the non-correlated insurance markets.

Moreover, we expect the adverse reserve development not to hurt the company’s capital levels given that the company maintains a strong risk-adjusted capital position.

James River carries a Zacks Rank #3 (Hold). A better-ranked stocks in the same space is Assurant, Inc. AIZ carrying a Zacks Rank #2 (Buy). The stock surpassed estimates in each of the trailing four quarters with an average positive surprise of 21.75%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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