James River Group Holdings Stock

James River Group Holdings, Ltd. owns and operates a group of specialty insurance and reinsurance companies.

Segments

The company operates through three segments, Excess and Surplus Lines (E&S), Specialty Admitted Insurance and Casualty Reinsurance.

The Excess and Surplus Lines segment sells E&S commercial lines liability and property insurance in every U.S. state and the District of Columbia through James River Insurance Company (James River Insurance) and its wholly-owned subsidiary, James River Casualty Company (James River Casualty). The Excess and Surplus Lines segment produced 61.5% of the company’s gross written premiums and 78.7% of its net written premiums for the year ended December 31, 2022. James River Insurance and James River Casualty are both non-admitted carriers. Non-admitted carriers writing in the E&S market are not bound by most of the rate and form regulations imposed on standard market companies, allowing them flexibility to change the coverage terms offered and the rate charged without the time constraints and financial costs and delays associated with the filing of such changes with state regulators and seeking approval for the filings. In 2022, the average account in this segment (excluding commercial auto policies) generated annual gross written premiums of approximately $24,000. The Excess and Surplus Lines segment distributes primarily through wholesale insurance brokers.

The Specialty Admitted Insurance segment has admitted licenses and the authority to write excess and surplus lines insurance in 50 states and the District of Columbia through Falls Lake National Insurance Company (Falls Lake National) and its wholly-owned subsidiaries, Stonewood Insurance Company (Stonewood Insurance) and Falls Lake Fire and Casualty Company (Falls Lake Fire and Casualty). The Specialty Admitted Insurance segment produced 32.8% of the company’s gross written premiums and 10.2% of its net written premiums for the year ended December 31, 2022. The Specialty Admitted Insurance segment primarily writes fronting business where the company retains a minority share of the risk, generally 10%-35%, and seek to earn fee income. When the company front, the company use its legal authority, financial strength rating, underwriting experience and claims infrastructure to write insurance to service clients (usually managing general agents and reinsurers) who assume the vast majority of the risk on each fronted policy. The company writes a select book of workers’ compensation coverage for building trades, healthcare employees and light manufacturing, among other light to medium hazard risks in select U.S. states. The Specialty Admitted Insurance segment accepts applications for insurance from a variety of sources, including fronting and program administrators, managing general agents (MGAs), and independent retail agents.

The Casualty Reinsurance segment distributes through reinsurance brokers and produced 5.7% of the company’s gross written premiums and 11.1% of its net written premiums for the year ended December 31, 2022. The Casualty Reinsurance segment provides proportional and working layer casualty reinsurance to third parties and, through December 31, 2021, to the company’s U.S.-based insurance subsidiaries. Typically, the company structures its reinsurance contracts (also known as treaties) as quota share arrangements, with loss mitigating features, such as commissions that adjust based on underwriting results. The company frequently includes risk mitigating features in its working layer excess of loss treaties, such as paid reinstatements. On a premium volume basis, treaties with loss mitigation features, including profit and sliding scale ceding commissions, represented 40.6% of the net premiums written by its Casualty Reinsurance segment during 2022.

The Casualty Reinsurance segment writes third party business through one entity, JRG Reinsurance Company Ltd. (JRG Re). Through December 31, 2017, the company had intercompany reinsurance agreements under which it ceded 70% of the net written premiums of its U.S. subsidiaries (after taking into account third-party reinsurance) to JRG Re. Effective January 1, 2018 through December 31, 2021, the company generally discontinued ceding 70% of its U.S.-written premiums to JRG Re and instead ceded 70% of its U.S.-written premiums to Carolina Re Ltd (Carolina Re). As of December 31, 2022, 33.2% of the company’s invested assets were held at JRG Re.

Strategy

The company’s strategy is to respond rapidly to market opportunities and challenges.

Business Segments

Excess and Surplus Lines segment

The company underwrites non-admitted E&S business through its subsidiaries, James River Insurance and James River Casualty (together, James River, which comprises its Excess and Surplus Lines segment), from offices in Richmond, Virginia; Scottsdale, Arizona; and Atlanta, Georgia. The Excess and Surplus Lines segment is its largest segment, representing 61.5% of consolidated gross written premiums for the year ended December 31, 2022.

The company’s Excess and Surplus Lines segment underwrites property-casualty insurance in all states and the District of Columbia. The company utilizes a network of authorized wholesale brokers and general agents throughout the United States. The Excess and Surplus Lines segment produced a cumulative combined ratio of 94.1% from 2013 through 2022.

The company’s Excess and Surplus Lines segment underwrites coverage for a wide range of commercial businesses. Applications for insurance are presented to the company by authorized wholesale brokers who are engaged by retail agents to assist in coverage procurement.

Claims for business written and retained by the Excess and Surplus Lines segment are managed by its internal claims department although the company uses independent adjusters for inspection and payment of certain claims.

Excess Casualty underwrites excess liability coverage for a variety of risk classes, including manufacturers, contractors, distributors and transportation risks. Typically, the company provides between $1.0 million and $10.0 million per occurrence limits above a $1.0 million attachment point. Of this amount, the company retains up to $2.0 million of exposure per occurrence and cede the balance to its reinsurers. The company writes excess liability coverage above its own primary policies, as well as policies issued by third parties. When the company writes above others’ policies, the company is selective regarding underlying carriers, focusing on the nature of the business, the financial strength of the carrier, their pricing and their claims handling capabilities.

General Casualty writes primary liability coverage on businesses exposed to premises liability type claims including real estate, mercantile and retail operations, apartments and condominiums, hotels and motels, restaurants, bars, taverns and schools. Typically, the company writes $1.0 million per occurrence in limits, and it retains the entire $1.0 million limit.

Manufacturers and Contractors writes primary general liability coverage for a variety of classes, including manufacturers of consumer, commercial, and industrial products and general and trade contractors. Typically, the company issues a $1.0 million per occurrence limit in this division, and it retains the entire $1.0 million limit.

Excess Property writes property risks providing limits in various layers above the primary coverage layer for a variety of classes, including apartments, condominiums, resorts, shopping centers, offices and general commercial properties. Typical per risk limits offered range from $5.0 million to $30.0 million on a gross basis, and a maximum of $5.0 million on a net of reinsurance basis. The average net per risk limit is approximately $860,000 as of December 31, 2022. The company retain up to the first $5.0 million in any one event or catastrophe.

Energy writes risks engaged in the business of energy production, distribution or mining, and the manufacture of equipment used in the energy business segment. Examples of classes underwritten by this division include oil and gas exploration companies, oil or gas well drillers, oilfield consultants, oil or gas lease operators, oil well servicing companies, oil or gas pipeline construction companies, fireworks manufacturing, mining-related risks, utilities, and utility contractors. The company provides policy limits up to $11.0 million, with typical limits between $1.0 million and $5.0 million per occurrence, retaining up to $1.0 million in limit net on either a primary or excess basis.

Small Business includes both brokerage and delegated authority contract binding focusing on accounts with annual primary liability insurance premiums of less than $10,000. For these smaller risks, the company limits flexibility in coverage options and pricing to facilitate quick turnaround and efficient processing. The company generally writes $1.0 million per occurrence limits and retain the entire amount.

Allied Health underwrites casualty insurance for allied health and social service types of risks, such as long-term care facilities, independent living apartments, group homes, half-way houses and shelters, drug rehabilitation, home health care and medical staffing enterprises. The company provides policy limits up to $11.0 million, with typical limits between $1.0 million and $5.0 million per occurrence, retaining up to $1.0 million in limit net. Approximately 88% of the premiums written by its Allied Health division from inception through 2022 have been written on a claims-made and reported form.

Life Sciences underwrites general liability, products liability and/or professional liability coverage for manufacturers, distributors and developers of biologics (antibodies and vaccines used for the prevention of disease), nutraceuticals (health, nutrition and herbal supplements), human clinical trials, pharmaceuticals (mainly generics and over-the-counters) and medical devices. This division also writes a book of various types of business engaged in the medical and adult-use cannabis industry. The company provides policy limits up to $11.0 million (up to $10.0 million on cannabis), with typical limits between $1.0 million and $5.0 million per occurrence, retaining up to $1.0 million in limit net.

Environmental underwrites contractors’ pollution liability, products pollution liability, site specific pollution liability and consultant’s professional liability coverage on a stand-alone basis and in conjunction with the general liability coverage. Typically, the company writes environmental coverage for contractors who are not engaged in environmental remediation work on an occurrence form. The company provides policy limits up to $11.0 million, with typical limits between $1.0 million and $5.0 million per occurrence, retaining up to $1.0 million in limit net on a primary or excess basis.

Sports and Entertainment underwrites primary liability coverage for sports, recreation and entertainment related risks, including special events, family entertainment centers, tourist attractions, health clubs, sports complexes and other sport and event venues. Typical limits offered are up to $1.0 million per occurrence, and the company retains the entire $1.0 million limit.

Professional Liability writes professional liability coverage for accountants, architects, engineers, lawyers and certain other professions. The company provides policy limits up to $11.0 million, with typical limits between $1.0 million and $5.0 million per occurrence, retaining up to $1.0 million in limit net. All of its professional liability coverage is written on a claims-made and reported basis.

Medical Professionals underwrites non-standard physicians’ professional liability for individuals or small groups. The company’s healthcare business is a mix of both surgical and non-surgical classes. The company typically provides between $1.0 million and $3.0 million per occurrence limits and retain up to $1.0 million of exposure per occurrence and cede the balance to its reinsurers. All of the policies written by this division have been issued on a claims-made and reported basis.

Marketing and Distribution

The Excess and Surplus Lines segment distributes its products through a select group of authorized E&S lines brokers the company can consistently produce reasonable volumes of quality business. These brokers procure policies for their clients from the company, as well as from other insurance companies. At December 31, 2022, the segment had authorized close to 100 broker groups to submit applications to the company. The Excess and Surplus Lines segment generally makes broker authorizations by brokerage office and underwriting division.

The company’s Excess and Surplus Lines segment selects its brokers based upon management’s review of the experience, knowledge and business plan of each broker. While many of its Excess and Surplus Lines segment’s brokers have more than one office, the company evaluatew each office as if it were a separate entity. The company’s Excess and Surplus Lines segment’s underwriters visit brokers regularly to discuss the products that the company offers and the needs of the brokers.

Underwriting

The company’s Excess and Surplus Lines segment’s staff includes over 200 individuals directly employed in underwriting policies as of December 31, 2022. The company is very selective about the policies the company bind. The company’s Excess and Surplus Lines segment binds approximately 4% of new submissions and one out of every five new quotes.

When the company accepts risk in its Excess and Surplus Lines segment, it is careful to establish terms that are suited to the risk and the pricing. As an excess and surplus lines writer, the company uses its freedom of rate and form to make it possible to take on risks that have already been rejected by admitted carriers who have determined they cannot insure these risks on approved forms at filed rates. The company attempts to craft policies that offer affordable protection to its insureds by tailoring coverage in ways that make potential losses more predictable and are intended to reduce claims costs.

The company designs its internal processing and data collection systems to provide its management team with accurate and relevant information in real-time. The company collects premium, commission and claims data, including detailed information regarding policy price, terms, conditions and the nature of the insured’s business. This data allows the company to analyze trends in its business, including results by individual broker, underwriter and class of business and expand or contract its operations quickly in response to market conditions. The company relies on its information technology systems in this process. Additionally, the claims staff also contributes to its underwriting operations through its communication of claims information to its underwriters.

Specialty Admitted Insurance segment

The Falls Lake Insurance Companies (Falls Lake) includes the company’s other U.S. insurance segment, Specialty Admitted Insurance. Falls Lake consists of Falls Lake National (an Ohio domiciled company, licensed in 49 states and the District of Columbia and registered as a surplus lines company in California), and its subsidiaries Stonewood Insurance (a North Carolina domiciled company) and Falls Lake Fire and Casualty (a California domiciled company). The Specialty Admitted Insurance segment produced 32.8% of consolidated gross written premiums for the year ended December 31, 2022.

The company’s plan is to continue to use its broad licensure and significant management expertise to earn fee income, as well as underwriting profits. The Specialty Admitted Insurance segment consists of:

Fronting and program business written through selected MGAs, insurance carriers, and other producers, which represented 89.2% of 2022 gross written premiums in this segment, and

Individual risk workers’ compensation business, underwritten by its staff and generated by appointed agents in 13 states, that produced 10.8% of 2022 gross written premiums in this segment.

Fronting & Program Business

In its fronting business, the company issues insurance policies for another insurance company which may not have the licensure, product suite or rating to serve its desired market, or for a program supported by reinsurance or alternative capital provider(s). In a fronting arrangement, the company gives selected MGAs authority to act on its behalf to produce, underwrite and administer policies that meet its underwriting and pricing guidelines. The company generally retains 10%-35% of the underwriting risk in its fronting business. The company enters into these arrangements selectively with counterparties which have significant experience and market presence in specialty classes of property-casualty risk, workers' compensation or automobile business. The company only works with MGAs who permit the company to actively engage with them through a combination of onsite and offsite resources to facilitate its real-time supervision of their work. Underwriting, claims and financial performance is subject to regular review by its staff, and the company holds appropriate collateral to manage counterparty credit risk. The company grants limited authority for underwriting and claims administration and employ a rigorous review process to ensure the authority is appropriately used within the terms of its contract, and that collateral held by it is appropriate. The company charges fees as a percentage of gross written premiums for issuing these policies. The company establishes fronting opportunities through a variety of sources, including direct carrier relationships, MGAs, reinsurers, and reinsurance brokers. Due to its licensure and product filings, the company its positioned to support this business throughout the United States.

The company focus its coverage on casualty risks in its fronting business, although some property insurance is written.

Under the terms of these program agreements, the company pays fixed commissions, often with a profit contingency. The company’s fronting business is distributed primarily through MGAs and fronting and program managers.

Traditional Workers’ Compensation Business

The company’s individual risk workers’ compensation business, produced through a distribution channel comprised of appointed independent retail agents and a limited number of appointed wholesale brokers, remains a regionally focused effort mainly in select Southeastern U.S. states.

Casualty Reinsurance segment

This segment participates in the reinsurance business through its Bermuda domiciled reinsurance subsidiary, JRG Re, which is licensed as a Class 3B reinsurer by the Bermuda Monetary Authority. JRG Re provides proportional and working layer excess of loss treaty reinsurance to third parties and, through December 31, 2017, also to its U.S.-based insurance subsidiaries. For purposes of management evaluation, this segment’s underwriting results only include premiums ceded by, and losses incurred with respect to, business assumed from unaffiliated companies and does not include premiums and losses ceded under the internal reinsurance arrangements.

The company typically structures its reinsurance treaties as quota share arrangements with loss and risk mitigating features that align its interest with that of the ceding companies. The company purchases very little retrocessional coverage in this segment. Almost all of the segment’s premiums are for casualty lines of business. The Casualty Reinsurance segment writes virtually no reinsurance designed to respond specifically to natural catastrophes.

Intellectual Property

The company holds U.S. federal service mark registration of its corporate logo and several other company trademark registrations with the U.S. Patent and Trademark Office.

Competition

E&S Lines: Competitors in this segment include ACE Westchester Specialty Group (Chubb), AmRisc Insurance Company (Truist), Apollo Syndicate, Alleghany Corporation (Berkshire Hathaway), Arrowhead General Insurance Agency, Inc., Ategrity Specialty Insurance Company, Axis Insurance Company (Axis Capital Holdings Limited), Beazley Group (Lloyd’s), Brit Insurance (Lloyd’s), Colony Specialty Insurance Company (Argo Group International Holdings, Ltd.), Fairfax Financial Holdings, Ltd., Hiscox Insurance Company (Lloyd’s), Houston Casualty Company (a subsidiary of Tokio Marine HCC), Kinsale Capital Group, Inc., Lexington Insurance Company (American International Group, Inc.), Markel Corporation, Navigators Insurance Company (Hartford), OneBeacon (Intact Financial Corporation), QBE Insurance Group Ltd., RLI Corp., E&S/Specialty (Nationwide Mutual Group), Starr Insurance Company (C.V. Starr & Company), Swiss Re Ltd, United Specialty Insurance Company, W.R. Berkley, and other large national and multi-national insurance carriers.

Specialty Admitted Insurance: Competition for the company’s fronting business includes but is not limited to State National (now part of Markel), Argo Group, Clear Blue, Spinnaker, Trisura, Red Point, Equity Insurance Company, Worth Insurance, and Amtrust. Competitors in the company’s workers’ compensation business include Builders Mutual Insurance Company, Accident Fund Insurance Company of America, W. R. Berkley Corporation, American Interstate Insurance Company (AMERISAFE, Inc.), and Amtrust Group.

Casualty Reinsurance: Competitors in this segment include AXA XL, Axis Re, MS Amlin, QBE Re, Renaissance Re, Sompo International Re, Swiss Re, Transatlantic Re, various Lloyd's syndicates, and other carriers that underwrite U.S. casualty reinsurance.

Regulation

The Insurance Act 1978 and related rules and regulations (the ‘Insurance Act’), which regulates the insurance business of JRG Re provides that no person shall carry on insurance business in or from within Bermuda unless registered as an insurer under the Insurance Act by the Bermuda Monetary Authority. JRG Re is licensed as a Class 3B insurer and is regulated as such under the Insurance Act.

The company’s insurance subsidiaries are required to file quarterly and annual reports with the appropriate regulatory agency in its state of domicile and with the National Association of Insurance Commissioners (NAIC) based on applicable statutory regulations, which differ from the U.S. accepted accounting principles.

History

James River Group Holdings, Ltd. was founded in 2002.