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James River posts larger-than-expected loss for Q3 on legacy Uber portfolio dump

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James River Group Holdings’ operating loss for the third quarter exceeded the range it forecast last week, driven mainly by its Uber policy legacy deal, along with losses relating to Hurricane Ida and additional reinstatement premiums in the excess and surplus (E&S) lines segment.

The company on Tuesday posted an operating loss of $26.8mn, or $0.72 per diluted share, for the three months ended September 30. That reversed an operating profit of $174mn, or $0.56 per share, for the same period last year.

The operating loss topped the $23mn to $26mn range James River warned of last week.

Analysts, on average, were expecting a loss per share of $0.65.

The results included a pre-tax loss of $29.6mn from selling off its legacy portfolio of polices related to Uber in a loss portfolio transfer with Aleka Insurance that James River announced in late September.

“With the legacy transaction executed during the third quarter, we have brought economic finality to substantially all of our commercial auto run off portfolio, allowing us to fully focus on the demonstrated strengths of our specialty insurance franchise,” CEO Frank D’Orazio said in a statement.

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Combined ratio: The company's third-quarter combined ratio shot up by 28 percentage points to 122.1% from 93.9% last year.

James River said absent catastrophe losses, an additional $8.1mn of reinstatement premiums related to casualty treaties and the legacy portfolio transfer impact, the combined ratio for the E&S segment would have been 83.4%, down slightly from 85.2% in the prior-year quarter.

Loss ratio: The loss ratio rose 28 points to 97.3% from 69.4% last year. The majority of the increase, 25.8 percentage points, reflected reserve developments of $44.1mn, including the $29.6mn that hit the E&S lines related to shedding the Uber portfolio, and $15mn in casualty reinsurance lines, the majority of which was associated with treaties the company has exited.

Net catastrophes losses were $5mn in the period, all stemming from Hurricane Ida, and the cat loss ratio was 2.5%, up from zero last year. The company said it does not expect any additional net catastrophe losses from events during the quarter.

The accident year loss ratio rose to 71.5% from 66.6% a year ago.

Expense ratio: The company’s expense ratio for the quarter was 24.8%, unchanged from the 2020 period.

Premiums: James River posted an 11% gain in gross written premiums (GWP) to $346.6mn. Net earned premiums also rose 11%, to $170.6mn.

In its E&S lines, GWP soared 21.3% to $217.7mn, reflecting an 8.7% increase in renewal pricing compared with the prior year. James River said 11 of its 12 underwriting divisions reported positive growth and rate increases. Retention in the segment declined due to the impact of $8.1mn of reinstatement premiums related to casualty treaties on net written and net earned premiums.

Fronting GWP within the specialty admitted segment grew 11.6% to $121.2mn, driven by the expansion of recently added programs, while gross fee income increased 21.5% over the prior-year quarter.

Casualty reinsurance GWP fell 61% to $7.8mn, driven by a timing difference as business incepted in earlier quarters, as well as negative premium adjustments.

Investments: Net investment income edged up slightly to $15.3mn, from $15mn in Q3 2020.

“Our E&S and specialty admitted segments continue to deliver strong growth and underlying profitability,” D’Orazio said. “While our third quarter results were impacted by the aforementioned legacy transaction and reinsurance reinstatements, catastrophe losses stemming from Hurricane Ida and elevated prior year casualty reinsurance losses, overall macro and industry conditions remain very favorable.”

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