Following Uber portfolio exit, James River to evaluate future of casualty re
With its costly exit from its Uber book in the rearview mirror, James River is now looking to drive its casualty reinsurance portfolio in a better direction.
CEO Frank N. D'Orazio said his priorities in his first year with the company – refocusing on its E&S segment with an expanded fronting and fee income business and eliminating the overhang surrounding its commercial auto run off portfolio – have been achieved.
The company late Tuesday posted a larger-than-expected Q3 operating loss of $26.mn, or $0.72 per share, pushed down in large part by a $29.6mn pre-tax loss from selling off the legacy portfolio in a loss portfolio transfer with Aleka Insurance.
The CEO said during the conference call to discuss the results that his new priority is to “stabilize” the Bermudian’s casualty re segment.
“This is a business that we've been in for over a decade, and quite frankly, the results have not met our standards,” D’Orazio said. He categorized the $15.1mn of reserve strengthening booked in 3Q as “extremely disappointing,” and said more than half came from treaties James River no longer writes.
“While we do feel much better about the prospects for performance of the recent accident years, the persistence of emergence from older underwriting years is not acceptable, and the scale of the segments does not warrant increased investment in the coming year,” he said.
Before he joined the company, the decision was already made to downsize the business substantially, he said. It is now down more than 35% from its peak a few years ago, but there’s still more trimming to do.
The company is conducting a full review of the business, a process that is expected to be complete by the end of the year. “The most immediate action that we can take is to continue to meaningfully reduce our exposure by exiting treaties that are proven to be unprofitable and reacting quickly to reserve indications while we continue to analyze our options for the segment,” the executive said.
D’Orazio said the company will begin to “significantly shrink” top line writing to the casualty re segment in the next year.
Analyst Matt Carletti from JMP Securities asked during the call if D’Orazio was willing to pledge to use an adverse development cover (ADC) or loss portfolio transfer (LPT) to put this segment behind James River as well. “As you brought economic finality to the Uber issue, are you willing to make the commitment to bring economic finality to the back book here in casualty re?”
D’Orazio said the company is using a careful process to evaluate the business. “I'm going to be open to exploring our options fairly thoughtfully, some more complex than others,” he said, “particularly if we can improve the certainty associated with that portfolio, especially after what we were able to accomplish from a commercial auto run off block, and the value that it added to our organization.”
“I'm committed to putting a significantly greater focus on our US businesses going forward.”
In the year he’s been at the helm, the core E&S business has grown 25% from $650mn GWP.
“We've taken advantage of dislocation in the market as well as rate increases, to grow the core E&S book by 25%,” he said. “With the opportunities available to us today, the core E&S business should soon be exceeding $800mn in GWP.” Rates in the segment increased by more than 13% over the last four quarters, he added.
D’Orazio said the macroeconomic conditions that created the hard market still exist. Concerns about social inflation, climate change impacts and the low interest rate environment “lead me to believe that the market's current pricing and underwriting discipline to continue well into 2022.”