Thank you for holding, and welcome everyone, to the James River Group Third Quarter 2022 Earnings Call. [Operator Instructions]. It is now my pleasure to turn the call over to Brett Shirreffs, Head of Investor Relations. Mr. Shirreffs, please go ahead.

Good morning, everyone, and welcome to the James River Group Third Quarter 2022 Earnings Conference Call. During the call, we will be making forward-looking statements. These statements are based on current beliefs, intentions, expectations and assumptions that are subject to various risks and uncertainties, which may cause actual results to differ materially. For a discussion of such risks and uncertainties, please see the cautionary language regarding forward-looking statements in yesterday's earnings release and the risk factors of our most recent Form 10-K, Form 10-Qs and other reports and filings we've made with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements. In addition, during this presentation, we may make reference to non-GAAP financial measures such as adjusted net operating income and adjusted net operating return on tangible common equity. Please refer to our earnings press release for a reconciliation of these numbers to GAAP. Lastly, unless otherwise specified for the reasons described in our earnings press release, all underwriting performance ratios referred to are for our business that is not subject to retroactive reinsurance accounting for loss portfolio transfers. I will now turn the call over to Frank D'Orazio, Chief Executive Officer of James River Group. Frank D’Orazio: Thank you for that introduction, Brett. Good morning, and welcome to everyone on the call. I'm pleased to be back with all of you today to provide additional color on our third quarter results as our focus on underwriting profitability and disciplined risk management continues to drive our results through the first 9 months of the year. The combination of strong underwriting margins and growing investment income resulted in a third quarter group combined ratio of 94.1% and 91.5% excluding the impact of catastrophe losses as well as an adjusted net operating return on tangible…

Thanks, Frank, and good morning, everyone. James River is reporting another solid and consistent quarter characterized by our year-to-date annualized adjusted net operating return on tangible common equity of 16%. Once again, our return accelerated meaningfully from the first quarter of this year. I'm going to spend a moment providing a high-level overview of the performance of the quarter and then come back to highlight the very significant benefit we realized from the commercial auto loss portfolio transfer restructured about 14 months ago and how this materializes in our numbers. But first the quarter, we're delivering $15.5 million of adjusted net operating income and moving further to the back half of the strong 2022. This included $11.3 million of underwriting profit and $17.3 million of net investment income on a pretax basis. Net investment income grew 18% from the sequential quarter. Our competitive expense ratio of 24.6% improved from that last quarter and continues to be a meaningful advantage we enjoy as compared to our peers and the sector generally. As mentioned earlier, investment income was $17.3 million this quarter. We continue to benefit from improved yields in the portfolio, including both higher new money yields on fixed maturities and higher base rates in our bank loan portfolio. Income, excluding renewable energy and other private investments was $17.7 million as compared to $13.5 million in the prior year quarter. Overall, our book yield on the portfolio improved approximately 20 basis points sequentially and was approximately 3.1% during the third quarter. Portfolio duration is 4.2 years, and it's remained stable. We expect that 20% of our existing portfolio will have the opportunity for reinvestment or reset over the next year. Cash flow from operations continued to be strong at $28 million this quarter and about $170 million year-to-date. Reinvestment yields in…

[Operator Instructions]. Mark Hughes with Truist Securities.

This is Michael Ramirez on for Mark Hughes. First what will be the impact on future quarters, your decision to not renew certain businesses? And will there be more quarters that include pressure on this growth?

Mike, I'm sorry, the last part of your question was what?

Sure. I apologize. And will there be more quarters that include pressure on growth?

Okay. Sure. So let me first of all, thank you for the question. Let me take a step back and just talk a little bit about what we did and then we can talk about what I think you're getting at is relative to future impact. So first and foremost, the underwriting culture at James River is really a strength of the company. And we will remain bottom line focused. So even in this period of strong market conditions, you need to remain vigilant. You need to underwrite because it's not a foolproof business. So we regularly review the portfolio to make sure we react quickly to any emerging trends that we see in our loss data as well as any changes that we might see in the broader competitive landscape. Again, we actually grew the net premiums in the E&S by 10%. We increased our policy count by over 7%, but the decline in E&S gross premium that I think you're referring to, it was primarily a result of a few discrete underwriting actions both underwriting and pricing actions that we took in select underwriting units, primarily in general casualty, commercial auto and some parts of general casualty as well. The end result of those actions resulted in us not renewing some large dollar items of the 7-figure variety. Most of them larger trucking or auto exposures, primarily impacting excess casualty. Let me talk a little bit more about the actions that we took. So we really have strengthened the feedback loops that we have in place between underwriting, claims and actuarial. We saw what we identified as some loss drivers in the sectors, and we addressed them. So we acted upon what we saw and we moved on. It's not a long-term ongoing project. We made some tactical…

Okay. Thanks for the extra detail on the end market lines of business that are expected. Maybe just a quick follow-up on that. How much of the decision to nonrenew these businesses, the ones you just spoke about the line was based on market conditions versus your own sort of internal evaluation of your past underwriting?

Yes. No, it's a good question, Mike. Again, I'll come back to my earlier comment about the feedback loops in terms of picking up some trends that we're seeing in the data and what drivers of loss activity are and spending time between underwriting, our COO, our claims department and our actuarial group and kind of breaking down what steps and actions we thought were prudent. In some respects, it's changing some of your underwriting guidelines and others, it's just about pricing changes. So I would say it's based on what we saw in the market, and we pretty quickly implemented them. And to my earlier point, this isn't like a long gone out process that we expect to be ongoing. We saw something we reacted to it, and we took the steps that we did.

All right. That's helpful. Maybe one last one for us, and we'll go back in the queue. We noticed the current accident year loss ratio in E&S was up about 1 point sequentially. Are you putting up more reserves in light of your updated evaluation of the attractiveness of these business lines you've been writing?

No, Mike, that's really this is Sarah Doran that's really just a mix. I think within 100 basis points of E&S that things are going to move around as we look at business that we're renewing and taking on in any given quarter. So there's no different look as regards our accident year loss picks in E&S, our current year pick. It's really just mix coming out and kind of proving through that 100 basis point data.

[Operator Instructions]. James Bach with KBW.

So just kind of working off that last question. Can you kind of describe within that 90 or 100 basis points kind of what is causing the erosion in core loss ratio in E&S. And at the same time, what's kind of causing it in specialty admitted, which you also saw kind of a worsening in the core loss ratios?

Sure. Just going to largely repeat myself on E&S, it's mix. Certain lines have certain loss picks just for the budget for how we kind of go through any renewal and certain lines grow at different paces over the quarter. So again, there's nothing specific with regard to changing our PICCs and E&S. It's really just a question of what we renewed and what we put on during the quarter. With regard to specialty admitted, I think what's fairly clear is both in the top line as well as in the loss ratio is that a decent portion of this segment is related to the workers' comp market. And in this quarter, in particular, we have a fairly small but concentrated individual risk workers' comp book, mostly concentrated in a handful of Southeastern states and others, and we took up the current year loss pick in the quarter. So by taking it up in the quarter, reflecting over the full year, you're going to feel it a little bit more in the quarter. So that's where you see the delta and the accident or loss ratios in that segment. I think at the same time, so why did we do that? Really, we just haven't seen the pricing come through in that line. And I don't think we're alone there with regard to kind of how states have looked at workers' comp rate increases. So we've seen some of our outlook there. And obviously, our top line has been fairly small in terms of growth and even shrinkage over the course of the year as we've tried to manage the conditions in that business.

All right. Perfect. And also, there was a pretty meaningful increase in the net ratio of net to gross in E&S, and I wanted to know if that reflects any onetime items.

It's really what Frank referred to in his good color on underwriting appetite in his prepared comments and that we changed the retention in our excess casualty reinsurance treaty. That's a treaty that renews midyear as the treaty that the company has had in place for many, many years. It is very attractive to us. It's always had a high ceding commission, and our reinsurers have enjoyed the benefits of our strong underwriting for our excess casualty business in particular. So we had the opportunity to renew that, the same pricing in terms and conditions. But we really just given our outlook on that business and the consistent performance, underwriting performance, in particular of the portfolio, we wanted to increase our retention there. So you really see that in E&S that bumped the retention 10 points quarter-over-quarter. And again, that was a midyear renewal. So I would think about that E&S premium retention right now is about 69%. That's likely the number that carries through, just given the change in that treaty, and that will continue for the next few quarters. So we think that is good trade to just keep more underwriting income given the really attractive conditions and the way that book has performed.

And broadly speaking, which lines net premium retentions are rising?

Yes, it's excess casualty. Like we said, it's just excess casualty. It's 1/3 of our business in E&S. It's grown the fastest. It's had a rate increase of over 100% in the last few years. It is a treaty that just relates to that excess casualty book. So as you've seen excess casualty grow in the last few years, you've seen that retention come down because of that treaty, which again has been stable and always in place. Now we're changing our retention to basically that's a better way to describe it, keep more of our underwriting profits there. And so that's the line that will be impacted, and that's the history and the rate strength as to why we decided to do that.

All right. And then kind of concerning the loss picks, how are you has James River currently being medical inflation? And how has that kind of evolved?

It's certainly something that we're watching very, very much. So we certainly think that I think it shows up more for the personal lines. And obviously, it's been a theme for some of the more concentrated personal lines writers, Hard to think that it would be at some point, have a little bit of a presence in our workers' comp business and potentially other lines. But right now, we're not seeing a big delta with regard to this dynamic across our business, not in a way that's really changing our loss cost trends or focus on loss costs there.

Yes. And just to maybe tack on some additional comments there. I think we probably were more concerned about that coming directly out of COVID. And it hasn't proven to be as significant as an issue, maybe a couple of months or so in terms of what we've seen. That's kind of our view on it. I think it's less about medical cost inflation. It's more as a dynamic in the workers' comp field to monitor is just the impact of the fantastic improvements that are being made in medical technology and the fact that folks are surviving some pretty brutal accidents. So that's an issue that we obviously watch closely, but probably something that we're seeing more versus a concern with medical cost inflation.

I just have one last question. I just wanted to just get some explanation behind the kind of elevated tax rate this quarter.

Yes. Happy to take you down there. But at the end of the day, our tax rate, like any multinational company is a little complicated just given where we earn income. And I think you're probably focused on the operating income tax rate, which obviously we pay taxes based on net income, and it's implied back through operating income. And if you look at what's excluded through operating income, obviously, the deferred gain is a significant piece as well but I think the most important piece that I would highlight there is we focus on in the transcript, it's about 30% year-to-date. We expect the year to end up that way. Why is it higher than statutory rates because we've -in the first quarter, as we were structuring kind of the impact of the casualty reinsurance LPT. We did have a loss in Bermuda, and that's that really kind of tips that over, so to speak. So that's how I think about our tax rate on a net income basis. I think if you do the math, it's a 26% tax rate on operating earnings, which again is not how the tax rate is actually calculated, but it implied math that falls out of that calculation from net income. And I don't think we have a reason to think that, that number is anything abnormal compared to the quarter that we just reported. That helps you kind of project it going forward.

Casey Alexander with Compass Point.

As you mentioned, there's been a little bit of a slowdown in the specialty admitted sort of growth rate. I'm curious what the opportunities are for additional fronting arrangements that could sort of accelerate potentially improve the underwriting ratios and accelerate the fee income growth?

Thanks for the question, Casey. So no, we still feel that we've got a great opportunity. We've got a robust pipeline in terms of new opportunities. We've added several new programs over the course of the year that will get traction through the remainder of this year and into next year. But our pipeline is full of different programs across a number of different product lines. As you might imagine, one of the downstream impacts of these favorable market conditions is the creation of MGAs. And so we see opportunities for both existing as well as new MGAs and the programs that they represent. So we still think we've got some growth runway there. I mean some of the growth over prior, as you probably appreciate, is impacted by the fact that one of the fronting partners was particulate last year. And so that's maybe not coming up as a true growth number. But otherwise, we feel we've got plenty of opportunities there to grow the business.

There are no further questions at this time. I would now like to turn the call back to Frank D'Orazio for closing comments. Frank D’Orazio: Thanks very much, operator. I want to thank everyone listening on the call for their time today and for the questions we received this morning. We look forward to speaking with you again in a few months to discuss our Q4 results. Thank you, and enjoy your day.

This concludes the James River Group Third Quarter 2022 Earnings Call. We thank you for your participation. You may now disconnect.