Thank you for standing by, and welcome to the James River Group Fourth Quarter 2022 Conference Call. [Operator Instructions] I would now like to turn the conference over to Brett Shirreffs, Head of Investor Relations. Mr. Shirreffs, please go ahead.

Good morning, everyone, and welcome to the James River Group Fourth 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 and Form 10-Qs and other reports and filings we have 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 reference 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 GAAP -- numbers to GAAP. Lastly, unless otherwise specified for the reasons described in our earnings press release, all underwriting performance ratios referred to are 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 joining you today to provide additional color on our fourth quarter and full year 2022 results, while also offering commentary on market conditions as well as our company's continued repositioning for the future. As evidenced by the results we released last night, this was a very strong quarter for James River across a number of financial metrics in a year in which we demonstrated the meaningful progress that we've made as an organization. We…

Thanks very much, Frank, and good morning to everyone. Thanks for joining us today. James River is reporting another solid quarter, a continuation of our powerful momentum all year. This year concluded with fourth quarter adjusted net operating income of $0.53 per share for an annualized net operating return on tangible common equity of 23.5%. Tangible book value per common share increased 8.5% in the quarter to $9.51, carrying strong momentum into 2023. As Frank highlighted, we've made appreciable progress in moving the organization forward and believe the group is executing at a very high level. I'm going to spend a minute on an overview of the performance of the quarter and the year and also provide some commentary around our outlook for 2023. First, the quarter and the year. We are delivering $20.2 million of adjusted net operating income this quarter, which includes $16.6 million of underwriting profit and $22.8 million of net investment income each on a pretax basis. For the full year, adjusted net operating return on tangible common equity was 17.4%, not only a significant improvement from the last few years, but the highest for the company's history in an annual period. Our competitive expense ratio of 23.9% for the quarter continues to be a meaningful advantage we enjoy as compared to our peers and the sector generally. Our expense ratio for the quarter and year are higher from a year ago for 2 primary reasons. First, last year, we had a meaningful offset from sliding scale commissions in our Casualty Reinsurance segment, and second, we reduced incentive compensation expenses given the company's performance last year. Taken together, these items reduced last year's annual group expense ratio by about 2.5 points. As mentioned earlier, investment income was $22.8 million this quarter. It grew 32% from the…

[Operator Instructions] Mark Hughes with Truist.

Sarah, your guidance of mid-teen return on tangible in your fourth quarter, I think it was 23.5%, full year, 17%, these mid-teens. Does that reflect some different view on the market? You seem to be pretty upbeat. Is that -- should we think of that as the low end of the range?

No. I called out, Mark, that, that excludes AOCI. So our full year numbers obviously wouldn't be inclusive of AOCI. I'm trying to back that out to make it a little bit more easy to follow. So I think on one hand, it's a fairly down the middle assumption with regard to guidance, but also I would point out that the delta between those numbers is the inclusion and the exclusion of AOCI.

Okay. Good. Thank you for that clarification. Frank, the different lines that you may think look good at this point. I don't think you've mentioned any specifics, but I'm sort of curious your thoughts on the property market, whether that's something you might lean into here and also how Excess is looking these days? Frank D’Orazio : Sure. So it's never -- as you know, Mark, it's never been our ambition to be a major property cat player, and I would suggest that the weather-related cat losses in the last couple of years, probably not tempting us to change our risk appetite, all that much. So it is our Excess property cat portfolio is about 6% of our E&S portfolio. I don't see major changes there. I mean just even looking at how that business has kind of moved just year-over-year, fairly similar in terms of average attachment point and gross limit. We are seeing significant rate there. But again, we are focused as an organization on consistency in earnings and not necessarily tempted by the volatility that, that line of business presents. More broadly, though, just in terms of the quarter, we saw healthy growth opportunities across, I would say, most of our E&S platform during the fourth quarter. The majority of the underwriting divisions reported solid growth, positive renewal rate changes, continue to see strong growth in renewal submissions as much as, I think, up 8% in the quarter. We'd expect to continue to see these trends well into 2023. But in terms of your question relative to underwriting divisions, I think we saw double-digit premium increases from Excess Casualty and healthy rate there as well as general casualty, and again, both double-digit premium increases during the fourth quarter. And I don't really think we've seen any significant changes in the opportunity set for our E&S business. I noted some of the discrete actions that we took last quarter on the portfolio, which impacted our growth results in the third quarter. But as I look back at our results for all of 2022, what I see is very healthy growth across the overall portfolio.

Brian Meredith with UBS.

Frank, just quickly, and Sarah, on the decision to cease underwriting on the casualty reinsurance. Any thoughts of maybe actually going out and finding an ADC on that book or some type of a LPT? Just to make sure we don't see any more noise going forward just from the runoff because I know a lot of times when things go in to run off, you get adverse development. Frank D’Orazio : Yes. So right now, we are primarily focused on servicing the in-force portfolio, meeting our regulatory requirements, keeping the staff and infrastructure in place, I think we're confident in our reserve position overall but always open to options consider to bolster our balance sheet if they present themselves.

Great. And then, sorry, I just wanted to clarify, did you say that the expense ratio in the casualty reinsurance business should be relatively flat on a year-over-year basis or total expenses?

I said total expenses. So the expense ratio will be up slightly, Brian, to get to the 28% overall.

Okay. Okay. That's helpful. And then lastly, Frank, I am wondering if you could just comment a little bit more on kind of where is pricing relative to loss trends in the E&S business? I know you don't write a whole lot of professional liability business, which is 1 area where I know we're seeing pressure, particularly on the D&O side. Are there other areas that maybe you're seeing some pressure on? Frank D’Orazio : We are still, I think, at a good place just relative to the rate environment. I mean, if you looked at our fourth quarter results and the rate we produce there, the positive rate, you may see a little bit of deceleration from the third quarter. But really, I think our history has proven that rates jump around for our E&S segment from quarter-to-quarter. So we like to look at it really at a couple of quarters at a time or on an annual basis. And so for the year, we produced 10% after producing 13%, both in '21 and '20. I think there's still a great opportunity to actually push rate. I know you mentioned seeing some lines of business where you're seeing some rate pressure. I mean I'm seeing really between the uncertainty relative to inflation, maybe some overhang from property cat losses and also a tightening reinsurance marketplace, which is broader than just property, certainly tied to some of the overhang of the last years of the soft market, I see opportunities to continue to push rate. Now I do want to comment on our view just broadly speaking, relative to loss cost trend as we see it for the coming year. And we analyze and discuss loss trends on a quarterly basis, I think our actuaries do a good job of constantly analyzing rate movement and loss cost trends and the duration of our liabilities. Looking to the year ahead, we slightly raised our view of loss cost trend closer to a high single-digit viewpoint, which feels, again, prudent just given the uncertainty and the inflationary environment and the nature of our business. You may recall that on the overall portfolio, we were closer to a mid-single-digit view of loss trend with some product lines coming in higher by as many as a couple of hundred basis points from the average of the portfolio. And that gap still exists, but out of caution and conservatism, we've moved up our view on the overall portfolio for the coming year. But to be clear, we've also slightly adjusted our view of exposure or premium trend. And we believe rate change continues to compare favorably to net trend or loss cost trend, less exposure trend, even after taking this more conservative view on loss costs.

Got you. So we shouldn't expect underlying loss ratios and actually to moving up, they're kind of stable-ish given the exposures you're also getting to? Frank D’Orazio : No, that's about right.

Meyer Shields with KBW.

A couple of quick numbers questions, if I can. First, Sarah, you mentioned that we should expect maybe half of the level of Casualty Re earned premium in 2023. Is there anything material in 2024 or should we be done with the under premium overhang by then?

Thanks, Meyer, for the question. I think there'll be a little bit in '24, but it's not going to be material relative to the balance of the total group top line.

Okay. That's helpful. And when you talk about a 28% expense ratio, that, that the corresponding number in 2022 was [25%], right? I just want to make sure I'm starting from the right side.

That's correct. Yes, that's correct. With the biggest delta due to little bit less business in Casualty Re, right, earning through. But more so, the change in the retention strategy in E&S is what's causing the delta there, the biggest piece of it.

Okay. And then, I guess, a philosophical question on the reserves. I completely understand the unusual nature of the clash losses in the quarter. When you establish reserves at this point in time, is the goal to have it incorporate this sort of unusual items? Or when this happens, should we expect a little bit of adverse development periodically? Frank D’Orazio : Well, Meyer, let me first just start by kind of defining how odd this kind of scenario is. So they are rare. I think that's how I described them. They're not nonexistent, though. So I think in the history of writing reinsurance in this segment, I think you can count the amount of times that we've seen clash losses on 1, maybe 2 hands. And obviously, we had 2 in the quarter 1 coming out of the GL space and involve multiple insurers and then one, again, a liquor liability claim that involved multiple insureds in the cedings underlying business. So they're fairly rare, I would say, generally speaking, I don't think you're expecting the variety where you have as many as a handful of insureds involved in a single individual occurrence.

[Operator Instructions] Tracy Benguigui.

Just a few follow-up questions on questions already asked. So at inception, just a year ago, the Casualty Re LPT transaction represented the bulk, about $335 million but not the entire reserve balance of $450 million, and those are accident years 2011 to 2020. Can you share those reserve balances now? And can you frame what type of businesses are part of the casualty re reserves that are out of scope of your LPT and what that duration is of those liabilities.

Sure. So thanks for the question, Tracy. When we put the LPT together, we did it in a very, very quick time line and wanted to focus on what we saw with the -- let's call it, the riskiest part of our portfolio where we could get it down to, I would say, a reasonably sized number of contracts. We've got over 400 contracts in the business, having been writing the business since 2008, 2009. So it's going to be impossible to really put the whole segment into any LPT with the way these work. So when we design this, we put the majority of the reserves in it. We also put the majority of our construction risk in it and are, again, kind of our longer tail trickier lines, so to speak. So that remains within that portfolio, which is why the losses that we've seen this quarter outside of the portfolio, the $6.6 million characterized by clash, i.e., bodily injury risks that didn't go into that portfolio. So that remains the case. So now we've moved from $335 million to $341 million of reserves with the additional $6.1 million that are in there. That still remains the bulk of our reserve balance in the portfolio. And again, would still have the majority of our construction and longer tail business in there. By definition, those reserves are going to be paid out over a slightly longer time frame than the rest of the reserve balance there. So we would expect that to be upwards of, let's call it, 3 to 5 years, perhaps as long as 7 years as well. So the tail is going to be a little bit longer there as well.

Okay. Great. Last year, you were targeting a low double-digit ROE. This year your targeting mid-teen ROE. I'll just point out that your target expense ratio is up 3 points from how you ended the year. I'm wondering if you could share the contribution from that investment income under mid-teen ROE target.

Yes. Well, we expect our NII this quarter to be pretty commensurate of how it would look over the '23 year absent that $1 million, let's call it, a gain that's rolling through NII. So if you take that out, I would think that would be a pretty reasonable run rate upwards of $20 million a quarter. So that's a good contributor there.

There are no further questions at this time. I now turn the call back over to the presenters for closing comments. Frank D’Orazio : Okay. I want to thank everyone listening on the call for their time today and for the questions we received this morning. I'd also like to acknowledge the employees of James River for a job well done in delivering our 2022 results. We look forward to speaking with you again in just a few months to discuss our Q1 results. Thank you and enjoy your day.

This concludes today's call. We thank you for your participation. Participants may now disconnect.