Good morning. My name is Jenny, and I will be your conference operator today. At this time, I would like to welcome everyone to James River Group Fourth Quarter 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Brett Shirreffs, Senior Vice President. Please go ahead.

Good morning, everyone, and welcome to the James River Group fourth quarter 2023 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 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, underwriting profit, tangible equity, tangible common equity and adjusted net operating return on tangible common equity. Please refer to our earnings press release for a reconciliation of these numbers to GAAP. A copy of which can be found on our website at www.jrvrgroup.com. Lastly, unless otherwise specified for the reasons described in our earnings press release, all underwriting performance ratios referred to are for our continuing operations and 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 the introduction, Brett. Good morning, everyone, and welcome to our fourth quarter 2023 earnings call. I'm pleased to be joining you today to provide additional color on our fourth quarter and full year 2023 results, in addition to providing some commentary on market conditions and the future outlook for James River. Before we get into the results for both the full year 2023 as well as the fourth quarter, I would like to…

Thanks very much, Frank, and good morning, everyone, and thank you for joining us this morning. Our accounting and presentation generally is a bit different this quarter, given that we are reporting our former Casualty Reinsurance segment as discontinued operations and held for sale. As Frank mentioned, all regulatory approvals for the sale are in hand and we expect to close the sale of the JRG Re entity, which supported the segment shortly. As part of that, all income and loss from the segment, including investment income flows through discontinued operations for all periods presented. More importantly, as we move the organization forward, income from continuing operations is representative of the E&S and Specialty Admitted insurance businesses, which remain. For the fourth quarter, we're reporting adjusted net operating income of $0.33 per share compared to $0.44 per share in the prior year quarter. Tangible book value per common share was $9.05 at year-end and adjusted for dividends has decreased about 2.7% from the start of the year. The decline is entirely due to the loss on sale and loss from discontinued operations, which included a $53.2 million loss to reclassify the fixed maturity securities on the JRG Re rebalance sheet as held for sale. We believe we took a decisive move in addressing our general casualty reserves. As Frank highlighted, we've made significant underwriting changes to the book since 2020 and have added 37% of rate compounded since 2021, meaningfully in excess of our plan and trends. Our business is small and medium account focused and without meaningful concentrations. We believe our E&S current accident year loss ratio for 2023 of 61.9% is a healthy loss pick that may not fully reflect the level of rate increases we accomplished in 2023 in excess of our pricing assumptions and as Frank…

The floor is now open for your questions. [Operator Instructions] Your first question comes from the line of Mark Hughes with Truist.

Sarah, could you talk about the capital situation, kind of what is the right leverage for the business or kind of, dealing that you would underwrite at? And what sort of growth you can still generate from here with your current balance sheet?

Sure. Good question. We don't feel restrained on growth, having delivered in this kind of low double-digit growth number for the last few years, Mark. I would say with our business and in the little exposure that we have to property on one hand as well as the significant amount of third-party reinsurance business that we buy and have bought for many years, we're very comfortable at an operating leverage number around 1.5, even slightly higher than that. And we certainly expect to continue to build capital more rapidly over the course of the next few quarters through retained earnings, obviously, having shed the volatility that the capital -- the casualty reinsurance business was adding and the significant capital support that was required due to the reserves in that business.

And then any latest thoughts on tax rate?

Yes. Great question. We would expect we will still have the Bermuda holding company post the close of JRG Re. So, there'll be a little bit of tax friction there. But I would expect our tax rate over the course of the year to largely approximate the U.S. statutory rate.

In the '21 to '23 accident years, it sounds like your pricing is well ahead of loss costs. Have you seen any kind of change in the trend, though, maybe in looking at some of your peers, details? You do see some signs of inflation even in some of these recent acts in the years. I wonder if you have any observations about whether the -- you've seen some change in trend or what you spotted or you concluded when you did this deeper dive on your older accident years? Frank D’Orazio: Mark, so we have typically relied on ISO-based industry loss trends for the actuarial assumptions around trend. And as we mentioned in previous quarters, we made some specific increases to our view of loss cost trend closer to a high single-digit viewpoint for 2023 and then at that time, certainly felt prudent just given the uncertainty in the inflationary environment and the nature of our portfolio. We went through a similar process in the fourth quarter of '23 relative to how we thought about '24, again, relying heavily on the ISO-based industry loss trends, which do reflect some moderation in inflation. The changes though really vary by line. So, some lines of business will have increases between 2023 to 2024, like a line like commercial auto. Some may be slightly lower, some of the kind of smaller business lines, for instance, Overall, our loss trend assumptions changed by less than 1 point across the segment, but we also then refreshed our view of exposure trend as well. And that changed also by less than 1 point. I know you know they've got a bit of an offsetting relationship between exposure trend and loss trend. But the net sum of the change relative to the view that we have is that trend for '24 is moving less than 0.5 point in total.

Our next question comes from the line of Brian Meredith with UBS.

I'm just curious, was there any consideration or thoughts about buying an adverse development cover just to kind of try to put some of the prior year reserving stuff to bed? Frank D’Orazio: Brian, so let me start by saying that we are booked now in excess of our own internal actuaries view of the reserves and right in line with our third-party opining actuaries. We're all -- I think the Company has over its history has shown that it's been open to exploring those types of transactions. But at this point, like I said, we're pretty comfortable with the reserve position.

And then if I could, just curious, growth pretty strong in the E&S segment in the quarter. I guess, given what's going on in my experience is that when you get stuff like a strategic review going on, those types of things, companies can be subject to adverse selection issues. How are you preventing that? How are you kind of ensuring that that's not happening? Frank D’Orazio: Yes. No, I appreciate the question, Brian. I would say I think it's highly unlikely and I'll tell you why. First off, our premium renewal retention for the quarter was 69.8% versus 67.1% for the full year. So, we actually retained a higher percentage of our renewal clients in Q4. That business that we know that has been with us at least a year and in most instances, several years, just by the nature of renewal business. So, we know the business and the underlying exposures very well. And by definition, renewal business would have been introduced to James River certainly before we announced the strategic review. But I would say, just as importantly, we've had stewardship discussions with all of our major trading partners. I participated in many of them. Firms that we've been trading with for 20 years, and they have all confirmed that we're still a very key and important market for them. Nothing has changed. And just to give you some further context here, we don't get new producers approaching as kind of all street, you need to have an appointment with James River. So again, it kind of speaks to the fact that we've been trading with the people that are providing these submissions to us for many years. And I guess I would say the last point I'd make is we still control our underwriting decisions and certainly haven't relaxed any type of underwriting guidelines or authorities just because of the review that we've announced. So, I appreciate the thought process, certainly, but I think we're well protected against that.

And then my last question, I mean the other thing too, when stuff like this is going on, it can have an effect on the employees. What are you doing and what's happening with respect to kind of retention of kind of key employees? And what does your employee retention look like? Frank D’Orazio: Yes. Good question, Brian. So right now, we just tried to increase certainly communication with the overall staff. We're watching retention very closely, trying to be flexible just relative to our work environment and making sure people understand what's going on with the strategic review, what it means and what it doesn't mean. So, I look at it on a monthly basis and monitor it very closely. I think the Company has done a good job of putting retentions in place, not just in the last couple of months per se since the events of Q3, but over the last couple of years as well to really kind of identify the next wave of leadership at James River and make sure they know how the organization feels about them. So, it's definitely a point that we speak about a lot as a management team and with our Board.

Our last question comes from the line of Meyer Shields with KBW.

Just a couple of questions. First, I guess, Frank, when you talk about the various underwriting changes that have been made in the book, I understand that those would lower loss exposure. What's the impact on loss trend for the business that you're still writing compared to lose on older line? Frank D’Orazio: The impact on loss trend for the business that we're still writing?

Right. The loss trend of both these changes lower than the proceeding book? Frank D’Orazio: So again, we look at loss trend on an annual basis, stay very close to it and have just finished our analysis relative to our view for '24. I would say there's nominal change on the portfolio overall, like I said, the net sum of our change in view from '23 to '24 for both loss trend as well as exposure trend is less than 0.5 point and that would certainly include the product lines that you're talking about.

This is a little bit of an inpatient question before we get the 10-K, but I was hoping to get the updated E&S accident year loss ratio for 2020 outlook right now. Frank D’Orazio: Meyer, I just want to make sure we're answering your question correctly, the updated...

Loss ratio for 2020. Would you talk about the cumulative rate impact. And I'm just wondering what the number is that's analogous to [61.9% for 2020 basis]. Frank D’Orazio: For 2020, the updated loss ratio is 60.4%.

And then last question on the outlook side. So I guess, Sarah, how should we think about the net to gross ratio in Specialty Admitted in 2024?

Yes. That's a good question, Meyer. I think it would be -- we've talked about this business a lot. Obviously, it's fairly lumpy in terms of what's on the come, et cetera. I think it's -- the fourth quarter retention is a very solid place to start when I think about what we have in the pipeline and what the plan is for 2024.

[Operator Instructions] There are no further questions at this time. Mr. Frank D'Orazio, I'll turn the call back over to you. Frank D’Orazio: Thank you. I want to thank everyone for their time today and for the questions we received this morning. We look forward to speaking with you all again in a matter of a few weeks to discuss our first quarter results. Thank you, and enjoy the rest of your day.

This concludes today's conference call. You may now disconnect.