Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the James River Group Q3 2024 Earnings Call. [Operator Instructions] I would now like to turn the call over to Zachary Shytle, Investor Relations. Please go ahead.

Good morning, everyone, and welcome to the James River Group Third Quarter 2024 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 10-Q 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 that introduction, Zach. Good morning, everyone, and welcome to our third quarter 2024 earnings call. We're excited to be joining you this morning to discuss what has been a very active quarter for James River. And by that, specifically, I'm referring to the meaningful strategic actions that we announced with our earnings last night and our corresponding investor presentation or FAQ document. In addition to providing detailed commentary specific to our…

Thank you very much, Frank. Good morning, everyone, and thanks for joining us today. As we are announcing a number of things today, I thought I would focus my comments on certain key dynamics as well as some of the data points from the loss portfolio transfer we executed in July 2024 as that's now flowed through the financials. To start from the top, as Frank mentioned, we reported a net loss from continuing operations of $1.07 per share and adjusted net operating loss of $0.74 per share. The loss was generated in the E&S segment and was driven by the previously disclosed impact of the State National 4 July reinsurance transaction, which closed at the beginning of the quarter as well as by the additional reserve development we recognized as part of our third quarter detailed valuation review. Coming out of that review, we increased loss and loss adjustment expense in the E&S segment by $76.3 million this quarter. This included the previously announced $52.2 million of excess consideration over reserves ceded in connection with the July reinsurance transaction as well as a $19.2 million deferred gain and a $4.8 million charge, which we effectively retained. So the unfavorable reserve development in the E&S segment, not subject to retroactive accounting is $57 million, i.e., the $52.2 million plus the $4.8 million and of course, the $165,000 of favorable development from our Specialty Admitted segment. This $57 million is close to the $52.2 million we effectively preannounced upon execution of the July reinsurance transaction. The reinsurance contract we closed in July, like the one we signed yesterday, covers the majority of our casualty E&S reserves from 2010 to 2023 inclusive and incepts on January 1 of this year. This means it covers the majority of the first quarter and second…

[Operator Instructions] Your first question comes from the line of Mark Hughes with Truist Securities.

Sarah, you had mentioned that the group expense would have been 27.8% as opposed to the 28.8%. Is the -- and then you suggested your expectations. Was that for the 27.8% or the 28.8% would be a good number on a go-forward basis?

I would say the 27.8%, Mark. So let's round that to 28%. But we've never been super specific on that dollar amount, but I would say that's the right area to think about.

Yes. And then with the kind of extended tail, you've seen issues in the other liability occurrence product liability. What gives you confidence that, that is kind of not going to be devil the 2023 or 2024 accident years? And then is your pricing, the pricing you've been taking, is that sufficient to account for that tail impact? Frank D’Orazio: Yes, Mark, thanks for the question. Let me try to provide a little bit of detail here relative to the DVR process and what we saw and what our actuaries responded to. So as I suggested, we did a full review of all the underlying assumptions and the methods and our actuaries drew conclusions as to the total reserve need for all lines and accident years. And what was driving our change in assumptions really was severity and reported losses were the biggest driver, which led us to increase both loss development and loss trend assumptions. So we meaningfully increased our assumptions on loss trend, increasing at approximately 25% across the major segments. So other liability occurrence, GL, product liability occurrence, and excess liability occurrence. And to be clear, as I said, these changes are driven by severity trends. Frequency has not been the issue. I think broadly, frequency was down across the portfolio with maybe one exception. In fact, other liability occurrence, which is a large product line for us, which includes our habitational business in particular, actually shows very promising frequency trends as we believe our underwriting actions over the last few years are taking hold. So to your point about the more recent years, because it's a full parameter review, we also apply the same process to our current year by definition, and we see meaningful redundancy in the '24 year and intend to be patient with it. So as I noted in my script, during the DVR process, we've not taken any credit for all the underwriting actions in addition to the rate that we've taken across the book in the past few years. And so in other words, we didn't lower reserves for what we believe are going to be better-performing businesses as those reserves mature in the more recent years.

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

Frank, just quickly, as a follow-on to that one, you said you increased your trend assumptions by about 25%. Can you give us a perspective on what you're assuming casualty trend is right now on your reserves and when you're pricing for? Frank D’Orazio: Yes. So it's a good question, Brian. So I think we've said over the course of past quarters this year that we've got a high single-digit view of loss trend for '24. We're actually in the process of finalizing our budget for 2025. So I'll be able to refresh that view for you when we talk again in another couple of months. But as of the '24 view was high single digit. And within that, of course, certain lines are going to be higher, certain lines are going to be lower, particularly in the excess casualty space, you'll be higher.

Got you. Got you. And it sounds like just to be clear here that the reserve development you had in the quarter, nothing came from '23. Any perspective on where it was coming from? Frank D’Orazio: Yes. Again, it would primarily -- sure, Brian. So primarily '21 and prior, heavier concentration in '19 to '21 and the product lines or lines of business specifically, the primary other liability occurrence, product liability occurrence, some excess liability occurrence. I would say, though, that the driver was the other liability occurrence.

Got you. And then next question, I'm just curious on the Specialty Admitted business front. Has what's been going on had any effect on that business, like getting into an agreement with State National, those types of things? How are we thinking about that business going forward? Frank D’Orazio: So we've had pretty steady premium growth there, 9% premium growth in the fronting business in the third quarter and 14% year-to-date. We continue to experience solid growth from our existing programs. We have a pipeline of a number of different new opportunities that we're looking at. It is an area that I think we will continue to be cautious and careful relative to security and unrated reinsurance and making sure our contracts are very tight and also stay fairly tight relative to our participations, particularly in lines of business like commercial auto. So it's a nice complementary business, and it's doing very well over the course of '24.

Got you. And then just last question here. Enstar is actually itself involved in a merger or anything. Any contingencies in your agreement with what's going on with the Enstar situation? Frank D’Orazio: No, it's not a concern. Our deal should close here, we expect fairly shortly.

But there are no specific contingencies in the deal for what Enstar is executing, Brian. It's just regulatory approval for Enstar for the transaction. That's it.

Your next question comes from the line of Meyer Shields with KBW.

I guess first question, going back to the recent accident year reserves. I'm hoping you could sort of clarify, is it the frequency or the severity of the current loss picks that makes the higher trends applied to earlier years less relevant? Frank D’Orazio: So I just want to make sure, Meyer, thank you for the question. I just want to make sure I'm answering it for you. The issue was not about frequency, and these were prior years. We're very comfortable with the current accident year. So in fact, just relative to frequency, I think the trends were down for just about all product lines, except for maybe one. So more of a severity issue and really not a concern relative to the current accident year.

Is that because there are higher severity trends already embedded in the current accident year pick? Frank D’Orazio: Yes, I would say that's accurate. And also, again, I think the most recent years obviously have the benefit of all the underwriting actions that we've taken, the better performance monitoring, the 31 quarters of compounded rate that is about 93%, I believe. So yes, I would say all those factors kind of influence the current accident year.

Okay. Great. That's helpful. And then when we look at the pricing, was the dip down in the third quarter pricing compared to the first half of the year, is that just a function of property? Or are you seeing decelerating increases in other lines as well? Frank D’Orazio: No, I would say the rate action, we say it all the time, it could bump around a little bit, but 8.6% across E&S and 8.9% in casualty lines. So that's a little additional bump because of property. So we continue to see strong pricing trends. We've experienced this throughout the cycle. To your point, rate change varies by line of business, but we continue to see healthy increases in some of our larger lines. And in fact, this quarter, we saw an acceleration in excess casualty rates at over -- just over 20%. So I think the pricing environment remains broadly attractive. And I do think the reserve pressures that the industry has shown in casualty lines over the next -- or over the last few quarters, I should say, should embolden underwriters to continue to take rate. That's kind of our view.

Your next question comes from Casey Alexander with Compass Point.

Several have been asked, but I have a few more here. Can you define for me exactly of the remaining Gallatin Point position, how much of it has 130% conversion premium versus how much of it has a 200% conversion premium?

Casey, the entirety of it is 130% on a voluntary basis and the entirety of it is 200% on a mandatory basis.

All right. Secondly, the $52.8 million cost of the Enstar that will be -- that closed yesterday, I believe. So that will run in the fourth quarter. And will that be run as a loss and LAE expense? Or will that be run as a reduction of net earned premiums?

Good question, Casey. That transaction was executed yesterday. It will close when it receives regulatory approval. As I mentioned a second ago, Enstar needs regulatory approval with the BMA. This is the same situation that we had when we executed an LPT with Fortitude. They also needed the regulatory approval from the BMA. So when that comes, the transaction will close. We would expect it to be in the fourth quarter, but we don't know, and we're not in control of that. So that's when it will be booked. So that's the first question. And the second question, we need to work through our accounting when we're closing the quarter and booking the transaction. I would say my initial steer is that it would be booked as an additional ceded premium, but we need to work through that in the quarter in which we're closing it. As you know, the economic effect is the same. It's just the geography.

Okay. How much was spent on the quarter relative to the adjudicating the Fleming dispute?

I don't think we've broken out those numbers so much, Casey. It's -- our legal fees are fairly de minimis relative to the numbers that we've reported, but I would say it would be for this quarter, decently under $1 million.

Okay. And once again, fees on Specialty Admitted are down year-over-year. Is that strictly due to workers' comp? Is this an adequate run rate going forward? And what can you do to get the fees growing from specialty admitted?

Yes. Those fees -- a portion of those fees are actually the ceding commissions that we take in from the reinsurance that we attribute to this segment, Casey. So because we have less workers' comp and Atlas, we'll have fewer fees as well running through. So the fees really -- the fronting fees and the fees through the segment move up and down with total GPW. That's probably the way to think about them. And I'm sorry, I didn't write down the second part of your question. Would you mind repeating that?

What it was -- is this a good run rate going forward is one portion of it and what does the company need to do to get those fees growing? Obviously, that's the major profit driver from the Specialty Admitted business as far as I can tell.

That's right. That's a key part of it. I would say the performance of the business has been very stable, but I would kind of go back to my first answer there in saying that the fees will grow as the business grows and the top line grows. And that business has always been fairly lumpy and fairly transactional for us, meaning deals come on and certainly, to some degree, deals go off, but they are bespoke in their cadence. So we would certainly expect to see those increase over time, but they are bespoke and transaction focused.

I will now turn the call back over to Frank D'Orazio for closing remarks. Frank D’Orazio: Okay. Thank you. Before we end the call today, I'd like to take a moment to recognize the resolve of James River and its employees. This has been a prolonged process under trying circumstances. And despite those challenges, the company has remained resilient, staff retention remains high, and the company continues to be recognized regionally and nationally as a top employer as we continue to execute on our corporate objectives. I am both proud of the company's accomplishments and very confident in our future. Okay. I'd like to thank you all for your time today and for the questions we received this morning. We'll speak to you again in a few months. Enjoy the rest of your day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.