Exhibit 99.1
FOR IMMEDIATE RELEASE | Contact: | Michael Oakes |
Chief Financial Officer
(919) 883-4171
JAMES RIVER GROUP REPORTS 2005 THIRD-QUARTER
NET LOSS OF $9.5 MILLION
DIRECT WRITTEN PREMIUMS INCREASE 80.3%
FOR FIRST NINE MONTHS OF 2005
CHAPEL HILL, North Carolina - (November 7, 2005) - James River Group, Inc. (NASDAQ: JRVR) today announced financial results for the third quarter and nine months ended September 30, 2005. The Company reported a net loss of $9.5 million for the third quarter of 2005 compared to net income of $3.0 million for the third quarter of 2004. The net loss for the third quarter of 2005 included a $16.2 million after-tax loss from Hurricane Katrina, net of reinsurance and including reinsurance reinstatements, and a $1.3 million after-tax loss from Hurricane Rita. The third quarter of 2005 benefited from favorable development on prior accident year reserves for the excess and surplus casualty business of $1.0 million after-tax.
Net loss for the first nine months of 2005 was $190,000 compared to net income of $5.5 million for the first nine months of 2004.
Because of the net loss for the third quarter and first nine months of 2005, convertible preferred stock shares and related dividends converted into common shares during the third quarter of 2005 in connection with the Company’s initial public offering were excluded from the calculation of diluted earnings per share for these periods, due to the antidilutive effect of including these converted shares in the calculation. Net loss per diluted share was $1.24 for the third quarter of 2005 compared to net income per diluted share of $0.31 for the third quarter of 2004. Net loss per diluted share for the first nine months of 2005 was $1.14 compared to net income per diluted share of $0.59 for the first nine months of 2004. If the converted preferred stock shares and related dividends were included at the beginning of the third quarter and first nine months of 2005, weighted-average diluted shares would have increased by 5,250,815 shares and 8,285,710 shares, respectively, resulting in a pro forma net loss per diluted share of $0.71 for the third quarter of 2005 and a pro forma net loss per diluted share of $0.02 for the first nine months of 2005. See page 8 for a reconciliation of GAAP and non-GAAP results.
Direct written premiums for the first nine months of 2005 increased 80.3% to $166.1 million from $92.1 million for the first nine months of 2004. The combined ratio for the first nine months of 2005 was 107.1% compared to 93.0% for the same period in 2004, with losses from Hurricane Katrina driving the higher combined ratio in 2005. The expense ratio for the first nine months of 2005 was 23.2% compared to 28.1% for the first nine months of 2004.
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Direct written premiums for the third quarter of 2005 were $61.3 million, a 59.1% increase from $38.5 million for the third quarter of 2004. The combined ratio for the third quarter of 2005 was 172.4% compared to 90.4% for the same period in 2004. The combined ratio for the third quarter of 2005 was increased by losses from Hurricane Katrina, which contributed to a loss ratio of 145.9% for the quarter compared to 65.5% for the third quarter of 2004. The expense ratio for the third quarter of 2005 was 26.6% compared to 24.9% for the third quarter of 2004. The 2005 third quarter expense ratio includes 1.8% from the negative impact of accounting for Hurricane Katrina and 2.4% for the cost of a workers’ compensation guaranty fund assessment.
J. Adam Abram, President and Chief Executive Officer, said, “We are disappointed that Hurricane Katrina had such a dramatic adverse impact on our third-quarter operating results. However, we are quite encouraged by our strong premium growth in the quarter. We also note the 57.5% growth in direct written premiums in our excess and surplus casualty business and the 303% increase in direct written premiums in our workers’ compensation business for the first nine months of 2005 compared to the same period last year. Pricing for our casualty business remains attractive, and we continue to believe that we have significant opportunities for profitable growth.”
Commenting on the Company’s response to Hurricane Katrina, Abram said, “After Katrina hit, we sent adjusters into the affected territory to begin responding to claims and, in some cases, to inspect insured properties prior to our receiving a claim. Our claims team is working very hard to help our policyholders get back into business. Because we recognize that events of this magnitude can involve complex coverage issues and that resources may be somewhat scarce in affected areas, we have established reserves in each case that we believe reflect the complexity of the claims and the potential for price increases associated with the demand for labor and materials in the storm affected areas. We do not expect to receive additional new material claims for Hurricane Katrina.
“Rita represented a relatively modest loss event for James River. We do not anticipate a significant impact on our results from Wilma, based on the path of the storm and the nature of our book of business in that area.
“After a careful review of our property underwriting units, we have decided to resume underwriting new property risks utilizing revised underwriting guidelines and more conservative assumptions regarding how much reinsurance to purchase. These new guidelines are designed to further reduce our exposure to future hurricane related losses.”
Abram added, “We now expect to have a combined ratio of less than 100% for 2005, and we expect our growth in direct written premiums from 2004 to 2005 to be at the high end of the 55% to 65% range in our established guidance. For 2006, we continue to anticipate achieving an annual return on equity of at least 15% and writing at a combined ratio of between 80% and 90%. We also expect growth in gross written premiums of 20% to 30% for 2006.”
James River Group will hold a conference call to discuss this press release tomorrow, November 8, 2005, at 10:30 a.m. Eastern time. Investors may access the conference call over the Internet by going to www.james-river-group.com and clicking on the Investor Relations link, or by going
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to www.earnings.com. Please visit the Web site at least 15 minutes early to register, download and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available shortly after the call and through the end of business on November 15, 2005, at (617) 801-6888 (passcode: 66126029) and at the Web sites referenced above.
Certain matters discussed in this release are forward-looking statements, including but not limited to the Company’s belief as to the adequacy of its reserves, its expectations regarding future material claims from hurricanes, exposure to future hurricane related losses, and its expectations of its operating results for the remainder of 2005 and for 2006. Such statements involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Potential risks and uncertainties include the accuracy of assumptions underlying the Company’s outlook, the accuracy of its assumptions underlying its catastrophe model, actual losses incurred by policyholders in hurricanes that have occurred and that will occur during the remainder of 2005 and in 2006 and other risks described in the Company's filings with the Securities and Exchange Commission, including the Company's Form S-1, as amended. These forward-looking statements represent the Company's judgment as of the date of this release. The Company disclaims any intent or obligation to update these forward-looking statements.
James River Group, Inc. is an insurance holding company that owns and manages specialty property/casualty insurance companies with the objective of consistently earning underwriting profits. Each of the Company’s two insurance company subsidiaries is rated “A-” (Excellent) by A.M. Best Company. Founded in September 2002, the Company wrote its first policy in July 2003 and currently underwrites in two specialty areas: excess and surplus lines in 48 states and the District of Columbia; and workers’ compensation, primarily for the residential construction industry in North Carolina.
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James River Group, Inc.
Summarized Balance Sheet Data
| (Unaudited) | | |
| September 30 | | December 31, |
| 2005 | | 2004 |
| (in thousands) |
Assets | | | | |
Investments: | | | | |
Fixed maturity securities available-for-sale, | | | | |
at fair value | $ | 341,068 | $ | 172,731 |
Equity securities available-for-sale, at fair value | | 1,970 | | 2,290 |
Short-term investments | | 13,154 | | 4,639 |
Total investments | | 356,192 | | 179,660 |
| | | | |
Cash and cash equivalents | | 11,046 | | 15,571 |
Accrued investment income | | 3,565 | | 1,809 |
Premiums receivable and agents’ balances | | 26,190 | | 18,265 |
Reinsurance recoverable on unpaid losses | | 124,150 | | 15,200 |
Deferred policy acquisition costs | | 15,340 | | 11,344 |
Other assets | | 38,536 | | 25,099 |
Total assets | $ | 575,019 | $ | 266,948 |
| | | | |
Liabilities and stockholders’ equity | | | | |
Reserve for losses and loss adjustment expenses | $ | 226,534 | $ | 62,243 |
Unearned premiums | | 103,505 | | 78,290 |
Senior debt | | 15,000 | | 15,000 |
Junior subordinated debt | | 22,681 | | 22,681 |
Funds held | | 22,101 | | - |
Other liabilities | | 20,471 | | 8,039 |
Total liabilities | | 410,292 | | 186,253 |
| | | | |
Total stockholders’ equity | | 164,727 | | 80,695 |
Total liabilities and stockholders’ equity | $ | 575,019 | $ | 266,948 |
| | | | |
Debt to total capitalization ratio | | 18.6% | | 31.8% |
Book value per share including accumulated other | | | | |
comprehensive income (loss) | $ | 10.93 | | * |
Book value per share excluding accumulated other | | | | |
comprehensive income (loss) | $ | 11.10 | | * |
| | | | | |
* Only one common share was outstanding at December 31, 2004, so book value per share at that date is not meaningful.
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James River Group, Inc.
Summarized Income Statement Data
(Unaudited)
| | Three Months Ended
September 30 | | Nine Months Ended
September 30 |
| | 2005 | | 2004 | | 2005 | | 2004 |
| (dollars in thousands, except per share data) |
| | | | | | | | |
Revenues | | | | | | | | |
Direct written premiums | $ | 61,270 | $ | 38,511 | $ | 166,084 | $ | 92,092 |
Gross written premiums | $ | 64,656 | $ | 38,511 | $ | 169,470 | $ | 92,092 |
Net written premiums | $ | 32,227 | $ | 34,977 | $ | 101,745 | $ | 77,805 |
| | | | | | | | |
Net earned premiums | $ | 23,455 | $ | 22,113 | $ | 79,361 | $ | 47,449 |
Net investment income | | 2,686 | | 1,080 | | 6,448 | | 2,430 |
Realized losses | | (13) | | (1) | | (111) | | (1) |
Other income | | 28 | | 3 | | 104 | | 98 |
Total revenues | | 26,156 | | 23,195 | | 85,802 | | 49,976 |
| | | | | | | | |
Expenses | | | | | | | | |
Losses and loss adjustment expenses | | 34,215 | | 14,490 | | 66,569 | | 30,799 |
Other operating expenses | | 6,230 | | 5,499 | | 18,403 | | 13,332 |
Interest expense | | 694 | | 307 | | 1,924 | | 418 |
Total expenses | | 41,139 | | 20,296 | | 86,896 | | 44,549 |
Income (loss) before taxes | | (14,983) | | 2,899 | | (1,094) | | 5,427 |
Federal income tax benefit | | (5,502) | | (69) | | (904) | | (69) |
Net income (loss) | $ | (9,481) | $ | 2,968 | $ | (190) | $ | 5,496 |
| | | | | | | | |
Earnings (loss) per share: | | | | | | | | |
Basic | $ | (1.24) | $ | 176,399.30 | $ | (1.14) | $ | 193,722.70 |
Diluted | $ | (1.24) | $ | 0.31 | $ | (1.14) | $ | 0.59 |
| | | | | | | | |
Weighted average common shares: | | | | | | | | |
Basic | | 8,118,949 | | 10 | | 2,736,063 | | 10 |
Diluted | | 8,118,949 | | 9,496,490 | | 2,736,063 | | 9,301,890 |
| | | | | | | | |
Ratios: | | | | | | | | |
Loss ratio | | 145.9% | | 65.5% | | 83.9% | | 64.9% |
Expense ratio | | 26.6% | | 24.9% | | 23.2% | | 28.1% |
Combined ratio | | 172.4% | | 90.4% | | 107.1% | | 93.0% |
| | | | | | | | |
Annualized return on average | | | | | | | | |
stockholders’ equity | | (29.5%) | | 15.8% | | (0.2%) | | 9.9% |
| | | | | | | | | |
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James River Group, Inc.
Segment Results
Excess and Surplus Insurance
| | Three Months Ended
September 30 | | Nine Months Ended
September 30 |
| | 2005 | | 2004 | | 2005 | | 2004 |
| (dollars in thousands) |
| | | | | | | | |
Direct written premiums | $ | 53,715 | $ | 35,711 | $ | 144,950 | $ | 86,847 |
Gross written premiums | $ | 53,715 | $ | 35,711 | $ | 144,950 | $ | 86,847 |
Net written premiums | $ | 22,276 | $ | 32,618 | $ | 80,381 | $ | 73,386 |
| | | | | | | | |
Net earned premiums | $ | 16,112 | $ | 20,522 | $ | 61,367 | $ | 44,681 |
| | | | | | | | |
Losses and loss adjustment expenses | | 29,134 | | 12,910 | | 55,019 | | 28,343 |
Underwriting expenses | | 2,797 | | 4,121 | | 10,906 | | 10,103 |
Underwriting profit (loss) (1) | $ | (15,819) | $ | 3,491 | $ | (4,558) | $ | 6,235 |
| | | | | | | | |
Ratios: | | | | | | | | |
Loss ratio | | 180.8% | | 62.9% | | 89.7% | | 63.4% |
Expense ratio | | 17.4% | | 20.1% | | 17.8% | | 22.6% |
Combined ratio | | 198.2% | | 83.0% | | 107.4% | | 86.0% |
| | | | | | | | |
(1) See “Reconciliation of Non-GAAP Measures” on page 8.
Within the Excess and Surplus Insurance segment, results by major line of business are as follows:
| | Three Months Ended
September 30 | | Nine Months Ended
September 30 |
| | 2005 | | 2004 | | 2005 | | 2004 |
| (dollars in thousands) |
Casualty Lines | | | | | | | | |
Net earned premiums | $ | 20,058 | $ | 18,772 | $ | 62,758 | $ | 40,646 |
Losses and loss adjustment expenses | $ | 13,412 | $ | 11,805 | $ | 40,609 | $ | 25,799 |
Loss ratio | | 66.9% | | 62.9% | | 64.7% | | 3.5% |
| | | | | | | | |
Property Lines | | | | | | | | |
Net earned premiums | $ | (3,946) | $ | 1,750 | $ | (1,391) | $ | 4,035 |
Losses and loss adjustment expenses | $ | 15,722 | $ | 1,105 | $ | 14,410 | $ | 2,544 |
Loss ratio | | *** | | 63.1% | | *** | | 63.0% |
| | | | | | | | | |
*** Net earned premiums for property lines for the three months and nine months ended September 30, 2005 are negative because of the reinsurance reinstatement premiums owed to reinsurers resulting from Hurricane Katrina. Because net earned premiums for the three months and nine months ended September 30, 2005 are negative, the loss ratio for those periods is not meaningful.
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Workers’ Compensation Insurance
| | Three Months Ended
September 30 | | Nine Months Ended
September 30 | |
| | 2005 | | 2004 | | 2005 | | 2004 | |
| (dollars in thousands) |
Direct written premiums | $ | 7,555 | $ | 2,800 | $ | 21,134 | $ | 5,245 |
Gross written premiums | $ | 10,941 | $ | 2,800 | $ | 24,520 | $ | 5,245 |
Net written premiums | $ | 9,951 | $ | 2,359 | $ | 21,364 | $ | 4,419 |
| | | | | | | | |
Net earned premiums | $ | 7,343 | $ | 1,591 | $ | 17,994 | $ | 2,768 |
| | | | | | | | |
Losses and LAE | | 5,081 | | 1,580 | | 11,550 | | 2,456 |
Underwriting expenses | | 2,897 | | 947 | | 6,322 | | 2,776 |
Underwriting profit (loss) (1) | $ | (635) | $ | (936) | $ | 122 | | (2,464) |
| | | | | | | | |
Ratios: | | | | | | | | |
Loss ratio | | 69.2% | | 99.3% | | 64.2% | | 88.7% |
Expense ratio | | 39.5% | | 59.5% | | 35.1% | | 100.3% |
Combined ratio | | 108.6% | | 158.8% | | 99.3% | | 189.0% |
| | | | | | | | |
| | | | | | | | | | | | | | | |
(1) See “Reconciliation of Non-GAAP Measures” on page 8.
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Reconciliation of Non-GAAP Measures
The following table reconciles the underwriting profit (loss) of the insurance segments by individual segment to consolidated income (loss) before taxes. Our definition of underwriting profit (loss) may not be comparable to the definition of underwriting profit (loss) for other companies. We evaluate the performance of our insurance segments and allocate resources based primarily on underwriting profit (loss) of the insurance segments. We believe that this is a useful measure for investors in evaluating the performance of our insurance segments because our objective is to consistently earn underwriting profits.
| Three Months Ended
September 30 | | Nine Months Ended
September 30 |
| | 2005 | | 2004 | | 2005 | | 2004 |
| (in thousands) |
| | | | | | | | |
Underwriting profit (loss) of the
Excess and Surplus Insurance
segment | $ | (15,819) | $ | 3,491 | $ | (4,558) | $ | 6,235 |
Underwriting profit (loss) of the
Workers’ Compensation Insurance
segment | | (635) | | (936) | | 122 | | (2,464) |
Total underwriting profit (loss) of
insurance segments | | (16,454) | | 2,555 | | (4,436) | | 3,771 |
Net investment income | | 2,686 | | 1,080 | | 6,448 | | 2,430 |
Realized losses | | (13) | | (1) | | (111) | | (1) |
Other income | | 28 | | 3 | | 104 | | 98 |
Other operating expenses of the
Corporate and Other segment | | (536) | | (431) | | (1,175) | | (453) |
Interest expense | | (694) | | (307) | | (1,924) | | (418) |
Consolidated income (loss)
before taxes | $ | (14,983) | $ | 2,899 | $ | (1,094) | $ | 5,427 |
The following table reconciles pro forma net loss per diluted share to net loss per diluted share under generally accepted accounting principles (GAAP) for the three and nine months ended September 30, 2005. We believe pro forma net loss per diluted share is a useful measure for investors in evaluating our performance because it makes comparisons to prior periods more meaningful.
| | Three Months Ended
September 30, 2005 | | Nine Months Ended
September 30, 2005 |
| | Weighted
Average Shares | | Net
Loss | | Loss per
Diluted Share | | Weighted
Average Shares | | Net
Loss | | Loss per
Diluted Share |
| | (dollars in thousands, except per share data) |
| | | | | | | | | | | | |
Pro forma | | 13,369,764 | $ | (9,481) | $ | (0.71) | | 11,021,773 | $ | (190) | $ | (0.02) |
Less effect of | | | | | | | | | | | | |
convertible prefer- | | | | | | | | | | | | |
red stock and | | | | | | | | | | | | |
related dividends | | | | | | | | | | | | |
prior to conversion | | (5,250,815) | | | | | | (8,285,710) | | | | |
Less preferred | | | | | | | | | | | | |
dividends accruing | | | | | | | | | | | | |
in the period | | | | (564) | | | | | | (2,940) | | |
GAAP | | 8,118,949 | $ | (10,045) | $ | (1.24) | | 2,736,063 | $ | (3,130) | $ | (1.14) |
| | | | | | | | | | | | | | |
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