Mail Stop 6010
June 2, 2005
J. Adam Abram
President and Chief Executive Officer
James River Group, Inc.
1414 Raleigh Road - Suite 415
Chapel Hill, North Carolina 27517
Re: James River Group, Inc.
Form S-1 Registration Statement
File No. 333-124605
Dear Mr. Abram:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Comments Applicable to the Entire Document
1. We note that your filing contains numerous omissions throughout
the prospectus which relate to the offering price range or the
number
of shares you will sell. These omissions include but are not
limited
to:
* Summary Financial Data
* Use Of Proceeds
* Capitalization
* Dilution
* The Option Grants Table
* Shares Eligible For Future Sale
* The Principal Stockholders Table
* Description of Capital Stock
Rule 430A requires you to include this information in your filing
based upon an estimate of the offering price within a bona fide
range
you disclose on the cover page and based upon an estimate of the
number of shares you will sell. We consider a bona fide range to
be
$2 if the price is under $20 and 10% if it is above $20. You
should
include the required information in an amendment prior to
circulating
a "red herring" prospectus.
2. Provide us with copies of all the graphic, photographic or
artistic materials you intend to include in the prospectus prior
to
its printing and use. Please note that we may have comments.
Please
also note that all textual information in the graphic material
should
be brief and comply with the plain English guidelines regarding
jargon and technical language.
Prospectus Summary - page 1
3. In the first paragraph under "Who We Are," please explain what
you
mean when you say that you "capitalize" specialty
property/casualty
insurance companies.
4. In the second paragraph under "Who We Are," please explain what
a
combined ratio of less than 100% means.
5. In the first paragraph under "Our Products," please explain
what
"excess and surplus lines" insurance is.
6. Please briefly describe the potential drawbacks of the approach
you are following in developing your products.
7. Please expand the discussion of A.M. Best ratings in the first
full paragraph on page 2 to disclose how many rating levels there
are
and where yours ranks in that list.
Selected Operating History, page 5
1. The use of the measure "Underwriting profit (loss)" is a non-
GAAP
measure, please provide the disclosures required by Item
10(e)(1)(i)(C) of Regulation S-K. We believe the disclosure could
be
improved by including a statement disclosing the reasons why
management believes that the presentation of this measure provides
useful information to investors regarding the company`s financial
condition and results of its operations. Further, we note that
you
use this measure as a performance measure that appears to
eliminate
recurring charges and expenditures, which is inconsistent with the
existing guidance regarding non-GAAP measures. Please refer to
"Frequently Asked Questions Regarding the Use of Non-GAAP
Financial
Measures" on our website at
www.sec.gov/divisions/corpfin/faqs/nongaapfaq.htm issued on June
13,
2003, specifically question 8.
The Offering - page 6
8. Please refer to the four bullets under "Assumptions in this
Prospectus." When you file your first amendment to the
registration
statement, please present the information in the document so that
it
reflects the automatic conversion of the outstanding securities
and
the stock split referenced in the second and third bullets.
Investors need to see how the company will actually look at the
time
they make their investment.
Risk Factors - page 9
9. Throughout this section you repeatedly state in the subheadings
and bodies of the risk factors that various things "could have a
material adverse effect on our financial condition or our results
of
operations," "may adversely affect our performance," and "could
have
a material adverse effect on us." In many instances, you do not
explain what the adverse effects might be. For example:
* Please revise "The failure of any of the loss limitations or
exclusions we employ...could have a material adverse effect on our
financial condition or results of operations" on page 9 to explain
that nullifying or voiding an exclusion or legislations that
modifies
the use of a limitation could result in higher than expected
payouts.
Please revise your risk factors to ensure that the specific
adverse
effects you refer to are clear.
Changes in our operating environment may adversely affect our
performance. - page 9
10. The information included in this risk factor is too vague and
generic to be meaningful to an investor. The information also
applies to every insurance company. Please revise the risk factor
to
address your specific situation and your specific lines of
business.
The failure of any of the loss limitations or exclusions we
employ,
or changes in other claim or coverage issues, could have a
material
adverse effect on our financial condition or our results of
operations. - page 9
11. Please clarify the potential adverse consequence arising from
the
fact that your policies contain provisions restricting the period
during which a policyholder may bring a breach of contract or
other
claim against your company which are shorter than the statutes of
limitations contained in state laws.
We distribute our products through a select group of brokers and
agents, three of which account for a significant part of our
business, and there can be no assurance that such relationships
will
continue." Page 9
12. We note your statement that there can be no assurance that
your
relationships with the select group of brokers and agents will
continue. Please revise to explain why you cannot provide such
assurance. For example, if you do not have any agreements with
these
broker or agents or if your agreement with these parties are
relatively short term agreements, please revise to explain.
13. Identify the brokers and agent that you have referenced.
Since we have a limited operating history, it is difficult to
predict
our future performance. - page 11
14. Please revise to describe the risks and difficulties
frequently
encountered by early stage companies.
Our directors, executive officers and principal stockholders will
own
a large percentage of our common stock after this offering, which
will allow them to control substantially all matters requiring
stockholder approval.
15. Please revise to specifically state that these shareholders
may
be able to control the election of directors.
Sources of Certain Statistical and Other Information - page 20
16. Please revise to delete the last paragraph. It is not
appropriate to disclaim responsibility for information you have
included in your registration statement.
Use of Proceeds - page 21
17. Please revise to clarify that the capital contributed to your
subsidiaries will enable them to discontinue or operate without
the
reinsurance agreement.
Dilution - page 23
18. Please revise this discussion and the supporting table to
begin
with actual net tangible book value instead of "pro forma net
tangible book value."
Selected Historical Consolidated Financial and Other Data - page
24
19. Please limit your presentation of "Pro forma diluted" EPS to
only
the most annual period reported.
Management`s Discussion and Analysis - page 26
Critical Accounting Policies
Reserve for Losses and Loss Adjustment Expenses, page 27
20. We believe your disclosure in Management`s Discussion and
Analysis regarding the reserve for loss and loss adjustment
expenses
could be improved to better explain the judgments and
uncertainties
surrounding this estimate and the potential impact on your
financial
statements. We believe that disclosures explaining the likelihood
that materially different amounts would be reported under
different
conditions or using different assumptions is consistent with the
objective of Management`s Discussion and Analysis. Accordingly,
please revise MD&A to include the following information for each
of
your lines of business.
* Please disclose, by major line of business, the reserves accrued
as
of the latest balance sheet date presented. The total of theses
amounts should agree to the amount presented on the balance sheet.
* Because IBNR reserve estimates are more imprecise, please
disclose
the amount of IBNR separately from case reserves for all lines of
business.
* Please disclose the range of loss reserve estimates as
determined
by your actuaries. Discuss the key assumptions used to arrive at
management`s best estimate of loss reserves within that range and
what specific factors led management to believe this amount rather
than any other amount within the range represented the best
estimate
of incurred losses.
* Include a discussion of why management feels that the selection
of
the highest reserve is appropriate in all circumstances.
* For your longer tail business, such as workers` compensation and
other highly uncertain exposures, please provide more precise
insight
into the existence and effects on future operations and financial
condition of known trends, events and uncertainties. Disclosure
you
should consider, but not be limited to, includes the following
information:
* the number of claims pending at each balance sheet date;
* the number of claims reported for each period presented;
* the number of claims dismissed, settled, or otherwise resolved
for
each period;
* the nature of the claims including relevant characteristics of
the
claimant population (e.g., involves a large number of relatively
small individual claims of a similar type);
* the total settlement amount for each period;
* the cost of administering the claims
* emerging trends that may result in future reserve adjustments;
and
* If management is unable to estimate the possible loss or range
of
loss, a statement to that effect.
Liquidity and Capital Resources
Contractual Obligations and Commitments - page 42
21. Please revise the line item "Reserve for losses and loss
adjustment expenses" to reflect the balances on a gross basis
instead
of the net basis that it appears you presented.
Outlook - page 46
22. In the bullet captioned "Increased renewal opportunities" on
page
47, please quantify your experience to date with renewals.
Our Business - page 48
23. We note your statements on pages 3 and 49 that you expect to
expand your existing operations. Please revise to provide a
detailed
discussion of your planned enhanced product offerings, additional
coverages, geographical expansion and increased penetration. Your
discussion should describe the new products you intend to offer,
identify the geographical markets you intend to enter and explain
how
you intend to provide additional coverage and increase your
penetration in existing markets.
Excess and Surplus Insurance - page 51
24. Please expand the discussion on page 53 to provide a more
detailed explanation of what the term "following form basis"
means.
Also explain what the term "monoline property risks" refers to.
Reserves - page 59
25. We note that the company only provides the reserve analysis
information on a net basis. Please revise this discussion of
reserves to include this information on a gross basis. Refer to
SFAS
113 and Industry Guide 6 paragraphs B(2)(c) and (d).
Alternatively,
the staff allows a net GAAP presentation in lieu of a gross GAAP
presentation, if for all periods, the table a) reconciles the net
end-of-period liability (the original reserve estimate in the 10-
year
table) with the related gross liability on the balance sheet and
b)
presents the gross re-estimated liability as of the end of the
latest
re-estimation period, with separate disclosure of the related re-
estimated reinsurance recoverable.
26. Consider the need to include a discussion here of why the
reinsurance recoverable related to the balances in 2003 is so
significant.
Underwriting - page 104
27. Tell us whether any of the lead underwriters or any other
broker
dealers who may participate in the syndicate may offer and/or sell
the shares electronically. If so, identify them in this section
and
disclose that they will be offering the shares electronically.
Tell
us the procedures they will use in their selling effort and how
they
intend to comply with the requirements of Section 5 of the
Securities
Act of 1933 particularly with regard to how offers and final
confirmations will be made and how and when purchasers will fund
their purchases.
28. We note that you intend to do a "directed share offering".
Please disclose in this section the number of shares you will
offer
and to whom you will make the offer. Provide us with any material
you
have sent or intend to send to these potential purchasers such as
a
"friends and family letter". Tell us when you first sent them or
intend to send them to these potential purchasers. Tell us
whether
the sale will be handled by you directly or by the underwriting
syndicate. Tell us the procedures you or the underwriter will
employ
in making the offering and how you will assure that this offer
will
meet the requirements of Section 5 of the Securities Act and Rule
134. We may have further comments.
29. Tell us whether you or the underwriters have any arrangements
with a third party to host or access your preliminary prospectus
on
the internet. Also, tell us who the party is and the address of
the
website. Describe the material terms of the agreement and provide
us
with a copy of any written agreement. Provide us with copies of
all
information concerning your company or the offering that appears
on
the third party website. We may have further comments.
30. Confirm that you have described the nature and extent of any
possible short sales by the underwriters. To the extent
applicable,
address the points enumerated in Section VIII.A.3. of the Division
of
Corporation Finance`s "Current Issues Outline" regarding syndicate
short sales. The June 16, 2000 version is available on the SEC`s
website, www.sec.gov.
December 31, 2004 Financial Statements
Consolidated Balance Sheets, pages F-3 - F-4
31. Please disclose on the face of the balance sheet the aggregate
liquidation preference of each series of preferred shares. Refer
to
paragraph 6 of SFAS 129.
Consolidated Statements of Operations, page F-5
32. Please provide the EPS information on the face of the income
statement. Consider the need to provide pro forma EPS for the
most
recent annual period wherever EPS is presented. In addition
explain
to us why the diluted EPS included in note 3 and in other parts of
the document for 2003 appears to be antidilutive.
Notes to Consolidated Financial Statements
1. Accounting Policies
Recent Accounting Pronouncements, page F-11
33. Please discuss the extent and effect of adopting recent
accounting pronouncements on your financial statements.
2. Acquisition, page F-12
34. Please provide to us your analysis of whether the financial
information of Fidelity is required as a predecessor to the
company.
3. Earnings (Loss) Per Share, page F-13
35. Please explain to us why the antidilutive shares excluded in
2003
appears to exceed the number of dilutive shares outstanding at
2004.
4. Investments, pages F-14 - F-17
36. Please revise your accounting policy note to include a
discussion
of the accounting treatment applied to your investments in
mortgage
and asset backed securities.
10. Senior Debt, page F-19
37. Please disclose in greater detail the nature of the tax event
that will make the senior debt redeemable.
20. Segment Information, pages F-28 - F-30
38. Please explain to us why it is appropriate to include the
measure
"Underwriting profit (loss)" in your segment disclosures. We note
based on other disclosure here that management evaluates
performance
based on net income.
39. Please include a discussion of revenues by major products or
groups of products similar to what is disclosed in other portions
of
the document. Refer to paragraph 37 of SFAS 131.
Part II
Item 15. Recent Sales of Unregistered Securities
40. Please include a cross-reference to the Related Transactions
section, or the ownership table, to identify the investors or
classes
of investors in each offering.
Exhibits
41. Please file your legal opinion as soon as possible. We may
have
additional comments after we have had an opportunity to review it.
* * * * *
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. We may have
additional comments after reviewing your amendment and responses
to
our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert this action as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please
provide
this request at least two business days in advance of the
requested
effective date and allow adequate time after the filing of any
amendment for further review before submitting a request for
acceleration.
You may contact Keira Ino at 202-551-3659 or James Atkinson
at
202-551-3674 if you have questions regarding comments on the
financial statements and related matters. Please contact Mary
Fraser
at 202-551-3609 or me at 202-551-3710 with any other questions.
Regards,
Jeffrey P. Riedler
Assistant Director
Cc: Kenneth L. Henderson, Esq.
Bryan Cave LLP
1290 Avenue of the Americas
New York, NY 10104-3300
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J. Adam Abram
James River Group, Inc.
June 2, 2005
Page 11