FOR IMMEDIATE RELEASE Contact: Michael Oakes
Chief Financial Officer
(919) 883-4171
James River Group Reports Second Quarter Net Income of $9.2 Million
or $0.56 Per Diluted Share After $1.3 Million or $0.08 Per Share of
Costs Associated With the Merger With the D. E. Shaw Group
----------
Net Income of $10.5 Million or $0.64 Per Diluted Share Before $0.08 Per Share
of Costs Associated With Announced Transaction
CHAPEL HILL, N.C., Aug. 6 /PRNewswire-FirstCall/ -- James River Group, Inc.
(Nasdaq: JRVR) today announced financial results for the second quarter ended
June 30, 2007. During the quarter, the Company announced that it entered into a
definitive merger agreement under which a Bermuda-based holding company and
member of the D. E. Shaw group, a global investment management firm, would
acquire the Company. In connection with the merger, during the second quarter,
the Company incurred $2.0 million in pre-tax costs ($1.3 million after-tax and
$0.08 per share) for legal, accounting and investment banking services. See
"Reconciliation of Non-GAAP Measures" for a reconciliation of results presented
herein as adjusted to reflect these non-recurring costs to their comparable GAAP
results.
Highlights for the second quarter include:
- -- Net income in 2007 of $9.2 million, or $0.56 per diluted share ($10.5
million, or $0.64 excluding the costs associated with the transaction with
the D. E. Shaw group), compared to net income of $8.6 million, or $0.53
per diluted share in the second quarter of 2006;
- -- An annualized return on average stockholders' equity of 16.3%;
- -- A combined ratio of 86.7% (83.5% prior to the transaction costs) compared
to 82.9% for the second quarter of the prior year;
- -- An underwriting profit of $8.4 million ($10.4 million prior to the
transaction costs) compared to $9.0 million in the second quarter of the
prior year; and
- -- Overall growth in gross written premiums of 6.5% to $79.4 million in the
quarter -- from $74.6 million in the second quarter of 2006. Growth in
casualty lines was 7.7% to $71.2 million from $66.1 million in the second
quarter of 2006. Gross written premiums in property lines decreased from
$8.6 million to $8.3 million.
Highlights for the year-to-date, six-month period ended June 30, 2007, include:
- -- Net income in 2007 of $19.3 million, or $1.19 per diluted share ($20.6
million, or $1.27 prior to the transaction costs), compared to net income
of $15.4 million, or $0.96 per diluted share for the same period in 2006;
- -- An annualized return on average stockholders' equity of 17.5%;
- -- A combined ratio of 85.0% (83.4% prior to the transaction costs) compared
to 84.3% for the same period in 2006;
- -- An underwriting profit of $18.4 million ($20.5 million prior to
transaction costs) compared to $15.9 million for the same period in 2006;
and
- -- Overall growth in gross written premiums of 11.7% to $159.5 from $142.8
million in 2006. Growth in casualty lines was 14.1% to $144.6 million
while gross written premiums in property lines decreased 6.8% to $15.0
million in 2007.
Reported earnings per diluted share for the second quarter of 2007 were $0.56
compared to $0.53 for the same period in 2006. Adjusted earnings per share
absent the $1.3 million of transaction costs would have been $0.64 for the
second quarter of 2007 -- an increase of $0.11, or 20.8% over the same period in
the prior year. Diluted shares outstanding were 16.2 million for the three
months ended June 30, 2007 and exceeded those for the three months ended June
30, 2006 of 16.0 million. Results for the quarter ended June 30, 2007 include
net after-tax favorable reserve development on prior accident years of direct
business written by the Company of $1.9 million. In the prior year, the
favorable reserve development was $1.3 million after-tax.
Reported earnings per diluted share for the six months ended June 30, 2007 were
$1.19 compared to $0.96 for the same period in 2006. Adjusted earnings per share
absent the $1.3 million of transaction costs would have been $1.27 for the six
months ended June 30, 2007 -- an increase of $0.31, or 32.3% over the same
period in the prior year. Diluted shares outstanding were 16.2 million for the
six months ended June 30, 2007 and exceeded those of the same period of the
prior year of 15.9 million. Results for the six months ended June 30, 2007
include net after-tax favorable reserve development on prior accident years of
direct business written by the Company of $3.8 million. In the prior year, the
favorable reserve development was $2.8 million after-tax.
For the quarter ended June 30, 2007, the Excess and Surplus Insurance segment
wrote $64.5 million in gross written premiums, reflecting a 1.1% increase over
the $63.8 million written in the same period in 2006. For the six-month period
ended June 30, 2007, this segment wrote $129.9 million in gross written premiums
which was 6.9% higher than those of the prior year.
The Excess and Surplus Insurance segment's combined ratio was 77.4% and 77.5%
for the quarter ended June 30, 2007 and 2006, respectively, and 80.0% and 78.4%
for the six-month period ended June 30, 2007 and 2006, respectively. Net
after-tax favorable reserve development on prior accident years on direct
business written by this segment was $2.2 million and $1.3 million for quarter
ended June 30, 2007 and 2006, respectively. This amount was $3.5 million and
$2.7 million after-tax for the six-month periods ended June 30, 2007 and 2006,
respectively.
The Workers' Compensation Insurance segment wrote $15.0 million in gross written
premiums for the quarter ended June 30, 2007, a 38.1% increase over the $10.8
million written in the same period in 2006. For the six-month period ended June
30, 2007, this segment wrote $29.6 million in gross written premiums which was
39.3% higher than those of the prior year.
The Workers' Compensation Insurance segment's combined ratio was 98.4% for the
second quarter of 2007. The combined ratio for the six-month period ended June
30, 2007 of 88.7% was significantly lower than the prior year's combined ratio
of 101.3% due to both lower losses and management of underwriting and other
expenses. Net after-tax reserve development on prior accident years of direct
business written by this segment included adverse development of $333,000 for
quarter ended June 30, 2007 and favorable development of $12,000 for the same
period in the prior year. For the six-month periods ended June 30, 2007 and
2006, net after-tax favorable reserve development on prior accident years of
direct business written by this segment was $270,000 and $157,000, respectively.
The Company's net investment income for the three months ended June 30, 2007 was
$6.0 million, an increase from the $4.5 million for the three months ended June
30, 2006. For the six months ended June 30, 2007, net investment income was
$11.7 million, an increase from the $8.5 million reported for the same period in
the prior year. At June 30, 2007, the Company held $4.6 million in par value of
securitizations of alternative-A and sub-prime mortgages, all of which are rated
"AAA" by the established ratings agencies.
J. Adam Abram, President and Chief Executive Officer, said, "Our acquisition by
the D. E. Shaw group continues on its expected course to close in the fourth
quarter of 2007. We are pleased that we have such well-capitalized and committed
partners as we go forward."
In light of the proposed transaction with the D. E. Shaw group, the Company is
no longer providing guidance. On August 3, 2007, the Company filed a preliminary
proxy statement with the Securities and Exchange Commission containing
information about the transaction. On August 5, 2007, the Company's right to
solicit competing proposals ended under the terms of the merger agreement. The
Company did not receive any competing proposals during the solicitation period.
On July 2, 2007, the Company completed an acquisition of 100% of the stock of
Align Financial Group, a wholesale and retail insurance agency with principal
offices in San Diego, California. The terms of the transaction were not
disclosed.
James River Group will not hold a conference call to discuss its quarterly
earnings.
James River Group, Inc. is an insurance holding company that primarily 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 and, in 2007, Virginia.
Cautionary Notice Regarding Forward Looking Statements
Certain matters discussed in this release and future releases may be
forward-looking statements. These forward-looking statements are based on
current expectations, estimates, forecasts and projections of future Company or
industry performance based on management's judgment, beliefs, current trends and
market conditions. Actual outcomes and results may differ materially from what
is expressed, forecasted or implied in any forward-looking statement.
Forward-looking statements may be identified by the use of words such as "will,"
"expects," "intends," "plans," "anticipates," "believes," "seeks," "estimates,"
and similar expressions. There are a number of risks and uncertainties that
could cause actual results to differ materially from the forward-looking
statements included in this press release. These include, but are not limited
to: (1) regulatory approvals required for the transaction may not be obtained,
or required regulatory approvals may delay the transaction or result in the
imposition of conditions that could have a material adverse effect on James
River Group or cause the parties not to consummate the transaction; (2)
conditions to the closing of the transaction may not be satisfied or waived; (3)
the occurrence of any event, change, circumstance or effect that could give rise
to the termination of the transaction; (4) the outcome of any legal proceedings
against James River Group and others with respect to the transaction cannot be
predicted; (5) the business of James River Group may suffer as a result of
uncertainty surrounding the transaction; and (6) James River Group may be
adversely affected by other economic, business, and/or competitive factors.
Other factors that could cause James River Group's actual results to differ
materially from those expressed or implied are discussed in James River Group's
most recent annual report on Form 10-K for the fiscal year ended December 31,
2006, most recent quarterly report on Form 10-Q for the fiscal quarter ended
March 31, 2007 and other filings with the Securities and Exchange Commission.
James River Group undertakes no obligation to update any forward-looking
statements whether as a result of new information, future events or otherwise.
Readers are cautioned not to place undue reliance on these forward-looking
statements.
Additional Information and Where to Find It
In connection with the proposed merger, James River Group filed a preliminary
proxy statement with the Securities and Exchange Commission on August 3, 2007.
INVESTORS AND SECURITY HOLDERS ARE STRONGLY ADVISED TO READ THE PROXY STATEMENT
BECAUSE IT CONTAINS IMPORTANT INFORMATION. Investors and security holders may
obtain a free copy of the proxy statement and other documents filed by James
River Group, Inc. at the Securities and Exchange Commission's Web site at
http://www.sec.gov. The proxy statement and such other documents may also be
obtained free of charge by directing such request to Michael T. Oakes, Chief
Financial Officer, James River Group, Inc., 300 Meadowmont Village Circle, Suite
333, Chapel Hill, NC, telephone: (919) 883-4171, or on James River Group's
website at www.james-river-group.com.
James River Group and its directors, executive officers and certain other
members of its management and employees may be deemed to be participants in the
solicitation of proxies from its stockholders in connection with the proposed
merger. Information regarding the interests of such directors and executive
officers is included in James River Group's proxy statement for its 2007 Annual
Meeting of Stockholders filed with the Securities and Exchange Commission on
April 13, 2007, and information concerning all of James River Group's
participants in the solicitation is included in the preliminary proxy statement
relating to the proposed merger filed with the Securities and Exchange
Commission on August 3, 2007.
James River Group, Inc. and Subsidiaries
Summarized Consolidated Balance Sheet Data
(Unaudited)
June 30, December 31,
2007 2006
---------- ----------
($ in thousands,
except for share data)
ASSETS
Investments available-for-sale, at fair value:
Fixed maturity securities $513,411 $486,016
Equity securities 23,983 8,703
---------- ----------
Total investments 537,394 494,719
Cash and cash equivalents 45,305 40,319
Accrued investment income 5,746 5,471
Premiums receivable and agents' balances 32,473 34,862
Reinsurance recoverable on unpaid losses 97,144 90,495
Reinsurance recoverable on paid losses 4,093 7,041
Deferred policy acquisition costs 18,086 15,005
Other assets 53,282 53,809
---------- ----------
Total assets $793,523 $741,721
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Reserve for losses and loss adjustment
expenses $350,998 $300,294
Unearned premiums 133,729 131,286
Senior debt 15,000 15,000
Junior subordinated debt 43,300 43,300
Funds held 8,609 15,567
Other liabilities 16,108 21,882
---------- ----------
Total liabilities 567,744 527,329
Total stockholders' equity 225,779 214,392
---------- ----------
Total liabilities and stockholders' equity $793,523 $741,721
========== ==========
Debt to total capitalization ratio 20.5% 21.4%
Book value per share including
accumulated other comprehensive loss $14.91 $14.18
Book value per share excluding
accumulated other comprehensive loss $15.28 $14.27
Common shares outstanding 15,138,708 15,117,308
James River Group, Inc. and Subsidiaries
Summarized Consolidated Income Statement Data
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------
($ in thousands, except for share data)
REVENUES
Gross written premiums $79,449 $74,634 $159,537 $142,799
========== ========== ========== ==========
Net written premiums $71,572 $54,824 $135,442 $108,512
========== ========== ========== ==========
Net earned premiums $62,987 $52,602 $123,236 $100,691
Net investment income 5,951 4,506 11,722 8,499
Net realized investment
losses (19) (49) (27) (84)
Other income 68 46 138 88
---------- ---------- ---------- ----------
Total revenues 68,987 57,105 135,069 109,194
EXPENSES
Losses and loss adjustment
expenses 36,954 30,214 71,222 59,431
Other operating expenses 17,659 13,384 33,568 25,409
Interest expense 1,298 896 2,582 1,673
---------- ---------- ---------- ----------
Total expenses 55,911 44,494 107,372 86,513
---------- ---------- ---------- ----------
Income before taxes 13,076 12,611 27,697 22,681
Federal income tax
expense 3,920 4,060 8,414 7,301
---------- ---------- ---------- ----------
NET INCOME $9,156 $8,551 $19,283 $15,380
========== ========== ========== ==========
EARNINGS PER SHARE:
Basic $0.60 $0.57 $1.27 $1.02
========== ========== ========== ==========
Diluted $0.56 $0.53 $1.19 $0.96
========== ========== ========== ==========
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING:
Basic 15,137,856 15,087,308 15,131,149 15,081,571
========== ========== ========== ==========
Diluted 16,226,725 16,003,075 16,191,628 15,948,666
========== ========== ========== ==========
Cash dividends
declared per
common share $0.15 $ - $0.30 $ -
========== ========== ========== ==========
RATIOS:
Loss ratio 58.7% 57.4% 57.8% 59.0%
Expense ratio 28.0% 25.4% 27.2% 25.2%
Combined ratio 86.7% 82.9% 85.0% 84.3%
Annualized return on
average stockholders'
equity 16.3% 18.6% 17.5% 17.0%
James River Group, Inc. and Subsidiaries
Segment Results
EXCESS AND SURPLUS INSURANCE
Three Months Ended Six Months Ended
June 30, June 30,
----------------- ------------------
2007 2006 2007 2006
------- ------ ------- -------
($ in thousands)
Gross written premiums $64,469 $63,788 $129,948 $121,556
Net written premiums $57,696 $45,368 $107,319 $89,944
Net earned premiums $48,744 $43,316 $96,133 $82,900
Losses and loss adjustment
expenses (26,323) (23,945) (54,226) (46,312)
Underwriting expenses (11,402) (9,611) (22,716) (18,697)
------- ------ ------- -------
Underwriting profit (a) $11,019 $9,760 $19,191 $17,891
======= ====== ======= =======
Ratios:
Loss ratio 54.0% 55.3% 56.4% 55.9%
Expense ratio 23.4% 22.2% 23.6% 22.6%
Combined ratio 77.4% 77.5% 80.0% 78.4%
(a) See "Reconciliation of Non-GAAP Measures."
Within the Excess and Surplus Insurance segment, results by major line of
business are as follows:
Three Months Ended Six Months Ended
June 30, June 30,
----------------- ------------------
2007 2006 2007 2006
------- ------ ------- -------
($ in thousands)
CASUALTY LINES
Gross written premiums $56,206 $55,226 $114,963 $105,475
Net earned premiums $47,503 $41,624 $94,389 $79,327
Losses and loss adjustment
expenses $24,959 $23,866 $51,941 $45,175
Loss ratio 52.5% 57.3% 55.0% 56.9%
PROPERTY LINES
Gross written premiums $8,263 $8,562 $14,985 $16,081
Net earned premiums $1,241 $1,692 $1,744 $3,573
Losses and loss adjustment
expenses $1,364 $79 $2,285 $1,137
Loss ratio 109.9% 4.7% 131.0% 31.8%
WORKERS' COMPENSATION INSURANCE
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2007 2006 2007 2006
------- ------ ------- -------
($ in thousands)
Gross written premiums $14,980 $10,846 $29,589 $21,243
======= ====== ======= =======
Net written premiums $13,876 $9,456 $28,123 $18,568
======= ====== ======= =======
Net earned premiums $14,243 $9,286 $27,103 $17,791
Losses and loss
adjustment expenses (10,631) (6,269) (16,996) (13,119)
Underwriting expenses (3,387) (2,607) (7,037) (4,905)
------- ------ ------- -------
Underwriting profit (loss) (a) $225 $410 $3,070 $(233)
======= ====== ======= =======
Ratios:
Loss ratio 74.6% 67.5% 62.7% 73.7%
Expense ratio 23.8% 28.1% 26.0% 27.6%
Combined ratio 98.4% 95.6% 88.7% 101.3%
(a) See "Reconciliation of Non-GAAP Measures."
RECONCILIATION OF NON-GAAP MEASURES
The following table reconciles the underwriting profit (loss) by individual
insurance segment and of the whole Company to consolidated income before taxes.
We believe that these measures are useful to investors in evaluating the
performance of our Company and its insurance segments because our objective is
to consistently earn underwriting profits. We evaluate the performance of our
insurance segments and allocate resources based primarily on underwriting profit
(loss) of insurance segments. Our definition of underwriting profit (loss) of
insurance segments and underwriting profit (loss) may not be comparable to that
of other companies.
Three Months Six Months
Ended Ended
June 30, June 30,
---------------- ------------------
2007 2006 2007 2006
------- ------- ------- -------
(in thousands)
Underwriting profit (loss) of the
insurance segments:
Excess and Surplus Insurance $11,019 $9,760 $19,191 $17,891
Workers' Compensation Insurance 225 410 3,070 (233)
------- ------- ------- -------
Total underwriting profit of
insurance segments 11,244 10,170 22,261 17,658
Other operating expenses of the
Corporate and Other segment (2,870) (1,166) (3,815) (1,807)
------- ------- ------- -------
Underwriting profit 8,374 9,004 18,446 15,851
Net investment income 5,951 4,506 11,722 8,499
Net realized investment losses (19) (49) (27) (84)
Other income 68 46 138 88
Interest expense (1,298) (896) (2,582) (1,673)
------- ------- ------- -------
Consolidated income before taxes $13,076 $12,611 $27,697 $22,681
======= ======= ======= =======
The following table reconciles underwriting profit, income before taxes, Federal
income tax expense, net income, earnings per share and combined ratios for the
Company showing the effect of the $2.0 million of costs for legal, accounting
and investment banking services incurred to date in connection with the
transaction.
Three Months Ended June 30, Six Months Ended June 30,
2007 2007
--------------------------- ---------------------------
As Transaction As As Transaction As
Reported Costs Adjusted Reported Costs Adjusted
------- ------ ------- ------- ------ -------
($ in thousands, except for share data)
Underwriting
profit $8,374 $2,014 $10,388 $18,446 $2,014 $20,460
======= ====== ======= ======= ====== =======
Income before
taxes $13,076 $2,014 $15,090 $27,697 $2,014 $29,711
Federal income
tax expense 3,920 705 4,625 8,414 705 9,119
------- ------ ------- ------- ------ -------
Net income $9,156 $1,309 $10,465 $19,283 $1,309 $20,592
======= ====== ======= ======= ====== =======
Earnings per
share:
Basic $0.60 $0.09 $0.69 $1.27 $0.09 $1.36
======= ====== ======= ======= ====== =======
Diluted $0.56 $0.08 $0.64 $1.19 $0.08 $1.27
======= ====== ======= ======= ====== =======
Ratios:
Loss ratio 58.7% - 58.7% 57.8% - 57.8%
Expense ratio 28.0% 3.2% 24.8% 27.2% 1.6% 25.6%
Combined ratio 86.7% 3.2% 83.5% 85.0% 1.6% 83.4%
Management believes that the presentation of underwriting profit, income
statement, earnings per share amounts and combined ratio information both before
and after the effects of the transaction costs incurred to date relating to the
proposed transaction allow for better comparisons to prior periods. Management
considers results both before and after the effects of the transaction costs in
assessing performance. Management does not anticipate that additional costs for
legal, accounting and investment banking services for such a transaction will be
incurred in subsequent fiscal years. Assuming all conditions are met, the
Company expects the transaction to close in the fourth quarter of 2007.