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JAMES RIVER GROUP HOLDINGS, LTD. – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors. Factors that could cause such differences are discussed in the sections entitled "Special Note Regarding Forward-Looking Statements", and Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . The results of operations for the three months endedMarch 31, 2022 are not necessarily indicative of the results that may be expected for the full year endingDecember 31, 2022 , or for any other future period. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and in conjunction with our Annual Report on Form 10-K for the year endedDecember 31, 2021 . The accompanying condensed consolidated financial statements and related notes have been prepared in accordance withUnited States ("U.S.") generally accepted accounting principles ("GAAP") and include the accounts ofJames River Group Holdings, Ltd. and its subsidiaries. Unless the context indicates or suggests otherwise, references to "the Company", "we", "us" and "our" refer toJames River Group Holdings, Ltd. and its subsidiaries.
Our Business
James River Group Holdings, Ltd. is aBermuda -based holding company. We own and operate a group of specialty insurance and reinsurance companies with the objective of generating compelling returns on tangible equity while limiting underwriting and investment volatility. We seek to accomplish this by earning profits from insurance and reinsurance underwriting and generating meaningful risk-adjusted investment returns while managing our capital.
We are organized into four reportable segments, which are separately managed
business units:
•The Excess and Surplus Lines segment offers commercial excess and surplus lines liability and property insurance in everyU.S. state, theDistrict of Columbia ,Puerto Rico and theU.S. Virgin Islands throughJames River Insurance Company and its wholly-owned subsidiary,James River Casualty Company ; •The Specialty Admitted Insurance segment approaches the insurance market in two ways: as a risk bearing underwriter, and as a "fronting" company. The Company's risk bearing underwriting is focused on niche classes within the standard insurance markets, such as workers' compensation coverage for residential contractors, light manufacturing operations, transportation workers and healthcare workers. In its fronting business, the Specialty Admitted segment works with distributors, such as managing general agents and other producers, by using our licensure, rating and administrative services in order to produce and service insurance policies for reinsurers and other third party risk bearing entities. We charge fees for "fronting" for these capital providers. In some instances, we retain a small percentage of the risk on fronted business, generally 10%-30%. This segment has admitted licenses and the authority to write excess and surplus lines insurance in 50 states and theDistrict of Columbia ; •The Casualty Reinsurance segment primarily provides proportional and working layer casualty reinsurance to third parties (primarily through reinsurance intermediaries) throughJRG Reinsurance Company Ltd. ("JRG Re"). JRG Re has also in the past provided reinsurance to the Company'sU.S. -based insurance subsidiaries through a quota-share reinsurance agreement.Carolina Re Ltd ("Carolina Re") was formed in 2018 to also provide reinsurance to the Company'sU.S. based insurance subsidiaries through a quota-share reinsurance agreement, and was also the cedent on an aggregate stop loss reinsurance treaty with JRG Re throughDecember 31, 2021 . JRG Re and Carolina Re are bothBermuda -based reinsurance companies. •The Corporate and Other segment consists of the management and treasury activities of our holding companies, interest expense associated with our debt, and expenses of our holding companies, including public company expenses, that are not reimbursed by our insurance segments.
All of our insurance and reinsurance subsidiaries have financial strength
ratings of "A-" (Excellent) from
31 -------------------------------------------------------------------------------- Table of Contents Critical Accounting Policies and Estimates In preparing the unaudited condensed consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ significantly from those estimates. The most critical accounting policies involve significant estimates and include those used in determining the reserve for losses and loss adjustment expenses and investment valuation and impairment. For a detailed discussion of each of these policies, refer to our Annual Report on Form 10-K for the year endedDecember 31, 2021 . There have been no significant changes to any of these policies during the current year.
Impact of the COVID-19 Pandemic
For a discussion of the impact of the coronavirus (COVID-19) pandemic and related economic conditions on the Company's results for the year endedDecember 31, 2021 , please see "Part II-Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operation" in our Annual Report. The Company continues to monitor the impact that the ongoing coronavirus (COVID-19) pandemic may be having on the Company's financial condition and results of operations.
Recent Strategic Actions
Issuance of Series A Preferred Shares
The Company closed on the issuance and sale of 150,000 7% Series A Perpetual Cumulative Convertible Preferred Shares, par value$0.00125 per share (the "Series A Preferred Shares") onMarch 1, 2022 for an aggregate purchase price of$150.0 million , or$1,000 per share, in a private placement. The Series A Preferred Shares are convertible into the Company's common shares at the option of the holder at any time, or at the Company's option under certain circumstances. Dividends on the Series A preferred shares accrue quarterly at the initial rate of 7% of the$1,000 liquidation preference per share (the "Liquidation Preference") per annum, which may be paid in cash, in-kind in common shares or in Series A Preferred Shares, at the Company's election. Dividends accrued on the Series A Preferred Shares in the three months endedMarch 31, 2022 (which represent the dividends fromMarch 1, 2022 , the date of issuance of the Series A Preferred Shares, throughMarch 31, 2022 ) were$875,000 . Please see "Part I-Item 1-Note 12. Series A Preferred Shares" in the Notes to our Condensed Consolidated Financial Statements in this Form 10-Q.
Loss Portfolio Transfer Retrocession Agreement
OnFebruary 23, 2022 , JRG Re entered into a loss portfolio transfer retrocession agreement (the "Retrocession Agreement") withFortitude Reinsurance Company Ltd. ("FRL") under which FRL reinsures the majority of the reserves in the Company's Casualty Reinsurance segment. Under the terms of the transaction, which closed onMarch 31, 2022 (the "Retrocession Closing Date"), JRG Re (a) ceded to FRL all existing and future claims for losses arising under certain casualty reinsurance agreements with underlying insurance companies with treaty inception dates ranging from 2011 to 2020 (the "Subject Business"), in each case net of third-party reinsurance and other recoveries, up to an aggregate limit of$400.0 million ; (b) continues to manage and retain the benefit of other third-party reinsurance on the Subject Business; (c) paid FRL a reinsurance premium of$335.0 million ,$310.0 million of which JRG Re credited to a notional funds withheld account (the "Funds Withheld Account") and$25.0 million of which was paid in cash to FRL; and (d) will pay FRL a 2% per annum crediting rate on the Funds Withheld Account balance on a quarterly basis. The total premium, initial Funds Withheld Account credit, and aggregate limit was adjusted for claims paid fromOctober 1, 2021 to the Retrocession Closing Date. The Casualty Reinsurance segment incurred losses of$11.5 million (including$6.8 million of net adverse reserve development and$4.7 million of current accident year losses) in the three months endedMarch 31, 2022 associated with the Retrocession Agreement. 32 -------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS
The following table summarizes our results:
Three Months Ended
March 31, %
2022 2021 Change
($ in thousands)
Gross written premiums $ 359,936 $ 373,255 (3.6) %
Net retention (1) 48.9 % 46.8 %
Net written premiums $ 175,859 $ 174,599 0.7 %
Net earned premiums $ 189,824 $ 160,593 18.2 %
Losses and loss adjustment expenses (135,608) (273,500) (50.4) %
Other operating expenses (49,261) (46,454) 6.0 %
Underwriting profit (loss) (2), (3) 4,955 (159,361) -
Net investment income 16,267 15,089 7.8 %
Net realized and unrealized (losses) gains on investments (5,010) 6,272 -
Other income and expense (301) (522) (42.3) %
Interest expense (2,292) (2,216) 3.4 %
Amortization of intangible assets (91) (91) - %
Income (loss) before taxes 13,528 (140,829) -
Income tax expense (benefit) 3,323 (37,369) -
Net income (loss) $ 10,205 $ (103,460) -
Dividends on Series A Preferred Shares $ (875) $ - -
Net income (loss) to common shareholders $ 9,330 $ (103,460) -
Adjusted net operating income (loss) (4) $ 13,867 $ (108,795) -
Ratios:
Loss ratio 71.4 % 170.3 %
Expense ratio 26.0 % 28.9 %
Combined ratio 97.4 % 199.2 %
Accident year loss ratio (5) 67.9 % 64.4 %
(1)Net retention is defined as the ratio of net written premiums to gross
written premiums.
(2)Underwriting profit (loss) is a non-GAAP measure. See "Reconciliation of
Non-GAAP Measures" for a reconciliation to income (loss) before taxes and for
additional information.
(3)Included in underwriting results for the three months ended
and 2021 is gross fee income of
(4)Adjusted net operating income (loss) is a non-GAAP measure. See
"Reconciliation of Non-GAAP Measures" for a reconciliation to net income (loss)
and for additional information.
(5)Accident year loss ratio is defined as the ratio of losses and loss
adjustment expenses for the current accident year (excluding development on
prior accident year reserves) to net earned premiums.
Three Months Ended
The Company had an underwriting profit of$5.0 million for the three months endedMarch 31, 2022 compared to an underwriting loss of$159.4 million for the same period in the prior year. Underwriting results for the three months endedMarch 31, 2022 include$11.5 million of incurred losses (including$6.8 million of net adverse reserve development and$4.7 million of current accident year losses) in the Casualty Reinsurance segment associated with the Retrocession Agreement. Underwriting results for the three months endedMarch 31, 2021 include$170.1 million of net adverse reserve development on prior accident years, including$168.7 million of net adverse development from the Excess and Surplus Lines segment almost entirely related to a previously canceled commercial auto account (see underwriting results of the Excess and Surplus Lines segment below for further discussion). 33 -------------------------------------------------------------------------------- Table of Contents The results for the three months endedMarch 31, 2022 and 2021 also include certain non-operating items that are significant to the Company. These items (on a pre-tax basis) include: •Net realized and unrealized investment (losses) gains of$(5.0) million and$6.3 million for the three months endedMarch 31, 2022 and 2021, respectively. The net realized and unrealized investment losses for the three months endedMarch 31, 2022 include$(2.7) million and$(2.0) million of unrealized losses related to changes in unrealized gains and losses on equity securities and bank loan participations, respectively ($1.7 million and$3.9 million of unrealized gains for the three months endedMarch 31, 2021 , respectively). See "- Investing Results" for more information on these realized and unrealized investment gains. •Other expenses were$347,000 and$621,000 for the three months endedMarch 31, 2022 and 2021, respectively, and include legal fees related to a purported class action lawsuit, certain legal and professional consulting fees related to various strategic initiatives, and employee severance costs. We define adjusted net operating income (loss) as income (loss) available to common shareholders excluding net realized and unrealized (losses) gains on investments, and certain non-operating expenses such as professional service fees related to a purported class action lawsuit, various strategic initiatives, and the filing of registration statements for the offering of securities, and severance costs associated with terminated employees. We use adjusted net operating income (loss) as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance. Adjusted net operating income (loss) should not be viewed as a substitute for net income (loss) calculated in accordance with GAAP, and our definition of adjusted net operating income (loss) may not be comparable to that of other companies.
Our income (loss) before taxes and net income (loss) reconcile to our adjusted
net operating income (loss) as follows:
Three Months Ended
2022 2021
Income Loss
Before Net Before Net
Taxes Income Taxes Loss
($ in thousands)
Income (loss) available to common shareholders $ 12,653 $ 9,330 $ (140,829) $ (103,460)
Net realized and unrealized investment losses
(gains) 5,010 4,190 (6,272) (5,751)
Other expenses 347 347 527 416
Adjusted net operating income (loss) $ 18,010 $ 13,867 $ (146,574) $ (108,795)
Combined Ratios
The combined ratio is a measure of underwriting performance and represents the
relationship of incurred losses, loss adjustment expenses and other operating
expenses to net earned premiums. Our combined ratio for the three months ended
March 31, 2022 was 97.4%. A combined ratio of less than 100% indicates an
underwriting profit, while a combined ratio greater than 100% reflects an
underwriting loss. The combined ratio for the three months ended March 31, 2022
includes $6.8 million , or 3.6 percentage points, of net adverse reserve
development on prior accident years, including $59,000 of net favorable reserve
development from the Excess and Surplus Lines segment, $63,000 of net adverse
reserve development from the Specialty Admitted Insurance segment, and $6.8
million of net adverse reserve development from the Casualty Reinsurance segment
associated with the Retrocession Agreement. In addition to the $6.8 million of
net adverse reserve development, the Casualty Reinsurance segment also incurred
$4.7 million of current accident year losses associated with the Retrocession
Agreement in the three months ended March 31, 2022 . In total, the $11.5 million
of incurred losses associated with the Retrocession Agreement represented 6.1
percentage points of the consolidated combined ratio for the three months ended
March 31, 2022 .
The combined ratio for the three months ended March 31, 2021 was 199.2%. The
combined ratio for the three months ended March 31, 2021 includes $170.1
million , or 105.9 percentage points, of net adverse reserve development on prior
accident years, including $168.7 million of net adverse reserve development from
the Excess and Surplus Lines segment (see underwriting results of the Excess and
Surplus Lines segment for further discussion), $1.0 million of net favorable
reserve development from the Specialty Admitted Insurance segment, and $2.5
million of net adverse reserve development from the Casualty Reinsurance
segment.
All of the Company's U.S. -domiciled insurance subsidiaries are party to an
intercompany pooling agreement that distributes the net underwriting results
among the group companies based on their approximate pro-rata level of statutory
capital and surplus to the total Company statutory capital and surplus.
Additionally, each of the Company's U.S. -domiciled insurance subsidiaries is a
party to a quota share reinsurance agreement that in periods prior to January 1,
2018 ceded 70% of
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their premiums and losses to JRG Re, and starting January 1, 2018 , ceded 70% of
their premiums and losses to Carolina Re, an entity domiciled in Bermuda that
made an irrevocable election to be taxed as a U.S. domestic corporation under
Section 953(d) of the Internal Revenue Code of 1986, as amended, effective
January 1, 2018 . Through December 31, 2021 , JRG Re also provided aggregate stop
loss reinsurance to Carolina Re. We report all segment information in this
''Management's Discussion and Analysis of Financial Condition and Results of
Operations'' prior to the effects of intercompany reinsurance, consistent with
the manner in which we evaluate the operating performance of our reportable
segments.
Expense Ratios
Our expense ratio decreased from 28.9% for three months endedMarch 31, 2021 to 26.0% for the three months endedMarch 31, 2022 , driven primarily by higher net earned premiums across all of our segments. The expense ratio for the Excess and Surplus Lines segment decreased from 20.1% in the prior year quarter to 19.0% in the current quarter, reflecting a 15.5% increase in net earned premiums including in lines that have meaningful ceding commissions. The Excess and Surplus Lines segment is our largest segment and makes up 69.2% of consolidated net earned premiums for the three months endedMarch 31, 2022 compared to 70.8% for three months endedMarch 31, 2021 . The expense ratio for theSpecialty Admitted Insurance segment decreased from 26.6% in the prior year quarter to 19.0% in the current quarter driven by a 26.8% increase in net earned premiums for the fronting business and increased gross fee income ($5.6 million in the current quarter compared to$5.1 million in the prior year quarter). Net earned premiums in the Casualty Reinsurance segment increased 28.4% over the prior year, and this, combined with lower compensation expenses and more favorable commission slide adjustments, produced a lower current year expense ratio (32.6% in the current quarter compared to 36.5% in the prior year).
Premiums
Insurance premiums are earned ratably over the terms of our insurance policies,
generally twelve months. Reinsurance premiums assumed are earned over the terms
of the underlying policies or reinsurance contracts. Reinsurance contracts
written on a "losses occurring" basis cover claims that may occur during the
term of the contract or underlying insurance policy, which is typically twelve
months. Reinsurance contracts which are written on a "risks attaching" basis
cover claims which attach to the underlying insurance policies written during
the terms of such contracts. Premiums earned on such contracts usually extend
beyond the original term of the reinsurance contract, typically resulting in
recognition of premiums earned over a 24-month period or more in proportion to
the level of underlying exposure.
The following table summarizes the change in premium volume by component and
business segment:
Three Months Ended
March 31, %
2022 2021 Change
($ in thousands)
Gross written premiums:
Excess and Surplus Lines $ 204,282 $ 181,358 12.6 %
Specialty Admitted Insurance 125,710 127,036 (1.0) %
Casualty Reinsurance 29,944 64,861 (53.8) %
$ 359,936 $ 373,255 (3.6) %
Net written premiums:
Excess and Surplus Lines $ 125,710 $ 108,433 15.9 %
Specialty Admitted Insurance 20,205 22,005 (8.2) %
Casualty Reinsurance 29,944 44,161 (32.2) %
$ 175,859 $ 174,599 0.7 %
Net earned premiums:
Excess and Surplus Lines $ 131,301 $ 113,708 15.5 %
Specialty Admitted Insurance 19,318 16,357 18.1 %
Casualty Reinsurance 39,205 30,528 28.4 %
$ 189,824 $ 160,593 18.2 %
Gross written premiums for the Excess and Surplus Lines segment (which
represents 56.8% of our consolidated gross written premiums in the three months
ended March 31, 2022 ) increased 12.6% from the corresponding three month period
in the prior year. Policy submissions for Core E&S lines (excluding commercial
auto) were roughly even with the prior year, but our ratio of bound policies to
quoted policies improved generating 7.3% more bound policies in the three months
ended March 31, 2022 than in the three months ended March 31, 2021 . The total
number of policies in force for the segment increased 18.3%
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over the prior year. Renewal rates for the Excess and Surplus Lines segment were
up 8.4% compared to the three months ended March 31, 2021 . The change in gross
written premiums compared to the same period in 2021 was notable in several
divisions as shown below:
Three Months Ended
March 31, %
2022 2021 Change
($ in thousands)
Excess Casualty $ 70,182 $ 68,401 2.6 %
Manufacturers & Contractors 35,799 31,855 12.4 %
General Casualty 34,395 29,379 17.1 %
Energy 12,030 10,771 11.7 %
Excess Property 9,804 6,859 42.9 %
Small Business 9,048 7,462 21.3 %
Life Sciences 6,824 5,700 19.7 %
Environmental 3,890 2,714 43.3 %
Sports & Entertainment 2,820 1,556 81.2 %
All other Core E&S divisions 11,085 10,873 1.9 %
Total Core E&S divisions 195,877 175,570 11.6 %
Commercial Auto 8,405 5,788 45.2 %
Excess and Surplus Lines gross written premium
The components of gross written premiums for theSpecialty Admitted Insurance segment (which represents 34.9% of our consolidated gross written premiums for the three months endedMarch 31, 2022 ) are as follows: Three Months Ended March 31, % 2022 2021 Change ($ in thousands) Individual risk workers' compensation premium$ 15,619 $ 16,186 (3.5) % Fronting and program premium 110,091 110,850 (0.7) % Specialty Admitted gross written premium
Our fronting written premium declined slightly from the prior year due to the loss of one relationship resulting from M&A activity at a general agent and a decline in written premium for our largest relationship. Absent these two relationships, our fronting written premium increased by$17.5 million or 26.9% driven by continued growth in newer fronting relationships. Gross written premium for our largest fronting relationship declined from$33.9 million for the three months endedMarch 31, 2021 to$28.2 million for the three months endedMarch 31, 2022 , reflecting a very competitive market for workers' compensation inCalifornia . Our largest fronting relationship represented 22.4% of the segment's gross written premium in the three months endedMarch 31, 2022 down from 26.7% in the three months endedMarch 31, 2021 . Gross written premiums for the Casualty Reinsurance segment (which represents 8.3% of our consolidated gross written premiums in the first three months of 2022) decreased 53.8% from the corresponding three month period in the prior year. The decrease quarter over quarter primarily reflects our focus on downsizing the Casualty Reinsurance third party book which resulted in the nonrenewal of several treaties. The Casualty Reinsurance segment generally writes large casualty-focused treaties that are expected to have lower volatility relative to property and catastrophe treaties. We rarely write stand-alone property reinsurance. When treaties that include property exposure are written, we utilize property occurrence caps, inuring reinsurance protection and low individual risk limits to minimize exposure. 36 -------------------------------------------------------------------------------- Table of Contents Net Retention The ratio of net written premiums to gross written premiums is referred to as our net premium retention. Our net premium retention is summarized by segment as follows: Three Months Ended March 31, 2022 2021 Excess and Surplus Lines 61.5 % 59.8 % Specialty Admitted Insurance 16.1 % 17.3 % Casualty Reinsurance 100.0 % 68.1 % Total 48.9 % 46.8 % The net premium retention for the Excess and Surplus Lines segment increased slightly for the three months endedMarch 31, 2022 as compared to the prior year period primarily due to the mix of business written. The net premium retention for theSpecialty Admitted Insurance segment decreased for the three months endedMarch 31, 2022 as compared to the prior year period primarily due to a lower retention in the fronting business reflecting the mix of business and changes in reinsurance coverage as treaties renew. The segment's largest fronting relationship has a higher retention relative to the average fronting retention, and the decline in its written premium quarter over quarter drove the overall fronting retention lower. The net retention on the segment's fronting business was 14.0% for the three months endedMarch 31, 2022 compared to 15.8% for the three months endedMarch 31, 2021 . The net retention on the individual risk workers' compensation business was 30.6% for the three months endedMarch 31, 2022 compared to 27.7% for the three months endedMarch 31, 2021 . The renewal of the workers' compensation quota share treaty onJanuary 1, 2022 resulted in a higher retention for this business. The net premium retention for the Casualty Reinsurance segment increased for the three months endedMarch 31, 2022 due to the nonrenewal of one retrocessional treaty/fronting arrangement under which 100% of the premiums were ceded. Ceded written premiums under the treaty were$20.7 million in the first quarter of 2021. Underwriting Results
The following table compares our combined ratios by segment:
Three Months Ended
March 31,
2022 2021
Excess and Surplus Lines 83.7 % 232.7 %
Specialty Admitted Insurance 98.9 % 92.3 %
Casualty Reinsurance 122.5 % 105.3 %
Total 97.4 % 199.2 %
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Excess and Surplus Lines Segment
Results for the Excess and Surplus Lines segment are as follows:
Three Months Ended
March 31, %
2022 2021 Change
($ in thousands)
Gross written premiums $ 204,282 $ 181,358 12.6 %
Net written premiums $ 125,710 $ 108,433 15.9 %
Net earned premiums $ 131,301 $ 113,708 15.5 %
Losses and loss adjustment expenses (84,925) (241,742) (64.9) %
Underwriting expenses (24,919) (22,912) 8.8 %
Underwriting profit (loss) (1) $ 21,457 $ (150,946) -
Ratios:
Loss ratio 64.7 % 212.6 %
Expense ratio 19.0 % 20.1 %
Combined ratio 83.7 % 232.7 %
Accident year loss ratio 64.7 % 64.3 %
(1)Underwriting Profit (Loss) is a non-GAAP Measure. See "Reconciliation of
Non-GAAP Measures" for a reconciliation to income (loss) before tax and for
additional information.
The loss ratio of 64.7% for the three months endedMarch 31, 2022 includes$59,000 of net favorable reserve development (0.0 percentage points) in our loss estimates for prior accident years. The loss ratio of 212.6% for the three months endedMarch 31, 2021 includes$168.7 million of net adverse reserve development (148.3 percentage points) in our loss estimates for prior accident years, including$170.0 million of net adverse reserve development on our commercial auto business that was almost entirely related to a previously canceled account that has been in runoff since 2019. The reported losses on this terminated commercial auto account meaningfully exceeded our expectations in the three months endedMarch 31, 2021 . We had expected that reported losses would decline as the account moved further into runoff, but the continued heavy reported loss emergence in the first quarter of 2021 indicated more inherent severity than anticipated. In response, we meaningfully adjusted our actuarial methodology, resulting in a significant strengthening of reserves for this account atMarch 31, 2021 . OnSeptember 27, 2021 ,James River Insurance Company andJames River Casualty Company (together, "James River") entered into a loss portfolio transfer agreement (the "LPT Agreement") withAleka Insurance, Inc. ("Aleka"), a captive insurance company affiliate ofRasier LLC , to reinsure substantially all of the Excess and Surplus Lines segment's legacy portfolio of commercial auto policies previously issued toRasier LLC and its affiliates (collectively, "Rasier") for which James River is not otherwise indemnified by Rasier. Under the terms of the transaction, effective as ofJuly 1, 2021 , James River ceded to Aleka approximately$345.1 million of commercial auto liabilities relating to Rasier policies written in the years 2013-2019, which amount constituted the reinsurance premium. The reinsurance coverage is fully collateralized, not subject to an aggregate limit, and subject to certain exclusions.
The expense ratio for this segment was 19.0% for the three months ended
lower current year expense ratio reflects a 15.5% increase in net earned
premiums including in lines that have meaningful ceding commissions.
As a result of the items discussed above, the underwriting results of the Excess and Surplus Lines segment increased from an underwriting loss of$150.9 million for the three months endedMarch 31, 2021 to an underwriting profit of$21.5 million for the three months endedMarch 31, 2022 . 38 -------------------------------------------------------------------------------- Table of Contents Specialty Admitted Insurance Segment
Results for the
Three Months Ended
March 31, %
2022 2021 Change
($ in thousands)
Gross written premiums $ 125,710 $ 127,036 (1.0) %
Net written premiums $ 20,205 $ 22,005 (8.2) %
Net earned premiums $ 19,318 $ 16,357 18.1 %
Losses and loss adjustment expenses (15,435) (10,742) 43.7 %
Underwriting expenses (3,674) (4,349) (15.5) %
Underwriting profit (1), (2) $ 209 $ 1,266 (83.5) %
Ratios:
Loss ratio 79.9 % 65.7 %
Expense ratio 19.0 % 26.6 %
Combined ratio 98.9 % 92.3 %
Accident year loss ratio 79.6 % 71.8 %
(1)Underwriting Profit is a non-GAAP Measure. See "Reconciliation of Non-GAAP
Measures" for a reconciliation to income before tax and for additional
information.
(2)Underwriting results include gross fee income of $5.6 million and $5.1
million for the three months ended March 31, 2022 and 2021, respectively.
The loss ratio of 79.9% for the three months ended March 31, 2022 includes
$63,000 (0.3 percentage points) of net adverse development in our loss estimates
for prior accident years. The loss ratio of 65.7% for the three months ended
March 31, 2021 includes $1.0 million (6.1 percentage points) of net favorable
development in our loss estimates for prior accident years reflecting lower loss
emergence in the workers' compensation book compared to expectations. A higher
current accident year loss ratio (79.6% compared to 71.8% in the prior year)
reflects current actuarial indications and higher loss trends in the business.
The expense ratio of the Specialty Admitted Insurance segment was 19.0% for the
three months ended March 31, 2022 compared to the prior year ratio of 26.6%. The
improvement was driven by the growth in net earned premiums and higher fee
income, which increased 8.4% over the prior year due to the growth in our
fronting business.
As a result of the items discussed above, underwriting results for the Specialty
Admitted Insurance segment declined from an underwriting profit of $1.3 million
for the three months ended March 31, 2021 to an underwriting profit of $209,000
for the three months ended March 31, 2022 .
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Casualty Reinsurance Segment
Results for the Casualty Reinsurance segment are as follows:
Three Months Ended
March 31, %
2022 2021 Change
($ in thousands)
Gross written premiums $ 29,944 $ 64,861 (53.8) %
Net written premiums $ 29,944 $ 44,161 (32.2) %
Net earned premiums $ 39,205 $ 30,528 28.4 %
Losses and loss adjustment expenses (35,248) (21,016) 67.7 %
Underwriting expenses (12,794) (11,137) 14.9 %
Underwriting loss (1) $ (8,837) $ (1,625) 443.8 %
Ratios:
Loss ratio 89.9 % 68.8 %
Expense ratio 32.6 % 36.5 %
Combined ratio 122.5 % 105.3 %
Accident year loss ratio 72.6 % 60.7 %
(1)Underwriting Loss is a non-GAAP Measure. See "Reconciliation of Non-GAAP
Measures" for a reconciliation to loss before tax and for additional
information.
The Casualty Reinsurance segment focuses on typically lower volatility,
proportional reinsurance which requires larger ceding commissions resulting in a
higher commission expense than in our other segments.
OnFebruary 23, 2022 , JRG Re entered into a loss portfolio transfer retrocession agreement (the "Retrocession Agreement") to reinsure the majority of the Casualty Reinsurance segment's reserves. Under the terms of the transaction, which closed onMarch 31, 2022 (the "Retrocession Closing Date"), JRG Re (a) ceded all existing and future claims for losses arising under certain casualty reinsurance agreements with underlying insurance companies with treaty inception dates ranging from 2011 to 2020 (the "Subject Business"), in each case net of third-party reinsurance and other recoveries, up to an aggregate limit of$400.0 million ; (b) continues to manage and retain the benefit of other third-party reinsurance on the Subject Business; (c) paid a reinsurance premium of$335.0 million ,$310.0 million of which JRG Re credited to a notional funds withheld account (the "Funds Withheld Account") and$25.0 million of which was paid in cash; and (d) will begin paying a 2% per annum crediting rate on the Funds Withheld Account balance on a quarterly basis. The total premium, initial Funds Withheld Account credit, and aggregate limit was adjusted for claims paid fromOctober 1, 2021 to the Retrocession Closing Date. The Casualty Reinsurance segment incurred losses of$11.5 million (including$6.8 million of net adverse reserve development and$4.7 million of current accident year losses) in the three months endedMarch 31, 2022 associated with the Retrocession Agreement. The loss ratio of 89.9% for the three months endedMarch 31, 2022 includes the aforementioned$11.5 million (29.3 percentage points) of incurred losses associated with the Retrocession Agreement. The loss ratio of 68.8% for the three months endedMarch 31, 2021 includes$2.5 million (8.1 percentage points) of net adverse development in our loss estimates for prior accident years. The higher current accident year loss ratio (72.6% compared to 60.7% in the prior year) reflects$4.7 million of losses associated with the Retrocession Agreement. The expense ratio of the Casualty Reinsurance segment was 32.6% for the three months endedMarch 31, 2022 compared to 36.5% in the prior year. Net earned premiums increased 28.4% over the prior year and compensation expenses were lower in the current year. Commission slide adjustments related to incurred losses increased the expense ratio by 1.2 points in the three months endedMarch 31, 2022 compared to an increase of 3.2 points in the three months endedMarch 31, 2021 . As a result of the items discussed above, underwriting results for the Casualty Reinsurance segment declined from an underwriting loss of$1.6 million for the three months endedMarch 31, 2021 to an underwriting loss of$8.8 million for the three months endedMarch 31, 2022 .
Reserves
An indicator of reserve strength that we monitor closely is the percentage of
our gross and net loss reserves that are comprised of incurred but not reported
("IBNR") reserves.
The Company's gross reserve for losses and loss adjustment expenses at March 31,
2022 was $2,750.2 million . Of this amount, 59.9% relates to amounts that are
IBNR. This amount was 59.6% at December 31, 2021 . The Company's gross reserves
for losses and loss adjustment expenses by segment are summarized as follows:
40
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Gross Reserves at March 31, 2022
Case IBNR Total
($ in thousands)
Excess and Surplus Lines $ 648,349 $ 955,392 $ 1,603,741
Specialty Admitted Insurance 309,507 393,340 702,847
Casualty Reinsurance 143,952 299,648 443,600
Total $ 1,101,808 $ 1,648,380 $ 2,750,188
At March 31, 2022 , the amount of net reserves prior to the $604,000 allowance
for uncollectible reinsurance recoverables of $1,131.7 million that related to
IBNR was 61.8%. This amount was 64.4% at December 31, 2021 . The Company's net
reserves for losses and loss adjustment expenses by segment are summarized as
follows:
Net Reserves at March 31, 2022
Case IBNR Total
($ in thousands)
Excess and Surplus Lines $ 331,893 $ 561,528 $ 893,421
Specialty Admitted Insurance 43,526 65,263 108,789
Casualty Reinsurance 56,666 72,824 129,490
Total $ 432,085 $ 699,615 $ 1,131,700
Other Operating Expenses
In addition to the underwriting, acquisition, and insurance expenses of the
Excess and Surplus Lines segment, the Specialty Admitted Insurance segment, and
the Casualty Reinsurance segment discussed previously, other operating expenses
also include the expenses of the Corporate and Other segment.
Corporate and Other Segment
Other operating expenses for the Corporate and Other segment include personnel costs associated with theBermuda andU.S. holding companies, professional fees, and various other corporate expenses that are included in our calculation of our expense ratio and our combined ratio. Other operating expenses of the Corporate and Other segment represent the expenses of both theBermuda andU.S. holding companies that were not reimbursed by our subsidiaries, including costs associated with our internal quota share, rating agencies and strategic initiatives. These costs vary from period-to-period based on the status of these initiatives.
Total operating expenses of the Corporate and Other segment were
and
respectively.
Investing Results
Net investment income was$16.3 million for the three months endedMarch 31, 2022 compared to$15.1 million in the prior year. The increase was largely driven by strong results from the Company's renewable energy investments which generated income of$2.7 million in the current quarter compared to a loss of$681,000 in the prior year. In total, income from the Company's private investments was$2.9 million for the three months endedMarch 31, 2022 compared to$334,000 in the prior year. Excluding private investments, our net investment income for the three months endedMarch 31, 2022 decreased 9.4% from the prior year, principally due to lower investment income from fixed maturities resulting from a smaller portfolio (following the funding of the Rasier LPT reinsurance premium inSeptember 2021 ) and from lower yields on bank loan participations. The average duration of our portfolio excluding restricted cash equivalents was 4.1 years atMarch 31, 2022 . 41
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Table of Contents
Major categories of the Company's net investment income are summarized as
follows:
Three Months Ended
March 31,
2022 2021
($ in thousands)
Fixed maturity securities$ 10,793 $ 11,546 Bank loan participations 2,353 2,873 Equity securities 1,234 1,210 Other invested assets:
Renewable energy investments 2,681 (681)
Other private investments 218 1,015
2,899 334
Cash, cash equivalents, restricted cash equivalents and short-term
investments 32 105
Gross investment income 17,311 16,068
Investment expense (1,044) (979)
Net investment income $ 16,267 $ 15,089
The following table summarizes our investment returns:
Three Months Ended
March 31,
2022
2021
Annualized gross investment yield on: Average cash and invested assets 2.8 % 2.7 % Average fixed maturity securities 2.7
% 3.0 %
Of our total cash and invested assets of$2,395.2 million atMarch 31, 2022 (excluding restricted cash equivalents),$270.2 million represents the cash and cash equivalents portion of the portfolio. The majority of the portfolio, or$1,662.3 million , is comprised of fixed maturity securities that are classified as available-for-sale and carried at fair value with unrealized gains and losses on these securities reported, net of applicable taxes, as a separate component of accumulated comprehensive (loss) income. In the three months endedMarch 31, 2022 , the fair values of our fixed maturity securities were negatively impacted by a heightened inflationary environment and rate actions of theFederal Reserve , which led to higher interest rates and lower fair values of our fixed maturity securities. Unrealized losses on fixed maturities recognized in other comprehensive (loss) income resulted in an$86.0 million reduction in accumulated comprehensive (loss) income in the current quarter. Also included in our investments are$159.1 million of bank loan participations,$103.0 million of equity securities,$147.3 million of short-term investments, and$53.3 million of other invested assets. Bank loan participations generally provide a higher yield than our portfolio of fixed maturity securities and are primarily senior, secured floating-rate debt rated "BB", "B", or "CCC" byStandard & Poor's or an equivalent rating from another nationally recognized statistical rating organization, and are therefore below investment grade. Bank loans include assignments of and participations in, performing and non-performing senior corporate debt generally acquired through primary bank syndications and in secondary markets. They consist of, but are not limited to, term loans, the funded and unfunded portions of revolving credit loans, and similar loans and investments. Bank loan participations are measured at fair value pursuant to the Company's election of the fair value option, and changes in unrealized gains and losses in bank loan participations are reported in our income statement as net realized and unrealized gains (losses) on investments. AtMarch 31, 2022 andDecember 31, 2021 , the fair market value of these securities was$159.1 million and$156.0 million , respectively. For the three months endedMarch 31, 2022 , the Company recognized net realized and unrealized investment losses of$5.0 million , including$2.0 million of net unrealized losses on bank loan participations,$2.7 million of net losses for the change in the fair value of equity securities,$202,000 of net realized investment gains on the sale of fixed maturity securities,$89,000 of net realized investment losses on the sale of bank loan participations, and$357,000 of net realized investment losses on the sale of equity securities. For the three months endedMarch 31, 2021 , the Company recognized net realized and unrealized investment gains of$6.3 million , including$3.9 million of net unrealized gains on bank loan participations,$1.7 million of net unrealized gains for the change in the fair value of equity securities,$1.0 million of net realized investment gains on the sale of fixed maturity securities, and$372,000 of net realized investment losses on the sale of equity securities. 42 -------------------------------------------------------------------------------- Table of Contents In conjunction with its outside investment managers, the Company performs quarterly reviews of all securities within its investment portfolio to determine whether any impairment has occurred. Management concluded that none of its fixed maturity securities were impaired atMarch 31, 2022 orDecember 31, 2021 . AtMarch 31, 2022 , 99.3% of the Company's fixed maturity security portfolio was rated "BBB-" or better ("investment grade") byStandard & Poor's or received an equivalent rating from another nationally recognized rating agency. Management does not intend to sell available-for-sale securities in an unrealized loss position, and it is not "more likely than not" that the Company will be required to sell these securities before a recovery in their value to their amortized cost basis occurs. The amortized cost and fair value of our available-for-sale fixed maturity securities were as follows: March 31, 2022 December 31, 2021 Cost or % of Cost or % of Amortized Fair Total Amortized Fair Total Cost Value Fair Value Cost Value Fair Value ($ in thousands) Fixed maturity securities, available-for-sale: State and municipal$ 337,908 $ 319,492 19.2 %$ 323,773 $ 333,717 19.9 % Residential mortgage-backed 260,942 247,901 14.9 % 246,586 246,631 14.7 % Corporate 736,153 715,375 43.1 % 711,930 732,335 43.7 % Commercial mortgage and asset-backed 315,566 305,757 18.4 % 301,247 304,488 18.2 %U.S. Treasury securities and obligations guaranteed by the U.S. government 75,633 73,753 4.4 % 60,329 60,390 3.5 % Total fixed maturity securities, available-for-sale$ 1,726,202 $ 1,662,278 100.0 %$ 1,643,865 $ 1,677,561 100.0 %
The following table sets forth the composition of the Company's portfolio of
available-for-sale fixed maturity securities by rating as of
Standard & Poor's or Equivalent Designation Fair Value % of Total
($ in thousands)
AAA $ 350,892 21.1 %
AA 594,456 35.8 %
A 507,927 30.6 %
BBB 197,785 11.9 %
Below BBB and unrated 11,218 0.6 %
Total $ 1,662,278 100.0 %
At March 31, 2022 , our portfolio of fixed maturity securities contained
corporate fixed maturity securities (available-for-sale) with a fair value of
$715.4 million . A summary of these securities by industry segment is shown below
as of March 31, 2022 :
Industry Fair Value % of Total
($ in thousands)
Industrials and Other $ 157,082 22.0 %
Financial 200,357 28.0 %
Consumer Discretionary 109,230 15.3 %
Health Care 76,056 10.6 %
Consumer Staples 62,386 8.7 %
Utilities 110,264 15.4 %
Total $ 715,375 100.0 %
43
-------------------------------------------------------------------------------- Table of Contents Corporate fixed maturity securities (available-for-sale) include publicly traded securities and privately placed bonds as shown below as ofMarch 31, 2022 : Public/Private Fair Value % of Total ($ in thousands) Publicly traded$ 641,013 89.6 % Privately placed 74,362 10.4 % Total$ 715,375 100.0 %
The amortized cost and fair value of our available-for-sale investments in fixed
maturity securities summarized by contractual maturity are as follows:
March 31, 2022
Amortized Fair % of
Cost Value Total Value
($ in thousands)
Due in:
One year or less $ 103,147 $ 103,369 6.2 %
After one year through five years 464,925 458,531 27.6 %
After five years through ten years 332,124 311,381 18.7 %
After ten years 249,498 235,339 14.2 %
Residential mortgage-backed 260,942 247,901 14.9 %
Commercial mortgage and asset-backed 315,566 305,757 18.4 %
Total $ 1,726,202 $ 1,662,278 100.0 %
Other Expenses
Other expenses of $347,000 and $621,000 for the three months ended March 31,
2022 and 2021, respectively, include legal fees related to a purported class
action lawsuit, certain legal and professional consulting fees related to
various strategic initiatives, and employee severance costs.
Interest Expense
Interest expense was$2.3 million and$2.2 million for the three months endedMarch 31, 2022 and 2021, respectively. See "-Liquidity and Capital Resources-Sources and Uses of Funds" for more information regarding our senior bank debt facilities and trust preferred securities.
Amortization of Intangibles
The Company recorded
three months ended
Income Tax Expense
Our effective tax rate fluctuates from period to period based on the relative mix of income reported by country and the respective tax rates imposed by each tax jurisdiction. ForU.S. -sourced income, the Company'sU.S. federal income tax expense differs from the amounts computed by applying the federal statutory income tax rate to income before taxes due primarily to interest income on tax-advantaged state and municipal securities, dividends received income, and excess tax benefits on share based compensation. For the three months endedMarch 31, 2022 , our effective tax rate was 24.6%. The effective rate exceeded the 21.0%U.S. statutory rate due to a projected annual loss inBermuda that does not provide a tax benefit and due to discreet items for the quarter primarily related to excess tax expenses associated with vested restricted share units ("RSUs") in the three months endedMarch 31, 2022 . For the three months endedMarch 31, 2021 , we had an effective tax benefit that was 26.5% of our pre-tax loss for the quarter. The change in effective tax rate for the two periods reflects changes in reserve estimates and the related impact on the mix of income reported by country in those respective periods. 44
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Table of Contents
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Funds
Our sources of funds consist primarily of premiums written, investment income, reinsurance recoveries, proceeds from sales and redemptions of investments, borrowings on our credit facilities, and the issuance of common and Series A Preferred Shares. We use operating cash flows primarily to pay operating expenses, losses and loss adjustment expenses, reinsurance premiums, and income taxes. Cash flow from operations may differ substantially from net income. The potential for a large claim under an insurance or reinsurance contract means that substantial and unpredictable payments may need to be made within relatively short periods of time.
The following table summarizes our cash flows:
Three Months Ended March 31,
2022 2021
($ in thousands)
Cash and cash equivalents provided by (used in):
Operating activities (excluding restricted cash equivalents) $ 65,351 $ 27,247
Investing activities (87,134) 5,988
Financing activities 101,855 (12,004)
Change in cash and cash equivalents 80,072 21,231
Change in restricted cash equivalents (operating activities) 4 (108,252)
Change in cash, cash equivalents, and restricted cash equivalents $
80,076
Cash provided by operating activities excluding restricted cash equivalents was$65.4 million and$27.2 million for the three months endedMarch 31, 2022 and 2021, respectively, reflecting the growth in ourU.S. segments and the collection of premiums receivable at a quicker rate than payments of loss and loss adjustment expenses. Cash used in investing activities for the three months endedMarch 31, 2022 reflects our efforts to enhance the yield in our investment portfolio by investing available cash and cash equivalents into higher yielding investments. Cash and cash equivalents (excluding restricted cash equivalents) comprised 11.3% and 7.8% of total cash and invested assets atMarch 31, 2022 and 2021, respectively. Cash used in financing activities for the three months endedMarch 31, 2022 and 2021 included$2.1 million and$9.6 million of dividends paid to common shareholders, respectively. Cash provided by financing activities for the three months endedMarch 31, 2022 included the net proceeds (after expenses) of$144.9 million from the issuance and sale of 150,000 Series A Preferred Shares onMarch 1, 2022 , which were used for general corporate purposes and to repay onMarch 28, 2022 $40.0 million of loans outstanding on the 2017 Facility (as defined below). The change in restricted cash equivalents for the three months endedMarch 31, 2021 primarily reflects restricted cash equivalents returned to a former insured, per the terms of a collateral trust. See Amounts Recoverable from anIndemnifying Party and Reinsurer on Legacy CommercialAuto Book below.
Dividends
We are organized as aBermuda holding company with our operations conducted by our wholly-owned subsidiaries. Accordingly, our holding company may receive cash through loans from banks, issuance of equity and debt securities, corporate service fees or dividends received from our subsidiaries and/or other transactions. OurU.S. holding company may receive cash in a similar manner and also through payments from our subsidiaries pursuant to ourU.S. consolidated tax allocation agreement. The payment of dividends by our subsidiaries to us is limited by statute. In general, the laws and regulations applicable to our domestic insurance subsidiaries limit the aggregate amount of dividends or other distributions that they may declare or pay within any 12-month period without advance regulatory approval. Generally, the limitations are based on the greater of statutory net income for the preceding year or 10.0% of statutory surplus at the end of the preceding year. In addition, insurance regulators have broad powers to prevent reduction of statutory surplus to inadequate levels and could refuse to permit the payment of dividends calculated under any applicable formula. See Item 1- "Business Regulation-U.S. Insurance Regulation-State Regulation" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theSEC onMarch 1, 2022 for additional information. The maximum amount of dividends available to theU.S. holding company from ourU.S. insurance subsidiaries during 2022 without regulatory approval is$27.2 million . 45 -------------------------------------------------------------------------------- Table of Contents The Bermuda Insurance Act of 1978 prohibits an insurer from declaring or paying a dividend if it is in breach of its minimum solvency margin, its enhanced capital requirement, or its minimum liquidity ratio, or if the declaration or payment of such dividend would cause such a breach. An insurer can declare or pay dividends without prior regulatory approval up to 25% of the total statutory capital and surplus (as shown on its previous financial year's statutory balance sheet). See Item 1- "Business Regulation- Bermuda Insurance Regulation- Restrictions on Dividends and Distributions" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theSEC onMarch 1, 2022 for additional information. Based on that calculation, the maximum combined amount of dividends and return of capital available to us from ourBermuda insurers without regulatory approval in 2022 is calculated to be approximately$129.7 million . However, any dividend payment is contingent upon continued compliance withBermuda regulatory requirements, including but not limited to the enhanced solvency requirement calculations. Holders of the Series A Preferred Shares are entitled to a dividend at the initial rate of 7% of the Liquidation Preference per annum, paid in cash, in-kind in common shares or in Series A Preferred Shares, at our election. On the five-year anniversary of the Closing Date, and each five-year anniversary thereafter, the dividend rate will reset to a rate equal to the five-yearU.S. treasury rate plus 5.2%. Dividends will accrue quarterly and will be payable onMarch 31 ,June 30 ,September 30 andDecember 31 of each year, commencingJune 30, 2022 . Dividends accrued on the Series A Preferred Shares in the three months endedMarch 31, 2022 (which represent dividends fromMarch 1, 2022 , the date of issuance of the Series A Preferred Shares, throughMarch 31, 2022 ) were$875,000 . AtMarch 31, 2022 , theBermuda holding company had$3.0 million of cash and cash equivalents. TheU.S. holding company had$28.0 million of cash and invested assets, comprised of cash and cash equivalents of$20.1 million and other invested assets of$7.9 million , which are not subject to regulatory restrictions. Additionally, ourU.K. intermediate holding company had no invested assets and cash of less thanten thousand dollars atMarch 31, 2022 .
Credit Agreements
The Company has a$315.0 million senior revolving credit facility (as amended or amended and restated, the "2013 Facility"). The 2013 Facility is comprised of the following atMarch 31, 2022 : •A$102.5 million secured revolving facility used by JRG Re to issue letters of credit for the benefit of third-party reinsureds. This portion of our credit facility is secured by our investment securities. AtMarch 31, 2022 , the Company had$38.2 million of letters of credit issued under the secured facility. •A$212.5 million unsecured revolving facility to meet the working capital needs of the Company. All unpaid principal on the revolver is due at maturity. Interest accrues quarterly and is payable in arrears at 3-month LIBOR plus a margin which is currently 1.625% and is subject to change according to terms in the credit agreement. AtMarch 31, 2022 , the Company had a drawn balance of$185.8 million outstanding on the unsecured revolver. The 2013 Facility has been amended from time to time since its inception in 2013. OnNovember 8, 2019 , the Company entered into a Second Amended and Restated Credit Agreement for the 2013 Facility which, among other things, extended the maturity date of the 2013 Facility untilNovember 8, 2024 , increased the amount available under the unsecured revolving credit facility to$212.5 million , lowered the applicable interest rate and letter of credit fees, and modified certain negative covenants to be less restrictive. The 2013 Facility contains certain financial and other covenants (including minimum net worth, maximum ratio of total adjusted debt outstanding to total capitalization, and financial strength ratings) with which the Company was in compliance atMarch 31, 2022 . OnAugust 2, 2017 , the Company, and its wholly-owned subsidiary, JRG Re, together as borrowers, entered into a credit agreement (the "2017 Facility") that provides the Company with a revolving line of credit of up to$100.0 million , which may be used for loans and letters of credit made or issued, at the borrowers' option, on a secured or unsecured basis. Obligations under the 2017 Facility carry a variable rate of interest subject to terms in the credit agreement and will mature 30 days after notice of termination from the lender. The 2017 Facility contains certain financial and other covenants with which we are in compliance atMarch 31, 2022 . The loans and letters of credit made or issued under the revolving line of credit of the 2017 Facility may be used to finance the borrowers' general corporate purposes. The 2017 Facility has been amended from time to time since its inception in 2017, including onNovember 8, 2019 when the Company entered into a First Amendment to Credit Agreement which, among other things, lowered the applicable interest rate and modified certain negative covenants to be less restrictive. Interest accrues quarterly and is payable in arrears at variable rates which are subject to change according to terms in the credit agreement. AtMarch 31, 2022 , unsecured loans of$21.5 million and secured letters of credit totaling$22.6 million were outstanding on the 2017 Facility. During the three months endedMarch 31, 2022 , the Company repaid$40.0 million of loans that were outstanding under the 2017 Facility. OnMay 26, 2004 , we issued$15.0 million of senior debt dueApril 29, 2034 . The senior debt is not redeemable by the holder or subject to sinking fund requirements. Interest accrues quarterly and is payable in arrears at a floating rate per annum 46 -------------------------------------------------------------------------------- Table of Contents equal to the 3-month LIBOR plus 3.85%. This senior debt is redeemable at par prior to its stated maturity at our option in whole or in part. The terms of the senior debt contain certain covenants, with which we are in compliance atMarch 31, 2022 , and which, among other things, restrict our ability to assume senior indebtedness secured by ourU.S. holding company's common stock or its subsidiaries' capital stock or to issue shares of its subsidiaries' capital stock. FromMay 2004 throughJanuary 2008 , we sold trust preferred securities through fiveDelaware statutory trusts sponsored and wholly-owned by the Company or its subsidiaries. Each trust used the net proceeds from the sale of its trust preferred securities to purchase our floating-rate junior subordinated debt. The following table summarizes the nature and terms of the junior subordinated debt and trust preferred securities outstanding atMarch 31, 2022 (including the Company's repurchases of a portion of these trust preferred securities): Franklin Holdings II James River James River James River James River (Bermuda) Capital Capital Capital Capital Capital Trust I Trust II Trust III Trust IV Trust I ($ in thousands) Issue date May 26, 2004 December 15, 2004 June 15, 2006 December 11, 2007 January 10, 2008 Principal amount of trust preferred securities$7,000 $15,000 $20,000 $54,000 $30,000 Principal amount of junior subordinated debt$7,217 $15,464 $20,619 $55,670 $30,928 Carrying amount of junior subordinated debt net of repurchases$7,217 $15,464 $20,619 $44,827 $15,928 Maturity date of junior subordinated debt, unless accelerated earlier May 24, 2034 December 15, 2034 June 15, 2036 December 15, 2037 March 15, 2038 Trust common stock$217 $464 $619 $1,670 $928 Interest rate, per annum Three-Month Three-Month Three-Month Three-Month Three-Month LIBOR plus LIBOR plus LIBOR plus LIBOR plus LIBOR plus 4.0% 3.4% 3.0% 3.1% 4.0%
All of the junior subordinated debt is currently redeemable at 100.0% of the
unpaid principal amount at our option.
The junior subordinated debt contains certain covenants with which we are in
compliance as of
AtMarch 31, 2022 andDecember 31, 2021 , the Company's leverage ratio was 23.2% and 31.1%, respectively. The leverage ratio is defined in our senior credit agreements as the ratio of adjusted consolidated debt to total capital. Adjusted consolidated debt treats trust preferred securities as equity capital up to 15% of total capital. The Series A Preferred Shares represent equity capital for purposes of the leverage ratio calculation under the credit agreements. Total capital is defined as total debt plus tangible equity excluding accumulated other comprehensive income. The maximum leverage ratio permitted by the agreements is 35.0%. Having debt as part of our capital structure allows us to generate a higher return on equity and greater book value per share results than we could by using equity capital alone. 47 -------------------------------------------------------------------------------- Table of Contents Ceded Reinsurance Our insurance segments enter into reinsurance contracts to limit our exposure to potential losses arising from large risks, to protect against the aggregation of several risks in a common loss occurrence, and to provide additional capacity for growth. Our reinsurance is contracted under excess of loss and quota share reinsurance contracts. In excess of loss reinsurance, the reinsurer agrees to assume all or a portion of the ceding company's losses in excess of a specified amount. The premiums payable to the reinsurer are negotiated by the parties based on their assessment of the amount of risk being ceded to the reinsurer because the reinsurer does not share proportionately in the ceding company's losses. In quota share reinsurance, the reinsurer agrees to assume a specified percentage of the ceding company's losses arising out of a defined class of business in exchange for a corresponding percentage of premiums. For the three months endedMarch 31, 2022 and 2021, our net premium retention was 48.9% and 46.8%, respectively.
The following is a summary of our Excess and Surplus Lines segment's net
retention after reinsurance as of
Line of Business Company Retention
Casualty
Primary Specialty Casualty, Up to$1.0 million per occurrence, subject to a$1.0 million including Professional Liability aggregate deductible.(1) Primary Casualty Up to$2.0 million per occurrence.(2) Excess Casualty Up to$1.0 million per occurrence.(3) Property Up to$5.0 million per event.(4) (1) Except for Life Sciences quota share carve out, which is up to$2.0 million per occurrence. (2) Total exposure to any one claim is generally$1.0 million . (3) For policies with an occurrence limit up to$10.0 million , the excess casualty treaty is set such that our retention is no more than$1.0 million . (4) The property catastrophe reinsurance treaty has a limit of$40.0 million with one reinstatement. We use catastrophe modeling software to analyze the risk of severe losses from hurricanes and earthquakes on our exposure. We utilize the model in our risk selection, pricing, and to manage our overall portfolio probable maximum loss ("PML") accumulations. A PML is an estimate of the amount we would expect to pay in any one catastrophe event within a given annual probability of occurrence (i.e. a return period or loss exceedance probability). In our Excess and Surplus Lines segment, we write a small book of excess property insurance, but we do not write primary property insurance. The Excess and Surplus Lines segment has a surplus share reinsurance treaty in effect that was specifically designed to cover property risks. The surplus share treaty along with facultative reinsurance helps ensure that our net retained limit per risk will be$5.0 million or less. Based upon the modeling of our Excess and Surplus Lines and Specialty Admitted segments, it would take an event at the 1 in 1000 year PML to exhaust our$45.0 million property catastrophe reinsurance. In the event of a catastrophe loss exhausting our$45.0 million property catastrophe reinsurance, we estimate our pre-tax cost would not exceed 2.5% of shareholders' equity, including reinstatement premiums and net retentions. In addition to this retention, we would retain any losses in excess of our reinsurance coverage limits. OnSeptember 27, 2021 , James River entered into the LPT Agreement with Aleka to reinsure substantially all of the Excess and Surplus Lines segment's legacy portfolio of commercial auto previously issued to Rasier. See "Amounts Recoverable from anIndemnifying Party and Reinsurer on the Legacy CommercialAuto Book " below for further information on this reinsurance agreement. 48 -------------------------------------------------------------------------------- Table of Contents The following is a summary of ourSpecialty Admitted Insurance segment's ceded reinsurance in place as ofMarch 31, 2022 : Line of Business Coverage Casualty Workers' Compensation Quota share coverage for 65.5% of the first$1.0 million.(1)(2) Excess of loss coverage for$29.0 million in excess of$1.0 million.(1)(2) Auto Programs Quota share coverage for 70-90% of limits up to$1.5 million liability and$5.0 million physical damage per occurrence. General Liability & Professional Quota share coverage for 70%-100% of limits up to$3.0 million Liability - Programs per occurrence.
Umbrella and Excess Casualty - Quota share coverage for at least 90% of limits up to
Programs
million per occurrence, and 87.5%
of excess of loss coverage
for $5.0 million in excess of $10.0
million.
Property
Property within Package - Quota share coverage for 100% of limits up to$40.0 million Programs per occurrence. Excess Property Quota share coverage for 100% of limits up to$16.9 million . Catastrophe Coverage Excess of Loss coverage for$44.0
million in excess of
million per occurrence.
Aviation Programs Quota share coverage for 80% of
limits up to
liability and $2.5 million hull per
occurrence, each aircraft;
and excess of loss coverage for up
to
thousand of our 20% share of the
quota share each occurrence.
(1) Excluding one program which has quota share coverage for 84.5% of the first$1.0 million per occurrence and excess of loss coverage for$49.0 million in excess of$1.0 million per occurrence.
(2) Includes any residual market pools.
OurSpecialty Admitted Insurance segment purchases reinsurance for at least 50% of the exposed limits on specialty admitted property-casualty business. The segment enters into reinsurance contracts for the individual risk workers' compensation business as well as fronting and program business. While the segment focuses on casualty business, incidental property risk is incurred in the fronting and program business. The segment is covered for$44.0 million in excess of$1.0 million per occurrence to manage its property exposure to an approximate 1 in 1,000 year PML. In our Casualty Reinsurance segment, we also have limited property catastrophe exposure on treaties in run-off, primarily through auto physical damage coverage. In the aggregate, we believe our pre-tax group-wide PML from a 1 in 1,000 year property catastrophe event would not exceed 2.5% of shareholders' equity, inclusive of reinstatement premiums payable. OnFebruary 23, 2022 , JRG Re entered into the Retrocession Agreement with FRL to reinsure the majority of the segment risk, which closed onMarch 31, 2022 . See "Recent Strategic Actions - Loss Portfolio Transfer Retrocession Agreement" above for further information on this retrocession agreement. We also have a contingency clash reinsurance treaty to cover both the Excess andSurplus Lines and Specialty Admitted Insurance segments in the event of a claim incident involving more than one of our insureds in addition to Extra Contractual and Excess Policy Limits protection. The treaty covers$10.0 million in excess of a$2.0 million retention for loss occurrences within the treaty term. This coverage has two reinstatements in the event we exhaust any of the coverage. As ofMarch 31, 2022 , our average net retained limit per risk is$2.5 million . EffectiveJanuary 1, 2020 , we purchased an additional$10.0 million in claims made coverage for excess policy limits and extra contractual obligations exposures above the clash and contingency treaty for the period 2014 to present. This treaty has one reinstatement. The Company's insurance segments remain liable to policyholders if its reinsurers are unable to meet their contractual obligations under applicable reinsurance agreements. We establish an allowance for credit losses for our current estimate of uncollectible reinsurance recoverables. AtMarch 31, 2022 , the allowance for credit losses on reinsurance recoverables was$604,000 . To minimize exposure to significant losses from reinsurance insolvencies, the Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk. The Company generally seeks to purchase reinsurance from reinsurers withA.M. Best financial strength ratings of "A-" (Excellent) or better. The Company's reinsurance contracts generally require reinsurers that are not authorized as reinsurers underU.S. state insurance regulations or that experience rating downgrades from rating agencies below specified levels to fund their share of the Company's ceded outstanding losses and loss adjustment expense reserves, typically through the use of irrevocable and unconditional letters of credit. In fronting arrangements, which the Company conducts through itsSpecialty Admitted Insurance segment, we are subject to credit risk 49 -------------------------------------------------------------------------------- Table of Contents with regard to insurance companies who act as reinsurers for us in such arrangements. We customarily require a collateral trust arrangement to secure the obligations of the insurance entity for whom we are fronting. AtMarch 31, 2022 , we had reinsurance recoverables on unpaid losses of$1,617.9 million (net of a$604,000 allowance for credit losses) and reinsurance recoverables on paid losses of$87.6 million , and all material recoverable amounts were from companies withA.M. Best ratings of "A-" (Excellent) or better, are collateralized by the reinsurer for our benefit through letters of credit or funds on deposit in trust accounts, or represent recoverables from a state residual market for automobile insurance.
Amounts Recoverable from an
Commercial
James River previously issued a set of commercial auto insurance contracts to Rasier (the "Rasier Commercial Auto Policies") under which James River pays losses and loss adjustment expenses on the contracts. James River has indemnity agreements with Rasier (non-insurance entities) (collectively, the "Indemnity Agreements") and is contractually entitled to reimbursement for the portion of the losses and loss adjustment expenses paid on behalf of Rasier under the Rasier Commercial Auto Policies and other expenses incurred by James River. OnSeptember 27, 2021 , James River entered into a loss portfolio transfer reinsurance agreement (the "LPT Agreement") with Aleka to reinsure substantially all of the Rasier Commercial Auto Policies for which James River is not otherwise indemnified by Rasier under the Indemnity Agreements. Under the terms of the LPT Agreement, effective as ofJuly 1, 2021 , James River ceded to Aleka approximately$345.1 million of commercial auto liabilities relating to Rasier Commercial Auto Policies written in the years 2013-2019, which amount constituted the reinsurance premium.
Each of Rasier and Aleka are required to post collateral under the Indemnity
Agreements and the LPT Agreement, respectively:
•Pursuant to the Indemnity Agreements, Rasier is required to post collateral for the amounts that are recoverable or may be recoverable under the indemnity agreements, including, among other things, case loss and loss adjustment expense reserves, IBNR loss and loss adjustment expense reserves, extra contractual obligations and excess policy limits liabilities. The collateral is provided through a collateral trust arrangement (the "Indemnity Trust ") in favor of James River by Aleka. In connection with the execution of the LPT Agreement, James River returned$691.3 million to theIndemnity Trust , representing the remaining balance of the amount withdrawn inOctober 2019 , as was permitted under the indemnification agreements with Rasier and the associated trust agreement. AtMarch 31, 2022 , the balance in theIndemnity Trust was$494.9 million , and, together with the balance of theLoss Fund Trust (as defined below) attributable to the Indemnity Agreements as described below, the total balance of collateral securing Rasier's obligations under the Indemnity Agreements was$564.1 million . •Pursuant to the LPT Agreement, Aleka is required to post collateral equal to 102% of James River's estimate of Aleka's obligations under the LPT Agreement, calculated in accordance with statutory accounting principles. The collateral is provided through a collateral trust arrangement (the "LPT Trust ") established in favor of James River by Aleka. AtMarch 31, 2022 , the balance in theLPT Trust was$214.3 million , and, together with the balance of theLoss Fund Trust (as defined below) attributable to the LPT Agreement as described below, the total balance of collateral securing Aleka's obligations under the LPT Agreement was$242.5 million . AtMarch 31, 2022 , the total reinsurance recoverables under the LPT Agreement was$237.3 million (including$225.5 million of unpaid recoverables and$11.8 million of paid recoverables). In connection with the execution of the LPT Agreement, James River and Aleka entered into an administrative services agreement (the "Administrative Services Agreement") with a third party claims administrator (the "Administrator") pursuant to which the Administrator handles the claims on the Rasier Commercial Auto Policies for the remaining life of those claims. The claims paid by the Administrator are reimbursable by James River, and pursuant to the Administrative Services Agreement, James River established a loss fund trust account for the benefit of the Administrator (the "Loss Fund Trust ") to collateralize its claims payment reimbursement obligations. James River funds theLoss Fund Trust using funds withdrawn from theIndemnity Trust , funds withdrawn from theLPT Trust , and its own funds, in each case in an amount equal to the pro rata portion of the requiredLoss Fund Trust balance attributable to the Indemnity Agreements, the LPT Agreement and James River's existing third party reinsurance agreements, respectively. AtMarch 31, 2022 , the balance in theLoss Fund Trust was$102.0 million , including$69.2 million representing collateral supporting Rasier's obligations under the Indemnity Agreements and$28.2 million representing collateral supporting Aleka's obligations under the LPT Agreement. Funds posted to theLoss Fund Trust are classified as restricted cash equivalents on the Company's balance sheet. While the LPT Agreement brings economic finality to substantially all of the Rasier Commercial Auto Policies, the Company has credit exposure to Rasier and Aleka under the Indemnity Agreements and the LPT Agreement if the estimated losses and expenses of the Rasier Commercial Auto Policies grow at a faster pace than the growth in our collateral balances. In addition, we have credit exposure if our estimates of future losses and loss adjustment expenses and other amounts recoverable under the Indemnity Agreements and the LPT agreement, which are the basis for establishing the collateral balances, are lower than actual amounts paid or payable. The amount of our credit exposure in any of these instances could be material. To mitigate these risks, we closely and frequently monitor our exposure compared to our collateral held, and we request additional collateral 50 -------------------------------------------------------------------------------- Table of Contents in accordance with the terms of the LPT Agreement and Indemnity Agreements when our analysis indicates that we have uncollateralized exposure.
Ratings
TheA.M. Best financial strength rating for our group's regulated insurance and reinsurance subsidiaries is "A-" (Excellent) with a stable outlook. This rating reflectsA.M. Best's opinion of our insurance and reinsurance subsidiaries' financial strength, operating performance and ability to meet obligations to policyholders and is not an evaluation directed towards the protection of investors. The rating for our operating insurance and reinsurance companies of "A-" (Excellent) is the fourth highest rating of the thirteen ratings issued byA.M. Best and is assigned to insurers that have, inA.M. Best's opinion, an excellent ability to meet their ongoing obligations to policyholders. OnMarch 4, 2021 ,A.M. Best announced that it reduced the outlook on our regulated insurance subsidiaries to negative from stable on the "A" (Excellent) financial strength rating on such entities following our announcement of$86.0 million of adverse development on reserves for losses and loss adjustment expenses in the fourth quarter of 2020 principally related to our commercial auto business in our Excess and Surplus Lines segment. OnMay 7, 2021 , following the Company's announcement of$168.7 million of further adverse development in the first quarter of 2021 on reserves for losses and loss adjustment expenses in our Excess and Surplus Lines segment, inclusive of$170.0 million of unfavorable development in our commercial auto business,A.M. Best announced a downgrade of our financial strength rating to "A-" (Excellent) and maintained a negative outlook on our regulated insurance subsidiaries. The Company's outlook was upgraded to stable byA.M. Best in the third quarter following the closing of the LPT Agreement which reinsures substantially all of the legacy commercial auto business. The financial strength ratings assigned byA.M. Best have an impact on the ability of our regulated subsidiaries to attract and retain agents and brokers and on the risk profiles of the submissions for insurance that our subsidiaries receive. We believe the "A-" (Excellent) ratings assigned to our insurance and reinsurance subsidiaries allow our subsidiaries to actively pursue relationships with the agents and brokers identified in their marketing plans.
Series A Preferred Shares
The Company closed on the issuance and sale of 150,000 Series A Preferred Shares onMarch 1, 2022 for an aggregate purchase price of$150.0 million , or$1,000 per share, in a private placement. The Series A Preferred Shares are convertible into the Company's common shares at the option of the holder at any time, or at the Company's option under certain circumstances. Dividends on the Series A Preferred Shares accrue quarterly at the initial rate of 7% of the Liquidation Preference per annum, which may be paid in cash, in-kind in common shares or in Series A Preferred Shares, at the Company's election.
EQUITY
Total common shares outstanding increased from 37,373,066 atDecember 31, 2021 to 37,448,314 atMarch 31, 2022 , reflecting 75,248 common shares issued in the three months endedMarch 31, 2022 related to vesting of RSUs.
Share Based Compensation Expense
For the three months endedMarch 31, 2022 and 2021, the Company recognized$1.8 million and$1.9 million of share based compensation expense, respectively. As ofMarch 31, 2022 , the Company had$18.0 million of unrecognized share based compensation expense expected to be charged to earnings over a weighted-average period of 2.3 years. 51 --------------------------------------------------------------------------------
Table of Contents Equity Incentive Plans Options
The following table summarizes option activity:
Three Months Ended March 31,
2022 2021
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
Outstanding:
Beginning of period 287,974 $ 35.26 463,324 $ 32.25
Granted - $ - - $ -
Exercised - $ - (29,884) $ 26.37
Forfeited - $ - - $ -
End of period 287,974 $ 35.26 433,440 $ 32.65
Exercisable, end of period 287,974 $ 35.26 433,440 $ 32.65
All of the outstanding options are fully vested (vesting period of three years
from date of grant) and have a contractual life of seven years from the original
date of grant.
RSUs
The following table summarizes RSU activity:
Three Months Ended March 31,
2022 2021
Weighted- Weighted-
Average Average
Grant Date Grant Date
Shares Fair Value Shares Fair Value
Unvested, beginning of period 292,135 $ 45.89 399,856 $ 43.59
Granted 538,778 $ 20.50 138,936 $ 50.24
Vested (109,589) $ 45.57 (161,004) $ 41.89
Forfeited - $ - (1,089) $ 42.44
Unvested, end of period 721,324 $ 26.97 376,699 $ 46.78
Outstanding RSUs granted to employees generally vest ratably over a three year
vesting period. RSUs granted to non-employee directors have a one year vesting
period.
52
--------------------------------------------------------------------------------
Table of Contents
RECONCILIATION OF NON-GAAP MEASURES
Reconciliation of Underwriting Profit
We believe that the disclosure of underwriting profit by individual segment and of the Company as a whole is useful to investors, analysts, rating agencies and other users of our financial information in evaluating our performance because our objective is to consistently earn underwriting profits. We evaluate the performance of our segments and allocate resources based primarily on underwriting profit. Our definition of underwriting profit may not be comparable to that of other companies. The following table reconciles the underwriting profit (loss) by individual segment and for the entire Company to consolidated income (loss) beforeU.S. Federal income taxes: Three Months EndedMarch 31, 2022 2021 (in thousands)
Underwriting profit (loss) of the insurance segments:
Excess and Surplus Lines
$ 21,457 $ (150,946) Specialty Admitted Insurance 209 1,266 Casualty Reinsurance (8,837) (1,625) Total underwriting profit (loss) of insurance segments 12,829 (151,305) Other operating expenses of the Corporate and Other segment (7,874) (8,056) Underwriting profit (loss) (1) 4,955 (159,361) Net investment income 16,267 15,089 Net realized and unrealized (losses) gains on investments (5,010) 6,272 Amortization of intangible assets (91) (91) Other income and expenses (301) (522) Interest expense (2,292) (2,216) Income (loss) before income taxes
(1)Included in underwriting results for the three months ended
and 2021 is gross fee income of
Reconciliation of Adjusted Net Operating Income (Loss)
We define adjusted net operating income (loss) as income (loss) available to common shareholders excluding net realized and unrealized (losses) gains on investments, and certain non-operating expenses such as professional service fees related to a purported class action lawsuit, various strategic initiatives, and the filing of registration statements for the offering of securities, and severance costs associated with terminated employees. We use adjusted net operating income (loss) as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance. Adjusted net operating income (loss) should not be viewed as a substitute for net income (loss) calculated in accordance with GAAP, and our definition of adjusted net operating income (loss) may not be comparable to that of other companies.
Our income (loss) available to common shareholders reconciles to our adjusted
net operating income (loss) as follows:
Three Months Ended
2022 2021
Income Loss
Before Net Before Net
Taxes Income Taxes Loss
($ in thousands)
Income (loss) available to common shareholders $ 12,653 $ 9,330 $ (140,829) $ (103,460)
Net realized and unrealized investment losses
(gains) 5,010 4,190 (6,272) (5,751)
Other expenses 347 347 527 416
Adjusted net operating income (loss) $ 18,010 $
13,867
53 -------------------------------------------------------------------------------- Table of Contents Tangible Equity and Tangible Equity per Share Key financial measures that we use to assess our longer term financial performance include the percentage growth in our tangible equity per share and our return on tangible equity. We believe tangible equity is a good measure to evaluate the strength of our balance sheet and to compare returns relative to this measure. We define tangible equity as shareholders' equity plus mezzanine Series A Preferred Shares less goodwill and intangible assets, net of amortization. Our definition of tangible equity may not be comparable to that of other companies, and it should not be viewed as a substitute for shareholders' equity calculated in accordance with GAAP. Tangible equity of$574.8 million atMarch 31, 2022 increased 13.3% compared to tangible equity of$507.5 million atDecember 31, 2021 , as net income available to common shareholders and the$144.9 million of net proceeds from the Series A Preferred Shares issued during the quarter were partially offset by unrealized losses in the Company's fixed maturity portfolio. The market values of our fixed maturity investments have been negatively impacted in the current year by the inflationary environment and recent rate actions of theFederal Reserve , leading to higher interest rates, and inversely, declining market values of our fixed maturity investments. Unrealized losses on fixed maturities recognized in other comprehensive income resulted in an$86.0 million reduction in tangible equity in the current year. Our tangible equity per share decreased by 1.8% for the three months endedMarch 31, 2022 . We assume conversion of the Series A Preferred Shares into common shares (at the current conversion price) and include them in the denominator shares for the tangible equity per share calculation. Our operating return on average tangible equity was 10.3% for the three months endedMarch 31, 2022 .
The following table reconciles shareholders' equity to tangible equity as of
Ambac Reports First Quarter 2022 Results
METROMILE, INC. – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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