OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has commented that the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of a- (Excellent) of the rated operating subsidiaries of James River Group Holdings, Ltd. (JRG Holdings) [NASDAQ: JRVR] remain unchanged following the release of JRG Holdings’ fourth quarter results and the announcement of strategic actions. In addition, AM Best has commented that the Long-Term ICR of “bbb-” (Good) of JRG Holdings also remains unchanged. The outlook of these Credit Ratings (ratings) is stable. JRG Holdings is domiciled in Pembroke, Bermuda, while its subsidiaries are based in Pembroke, Richmond, VA, and Raleigh, NC.
On Feb. 28, 2022, JRG Holdings reported a fourth-quarter 2021 net loss of $66.3 million, driven by $115.0 million of adverse prior-year reserve development in the casualty reinsurance segment. In conjunction with the earnings release, JRG Holdings also announced that one of the company’s primary operating companies, JRG Reinsurance Company Ltd. (JRG Re), has entered into a loss portfolio transfer (LPT) reinsurance agreement with Fortitude Reinsurance Company Ltd. (FRL), under which FRL will reinsure the majority of the reserves from the company’s casualty reinsurance segment. Under the terms of the transaction, JRG Re will cede to FRL approximately $335 million of liabilities for business written during underwriting years 2011-2020. The coverage being provided by FRL is subject to an aggregate limit of $400 million.
In addition, JRG Holdings will issue $150 million of convertible preferred shares to an affiliate of Gallatin Point Capital LLC, with closing expected to occur today. The convertible preferred shares will pay a quarterly dividend in cash at an annualized rate of 7.0%. Additionally, the co-founder of Gallatin Point, Matthew Botein, is expected to join the company’s board of directors as an independent director, subject to any required regulatory approval. The company also has reduced its quarterly common dividend to $0.05 per common share, beginning with its next dividend payable on March 31, 2022.
After holding discussions with company management and reviewing the financial and operational impacts of the aforementioned strategic initiatives, AM Best believes that the immediate balance sheet pressures arising from the adverse prior-year reserve development in the casualty reinsurance segment have been addressed. Notably, the implementation of the LPT provides $65 million of protection on the subject liabilities, in case of further adverse reserve development. The risk-adjusted capital position of the operating companies also will be strengthened, as the majority of the proceeds from the convertible preferred share issuance will be downstreamed to the operating entities. Also considered in AM Best’s evaluation of JRG Holdings, is the long-term stability of the organization’s core excess and surplus lines (E&S) segment reserves, strong profitability in the E&S and specialty admitted insurance segments and ongoing corporate initiatives to strengthen enterprise risk management practices.
Going forward, AM Best will monitor the financial performance of JRG Holdings and its operating subsidiaries closely. Of particular importance will be the continuation of strong profitability trends in the E&S segment, the stabilization of casualty reinsurance segment reserves that are not subject to the LPT, and the gradual reduction of financial leverage at JRG Holdings, which is elevated currently following the convertible preferred stock issuance. If results in any of these areas differ materially from AM Best’s expectations, there will be negative pressure on the ratings. Furthermore, if the LPT is disapproved by The Bermuda Monetary Authority the ratings could be subject for review.
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