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(EDGAR Online via COMTEX) -- Item 2. 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 II, Item 1A "Risk Factors" in this Quarterly Report on Form 10-Q, or "Quarterly Report", and Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2021, 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, and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020. The accompanying condensed consolidated financial statements and related notes have been prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") and include the accounts of James River Group Holdings, Ltd. and its subsidiaries. Unless the context indicates or suggests otherwise, references to "the Company", "we", "us" and "our" refer to James River Group Holdings, Ltd. and its subsidiaries. Our Business James River Group Holdings, Ltd. is a Bermuda-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 consistently earning profits from insurance and reinsurance underwriting and generating meaningful risk-adjusted investment returns while managing our capital opportunistically. 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 every U.S. state, the District of Columbia, Puerto Rico and the U.S. Virgin Islands through James 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%-20%. This segment has admitted licenses and the authority to write excess and surplus lines insurance in 50 states and the District of Columbia; The Casualty Reinsurance segment primarily provides proportional and working layer casualty reinsurance to third parties (primarily through reinsurance intermediaries) and an aggregate stop loss reinsurance to Carolina Re Ltd ("Carolina Re"), through JRG Reinsurance Company Ltd. ("JRG Re"), both Bermuda-based reinsurance companies. JRG Re has also in the past provided reinsurance to the Company's U.S. based insurance subsidiaries through a quota-share reinsurance agreement; Carolina Re was formed in 2018 to do this as well; and 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 A.M. Best Company. 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, investment valuation and impairment, and assumed reinsurance premiums. For a detailed discussion of each of these policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2020. 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 ended December 31, 2020, 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 outbreak of the coronavirus (COVID-19) pandemic may be having on the Company's financial condition and results of operations. Loss Portfolio Transfer Reinsurance Transaction On September 27, 2021, James River Insurance Company and James River Casualty Company (together, "James River") entered into a loss portfolio transfer transaction with Aleka Insurance, Inc. ("Aleka"), a captive insurance company affiliate of Rasier LLC, to reinsure substantially all of the Excess and Surplus Lines segment's legacy portfolio of commercial auto policies previously issued to Rasier LLC and its affiliates (collectively, "Rasier") for which James River is not otherwise indemnified by Rasier. Under the terms of the transaction, effective as of July 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 is subject to certain exclusions. A pre-tax loss of $29.6 million was recognized as adverse loss and loss adjustment reserve development in the Excess and Surplus Lines segment for the third quarter of 2021 associated with the loss portfolio transfer, of which $15.8 million was related to claims handling costs. The $15.8 million claims handling costs constitutes James River's contribution to the fees of an administrator appointed by James River and Aleka to handle the claims on the Rasier commercial auto policies for the remaining life of those claims, and unallocated loss adjustment expenses required to facilitate the transition of the claims to the administrator. Table of Contents RESULTS OF OPERATIONS The following table summarizes our results: Three Months Ended Nine Months Ended September 30, % September 30, % 2021 2020 Change 2021 2020 Change ($ in thousands) Gross written premiums $ 346,599 $ 311,852 11.1 % $ 1,100,000 $ 897,332 22.6 % Net retention (1) 45.6 % 46.5 % 47.9 % 49.7 % Net written premiums $ 158,210 $ 145,159 9.0 % $ 526,413 $ 445,570 18.1 % Net earned premiums $ 170,608 $ 152,962 11.5 % $ 503,906 $ 447,695 12.6 % Losses and loss adjustment expenses (166,078) (106,155) 56.4 % (549,578) (301,757) 82.1 % Other operating expenses (42,171) (37,861) 11.4 % (133,511) (130,524) 2.3 % Underwriting (loss) profit (2), (3) (37,641) 8,946 - (179,183) 15,414 - Net investment income 15,289 14,959 2.2 % 44,726 51,145 (12.6) % Net realized and unrealized gains (losses) on investments 3,983 8,929 (55.4) % 13,738 (27,885) - Other income and expense (615) 192 - (1,964) (967) 103.1 % Interest expense (2,227) (2,129) 4.6 % (6,692) (7,970) (16.0) % Amortization of intangible assets (90) (149) (39.6) % (272) (447) (39.1) % (Loss) income before taxes (21,301) 30,748 - (129,647) 29,290 - Income tax expense (benefit) 2,588 4,465 (42.0) % (23,141) 4,208 - Net (loss) income $ (23,889) $ 26,283 - $ (106,506) $ 25,082 - Adjusted net operating (loss) income (4) $ (26,814) $ 17,382 - $ (116,780) $ 50,179 - Ratios: Loss ratio 97.3 % 69.4 % 109.1 % 67.4 % Expense ratio 24.8 % 24.8 % 26.5 % 29.2 % Combined ratio 122.1 % 94.2 % 135.6 % 96.6 % Accident year loss ratio (5) 71.5 % 66.6 % 67.2 % 66.0 % Accident year loss ratio ex-cat (6) 68.6 % 66.6 % 66.2 % 66.0 %

(1)Net retention is defined as the ratio of net written premiums to gross written premiums.

                                                                  Three Months Ended September 30,
                                                                  2021                         2020
                                                          Loss                         Income
                                                         Before           Net          Before         Net
                                                          Taxes          Loss          Taxes         Income
                                                                          ($ in thousands)
        (Loss) income as reported                      $ (21,301)     $ (23,889)     $ 30,748      $ 26,283
        Net realized and unrealized investment gains      (3,983)        (3,422)       (8,929)       (8,824)
        Other expenses                                       625            497           (21)          (77)
        Adjusted net operating (loss) income           $ (24,659)     $ (26,814)     $ 21,798      $ 17,382

Combined Ratios

                                                                            Nine Months Ended September 30,
                                                                       2021                                  2020
                                                             Loss                                  Income
                                                            Before                Net              Before              Net
                                                             Taxes               Loss               Taxes            Income
                                                                                   ($ in thousands)
        (Loss) income as reported                        $ (129,647)         $ (106,506)         $ 29,290          $ 25,082
        Net realized and unrealized investment (gains)
        losses                                              (13,738)            (11,914)           27,885            23,646
        Other expenses                                        1,963               1,640             1,711             1,451
        Adjusted net operating (loss) income             $ (141,422)         $ (116,780)         $ 58,886          $ 50,179

Table of Contents

Nov 03, 2021


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