James River sees strong E&S rate increases and submission growth

James River’s operating profits for the fourth quarter fell short of Wall Street expectations despite improved underwriting results that contributed to an ROE for the year that was the highest since 2006.

The miss was driven by a $5.8mn reserve deterioration largely from the commercial auto book of the carrier’s excess and surplus lines (E&S) division.

The Bermuda-domiciled group also pointed to strong rate increases and submission growth in its E&S business.

James River CEO Robert Myron said E&S rates climbed 9.7 percent in the fourth quarter, with submissions up 12 percent in the period, as top line in the segment grew 17 percent to $166.4mn.

The increased submissions echo conversations with multiple broking and carrier sources in the E&S market in recent weeks.

For the fourth quarter James River reported operating profits of $17.1mn, well up from $4.1mn in the prior-year period.

But at $0.56 a share the performance represented an earnings miss compared to consensus forecasts of $0.65 a share, based on a MarketWatch poll of seven analysts.

The insurer reported a 5.5 points improvement in its combined ratio for the quarter to 96.5 percent.

As well as the top line growth in E&S – where eight out of 12 underwriting divisions expanded – James River said its specialty admitted insurance arm grew GWP by 11 percent to $91.2mn.

Casualty reinsurance reported a 193 percent increase in GWP to $37.7mn compared to the prior-year period – although the uplift was down to the shift in renewal date of a significant account from the third to the fourth quarter of 2018.

James River reaffirmed its overarching plan to continue reducing its writings in the segment.

The combined ratio improvement was largely driven by a reduction in adverse reserve development from $30.7mn, or 15.3 loss ratio points in Q4 2017, to $5.8mn or 2.9 points in the current reporting period.

Net investment income of $15.5mn for the quarter was broadly flat with the prior-year period.

Myron also highlighted operating return on average tangible equity of 14.8 percent for the full year which he said was the highest results since 2006.

“We had strong performance across the company as all three segments generated significant underwriting profits in 2018 with minimal property losses,” said the executive.