(JRVR) A.M. Best Assigns Rating, Affirms Ratings of Its Subsidiaries

A.M. Best has assigned an issuer credit rating (ICR) of bbb- to James River Group Holdings, Ltd. (Holdings) [NASDAQ:JRVR]. The outlook assigned to the rating is positive. Concurrently, A.M. Best has affirmed the financial strength rating (FSR) of A- (Excellent) and the ICR of “a-” of JRG Reinsurance Company, Ltd. (JRG Re) and its U.S.-based insurance affiliates. The outlook for both ratings is positive. Holdings and JRG Re are both domiciled in Hamilton, Bermuda, and the U.S. subsidiaries are based in Richmond, VA and Raleigh, NC. (See below for a detailed listing of the companies.)

The ratings reflect JRG Re’s solid business profile and strategy execution under its experienced management team and its strong consolidated capitalization. This includes potential earnings from the company’s efforts to write third-party working layer reinsurance business from U.S.-based specialty insurers and supplementing the business that is derived from significant quota share reinsurance agreements with its onshore affiliates. These positive rating factors are partially offset by the challenges presented by a competitive casualty reinsurance market, as well as by results from the not- too- distant past that had shown weakness in underwriting results from workers’ compensation and the assumed crop reinsurance losses.

JRG Re has increased policyholder surplus by 28% to $386 million in 2014 from $301 million in 2010, net of a $50 million dividend paid prior to Holdings’ successful initial public offering in December 2014. The companies’ consolidated combined ratios of 94 and 91 in 2014 and 2013, respectively, reflect significant and, in A.M Best’s view, sustainable improvements over the 2012 and 2011 ratios of 107 and 104, respectively. Improved underwriting results reflect the impact of the company’s underwriting discipline, most notably in pricing increases and the termination of a number of unprofitable agency relationships, in addition to the exit from the crop business at the end of 2012.

JRG Re targets small to medium-sized specialty companies and maintains a diversified reinsurance portfolio weighted toward short- to intermediate-tail casualty business. The balance of its written premium has historically been derived from the net retained property/casualty exposures of its onshore affiliates. Effective Jan. 1, 2013, all of its U.S. affiliates participate in an intercompany pooling agreement, retaining 30% of net business with 70% ceded to JRG Re.

The positive outlook reflects the improvement in underwriting results under the management team assembled at JRG Re, as well as its solid risk-adjusted capital. JRG Re’s results have generally improved as reflected in its combined ratios due to strong and continuing net favorable reserve development. The company’s management teams and its U.S. operations have taken steps to improve pricing and profitability in growing its excess and supply lines segment and, to a lesser extent, its Specialty Admitted Insurance segment. Management has focused on further growth and improving operating performance in these two segments while opportunistically writing third-party reinsurance as fewer opportunities in the segment meet its risk appetite due to heavy competition from excess capital in the market for these risks.

Positive rating actions could occur if JRG Re and its U.S. operations continue to demonstrate improvement in underwriting results across its segments and by improving capital adequacy of JRG Re while preserving the capital adequacy of the U.S. operating companies. Conversely, negative rating actions could occur with materially weaker underwriting results in any one segment (e.g. workers’ compensation), significant weakening of capital adequacy as measured by Best’s Capital Adequacy Ratio (BCAR) that does not support the rating, or covenant defaults on its revolving credit facility.

The U.S. affiliates’ ratings are directly correlated to the ratings of JRG Re and receive full rating enhancement due to the explicit and implicit support provided by JRG Re.

The FSRs of A- (Excellent) and the ICRs of “a-” have been affirmed for JRG Reinsurance Company, Ltd. and its following affiliates:

• Falls Lake General Insurance Company
• Falls Lake National Insurance Company
• James River Insurance Company
• James River Casualty Company
• Stonewood Insurance Company

This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.

A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2015 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

A.M. Best Company, Inc.
Dan Teclaw, 908-439-2200, ext. 5394
Senior Financial Analyst
dan.teclaw@ambest.com
or
Henry Witmer, 908-439-2200, ext. 5097
Assistant Vice President
henry.witmer@ambest.com
or
Christopher Sharkey, 908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com