James River Group reported another adverse development charge for prior years’ reserves relating to commercial auto, the latest in a string of similar announcements across the US P&C sector.
The Bermuda-based insurer reported fourth quarter adjusted operating earnings of $0.56 per share, missing an average of seven analyst estimates of $0.65 per share as compiled by MarketWatch.
Even so, the result was substantially higher than $0.13 per share in Q4 2017 due to better reported underwriting results.
The carrier’s combined ratio improved by 5.5 points to reach 96.5 percent for the period.
The comparison is complicated by $29.8mn of adverse development recorded in Q4 2017, largely driven by a single commercial auto account in the 2016 accident year. This unfavourable development represented 15.3 points on the loss ratio.
In the current reporting quarter, James River recorded $5.8mn of unfavourable development in excess and surplus lines, most of which was again related to higher reserve estimates for its 2016 accident year in commercial auto.
However, the specialty admitted insurance segment recorded a favourable development of $3.2mn. Even so, these reserve releases were more than offset by $3.3mn of adverse development in casualty reinsurance associated with accident years four years or older, and treaties that have not been renewed since.
The expense ratio increased by 3.4 points to 21.3 percent due to the lower compensation bonus pool in 2017 as a result of performance that fell below the company’s historical levels.
Historically, James River has allocated fee income from excess and surplus lines as a reduction of underwriting expenses for the purpose of calculating the expense ratio. The fee income of $2.4mn resulted in a 1.2 points reduction to the expense ratio versus $5.0mn and 2.5 points in Q4 2017.
However, the decrease was due to a portion of the segment’s fees being changed to be recorded as gross written premiums (GWP).
The company’s total GWP grew by 24 percent year-on-year to $295.3mn, with the growth occurring across all the segments.
The excess and surplus lines grew by 17 percent to $166.4mn due to increase in commercial auto as James River renewed its largest insurance contract, accompanied by 18 percent growth in non-commercial auto lines.
The specialty admitted insurance segment grew by 11 percent to $91.2mn following the continued expansion in fronting business.
However, the top-line growth of 193 percent to $37.7mn in casualty reinsurance was due to the change in timing of renewal of a large account from Q3 to Q4.
The company’s full year results included adjusted operating earnings of $2.33 per share versus $1.57 in 2017, largely driven by better underwriting performance.
The combined ratio for the full year was 96.6 percent versus 99.2 percent in 2017. The loss ratio improved by 1.3 points to 73.6 percent.
The expense ratio decreased by 1.3 points to 23 percent, below the 25 percent level that the company has pointed out as an attractive level in quarterly earnings calls last year.
CEO Robert Myron shared optimism about future performance highlighting increased rates and submissions at James River.
“We continue to get strong rate increases and submission growth in our core excess and surplus lines business as rates increased 9.7 percent and submissions increased 12 percent for the fourth quarter”, he said.
He added: “We are well positioned to achieve a 12.0 percent or better adjusted net operating return on average tangible equity for 2019”.