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FORM 10-Q

☒			Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2022

☐			Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _______ to _______

JAMES RIVER GROUP HOLDINGS, LTD.

Bermuda						98-0585280
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

(441) 278-4580

Title of each class

Trading Symbol(s)

Names of each exchange on which registered

Common Shares, par value $0.0002 per share

JRVR

NASDAQ

Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x    No   ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No   ¨

Large accelerated filer

x

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

Yes   ☐     No   x

						Page Number
PART I. FINANCIAL INFORMATION
Item 1.			Financial Statements
			Condensed Consolidated Balance Sheets—March 31, 2022 and December 31, 2021			5
			Condensed Consolidated Statements of Income (Loss) and Comprehensive Loss—Three Months Ended March 31, 2022 and 2021			7
			Condensed Consolidated Statements of Changes in Shareholders’ Equity—Three Months Ended March 31, 2022 and 2021			8
			Condensed Consolidated Statements of Cash Flows—Three Months Ended March 31, 2022 and 2021			9
			Notes to Condensed Consolidated Financial Statements			10
Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations			31
			Critical Accounting Policies and Estimates			32
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			55
Item 4.			Controls and Procedures			55
PART II. OTHER INFORMATION
Item 1.			Legal Proceedings			55
Item 1A.			Risk Factors			56
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			56
Item 3.			Defaults Upon Senior Securities			56
Item 4.			Mine Safety Disclosures			56
Item 5.			Other Information			56
Item 6.			Exhibits			57
Signatures						58

 

•the inherent uncertainty of estimating reserves and the possibility that incurred losses may be greater than our loss and loss adjustment expense reserves;

•inaccurate estimates and judgments in our risk management may expose us to greater risks than intended;

•the downgrade in the financial strength rating of our regulated insurance subsidiaries announced May 7, 2021, or further downgrades, impacting our ability to attract and retain insurance and reinsurance business that our subsidiaries write, our competitive position, and our financial condition;

•the potential loss of key members of our management team or key employees, and our ability to attract and retain personnel;

•adverse economic factors resulting in the sale of fewer policies than expected or an increase in the frequency or severity of claims, or both;

•a persistent high inflationary environment could have a negative impact on our reserves, the values of our investments and investment returns, and our compensation expenses;

•reliance on a select group of brokers and agents for a significant portion of our business and the impact of our potential failure to maintain such relationships;

•reliance on a select group of customers for a significant portion of our business and the impact of our potential failure to maintain, or decision to terminate, such relationships;

•our ability to obtain reinsurance coverage at prices and on terms that allow us to transfer risk and adequately protect our Company against financial loss;

•losses resulting from reinsurance counterparties failing to pay us on reinsurance claims, insurance companies with whom we have a fronting arrangement failing to pay us for claims, or a former customer with whom we have an indemnification arrangement that fails to perform their reimbursement obligations;

•inadequacy of premiums we charge to compensate us for our losses incurred;

•changes in laws or government regulation, including tax or insurance law and regulations;

•the ongoing effect of Public Law No. 115-97, informally titled the Tax Cuts and Jobs Act, which may have a significant effect on us including, among other things, by potentially increasing our tax rate, as well as on our shareholders;

•in the event we do not qualify for the insurance company exception to the passive foreign investment company (“PFIC”) rules and are therefore considered a PFIC, there could be material adverse tax consequences to an investor that is subject to U.S. federal income taxation;

•the Company or any of its foreign subsidiaries becoming subject to U.S. federal income taxation;

•a failure of any of the loss limitations or exclusions we utilize to shield us from unanticipated financial losses or legal exposures, or other liabilities;

•losses from catastrophic events, such as natural disasters and terrorist acts, which substantially exceed our expectations and/or exceed the amount of reinsurance we have purchased to protect us from such events;

•the effects of the COVID-19 pandemic and associated government actions on our operations and financial  performance;

•potential effects on our business of emerging claim and coverage issues;

•exposure to credit risk, interest rate risk and other market risk in our investment portfolio;

•the potential impact of internal or external fraud, operational errors, systems malfunctions or cyber security incidents;

•our ability to manage our growth effectively;

•failure to maintain effective internal controls in accordance with Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley”);

•changes in our financial condition, regulations or other factors that may restrict our subsidiaries’ ability to pay us dividends; and

•other risks and uncertainties discussed elsewhere in this Quarterly Report.

Additional information about these risks and uncertainties, as well as others that may cause actual results to differ materially from those in the forward-looking statements, is contained in our filings with the U.S. Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 1, 2022.

Forward-looking statements speak only as of the date of this Quarterly Report. Except as expressly required under federal securities laws and the rules and regulations of the SEC, we do not have any obligation, and do not undertake, to update any forward-looking statements to reflect events or circumstances arising after the date of this Quarterly Report, whether as a result of new information or future events or otherwise. You should not place undue reliance on the forward-looking statements included in this Quarterly Report or that may be made elsewhere from time to time by us, or on our behalf. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

			(Unaudited) March 31, 2022						December 31, 2021
			(in thousands)
Assets
Invested assets:
Fixed maturity securities, available-for-sale, at fair value (amortized cost: 2022 – $1,726,202; 2021 – $1,643,865)			$	1,662,278					$	1,677,561
Equity securities, at fair value (cost: 2022 – $93,089; 2021 – $95,783)			102,973						108,410
Bank loan participations, at fair value			159,084						156,043
Short-term investments			147,334						136,563
Other invested assets			53,298						51,908
Total invested assets			2,124,967						2,130,485
Cash and cash equivalents			270,195						190,123
Restricted cash equivalents			102,009						102,005
Accrued investment income			11,730						11,037
Premiums receivable and agents’ balances, net			367,991						393,967
Reinsurance recoverable on unpaid losses, net			1,617,884						1,348,628
Reinsurance recoverable on paid losses			87,595						82,235
Prepaid reinsurance premiums			284,686						291,498
Deferred policy acquisition costs			66,028						68,526
Intangible assets, net			35,948						36,039
Goodwill			181,831						181,831
Other assets			116,354						112,176
Total assets			$	5,267,218					$	4,948,550

			(Unaudited) March 31, 2022						December 31, 2021
			(in thousands, except share amounts)
Liabilities and Shareholders’ Equity
Liabilities:
Reserve for losses and loss adjustment expenses			$	2,750,188					$	2,748,473
Unearned premiums			706,770						727,552
Payables to reinsurers			127,012						135,617
Funds held			371,853						97,360
Senior debt			222,300						262,300
Junior subordinated debt			104,055						104,055
Accrued expenses			48,229						57,920
Other liabilities			144,236						89,911
Total liabilities			4,474,643						4,223,188
Commitments and contingent liabilities
Series A redeemable preferred shares – 2022 and 2021: $0.00125 par value; 20,000,000 shares authorized; 150,000 and no shares issued and outstanding, respectively			144,898						—
Shareholders’ equity:
Common shares – 2022 and 2021: $0.0002 par value; 200,000,000 shares authorized; 37,448,314 and 37,373,066 shares issued and outstanding, respectively			7						7
Additional paid-in capital			862,904						862,040
Retained deficit			(159,241)						(166,663)
Accumulated other comprehensive (loss) income			(55,993)						29,978
Total shareholders’ equity			647,677						725,362
Total liabilities, Series A redeemable preferred shares, and shareholders’ equity			$	5,267,218					$	4,948,550

									Three Months Ended March 31,
															2022						2021
															(in thousands, except share amounts)
Revenues
Gross written premiums															$	359,936					$	373,255
Ceded written premiums															(184,077)						(198,656)
Net written premiums															175,859						174,599
Change in net unearned premiums															13,965						(14,006)
Net earned premiums															189,824						160,593
Net investment income															16,267						15,089
Net realized and unrealized (losses) gains on investments															(5,010)						6,272
Other income															867						1,026
Total revenues															201,948						182,980
Expenses
Losses and loss adjustment expenses															135,608						273,500
Other operating expenses															50,061						47,381
Other expenses															368						621
Interest expense															2,292						2,216
Amortization of intangible assets															91						91
Total expenses															188,420						323,809
Income (loss) before taxes															13,528						(140,829)
Income tax expense (benefit)															3,323						(37,369)
Net income (loss)															10,205						(103,460)
Dividends on Series A preferred shares															(875)						—
Net income (loss) available to common shareholders															$	9,330					$	(103,460)
Other comprehensive loss:
Net unrealized losses, net of taxes of $(11,649) in 2022 and $(5,647) in 2021															(85,971)						(42,688)
Total comprehensive loss															$	(75,766)					$	(146,148)
Net income (loss) per common share:
Basic															$	0.25					$	(3.37)
Diluted															$	0.25					$	(3.37)
Dividend declared per common share															$	0.05					$	0.30
Weighted-average common shares outstanding:
Basic															37,406,913						30,713,986
Diluted															37,554,662						30,713,986

 

			Number of Common Shares Outstanding						Common Shares (Par)												Additional Paid-in Capital						Retained (Deficit) Earnings						Accumulated Other Comprehensive Income (Loss)						Total
			(in thousands, except share amounts)
Balances at December 31, 2021			37,373,066						$	7											$	862,040					$	(166,663)					$	29,978					$	725,362
Net income			—						—												—						10,205						—						10,205
Other comprehensive loss			—						—												—						—						(85,971)						(85,971)
Vesting of RSUs			75,248						—												(922)						—						—						(922)
Compensation expense under share incentive plans			—						—												1,786						—						—						1,786
Dividends on Series A preferred shares			—						—												—						(875)						—						(875)
Dividends on common shares			—						—												—						(1,908)						—						(1,908)
Balances at March 31, 2022			37,448,314						$	7											$	862,904					$	(159,241)					$	(55,993)					$	647,677
Balances at December 31, 2020			30,649,261						$	6											$	664,476					$	49,227					$	81,899					$	795,608
Net loss			—						—												—						(103,460)						—						(103,460)
Other comprehensive loss			—						—												—						—						(42,688)						(42,688)
Exercise of stock options			16,471						—												159						—						—						159
Vesting of RSUs			109,198						—												(2,553)						—						—						(2,553)
Compensation expense under share incentive plans			—						—												1,905						—						—						1,905
Dividends on common shares			—						—												—						(9,343)						—						(9,343)
Balances at March 31, 2021			30,774,930						$	6											$	663,987					$	(63,576)					$	39,211					$	639,628

			Three Months Ended March 31,
			2022						2021
			(in thousands)
Operating activities
Net cash provided by (used in) operating activities (a)			$	65,355					$	(81,005)
Investing activities
Securities available-for-sale:
Purchases – fixed maturity securities			(154,091)						(171,178)
Sales – fixed maturity securities			22,450						33,041
Maturities and calls – fixed maturity securities			48,781						73,530
Purchases – equity securities			(2,747)						(4,305)
Sales – equity securities			5,089						3,776
Bank loan participations:
Purchases			(33,536)						(35,832)
Sales			20,983						15,527
Maturities			7,571						11,190
Other invested assets:
Purchases			—						(9,795)
Return of capital			214						249
Short-term investments, net			(10,771)						79,091
Securities receivable or payable, net			10,652						10,694
Purchases of property and equipment			(1,729)						—
Net cash (used in) provided by investing activities			(87,134)						5,988
Financing activities
Senior debt repayments			(40,000)						—
Issuance of Series A preferred shares			144,898						—
Issuance of common shares under equity incentive plans			—						159
Common share repurchases			(922)						(2,553)
Dividends on common shares			(2,121)						(9,610)
Net cash provided by (used in) financing activities			101,855						(12,004)
Change in cash, cash equivalents, and restricted cash equivalents			80,076						(87,021)
Cash, cash equivalents, and restricted cash equivalents at beginning of period			292,128						1,022,180
Cash, cash equivalents, and restricted cash equivalents at end of period			$	372,204					$	935,159
Supplemental information
Interest paid			$	2,495					$	2,482
Restricted cash equivalents at beginning of period			$	102,005					$	859,920
Restricted cash equivalents at end of period			$	102,009					$	751,668
Change in restricted cash equivalents			$	4					$	(108,252)

(a) Cash used in operating activities for the three months ended March 31, 2021 primarily reflects restricted cash equivalents returned to a former insured, per the terms of a collateral trust. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Amounts Recoverable from an Indemnifying Party and Reinsurer on Legacy Commercial Auto Book”. Excluding the restricted cash activity above, cash provided by operating activities was $65.4 million and $27.2 million for the three months ended March 31, 2022 and 2021, respectively.

James River Group Holdings, Ltd. (referred to as “JRG Holdings” or, with its subsidiaries, the “Company”) is an exempted holding company registered in Bermuda, organized for the purpose of acquiring and managing insurance and reinsurance entities.

The Company owns five insurance companies based in the United States (“U.S.”) focused on specialty insurance niches and two Bermuda-based reinsurance companies as described below:

•James River Group Holdings UK Limited (“James River UK”) is an insurance holding company formed in 2015 in the United Kingdom (“U.K.”). JRG Holdings contributed James River Group, Inc. (“James River Group”), a U.S. insurance holding company, to James River UK in 2015.

•James River Group is a Delaware domiciled insurance holding company formed in 2002 which owns all of the Company’s U.S.-based subsidiaries, either directly or indirectly through one of its wholly-owned U.S. subsidiaries. James River Group oversees the Company’s U.S. insurance operations and maintains all of the outstanding debt in the U.S.

•James River Insurance Company is an Ohio domiciled excess and surplus lines insurance company that, with its wholly-owned insurance subsidiary, James River Casualty Company, a Virginia domiciled company, is authorized to write business in every state and the District of Columbia.

•Falls Lake National Insurance Company (“Falls Lake National”) is an Ohio domiciled insurance company which wholly owns Stonewood Insurance Company (“Stonewood Insurance”), a North Carolina domiciled company, and Falls Lake Fire and Casualty Company, a California domiciled company. Falls Lake National and its subsidiaries primarily write specialty admitted fronting and program business and individual risk workers' compensation insurance.

•JRG Reinsurance Company Ltd. (“JRG Re”) was formed in 2007 and commenced operations in 2008. JRG Re, a Bermuda domiciled reinsurer, primarily provides non-catastrophe casualty reinsurance to U.S. third parties and, through December 31, 2017, to the Company’s U.S.-based insurance subsidiaries.

•Carolina Re Ltd (“Carolina Re”) was formed in 2018 and as of January 1, 2018 provides reinsurance to the Company’s U.S.-based insurance subsidiaries. Carolina Re was also the cedent on an aggregate stop loss reinsurance treaty with JRG Re through December 31, 2021.

The accompanying condensed consolidated financial statements and notes have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and do not contain all of the information and footnotes required by U.S. GAAP for complete financial statements. The condensed consolidated financial statements include the results of the Company and its subsidiaries from their respective dates of inception or acquisition, as applicable. Readers are urged to review the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 for a more complete description of the Company’s business and accounting policies. In the opinion of management, all adjustments necessary for a fair presentation of the condensed consolidated financial statements have been included. Such adjustments consist only of normal recurring items. Interim results are not necessarily indicative of results of operations for the full year. The consolidated balance sheet as of December 31, 2021 was derived from the Company’s audited annual consolidated financial statements.

Intercompany transactions and balances have been eliminated.

Preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying disclosures. Those estimates are inherently subject to change, and actual results may ultimately differ from those estimates.

Entities that do not have sufficient equity at risk to allow the entity to finance its activities without additional financial support or in which the equity investors, as a group, do not have the characteristic of a controlling financial interest are referred to as variable interest entities (“VIE”). A VIE is consolidated by the variable interest holder that is determined to have the controlling financial interest (primary beneficiary) as a result of having both the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company determines whether it is the primary beneficiary of an entity subject to consolidation based on a qualitative assessment of the VIE’s capital structure, contractual terms, nature of the VIE’s operations and purpose, and the Company’s relative exposure to the related risks of the VIE on the date it becomes initially involved in the VIE. The Company reassesses its VIE determination with respect to an entity on an ongoing basis.

The Company holds interests in VIEs through certain equity method investments included in “other invested assets” in the accompanying condensed consolidated balance sheets. The Company has determined that it should not consolidate any of the VIEs as it is not the primary beneficiary in any of the relationships. Although the investments resulted in the Company holding variable interests in the entities, they did not empower the Company to direct the activities that most significantly impact the economic performance of the entities. The Company’s investments related to these VIEs totaled $28.5 million and $26.9 million at March 31, 2022 and December 31, 2021, respectively, representing the Company’s maximum exposure to loss.

Our effective tax rate fluctuates from period to period based on the relative mix of income reported by country and the respective tax rates imposed by each tax jurisdiction. For U.S.-sourced income, the Company’s U.S. federal income tax expense differs from the amounts computed by applying the federal statutory income tax rate to income before taxes due primarily to interest income on tax-advantaged state and municipal securities, dividends received income, and excess tax benefits on share based compensation. For the three months ended March 31, 2022, our U.S. federal income tax expense was 24.6% of the income before taxes. The effective rate exceeded the 21.0% U.S. statutory rate due to a projected annual loss in Bermuda that does not provide a tax benefit and due to discreet items for the quarter primarily related to excess tax expenses associated with vested restricted share units (“RSUs”) in the three months ended March 31, 2022. The Company had a pre-tax loss of $140.8 million for the three months ended March 31, 2021 and recorded a U.S. federal income tax benefit of $37.4 million. The pre-tax loss was largely driven by the $170.1 million of net adverse reserve development on prior accident years, including $168.7 million of net adverse development from the Excess and Surplus Lines segment that was primarily related to a former commercial auto account. For the three months ended March 31, 2021, our U.S. federal income tax benefit was 26.5% of the loss before taxes.

In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 simplifies the accounting for convertible debt instruments and convertible preferred stock and became effective for interim and annual periods beginning after December 15, 2021. The Company adopted the new standard concurrent with the issuance of our Series A preferred shares on March 1, 2022. Under ASU 2020-06, embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital. The new guidance also requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and generally requires them to include the effect of potential share settlement for instruments that may be settled in cash or shares. Adoption of the new standard did not materially impact our financial position, results of operations, or earnings per share for the three months ended March 31, 2022.

The Company’s available-for-sale fixed maturity securities are summarized as follows:

			Cost or Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
			(in thousands)
March 31, 2022
Fixed maturity securities:
State and municipal			$	337,908					$	2,865					$	(21,281)					$	319,492
Residential mortgage-backed			260,942						462						(13,503)						247,901
Corporate			736,153						5,059						(25,837)						715,375
Commercial mortgage and asset-backed			315,566						277						(10,086)						305,757
U.S. Treasury securities and obligations guaranteed by the U.S. government			75,633						168						(2,048)						73,753
Total fixed maturity securities, available-for-sale			$	1,726,202					$	8,831					$	(72,755)					$	1,662,278
December 31, 2021
Fixed maturity securities:
State and municipal			$	323,773					$	12,156					$	(2,212)					$	333,717
Residential mortgage-backed			246,586						2,384						(2,339)						246,631
Corporate			711,930						26,119						(5,714)						732,335
Commercial mortgage and asset-backed			301,247						4,941						(1,700)						304,488
U.S. Treasury securities and obligations guaranteed by the U.S. government			60,329						653						(592)						60,390
Total fixed maturity securities, available-for-sale			$	1,643,865					$	46,253					$	(12,557)					$	1,677,561

			Cost or Amortized Cost						Fair Value
			(in thousands)
One year or less			$	103,147					$	103,369
After one year through five years			464,925						458,531
After five years through ten years			332,124						311,381
After ten years			249,498						235,339
Residential mortgage-backed			260,942						247,901
Commercial mortgage and asset-backed			315,566						305,757
Total			$	1,726,202					$	1,662,278

Actual maturities may differ for some securities because borrowers have the right to call or prepay obligations with or without penalties.

The following table shows the Company’s gross unrealized losses and fair value for available-for-sale securities aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position:

			Less Than 12 Months												12 Months or More												Total
			Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses
			(in thousands)
March 31, 2022
Fixed maturity securities:
State and municipal			$	241,369					$	(20,170)					$	7,019					$	(1,111)					$	248,388					$	(21,281)
Residential mortgage-backed			174,854						(9,524)						47,740						(3,979)						222,594						(13,503)
Corporate			292,795						(17,462)						66,603						(8,375)						359,398						(25,837)
Commercial mortgage and asset-backed			261,381						(9,355)						8,159						(731)						269,540						(10,086)
U.S. Treasury securities and obligations guaranteed by the U.S. government			27,557						(1,095)						15,749						(953)						43,306						(2,048)
Total fixed maturity securities, available-for-sale			$	997,956					$	(57,606)					$	145,270					$	(15,149)					$	1,143,226					$	(72,755)
December 31, 2021
Fixed maturity securities:
State and municipal			$	93,313					$	(2,162)					$	1,150					$	(50)					$	94,463					$	(2,212)
Residential mortgage-backed			140,386						(2,337)						147						(2)						140,533						(2,339)
Corporate			179,078						(4,232)						18,635						(1,482)						197,713						(5,714)
Commercial mortgage and asset-backed			159,289						(1,695)						1,229						(5)						160,518						(1,700)
U.S. Treasury securities and obligations guaranteed by the U.S. government			24,378						(592)						—						—						24,378						(592)
Total fixed maturity securities, available-for-sale			$	596,444					$	(11,018)					$	21,161					$	(1,539)					$	617,605					$	(12,557)

At March 31, 2022, the Company held fixed maturity securities of 435 issuers that were in an unrealized loss position with a total fair value of $1,143.2 million and gross unrealized losses of $72.8 million. None of the fixed maturity securities with unrealized losses has ever missed, or been delinquent on, a scheduled principal or interest payment. At March 31, 2022, 99.3% of the Company’s fixed maturity security portfolio was rated “BBB-” or better (“investment grade”) by Standard & Poor’s or received an equivalent rating from another nationally recognized rating agency. Fixed maturity securities with ratings below investment grade by Standard & Poor’s or another nationally recognized rating agency at March 31, 2022 had an aggregate fair value of $11.2 million and an aggregate net unrealized gain of $1,200.

The Company reviews its available-for-sale fixed maturities to determine whether unrealized losses are due to credit-related factors. An allowance for credit losses is established for any credit-related impairments, limited to the amount by which fair value is below amortized cost. Changes in the allowance for credit losses are recognized in earnings and included in net realized and unrealized gains (losses) on investments. Unrealized losses that are not credit-related are recognized in other comprehensive income.

The Company considers the extent to which fair value is below amortized cost in determining whether a credit-related loss exists. The Company also considers the credit quality rating of the security, with a special emphasis on securities downgraded below investment grade. A comparison is made between the present value of expected future cash flows for a security and its amortized cost. If the present value of future expected cash flows is less than amortized cost, a credit loss is presumed to exist and an allowance for credit losses is established. Management may conclude that a qualitative analysis is sufficient to support its conclusion that the present value of the expected cash flows equals or exceeds a security’s amortized cost. As a result of this review, management concluded that there were no credit-related impairments of fixed maturity securities at March 31, 2022, December 31, 2021, or March 31, 2021. Management does not intend to sell the securities in an unrealized loss position, and it is not “more likely than not” that the Company will be required to sell these securities before a recovery in their value to their amortized cost basis occurs.

Bank loan participations are measured at fair value pursuant to the Company's election of the fair value option, and changes in unrealized gains and losses in bank loan participations are reported in our income statement as net realized and unrealized gains (losses) on investments. Applying the fair value option to the bank loan portfolio increases volatility in the Company's financial statements, but management believes it is less subjective and less burdensome to implement and maintain than the requirements of ASU 2016-13. At March 31, 2022, the Company's bank loan portfolio had an aggregate fair value of $159.1 million and unpaid principal of $164.1 million. Investment income on bank loan participations included in net investment income was $2.4 million and $2.9 million for the three months ended March 31, 2022 and 2021, respectively. Net realized and unrealized gains (losses) on investments includes losses of $2.1 million and gains of $3.8 million for the three months ended March 31, 2022 and 2021, respectively. For the three months ended March 31, 2022 and 2021, management concluded that none of the unrealized losses were due to credit-related impairments. Losses due to credit-related impairments are determined based upon consultations and advice from the Company's specialized investment manager and consideration of any adverse situations that could affect the borrower's ability to repay, the estimated value of underlying collateral, and other relevant factors.

Bank loan participations generally provide a higher yield than our portfolio of fixed maturities and have a credit rating that is below investment grade (i.e. below “BBB-” for Standard & Poor’s) at the date of purchase. These bank loans are primarily senior, secured floating-rate debt rated “BB”, “B”, or “CCC” by Standard & Poor’s or an equivalent rating from another nationally recognized rating agency. These bank loans include assignments of, and participations in, performing and non-performing senior corporate debt generally acquired through primary bank syndications and in secondary markets. Bank loans consist of, but are not limited to, term loans, the funded and unfunded portions of revolving credit loans, and other similar loans and investments. Management believed that it was probable at the time that these loans were acquired that the Company would be able to collect all contractually required payments receivable.

Interest income on bank loan participations is accrued on the unpaid principal balance, and discounts and premiums on bank loan participations are amortized to income using the interest method. Generally, the accrual of interest on a bank loan participation is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest. A bank loan participation may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. Generally, bank loan participations are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt. Interest received on nonaccrual loans generally is reported as investment income. There were no bank loans on nonaccrual status at March 31, 2022 or December 31, 2021.

The Company’s net realized and unrealized gains and losses on investments are summarized as follows:

									Three Months Ended March 31,
															2022						2021
															(in thousands)
Fixed maturity securities:
Gross realized gains															$	366					$	1,056
Gross realized losses															(164)						(22)
															202						1,034
Bank loan participations:
Gross realized gains															95						198
Gross realized losses															(184)						(260)
Changes in fair values of bank loan participations															(2,009)						3,911
															(2,098)						3,849
Equity securities:
Gross realized gains															24						29
Gross realized losses															(381)						(401)
Changes in fair values of equity securities															(2,742)						1,745
															(3,099)						1,373
Short-term investments and other:
Gross realized gains															—						5
Gross realized losses															(15)						—
Changes in fair values of short-term investments and other															—						11
															(15)						16
Total															$	(5,010)					$	6,272

Realized investment gains or losses are determined on a specific identification basis.

The Company invests selectively in private debt and equity opportunities. These investments, which together comprise the Company’s other invested assets, are primarily focused in renewable energy, limited partnerships, and bank holding companies.

			Carrying Value																								Investment Income
			March 31,						December 31,												Three Months Ended March 31,
			2022						2021																		2022						2021
			(in thousands)
Renewable energy LLCs (a)
Excess and Surplus Lines			$	25,655					$	24,211																	$	2,280					$	—
Corporate & Other			2,838						2,709																		244						(915)
			28,493						26,920																		2,524						(915)
Renewable energy notes receivable (b)
Excess and Surplus Lines			2,329						2,329																		70						104
Corporate & Other			2,911						2,911																		87						130
			5,240						5,240																		157						234
Limited partnerships (c)
Excess and Surplus Lines			12,915						13,098																		132						175
Corporate & Other			2,150						2,150																		—						754
			15,065						15,248																		132						929
Bank holding companies (d)
Excess and Surplus Lines			4,500						4,500																		86						—
Corporate & Other			—						—																		—						86
			4,500						4,500																		86						86
Total other invested assets
Excess and Surplus Lines			45,399						44,138																		2,568						279
Corporate & Other			7,899						7,770																		331						55
			$	53,298					$	51,908																	$	2,899					$	334

(a)The Company's Excess and Surplus Lines and Corporate and Other segments own equity interests ranging from 2.6% to 32.6% in various LLCs whose principal objective is capital appreciation and income generation from owning and operating renewable energy production facilities (wind and solar). The LLCs are managed by an entity for which two former directors served as officers, and the Company’s Non-Executive Chairman has invested in certain of these LLCs. The equity method is used to account for the Company’s LLC investments. Income for the LLCs primarily reflects adjustments to the carrying values of investments in renewable energy projects to their determined fair values. The fair value adjustments are included in revenues for the LLCs. Expenses for the LLCs are not significant and are comprised of administrative and interest expenses. The Company received cash distributions from these investments totaling $951,000 and $265,000 in the three months ended March 31, 2022 and 2021, respectively.

(b)The Company's Excess and Surplus Lines and Corporate and Other segments have invested in notes receivable for renewable energy projects. At March 31, 2022, the Company held two notes issued by an entity for which two of our former directors serve as officers. Interest on the notes, which mature in 2025, is fixed at 12%.

(c)The Company owns investments in limited partnerships that invest in concentrated portfolios including publicly-traded small cap equities, loans of middle market private equity sponsored companies, private equity general partnership interests, commercial mortgage-backed securities, and tranches of distressed home loans. Income from the partnerships is recognized under the equity method of accounting. At March 31, 2022, the Company’s Excess and Surplus Lines segment has outstanding commitments to invest another $5.3 million in these limited partnerships.

(d)The Company's Excess and Surplus Lines segment holds $4.5 million of subordinated notes issued by a bank holding company for which the Company’s Non-Executive Chairman was previously the Lead Independent Director and an investor and for which one of the Company’s directors is also an investor (the "Bank Holding Company"). Interest on the notes, which mature on August 12, 2023, is fixed at 7.6% per annum.

On December 11, 2007, the Company completed an acquisition of James River Group by acquiring 100% of the outstanding shares of James River Group common stock, referred to herein as the “Merger”. The transaction was accounted for under the purchase method of accounting, and goodwill and intangible assets were recognized by the Company as a result of the transaction. Goodwill resulting from the Merger was $181.8 million at March 31, 2022 and December 31, 2021.

									March 31, 2022												December 31, 2021
			Life (Years)						Gross Carrying Amount						Accumulated Amortization						Gross Carrying Amount						Accumulated Amortization
									($ in thousands)
Intangible Assets
Trademarks			Indefinite						$	22,200					$	—					$	22,200					$	—
Insurance licenses and authorities			Indefinite						8,964						—						8,964						—
Identifiable intangibles not subject to amortization									31,164						—						31,164						—
Broker relationships			24.6						11,611						6,827						11,611						6,736
Identifiable intangible assets subject to amortization									11,611						6,827						11,611						6,736
									$	42,775					$	6,827					$	42,775					$	6,736

The following represents a reconciliation of the numerator and denominator of the basic and diluted earnings (loss) per common share computations contained in the condensed consolidated financial statements:

									Three Months Ended March 31,
															2022						2021
															(in thousands, except share and per share amounts)
Net income (loss)															$	10,205					$	(103,460)
Less: Dividends on Series A preferred shares															$	(875)					$	—
Net income (loss) available to common shareholders															$	9,330					$	(103,460)
Weighted average common shares outstanding:
Basic															37,406,913						30,713,986
Dilutive potential common shares															147,749						—
Diluted															37,554,662						30,713,986
Earnings (loss) per common share:
Basic															$	0.25					$	(3.37)
Dilutive potential common shares															—						—
Diluted															$	0.25					$	(3.37)

For the three months ended March 31, 2022, potential common shares of 2,230,695 were excluded from the calculation of diluted earnings per common share as their effects were anti-dilutive. Potential common shares of 306,712 were excluded from the calculation of diluted loss per common share for the three months ended March 31, 2021 as a net loss in the period made the effects of all potential common shares anti-dilutive.

The following table provides a reconciliation of the beginning and ending reserve balances for losses and loss adjustment expenses, net of reinsurance, to the gross amounts reported in the condensed consolidated balance sheets. Reinsurance recoverables on unpaid losses and loss adjustment expenses are presented gross of an allowance for credit losses on reinsurance balances of $604,000 at March 31, 2022, $631,000 at December 31, 2021, and $335,000 at March 31, 2021 and December 31, 2020.

									Three Months Ended March 31,
															2022						2021
															(in thousands)
Reserve for losses and loss adjustment expenses net of reinsurance recoverables at beginning of period															$	1,399,214					$	1,386,061
Add: Incurred losses and loss adjustment expenses net of reinsurance:
Current year															128,804						103,366
Prior years															6,804						170,134
Total incurred losses and loss and adjustment expenses															135,608						273,500
Deduct: Loss and loss adjustment expense payments net of reinsurance:
Current year															2,774						3,194
Prior years															100,855						121,588
Total loss and loss adjustment expense payments															103,629						124,782
Deduct: Loss reserves ceded in Retrocession Agreement															299,493						—
Reserve for losses and loss adjustment expenses net of reinsurance recoverables at end of period															1,131,700						1,534,779
Add: Reinsurance recoverables on unpaid losses and loss adjustment expenses at end of period															1,618,488						879,067
Reserve for losses and loss adjustment expenses gross of reinsurance recoverables on unpaid losses and loss adjustment expenses at end of period															$	2,750,188					$	2,413,846

The Company experienced $6.8 million of net adverse reserve development in the three months ended March 31, 2022 on the reserve for losses and loss adjustment expenses held at December 31, 2021. This reserve development included $59,000 of net favorable development in the Excess and Surplus Lines segment, $63,000 of net adverse development in the Specialty Admitted Insurance segment, and $6.8 million of net adverse development in the Casualty Reinsurance segment that was associated with the Retrocession Agreement (as defined below).

On February 23, 2022, JRG Re entered into a loss portfolio transfer retrocession agreement (the “Retrocession Agreement”) with Fortitude Reinsurance Company Ltd. (“FRL”) under which FRL reinsures the majority of the reserves in the Company’s Casualty Reinsurance segment. Under the terms of the transaction, which closed on March 31, 2022 (the “Retrocession Closing Date”), JRG Re (a) ceded to FRL all existing and future claims for losses arising under certain casualty reinsurance agreements with underlying insurance companies with treaty inception dates ranging from 2011 to 2020 (the “Subject Business”), in each case net of third-party reinsurance and other recoveries, up to an aggregate limit of $400.0 million; (b) continues to manage and retain the benefit of other third-party reinsurance on the Subject Business; (c) paid FRL a reinsurance premium of $335.0 million, $310.0 million of which JRG Re credited to a notional funds withheld account (the “Funds Withheld Account”) and $25.0 million of which was paid in cash to FRL; and (d) will pay FRL a 2% per annum crediting rate on the Funds Withheld Account balance on a quarterly basis. The total premium, initial Funds Withheld Account credit, and aggregate limit was adjusted for claims paid from October 1, 2021 to the Retrocession Closing Date. The Casualty Reinsurance segment incurred losses of $11.5 million (including $6.8 million of net adverse reserve development and $4.7 million of current accident year losses) in the three months ended March 31, 2022 associated with the Retrocession Agreement.

The Company experienced $170.1 million of net adverse reserve development in the three months ended March 31, 2021 on the reserve for losses and loss adjustment expenses held at December 31, 2020. This reserve development included $168.7 million of net adverse development in the Excess and Surplus Lines segment, including $170.0 million on commercial auto business, almost entirely related to a previously canceled account that has been in runoff since 2019. The reported losses on this terminated commercial auto account meaningfully exceeded our expectations for the three months ended March 31, 2021. We had expected that reported losses would decline as the account moved further into runoff, but the continued heavy reported loss emergence in the first quarter of 2021 indicated more inherent severity than anticipated. In response, we meaningfully adjusted our actuarial methodology, resulting in a significant strengthening of reserves for this account at March 31, 2021. In prior quarters, our actuarial work for this terminated commercial auto account had been based on industry data, pricing data, experience data, average claims severity data, and blended methodologies. However, the continuation of the highly elevated reported losses in the first quarter of 2021 led us to conclude that using only our own loss experience in our paid and incurred reserve projections rather than the array of inputs that we had used in prior quarters, and giving greater weight to incurred methods, would give us a better estimate of ultimate losses on this account. The Company also experienced $1.0 million of net favorable development in the Specialty Admitted Insurance segment due to favorable development in the workers' compensation business for prior accident years, and $2.5 million of net adverse development in the Casualty Reinsurance segment.

The following table summarizes the components of other comprehensive loss:

									Three Months Ended March 31,
															2022						2021
															(in thousands)
Unrealized losses arising during the period, before U.S. income taxes															$	(97,418)					$	(47,300)
U.S. income taxes															11,608						5,453
Unrealized losses arising during the period, net of U.S. income taxes															(85,810)						(41,847)
Less reclassification adjustment:
Net realized investment gains															202						1,035
U.S. income taxes															(41)						(194)
Reclassification adjustment for investment gains realized in net income															161						841
Other comprehensive loss															$	(85,971)					$	(42,688)

The Company's invested assets at March 31, 2022 include $1,662.3 million of fixed maturity securities that are classified as available-for-sale and carried at fair value with unrealized gains and losses on these securities reported, net of applicable taxes, as a separate component of accumulated comprehensive (loss) income. In the three months ended March 31, 2022 and 2021, the fair values of our fixed maturity securities were negatively impacted by rising interest rates leading to unrealized losses recognized in other comprehensive loss.

In addition to the $202,000 and $1.0 million of net realized investment gains on available-for-sale fixed maturities for the three months ended March 31, 2022 and 2021, respectively, the Company also recognized net realized and unrealized investment (losses) gains in the respective periods of $(2.1) million and $3.8 million on its investments in bank loan participations and $(3.1) million and $1.4 million on its investments in equity securities.

The Company is involved in various legal proceedings, including commercial matters and litigation regarding insurance claims arising in the ordinary course of business as well as an alleged class action lawsuit. In addition, the Company is involved from time to time in legal actions which seek extra-contractual damages, punitive damages or penalties, including claims alleging bad faith in the handling of insurance claims. The Company believes that the outcome of such matters, individually and in the aggregate, is not reasonably likely to have a material adverse effect on its consolidated financial position, results of operations or cash flows.

On July 9, 2021 a purported class action lawsuit was filed in the U.S. District Court, Eastern District of Virginia (the "Court") by Employees' Retirement Fund of the City of Fort Worth against James River Group Holdings, Ltd. and certain of its present and former officers (together, "Defendants"). On September 22, 2021, the Court entered an order appointing Employees' Retirement Fund of the City of Fort Worth and the City of Miami General Employees' and Sanitation Employees' Retirement

For a description of the potential future impacts of COVID-19 on the Company, see the “The global coronavirus outbreak could harm business and results of operations of the Company” risk factor in Part I—Item IA in our Annual Report on Form 10-K for the year ended December 31, 2021.

The Company’s reinsurance subsidiary, JRG Re, entered into three letter of credit facilities with banks as security to third-party reinsureds on reinsurance assumed by JRG Re. JRG Re has established custodial accounts to secure these letters of credit. Under a $30.0 million facility, $4.6 million of letters of credit were issued through March 31, 2022 which were secured by deposits of $9.2 million. Under a $102.5 million facility, $38.2 million of letters of credit were issued through March 31, 2022 which were secured by deposits of $45.5 million. Under a $100.0 million facility, $22.6 million of letters of credit were issued through March 31, 2022 which were secured by deposits of $30.4 million. JRG Re has also established trust accounts to secure its obligations to selected reinsureds. The total amount deposited in the trust accounts for the benefit of third-party reinsureds was $397.7 million at March 31, 2022.

James River Insurance Company and James River Casualty Company (together, “James River”) previously issued a set of commercial auto insurance contracts (the “Rasier Commercial Auto Policies”) to Rasier LLC and its affiliates (collectively, “Rasier”) under which James River pays losses and loss adjustment expenses on the contracts. James River has indemnity agreements with Rasier (non-insurance entities) (collectively, the “Indemnity Agreements”) and is contractually entitled to reimbursement for the portion of the losses and loss adjustment expenses paid on behalf of Rasier under the Rasier Commercial Auto Policies and other expenses incurred by James River. On September 27, 2021, James River entered into a loss portfolio transfer reinsurance agreement (the “LPT Agreement”) with Aleka Insurance, Inc. (“Aleka”), a captive insurance company affiliate of Rasier, to reinsure substantially all of the Rasier Commercial Auto Policies for which James River is not otherwise indemnified by Rasier under the Indemnity Agreements. Under the terms of the LPT Agreement, effective as of July 1, 2021, James River ceded to Aleka approximately $345.1 million of commercial auto liabilities relating to Rasier Commercial Auto Policies written in the years 2013-2019, which amount constituted the reinsurance premium.

Each of Rasier and Aleka are required to post collateral under the Indemnity Agreements and the LPT Agreement, respectively:

•Pursuant to the Indemnity Agreements, Rasier is required to post collateral for the amounts that are recoverable or may be recoverable under the indemnity agreements, including, among other things, case loss and loss adjustment expense reserves, IBNR loss and loss adjustment expense reserves, extra contractual obligations and excess policy limits liabilities. The collateral is provided through a collateral trust arrangement (the “Indemnity Trust”) in favor of James River by Aleka. In connection with the execution of the LPT Agreement, James River returned $691.3 million to the Indemnity Trust, representing the remaining balance of the amount withdrawn in October 2019, as was permitted under the indemnification agreements with Rasier and the associated trust agreement. At March 31, 2022, the balance in the Indemnity Trust was $494.9 million, and, together with the balance of the Loss Fund Trust (as defined below) attributable to the Indemnity Agreements as described below, the total balance of collateral securing Rasier’s obligations under the Indemnity Agreements was $564.1 million.

•Pursuant to the LPT Agreement, Aleka is required to post collateral equal to 102% of James River's estimate of Aleka's obligations under the LPT Agreement, calculated in accordance with statutory accounting principles. The collateral is provided through a collateral trust arrangement (the “LPT Trust”) established in favor of James River by Aleka. At March 31, 2022, the balance in the LPT Trust was $214.3 million, and, together with the balance of the Loss Fund Trust (as defined below) attributable to the LPT Agreement as described below, the total balance of collateral securing Aleka’s obligations under the LPT Agreement was $242.5 million. At March 31, 2022, the total reinsurance recoverables under the LPT Agreement was $237.3 million (including $225.5 million of unpaid recoverables and $11.8 million of paid recoverables).

In connection with the execution of the LPT Agreement, James River and Aleka entered into an administrative services agreement (the “Administrative Services Agreement”) with a third party claims administrator (the “Administrator”) pursuant to

While the LPT Agreement brings economic finality to substantially all of the Rasier Commercial Auto Policies, the Company has credit exposure to Rasier and Aleka under the Indemnity Agreements and the LPT Agreement if the estimated losses and expenses of the Rasier Commercial Auto Policies grow at a faster pace than the growth in our collateral balances. In addition, we have credit exposure if our estimates of future losses and loss adjustment expenses and other amounts recoverable under the Indemnity Agreements and the LPT Agreement, which are the basis for establishing the collateral balances, are lower than actual amounts paid or payable. The amount of our credit exposure in any of these instances could be material. To mitigate these risks, we closely and frequently monitor our exposure compared to our collateral held, and we request additional collateral in accordance with the terms of the LPT Agreement and Indemnity Agreements when our analysis indicates that we have uncollateralized exposure.

The Company has four reportable segments: the Excess and Surplus Lines segment, the Specialty Admitted Insurance segment, the Casualty Reinsurance segment, and the Corporate and Other segment. Segment profit (loss) is measured by underwriting profit (loss), which is generally defined as net earned premiums and gross fee income (in specific instances when the Company is not retaining insurance risk) in “other income” in the condensed consolidated statements of income (loss) and comprehensive loss less loss and loss adjustment expenses and other operating expenses of the operating segments. Gross fee income of $800,000 and $927,000 for the Specialty Admitted Insurance segment was included in other income and in underwriting profit (loss) for the three months ended March 31, 2022 and 2021, respectively. Segment results are reported prior to the effects of intercompany reinsurance agreements among the Company’s insurance subsidiaries.

The following table summarizes the Company’s segment results:

			Excess and Surplus Lines						Specialty Admitted Insurance						Casualty Reinsurance						Corporate and Other						Total
			(in thousands)
Three Months Ended March 31, 2022
Gross written premiums			$	204,282					$	125,710					$	29,944					$	—					$	359,936
Net earned premiums			131,301						19,318						39,205						—						189,824
Underwriting profit (loss) of operating segments			21,457						209						(8,837)						—						12,829
Net investment income			5,542						757						9,713						255						16,267
Interest expense			—						—						15						2,277						2,292
Segment revenues			133,392						20,363						47,871						322						201,948
Segment goodwill			181,831						—						—						—						181,831
Segment assets			2,000,524						1,103,658						2,126,040						36,996						5,267,218
Three Months Ended March 31, 2021
Gross written premiums			$	181,358					$	127,036					$	64,861					$	—					$	373,255
Net earned premiums			113,708						16,357						30,528						—						160,593
Underwriting (loss) profit of operating segments			(150,946)						1,266						(1,625)						—						(151,305)
Net investment income			3,706						822						10,556						5						15,089
Interest expense			—						—						—						2,216						2,216
Segment revenues			118,796						18,565						45,517						102						182,980
Segment goodwill			181,831						—						—						—						181,831
Segment assets			2,129,985						980,824						1,930,747						68,151						5,109,707

									Three Months Ended March 31,
															2022						2021
															(in thousands)
Underwriting profit (loss) of the operating segments:
Excess and Surplus Lines															$	21,457					$	(150,946)
Specialty Admitted Insurance															209						1,266
Casualty Reinsurance															(8,837)						(1,625)
Total underwriting profit (loss) of operating segments															12,829						(151,305)
Other operating expenses of the Corporate and Other segment															(7,874)						(8,056)
Underwriting profit (loss)															4,955						(159,361)
Net investment income															16,267						15,089
Net realized and unrealized (losses) gains on investments															(5,010)						6,272
Amortization of intangible assets															(91)						(91)
Other income and expenses															(301)						(522)
Interest expense															(2,292)						(2,216)
Income (loss) before income taxes															$	13,528					$	(140,829)

9.    Other Operating Expenses and Other Expenses

Other operating expenses consist of the following:

									Three Months Ended March 31,
															2022						2021
															(in thousands)
Amortization of policy acquisition costs															$	22,837					$	21,475
Other underwriting expenses of the operating segments															19,350						17,850
Other operating expenses of the Corporate and Other segment															7,874						8,056
Total															$	50,061					$	47,381

Other expenses of $347,000 and $621,000 for the three months ended March 31, 2022 and 2021, respectively, include legal fees related to a purported class action lawsuit, certain legal and professional consulting fees related to various strategic initiatives, and employee severance costs.

Three levels of inputs are used to measure fair value of financial instruments: (1) Level 1: quoted price (unadjusted) in active markets for identical assets, (2) Level 2: inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument, and (3) Level 3: inputs to the valuation methodology are unobservable for the asset or liability.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date.

The fair values of fixed maturity securities, equity securities, and bank loan participations have been determined using fair value prices provided by the Company’s investment accounting services provider or investment managers, who utilize internationally recognized independent pricing services. The prices provided by the independent pricing services are generally based on observable market data in active markets (e.g. broker quotes and prices observed for comparable securities). Values for U.S. Treasury and publicly-traded equity securities are generally based on Level 1 inputs which use the market approach valuation technique. The values for all other fixed maturity securities (including state and municipal securities and obligations of U.S. government corporations and agencies) and bank loan participations generally incorporate significant Level 2 inputs,

The Company reviews fair value prices provided by its outside investment accounting service provider or investment managers for reasonableness by comparing the fair values provided by the managers to those provided by its investment custodian. The Company also reviews and monitors changes in unrealized gains and losses. The Company has not historically adjusted security prices. The Company obtains an understanding of the methods, models and inputs used by the investment managers and independent pricing services, and controls are in place to validate that prices provided represent fair values. The Company’s control process includes, but is not limited to, initial and ongoing evaluation of the methodologies used, a review of specific securities and an assessment for proper classification within the fair value hierarchy, and obtaining and reviewing internal control reports for our investment manager that obtains fair values from independent pricing services.

			Fair Value Measurements Using
			Quoted Prices in Active Markets for Identical Assets Level 1						Significant Other Observable Inputs Level 2						Significant Unobservable Inputs Level 3						Total
			(in thousands)
Fixed maturity securities, available-for-sale:
State and municipal			$	—					$	319,492					$	—					$	319,492
Residential mortgage-backed			—						247,901						—						247,901
Corporate			—						715,375						—						715,375
Commercial mortgage and asset-backed			—						305,757						—						305,757
U.S. Treasury securities and obligations guaranteed by the U.S. government			73,393						360						—						73,753
Total fixed maturity securities, available-for-sale			$	73,393					$	1,588,885					$	—					$	1,662,278
Equity securities:
Preferred stock			—						55,876						—						55,876
Common stock			43,660						3,437						—						47,097
Total equity securities			$	43,660					$	59,313					$	—					$	102,973
Bank loan participations			$	—					$	159,084					$	—					$	159,084
Short-term investments			$	—					$	147,334					$	—					$	147,334