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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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
or
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _______ to _______
 
Commission File Number: 001-36777
JAMES RIVER GROUP HOLDINGS, LTD.
 
(Exact name of registrant as specified in its charter)
Bermuda   98-0585280
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
Wellesley House, 2nd Floor, 90 Pitts Bay Road, Pembroke HM08, Bermuda
(Address of principal executive offices)
(Zip Code)
(441) 278-4580
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes       No   x
Number of shares of the registrant's common shares outstanding at May 6, 2022: 37,450,264



James River Group Holdings, Ltd.
Form 10-Q
Index
  Page
Number
 
     
 
     
 
5
     
 
7
     
 
8
     
 
9
     
 
     
     
 
     
     
   
 
     
   
 
2


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements may be identified by the fact that they do not relate strictly to historical or current facts. You may identify forward-looking statements in this Quarterly Report by the use of words such as “anticipates,” “estimates,” “expects,” “intends,” “plans”, “seeks” and “believes,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could.” These forward-looking statements include, among others, all statements relating to our future financial performance, our business prospects and strategy, anticipated financial position and financial strength ratings, liquidity and capital needs and other similar matters. These forward-looking statements are based on management’s current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict.
 
Our actual results may differ materially from those expressed in, or implied by, the forward-looking statements included in this Quarterly Report as a result of various factors, many of which are beyond our control, including, among others:
 
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;
3


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.

4

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements
 
 
JAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIES
 
Condensed Consolidated Balance Sheets
(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 
 
See accompanying notes.
 

5

JAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIES
 
Condensed Consolidated Balance Sheets (continued)
  
(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
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 
 
See accompanying notes.

6

 JAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIES
 
Condensed Consolidated Statements of Income (Loss) and Comprehensive Loss (Unaudited)

  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 

 
See accompanying notes.
 

 
7

JAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)


 

 
  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  $ $ 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  $ $ 862,904  $ (159,241) $ (55,993) $ 647,677 
Balances at December 31, 2020 30,649,261  $ $ 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  $ $ 663,987  $ (63,576) $ 39,211  $ 639,628 

See accompanying notes.
 
8

 JAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIES
 
Condensed Consolidated Statements of Cash Flows (Unaudited)

  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 $ $ (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.
See accompanying notes.
9

 JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

1.    Accounting Policies
Organization
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.
Basis of Presentation
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.
Estimates and Assumptions
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.
10

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


Variable Interest Entities
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.
Income Tax Expense
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.
Adopted Accounting Standards
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.
11

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


2.    Investments
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 
The amortized cost and fair value of available-for-sale investments in fixed maturity securities at March 31, 2022 are summarized, by contractual maturity, as follows:
  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.
12

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


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.
13

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


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.
14

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


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 — 
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.
15

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


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.
16

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


3.    Goodwill and Intangible Assets
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 $181.8 million at March 31, 2022 and December 31, 2021.
The gross carrying amounts and accumulated amortization for each major specifically identifiable intangible asset class were as follows: 
    March 31, 2022 December 31, 2021
  Life
(Years)
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
    ($ 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 
 
4.    Earnings (Loss) Per Share
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.
17

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


5.    Reserve for Losses and Loss Adjustment Expenses
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.
18

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


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.
6.    Other Comprehensive Loss
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.
7.       Contingent Liabilities
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
19

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


Trust as co-lead plaintiffs (together, "Plaintiffs"). Plaintiffs' consolidated amended complaint was filed on November 19, 2021 (the "Amended Complaint"), which asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on behalf of a putative class of persons and entities that purchased the Company's stock between February 22, 2019 and October 25, 2021. The Amended Complaint alleges that Defendants failed to make appropriate disclosures concerning the adequacy of reserves for policies that covered Rasier LLC, a subsidiary of Uber Technologies, Inc., and seeks unspecified damages, costs, attorneys’ fees and such other relief as the court may deem proper. The Defendants filed a motion to dismiss on January 18, 2022. Plaintiffs’ opposition to the motion to dismiss was filed on March 4, 2022, and the Defendants’ reply to the Plaintiff's opposition was filed on April 4, 2022. We believe that Plaintiffs’ claims are without merit and we intend to vigorously defend this lawsuit.
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.
Amounts Recoverable from an Indemnifying Party and Reinsurer on Legacy Commercial Auto Book
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
20

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


which the Administrator handles the claims on the Rasier Commercial Auto Policies for the remaining life of those claims. The claims paid by the Administrator are reimbursable by James River, and pursuant to the Administrative Services Agreement, James River established a loss fund trust account for the benefit of the Administrator (the “Loss Fund Trust”) to collateralize its claims payment reimbursement obligations. James River funds the Loss Fund Trust using funds withdrawn from the Indemnity Trust, funds withdrawn from the LPT Trust, and its own funds, in each case in an amount equal to the pro rata portion of the required Loss Fund Trust balance attributable to the Indemnity Agreements, the LPT Agreement and James River’s existing third party reinsurance agreements, respectively. At March 31, 2022, the balance in the Loss Fund Trust was $102.0 million, including $69.2 million representing collateral supporting Rasier’s obligations under the Indemnity Agreements and $28.2 million representing collateral supporting Aleka’s obligations under the LPT Agreement. Funds posted to the Loss Fund Trust are classified as restricted cash equivalents on the Company's balance sheets.
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.
21

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


8.    Segment Information
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  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 
  
22

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


The following table reconciles the underwriting profit (loss) of the operating segments by individual segment to consolidated income (loss) before income taxes:
  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.
10.    Fair Value Measurements
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,
23

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


and in some cases, Level 3 inputs, using the market approach and income approach valuation techniques. There have been no changes in the Company’s use of valuation techniques since December 31, 2020.
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.
Assets measured at fair value on a recurring basis as of March 31, 2022 are summarized below:
  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 
  
24

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


Assets measured at fair value on a recurring basis as of December 31, 2021 are summarized below:
  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 $ —  $ 333,717  $ —  $ 333,717 
Residential mortgage-backed —  246,631  —  246,631 
Corporate —  732,335  —  732,335 
Commercial mortgage and asset-backed —  304,488  —  304,488 
U.S. Treasury securities and obligations guaranteed by the U.S. government
59,988  402  —  60,390 
Total fixed maturity securities, available-for-sale $ 59,988  $ 1,617,573  $ —  $ 1,677,561 
Equity securities:        
Preferred stock —  63,612  —  63,612 
Common stock 41,244  3,452  102  44,798 
Total equity securities $ 41,244  $ 67,064  $ 102  $ 108,410 
Bank loan participations $ —  $ 156,043  $ —  $ 156,043 
Short-term investments $ —  $ 136,563  $ —  $ 136,563 

A reconciliation of the beginning and ending balances of available-for-sale fixed maturity securities, equity securities, and bank loan participations measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is shown below:
Three Months Ended
March 31,
2022 2021
(in thousands)
Beginning balance $ 102  $ 980 
Transfers out of Level 3 —  — 
Transfers in to Level 3 —  — 
Purchases —  — 
Sales (92) (282)
Maturities, calls and paydowns —  (24)
Amortization of discount —  — 
Total gains or losses (realized/unrealized):
Included in earnings (10) (375)
Included in other comprehensive income —  — 
Ending balance $ —  $ 299 

The Company had one equity security at December 31, 2021 for which the fair value was determined using significant unobservable inputs (Level 3). The fair value of $102,000 for the equity security was based on expected proceeds from its sale. During the three months ended March 31, 2022, the Company sold the equity security.
The Company held one bank loan participation and one equity security at March 31, 2021 and one bank loan participation and two equity securities at December 31, 2020 for which the fair value was determined using significant unobservable inputs (Level 3). A market approach using prices in trades of comparable securities was utilized to determine a fair value for the securities of $299,000 at March 31, 2021 and $980,000 at December 31, 2020.
25

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


Transfers out of Level 3 occur when the Company is able to obtain reliable prices from pricing vendors for securities for which the Company was previously unable to obtain reliable prices. Transfers in to Level 3 occur when the Company is unable to obtain reliable prices for securities from pricing vendors and instead must use broker price quotes to value the securities.
There were no transfers between Level 1 and Level 2 during the three months ended March 31, 2022 or 2021. The Company recognizes transfers between levels at the beginning of the reporting period.
In the determination of the fair value for bank loan participations and certain high yield bonds, the Company’s investment manager endeavors to obtain data from multiple external pricing sources. External pricing sources may include brokers, dealers and price data vendors that provide a composite price based on prices from multiple dealers. Such external pricing sources typically provide valuations for normal institutional size trading units of such securities using methods based on market transactions for comparable securities, and various relationships between securities, as generally recognized by institutional dealers. For investments in which the investment manager determines that only one external pricing source is appropriate or if only one external price is available, the relevant investment is generally recorded at fair value based on such price.
Investments for which external sources are not available or are determined by the investment manager not to be representative of fair value are recorded at fair value as determined by the Company, with input from its investment managers and valuation specialists as considered necessary. In determining the fair value of such investments, the Company considers one or more of the following factors: type of security held, convertibility or exchangeability of the security, redeemability of the security (including the timing of redemptions), application of industry accepted valuation models, recent trading activity, liquidity, estimates of liquidation value, purchase cost, and prices received for securities with similar terms of the same issuer or similar issuers. At March 31, 2022 and December 31, 2021, there were no investments for which external sources were unavailable to determine fair value.
The carrying values and fair values of financial instruments are summarized below:
  March 31, 2022 December 31, 2021
  Carrying
Value
Fair Value Carrying
Value
Fair Value
  (in thousands)
Assets        
Fixed maturity securities, available-for-sale $ 1,662,278  $ 1,662,278  $ 1,677,561  $ 1,677,561 
Equity securities 102,973  102,973  108,410  108,410 
Bank loan participations 159,084  159,084  156,043  156,043 
Cash and cash equivalents 270,195  270,195  190,123  190,123 
Restricted cash equivalents 102,009  102,009  102,005  102,005 
Short-term investments 147,334  147,334  136,563  136,563 
Other invested assets – notes receivable 9,740  11,694  9,740  11,921 
Liabilities        
Senior debt 222,300  213,148  262,300  252,213 
Junior subordinated debt 104,055  105,143  104,055  106,635 
 
The fair values of fixed maturity securities, equity securities, and bank loan participations have been determined using quoted market prices for securities traded in the public market or prices using bid or closing prices for securities not traded in the public marketplace. The fair values of cash and cash equivalents and short-term investments approximate their carrying values due to their short-term maturity.
The fair values of other invested assets-notes receivable, senior debt, and junior subordinated debt at March 31, 2022 and December 31, 2021 were determined by calculating the present value of expected future cash flows under the terms of the note agreements or debt agreements, as applicable, discounted at an estimated market rate of interest at March 31, 2022 and December 31, 2021, respectively.
The fair values of senior debt and junior subordinated debt at March 31, 2022 and December 31, 2021 were determined using inputs to the valuation methodology that are unobservable (Level 3).
11.    Senior Debt
The Company repaid $40.0 million of loans that were outstanding under a credit agreement (the “2017 Facility”) in the three months ended March 31, 2022. At March 31, 2022, unsecured loans of $21.5 million and secured letters of credit totaling
26

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


$22.6 million were outstanding under the 2017 Facility. The 2017 Facility provides the Company with a revolving line of credit of up to $100.0 million, which may be used for loans and letters of credit made or issued, at the borrowers’ option, on a secured or unsecured basis. The 2017 Facility contains certain financial and other covenants which the Company was in compliance with at March 31, 2022.
12.    Series A Preferred Shares
On February 24, 2022, we entered into an Investment Agreement with GPC Partners Investments (Thames) LP (“GPC Partners”), an affiliate of Gallatin Point Capital LLC, relating to the issuance and sale of 150,000 7% Series A Perpetual Cumulative Convertible Preferred Shares, par value $0.00125 per share (the “Series A Preferred Shares”), for an aggregate purchase price of $150.0 million, or $1,000 per share, in a private placement. The transaction closed on March 1, 2022 (the “Series A Closing Date”).
The Series A Preferred Shares rank senior to our common shares with respect to dividend rights and rights on the distribution of assets on any liquidation, dissolution or winding up of the affairs of the Company, upon which the holders of Series A Preferred Shares would receive the greater of the $1,000 liquidation preference per share (the “Liquidation Preference”) plus accrued and unpaid dividends, or the amount they would have received if they had converted all of their Series A Preferred Shares to common shares immediately before such liquidation, dissolution or winding up.
Holders of the Series A Preferred Shares are entitled to a dividend at the initial rate of 7% of the Liquidation Preference per annum, paid in cash, in-kind in common shares or in Series A Preferred Shares, at our election. On the five-year anniversary of the Series A Closing Date, and each five-year anniversary thereafter, the dividend rate will reset to a rate equal to the five-year U.S. treasury rate plus 5.2%. Dividends accrue quarterly and are payable on March 31, June 30, September 30 and December 31 of each year, commencing June 30, 2022. Dividends accrued on the Series A Preferred Shares in the three months ended March 31, 2022 (which represent dividends from the Series A Closing Date through March 31, 2022) were $875,000.
The Series A Preferred Shares are convertible at the option of the holders thereof at any time into common shares at an initial conversion price of $26.5950, making the Series A Preferred Shares initially convertible into 5,640,158 common shares. The conversion price is subject to customary anti-dilution adjustments, including cash dividends on the common shares above specified levels, as well as certain adjustments in case of adverse reserve developments.
At any time on or after the two year anniversary of the Series A Closing Date, if the volume-weighted average price (“VWAP”) per Common Share is greater than 130% of the then-applicable conversion price for at least twenty (20) consecutive trading days, the Company will be able to elect to convert (a “Mandatory Conversion”) all of the outstanding Series A Preferred Shares into Common Shares. In the case of a Mandatory Conversion, each Series A Preferred Share then outstanding will be converted into (i) the number of Common Shares equal to the quotient of (A) the sum of the Liquidation Preference and the accrued and unpaid dividends with respect to such Series A Preferred Share to be converted divided by (B) the conversion price of such share in effect as of the date of the Mandatory Conversion plus (ii) cash in lieu of fractional shares.
Upon any Mandatory Conversion on or before the five-year anniversary of the Series A Closing Date, all dividends that would have accrued from the date of the Mandatory Conversion to the later of the five-year anniversary of the Series A Closing Date or the last day of the eighth quarter following the date of the Mandatory Conversion, the last eight quarters of which will be discounted to present value using a discount rate of 3.5% per annum, and will be immediately payable in Common Shares, valued at the average of the daily VWAP of the Company’s Common Shares during the five (5) trading days immediately preceding the Mandatory Conversion.
The holders of the Series A Preferred Shares may require us to repurchase their shares upon the occurrence of certain change of control events. Upon the occurrence of a Fundamental Change (as defined in the Certificate of Designations designating the Series A Preferred Shares), each holder of outstanding Series A Preferred Shares will be permitted to, at its election, (i) effective as of immediately prior to the Fundamental Change, convert all or a portion of its Series A Preferred Shares into Common Shares, or (ii) require the Company to repurchase any or all of such holder’s Series A Preferred Shares at a purchase price per Series A Preferred Share equal to the Liquidation Preference of such Series A Preferred Share plus accrued and unpaid dividends. The repurchase price will be payable in cash.
Because the Company may be required to repurchase all or a portion of the Series A Preferred Shares at the option of the holder upon the occurrence of certain change of control events, the Series A Preferred Shares have been classified as mezzanine equity in the Company's condensed consolidated balance sheets and are initially recognized at fair value of $150.0 million (the proceeds on the date of issuance) less issuance costs of $5.1 million, resulting in an initial value of $144.9 million.
27

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


Under the terms of the Investment Agreement, GPC Partners has the right to designate one member of the Board (the “Series A Designee”). GPC Partners has designated Matthew Botein as the Series A Designee and, accordingly, the Board approved the appointment of Mr. Botein to serve as a Class I director with a term expiring at the 2024 annual meeting of the Company’s shareholders, effective following receipt of any necessary regulatory approvals. Until applicable regulatory approvals are obtained, Mr. Botein will have board observer status.
13.    Capital Stock and Equity Awards
Common Shares
Total common shares outstanding increased from 37,373,066 at December 31, 2021 to 37,448,314 at March 31, 2022, reflecting 75,248 common shares issued in the three months ended March 31, 2022 related to vesting of RSUs.
Dividends
The Company declared the following dividends on common shares during the first three months of 2022 and 2021:
Date of Declaration Dividend per Common Share Payable to Shareholders of Record on Payment Date Total Amount (thousands)
2022
February 16, 2022 $ 0.05  March 14, 2022 March 31, 2022 $ 1,908 
2021
February 24, 2021 $ 0.30  March 15, 2021 March 31, 2021 $ 9,345 
Included in the total dividends for the three months ended March 31, 2022 and 2021 are $36,000 and $113,000, respectively, of dividend equivalents on unvested RSUs. The balance of dividends payable on unvested RSUs was $305,000 at March 31, 2022 and $518,000 at December 31, 2021.
Equity Incentive Plans
The Company’s shareholders have approved various equity incentive plans, including the Amended and Restated 2009 Equity Incentive Plan (the “Legacy Plan”), the 2014 Long Term Incentive Plan (“2014 LTIP”), and the 2014 Non-Employee Director Incentive Plan (“2014 Director Plan”) (collectively, the “Plans”). All awards issued under the Plans are issued at the discretion of the Board of Directors. Under the Legacy Plan, employees received non-qualified stock options. Options are outstanding under the Legacy Plan; however, no additional awards may be granted under such plan.
Employees are eligible to receive non-qualified stock options, incentive stock options, share appreciation rights, performance shares, restricted shares, RSUs, and other awards under the 2014 LTIP. The maximum number of shares available for issuance under the 2014 LTIP is 4,171,150, and at March 31, 2022, 807,190 shares are available for grant.
Non-employee directors of the Company are eligible to receive non-qualified stock options, share appreciation rights, performance shares, restricted shares, RSUs, and other awards under the 2014 Director Plan. The maximum number of shares available for issuance under the 2014 Director Plan is 150,000, and at March 31, 2022, 75,269 shares are available for grant.
Generally, awards issued under the 2014 LTIP and 2014 Director Plan vest immediately in the event that an award recipient is terminated without Cause (as defined in the applicable plans), and in the case of the 2014 LTIP for Good Reason (as defined in the applicable plans), at any time following a Change in Control (as defined in the applicable plans).
28

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


Options
The following table summarizes option activity:
  Three Months Ended March 31,
  2022 2021
  Shares Weighted-
Average
Exercise
Price
Shares Weighted-
Average
Exercise
Price
Outstanding:        
Beginning of period 287,974  $ 35.26  463,324  $ 32.25 
Granted —  $ —  —  $ — 
Exercised —  $ —  (29,884) $ 26.37 
Forfeited —  $ —  —  $ — 
End of period 287,974  $ 35.26  433,440  $ 32.65 
Exercisable, end of period 287,974  $ 35.26  433,440  $ 32.65 

All of the outstanding options are fully vested (vesting period of three years from date of grant) and have a contractual life of seven years from the original date of grant. All of the outstanding options have an exercise price equal to the fair value of the underlying shares at the date of grant. The weighted-average remaining contractual life of the options outstanding and exercisable at March 31, 2022 was 1.2 years.
RSUs
The following table summarizes RSU activity:
Three Months Ended March 31,
2022 2021
  Shares Weighted-
Average
Grant Date
Fair Value
Shares Weighted-
Average
Grant Date
Fair Value
   
Unvested, beginning of period 292,135  $ 45.89  399,856  $ 43.59 
Granted 538,778  $ 20.50  138,936  $ 50.24 
Vested (109,589) $ 45.57  (161,004) $ 41.89 
Forfeited —  $ —  (1,089) $ 42.44 
Unvested, end of period 721,324  $ 26.97  376,699  $ 46.78 
Outstanding RSUs granted to employees generally vest ratably over a three year vesting period. RSUs granted to non-employee directors have a one year vesting period. The holders of RSUs are entitled to dividend equivalents. The dividend equivalents are settled in cash at the same time that the underlying RSUs vest and are subject to the same risk of forfeiture as the underlying shares. The fair value of the RSUs granted is based on the market price of the underlying shares at the date of grant.
Compensation Expense
Share based compensation expense is recognized on a straight line basis over the vesting period. The amount of expense and related tax benefit is summarized below:
  Three Months Ended
March 31,
  2022 2021
  (in thousands)
Share based compensation expense $ 1,786  $ 1,905 
U.S. tax benefit on share based compensation expense 336  294 
29

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


As of March 31, 2022, the Company had $18.0 million of unrecognized share based compensation expense expected to be charged to earnings over a weighted-average period of 2.3 years.
14.    Subsequent Events
On April 28, 2022, the Board of Directors declared a cash dividend of $0.05 per common share. The dividend is payable on June 30, 2022 to shareholders of record on June 13, 2022.
On April 28, 2022, the Board of Directors declared a 7% dividend on the Series A Preferred Shares. The dividend of $3.5 million will be payable in cash on June 30, 2022 to shareholders of record on June 15, 2022.
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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 I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022, 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 on Form 10-Q, and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021.
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 earning profits from insurance and reinsurance underwriting and generating meaningful risk-adjusted investment returns while managing our capital.
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%-30%. 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) through JRG Reinsurance Company Ltd. (“JRG Re”). 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 Ltd (“Carolina Re”) was formed in 2018 to also provide reinsurance to the Company’s U.S. based insurance subsidiaries through a quota-share reinsurance agreement, and was also the cedent on an aggregate stop loss reinsurance treaty with JRG Re through December 31, 2021. JRG Re and Carolina Re are both Bermuda-based reinsurance companies.
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.
31

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 and investment valuation and impairment. For a detailed discussion of each of these policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2021. 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, 2021, 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 ongoing coronavirus (COVID-19) pandemic may be having on the Company’s financial condition and results of operations.
Recent Strategic Actions
Issuance of Series A Preferred Shares
The Company closed on the issuance and sale of 150,000 7% Series A Perpetual Cumulative Convertible Preferred Shares, par value $0.00125 per share (the “Series A Preferred Shares”) on March 1, 2022 for an aggregate purchase price of $150.0 million, or $1,000 per share, in a private placement. The Series A Preferred Shares are convertible into the Company’s common shares at the option of the holder at any time, or at the Company’s option under certain circumstances. Dividends on the Series A preferred shares accrue quarterly at the initial rate of 7% of the $1,000 liquidation preference per share (the “Liquidation Preference”) per annum, which may be paid in cash, in-kind in common shares or in Series A Preferred Shares, at the Company’s election. Dividends accrued on the Series A Preferred Shares in the three months ended March 31, 2022 (which represent the dividends from March 1, 2022, the date of issuance of the Series A Preferred Shares, through March 31, 2022) were $875,000. Please see “Part I—Item 1—Note 12. Series A Preferred Shares” in the Notes to our Condensed Consolidated Financial Statements in this Form 10-Q.
Loss Portfolio Transfer Retrocession Agreement
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.
32

RESULTS OF OPERATIONS
The following table summarizes our results:
  Three Months Ended
March 31,
%
  2022 2021 Change
  ($ in thousands)
Gross written premiums $ 359,936  $ 373,255  (3.6) %
Net retention (1)
48.9  % 46.8  %  
Net written premiums $ 175,859  $ 174,599  0.7  %
Net earned premiums $ 189,824  $ 160,593  18.2  %
Losses and loss adjustment expenses (135,608) (273,500) (50.4) %
Other operating expenses (49,261) (46,454) 6.0  %
Underwriting profit (loss) (2), (3)
4,955  (159,361) — 
Net investment income 16,267  15,089  7.8  %
Net realized and unrealized (losses) gains on investments (5,010) 6,272  — 
Other income and expense (301) (522) (42.3) %
Interest expense (2,292) (2,216) 3.4  %
Amortization of intangible assets (91) (91) —  %
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) to common shareholders $ 9,330  $ (103,460) — 
Adjusted net operating income (loss) (4)
$ 13,867  $ (108,795) — 
Ratios:      
Loss ratio 71.4  % 170.3  %  
Expense ratio 26.0  % 28.9  %  
Combined ratio 97.4  % 199.2  %  
Accident year loss ratio (5)
67.9  % 64.4  %
(1)Net retention is defined as the ratio of net written premiums to gross written premiums.
(2)Underwriting profit (loss) is a non-GAAP measure. See “Reconciliation of Non-GAAP Measures” for a reconciliation to income (loss) before taxes and for additional information.
(3)Included in underwriting results for the three months ended March 31, 2022 and 2021 is gross fee income of $5.6 million and $5.1 million, respectively.
(4)Adjusted net operating income (loss) is a non-GAAP measure. See “Reconciliation of Non-GAAP Measures” for a reconciliation to net income (loss) and for additional information.
(5)Accident year loss ratio is defined as the ratio of losses and loss adjustment expenses for the current accident year (excluding development on prior accident year reserves) to net earned premiums.
Three Months Ended March 31, 2022 and 2021
The Company had an underwriting profit of $5.0 million for the three months ended March 31, 2022 compared to an underwriting loss of $159.4 million for the same period in the prior year. Underwriting results for the three months ended March 31, 2022 include $11.5 million of incurred losses (including $6.8 million of net adverse reserve development and $4.7 million of current accident year losses) in the Casualty Reinsurance segment associated with the Retrocession Agreement. Underwriting results for the three months ended March 31, 2021 include $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 almost entirely related to a previously canceled commercial auto account (see underwriting results of the Excess and Surplus Lines segment below for further discussion).
33

The results for the three months ended March 31, 2022 and 2021 also include certain non-operating items that are significant to the Company. These items (on a pre-tax basis) include:
Net realized and unrealized investment (losses) gains of $(5.0) million and $6.3 million for the three months ended March 31, 2022 and 2021, respectively. The net realized and unrealized investment losses for the three months ended March 31, 2022 include $(2.7) million and $(2.0) million of unrealized losses related to changes in unrealized gains and losses on equity securities and bank loan participations, respectively ($1.7 million and $3.9 million of unrealized gains for the three months ended March 31, 2021, respectively). See “— Investing Results" for more information on these realized and unrealized investment gains.
Other expenses were $347,000 and $621,000 for the three months ended March 31, 2022 and 2021, respectively, and include legal fees related to a purported class action lawsuit, certain legal and professional consulting fees related to various strategic initiatives, and employee severance costs.
We define adjusted net operating income (loss) as income (loss) available to common shareholders excluding net realized and unrealized (losses) gains on investments, and certain non-operating expenses such as professional service fees related to a purported class action lawsuit, various strategic initiatives, and the filing of registration statements for the offering of securities, and severance costs associated with terminated employees. We use adjusted net operating income (loss) as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance. Adjusted net operating income (loss) should not be viewed as a substitute for net income (loss) calculated in accordance with GAAP, and our definition of adjusted net operating income (loss) may not be comparable to that of other companies.
Our income (loss) before taxes and net income (loss) reconcile to our adjusted net operating income (loss) as follows:
  Three Months Ended March 31,
  2022 2021
  Income
Before
Taxes
Net
Income
Loss
Before
Taxes
Net
Loss
  ($ in thousands)
Income (loss) available to common shareholders $ 12,653  $ 9,330