James River enters partnership with Enstar

Troubled re/insurer James River Group has entered into a partnership with legacy insurer Enstar aimed at focusing on its excess and surplus insurance business, the companies said yesterday. 

The announcement came as Bermuda-based James River fell to a $42 million loss in the third quarter compared with a profit of $17 million in 2023. 

The company also said it will redomicile to the US from Bermuda during 2025 and expects to reduce its effective tax rate closer to the US statutory rate thereafter.

The company said it had an adjusted net operating loss of $28.2 million (2023: $18.9 million profit) which was attributed to a previously announced $52.2 million of excess consideration paid over reserves ceded in connection with the Excess and Surplus Lines combined loss portfolio transfer adverse development reinsurance contract that closed in July, 2024, as well as $19.2 million of additional adverse development ceded to the E&S ADC and recorded as a deferred reinsurance gain on the Company's balance sheet, and $4.8 million of adverse development retained by the Company. 

The company said the losses were partially offset by strong investment income and underwriting profit from our Specialty Admitted segment.

Under the terms of the new partnership with Enstar, its subsidiary Cavello Bay Reinsurance, has agreed to purchase $12.5 million of newly issued common shares at a per share price of $6.40 in addition to 637,640 common shares it already owns through purchases in the open market. 

James River subsidiaries have also entered into an adverse development reinsurance agreement with Cavello Bay, directly above the existing E&S ADC, with a limit of $75 million and no co-participation and Enstar will also have an informal consulting relationship and best practices dialogue with the Company’s claims leadership.

The company has also agreed to convert $37.5 million worth of convertible preferred shares held by Gallatin Point Capital to common shares at a per share price of $6.40. The quarterly preferred dividend of the remaining $112.5 million liquidation preference shares will remain at 7% for five years subsequent to September 30, 2024 and will be capped at 8% thereafter. 

“Through these actions, alongside the reduction to the company's quarterly common dividend, the company will meaningfully reduce its fixed charges given the opportunity it has to put capital to work at attractive returns, in its E&S segment especially,” the company said. 

Frank D'Orazio, James River’s chief executive officer, said: “With the strategic actions we are announcing - notably the addition of Enstar as both a significant shareholder and strategic partner and the continued commitment of Gallatin Point - our highly regarded E&S franchise is significantly de-risked and well positioned to take advantage of strong market support amid a robust E&S environment. 

“Momentum in our Core E&S franchise has continued to build each quarter during 2024 as we continue to balance attractive market conditions with underwriting discipline.”

David Ni, chief strategy officer of Enstar Group, added: “In conjunction with these transactions, Enstar has had the opportunity to become well-versed with the Company’s business and we are pleased to make a $12.5 million common equity investment, underscoring our support of James River and its E&S franchise.”

Matthew Botein, co-founder and managing partner of Gallatin Point Capital, added: “I have seen the team at James River make deep and meaningful improvements to the Company over the last several years. 

“These transactions are the culmination of those efforts and Gallatin Point is very supportive of James River as it enters a new phase, where it is poised to capitalise on the market opportunity for its flagship E&S operation.”

James River said its E&S gross written premium grew 6% to $230 million and had a positive renewal rate change of 8.6%. While the segment reported a 136.1% combined ratio, the current accident year combined ratio for the segment was 92.6%.

The specialty admitted insurance segment combined ratio was 91.3%, with fronting and programme gross written premium growth of 8.7% excluding the non-renewed workers'  compensation programs. Its gross written premium dropped 20% to $100.2 million. 

Net investment income increased 8.1% to $23.5 million, with all asset classes reporting higher income.

Shareholders' equity per share of $14.02 decreased 2.1% sequentially from June 30, 2024, due to the net loss from continuing operations, while tangible common equity per share increased 1.9% sequentially.

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