James River Group hit with ratings outlook downgrade

Bermuda-based James River Group Holdings (JRG Holdings) has had the ratings outlook of some of its subsidiaries downgraded from stable to negative by ratings agency AM Best following its announcement it had identified a material weakness in its internal control over financial reporting which forced it to restate its earnings. 

While most of the subsidiaries' A- financial strength rating has been affirmed, its Bermuda subsidiary JRG Reinsurance Company, which is due to be sold, has had its FSR lowered to B++ from A- and its credit ratings have been placed under review with negative ratings. 

JRG Holdings' own long-term issuer credit rating has been downgraded to bb-. The company is led by led by chief executive officer Frank D'Orazio. 

AM Best said: "These rating actions follow JRG Holdings’ recent announcements that it has identified a material weakness in its internal control over financial reporting, it will sell JRG Re and it will explore strategic business alternatives for the organisation. 

"As part of this process, the board stated that it will consider a wide range of options including, among other things, a potential sale, merger or other strategic action. The negative outlook reflects the uncertainty that these announcements will have on the organization, whilst also reflecting the execution risk associated with some of these initiatives."

It added: "The rating downgrade of JRG Re reflects AM Best’s view that the company is less integral to JRG Holdings’ strategic, operational and financial objectives. This view is supported by management’s decision to suspend underwriting business in JRG Re earlier this year following operating losses over the past several quarters. 

"Furthermore, JRG Holdings recently announced that it had entered into a definitive agreement to sell JRG Re to Fleming Intermediate Holdings LLC at .75x the book value of JRG Re at closing."

JRG Re has been placed under review with negative implications. Pending required regulatory approvals, the transaction is expected to close during the first quarter of 2024.

AM Best said the ratings of JRG Re reflect the company’s balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, limited business profile and marginal ERM. The ratings also benefit from lift that is attributable to operational and past financial support from JRG Holdings.

The ratings of JRG Holdings’ subsidiaries reflect their balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and marginal enterprise risk management (ERM).

The FSR of A- (Excellent) and the Long-Term ICRs of “a-” (Excellent) have been affirmed with the outlooks revised to negative from stable for the following subsidiaries of JRG Holdings: James River Insurance Company; James River Casualty Company; Falls Lake National Insurance Company; Stonewood Insurance Company; Falls Lake Fire and Casualty Company; and Carolina Re.