James River Group sees Q4 2017 net income plummet
Bermuda-based James River Group Holdings has announced that net income for the fourth quarter of 2017 came to $0.2 million, a 99.3 percent fall from the $25.7 million it made in the same period of 2016.
The company said that it had seen $29.8 million of unfavorable development in its excess and surplus lines segment during the quarter, driven by one large account in one prior underwriting year.
The fall in the fourth quarter results contributed to the company seeing its full-year net income falling from $74.5 million in 2016 to $43.6 million in 2017.
The Tax Cuts and Jobs Act of 2017 (TCJA) was signed into law on December 22, 2017. Among other provisions, the TCJA lowered the US federal corporate tax rate from 35 percent to 21 percent for the tax years beginning after December 31, 2017. As a result, James River reduced its deferred tax liability as of December 31, 2017 to reflect the lower rate. This resulted in a reduction to its net deferred tax liability of $3.5 million.
The TCJA also incorporated certain provisions including the introduction of the Base Erosion Anti-Abuse Tax (BEAT). The BEAT establishes a minimum tax on transactions between US corporations and their non US affiliates. Effective January 1, 2018, the company will restructure its internal quota share to be ceded to a newly formed related counterparty, Carolina Re, which will be licensed as a Bermuda Class 3A (re)insurance company. Carolina Re will make a 953(d) election to become a US corporate tax payer. James River does not expect that its third party casualty reinsurance operations will be affected by the TCJA.
“While we are disappointed with our financial results for the fourth quarter, we expect underwriting results to return to historic levels of profitability in 2018,” said Robert Myron, chief executive officer. “We continue to make improvements in our expense ratio due to scale and operating efficiencies. We had a 6 percent rate increase and double digit growth across our core E&S business in the fourth quarter and we have renewed our largest account with attractive terms and conditions, all of which bodes well for a strong 2018. We remain confident in our underwriting discipline and selective pursuit of attractive growth opportunities. We believe we are well positioned to achieve a 12 percent or better operating return on tangible equity for 2018.
“In the fourth quarter, we strengthened loss reserves for one account in one underwriting year. Despite the reserve strengthening, we produced an underwriting profit and a 99.2% combined ratio for the year. We are also pleased to report that we had a modest take down in our catastrophe loss reserves from third quarter events. Our loss reserves at year end remain above our third party actuaries' point estimate.
“In light of recent US tax law changes, we altered our corporate structure after year end. We will remain a Bermuda based company and expect our tax rate will remain consistent with our tax rates over the past five years.”
The company saw its net written premiums rise from $557.7 million in 2016 to $766.6 milion in 2017, whilst net investment income rose from $52.6 million in 2016 to $61.1 million in 2017.
