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 September 30, ~~2019~~2020



☐			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,, PembrokeHM08,, Bermuda

(Address of principal executive offices)

(Zip Code)

(~~441~~) (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 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, 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

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 ~~November 5, 2019: 30,405,422~~

October 27, 2020: 30,610,153

James River Group Holdings, Ltd.

Form 10-Q

Index



		Page Number
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets—September 30, ~~2019~~2020 and December 31, ~~2018~~2019	5

	Condensed Consolidated Statements of Income (Loss) ~~Income~~ and Comprehensive ~~(Loss)~~ Income—Three and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019	7

	Condensed Consolidated Statements of Changes in Shareholders’ Equity—Three and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019	8

	Condensed Consolidated Statements of Cash Flows—Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019	10

	Notes to Condensed Consolidated Financial Statements	11

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31

	Critical Accounting Policies and Estimates	3132

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5354

Item 4.	Controls and Procedures	5354

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	5354
Item 1A.	Risk Factors	5354
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5356
Item 3.	Defaults Upon Senior Securities	5356
Item 4.	Mine Safety Disclosure	5356
Item 5.	Other Information	5356
Item 6.	Exhibits	5457

Signatures		5558

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, 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 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 decline in our financial strength rating resulting in a reduction of new or renewal business;

•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;

•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 an insured group of companies with whom we have an indemnification arrangement failing to perform their reimbursement obligations;

•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 taxes on our shareholders;

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

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

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

•

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

•the effects of the COVID-19 pandemic and associated government actions on our operations and financial performance (see “Impact of the COVID-19 Pandemic” in Part I, Item 2 of this Quarterly Report);

•

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;

•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;

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

•our ability to manage our growth effectively;

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


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

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

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 Part II, Item 1A "Risk Factors" in this Quarterly Report, and our filings with the U.S. Securities and Exchange Commission ("SEC"), including our Annual Report on Form 10-K filed with the SEC on February 27, ~~2019.~~2020.

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.

Table of Contents

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

JAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets


	(Unaudited) September 30, 2019		December 31, 2018			(Unaudited) September 30, 2020		December 31, 2019
	(in thousands)					(in thousands)
Assets					Assets
Invested assets:					Invested assets:
Fixed maturity securities, available-for-sale, at fair value (amortized cost: 2019 – $1,338,131; 2018 – $1,199,409)	$	1,377,323	$	1,184,202
Equity securities, at fair value (cost: 2019 – $78,906; 2018 – $77,152)	88,840		78,385
Bank loan participations held-for-investment, at amortized cost, net of allowance	249,907		260,972

Fixed maturity securities, available-for-sale, at fair value (amortized cost: 2020 – $1,724,561; 2019 – $1,398,533)					Fixed maturity securities, available-for-sale, at fair value (amortized cost: 2020 – $1,724,561; 2019 – $1,398,533)	$	1,813,471	$	1,433,626

Equity securities, at fair value (cost: 2020 – $79,300; 2019 – $73,244)					Equity securities, at fair value (cost: 2020 – $79,300; 2019 – $73,244)	79,896		80,735
Bank loan participations (2020: at fair value; 2019: held-for-investment, at amortized cost, net of allowance)					Bank loan participations (2020: at fair value; 2019: held-for-investment, at amortized cost, net of allowance)	131,198		260,864
Short-term investments	49,884		81,966		Short-term investments	71,986		156,925
Other invested assets	65,864		72,321		Other invested assets	45,621		61,210
Total invested assets	1,831,818		1,677,846		Total invested assets	2,142,172		1,993,360

Cash and cash equivalents	256,302		172,457		Cash and cash equivalents	139,969		206,912
Restricted cash equivalents					Restricted cash equivalents	940,221		1,199,164
Accrued investment income	13,603		11,110		Accrued investment income	11,730		13,597
Premiums receivable and agents’ balances, net	360,587		307,899		Premiums receivable and agents’ balances, net	331,008		369,462
Reinsurance recoverable on unpaid losses	614,827		467,371
Reinsurance recoverable on unpaid losses, net					Reinsurance recoverable on unpaid losses, net	769,815		668,045
Reinsurance recoverable on paid losses	40,822		18,344		Reinsurance recoverable on paid losses	36,591		33,221
Prepaid reinsurance premiums	167,338		112,498		Prepaid reinsurance premiums	237,544		178,976
Deferred policy acquisition costs	60,970		54,450		Deferred policy acquisition costs	53,967		62,006
Intangible assets, net	37,090		37,537		Intangible assets, net	36,493		36,940
Goodwill	181,831		181,831		Goodwill	181,831		181,831
Other assets	95,728		95,433		Other assets	103,012		80,891
Total assets	$	3,660,916	$	3,136,776	Total assets	$	4,984,353	$	5,024,405

See accompanying notes.

Table of Contents

JAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (continued)


	(Unaudited) September 30, 2019		December 31, 2018				(Unaudited) September 30, 2020		December 31, 2019
	(in thousands, except share amounts)						(in thousands, except share amounts)
Liabilities and Shareholders’ Equity						Liabilities and Shareholders’ Equity
Liabilities:						Liabilities:
Reserve for losses and loss adjustment expenses	$	1,941,307	$	1,661,459		Reserve for losses and loss adjustment expenses	$	2,106,749	$	2,045,506
Unearned premiums	510,109		386,473			Unearned premiums	581,098		524,377
Payables to reinsurers	131,093		61,662			Payables to reinsurers	109,727		108,059
Funds held						Funds held	940,221		1,199,164
Senior debt	98,300		118,300			Senior debt	217,300		158,300
Junior subordinated debt	104,055		104,055			Junior subordinated debt	104,055		104,055
Accrued expenses	57,637		51,792			Accrued expenses	54,907		58,416
Other liabilities	49,446		43,794			Other liabilities	48,890		47,947
Total liabilities	2,891,947		2,427,535			Total liabilities	4,162,947		4,245,824
Commitments and contingent liabilities						Commitments and contingent liabilities	0		0
Shareholders’ equity:						Shareholders’ equity:
Common Shares – 2019 and 2018: $0.0002 par value; 200,000,000 shares authorized; 30,401,270 and 29,988,460 shares issued and outstanding, respectively	6		6
Preferred Shares – 2019 and 2018: $0.00125 par value; 20,000,000 shares authorized; no shares issued and outstanding	—		—
Common Shares – 2020 and 2019: $0.0002 par value; 200,000,000 shares authorized; 30,610,153 and 30,424,391 shares issued and outstanding, respectively						Common Shares – 2020 and 2019: $0.0002 par value; 200,000,000 shares authorized; 30,610,153 and 30,424,391 shares issued and outstanding, respectively	6		6
Preferred Shares – 2020 and 2019: $0.00125 par value; 20,000,000 shares authorized; 0 shares issued and outstanding						Preferred Shares – 2020 and 2019: $0.00125 par value; 20,000,000 shares authorized; 0 shares issued and outstanding	0		0
Additional paid-in capital	655,998		645,310			Additional paid-in capital	664,092		657,875
Retained earnings	78,344		79,753			Retained earnings	78,761		89,586
Accumulated other comprehensive income (loss)	34,621		(15,828		)
Accumulated other comprehensive income						Accumulated other comprehensive income	78,547		31,114
Total shareholders’ equity	768,969		709,241			Total shareholders’ equity	821,406		778,581
Total liabilities and shareholders’ equity	$	3,660,916	$	3,136,776		Total liabilities and shareholders’ equity	$	4,984,353	$	5,024,405

See accompanying notes.

Table of Contents

JAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (Loss) ~~Income~~ and Comprehensive Income (Loss) ~~Income~~ (Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands, except share amounts)
Revenues
Gross written premiums	$	311,852	$	388,228	$	897,332	$	1,095,565
Ceded written premiums	(166,693)		(164,359)		(451,762)		(424,045)
Net written premiums	145,159		223,869		445,570		671,520
Change in net unearned premiums	7,803		(10,495)		2,125		(68,880)
Net earned premiums	152,962		213,374		447,695		602,640
Net investment income	14,959		17,878		51,145		54,844
Net realized and unrealized gains (losses) on investments	8,929		(2,357)		(27,885)		331
Other income	615		2,579		3,543		8,160
Total revenues	177,465		231,474		474,498		665,975
Expenses
Losses and loss adjustment expenses	106,155		214,084		301,757		501,064
Other operating expenses	38,224		41,692		133,242		132,287
Other expenses	60		372		1,792		1,055
Interest expense	2,129		2,594		7,970		8,086
Amortization of intangible assets	149		149		447		447
Total expenses	146,717		258,891		445,208		642,939
Income (loss) before taxes	30,748		(27,417)		29,290		23,036
Income tax expense (benefit)	4,465		(2,250)		4,208		5,168
Net income (loss)	26,283		(25,167)		25,082		17,868
Other comprehensive income:
Net unrealized gains, net of taxes of $849 and $6,384 in 2020 and $638 and $3,949 in 2019	5,039		9,457		47,433		50,449
Total comprehensive income (loss)	$	31,322	$	(15,710)	$	72,515	$	68,317
Per share data:
Basic earnings (loss) per share	$	0.86	$	(0.83)	$	0.82	$	0.59
Diluted earnings (loss) per share	$	0.85	$	(0.83)	$	0.81	$	0.58
Dividend declared per share	$	0.30	$	0.30	$	0.90	$	0.90
Weighted-average common shares outstanding:
Basic	30,582,540		30,382,105		30,529,557		30,230,490
Diluted	30,946,843		30,382,105		30,838,595		30,659,389

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
(in thousands, except share amounts)
Revenues

Gross written premiums $ 388,228
$ 279,969
$ 1,095,565
$ 871,463
Ceded written premiums (164,359 ) (106,528 ) (424,045 ) (298,438 )
Net written premiums 223,869
173,441
671,520
573,025
Change in net unearned premiums (10,495 ) 31,249
(68,880 ) 40,817
Net earned premiums 213,374
204,690
602,640
613,842
Net investment income 17,878
16,410
54,844
45,801
Net realized and unrealized (losses) gains on investments (2,357 ) 467
331
(407 )
Other income 2,579
3,125
8,160
11,841
Total revenues 231,474
224,692
665,975
671,077
Expenses

Losses and loss adjustment expenses 214,084
150,387
501,064
448,754
Other operating expenses 41,692
49,180
132,287
155,714
Other expenses 372
(131 ) 1,055
(34 )
Interest expense 2,594
2,991
8,086
8,459
Amortization of intangible assets 149
149
447
447
Total expenses 258,891
202,576
642,939
613,340
(Loss) income before taxes (27,417 ) 22,116
23,036
57,737
Income tax (benefit) expense (2,250 ) 2,535
5,168
5,539
Net (loss) income (25,167 ) 19,581
17,868
52,198
Other comprehensive income (loss):

Net unrealized gains (losses), net of taxes of $638 and $3,949 in 2019 and $(407) and $(1,134) in 2018 9,457
(4,389 ) 50,449
(29,494 )
Total comprehensive (loss) income $ (15,710 ) $ 15,192
$ 68,317
$ 22,704
Per share data:

Basic (loss) earnings per share $ (0.83 ) $ 0.65
$ 0.59
$ 1.75
Diluted (loss) earnings per share $ (0.83 ) $ 0.64
$ 0.58
$ 1.72
Dividend declared per share $ 0.30
$ 0.30
$ 0.90
$ 0.90
Weighted-average common shares outstanding:

Basic 30,382,105
29,935,216
30,230,490
29,861,467
Diluted 30,382,105
30,380,145
30,659,389
30,290,183

See accompanying notes.

Table of Contents

JAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIES

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


	Number of Common Shares Outstanding	Common Shares (Par)		Preferred Shares		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total
	(in thousands, except share amounts)
Balances at June 30, 2020	30,553,178	$	6	$	0	$	660,427	$	61,770	$	73,508	$	795,711
Net income	—	—		—		—		26,283		—		26,283
Other comprehensive income	—	—		—		—		—		5,039		5,039
Dividends	—	—		—		—		(9,292)		—		(9,292)
Exercise of stock options	50,474	—		—		1,691		—		—		1,691
Vesting of RSUs	6,501	—		—		(123)		—		—		(123)
Compensation expense under share incentive plans	—	—		—		2,097		—		—		2,097
Balances at September 30, 2020	30,610,153	$	6	$	0	$	664,092	$	78,761	$	78,547	$	821,406

Balances at December 31, 2019	30,424,391	$	6	$	0	$	657,875	$	89,586	$	31,114	$	778,581
Net income	—	—		—		—		25,082		—		25,082
Other comprehensive income	—	—		—		—		—		47,433		47,433
Dividends	—	—		—		—		(27,815)		—		(27,815)
Exercise of stock options	79,615	—		—		2,529		—		—		2,529
Vesting of RSUs	106,147	—		—		(2,186)		—		—		(2,186)
Compensation expense under share incentive plans	—	—		—		5,874		—		—		5,874
Cumulative effect of fair value option election (see Note 1)	—	—		—		—		(7,827)		—		(7,827)
Cumulative effect of adoption of ASU No. 2016-13 (see Note 1)	—	—		—		—		(265)		—		(265)
Balances at September 30, 2020	30,610,153	$	6	$	0	$	664,092	$	78,761	$	78,547	$	821,406

Number of
Common
Shares
Outstanding Common
Shares (Par) Preferred
Shares Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Total
(in thousands, except share amounts)
Balances at June 30, 2019 30,330,675
$ 6
$ —
$ 653,151
$ 112,729
$ 25,164
$ 791,050
Net loss —
—
—
—
(25,167 ) —
(25,167 )
Other comprehensive income —
—
—
—
—
9,457
9,457
Dividends —
—
—
—
(9,218 ) —
(9,218 )
Exercise of stock options 70,595
—
—
1,068
—
—
1,068
Compensation expense under share incentive plans —
—
—
1,779
—
—
1,779
Balances at September 30, 2019 30,401,270
$ 6
$ —
$ 655,998
$ 78,344
$ 34,621
$ 768,969

Balances at December 31, 2018 29,988,460
$ 6
$ —
$ 645,310
$ 79,753
$ (15,828 ) $ 709,241
Net income —
—
—
—
17,868
—
17,868
Other comprehensive income —
—
—
—
—
50,449
50,449
Dividends —
—
—
—
(27,557 ) —
(27,557 )
Exercise of stock options 336,533
—
—
6,799
—
—
6,799
Vesting of RSUs 76,277
—
—
(1,374 ) —
—
(1,374 )
Compensation expense under share incentive plans —
—
—
5,263
—
—
5,263
Adoption of ASU No. 2016-02, derecognition of build-to-suit lease, (see Note 1)

—
—
—
—
8,280
—
8,280
Balances at September 30, 2019 30,401,270
$ 6
$ —
$ 655,998
$ 78,344
$ 34,621
$ 768,969

~~See accompanying notes.~~

Table of Contents

JAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIES

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


	Number of Common Shares Outstanding	Common Shares (Par)		Preferred Shares		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
	(in thousands, except share amounts)
Balances at June 30, 2019	30,330,675	$	6	$	0	$	653,151	$	112,729	$	25,164	$	791,050
Net loss	—	—		—		—		(25,167)		—		(25,167)
Other comprehensive income	—	—		—		—		—		9,457		9,457
Dividends	—	—		—		—		(9,218)		—		(9,218)
Exercise of stock options	70,595	—		—		1,068		—		—		1,068

Compensation expense under share incentive plans	—	—		—		1,779		—		—		1,779
Balances at September 30, 2019	30,401,270	$	6	$	0	$	655,998	$	78,344	$	34,621	$	768,969

Balances at December 31, 2018	29,988,460	$	6	$	0	$	645,310	$	79,753	$	(15,828)	$	709,241
Net income	—	—		—		—		17,868		—		17,868
Other comprehensive income	—	—		—		��		—		50,449		50,449
Dividends	—	—		—		—		(27,557)		—		(27,557)
Exercise of stock options	336,533	—		—		6,799		—		—		6,799
Vesting of RSUs	76,277	—		—		(1,374)		—		—		(1,374)
Compensation expense under share incentive plans	—	—		—		5,263		—		—		5,263
Adoption of ASU No. 2016-02, derecognition of build-to-suit lease	—	—				—		8,280		—		8,280
Balances at September 30, 2019	30,401,270	$	6	$	0	$	655,998	$	78,344	$	34,621	$	768,969

Number of
Common
Shares
Outstanding Common
Shares (Par) Preferred
Shares Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Total
(in thousands, except share amounts)
Balances at June 30, 2018 29,917,821
$ 6
$ —
$ 641,290
$ 66,677
$ (18,730 ) $ 689,243
Net income —
—
—
—
19,581
—
19,581
Other comprehensive loss —
—
—
—
—
(4,389 ) (4,389 )
Dividends —
—
—
—
(9,080 ) —
(9,080 )
Exercise of stock options 32,299
—
—
372
—
—
372
Compensation expense under share incentive plans —
—
—
1,681
—
—
1,681
Balances at September 30, 2018 29,950,120
$ 6
$ —
$ 643,343
$ 77,178
$ (23,119 ) $ 697,408

Balances at December 31, 2017 29,696,682
$ 6
$ —
$ 636,149
$ 48,198
$ 10,346
$ 694,699
Net income —
—
—
—
52,198
—
52,198
Other comprehensive loss —
—
—
—
—
(29,494 ) (29,494 )
Dividends —
—
—
—
(27,189 ) —
(27,189 )
Exercise of stock options 210,134
—
—
3,175
—
—
3,175
Vesting of RSUs 43,304
—
—
(777 ) —
—
(777 )
Compensation expense under share incentive plans —
—
—
4,796
—
—
4,796
Cumulative effect of adoption of ASU No. 2016-01, net of taxes

—
—
—
4,682
(4,682 ) —
Cumulative effect of adoption of ASU No. 2018-02

—
—
—
—
(711 ) 711
—
Balances at September 30, 2018 29,950,120
$ 6
$ —
$ 643,343
$ 77,178
$ (23,119 ) $ 697,408

See accompanying notes.

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JAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)


	Nine Months Ended September 30,
	2020		2019
	(in thousands)
Operating activities
Net cash (used in) provided by operating activities (a)	$	(222,060)	$	213,787
Investing activities
Securities available-for-sale:
Purchases – fixed maturity securities	(509,764)		(327,725)
Sales – fixed maturity securities	17,465		102,030
Maturities and calls – fixed maturity securities	163,974		85,921
Purchases – equity securities	(10,057)		(4,975)
Sales – equity securities	3,945		3,131
Bank loan participations:
Purchases	(36,168)		(73,102)
Sales	113,432		41,707
Maturities	22,786		34,303
Other invested assets:
Purchases	(1,687)		0
Return of capital	314		1,477
Redemptions	16,292		7,016
Short-term investments, net	84,939		32,082
Securities receivable or payable, net	(487)		10,673
Purchases of property and equipment	(315)		(442)
Net cash used in investing activities	(135,331)		(87,904)
Financing activities
Senior debt issuances	119,000		0
Senior debt repayments	(60,000)		(20,000)
Dividends paid	(27,838)		(27,463)
Issuance of common shares under equity incentive plans	2,529		7,961
Common share repurchases	(2,186)		(2,536)

Net cash provided by (used in) financing activities	31,505		(42,038)
Change in cash, cash equivalents, and restricted cash equivalents	(325,886)		83,845
Cash, cash equivalents, and restricted cash equivalents at beginning of period	1,406,076		172,457
Cash, cash equivalents, and restricted cash equivalents at end of period	$	1,080,190	$	256,302
Supplemental information
Interest paid	$	9,023	$	9,510

Nine Months Ended September 30,
2019 2018
(in thousands)
Operating activities

Net cash provided by operating activities $ 213,787
$ 251,913
Investing activities

Securities available-for-sale:

Purchases – fixed maturity securities (327,725 ) (367,279 )
Sales – fixed maturity securities 102,030
82,498
Maturities and calls – fixed maturity securities 85,921
113,980
Purchases – equity securities (4,975 ) (6,274 )
Sales – equity securities 3,131
3,180
Bank loan participations:

Purchases (73,102 ) (165,878 )
Sales 41,707
98,739
Maturities 34,303
43,139
Other invested assets:

Purchases —
(6,993 )
Return of capital 1,477
260
Redemptions 7,016
—
Short-term investments, net 32,082
(3,415 )
Securities receivable or payable, net 10,673
3,064
Purchases of property and equipment (442 ) (595 )
Net cash used in investing activities (87,904 ) (205,574 )
Financing activities

Senior debt repayment (20,000 ) —
Dividends paid (27,463 ) (27,024 )
Issuance of common shares under equity incentive plans 7,961
4,296
Common share repurchases (2,536 ) (1,898 )
Other financing activities —
(791 )
Net cash used in financing activities (42,038 ) (25,417 )
Change in cash and cash equivalents 83,845
20,922
Cash and cash equivalents at beginning of period 172,457
163,495
Cash and cash equivalents at end of period $ 256,302
$ 184,417
Supplemental information

Interest paid $ 9,510
$ 8,380

(a) Cash used in operating activities for the nine months ended September 30, 2020 primarily reflects $258.9 million of restricted cash equivalents returned to a former insured, per the terms of a collateral trust (see Amounts Recoverable from an Indemnifying Party in Liquidity and Capital Resources). Excluding the reduction in the collateral funds, cash provided by operating activities was $36.9 million for the nine months ended September 30, 2020.

See accompanying notes.

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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 5 insurance companies based in the United States (“U.S.”) focused on specialty insurance niches and 2 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 is also the cedent on a stop loss reinsurance treaty with JRG Re.

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, ~~2018~~2019 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, ~~2018~~2019 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.

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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 ~~$31.6~~$30.5 million and ~~$29.8~~$31.2 million ~~as of~~at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, 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 the nine months ended September 30, 2019 and 2018, our U.S. federal income tax expense was 22.4% and 9.6% of income before taxes, respectively.~~ 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 nine months ended September 30, 2020, our U.S. federal income tax expense was 14.4% of income before taxes. For the nine months ended September 30, 2019, our U.S. federal income tax expense was 22.4% of income before taxes. The effective tax rate for the nine months ended September 30, 2019 was elevated due to changes in reserve estimates between accident years in the commercial auto business, and the related impact on the mix of income reported by country.

~~Effective January 1, 2018, the Company adopted ASU~~ ~~2018-02,~~ ~~Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.~~ This update was issued as a result of the enactment of the Tax Cuts and Jobs Act of 2017 ("TCJA"). The ASU allows for the option to reclassify the stranded tax effects resulting from the implementation of the TCJA out of accumulated other comprehensive income and into retained earnings. The reclassification resulted in a $711,000 decrease to the Company's retained earnings with a corresponding increase to accumulated other comprehensive income in the first quarter of 2018 in connection with the Company's adoption of this ASU.

Adopted Accounting Standards

~~Effective~~On January 1, ~~2019,~~2020, the Company adopted ~~ASU 2016-02,~~ ~~Leases (Topic 842). This update requires the recognition of a right-of-use asset and a corresponding lease liability, discounted to the present value, for all leases that extend beyond 12 months.~~ The Company adopted the new standard using a modified retrospective transition method, applying the transition provisions at the beginning of the period of adoption. The Company elected the package of practical expedients permitted under the transition guidance within the new standard and did not elect to use hindsight in determining the lease term. Upon adoption of the new standard, the Company derecognized assets of $22.6 million and liabilities of $30.9 million associated with a lease that was designated as build-to-suit under the previous guidance, and recorded a cumulative-effect adjustment to increase retained earnings by $8.3 million.

The Company recorded right-of-use assets of $17.2 million and lease liabilities of $17.8 million at adoption of the new standard associated with operating leases for office space in Bermuda, North Carolina, Virginia, Arizona, and Georgia. The new standard did not materially impact the Company's results of operations, earnings per share, or cash flows, and did not impact compliance under the covenants of our current credit agreements.

~~At September 30, 2019, right-of-use assets and lease liabilities were $16.2 million and $17.1 million, respectively. Operating lease costs were $1.3 million and $3.8 million in the three and nine~~ ~~months ended~~ ~~September 30, 2019, respectively, compared to $1.3 million and $3.5 million in the respective prior year periods.~~ ~~The weighted-average discount rate and weighted average remaining lease term for operating leases was 4.3% and 5.5 years, respectively, as of September 30, 2019.~~

~~Table of Contents~~

~~JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

The table below summarizes maturities of the Company’s operating lease liabilities as of September 30, 2019, which reconciles to total lease liabilities included in other liabilities on the Company’s condensed consolidated balance sheet:

Years ending December 31, (in thousands)
2019 $ 959
2020 3,680
2021 3,491
2022 3,293
2023 3,099
Thereafter 4,706
Total lease payments 19,228
Less imputed interest (2,159 )
Total operating lease liabilities $ 17,069

~~Prospective Accounting Standards~~

~~In June 2016, the FASB issued~~ ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial ~~Instruments.~~Instruments ~~Current GAAP~~, using the modified retrospective approach, by which a cumulative-effect adjustment was made to retained earnings as of the date of adoption. This update requires ~~the recognition of credit losses when it is probable a loss has been incurred. The update will require~~ financial assets measured at amortized cost, such as bank loan participations held for investment, to be presented at the net amount expected to be collected by means of an allowance for credit losses that is reflected in net income. Credit losses relating to available-for-sale debt securities ~~will also be~~are recorded through an allowance for credit losses, with the amount of the allowance limited to the amount by which fair value is below amortized cost. This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. The Company plans to adopt the ASU on January 1, 2020 using the modified-retrospective approach, by which a cumulative-effect adjustment will be made to retained earnings as of the date of adoption. The Company is finalizing its implementation process for the adoption of this ASU and the evaluation of what effects the new standard will have on the Company’s financial statements.

~~This ASU will have the greatest impact on our portfolio of bank loan participations and on our allowance for uncollectible reinsurance balances.~~ In connection with the adoption of this ASU, ~~we expect to elect~~the Company elected the fair value option in accounting for bank loan participations effective January 1, 2020. ~~We also expect to use the~~The targeted transition relief offered by ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief was applied to ~~also~~ elect the fair value option to account for bank loan participations already held at the January 1, 2020 date of adoption. Under the fair value option, bank loan participations ~~will be~~are measured at fair value, and changes in unrealized gains and losses in bank loan participations ~~will be~~are reported in our income statement as net realized and unrealized gains (losses) on investments. At adoption on January 1, 2020, the Company reduced the carrying value of its bank loan portfolio to fair value through an $8.4 million adjustment with a $7.8 million (net of tax) cumulative effect adjustment to reduce retained earnings.

Upon adoption of this ASU, ~~we anticipate that we will establish~~the Company established an allowance for uncollectible reinsurance balances ~~but because~~through a $265,000 (net of tax) cumulative effect adjustment to retained earnings. Because we purchase reinsurance from financially strong reinsurers or we have collateral securing the recoverables, ~~we do not expect that~~ the effect of adoption ~~will be~~was not material to our financial position.

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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)
September 30, 2019

Fixed maturity securities:

State and municipal $ 145,016
$ 9,460
$ (89 ) $ 154,387
Residential mortgage-backed 245,315
2,849
(951 ) 247,213
Corporate 603,524
21,887
(231 ) 625,180
Commercial mortgage and asset-backed 230,417
5,221
(434 ) 235,204
U.S. Treasury securities and obligations guaranteed by the U.S. government 111,834
1,538
(40 ) 113,332
Redeemable preferred stock 2,025
—
(18 ) 2,007
Total fixed maturity securities, available-for-sale $ 1,338,131

$ 40,955

$ (1,763 )
$ 1,377,323
December 31, 2018

Fixed maturity securities:

State and municipal $ 147,160
$ 3,422
$ (1,287 ) $ 149,295
Residential mortgage-backed 208,869
577
(5,337 ) 204,109
Corporate 534,024
1,516
(10,772 ) 524,768
Commercial mortgage and asset-backed 199,528
310
(2,813 ) 197,025
U.S. Treasury securities and obligations guaranteed by the U.S. government 107,803
235
(845 ) 107,193
Redeemable preferred stock 2,025
—
(213 ) 1,812
Total fixed maturity securities, available-for-sale $ 1,199,409

$ 6,060

$ (21,267 )
$ 1,184,202


	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in thousands)
September 30, 2020
Fixed maturity securities:
State and municipal	$	271,218	$	17,484	$	(106)	$	288,596
Residential mortgage-backed	297,932		8,591		(54)		306,469
Corporate	727,678		50,067		(790)		776,955
Commercial mortgage and asset-backed	324,966		12,535		(1,667)		335,834

U.S. Treasury securities and obligations guaranteed by the U.S. government	100,742		2,852		0		103,594
Redeemable preferred stock	2,025		0		(2)		2,023
Total fixed maturity securities, available-for-sale	$	1,724,561	$	91,529	$	(2,619)	$	1,813,471
December 31, 2019
Fixed maturity securities:
State and municipal	$	159,894	$	7,949	$	(742)	$	167,101
Residential mortgage-backed	261,524		3,244		(622)		264,146
Corporate	611,304		21,306		(389)		632,221
Commercial mortgage and asset-backed	249,309		3,954		(806)		252,457

U.S. Treasury securities and obligations guaranteed by the U.S. government	114,477		1,229		(39)		115,667
Redeemable preferred stock	2,025		9		0		2,034
Total fixed maturity securities, available-for-sale	$	1,398,533	$	37,691	$	(2,598)	$	1,433,626

The amortized cost and fair value of available-for-sale investments in fixed maturity securities at September 30, ~~2019~~2020 are summarized, by contractual maturity, as follows:


	Cost or Amortized Cost		Fair Value
	(in thousands)
One year or less	$	104,099	$	105,328
After one year through five years	456,660		483,155
After five years through ten years	306,679		330,510
After ten years	232,200		250,152
Residential mortgage-backed	297,932		306,469
Commercial mortgage and asset-backed	324,966		335,834
Redeemable preferred stock	2,025		2,023
Total	$	1,724,561	$	1,813,471

Cost or
Amortized
Cost Fair
Value
(in thousands)
One year or less $ 76,678
$ 77,005
After one year through five years 459,889
470,945
After five years through ten years 205,048
214,952
After ten years 118,759
129,997
Residential mortgage-backed 245,315
247,213
Commercial mortgage and asset-backed 230,417
235,204
Redeemable preferred stock 2,025
2,007
Total $ 1,338,131
$ 1,377,323

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

1413

Table of Contents

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)
September 30, 2019

Fixed maturity securities:

State and municipal $ 14,250
$ (87 ) $ 667
$ (2 ) $ 14,917
$ (89 )
Residential mortgage-backed 21,623
(34 ) 60,059
(917 ) 81,682
(951 )
Corporate 17,310
(149 ) 29,627
(82 ) 46,937
(231 )
Commercial mortgage and asset-backed 18,225
(70 ) 52,823
(364 ) 71,048
(434 )
U.S. Treasury securities and obligations guaranteed by the U.S. government 105
(1 ) 16,030
(39 ) 16,135
(40 )
Redeemable preferred stock 2,007
(18 ) —
—
2,007
(18 )
Total fixed maturity securities, available-for-sale $ 73,520

$ (359 )
$ 159,206

$ (1,404 )
$ 232,726

$ (1,763 )
December 31, 2018

Fixed maturity securities:

State and municipal $ 19,733
$ (284 ) $ 47,018
$ (1,003 ) $ 66,751
$ (1,287 )
Residential mortgage-backed 49,180
(743 ) 105,778
(4,594 ) 154,958
(5,337 )
Corporate 243,384
(5,089 ) 155,902
(5,683 ) 399,286
(10,772 )
Commercial mortgage and asset-backed 106,423
(1,229 ) 51,805
(1,584 ) 158,228
(2,813 )
U.S. Treasury securities and obligations guaranteed by the U.S. government 17,618
(51 ) 54,201
(794 ) 71,819
(845 )
Redeemable preferred stock 1,812
(213 ) —
—
1,812
(213 )
Total fixed maturity securities, available-for-sale $ 438,150

$ (7,609 )
$ 414,704

$ (13,658 )
$ 852,854

$ (21,267 )


	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)
September 30, 2020
Fixed maturity securities:
State and municipal	$	17,967	$	(106)	$	0	$	0	$	17,967	$	(106)
Residential mortgage-backed	14,601		(54)		0		0		14,601		(54)
Corporate	41,182		(790)		0		0		41,182		(790)
Commercial mortgage and asset-backed	23,964		(1,118)		38,344		(549)		62,308		(1,667)


Redeemable preferred stock	2,023		(2)		0		0		2,023		(2)
Total fixed maturity securities, available-for-sale	$	99,737	$	(2,070)	$	38,344	$	(549)	$	138,081	$	(2,619)
December 31, 2019
Fixed maturity securities:
State and municipal	$	30,028	$	(741)	$	667	$	(1)	$	30,695	$	(742)
Residential mortgage-backed	23,632		(78)		37,363		(544)		60,995		(622)
Corporate	45,550		(365)		9,933		(24)		55,483		(389)
Commercial mortgage and asset-backed	46,434		(406)		56,720		(400)		103,154		(806)

U.S. Treasury securities and obligations guaranteed by the U.S. government	8,474		(22)		7,168		(17)		15,642		(39)

Total fixed maturity securities, available-for-sale	$	154,118	$	(1,612)	$	111,851	$	(986)	$	265,969	$	(2,598)

~~The~~At September 30, 2020, the Company held fixed maturity securities of 7627 issuers that were in an unrealized loss position ~~at September 30, 2019~~ with a total fair value of ~~$232.7~~$138.1 million and gross unrealized losses of ~~$1.8~~$2.6 million. None of the fixed maturity securities with unrealized losses has ever missed, or been delinquent on, a scheduled principal or interest payment.

At September 30, ~~2019, 99.6%~~2020, 99.5% 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 September 30, ~~2019~~2020 had an aggregate fair value of ~~$5.3~~$8.8 million and an aggregate net unrealized gain of ~~$79,000.~~$56,000.

The Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments on January 1, 2020. This update changed the impairment model for available-for-sale fixed maturities and requires the Company to determine whether unrealized losses on available-for-sale fixed maturities 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 will continue to be 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 September 30, 2020. 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.

Management concluded that none of the fixed maturity securities with an unrealized loss at December 31, 2019 had experienced an other-than-temporary impairment. At March 31, 2019, management concluded that 3 fixed maturity

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JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

securities from one issuer that we intended to sell at a loss in the second quarter were impaired. The Company recorded impairment losses on these securities of $271,000 in the three months ended March 31, 2019. Management concluded that none of the fixed maturity securities with an unrealized loss at September 30, 2019 ~~or December 31, 2018~~ had experienced an other-than-temporary impairment. ~~For fixed maturity securities available-for-sale that~~

In connection with the adoption of ASU 2016-13, the Company elected the fair value option in accounting for bank loan participations effective January 1, 2020. The targeted transition relief offered by ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief was applied to elect the fair value option to account for bank loan participations already held at the January 1, 2020 date of adoption. Under the fair value option, bank loan participations are ~~not other-than-temporarily impaired~~measured at fair value, 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. At adoption on January 1, 2020, the Company applied the amendments on a modified retrospective basis, reducing the carrying value of its bank loan portfolio to fair value through an $8.4 million adjustment with a $7.8 million (net of tax) cumulative effect adjustment to reduce retained earnings.

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 ASU 2016-13, which would have otherwise been required. At September 30, ~~2019,~~2020, the Company's bank loan portfolio had an aggregate fair value of $131.2 million and unpaid principal of $151.8 million. Investment income on bank loan participations included in net investment income was $2.4 million and $9.7 million for the three and nine months ended September 30, 2020, respectively. Net realized and unrealized gains (losses) on investments includes gains of $9.7 million and losses of $7.6 million related to changes in unrealized gains and losses on bank loan participations in the three and nine months ended September 30, 2020, respectively, and management ~~does not intend~~concluded that $437,000 and $8.2 million of unrealized losses were due to ~~sell~~credit-related impairments for the ~~securities in an unrealized loss position,~~three and ~~it is not “more likely than not”~~nine months ended September 30, 2020, respectively. Losses due to credit-related impairments were determined based upon consultations and advice from the Company's specialized investment manager and consideration of any adverse situations that could affect the ~~Company will be required~~borrower's ability to ~~sell these securities before a recovery in their~~repay, the estimated value of underlying collateral, and other relevant factors.

Prior to ~~their~~the election of the fair value option on January 1, 2020, bank loan participations were classified as held-for-investment and carried at amortized cost ~~basis occurs.~~

~~Management~~net of any allowance for credit losses. Under the prior accounting method, management concluded that 57 loans from 46 issuers in the Company's bank loan portfolio were impaired at December 31, 2019. At December 31, 2019, the impaired loans had a carrying value of $6.9 million, unpaid principal of $14.3 million, and an allowance for credit losses of $7.2 million, $5.1 million of which related to 2 loans from 1 issuer that was experiencing liquidity concerns resulting from revenue declines and poor growth prospects in its most profitable segment. Management concluded that 5 of the loans in the Company’s loan portfolio were impaired at September 30, 2019. At September 30, 2019, the impaired loans had a carrying value of $6.4 million, unpaid principal of $12.3 million, and an allowance for credit losses of $5.9 million, $4.2 million of which related to 2 loans from 1 issuer ~~who is~~that was experiencing liquidity concerns resulting from revenue declines and poor growth prospects in its most profitable segment. Management concluded that none of the loans in the Company's bank loan portfolio were impaired at September 30, 2018 or December 31, 2018. The aggregate allowance for credit losses on impaired loans was $3.2 million at December 31, 2017.

~~Table of Contents~~

~~JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

At December 31, 2017, the Company held a participation in a loan with unpaid principal of $807,000 issued by a company that produces and supplies power to Puerto Rico through a power purchase agreement with Puerto Rico Electric Power Authority, a public corporation and governmental agency of the Commonwealth of Puerto Rico. Management concluded that an allowance for credit losses should be established on the loan at December 31, 2017 to reduce its carrying value to $0. In the first quarter of 2018, the full outstanding principal on the loan was repaid and the Company recognized a realized gain of $807,000 on the repayment.

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 September 30, ~~2019~~2020 or December 31, ~~2018.~~

The allowance for credit losses is maintained at a level believed adequate by management to absorb estimated probable credit losses. Management’s periodic evaluation of the adequacy of the allowance is based on consultations and a~~dvice~~ of the Company’s independent investment manager, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, current economic conditions, and other relevant factors. When an observable market price for a loan is available, the Company has recorded an allowance equal to the difference between the fair value and the amortized cost of bank loans that it has determined to be impaired as a practical expedient for an estimate of probable future cash flows to be collected on those bank loans. Bank loans are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.2019.

The average recorded investment in impaired bank loans was $3.2 million ~~and $2.6 million~~ during the nine months ended September 30, ~~2019 and 2018, respectively.~~2019. Investment income of $23,000 ~~and $125,000, respectively,~~ was recognized during the time within ~~those periods~~that period that the loans were impaired. The

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JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

Company recorded net realized investment losses of $5.9 million and $7.7 million in the three and nine months ended September 30, 2019, respectively, for changes in the fair value of impaired bank ~~loans (net realized investment gains of $42,000 and net realized investment losses of $851,000 in three and nine months ended September 30, 2018 respectively).~~

~~Table of Contents~~

~~JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

loans.

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
(in thousands)
Fixed maturity securities:

Gross realized gains $ 445
$ 12
$ 1,033
$ 394
Gross realized losses (9 ) (225 ) (494 ) (700 )
436

(213 )
539

(306 )
Bank loan participations:

Gross realized gains 79
186
229
1,766
Gross realized losses (6,056 ) —
(9,056 ) (1,106 )
(5,977 )
186

(8,827 )
660
Equity securities:

Gross realized gains 11
—
11
—
Gross realized losses (78 ) —
(96 ) (62 )
Changes in fair values of equity securities 3,251
494
8,700
(695 )
3,184

494

8,615

(757 )
Short-term investments and other:

Gross realized gains 1
—
5
—
Gross realized losses (1 ) —
(1 ) (4 )
—

—

4

(4 )
Total $ (2,357 )
$ 467

$ 331

$ (407 )


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Fixed maturity securities:
Gross realized gains	$	386	$	445	$	906	$	1,033
Gross realized losses	0		(9)		(1)		(494)
	386		436		905		539
Bank loan participations:
Gross realized gains	24		79		357		229
Gross realized losses	(3,506)		(6,056)		(14,484)		(9,056)
Changes in fair values of bank loan participations	9,741		0		(7,636)		0
	6,259		(5,977)		(21,763)		(8,827)
Equity securities:
Gross realized gains	13		11		13		11
Gross realized losses	0		(78)		(170)		(96)
Changes in fair values of equity securities	2,374		3,251		(6,895)		8,700
	2,387		3,184		(7,052)		8,615
Short-term investments and other:
Gross realized gains	27		1		76		5
Gross realized losses	0		(1)		(1)		(1)
Changes in fair values of short-term investments and other	(130)		0		(50)		0
	(103)		0		25		4
Total	$	8,929	$	(2,357)	$	(27,885)	$	331

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

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


	Carrying Value				Investment Income										Carrying Value				Investment Income
	September 30,		December 31,		Three Months Ended September 30,					Nine Months Ended September 30,					September 30,		December 31,		Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019			2018		2019		2018			2020		2019		2020		2019		2020		2019
	(in thousands)														(in thousands)
Renewable energy LLCs (a)	$	31,618	$	29,795	$	1,602		$	329	$	2,510	$	2,070	Renewable energy LLCs (a)	$	30,520	$	31,219	$	(526)	$	1,602	$	320	$	2,510
Renewable energy notes receivable (b)	8,750		8,750		328			328		984		954		Renewable energy notes receivable (b)	0		8,750		547		328		814		984
Limited partnerships (c)	20,996		29,276		(631		)	989		2,166		2,307		Limited partnerships (c)	10,601		16,741		426		(631)		102		2,166
Bank holding companies (d)	4,500		4,500		85			85		257		257		Bank holding companies (d)	4,500		4,500		86		85		258		257
Total other invested assets	$	65,864	$	72,321	$	1,384		$	1,731	$	5,917	$	5,588	Total other invested assets	$	45,621	$	61,210	$	533	$	1,384	$	1,494	$	5,917

~~(a)~~

The Company’s Corporate and Other segment owns equity interests ranging from 2.6% to 32.2% 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 one of our directors serves as an officer, and the Company’s Chairman and Chief Executive Officer ("CEO") 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 $687,000 and $2.8 million in the nine months ended September 30, 2019 and 2018, respectively.

(a)The Company’s Corporate and Other segment owns 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 Chairman and Chief Executive Officer ("CEO") 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

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JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

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 $1.0 million and $687,000 in the nine months ended September 30, 2020 and 2019, respectively.

~~(b)~~

~~The Company's Corporate and Other segment has invested in notes receivable for renewable energy projects. At~~ ~~September 30, 2019, the Company holds an $8.8 million note issued by an~~ ~~entity for which one of our directors serves as an officer. Interest on the note, which matures in 2021, is fixed at 15.0%. Interest income on the note was $328,000~~

(b)The Company's Corporate and Other segment has invested in notes receivable for renewable energy projects. At December 31, 2019, the Company held an $8.8 million note issued by an entity for which two of our former directors serve as officers. During the nine months ended September 30, 2020, the Company received the total principal balance of $8.8 million for the note issued. Interest on the note was fixed at 15.0%. Interest income on the note was $547,000 and $814,000 for the three and nine months ended September 30, 2020, respectively ($328,000 and $984,000 for the three and nine months ended September 30, 2019, ~~respectively ($328,000 and $954,000 for the three and nine months ended September 30, 2018,~~ respectively).

(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, and tranches of distressed home loans. Income from the partnerships is recognized under the equity method of accounting. The Company’s Corporate and Other segment held an investment in a limited partnership with a carrying value of $3.5 million at September 30, 2020. The Company recognized investment income of $100,000 and $182,000 on the investment for the nine months ended September 30, 2020 and 2019, respectively. The Company’s Excess and Surplus Lines segment holds investments in limited partnerships of $7.1 million at September 30, 2020. Investment income of $2,000 and $2.0 million was recognized on the investments for the nine months ended September 30, 2020 and 2019, respectively. At September 30, 2020, the Company’s Excess and Surplus Lines segment has outstanding commitments to invest another $3.9 million in these limited partnerships.

(d)The Company's Corporate and Other segment holds $4.5 million of subordinated notes issued by a bank holding company for which the Company’s Chairman and CEO was previously the Lead Independent Director and an investor and for which one of the Company’s directors was an investor and is currently a holder of the subordinated notes (the "Bank Holding Company"). Interest on the notes, which mature on August 12, 2023, is fixed at 7.6% per annum. Interest income on the notes was $257,000 for both nine month periods ended September 30, 2020 and 2019, respectively.

~~(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, equity tranches of collateralized loan obligations (“~~CLOs~~”~~), and tranches of distressed home loans.~~ ~~Income f~~rom the partnerships is recognized under the equity method of accounting. The Company’s Corporate and Other segment held an investment in a limited partnership with a carrying value of $3.3 million at September 30, 2019. The Company recognized investment income of $182,000 and $474,000 on the investment for the nine months ended September 30, 2019 and ~~2018~~, respectively. The Company’s Excess and Surplus Lines segment holds investments in limited partnerships of $17.7 million at September 30, 2019. Investment income of $2.0 million and $1.8 million was recognized on the investments for the nine months ended September 30, 2019 and ~~2018, respectively. At September 30, 2019, the Company’s Excess and Surplus Lines segment has outstanding commitments to invest another $625,000 in these limited partnerships.~~

~~(d)~~

The Company's Corporate and Other segment holds $4.5 million of subordinated notes issued by a bank holding company for which the Company’s Chairman and CEO was previously the Lead Independent Director and an investor and for which one of the Company’s directors was an investor and is currently a holder of the subordinated notes (the "Bank Holding Company"). Interest on the notes, which mature on August 12, 2023, is fixed at 7.6% per annum. Interest income on the notes was $257,000 in both the nine months ended September 30, 2019 and 2018, respectively.

At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company held an investment in a CLO where one of the underlying loans was issued by the Bank Holding Company. The investment, with a carrying value of ~~$3.4 million~~$677,000 at September 30, ~~2019,~~2020, is classified as an available-for-sale fixed maturity.

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 September 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

The gross carrying amounts and accumulated amortization for each major specifically identifiable intangible asset class were as follows:

September 30, 2019 December 31, 2018
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
5,685
11,611
5,238
Identifiable intangible assets subject to amortization 11,611
5,685
11,611
5,238
$ 42,775
$ 5,685
$ 42,775
$ 5,238


		September 30, 2020				December 31, 2019
	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		6,282		11,611		5,835
Identifiable intangible assets subject to amortization		11,611		6,282		11,611		5,835
		$	42,775	$	6,282	$	42,775	$	5,835

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JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

4. Earnings Per Share

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
(in thousands, except share and per share amounts)
Net (loss) income to shareholders $ (25,167 ) $ 19,581
$ 17,868
$ 52,198

Weighted average common shares outstanding:
Basic 30,382,105
29,935,216
30,230,490
29,861,467
Common share equivalents —
444,929
428,899
428,716
Diluted 30,382,105
30,380,145
30,659,389
30,290,183

Earnings per share:
Basic $ (0.83 ) $ 0.65
$ 0.59
$ 1.75
Common share equivalents —
(0.01 ) (0.01 ) (0.03 )
Diluted $ (0.83 ) $ 0.64
$ 0.58
$ 1.72


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands, except share and per share amounts)
Net income (loss) to shareholders	$	26,283	$	(25,167)	$	25,082	$	17,868

Weighted average common shares outstanding:
Basic	30,582,540		30,382,105		30,529,557		30,230,490
Common share equivalents	364,303		0		309,038		428,899
Diluted	30,946,843		30,382,105		30,838,595		30,659,389

Earnings (loss) per share:
Basic	$	0.86	$	(0.83)	$	0.82	$	0.59
Common share equivalents	(0.01)		0		(0.01)		(0.01)
Diluted	$	0.85	$	(0.83)	$	0.81	$	0.58

~~Common~~For the three and nine months ended September 30, 2020, all common share equivalents ~~relate to our outstanding equity awards (stock options and restricted share units ("RSUs")).~~are dilutive. For the three months ended September 30, 2019, common share equivalents of 431,137 were excluded from the calculation of diluted earnings per share as a net loss for the three months ended September 30, 2019 made the effects of all common share equivalentsanti-dilutive. For the nine months ended September 30, 2019, all common share equivalents ~~are~~were dilutive. For the three and nine months ended September 30, 2018, common share equivalents of 173,758 and 182,870 shares, respectively, were excluded from the calculations of diluted earnings per share as their effects were anti-dilutive.

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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:~~sheets. Reinsurance recoverables on unpaid losses and loss adjustment expenses are presented gross of a $335,000 allowance for uncollectible reinsurance balances at June 30, 2020 and September 30, 2020.

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
(in thousands)
Reserve for losses and loss adjustment expenses net of reinsurance recoverables at beginning of period $ 1,237,930
$ 1,092,818
$ 1,194,088
$ 989,825
Add: Incurred losses and loss adjustment expenses net of reinsurance:

Current year 157,113
138,168
440,810
436,921
Prior years 56,971
12,219
60,254
11,833
Total incurred losses and loss and adjustment expenses 214,084
150,387
501,064
448,754
Deduct: Loss and loss adjustment expense payments net of reinsurance:

Current year 21,021
25,149
46,275
57,903
Prior years 104,513
72,695
322,397
235,315
Total loss and loss adjustment expense payments 125,534
97,844
368,672
293,218
Reserve for losses and loss adjustment expenses net of reinsurance recoverables at end of period 1,326,480
1,145,361
1,326,480
1,145,361
Add: Reinsurance recoverables on unpaid losses and loss adjustment expenses at end of period 614,827
424,400
614,827
424,400
Reserve for losses and loss adjustment expenses gross of reinsurance recoverables on unpaid losses and loss adjustment expenses at end of period $ 1,941,307
$ 1,569,761
$ 1,941,307
$ 1,569,761


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Reserve for losses and loss adjustment expenses net of reinsurance recoverables at beginning of period	$	1,339,534	$	1,237,930	$	1,377,461	$	1,194,088
Add: Incurred losses and loss adjustment expenses net of reinsurance:
Current year	101,921		157,113		295,523		440,810
Prior years	4,234		56,971		6,234		60,254
Total incurred losses and loss and adjustment expenses	106,155		214,084		301,757		501,064
Deduct: Loss and loss adjustment expense payments net of reinsurance:
Current year	6,950		21,021		13,558		46,275
Prior years	102,140		104,513		329,061		322,397
Total loss and loss adjustment expense payments	109,090		125,534		342,619		368,672
Reserve for losses and loss adjustment expenses net of reinsurance recoverables at end of period	1,336,599		1,326,480		1,336,599		1,326,480
Add: Reinsurance recoverables on unpaid losses and loss adjustment expenses at end of period	770,150		614,827		770,150		614,827
Reserve for losses and loss adjustment expenses gross of reinsurance recoverables on unpaid losses and loss adjustment expenses at end of period	$	2,106,749	$	1,941,307	$	2,106,749	$	1,941,307

The Company experienced $4.2 million of net adverse reserve development in the three months ended September 30, 2020 on the reserve for losses and loss adjustment expenses held at December 31, 2019. This reserve development included $27,000 of net adverse development in the Excess and Surplus Lines segment, $2.0 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 $6.2 million of net adverse development in the Casualty Reinsurance segment due to higher than expected levels of reported losses in the quarter.

The Company experienced $57.0 million of net adverse reserve development in the three months ended September 30, 2019 on the reserve for losses and loss adjustment expenses held at December 31, 2018. This reserve development included $50.0 million of net adverse development in the Excess and Surplus Lines segment primarily related to the 2016 and 2017 accident years for the commercial auto business. The Specialty Admitted Insurance segment experienced $1.0 million of net favorable development due to favorable development in the workers' compensation business for prior accident years. The Company also experienced $7.9 million of net adverse development in the Casualty Reinsurance segment due to higher than expected levels of reported losses in the quarter.

The Company experienced ~~$12.2~~$6.2 million of net adverse reserve development in the ~~three~~nine months ended September 30, ~~2018~~2020 on the reserve for losses and loss adjustment expenses held at December 31, ~~2017.~~2019. This reserve development included ~~$10.4~~$2.8 million of ~~adverse~~net favorable development in the Excess and Surplus Lines segment, ~~primarily from adverse~~$4.0 million of net favorable development in ~~commercial auto business which was partially offset by $3.0 million of favorable development on~~ the ~~property catastrophe losses from the September 2017 storms. The~~ Specialty Admitted Insurance segment ~~experienced $833,000 of favorable development, primarily~~ due to favorable development in the workers' compensation business for prior accident ~~years. The Company also experienced $2.7~~years, and $13.1 million of net adverse development in the Casualty Reinsurance ~~segment.~~segment due to higher than expected levels of reported losses in the nine months ended September 30, 2020.

The Company experienced $60.3 million of net adverse reserve development in the nine months ended September 30, 2019 on the reserve for losses and loss adjustment expenses held at December 31, 2018. This reserve development included $51.2 million of net adverse development in the Excess and Surplus Lines segment primarily related to the 2016 and 2017 accident years for the commercial auto business. The Specialty Admitted Insurance segment experienced $4.3 million of net favorable

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JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

development due to favorable development in the workers' compensation business for prior accident years. The Company also experienced $13.3 million of net adverse development in the Casualty Reinsurance segment due to higher than expected levels of reported losses in the nine months ended September 30, 2019.

The Company experienced $11.8 million of adverse reserve development in the nine months ended September 30, 2018 on the reserve for losses and loss adjustment expenses held at December 31, 2017. This reserve development included $9.2 million of adverse development in the Excess and Surplus Lines segment, primarily from adverse development in commercial auto business which was partially offset by favorable development in other core Excess and Surplus Lines including $4.9 million of favorable

~~Table of Contents~~

~~JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

development on the property catastrophe losses from the September 2017 storms. The Specialty Admitted Insurance segment experienced $2.3 million of favorable development, primarily due to favorable development in the workers' compensation business for prior accident years, partially offset by adverse development on certain terminated program business. The Company also experienced $4.9 million of adverse development in the Casualty Reinsurance segment.

6. Other Comprehensive Income ~~(Loss)~~

The following table summarizes the components of other comprehensive ~~income (loss):~~income:

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
(in thousands)
Unrealized gains (losses) arising during the period, before U.S. income taxes $ 10,531
$ (5,009 ) $ 54,937
$ (30,934 )
U.S. income taxes (690 ) 425
(4,045 ) 1,124
Unrealized gains (losses) arising during the period, net of U.S. income taxes 9,841
(4,584 ) 50,892
(29,810 )
Less reclassification adjustment:

Net realized investment gains (losses) 436
(213 ) 539
(306 )
U.S. income taxes (52 ) 18
(96 ) (10 )
Reclassification adjustment for investment gains (losses) realized in net income 384
(195 ) 443
(316 )
Other comprehensive income (loss) $ 9,457
$ (4,389 ) $ 50,449
$ (29,494 )


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Unrealized gains arising during the period, before U.S. income taxes	$	6,274	$	10,531	$	54,722	$	54,937
U.S. income taxes	(881)		(690)		(6,441)		(4,045)
Unrealized gains arising during the period, net of U.S. income taxes	5,393		9,841		48,281		50,892
Less reclassification adjustment:
Net realized investment gains	386		436		905		539
U.S. income taxes	(32)		(52)		(57)		(96)
Reclassification adjustment for investment gains realized in net income	354		384		848		443
Other comprehensive income	$	5,039	$	9,457	$	47,433	$	50,449

In addition to the ~~$436,000~~$386,000 and ~~$539,000~~$905,000 of net realized investment gains on available-for-sale fixed ~~maturity securities~~maturities for the three and nine months ended September 30, 2020, respectively ($436,000 and $539,000 of net realized investment gains for the three and nine months ended September 30, 2019, ~~respectively ($213,000 and $306,000 of net realized investment losses in the respective prior year periods)~~respectively), the Company also recognized ~~$6.0 million and $8.8~~$6.3 million of net realized and unrealized investment gains and $21.8 million of net realized and unrealized investment losses in the respective periods on its investments in bank loan participations ($~~186,000~~6.0 million and ~~$660,000~~$8.8 million of net realized investment ~~gains~~losses in the ~~respective~~ prior year respective periods), and ~~$3.3 million and $8.7~~$2.4 million of net realized and unrealized gains and $7.1 million of net realized and unrealized losses in the respective periods ~~for the change~~on its investments in ~~fair values of~~ equity securities ($~~494,000~~3.2 million and $8.6 million of net realized ~~gains~~ and ~~$695,000 of net realized losses~~unrealized gains in the ~~respective~~ prior year respective periods).

7. Contingent Liabilities

The Company is a party to various lawsuits arising in the ordinary course of its operations. The Company believes that the ultimate resolution of these matters will not materially impact its financial position, cash flows, or results of operations.

In response to the outbreak of the coronavirus pandemic in the first quarter of 2020, many state and local governments in the United States and around the world have instituted emergency restrictions that have substantially limited the operation of non-essential businesses and the activities of individuals. Many states have extended the expiration date of restrictions and some states that eased restrictions subsequently re-imposed them as the spread of COVID-19 worsened. These restrictions could result in significant adverse effects on our policyholders and many different types of small and mid-sized businesses within the Company’s client base, particularly those in the retail, hospitality and food and beverage industries, among many others. The ultimate effect and severity of COVID-19 on the economy is not known nor is the ultimate length of the restrictions and any accompanying effects caused by it. Moreover, the Federal Reserve has taken action to lower the Federal Funds rate and the U.S. equity markets have experienced substantial volatility in reaction to COVID-19 since February 2020, both of which have, along with other factors, placed pressure on net investment income and resulted in material realized and unrealized losses in our investment portfolio in the first quarter of 2020. Investment markets recovered substantially in the second and third quarters, leading to unrealized gains in our investment portfolio for those quarters.

The effect of COVID-19 and related events could have a negative effect on the Company, including as a result of quarantines, market volatility, market downturns, actions of lawmakers and regulators, changes in consumer behavior, business closures, deterioration in the credit quality of policyholders or the inability of policyholders to pay their premium and deductible obligations to the Company, and deterioration in the credit quality of reinsurers or insurance entities with which we have a fronting arrangement or the inability of insurers or the insurance entities for which we are fronting to pay their obligations to the Company. At the federal and state level, there have been proposals by lawmakers to retroactively amend business interruption insurance policies to cover claims related to COVID-19 when such insurance policies otherwise would exclude such risks. In addition, a number of states have instituted, and other states are considering instituting, changes designed to effectively expand workers’ compensation coverage by creating presumptions of compensability of claims for certain types

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JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

of workers. The Company has received both business interruption and workers’ compensation claims related to COVID-19 and we expect that we will continue to receive claims related to COVID-19.If the efforts of lawmakers to effectively expand coverage under business interruption, workers’ compensation or other policies on a retroactive basis are successful and enforceable, the Company may be forced to pay claims under policies for which it received inadequate premiums to cover such risks, and therefore the Company’s reserves may be inadequate to pay such claims. At the state level, insurance departments throughout the country have issued bulletins and regulations urging or requiring insurers to extend grace periods for the payment of policy premiums and to refrain from canceling or non-renewing policies for the non-payment of policy premiums for policyholders adversely affected by COVID-19. While many of these requirements and recommendations have expired or are scheduled to expire in the near future, insurance departments could reinstate or extend them as conditions deteriorate and/or the negative impact of the pandemic on policyholders persists. It is uncertain what impact these government mandates may have on our ability to recover unpaid premiums on the affected policies or what our obligations may be for the payment of claims made under policies for which we have not received premium payments. Further, demand for the insurance policies that the Company offers is highly dependent upon the business environment in the markets in which the Company operates. Given the ongoing and dynamic nature of the circumstances, it is not possible to predict the ultimate impact of the coronavirus outbreak, but it could have a material adverse impact on the business prospects, financial condition or results of operations of the Company.

JRG Re has entered into 3 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 $75.0 million facility, ~~$48.2~~$12.2 million of letters of credit were issued through September 30, ~~2019~~2020 which were secured by deposits of ~~$60.9~~$25.2 million. Under a $102.5 million facility, ~~$64.1~~$76.0 million of letters of credit were issued through September 30, ~~2019~~2020 which were secured by deposits of ~~$83.3~~$96.7 million. Under a $100.0 million facility, ~~$5.3~~$17.5 million of letters of credit were issued through September 30, ~~2019~~2020 which were secured by deposits of ~~$10.9~~$28.3 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 ~~$299.1~~$302.1 million at September 30, ~~2019.~~2020.

The Company ~~is a party to~~previously issued a set of insurance contracts ~~with an insured group of companies~~to Rasier LLC and its affiliates (collectively, “Rasier”) under which the Company pays losses and loss adjustment expenses on the ~~contract.~~contracts. The Company has indemnity agreements with ~~this group of insured parties~~Rasier (non-insurance entities) and is contractually entitled to receive reimbursement for a significant portion of the losses and loss adjustment expenses paid on behalf of ~~the insured parties~~Rasier and other expenses incurred by the Company. ~~The insured parties are~~Rasier is required to collateralize all amounts currently due to the Company and to provide additional collateral sufficient to cover the amounts that may be recoverable under the indemnity ~~agreement,~~agreements, including, among other things, case loss and loss adjustment expense reserves, IBNR loss and loss adjustment expense reserves, extra contractual obligations and excess of policy limits liabilities. The collateral is ~~currently~~ provided through a collateral trust arrangement established in favor of the Company by a captive insurance company affiliate of Rasier.

As permitted under our indemnification agreements with Rasier and the ~~insured group.~~associated trust agreement, we have withdrawn the collateral posted to the trust account. At September 30, ~~2019,~~2020, the Company held collateral funds of $940.2 million. The funds withdrawn from the trust account, currently invested in short term securities and included in restricted cash ~~equivalent collateral held in~~equivalents on the ~~collateral trust arrangement was approximately $1,168.9 million.~~ Company's consolidated balance sheet, will be used to reimburse the Company for the losses and loss adjustment expenses paid on behalf of Rasier and other related expenses incurred by the Company to the extent not paid as required under the indemnity agreements.

~~Table of Contents~~

~~JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

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 when our analysis indicates that we have uncollateralized exposure.

~~On October 9, 2019, the Company withdrew $1,170.7 million from the collateral trust arrangement. See Note 12 for additional information regarding the withdrawal of the collateral.~~

8. Segment Information

The Company has 4 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 less loss and loss adjustment expenses and other operating expenses of the operating segments. ~~Gross~~Included in “other income” on the condensed consolidated statements of income (loss) and comprehensive income (loss) is gross fee income of $363,000 and $2.7 million for the ~~Excess~~three and ~~Surplus Lines segment is included in that segment’s underwriting profit. Gross fee income of $2.2~~nine months ended September 30, 2020, respectively, ($2.3 million and ~~$3.0~~ $7.3 million ~~was~~the three and nine months ended September 30, 2019, respectively) that is included in underwriting profit for the respective three ~~months ended September 30, 2019~~ and ~~2018, respectively ($7.1 million and $11.5 million for the~~ nine ~~months ended September 30, 2019 and 2018, respectively).~~month periods. 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 September 30, 2019
Gross written premiums $ 241,045
$ 100,459
$ 46,724
$ —
$ 388,228
Net earned premiums 164,759
14,242
34,373
—
213,374
Underwriting (loss) profit of insurance segments (29,351 ) 837
(4,288 ) —
(32,802 )
Net investment income 3,467
976
11,717
1,718
17,878
Interest expense —
—
—
2,594
2,594
Segment revenues 170,734
16,493
42,403
1,844
231,474
Segment goodwill 181,831
—
—
—
181,831
Segment assets 1,186,094
773,677
1,631,569
69,576
3,660,916

Three Months Ended September 30, 2018
Gross written premiums $ 157,237
$ 98,607
$ 24,125
$ —
$ 279,969
Net earned premiums 141,529
13,898
49,263
—
204,690
Underwriting profit of insurance segments 11,302
1,769
1,576
—
14,647
Net investment income 4,542
825
10,031
1,012
16,410
Interest expense —
—
—
2,991
2,991
Segment revenues 149,807
14,400
59,416
1,069
224,692
Segment goodwill 181,831
—
—
—
181,831
Segment assets 929,408
630,982
1,393,721
81,323
3,035,434

Table of Contents

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

The following table summarizes the Company’s segment results:

Excess and
Surplus
Lines Specialty
Admitted
Insurance Casualty
Reinsurance Corporate
and
Other Total
(in thousands)
Nine Months Ended September 30, 2019
Gross written premiums $ 687,871
$ 292,884
$ 114,810
$ —
$ 1,095,565
Net earned premiums 457,352
39,688
105,600
—
602,640
Underwriting (loss) profit of insurance segments (439 ) 3,758
(4,061 ) —
(742 )
Net investment income 13,240
2,791
34,875
3,938
54,844
Interest expense —
—
—
8,086
8,086
Segment revenues 481,745
45,169
134,731
4,330
665,975
Segment goodwill 181,831
—
—
—
181,831
Segment assets 1,186,094
773,677
1,631,569
69,576
3,660,916

Nine Months Ended September 30, 2018

Gross written premiums $ 490,121
$ 283,108
$ 98,234
$ —
$ 871,463
Net earned premiums 410,627
41,504
161,711
—
613,842
Underwriting profit of insurance segments 32,718
4,380
5,049
—
42,147
Net investment income 11,934
2,375
27,710
3,782
45,801
Interest expense —
—
—
8,459
8,459
Segment revenues 434,146
43,791
189,196
3,944
671,077
Segment goodwill 181,831
—
—
—
181,831
Segment assets 929,408
630,982
1,393,721
81,323
3,035,434


	Excess and Surplus Lines		Specialty Admitted Insurance		Casualty Reinsurance		Corporate and Other		Total
	(in thousands)
Three Months Ended September 30, 2020
Gross written premiums	$	179,458	$	112,589	$	19,805	$	0	$	311,852
Net earned premiums	104,933		14,985		33,044		0		152,962
Underwriting profit (loss) of insurance segments	15,581		1,859		(689)		0		16,751
Net investment income	3,751		807		10,033		368		14,959
Interest expense	0		0		0		2,129		2,129
Segment revenues	112,800		16,843		47,385		437		177,465
Segment goodwill	181,831		0		0		0		181,831
Segment assets	2,243,065		877,619		1,806,341		57,328		4,984,353

Three Months Ended September 30, 2019
Gross written premiums	$	241,045	$	100,459	$	46,724	$	0	$	388,228
Net earned premiums	164,759		14,242		34,373		0		213,374
Underwriting (loss) profit of insurance segments	(29,351)		837		(4,288)		0		(32,802)
Net investment income	3,467		976		11,717		1,718		17,878
Interest expense	0		0		0		2,594		2,594
Segment revenues	170,734		16,493		42,403		1,844		231,474
Segment goodwill	181,831		0		0		0		181,831
Segment assets	1,186,094		773,677		1,631,569		69,576		3,660,916

Nine Months Ended September 30, 2020
Gross written premiums	$	502,649	$	303,831	$	90,852	$	0	$	897,332
Net earned premiums	305,521		42,660		99,514		0		447,695
Underwriting profit (loss) of insurance segments	39,788		2,301		(3,119)		0		38,970
Net investment income	15,028		2,547		32,171		1,399		51,145
Interest expense	0		0		0		7,970		7,970
Segment revenues	309,972		45,386		117,459		1,681		474,498
Segment goodwill	181,831		0		0		0		181,831
Segment assets	2,243,065		877,619		1,806,341		57,328		4,984,353

Nine Months Ended September 30, 2019
Gross written premiums	$	687,871	$	292,884	$	114,810	$	0	$	1,095,565
Net earned premiums	457,352		39,688		105,600		0		602,640
Underwriting (loss) profit of insurance segments	(439)		3,758		(4,061)		0		(742)
Net investment income	13,240		2,791		34,875		3,938		54,844
Interest expense	0		0		0		8,086		8,086
Segment revenues	481,745		45,169		134,731		4,330		665,975
Segment goodwill	181,831		0		0		0		181,831
Segment assets	1,186,094		773,677		1,631,569		69,576		3,660,916

Table of Contents

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 before taxes:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Underwriting profit (loss) of the insurance segments:
Excess and Surplus Lines	$	15,581	$	(29,351)	$	39,788	$	(439)
Specialty Admitted Insurance	1,859		837		2,301		3,758
Casualty Reinsurance	(689)		(4,288)		(3,119)		(4,061)
Total underwriting profit (loss) of insurance segments	16,751		(32,802)		38,970		(742)
Other operating expenses of the Corporate and Other segment	(7,805)		(7,302)		(23,556)		(22,641)
Underwriting profit (loss)	8,946		(40,104)		15,414		(23,383)
Net investment income	14,959		17,878		51,145		54,844
Net realized and unrealized gains (losses) on investments	8,929		(2,357)		(27,885)		331
Amortization of intangible assets	(149)		(149)		(447)		(447)
Other income and expenses	192		(91)		(967)		(223)
Interest expense	(2,129)		(2,594)		(7,970)		(8,086)
Income (loss) before taxes	$	30,748	$	(27,417)	$	29,290	$	23,036

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
(in thousands)
Underwriting (loss) profit of the insurance segments:

Excess and Surplus Lines $ (29,351 ) $ 11,302
$ (439 ) $ 32,718
Specialty Admitted Insurance 837
1,769
3,758
4,380
Casualty Reinsurance (4,288 ) 1,576
(4,061 ) 5,049
Total underwriting (loss) profit of insurance segments (32,802 ) 14,647
(742 ) 42,147
Other operating expenses of the Corporate and Other segment (7,302 ) (6,526 ) (22,641 ) (21,264 )
Underwriting (loss) profit (40,104 ) 8,121
(23,383 ) 20,883
Net investment income 17,878
16,410
54,844
45,801
Net realized and unrealized (losses) gains on investments (2,357 ) 467
331
(407 )
Amortization of intangible assets (149 ) (149 ) (447 ) (447 )
Other income and expenses (91 ) 258
(223 ) 366
Interest expense (2,594 ) (2,991 ) (8,086 ) (8,459 )
(Loss) income before taxes $ (27,417 ) $ 22,116
$ 23,036
$ 57,737

~~Table of Contents~~

~~JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

9. Other Operating Expenses and Other Expenses

Other operating expenses consist of the following:

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
(in thousands)
Amortization of policy acquisition costs $ 21,258
$ 27,511
$ 63,029
$ 86,381
Other underwriting expenses of the operating segments 13,132
15,143
46,617
48,069
Other operating expenses of the Corporate and Other segment 7,302
6,526
22,641
21,264
Total $ 41,692
$ 49,180
$ 132,287
$ 155,714


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Amortization of policy acquisition costs	$	16,660	$	21,258	$	62,406	$	63,029
Other underwriting expenses of the operating segments	13,759		13,132		47,280		46,617
Other operating expenses of the Corporate and Other segment	7,805		7,302		23,556		22,641
Total	$	38,224	$	41,692	$	133,242	$	132,287

Other expenses of ~~$372,000~~$60,000 and ~~$1.1~~$1.8 million for the three and nine months ended September 30, 2020 ($372,000 and $1.1 million for the three and nine months ended September 30, 2019), primarily consist of employee severance costs. Other expenses of $(131,000) and $(34,000) for the three and nine months ended September 30, 2018, respectively, included employee severance, legal, and other professional services associated with the Company's May 2018 secondary offering, and depreciation expense related to a leased building that the Company was previously deemed to own for accounting purposes, offset by rental income on the building.

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.

To measure fair value, the Company obtains quoted market prices for its investment securities from its outside investment ~~managers.~~managers, who utilize independent pricing services. If a quoted market price is not available, the Company uses prices of similar 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, 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, ~~2017.~~2018.

Table of Contents

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

The Company reviews fair value prices provided by its outside investment managers for reasonableness by comparing the fair values provided by the managers to those provided by its investment ~~custodian.~~custodian or other alternative sources. 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~~managers that ~~obtains~~obtain fair values from independent pricing services.

Assets measured at fair value on a recurring basis as of September 30, 2020 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	$	0	$	288,596	$	0	$	288,596
Residential mortgage-backed	0		306,469		0		306,469
Corporate	0		776,955		0		776,955
Commercial mortgage and asset-backed	0		335,834		0		335,834

U.S. Treasury securities and obligations guaranteed by the U.S. government	103,130		464		0		103,594
Redeemable preferred stock	0		2,023		0		2,023
Total fixed maturity securities, available-for-sale	$	103,130	$	1,710,341	$	0	$	1,813,471
Equity securities:
Preferred stock	0		65,576		0		65,576
Common stock	9,305		5,015		0		14,320
Total equity securities	$	9,305	$	70,591	$	0	$	79,896

Bank loan participations	$	0	$	130,890	$	308	$	131,198
Short-term investments	$	0	$	71,986	$	0	$	71,986

Table of Contents

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 September 30, 2019 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 $ —
$ 154,387
$ —
$ 154,387
Residential mortgage-backed —
247,213
—
247,213
Corporate —
625,180
—
625,180
Commercial mortgage and asset-backed —
235,204
—
235,204
U.S. Treasury securities and obligations guaranteed by the U.S. government 112,826
506
—
113,332
Redeemable preferred stock —
2,007
—
2,007
Total fixed maturity securities, available-for-sale $ 112,826
$ 1,264,497
$ —
$ 1,377,323
Equity securities:

Preferred stock —
69,552
—
69,552
Common stock 15,065
4,179
44
19,288
Total equity securities $ 15,065
$ 73,731
$ 44
$ 88,840
Short-term investments $ —
$ 49,884
$ —
$ 49,884

Assets measured at fair value on a recurring basis as of December 31, ~~2018~~2019 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	$	0	$	167,101	$	0	$	167,101
Residential mortgage-backed	0		264,146		0		264,146
Corporate	0		632,221		0		632,221
Commercial mortgage and asset-backed	0		252,457		0		252,457

U.S. Treasury securities and obligations guaranteed by the U.S. government	115,173		494		0		115,667
Redeemable preferred stock	0		2,034		0		2,034
Total fixed maturity securities, available-for-sale	$	115,173	$	1,318,453	$	0	$	1,433,626
Equity securities:
Preferred stock	0		62,747		0		62,747
Common stock	14,669		3,276		43		17,988
Total equity securities	$	14,669	$	66,023	$	43	$	80,735


Short-term investments	$	0	$	156,925	$	0	$	156,925

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 $ —
$ 149,295
$ —
$ 149,295
Residential mortgage-backed —
204,109
—
204,109
Corporate —
524,768
—
524,768
Commercial mortgage and asset-backed —
192,797
4,228
197,025
U.S. Treasury securities and obligations guaranteed by the U.S. government 106,651
542
—
107,193
Redeemable preferred stock —
1,812
—
1,812
Total fixed maturity securities, available-for-sale $ 106,651
$ 1,073,323
$ 4,228
$ 1,184,202
Equity securities:

Preferred stock —
60,740
—
60,740
Common stock 16,674
757
214
17,645
Total equity securities $ 16,674
$ 61,497
$ 214
$ 78,385
Short-term investments $ 1,250
$ 80,716
$ —
$ 81,966

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~~JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

A reconciliation of the beginning and ending balances of available-for-sale fixed maturity securities, ~~and~~ equity securities, and bank loan participations measured at fair value on a recurring basis (as a result of the fair value option effective January 1, 2020) using significant unobservable inputs (Level 3) is shown below:


	Three Months Ended				Nine Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
	(in thousands)				(in thousands)
Beginning balance	$	312	$	3,099	$	43	$	4,442
Transfers out of Level 3	(8)		(3,010)		(729)		(7,238)
Transfers in to Level 3	0		0		358		3,010
Purchases	0		0		703		0
Sales	0		0		0		0
Maturities, calls and paydowns	0		0		(17)		0
Amortization of discount	0		0		3		0
Total gains or losses (realized/unrealized):							—
Included in earnings	4		(45)		(53)		(170)
Included in other comprehensive income	0		0		0		0
Ending balance	$	308	$	44	$	308	$	44

Three Months Ended Nine Months Ended
September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018
(in thousands) (in thousands)
Beginning balance $ 3,099
$ 4,680
$ 4,442
$ 4,680
Transfers out of Level 3 (3,010 ) —
(7,238 ) —
Transfers in to Level 3 —
—
3,010
—
Purchases —
—
—
—
Sales —
—
—
—
Maturities, calls and paydowns —
(316 ) —
(316 )
Amortization of discount —
—
—
—
Total gains or losses (realized/unrealized):

Included in earnings (45 ) —
(170 ) —
Included in other comprehensive income —
—
—
—
Ending balance $ 44
$ 4,364
$ 44
$ 4,364

The Company held one available-for-sale fixed maturity security at December 31, 2018 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 of $4.2 million for the security at December 31, 2018. ~~A principal payment of $456,000 was received on the available-for-sale fixed maturity security in the three months ended March 31, 2019.~~ The Company was able to obtain a quoted price from a pricing vendor for the available-for-sale fixed maturity security at March 31, 2019 and it was transferred to Level 2. At June 30, 2019, the Company held two equity securities for which the fair value was determined using significant unobservable inputs (Level 3). In the three months ended June 30, 2019, one equity security was transferred from Level 1 to Level 3 as the security was no longer actively traded. In the three months ended September 30, 2019, one equity security was transferred from Level 3 to Level 2 as the Company was able to obtain a quoted price from a pricing vendor for the equity

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JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

security at September 30, 2019. At September 30, 2019, the Company held one equity security 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 equity securities of $44,000 at September 30, 2019.

At September 30, 2020, the Company held one bank loan participation and one equity security for which the fair value was determined using significant unobservable inputs (Level 3). The Company was able to obtain a quoted price from a pricing vendor for two bank loan participations at June 30, 2020 and transferred them to Level 2. During the three months ended September 30, 2020, the Company was able to obtain a quoted price from a pricing vendor for one equity security and transferred it to Level 2. At December 31, ~~2018,~~2019, the Company held one equity security 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 ~~equity~~ securities of ~~$44,000~~$308,000 at September 30, ~~2019~~2020 and ~~$214,000~~$43,000 at December 31, 2018. There were no purchases or sales of Level 3 securities for the nine months ended September 30, 2019 or 2018. There were no transfers involving Level 3 securities for the nine months ended September 30, 2018.2019.

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 or nine months ended September 30, ~~2019~~2020 or ~~2018.~~2019. The Company recognizes transfers between levels at the beginning of the reporting period.

~~The~~In connection with the adoption of ASU 2016-13, the Company ~~measures~~elected the fair value option in accounting for bank loan participations effective January 1, 2020. Prior to the election, bank loan participations were classified as held-for-investment and carried at amortized cost net of any allowance for credit losses. Prior to January 1, 2020, the Company measured certain bank loan participations at fair value on a non-recurring basis ~~during the year~~ as part of the Company’s impairment evaluation when loans ~~are~~were determined by management to be impaired.

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~~JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~Assets measured at fair value on a nonrecurring basis 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)
September 30, 2019

Bank loan participations held-for-investment $ —
$ —
$ 6,361
$ 6,361
December 31, 2018

Bank loan participations held-for-investment $ —
$ —
$ —
$ —

Bank loan participations held-for-investment that were determined to be impaired were written down to their fair value ~~of $6.4 million~~at ~~September 30, 2019.~~ ~~Management concluded that none of the bank loan participations held-for-investment were impaired as of~~ December 31, ~~2018~~2019 as shown 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)
December 31, 2019
Bank loan participations held-for-investment	$	0	$	0	$	6,949	$	6,949

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 September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, there were no investments for which external sources were unavailable to determine fair value.

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JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

The carrying values and fair values of financial instruments are summarized below:

September 30, 2019 December 31, 2018
Carrying
Value Fair Value Carrying
Value Fair Value
(in thousands)
Assets

Fixed maturity securities, available-for-sale $ 1,377,323
$ 1,377,323
$ 1,184,202
$ 1,184,202
Equity securities 88,840
88,840
78,385
78,385
Bank loan participations held-for-investment 249,907
242,628
260,972
250,697
Cash and cash equivalents 256,302
256,302
172,457
172,457
Short-term investments 49,884
49,884
81,966
81,966
Other invested assets – notes receivable 13,250
18,767
13,250
18,687
Liabilities

Senior debt 98,300
101,256
118,300
118,317
Junior subordinated debt 104,055
125,008
104,055
117,057


	September 30, 2020				December 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Assets
Fixed maturity securities, available-for-sale	$	1,813,471	$	1,813,471	$	1,433,626	$	1,433,626
Equity securities	79,896		79,896		80,735		80,735

Bank loan participations	131,198		131,198		260,864		252,423
Cash and cash equivalents	139,969		139,969		206,912		206,912
Restricted cash equivalents	940,221		940,221		1,199,164		1,199,164
Short-term investments	71,986		71,986		156,925		156,925
Other invested assets – notes receivable	4,500		5,275		13,250		18,756
Liabilities
Senior debt	217,300		204,601		158,300		158,043
Junior subordinated debt	104,055		106,203		104,055		122,193

The fair values of fixed maturity securities, ~~and~~ equity securities, and bank loan participations have been determined by independent pricing services 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 September 30, ~~2019~~2020 and December 31, ~~2018~~2019 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 September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

The fair values of senior debt and junior subordinated debt at September 30, 2020 and December 31, 2019 were determined using inputs to the valuation methodology that are unobservable (Level 3).

11. Senior Debt

In the three months ended March 31, 2020, the Company drew $60.0 million on the $212.5 million unsecured revolving facility in its $315.0 million senior revolving credit facility (as amended or amended and restated, the "2013 Facility”). The borrowing was a precautionary measure to increase the Company's cash position and preserve financial flexibility in light of uncertainty in the global markets resulting from the coronavirus (COVID-19) outbreak. The Company repaid $30.0 million in the three months ended June 30, 2020. At September 30, 2020, the Company had a drawn balance of $163.3 million outstanding on the unsecured revolver. The 2013 Facility contains certain financial and other covenants (including minimum net worth, maximum ratio of total adjusted debt outstanding to total capitalization, and financial strength ratings) with which the Company was in compliance at September 30, 2020.

Also in the three months ended March 31, 2020, the Company drew $59.0 million of unsecured capacity on a credit agreement (the "2017 Facility") that 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 borrowing was a precautionary measure to increase the Company's cash position and preserve financial flexibility in light of uncertainty in the global markets resulting from the coronavirus (COVID-19) outbreak. The Company repaid $30.0 million in the three months ended June 30, 2020. At September 30, 2020, unsecured loans of $39.0 million and secured letters of credit totaling $17.5 million were outstanding under the facility. The 2017 Facility contains certain financial and other covenants which the Company was in compliance with at September 30, 2020.

12. Capital Stock and Equity Awards

The Company issued 185,762 common shares in the nine months ended September 30, 2020. 79,615 of the new shares were related stock option exercises and 106,147 were related vesting of restricted share units (“RSUs”). The total common shares outstanding increased from 30,424,391 at December 31, 2019 to 30,610,153 at September 30, 2020.

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JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

The fair values of bank loan participations held-for-investment, senior debt, and junior subordinated debt at September 30, 2019 and December 31, 2018 were determined using inputs to the valuation methodology that are unobservable (Level 3).

~~11. Capital Stock and Equity Awards~~

The Company issued 412,810 common shares in the nine months ended September 30, 2019 with 336,533 of the new shares related to stock option exercises and 76,277 of the new shares related to vesting of RSUs. The total common shares outstanding increased from 29,988,460 at December 31, 2018 to 30,401,270 at September 30, 2019.

The Company declared the following dividends during the first nine months of ~~2019~~2020 and ~~2018:~~2019:

Date of Declaration Dividend per Common Share Payable to Shareholders of Record on Payment Date Total Amount

2019
February 20, 2019 $ 0.30
March 11, 2019 March 29, 2019 $ 9,146,357
April 30, 2019 0.30
June 10, 2019 June 28, 2019 9,204,804
July 30, 2019 0.30
September 16, 2019 September 30, 2019 9,230,801
$ 0.90
$ 27,581,962

2018
February 22, 2018 $ 0.30
March 12, 2018 March 30, 2018 $ 9,049,476
May 1, 2018 0.30
June 11, 2018 June 29, 2018 9,066,023
August 1, 2018 0.30
September 10, 2018 September 28, 2018 9,080,519
$ 0.90
$ 27,196,018


Date of Declaration	Dividend per Common Share		Payable to Shareholders of Record on	Payment Date	Total Amount (thousands)

2020
February 19, 2020	$	0.30	March 16, 2020	March 31, 2020	$	9,269
April 28, 2020	$	0.30	June 15, 2020	June 30, 2020	$	9,271
July 28, 2020	$	0.30	September 14, 2020	September 30, 2020	$	9,292
	$	0.90			$	27,832
2019
February 20, 2019	$	0.30	March 11, 2019	March 29, 2019	$	9,146
April 30, 2019	$	0.30	June 10, 2019	June 28, 2019	$	9,205
July 30, 2019	$	0.30	September 16, 2019	September 30, 2019	$	9,231
	$	0.90			$	27,582

Included in the total dividends for the nine months ended September 30, 2020 and 2019 are $329,000 and ~~2018 are~~ $327,000, ~~and $297,000,~~ respectively, of dividend equivalents on unvested RSUs. The balance of dividends payable on unvested RSUs was ~~$651,000~~$600,000 at September 30, ~~2019~~2020 and ~~$557,000~~$623,000 at December 31, ~~2018.~~2019.

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.

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 September 30, ~~2019, 1,575,359~~2020, 1,401,535 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. At the 2019 Annual General Meeting of Shareholders of the Company held on April 30, 2019, the Company's shareholders approved an amendment to the 2014 Director Plan. The Board of Directors of the Company had previously approved the amendment. The amendment increased the number of the Company's common shares authorized for issuance under the 2014 Director Plan by 100,000 shares. The maximum number of shares available for issuance under the 2014 Director Plan is 150,000, and at September 30, ~~2019, 108,594~~2020, 101,746 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).

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JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

Options

The following table summarizes option activity:


	Nine Months Ended September 30,
	2020			2019
	Shares	Weighted- Average Exercise Price		Shares	Weighted- Average Exercise Price
Outstanding:
Beginning of period	643,851	$	30.41	1,115,324	$	29.02
Granted	0	$	0	0	$	0
Exercised	(79,615)	$	31.77	(450,514)	$	26.68
Forfeited	0	$	0	(12,058)	$	36.84
End of period	564,236	$	30.22	652,752	$	30.50
Exercisable, end of period	564,236	$	30.22	599,241	$	29.44

Nine Months Ended September 30,
2019 2018
Shares Weighted-
Average
Exercise
Price Shares Weighted-
Average
Exercise
Price
Outstanding:

Beginning of period 1,115,324
$ 29.02
1,479,236
$ 27.81
Granted —
$ —
—
$ —
Exercised (450,514 ) $ 26.68
(280,683 ) $ 21.03
Forfeited (12,058 ) $ 36.84
(42,215 ) $ 36.86
End of period 652,752
$ 30.50
1,156,338
$ 29.13
Exercisable, end of period 599,241
$ 29.44
841,763
$ 26.64

All of the outstanding options vest over three to four years 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 ~~options~~ exercisable at September 30, ~~2019~~2020 was ~~3.2 years and 3.1 years, respectively.~~2.2 years.

RSUs

The following table summarizes RSU activity:

Nine Months Ended September 30,
2019 2018
Shares Weighted-
Average
Grant Date
Fair Value Shares Weighted-
Average
Grant Date
Fair Value

Unvested, beginning of period 300,142
$ 39.22
178,882
$ 37.93
Granted 197,078
$ 42.56
218,475
$ 39.75
Vested (111,212 ) $ 39.90
(63,191 ) $ 40.92
Forfeited (22,445 ) $ 41.32
(5,889 ) $ 40.81
Unvested, end of period 363,563
$ 40.69
328,277
$ 38.51


	Nine Months Ended September 30,
	2020			2019
	Shares	Weighted- Average Grant Date Fair Value		Shares	Weighted- Average Grant Date Fair Value

Unvested, beginning of period	340,368	$	41.50	300,142	$	39.22
Granted	197,518	$	43.77	197,078	$	42.56
Vested	(156,434)	$	41.50	(111,212)	$	39.90
Forfeited	(16,846)	$	42.17	(22,445)	$	41.32
Unvested, end of period	364,606	$	42.70	363,563	$	40.69

The vesting period of RSUs granted to employees range from one to ~~five~~three years and vest ratably over the respective vesting period, and the majority vest in three years. All RSUs granted to date to non-employee directors had 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
September 30, �� Nine Months Ended
September 30,
2019 2018 2019 2018
(in thousands)
Share based compensation expense $ 1,779
$ 1,681
$ 5,263
$ 4,796
U.S. tax benefit on share based compensation expense 211
198
631
569


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Share based compensation expense	$	2,097	$	1,779	$	5,874	$	5,263
U.S. tax benefit on share based compensation expense	287		211		786		631

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JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

As of September 30, ~~2019,~~2020, the Company had ~~$10.5~~$10.7 million of unrecognized share based compensation expense expected to be charged to earnings over a weighted-average period of 1.8 years.

~~12.~~13. Subsequent Events

On October 8, 2019, the Company delivered a notice of early cancellation, effective December 31, 2019, of all insurance policies issued to its largest customer, Rasier LLC and its affiliates. All insurance policies related to this customer are included in the Company’s commercial auto line of business within its Excess and Surplus Lines segment, and a majority of the insurance policies were due to expire on February 29, 2020. In addition, as permitted under the indemnity agreements with this group of insured parties (non-insurance entities), the Company withdrew $1,170.7 million from the collateral trust arrangement that was established in favor of the Company by a captive insurance company affiliate of the insured group. The collateral funds may be used to reimburse the Company for a significant portion of the losses and loss adjustment expenses paid on behalf of the insured parties and other related expenses incurred by the Company to the extent not paid under the indemnity agreements. Amounts that may be recoverable under the indemnity agreement include, among other things, case loss and loss adjustment expense reserves, IBNR loss and loss adjustment expense reserves, extra contractual obligations and excess of policy limits liabilities. These funds have been invested in short term U.S. government securities. On November 6, 2019, the Company received a letter from its largest customer requesting redeposit of the collateral withdrawn on October 9, 2019 plus interest. We believe the withdrawal of collateral funds was permitted by the applicable agreements, and we do not intend to redeposit the funds.

~~On November 5, 2019,~~28, 2020, the Board of Directors declared a cash dividend of $0.30 per common share. The dividend is payable on December 31, ~~2019~~2020 to shareholders of record on December ~~16, 2019~~14, 2020.

On October 28, 2020, the Company announced the retirement of its Chief Executive Officer, J. Adam Abram, and the appointment of Frank D’Orazio as Chief Executive Officer, effective as of November 2, 2020. Mr. Abram’s retirement will be effective November 1, 2020, but he will continue to serve on the Company’s Board of Directors as non-executive chairman.

On October 28, 2020, the Board of Directors granted awards under the 2014 LTIP to the Company’s employees. RSUs for 12,421 shares were awarded with a fair value on the date of grant of $52.33 per share. The RSUs vest over three years.

.Table of Contents

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 II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q, or “Quarterly Report”, and Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. The results of operations for the three and nine months ended September 30, ~~2019~~2020 are not necessarily indicative of the results that may be expected for the full year ending December 31, ~~2019,~~2020, 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, and in conjunction with our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

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 consistently earning profits from insurance and reinsurance underwriting and generating meaningful risk-adjusted investment returns while managing our capital opportunistically.

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 ~~focuses~~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 and~~workers. In its fronting business, ~~where~~the Specialty Admitted segment works with distributors, such as MGAs 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 ~~and seek to earn fee income by allowing other carriers and producers to use our licensure, ratings, expertise and infrastructure.~~on fronted business. This segment has admitted licenses and the authority to write excess and surplus lines insurance in 4950 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) and stop loss reinsurance to Carolina Re Ltd (“Carolina Re”), through JRG Reinsurance Company Ltd. (“JRG Re”), both Bermuda-based reinsurance companies. 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 was formed in 2018 to do this as well; and

•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.

~~Recent Development~~

~~On October 8, 2019, the Company delivered a notice~~

Table of early cancellation, effective December 31, 2019, of all insurance policies issued to its largest customer, Rasier LLC and its affiliates. All insurance policies related to this customer are included in the Company’s commercial auto line of business within its Excess and Surplus Lines segment, and a majority of the insurance policies were due to expire on February 29, 2020. Rasier LLC and its affiliates produced $294.3 million of gross written premiums, representing 44.8% of the Excess and Surplus Lines segment’s gross written premiums and 25.2% of our consolidated gross written premiums for the year ended December 31, 2018.Contents

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, investment valuation and impairment, and assumed reinsurance premiums. For a detailed discussion of each of these policies, refer to our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. There have been no significant changes to any of these policies during the current year.

Impact of the COVID-19 Pandemic

The Company is continually monitoring the impact that the outbreak of the coronavirus (COVID-19) pandemic may be having on the Company’s financial condition and results of operations. The Company closed its offices except for certain essential functions, and directed its employees to work from their homes or other locations where they could ‘shelter in place’. While the Company’s investment portfolio was impacted by the volatility in the global financial markets during the first quarter of this year as discussed in “-Results of Operations-Investing Results” in the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, filed with the SEC on April 30, 2020, investment markets recovered substantially in the second and third quarters, leading to unrealized gains in our investment portfolio for those quarters. To date the Company has not experienced a decline in gross written premiums or a material increase in total claims as a result of the coronavirus pandemic. However, in light of the uncertainty in the global financial markets resulting from COVID-19, the Company has taken precautionary measures to preserve financial flexibility by borrowing under its existing credit facilities as discussed in “-Liquidity and Capital Resources-Sources and Uses of Funds”, and the Company is continually evaluating whether additional measures may be prudent to protect the Company’s financial condition and results of operations in the current economic environment. In addition, we are closely monitoring a number of risks that COVID-19 poses to the Company’s financial condition and results of operations. For a description of these risks, see “Part II-Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q.

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RESULTS OF OPERATIONS

The following table summarizes our results:


	Three Months Ended September 30,						%		Nine Months Ended September 30,						%
	2020			2019			Change		2020			2019			Change
	($ in thousands)
Gross written premiums	$	311,852		$	388,228		(19.7)	%	$	897,332		$	1,095,565		(18.1)	%
Net retention (1)	46.5		%	57.7		%			49.7		%	61.3		%
Net written premiums	$	145,159		$	223,869		(35.2)	%	$	445,570		$	671,520		(33.6)	%
Net earned premiums	$	152,962		$	213,374		(28.3)	%	$	447,695		$	602,640		(25.7)	%
Losses and loss adjustment expenses	(106,155)			(214,084)			(50.4)	%	(301,757)			(501,064)			(39.8)	%
Other operating expenses	(37,861)			(39,394)			(3.9)	%	(130,524)			(124,959)			4.5	%
Underwriting profit (loss) (2), (3)	8,946			(40,104)			‒		15,414			(23,383)			‒
Net investment income	14,959			17,878			(16.3)	%	51,145			54,844			(6.7)	%
Net realized and unrealized gains (losses) on investments	8,929			(2,357)			‒		(27,885)			331			‒
Other income and expense	192			(91)			‒		(967)			(223)			333.6	%
Interest expense	(2,129)			(2,594)			(17.9)	%	(7,970)			(8,086)			(1.4)	%
Amortization of intangible assets	(149)			(149)			‒		(447)			(447)			‒
Income (loss) before taxes	30,748			(27,417)			‒		29,290			23,036			27.1	%
Income tax expense (benefit)	4,465			(2,250)			‒		4,208			5,168			(18.6)	%
Net income (loss)	$	26,283		$	(25,167)		‒		$	25,082		$	17,868		40.4	%
Adjusted net operating income (loss) (4)	$	17,382		$	(22,208)		‒		$	50,179		$	19,682		154.9	%
Ratios:
Loss ratio	69.4		%	100.3		%			67.4		%	83.1		%
Expense ratio	24.8		%	18.5		%			29.2		%	20.8		%
Combined ratio	94.2		%	118.8		%			96.6		%	103.9		%

Three Months Ended
September 30, % Nine Months Ended
September 30, %
2019 2018 Change 2019 2018 Change
($ in thousands)
Gross written premiums $ 388,228
$ 279,969
38.7 % $ 1,095,565
$ 871,463
25.7 %
Net retention (1)
57.7 % 62.0 %
61.3 % 65.8 %
Net written premiums $ 223,869
$ 173,441
29.1 % $ 671,520
$ 573,025
17.2 %
Net earned premiums $ 213,374
$ 204,690
4.2 % $ 602,640
$ 613,842
(1.8 )%
Losses and loss adjustment expenses (214,084 ) (150,387 ) 42.4 % (501,064 ) (448,754 ) 11.7 %
Other operating expenses (39,394 ) (46,182 ) (14.7 )% (124,959 ) (144,205 ) (13.3 )%
Underwriting (loss) profit (2), (3)
(40,104 ) 8,121
‒
(23,383 ) 20,883
‒
Net investment income 17,878
16,410
8.9 % 54,844
45,801
19.7 %
Net realized and unrealized (losses) gains on investments (2,357 ) 467
‒
331
(407 ) ‒
Other income and expense (91 ) 258
‒
(223 ) 366
‒
Interest expense (2,594 ) (2,991 ) (13.3 )% (8,086 ) (8,459 ) (4.4 )%
Amortization of intangible assets (149 ) (149 ) ‒
(447 ) (447 ) ‒
(Loss) income before taxes (27,417 ) 22,116
‒
23,036
57,737
(60.1 )%
Income tax (benefit) expense (2,250 ) 2,535
‒
5,168
5,539
(6.7 )%
Net (loss) income $ (25,167 ) $ 19,581
‒
$ 17,868
$ 52,198
(65.8 )%
Adjusted net operating (loss) income (4)
$ (22,208 ) $ 19,402
‒
$ 19,682
$ 53,540
(63.2 )%
Ratios:

Loss ratio 100.3 % 73.5 %
83.1 % 73.1 %
Expense ratio 18.5 % 22.5 %
20.8 % 23.5 %
Combined ratio 118.8 % 96.0 %
103.9 % 96.6 %
(1)Net retention is defined as the ratio of net written premiums to gross written premiums.


~~(1)~~	~~Net retention is defined as the ratio of net written premiums to gross written premiums.~~


~~(2)~~	~~Underwriting (loss) profit is a non-GAAP measure. See “Reconciliation of Non-GAAP Measures” for a reconciliation to (loss) income before tax and for additional information.~~


~~(3)~~	Included in underwriting results for the three and nine months ended September 30, 2019 is gross fee income of $6.1 million and $18.7 million, respectively ($6.8 million and $22.4 million for the same periods in the prior year).


~~(4)~~	~~Adjusted net operating (loss) income is a non-GAAP measure. See “Reconciliation of Non-GAAP Measures” for reconciliation to net (loss) income and for additional information.~~

(2)Underwriting profit (loss) is a non-GAAP measure. See “Reconciliation of Non-GAAP Measures” for a reconciliation to income (loss) before tax and for additional information.

(3)Included in underwriting results for the three and nine months ended September 30, 2020 is gross fee income of $4.6 million and $15.8 million, respectively ($6.1 million and $18.7 million for the same periods in the prior year).

(4)Adjusted net operating income (loss) is a non-GAAP measure. See “Reconciliation of Non-GAAP Measures” for reconciliation to net income (loss) and for additional information.

Three Months Ended September 30, ~~2019~~2020 and ~~2018~~2019

The Company had an underwriting ~~loss~~profit of ~~$40.1~~$8.9 million for the three months ended September 30, ~~2019.~~2020. This compares to an underwriting ~~profit~~loss of ~~$8.1~~$40.1 million for the same period in the prior year. Underwriting results for the three months ended September 30, 2019 were negatively impacted by $57.0 million of net adverse reserve development on prior accident years, including $50.0 million of net adverse reserve development from the Excess and Surplus Lines segment that was primarily related to the 2016 and 2017 accident years for the commercial auto business.

The results for the three months ended September 30, ~~2019~~2020 and ~~2018 also~~2019 include certain non-operating items that are significant to the Company. These items (on a pre-tax basis) include:

•Net realized and unrealized investment gains (losses) ~~gains~~ of $8.9 million and $(2.4) million ~~and $467,000~~ for the three months ended September 30, 2020 and 2019, respectively. For the three months ended September 30, 2020, net realized and ~~2018,~~unrealized gains on investments include gains of $2.4 million and $9.7 million related to changes in unrealized gains and losses on equity securities and bank loan participations (accounted for at fair value pursuant to the Company's election of the fair value option on January 1, 2020), respectively. For the three months ended September 30, 2019, net realized and unrealized losses on investments included gains of $3.3 million related to changes in unrealized gains and

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losses on equity securities. See “— Investing Results" for more information on these realized and unrealized investment gains (losses) ~~gains.~~


•	Interest expense of $404,000 for the three months ended September 30, 2018 relating to finance expenses in connection with a minority interest in a real estate partnership pursuant to which we were previously deemed an owner for accounting purposes. Effective with the Company's adoption of ~~ASU 2016-02,~~ ~~Leases (Topic 842)~~ ~~on January 1, 2019, the Company~~

~~is no longer deemed the~~ ~~owner for accounting purposes and there is no comparable expense for the three months ended September 30, 2019.~~.

We define adjusted net operating income (loss) ~~income~~ as net income (loss) ~~income~~ excluding certain non-operating expenses such as net realized and unrealized investment gains and losses on investments, expenses related to due diligence costs for various merger and acquisition activities, professional service fees related to the filing of registration statements for the offering of securities, and severance costs associated with terminated ~~employees, and interest expense and other income and expenses on a leased building that we were previously deemed to own for accounting purposes.~~employees. We use adjusted net operating income (loss) ~~income~~ 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) ~~income~~ 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) ~~income~~ may not be comparable to that of other companies.

Our income (loss) ~~income~~ before taxes and net income (loss) ~~income~~ reconcile to our adjusted net operating income (loss) ~~income~~ as follows:


	Three Months Ended September 30,
	2020				2019
	Income Before Taxes		Net Income		(Loss) Income Before Taxes		Net (Loss) Income
	($ in thousands)
Income (loss) as reported	$	30,748	$	26,283	$	(27,417)	$	(25,167)
Net realized and unrealized investment (gains) losses	(8,929)		(8,824)		2,357		2,665
Other expenses	(21)		(77)		372		294
Adjusted net operating income (loss)	$	21,798	$	17,382	$	(24,688)	$	(22,208)

Three Months Ended September 30,
2019 2018
(Loss) Income
Before
Taxes Net
(Loss) Income Income
Before
Taxes Net
Income
($ in thousands)
(Loss) income as reported $ (27,417 ) $ (25,167 ) $ 22,116
$ 19,581
Net realized and unrealized investment losses (gains) 2,357
2,665
(467 ) (397 )
Other expenses 372
294
(131 ) (101 )
Interest expense on leased building the Company was previously deemed to own for accounting purposes —
—
404
319
Adjusted net operating (loss) income $ (24,688 ) $ (22,208 ) $ 21,922
$ 19,402

Combined Ratios

The combined ratio is a measure of underwriting performance and represents the relationship of incurred losses, loss adjustment expenses and other operating expenses to net earned premiums. Our combined ratio for the three months ended September 30, ~~2019~~2020 was ~~118.8%~~94.2%. A combined ratio of less than 100% indicates an underwriting profit, while a combined ratio greater than 100% reflects an underwriting loss. The combined ratio for the three months ended September 30, 2020 includes $4.2 million, or 2.8 percentage points, of net adverse reserve development on prior accident years, including $27,000 of net adverse reserve development from the Excess and Surplus Lines segment, $2.0 million of net favorable reserve development from the Specialty Admitted Insurance segment, and $6.2 million of net adverse reserve development from the Casualty Reinsurance segment.

The combined ratio for the three months ended September 30, 2019 was 118.8%. The combined ratio for the three months ended September 30, 2019 includes $57.0 million, or 26.7 percentage points, of net adverse reserve development on prior accident years, including $50.0 million of net adverse reserve development from the Excess and Surplus Lines segment, $1.0 million of net favorable reserve development from the Specialty Admitted Insurance segment, and $7.9 ~~million of net adverse reserve development from the Casualty Reinsurance segment.~~

The combined ratio for the three months ended September 30, 2018 was 96.0%. The combined ratio for the three months ended September 30, 2018 includes $12.2 million, or 6.0 percentage points, of net adverse reserve development on prior accident years, including $10.4 million of net adverse reserve development from the Excess and Surplus Lines segment, $833,000 of net favorable reserve development from the Specialty Admitted Insurance segment, and $2.7 million of net adverse reserve development from the Casualty Reinsurance segment.

All of the Company’s U.S.-domiciled insurance subsidiaries are party to an intercompany pooling agreement that distributes the net underwriting results among the group companies based on their approximate pro-rata level of statutory capital and surplus to the total Company statutory capital and surplus. Additionally, each of the Company’s U.S.-domiciled insurance subsidiaries is a party to a quota share reinsurance agreement that in periods prior to January 1, 2018 ceded 70% of their premiums and losses to JRG Re, and starting January 1, 2018, ceded 70% of their premiums and losses to Carolina Re, an entity domiciled in Bermuda that made an irrevocable election to be taxed as a U.S. domestic corporation under Section 953(d) of the Code effective January 1, 2018. JRG Re also provides stop loss reinsurance to Carolina Re. We report all segment information in this ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ prior to the effects of intercompany reinsurance, consistent with the manner in which we evaluate the operating performance of our reportable segments.

Expense Ratios

Our expense ratio ~~improved~~increased from ~~22.5% for the three months ended September 30, 2018 to~~ 18.5% for the three months ended September 30, ~~2019.~~2019 to 24.8% for the three months ended September 30, 2020. The ~~improvement is due to~~increase reflects the termination of the Rasier business effective December 31, 2019 (the Rasier business carried higher loss ratios, but lower expense ratios). This was partially offset by a ~~16.4%~~21.1% increase in the non-commercial auto (“Core E&S”) net earned premiums of the Excess and Surplus Lines segment including in lines ~~of business which carry relatively low expenses or~~ that have meaningful ceding commissions. Our Excess and Surplus Lines segment has significant scale and produces a lower expense ratio than our other operating segments. The Excess and Surplus Lines segment is our largest segment and makes up ~~77.2%~~68.6% of consolidated net earned premiums for the three months ended September 30, ~~2019~~2020 compared to ~~69.1%~~77.2% for the three months

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ended September 30, ~~2018.~~2019. Gross fee income for

the Company declined from ~~$6.8 million for the three months ended September 30, 2018 to~~ $6.1 million for the three months ended September 30, ~~2019.~~2019 to $4.6 million for the three months ended September 30, 2020. The Rasier termination resulted in a $2.2 million decline of gross fee income in the Excess and Surplus Lines segment for the three months ended September 30, 2020. This was partially offset by $673,000 higher fee income in the Specialty Admitted Insurance segment due to new fronting programs and growth in existing fronting programs.

Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019

The Company had an underwriting ~~loss~~profit of ~~$23.4~~$15.4 million for the nine months ended September 30, ~~2019.~~2020. This compares to an underwriting ~~profit~~loss of ~~$20.9~~$23.4 million for the same period in the prior year. Underwriting results for the nine months ended September 30, 2019 were negatively impacted by $60.3 million of net adverse reserve development on prior accident years, including $51.2 million of net adverse reserve development from the Excess and Surplus Lines segment that was primarily related to the 2016 and 2017 accident years for the commercial auto business.

The results for the nine months ended September 30, ~~2019~~2020 and ~~2018 also~~2019 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 ~~(losses)~~ of ~~$331,000~~$(27.9) million and ~~$(407,000)~~$331,000 for the nine months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020, net realized and ~~2018,~~unrealized losses on investments include losses of $6.9 million and $7.6 million related to changes in unrealized gains and losses on equity securities and bank loan participations, respectively. For the nine months ended September 30, 2019, net realized and unrealized gains on investments included gains of $8.7 million related to changes in unrealized gains and losses on equity securities. See “— Investing Results" for more information on these realized and unrealized investment ~~gains~~ (losses).

•

Interest expense of $1.2 million for the nine months ended September 30, 2018 relating to finance expenses in connection with a minority interest in a real estate partnership pursuant to which we were previously deemed an owner for accounting purposes. Effective with the Company's adoption of ~~ASU 2016-02,~~ ~~Leases (Topic 842)~~ ~~on January 1, 2019, the Company is no longer deemed the~~ ~~owner for accounting purposes and there is no comparable expense for the nine months ended September 30, 2019.~~ gains.

Our income before taxes and net income reconcile to our adjusted net operating income as follows:


	Nine Months Ended September 30,
	2020				2019
	Income Before Taxes		Net Income		Income Before Taxes		Net Income
	($ in thousands)
Income as reported	$	29,290	$	25,082	$	23,036	$	17,868
Net realized and unrealized investment losses (gains)	27,885		23,646		(331)		980
Other expenses	1,711		1,451		1,055		834
Adjusted net operating income	$	58,886	$	50,179	$	23,760	$	19,682

Nine Months Ended September 30,
2019 2018
Income
Before
Taxes Net
Income Income
Before
Taxes Net
Income
($ in thousands)
Income as reported $ 23,036
$ 17,868
$ 57,737
$ 52,198
Net realized and unrealized investment (gains) losses (331 ) 980
407
366
Other expenses 1,055
834
(34 ) 45
Interest expense on leased building the Company was previously deemed to own for accounting purposes —
—
1,179
931
Adjusted net operating income $ 23,760
$ 19,682
$ 59,289
$ 53,540

Combined Ratios

Our combined ratio for the nine months ended September 30, 2020 was 96.6%. The combined ratio for the nine months ended September 30, 2020 includes $6.2 million, or 1.4 percentage points, of net adverse reserve development on prior accident years, including $2.8 million of net favorable reserve development from the Excess and Surplus Lines segment, $4.0 million of net favorable reserve development from the Specialty Admitted Insurance segment, and $13.1 million of net adverse reserve development from the Casualty Reinsurance segment.

The combined ratio for the nine months ended September 30, 2019 was 103.9%. The combined ratio for the nine months ended September 30, 2019 includes $60.3 million, or 10.0 percentage points, of net adverse reserve development on prior accident years, including $51.2 million of net adverse reserve development from the Excess and Surplus Lines segment, $4.3 million of net favorable reserve development from the Specialty Admitted Insurance segment, and $13.3 million of net adverse reserve development from the Casualty Reinsurance segment.

Our combined ratio for the nine months ended September 30, 2018 was 96.6%. The combined ratio for the nine months ended September 30, 2018 includes $11.8 million, or 1.9 percentage points, of net adverse reserve development on prior accident years, including $9.2 million of net adverse reserve development from the Excess and Surplus Lines segment, $2.3 million ~~of net favorable reserve development from the Specialty Admitted Insurance segment, and $4.9 million of net adverse reserve development from the Casualty Reinsurance segment.~~

Expense Ratios

Our expense ratio ~~improved~~increased from ~~23.5% for the nine months ended September 30, 2018 to~~ 20.8% for the nine months ended September 30, ~~2019.~~2019 to 29.2% for the nine months ended September 30, 2020. The ~~improvement is due to an 11.4%~~increase reflects the termination of the Rasier business effective December 31, 2019 (the Rasier business carried higher loss ratios, but lower expense ratios). This was partially offset by a 32.2% increase in the Core E&S net earned premiums of the Excess and Surplus Lines segment including in lines ~~of business which carry relatively low expenses or~~ that have meaningful ceding commissions. Our Excess and Surplus Lines segment has significant scale and produces a lower expense ratio than our other operating segments. The Excess and Surplus Lines segment is our largest segment and makes up ~~75.9%~~68.2% of consolidated net earned premiums for the nine months ended September 30, ~~2019~~2020 compared to ~~66.9%~~75.9% for ~~the~~ nine months ended September 30, ~~2018.~~2019. Gross fee income for the Company declined from ~~$22.4 million for the nine months ended September 30, 2018 to~~ $18.7 million for the nine months ended September 30, ~~2019.~~2019 to $15.8 million for the nine months ended September 30, 2020. The Rasier termination resulted in a $5.6 million decline of gross fee income in the Excess and

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Surplus Lines segment for the nine months ended September 30, 2020. This was partially offset by $2.6 million higher fee income in the Specialty Admitted Insurance segment due to new fronting programs and growth in existing fronting programs.

Premiums

Insurance premiums are earned ratably over the terms of our insurance policies, generally twelve months. Reinsurance premiums assumed are earned over the terms of the underlying policies or reinsurance contracts. Reinsurance contracts written on a “losses occurring” basis cover claims that may occur during the term of the contract or underlying insurance policy, which is typically twelve months. Reinsurance contracts which are written on a “risks attaching” basis cover claims which attach to the underlying insurance policies written during the terms of such contracts. Premiums earned on such contracts usually extend beyond the original term of the reinsurance contract, typically resulting in recognition of premiums earned over a 24-month period in proportion to the level of underlying exposure.

The following table summarizes the change in premium volume by component and business segment:

Three Months Ended
September 30, % Nine Months Ended
September 30, %
2019 2018 Change 2019 2018 Change
($ in thousands)
Gross written premiums:

Excess and Surplus Lines $ 241,045
$ 157,237
53.3 % $ 687,871
$ 490,121
40.3 %
Specialty Admitted Insurance 100,459
98,607
1.9 % 292,884
283,108
3.5 %
Casualty Reinsurance 46,724
24,125
93.7 ��% 114,810
98,234
16.9 %
$ 388,228
$ 279,969
38.7 % $ 1,095,565
$ 871,463
25.7 %
Net written premiums:

Excess and Surplus Lines $ 171,715
$ 135,141
27.1 % $ 522,200
$ 432,307
20.8 %
Specialty Admitted Insurance 14,570
14,022
3.9 % 43,625
42,327
3.1 %
Casualty Reinsurance 37,584
24,278
54.8 % 105,695
98,391
7.4 %
$ 223,869
$ 173,441
29.1 % $ 671,520
$ 573,025
17.2 %
Net earned premiums:

Excess and Surplus Lines $ 164,759
$ 141,529
16.4 % $ 457,352
$ 410,627
11.4 %
Specialty Admitted Insurance 14,242
13,898
2.5 % 39,688
41,504
(4.4 )%
Casualty Reinsurance 34,373
49,263
(30.2 )% 105,600
161,711
(34.7 )%
$ 213,374
$ 204,690
4.2 % $ 602,640
$ 613,842
(1.8 )%


	Three Months Ended September 30,				%		Nine Months Ended September 30,				%
	2020		2019		Change		2020		2019		Change
	($ in thousands)
Gross written premiums:
Excess and Surplus Lines	$	179,458	$	241,045	(25.6)	%	$	502,649	$	687,871	(26.9)	%
Specialty Admitted Insurance	112,589		100,459		12.1	%	303,831		292,884		3.7	%
Casualty Reinsurance	19,805		46,724		(57.6)	%	90,852		114,810		(20.9)	%
	$	311,852	$	388,228	(19.7)	%	$	897,332	$	1,095,565	(18.1)	%
Net written premiums:
Excess and Surplus Lines	$	109,170	$	171,715	(36.4)	%	$	328,190	$	522,200	(37.2)	%
Specialty Admitted Insurance	16,184		14,570		11.1	%	42,279		43,625		(3.1)	%
Casualty Reinsurance	19,805		37,584		(47.3)	%	75,101		105,695		(28.9)	%
	$	145,159	$	223,869	(35.2)	%	$	445,570	$	671,520	(33.6)	%
Net earned premiums:
Excess and Surplus Lines	$	104,933	$	164,759	(36.3)	%	$	305,521	$	457,352	(33.2)	%
Specialty Admitted Insurance	14,985		14,242		5.2	%	42,660		39,688		7.5	%
Casualty Reinsurance	33,044		34,373		(3.9)	%	99,514		105,600		(5.8)	%
	$	152,962	$	213,374	(28.3)	%	$	447,695	$	602,640	(25.7)	%

Gross written premiums for the Excess and Surplus Lines segment (which represents ~~62.8%~~56.0% of our consolidated gross written premiums in the nine months ended September 30, ~~2019) increased 53.3%~~2020) decreased 25.6% and ~~40.3% over~~26.9% from the corresponding three and nine month periods in the prior ~~year. Excluding~~year, respectively. The decrease was largely due to the termination of the Rasier commercial auto ~~policies, gross written premiums increased 72.1% and 51.0% over the corresponding three and nine month periods~~business in the prior year. Policy submissions excluding commercial auto policies were 21.8% higher and 25.5% more policies were bound in the nine months ended September 30, 2019 than in the nine months ended September 30, 2018. Rates for the Excess and Surplus Lines segment were up 3.9% compared to the nine months ended September 30, 2018. The change in gross written premiums compared to the same periods in 2018 was notable in several divisions as shown below:

Three Months Ended
September 30, % Nine Months Ended
September 30, %
2019 2018 Change 2019 2018 Change
($ in thousands)
Commercial Auto $ 108,368
$ 80,159
35.2 % $ 307,913
$ 238,498
29.1 %
General Casualty 24,917
10,024
148.6 % 89,897
41,302
117.7 %
Excess Casualty 32,062
17,098
87.5 % 78,708
41,764
88.5 %
Manufacturers & Contractors 25,320
20,980
20.7 % 76,857
60,614
26.8 %
Energy 18,632
9,778
90.6 % 35,751
27,905
28.1 %
Excess Property 6,825
3,723
83.3 % 24,085
13,258
81.7 %
Allied Health 7,235
3,390
113.4 % 21,868
26,933
(18.8 )%
All other divisions 17,686
12,085
46.3 % 52,792
39,847
32.5 %
Excess and Surplus Lines gross written premium $ 241,045
$ 157,237
53.3 % $ 687,871
$ 490,121
40.3 %

~~The Commercial Auto division is focused on underwriting the hired and non-owned auto liability exposures for a variety~~fourth quarter of ~~industry segments with a particular niche for insuring organizations that operate networks connecting independent contractors with customers.~~2019. On October 8, 2019, the Company delivered a notice of early cancellation, effective December 31, 2019, of all insurance policies issued to its largest customer, ~~Rasier LLC and its affiliates. All insurance policies related to this customer are included in the Company’s commercial auto line of business within its Excess and Surplus Lines segment, and a~~Rasier. A majority of the insurance policies were due to expire on February 29, 2020. ~~See “Recent Development”~~Excluding commercial auto policies, gross written premiums increased 27.9% and 26.1% over the corresponding three and nine month periods in the prior year, respectively. Policy submissions excluding commercial auto policies were 13.8% higher and 17.8% more policies were bound in the nine months ended September 30, 2020 than in the nine months ended September 30, 2019. Renewal rates for ~~additional information regarding this termination.~~the Excess and Surplus Lines segment were up 15.6% compared to the nine months ended September 30, 2019. The change in gross written premiums compared to the same periods in 2019 was notable in several divisions as shown below:

Table of Contents


	Three Months Ended September 30,				%		Nine Months Ended September 30,				%
	2020		2019		Change		2020		2019		Change
	($ in thousands)
Excess Casualty	$	62,492	$	32,062	94.9	%	$	146,293	$	78,708	85.9	%
General Casualty	26,817		24,917		7.6	%	93,708		89,897		4.2	%
Manufacturers & Contractors	30,833		25,320		21.8	%	90,878		76,857		18.2	%
Energy	11,806		18,632		(36.6)	%	32,808		35,751		(8.2)	%
Excess Property	8,259		6,825		21.0	%	28,342		24,085		17.7	%
Life Sciences	9,977		6,746		47.9	%	24,122		16,950		42.3	%
Small Business	6,343		5,071		25.1	%	18,453		14,619		26.2	%
All other Core E&S divisions	13,212		13,104		0.8	%	44,503		43,091		3.3	%
Total Core E&S divisions	169,739		132,677		27.9	%	479,107		379,958		26.1	%
Commercial Auto	$	9,719	$	108,368	(91.0)	%	23,542		307,913		(92.4)	%
Excess and Surplus Lines gross written premium	$	179,458	$	241,045	(25.6)	%	$	502,649	$	687,871	(26.9)	%

The components of gross written premiums for the Specialty Admitted Insurance segment (which represents ~~26.7%~~33.9% of our consolidated gross written premiums for the nine months ended September 30, ~~2019)~~2020) are as follows:


	Three Months Ended September 30,				%		Nine Months Ended September 30,				%
	2020		2019		Change		2020		2019		Change
	($ in thousands)
Individual risk workers’ compensation premium	$	16,033	$	15,618	2.7	%	$	49,670	$	48,599	2.2	%
Fronting and program premium	96,556		84,841		13.8	%	254,161		244,285		4.0	%
Specialty Admitted gross written premium	$	112,589	$	100,459	12.1	%	$	303,831	$	292,884	3.7	%

Three Months Ended
September 30, % Nine Months Ended
September 30, %
2019 2018 Change 2019 2018 Change
($ in thousands)
Individual risk workers’ compensation premium $ 15,618
$ 13,848
12.8 % $ 48,599
$ 39,243
23.8 %
Fronting and program premium 84,841
84,759
0.1 % 244,285
243,865
0.2 %
Specialty Admitted gross written premium $ 100,459

$ 98,607
1.9 % $ 292,884
$ 283,108
3.5 %

~~Individual risk workers’ compensation~~The premium growth in fronting and programs was largely driven by ~~exposure growth from higher payrolls of our insureds in a strong economy and increased submission flow.~~

~~Our fronting business saw growth in four~~three new fronting relationships that generated ~~$36.4~~$25.8 million and ~~$86.0~~$45.7 million of gross written premium in the three and nine months ended September 30, ~~2019, respectively, compared to $17.0~~2020 ($9.1 million ~~and $20.8 million for~~in the comparable three and nine ~~months ended September 30, 2018, respectively.~~month periods of the prior year). Our largest ~~fronted~~fronting relationship ~~experienced a decline in production in 2019 producing $36.2~~produced $33.4 million and ~~$113.9~~$96.3 million of gross written premium for the three and nine months ended September 30, ~~2019,~~2020, respectively, ~~(down~~down from ~~$50.2~~$36.2 million and ~~$156.9~~$113.9 million for the three and nine months ended September 30, ~~2018)~~2019 and representing ~~38.9%~~31.7% of the segment's gross written premium in the nine months ended September 30, ~~2019~~2020 down from ~~55.4%~~38.9% in the nine months ended September 30, 2018. Gross written premiums for terminated programs were $255,000 and $1.8 million in the three and nine months ended September 30, 2019, respectively, compared to $5.4 million and $24.7 million for the three and nine months ended September 30, 2018, respectively.2019.

Gross written premiums for the Casualty Reinsurance segment (which represents ~~10.5%~~10.1% of our consolidated gross written premiums in the first nine months of ~~2019) increased 93.7%~~2020) decreased 57.6% and ~~16.9%~~20.9% from the corresponding three and nine month periods in the prior ~~year.~~year, respectively. The ~~increase~~decline in gross written ~~premium in this segment~~premiums was due to ~~new business written, including $9.1 million~~the non-renewal of ~~gross written premiums for~~one large treaty and the ~~three and nine months ended September 30, 2019 related to a new retrocessional/fronting arrangement under which 100%~~change in renewal dates of ~~the premiums are ceded. The growth was also due to higher subject business and signed lines on treaties renewed, and increases in written premiums for prior year~~three treaties. The Casualty Reinsurance segment generally writes large casualty-focused treaties that are expected to have lower volatility relative to property and catastrophe treaties. We rarely write stand-alone property reinsurance. When treaties that include property exposure are written, we utilize property occurrence caps, inuring reinsurance protection and low individual risk limits to minimize exposure.

Net Retention

The ratio of net written premiums to gross written premiums is referred to as our net premium retention. Our net premium retention is summarized by segment as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Excess and Surplus Lines	60.8	%	71.2	%	65.3	%	75.9	%
Specialty Admitted Insurance	14.4	%	14.5	%	13.9	%	14.9	%
Casualty Reinsurance	100.0	%	80.4	%	82.7	%	92.1	%
Total	46.5	%	57.7	%	49.7	%	61.3	%

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Excess and Surplus Lines 71.2 % 85.9 % 75.9 % 88.2 %
Specialty Admitted Insurance 14.5 % 14.2 % 14.9 % 15.0 %
Casualty Reinsurance 80.4 % 100.6 % 92.1 % 100.2 %
Total 57.7 % 62.0 % 61.3 % 65.8 %

Table of Contents

The net premium retention for the Excess and Surplus Lines segment decreased for the three and nine months ended September 30, ~~2019~~2020 as compared to the prior year periods due to growth in written premium in the Excess Casualty and Excess Property underwriting divisions, which have higher percentages of ceded premium than our other ~~divisions, and due to~~divisions. Additionally, the ~~segment~~

~~ceding $26.3 million and $63.9 million of commercial auto written~~net premium retention for the Commercial Auto underwriting division is higher than the net premium retention for the other underwriting divisions in the ~~three~~Excess and ~~nine months ended September 30, 2019, respectively, compared to $699,000~~Surplus Lines segment, and ~~$3.1 million in~~ the ~~three and nine months ended September 30, 2018, respectively.~~Company terminated its largest Commercial Auto customer, Rasier, effective December 31, 2019.

The net premium retention for the Specialty Admitted Insurance segment ~~has been relatively stable~~decreased slightly for the three and nine months ended September 30, ~~2019~~2020 as compared to the respective periods in the prior year. The ~~fronting business generally has much lower~~ net ~~premium~~ retention ~~than our~~on the individual risk workers’ compensation ~~business.~~business was 29.5% and 29.7% for the three and nine months ended September 30, 2020, respectively (46.1% and 45.0% for the three and nine months ended September 30, 2019, respectively), reflecting an increase in the percentage of premiums ceded under a third-party quota share reinsurance treaty from 50% in 2019 to 70% in 2020. The net retention on the segment’s fronting business was ~~8.7%~~11.9% and 10.8% for the three and nine months ended September 30, 2020, respectively (8.7% and 8.9% for the three and nine months ended September 30, 2019, respectively (9.2% and 9.9% for the three and nine months ended September 30, 2018, respectively), while the net retention on the workers’ compensation business was 46.1% and 45.0% for the three and nine months ended September 30, 2019 (45.2% and 46.6% for the three and nine months ended September 30, 2018, respectively).

The net premium retention for the Casualty Reinsurance segment ~~decreased for the three and nine months ended September 30, 2019~~ as compared to the prior year ~~periods~~increased for the three month period, but decreased for the nine month period primarily due to the change in renewal date of a ~~new~~ retrocessional treaty/fronting arrangement ~~entered into during the three months ended September 30, 2019~~ under which 100% of the premiums are ceded. Ceded written premiums under the ~~new~~ treaty were $15.8 million in the first quarter of 2020 compared to $9.1 million in the ~~three and nine months ended September 30,~~third quarter of 2019.

Underwriting Results

The following table compares our combined ratios by segment:


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018			2020		2019		2020		2019
Excess and Surplus Lines	117.8	%	92.0	%	100.1	%	92.0	%	Excess and Surplus Lines	85.2	%	117.8	%	87.0	%	100.1	%
Specialty Admitted Insurance	94.1	%	87.3	%	90.5	%	89.4	%	Specialty Admitted Insurance	87.6	%	94.1	%	94.6	%	90.5	%
Casualty Reinsurance	112.5	%	96.8	%	103.8	%	96.9	%	Casualty Reinsurance	102.1	%	112.5	%	103.1	%	103.8	%
Total	118.8	%	96.0	%	103.9	%	96.6	%	Total	94.2	%	118.8	%	96.6	%	103.9	%

Excess and Surplus Lines Segment

Results for the Excess and Surplus Lines segment are as follows:


	Three Months Ended September 30,						%		Nine Months Ended September 30,						%
	2020			2019			Change		2020			2019			Change
	($ in thousands)
Gross written premiums	$	179,458		$	241,045		(25.6)	%	$	502,649		$	687,871		(26.9)	%
Net written premiums	$	109,170		$	171,715		(36.4)	%	$	328,190		$	522,200		(37.2)	%
Net earned premiums	$	104,933		$	164,759		(36.3)	%	$	305,521		$	457,352		(33.2)	%
Losses and loss adjustment expenses	(69,938)			(176,154)			(60.3)	%	(198,877)			(399,996)			(50.3)	%
Underwriting expenses	(19,414)			(17,956)			8.1	%	(66,856)			(57,795)			15.7	%
Underwriting profit (loss) (1), (2)	$	15,581		$	(29,351)		‒		$	39,788		$	(439)		‒
Ratios:
Loss ratio	66.7		%	106.9		%			65.1		%	87.5		%
Expense ratio	18.5		%	10.9		%			21.9		%	12.6		%
Combined ratio	85.2		%	117.8		%			87.0		%	100.1		%

(1)Underwriting Profit (Loss) is a non-GAAP Measure. See “Reconciliation of Non-GAAP Measures” for a reconciliation to income (loss) before tax and for additional information.

(2)Underwriting results include gross fee income of $— and $1.6 million for the three and nine months ended September 30, 2020, respectively ($2.2 million and $7.1 million for the same periods in the prior year).

Three Months Ended
September 30, % Nine Months Ended
September 30, %
2019 2018 Change 2019 2018 Change
($ in thousands)
Gross written premiums $ 241,045
$ 157,237
53.3 % $ 687,871
$ 490,121
40.3 %
Net written premiums $ 171,715
$ 135,141
27.1 % $ 522,200
$ 432,307
20.8 %
Net earned premiums $ 164,759
$ 141,529
16.4 % $ 457,352
$ 410,627
11.4 %
Losses and loss adjustment expenses (176,154 ) (111,292 ) 58.3 % (399,996 ) (321,518 ) 24.4 %
Underwriting expenses (17,956 ) (18,935 ) (5.2 )% (57,795 ) (56,391 ) 2.5 %
Underwriting (loss) profit (1), (2)
$ (29,351 ) $ 11,302
‒
$ (439 ) $ 32,718
‒
Ratios:

Loss ratio 106.9 % 78.6 %

87.5 % 78.3 %
Expense ratio 10.9 % 13.4 %

12.6 % 13.7 %
Combined ratio 117.8 % 92.0 %

100.1 % 92.0 %


~~(1)~~	~~Underwriting (Loss) Profit is a non-GAAP Measure. See “Reconciliation of Non-GAAP Measures” for a reconciliation to (loss) income before tax and for additional information.~~


~~(2)~~	Underwriting results include gross fee income of $2.2 million and $7.1 million for the three and nine months ended September 30, 2019, respectively ($3.0 million and $11.5 million for the same periods in the prior year).

The loss ~~ratio~~ratios of 66.7% and 65.1% for the three and nine months endedSeptember 30, 2020 include $27,000 of net adverse reserve development and $2.8 million of net favorable reserve development (0.0 and 0.9 percentage points), respectively, in our loss estimates for prior accident years. The loss ratios of 106.9% and 87.5% for the three and nine months ended September 30, 2019 ~~includes~~include $50.0 million and $51.2 million (30.4 and 11.2 percentage ~~points), respectively~~points, respectively) of net ~~adverse development in our loss estimates for prior accident years. The loss ratio~~

Table of ~~78.6% and 78.3% for the three and nine months ended~~Contents~~September 30, 2018 includes $10.4 million and $9.2 million (7.3 and 2.2 percentage points), respectively, of net~~

adverse reserve development in our loss estimates for prior accident years. The net adverse development in ~~all periods~~2019 was primarily related to the 2016 and 2017 accident years for the commercial auto business. The lower current year loss ratios in this segment also reflect the termination of the Rasier commercial auto business effective December 31, 2019 (the Rasier business carried higher loss ratios, but lower expense ratios).

The expense ratio for this segment ~~decreased~~increased from ~~13.4% and 13.7% for the three and nine months endedSeptember 30, 2018, respectively, to~~ 10.9% and 12.6% for the three and nine months ended September 30, 2019, respectively, ~~as the growth in~~

~~net earned premium in the three~~to 18.5% and ~~nine months endedSeptember 30, 2019 exceeded the growth in underwriting expenses. Gross fee income contributed to a reduction in the expense ratio of 1.3 and 1.6 percentage points~~21.9% for the three and nine months ended September 30, ~~2019,~~2020, respectively, ~~(2.1 and 2.8 percentage points for~~due to the ~~same periods in~~termination of the ~~prior year).~~

~~Our~~Rasier commercial auto business ~~generally has a~~effective December 31, 2019 (the Rasier business carried higher loss ratios, but lower expense ~~ratio~~ratios). This was partially offset by increases of 21.1% and ~~higher loss ratio than the other underwriting divisions~~32.2%, respectively, in the ~~segment.~~Core E&S net earned premiums of the Excess and Surplus Lines segment including in lines that have meaningful ceding commissions. Commercial auto made up ~~50.6%~~6.0% and ~~53.1%~~7.3% of the segment’s net earned premiums for the three and nine months ended September 30, ~~2019,~~2020, respectively, ~~(55.6%~~down from 50.6% and ~~56.5%~~53.1% in the respective prior year periods. Gross fee income contributed to a reduction in the expense ratio of 0.0 and 0.5 percentage points for the three and nine months endedSeptember 30, 2020, respectively (1.3 and 1.6 percentage points for the same periods in the prior year).

As a result of the items discussed above, the underwriting ~~(loss) profit~~results of the Excess and Surplus Lines segment ~~was $(29.4)~~improved from underwriting losses of $29.4 million and ~~$(439,000)~~$439,000 for the three and nine months ended September 30, 2019, respectively, ~~compared~~ to ~~$11.3~~underwriting profits of $15.6 million and ~~$32.7~~$39.8 million for the three and nine months ended September 30, ~~2018,~~2020, respectively.

Specialty Admitted Insurance Segment

Results for the Specialty Admitted Insurance segment are as follows:


	Three Months Ended September 30,						%		Nine Months Ended September 30,						%
	2020			2019			Change		2020			2019			Change
	($ in thousands)
Gross written premiums	$	112,589		$	100,459		12.1	%	$	303,831		$	292,884		3.7	%
Net written premiums	$	16,184		$	14,570		11.1	%	$	42,279		$	43,625		(3.1)	%
Net earned premiums	$	14,985		$	14,242		5.2	%	$	42,660		$	39,688		7.5	%
Losses and loss adjustment expenses	(10,745)			(9,481)			13.3	%	(31,209)			(25,085)			24.4	%
Underwriting expenses	(2,381)			(3,924)			(39.3)	%	(9,150)			(10,845)			(15.6)	%
Underwriting profit (1), (2)	$	1,859		$	837		122.1	%	$	2,301		$	3,758		(38.8)	%
Ratios:
Loss ratio	71.7		%	66.6		%			73.2		%	63.2		%
Expense ratio	15.9		%	27.5		%			21.4		%	27.3		%
Combined ratio	87.6		%	94.1		%			94.6		%	90.5		%

Three Months Ended
September 30, % Nine Months Ended
September 30, %
2019 2018 Change 2019 2018 Change
($ in thousands)
Gross written premiums $ 100,459
$ 98,607
1.9 % $ 292,884
$ 283,108
3.5 %
Net written premiums $ 14,570
$ 14,022
3.9 % $ 43,625
$ 42,327
3.1 %
Net earned premiums $ 14,242
$ 13,898
2.5 % $ 39,688
$ 41,504
(4.4 )%
Losses and loss adjustment expenses (9,481 ) (8,246 ) 15.0 % (25,085 ) (25,283 ) (0.8 )%
Underwriting expenses (3,924 ) (3,883 ) 1.1 % (10,845 ) (11,841 ) (8.4 )%
Underwriting profit (1), (2)
$ 837
$ 1,769
(52.7 )% $ 3,758
$ 4,380
(14.2 )%
Ratios:

Loss ratio 66.6 % 59.3 % 63.2 % 60.9 %
Expense ratio 27.5 % 28.0 % 27.3 % 28.5 %
Combined ratio 94.1 % 87.3 % 90.5 % 89.4 %


~~(1)~~	(1)Underwriting Profit is a non-GAAP Measure. See “Reconciliation of Non-GAAP Measures” for a reconciliation to income (loss) before tax and for additional information.


~~(2)~~	~~Underwriting results include gross fee income of $4.0 millionand$11.6 million for the three and nine months ended September 30, 2019, respectively ($3.8 million and $10.9 million for the same periods in the prior year).~~

(2)Underwriting results include gross fee income of $4.6 million and $14.2 million for the three and nine months ended September 30, 2020, respectively ($4.0 million and $11.6 million for the same periods in the prior year).

The loss ratio of 71.7% and 73.2% for the three and nine months endedSeptember 30, 2020 includes $2.0 million and $4.0 million (13.3 and 9.4 percentage points), respectively, of net favorable development in our loss estimates for prior accident years. The loss ratio of 66.6% and 63.2% for the three and nine months ended September 30, 2019 includes $1.0 million and $4.3 million (7.0 and 10.7 percentage points), respectively, of net favorable reserve development in our loss estimates for prior accident years. The favorable reserve development ~~in 2019~~for both periods reflects the fact that actual loss emergence of the workers’ compensation book has been better than expected. ~~The loss ratio of 59.3% and 60.9% for the three and nine months endedSeptember 30, 2018 includes $833,000 and $2.3 million (6.0 and 5.6 percentage points), respectively, of net favorable reserve development in our loss estimates for prior accident years.~~

The expense ratio of the Specialty Admitted Insurance segment was 15.9% and 21.4% for the three and nine months endedSeptember 30, 2020, respectively, compared to the prior year ratios of 27.5% and 27.3%, respectively. Gross fee income from the fronting business increased 17.0% and 22.8% for the three and nine months endedSeptember 30, 2020, respectively, compared to the same periods in the prior year as a result of a mix shift to fronting arrangements with higher fees and an increase in the total number of fronted programs. Through three quarters of 2020, the segment has added eight new fronting relationships.

Underwriting results for the Specialty Admitted Insurance segment in the nine months ended September 30, 2020 were favorably impacted by a $1.2 million adjustment to fee income on one fronted program (a reduction in commission expense, representing a 2.8 point reduction in the combined ratio for the respective period).

Table of Contents

As a result of the items discussed above, the Specialty Admitted Insurance segment had an underwriting profit of $1.9 million and $2.3 million for the three and nine months ended September 30, 2020, respectively, compared to an underwriting profit of $837,000 and $3.8 million for the three and nine months ended September 30, 2019, ~~compared to the prior year ratios of 28.0% and 28.5%, respectively. Gross fee income from the fronting business increased 3.7% and 6.4% for the three and nine months endedSeptember 30, 2019 compared to the same periods in the prior year.~~

As a result of the items discussed above, the underwriting profit of the Specialty Admitted Insurance segment decreased 52.7% and 14.2% from $1.8 million and $4.4 million for the three and nine months ended~~September 30, 2018, respectively, to $837,000 and $3.8 million for the three and nine months ended September 30, 2019,~~ respectively.

Casualty Reinsurance Segment

Results for the Casualty Reinsurance segment are as follows:


	Three Months Ended September 30,						%		Nine Months Ended September 30,						%
	2020			2019			Change		2020			2019			Change
	($ in thousands)
Gross written premiums	$	19,805		$	46,724		(57.6)	%	$	90,852		$	114,810		(20.9)	%
Net written premiums	$	19,805		$	37,584		(47.3)	%	$	75,101		$	105,695		(28.9)	%
Net earned premiums	$	33,044		$	34,373		(3.9)	%	$	99,514		$	105,600		(5.8)	%
Losses and loss adjustment expenses	(25,472)			(28,449)			(10.5)	%	(71,671)			(75,983)			(5.7)	%
Underwriting expenses	(8,261)			(10,212)			(19.1)	%	(30,962)			(33,678)			(8.1)	%
Underwriting loss (1)	$	(689)		$	(4,288)		(83.9)	%	$	(3,119)		$	(4,061)		(23.2)	%
Ratios:
Loss ratio	77.1		%	82.8		%			72.0		%	72.0		%
Expense ratio	25.0		%	29.7		%			31.1		%	31.8		%
Combined ratio	102.1		%	112.5		%			103.1		%	103.8		%

Three Months Ended
September 30, % Nine Months Ended
September 30, %
2019 2018 Change 2019 2018 Change
($ in thousands)
Gross written premiums $ 46,724
$ 24,125
93.7 % $ 114,810
$ 98,234
16.9 %
Net written premiums $ 37,584
$ 24,278
54.8 % $ 105,695
$ 98,391
7.4 %
Net earned premiums $ 34,373
$ 49,263
(30.2 )% $ 105,600
$ 161,711
(34.7 )%
Losses and loss adjustment expenses (28,449 ) (30,849 ) (7.8 )% (75,983 ) (101,953 ) (25.5 )%
Underwriting expenses (10,212 ) (16,838 ) (39.4 )% (33,678 ) (54,709 ) (38.4 )%
Underwriting (loss) profit (1)
$ (4,288 ) $ 1,576
‒
$ (4,061 ) $ 5,049
‒
Ratios:

Loss ratio 82.8 % 62.6 % 72.0 % 63.0 %
Expense ratio 29.7 % 34.2 % 31.8 % 33.9 %
Combined ratio 112.5 % 96.8 % 103.8 % 96.9 %
(1)Underwriting Loss is a non-GAAP Measure. See “Reconciliation of Non-GAAP Measures” for a reconciliation to income (loss) before tax and for additional information.


~~(1)~~	~~Underwriting (Loss) Profit is a non-GAAP Measure. See “Reconciliation of Non-GAAP Measures” for a reconciliation to (loss) income before tax and for additional information.~~

The Casualty Reinsurance segment focuses on lower volatility, proportional reinsurance which requires larger ceding commissions resulting in a higher commission expense than in our other segments.

The loss ratio of ~~82.8%~~77.1% and 72.0% for the three and nine months ended September 30, ~~2019~~2020, respectively, includes ~~$7.9~~$6.2 million and ~~$13.3~~$13.1 million ~~(23.1~~(18.8 and ~~12.6~~13.1 percentage points), respectively, of net adverse development in our loss estimates for prior accident years. The loss ratio of ~~62.6%~~82.8% and ~~63.0%~~72.0% for the three and nine months ended September 30, ~~2018~~2019, respectively, includes ~~$2.7~~$7.9 million and ~~$4.9~~$13.3 million ~~(5.4~~(23.1 and ~~3.0~~12.6 percentage points)~~, respectively,~~ of net adverse reserve development in our loss estimates for prior accident years.

The expense ratio of the Casualty Reinsurance segment ~~declined to 29.7%~~was 25.0% and ~~31.8%~~31.1% for the three and nine months ended September 30, ~~2019,~~2020, respectively, compared to 29.7% and 31.8% in the respective prior year ~~ratios of 34.2%~~periods. Commission slide adjustments related to incurred losses reduced the expense ratio by 8.9 and ~~33.9%,~~4.4 points in the three months ended September 30, 2020 and 2019, respectively ~~principally due to~~(3.6% and 2.3% for the ~~reduction in sliding scale commission expense as a result of the adverse reserve development in 2019.~~respective nine month periods).

As a result of the items discussed above, ~~underwriting (loss) profit for~~ the Casualty Reinsurance segment ~~was $(4.3) million~~had underwriting losses of $689,000 and ~~$(4.1)~~$3.1 million for the three and nine months ended September 30, ~~2019~~2020, respectively, compared to ~~$1.6~~underwriting losses of $4.3 million and ~~$5.0~~$4.1 million for the three and nine months ended September 30, ~~2018.~~2019.

Reserves

An indicator of reserve strength that we monitor closely is the percentage of our gross and net loss reserves that are comprised of incurred but not reported (“IBNR”) reserves.

The Company’s gross reserve for losses and loss adjustment expenses at September 30, ~~2019~~2020 was ~~$1,941.3~~$2,106.7 million. Of this amount, ~~62.8%~~59.8% relates to amounts that are IBNR. This amount was ~~62.4%~~63.1% at December 31, ~~2018.~~2019. The Company’s gross reserves for losses and loss adjustment expenses by segment are summarized as follows:


	Gross Reserves at September 30, 2020
	Case		IBNR		Total
	($ in thousands)
Excess and Surplus Lines	$	511,010	$	731,618	$	1,242,628
Specialty Admitted Insurance	219,114		354,173		573,287
Casualty Reinsurance	117,687		173,147		290,834
Total	$	847,811	$	1,258,938	$	2,106,749

Gross Reserves at September 30, 2019
Case IBNR Total
($ in thousands)
Excess and Surplus Lines $ 432,618
$ 739,194
$ 1,171,812
Specialty Admitted Insurance 178,042
309,653
487,695
Casualty Reinsurance 111,524
170,276
281,800
Total $ 722,184
$ 1,219,123
$ 1,941,307

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At September 30, ~~2019,~~2020, the amount of net reserves prior to the $335,000 allowance for uncollectible reinsurance recoverables of ~~$1,326.5~~$1,336.6 million that related to IBNR was ~~60.2%~~56.3%. This amount was ~~61.5%~~60.3% at December 31, ~~2018.~~2019. The Company’s net reserves for losses and loss adjustment expenses by segment are summarized as follows:


	Net Reserves at September 30, 2019							Net Reserves at September 30, 2020
	Case		IBNR		Total			Case		IBNR		Total
	($ in thousands)							($ in thousands)
Excess and Surplus Lines	$	381,754	$	576,382	$	958,136	Excess and Surplus Lines	$	430,219	$	528,998	$	959,217
Specialty Admitted Insurance	37,125		54,356		91,481		Specialty Admitted Insurance	38,560		55,077		93,637
Casualty Reinsurance	108,533		168,330		276,863		Casualty Reinsurance	115,610		168,135		283,745
Total	$	527,412	$	799,068	$	1,326,480	Total	$	584,389	$	752,210	$	1,336,599

Other Operating Expenses

In addition to the underwriting, acquisition, and insurance expenses of the Excess and Surplus Lines segment, the Specialty Admitted Insurance segment, and the Casualty Reinsurance segment discussed previously, other operating expenses also include the expenses of the Corporate and Other segment.

Corporate and Other Segment

Other operating expenses for the Corporate and Other segment include personnel costs associated with the Bermuda and U.S. holding companies, professional fees, and various other corporate expenses that are included in our calculation of our expense ratio and our combined ratio. Other operating expenses of the Corporate and Other segment represent the expenses of both the Bermuda and U.S. holding companies that were not reimbursed by our subsidiaries, including costs associated with our internal quota share, rating agencies and strategic initiatives. These costs vary from period-to-period based on the status of these initiatives.

Total operating expenses of the Corporate and Other segment were ~~$7.3~~$7.8 million and ~~$22.6~~$23.6 million for the three and nine months ended September 30, ~~2019,~~2020, respectively, ~~representing increases of 11.9% and 6.5% over the $6.5~~compared to $7.3 million and ~~$21.3~~$22.6 million ~~of operating expenses~~for the same periods in the ~~comparable~~ prior ~~year periods. The year-over-year increase was largely driven by compensation costs, including share-based compensation expenses, associated with increases in headcount.~~year.

Investing Results

Net investment income was ~~$17.9~~$15.0 million and ~~$54.8~~$51.1 million for the three and nine months ended September 30, ~~2019~~2020, respectively, compared to ~~$16.4~~$17.9 million and ~~$45.8~~$54.8 million for the same periods in the prior year. The change in our net investment income is as follows:


	Three Months Ended September 30,							Nine Months Ended September 30,							Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018		% Change		2019		2018		% Change			2020		2019		% Change		2020		2019		% Change
	($ in thousands)														($ in thousands)
Renewable energy LLCs	$	1,602		$	329	386.9	%	$	2,510	$	2,070	21.3	%	Renewable energy LLCs	$	(526)	$	1,602	‒		$	320	$	2,510	(87.3)	%
Other private investments	(218		)	1,402		‒		3,407		3,518		(3.2	)%	Other private investments	1,059		(218)		‒		1,174		3,407		(65.5)	%
Other invested assets	1,384			1,731		(20.0	)%	5,917		5,588		5.9	%	Other invested assets	533		1,384		(61.5)	%	1,494		5,917		(74.8)	%
All other net investment income	16,494			14,679		12.4	%	48,927		40,213		21.7	%	All other net investment income	14,426		16,494		(12.5)	%	49,651		48,927		1.5	%
Total net investment income	$	17,878		$	16,410	8.9	%	$	54,844	$	45,801	19.7	%	Total net investment income	$	14,959	$	17,878	(16.3)	%	$	51,145	$	54,844	(6.7)	%

The Company's private investments generated income of ~~$1.4 million~~$533,000 and ~~$5.9~~$1.5 million for the three and nine months ended September 30, ~~2019,~~2020, respectively (compared to income of ~~$1.7~~$1.4 million and ~~$5.6~~$5.9 million in the respective prior year periods). Excluding private investments, our net investment income ~~increased by 12.4% and 21.7%~~ for the three months ended September 30, 2020 decreased 12.5% from the prior year principally due to lower investment income from bank loan participations resulting from a smaller portfolio and lower investment yields. For the nine months ~~ending~~ended September 30, ~~2019 over the same periods in the prior year. This increase in~~2020, our net investment income ~~primarily reflects~~excluding private investments increased by 1.5% over the prior year driven by asset growth in our ~~fixed~~portfolio and income ~~portfolio of bonds and bank loans.~~on restricted cash equivalents. The average duration of our fixed maturity portfolio was ~~3.5~~4.3 years at September 30, ~~2019.~~2020.

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Major categories of the Company’s net investment income are summarized as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,				Nine Months Ended September 30,
	2019			2018			2019			2018				2020		2019		2020		2019
	($ in thousands)													($ in thousands)
Fixed maturity securities	$	10,229		$	8,673		$	29,876		$	24,513		Fixed maturity securities	$	11,359	$	10,229	$	33,424	$	29,876
Bank loan participations	4,752			4,713			14,978			13,265			Bank loan participations	2,396		4,752		9,668		14,978
Equity securities	1,326			1,258			3,958			3,932			Equity securities	1,246		1,326		3,677		3,958
Other invested assets	1,384			1,731			5,917			5,588			Other invested assets	533		1,384		1,494		5,917
Cash, cash equivalents, short-term investments, and other	1,184			1,157			3,490			1,646
Cash, cash equivalents, restricted cash equivalents and short-term investments													Cash, cash equivalents, restricted cash equivalents and short-term investments	456		1,184		6,470		3,490

Gross investment income	18,875			17,532			58,219			48,944			Gross investment income	15,990		18,875		54,733		58,219
Investment expense	(997		)	(1,122		)	(3,375		)	(3,143		)	Investment expense	(1,031)		(997)		(3,588)		(3,375)
Net investment income	$	17,878		$	16,410		$	54,844		$	45,801		Net investment income	$	14,959	$	17,878	$	51,145	$	54,844

The following table summarizes our investment returns:


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018			2020		2019		2020		2019
Annualized gross investment yield on:									Annualized gross investment yield on:
Average cash and invested assets	3.8	%	4.0	%	3.9	%	3.8	%	Average cash and invested assets	2.7	%	3.8	%	2.9	%	3.9	%
Average fixed maturity securities	3.7	%	3.8	%	3.8	%	3.6	%	Average fixed maturity securities	2.8	%	3.7	%	3.0	%	3.8	%

Of our total cash and invested assets of ~~$2,088.1~~$2,282.1 million at September 30, ~~2019, $256.3~~2020 (excluding restricted cash equivalents), $140.0 million represents the cash and cash equivalents portion of the portfolio. The majority of the portfolio, or ~~$1,377.3~~$1,813.5 million, is comprised 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 ~~income or loss.~~income. Also included in our investments are ~~$249.9~~$131.2 million of bank loan participations, ~~$88.8~~$79.9 million of equity securities, ~~$49.9~~$72.0 million of short-term investments, and ~~$65.9~~$45.6 million of other invested assets.

~~The $249.9 million~~In connection with the adoption of ASU 2016-13 on January 1, 2020, the Company elected the fair value option in accounting for its portfolio of bank loan participations. Under the fair value option, bank loan participations are measured at fair value, and changes in unrealized gains and losses in bank loan participations are reported in our ~~investment portfolio are~~income statement as net realized and unrealized gains (losses) on investments. Prior to January 1, 2020, bank loans were classified as held-for-investment and reported at amortized cost, net of any allowance for credit losses. Changes in ~~this~~the credit allowance ~~are~~were included in net realized and unrealized gains ~~or losses.~~(losses). At ~~September 30,~~December 31, 2019, ~~there was~~management concluded that seven loans from six issuers in the Company's bank loan portfolio were impaired. The impaired loans had a ~~$5.9~~carrying value of $6.9 million, unpaid principal of $14.3 million, and an allowance for credit ~~losses. These bank~~losses of $7.2 million, $5.1 million of which related to two loans from one issuer who was experiencing liquidity concerns resulting from revenue declines and poor growth prospects in its most profitable segment.

Bank loan participations generally provide a higher yield than our portfolio of fixed maturity securities and are primarily senior, secured floating-rate debt rated “BB”, “B”, or “CCC” by Standard & Poor’s or an equivalent rating from another nationally recognized statistical rating organization, and are therefore below investment grade. 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. They consist of, but are not limited to, term loans, the funded and unfunded portions of revolving credit loans, and similar loans and investments. At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the fair market value of these securities was ~~$242.6~~$131.2 million and ~~$250.7~~$252.4 million, respectively.

For the nine months ended September 30, 2020, the Company recognized net realized and unrealized investment losses of $27.9 million ($8.9 million of net realized and unrealized investment gains for the three months ended September 30, 2020), including $7.6 million of net unrealized losses on bank loan participations, $6.9 million of losses for the change in the fair value of equity securities, $14.1 million of net realized investment losses on the sale of bank loan securities, and $905,000 of net realized investment gains on the sale of fixed maturity securities.

For the nine months ended September 30, 2019, the Company recognized net realized and unrealized investment gains of $331,000 ($2.4 million of net realized and unrealized investment losses for the three months ended September 30, 2019), including $8.7 million of gains for the change in the fair value of equity securities, $7.7 million of realized losses for changes in

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the allowance for credit losses on impaired bank loans, $1.2 million of net realized investment losses on the sale of bank loan securities, and $809,000 of net realized investment gains on the sale of fixed maturity securities.

For the nine months ended September 30, 2018, the Company recognized net realized and unrealized investment losses of $407,000 ($467,000 of realized and unrealized investment gains for the three months ended September 30, 2018), including $695,000 of losses for the change in the fair value of equity securities, $851,000 of realized losses for changes in the allowance for credit losses on impaired bank loans, $1.5 million of net realized investment gains on the sale of bank loan securities (including an $807,000 realized gain on the repayment of the loan to the producer and supplier of power in Puerto Rico described below), and $306,000 of net realized losses on the sale of fixed maturities.

In conjunction with its outside investment managers, the Company performs quarterly reviews of all securities within its investment portfolio to determine whether any impairment has occurred.

Management concluded that five loans from four issuers in the Company's bank loan portfolio were impaired as of September 30, 2019. At September 30, 2019, the impaired loans had a carrying value of $6.4 million, unpaid principal of $12.3 million, and an allowance for credit losses of $5.9 million, $4.2 million of which related to two loans from one issuer who is

~~experiencing liquidity concerns resulting from revenue declines and poor growth prospects in its most profitable segment.~~ Management concluded that none of ~~the loans in the Company's bank loan portfolio~~its fixed maturity securities were impaired at September 30, 2020 or December 31, ~~2018.~~

At December 31, 2017, the Company held a participation in a loan issued by a company that produces and supplies power to Puerto Rico through a power purchase agreement with Puerto Rico Electric Power Authority, a public corporation and governmental agency of the Commonwealth of Puerto Rico. Management concluded that the loan was impaired at December 31, 2017 and established an allowance for credit losses on the loan to reduce the loan's carrying value to zero at December 31, 2017. The unpaid principal on the loan was $807,000 at December 31, 2017. ~~In the first quarter of 2018, the full outstanding principal on the loan was repaid and the Company recognized a realized gain of $807,000 on the repayment.~~

2019. At September 30, ~~2019, 99.6%~~2020, 99.5% 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.

Management does not intend to sell ~~other~~ available-for-sale securities in an unrealized loss position, and it is not “more likely than not” that the Company will be required to sell these ~~other~~ securities before a recovery in their value to their amortized cost basis occurs.

The amortized cost and fair value of our available-for-sale fixed maturity securities were as follows:


	September 30, 2019						December 31, 2018							September 30, 2020						December 31, 2019
	Cost or Amortized Cost		Fair Value		% of Total Fair Value		Cost or Amortized Cost		Fair Value		% of Total Fair Value			Cost or Amortized Cost		Fair Value		% of Total Fair Value		Cost or Amortized Cost		Fair Value		% of Total Fair Value
	($ in thousands)													($ in thousands)
Fixed maturity securities, available-for-sale:													Fixed maturity securities, available-for-sale:
State and municipal	$	145,016	$	154,387	11.2	%	$	147,160	$	149,295	12.6	%	State and municipal	$	271,218	$	288,596	15.9	%	$	159,894	$	167,101	11.7	%
Residential mortgage-backed	245,315		247,213		17.9	%	208,869		204,109		17.2	%	Residential mortgage-backed	297,932		306,469		16.9	%	261,524		264,146		18.4	%
Corporate	603,524		625,180		45.5	%	534,024		524,768		44.3	%	Corporate	727,678		776,955		42.9	%	611,304		632,221		44.1��	%
Commercial mortgage and asset-backed	230,417		235,204		17.1	%	199,528		197,025		16.6	%	Commercial mortgage and asset-backed	324,966		335,834		18.5	%	249,309		252,457		17.6	%

U.S. Treasury securities and obligations guaranteed by the U.S. government	111,834		113,332		8.2	%	107,803		107,193		9.1	%	U.S. Treasury securities and obligations guaranteed by the U.S. government	100,742		103,594		5.7	%	114,477		115,667		8.1	%
Redeemable preferred stock	2,025		2,007		0.1	%	2,025		1,812		0.2	%	Redeemable preferred stock	2,025		2,023		0.1	%	2,025		2,034		0.1	%
Total fixed maturity securities, available-for-sale	$	1,338,131	$	1,377,323	100.0	%	$	1,199,409	$	1,184,202	100.0	%	Total fixed maturity securities, available-for-sale	$	1,724,561	$	1,813,471	100.0	%	$	1,398,533	$	1,433,626	100.0	%

The following table sets forth the composition of the Company’s portfolio of available-for-sale fixed maturity securities by rating as of September 30, ~~2019~~2020:


Standard & Poor’s or Equivalent Designation	Fair Value		% of Total		Standard & Poor’s or Equivalent Designation	Fair Value		% of Total
	($ in thousands)					($ in thousands)
AAA	$	231,479	16.8	%	AAA	$	367,331	20.3	%
AA	528,133		38.3	%	AA	663,995		36.6	%
A	475,288		34.5	%	A	578,440		31.9	%
BBB	137,094		10.0	%	BBB	194,880		10.7	%
Below BB and unrated	5,329		0.4	%
Below BBB and unrated					Below BBB and unrated	8,825		0.5	%
Total	$	1,377,323	100.0	%	Total	$	1,813,471	100.0	%

At September 30, ~~2019,~~2020, our portfolio of fixed maturity securities contained corporate fixed maturity securities (available-for-sale) with a fair value of ~~$625.2 million~~.$777.0 million. A summary of these securities by industry segment is shown below as of September 30, ~~2019~~2020:


Industry	Fair Value		% of Total
	($ in thousands)
Industrials and Other	$	174,373	22.5	%
Financial	205,907		26.5	%
Consumer Discretionary	112,882		14.5	%
Health Care	98,808		12.7	%
Consumer Staples	69,459		8.9	%
Utilities	115,526		14.9	%
Total	$	776,955	100.0	%

Industry Fair Value % of Total
($ in thousands)
Industrials and Other $ 143,049
22.9 %
Financial 171,630
27.5 %
Consumer Discretionary 88,571
14.2 %
Health Care 88,036
14.1 %
Consumer Staples 67,123
10.7 %
Utilities 66,771
10.6 %
Total $ 625,180
100.0 %

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Corporate fixed maturity securities ~~(both available-for-sale and trading)~~(available-for-sale) include publicly traded securities and privately placed bonds as shown below as of September 30, ~~2019~~2020:


Public/Private	Fair Value		% of Total		Public/Private	Fair Value		% of Total
	($ in thousands)					($ in thousands)
Publicly traded	$	560,436	89.6	%	Publicly traded	$	711,494	91.6	%
Privately placed	64,744		10.4	%	Privately placed	65,461		8.4	%
Total	$	625,180	100.0	%	Total	$	776,955	100.0	%

The amortized cost and fair value of our available-for-sale investments in fixed maturity securities summarized by contractual maturity are as follows:


	September 30, 2019							September 30, 2020
	Amortized Cost		Fair Value		% of Total Value			Amortized Cost		Fair Value		% of Total Value
	($ in thousands)							($ in thousands)
Due in:							Due in:
One year or less	$	76,678	$	77,005	5.6	%	One year or less	$	104,099	$	105,328	5.8	%
After one year through five years	459,889		470,945		34.2	%	After one year through five years	456,660		483,155		26.7	%
After five years through ten years	205,048		214,952		15.6	%	After five years through ten years	306,679		330,510		18.2	%
After ten years	118,759		129,997		9.4	%	After ten years	232,200		250,152		13.8	%
Residential mortgage-backed	245,315		247,213		17.9	%	Residential mortgage-backed	297,932		306,469		16.9	%
Commercial mortgage and asset-backed	230,417		235,204		17.2	%	Commercial mortgage and asset-backed	324,966		335,834		18.5	%
Redeemable preferred stock	2,025		2,007		0.1	%	Redeemable preferred stock	2,025		2,023		0.1	%
Total	$	1,338,131	$	1,377,323	100.0	%	Total	$	1,724,561	$	1,813,471	100.0	%

At September 30, ~~2019,~~2020, the Company had no investments in securitizations of alternative-A mortgages or sub-prime mortgages.

Interest Expense

Interest expense was ~~$2.6~~$2.1 million and ~~$3.0~~$2.6 million for the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively ($~~8.1~~8.0 million and ~~$8.5~~$8.1 million for the respective nine month periods). See “—Liquidity and Capital Resources—Sources and Uses of Funds” for more information regarding our senior bank debt facilities and trust preferred securities.

Amortization of Intangibles

The Company recorded $149,000 and $447,000 of amortization of intangible assets for each of the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

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 the nine months ended September 30, 2019 and 2018, our U.S. federal income tax expense was 22.4% and 9.6% of our income before taxes, respectively. The effective tax rate for the nine months ended September 30, 2019 was elevated due to the significant adverse development in the 2016 and 2017 accident years for the commercial auto business, and the related impact on the mix of income reported by country. 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 nine months ended September 30, 2020, our U.S. federal income tax expense was 14.4% of income before taxes. For the nine months ended September 30, 2019, our U.S. federal income tax expense was 22.4% of income before taxes. The effective tax rate for the nine months ended September 30, 2019 was elevated due to changes in reserve estimates between accident years in the commercial auto business, and the related impact on the mix of income reported by country.

LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Funds

Dividends

We are organized as a Bermuda holding company with our operations conducted by our wholly-owned subsidiaries. Accordingly, our holding company may receive cash through loans from banks, issuance of common shares, borrowings on our credit facilities, corporate service fees or dividends received from our subsidiaries, and/or other transactions. Our U.S. holding company may receive cash in a similar manner and also through payments from our subsidiaries pursuant to our U.S. consolidated tax allocation agreement.

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The payment of dividends by our subsidiaries to us is limited by statute. In general, the laws and regulations applicable to our domestic insurance subsidiaries limit the aggregate amount of dividends or other distributions that they may declare or pay within any 12-month period without advance regulatory approval. Generally, the limitations are based on the greater of statutory net income for the preceding year or 10.0% of statutory surplus at the end of the preceding year. In addition, insurance regulators have broad powers to prevent the reduction of statutory surplus to inadequate levels and could refuse to permit the payment of dividends calculated under any applicable formula. The maximum amount of dividends available to the U.S. holding company from our U.S. insurance subsidiaries during ~~2019~~2020 without regulatory approval is ~~$24.2~~$26.7 million.

The Bermuda Insurance Act of 1978 prohibits an insurer from declaring or paying a dividend if it is in breach of its minimum solvency margin, its enhanced capital requirement, or its minimum liquidity ratio, or if the declaration or payment of such dividend would cause such a breach. An insurer can declare or pay dividends without prior regulatory approval up to 25% of the total statutory capital and surplus. The maximum combined amount of dividends and return of capital available to us from our Bermuda insurers in ~~2019~~2020 is calculated to be approximately ~~$109.8~~$125.6 million. However, any dividend payment is contingent upon continued compliance with Bermuda regulatory requirements, including but not limited to the enhanced solvency requirement calculations.

At September 30, ~~2019,~~2020, the Bermuda holding company had ~~$971,000~~$2.0 million of cash and cash equivalents. The U.S. holding company had ~~$55.5~~$50.0 million of cash and invested assets, comprised of cash and cash equivalents of ~~$7.4~~$11.5 million and other invested assets of ~~$48.1~~$38.5 million, which are not subject to regulatory restrictions. Additionally, our U.K. intermediate holding company had no invested assets and cash of less than ten thousand dollars at September 30, ~~2019.~~

Our net written premium to equity ratio (defined as the ratio of net written premiums for the previous twelve months to shareholders' equity) is reviewed by management as well as our rating agency as a measure of leverage and efficiency of deployed capital. For September 30, 2019 and 2018, our net written premium (trailing twelve months) to equity ratio was 1.1 to 1.0 and 1.0 to 1.0, respectively.2020.

Credit Agreements

The Company has a $315.0 million senior revolving credit facility (as amended or amended and restated, the “2013 Facility”). The 2013 Facility is comprised of the following at September 30, ~~2019:~~2020:

•A $102.5 million secured revolving facility used by JRG Re to issue letters of credit for the benefit of third-party reinsureds. This portion of our credit facility is secured by our investment securities. At September 30, ~~2019,~~2020, the Company had ~~$64.1~~$76.0 million of letters of credit issued under the secured facility.

•A ~~$112.5~~$212.5 million unsecured revolving facility to meet the working capital needs of the Company. All unpaid principal on the revolver is due at maturity. Interest accrues quarterly and is payable in arrears at 3-month LIBOR plus a margin which is currently 1.5% and is subject to change according to terms in the credit agreement. At September 30, ~~2019,~~2020, the Company had a drawn balance of ~~$73.3~~$163.3 million outstanding on the unsecured revolver. We drew $60.0 million on this credit facility in the three months ended March 31, 2020 as a precautionary measure to increase our cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the coronavirus (COVID-19) outbreak. $30.0 million was repaid in the three months ended June 30, 2020.

The 2013 Facility has been amended from time to time since its inception in 2013. On ~~December 7, 2016,~~November 8, 2019, the Company entered into ana Second Amended and Restated Credit Agreement for the 2013 Facility which, among other things, extended the maturity date of the 2013 Facility until ~~December 7, 2021 and modified other terms including reducing the rate of interest and reducing the number of financial covenants. On June~~November 8, ~~2017, the Company entered into a First Amendment to the 2013 Facility, which among other things, modified the financial covenants and~~2024, increased the amount available under the unsecured revolving credit facility to $212.5 million, lowered the applicable interest rate and letter of ~~additional debt the Company may incur under new financings, subject~~credit fees, and modified certain negative covenants to ~~compliance with certain conditions.~~be less restrictive.

The 2013 Facility contains certain financial and other covenants (including minimum ~~financial strength rating, minimum shareholders’ equity levels, and~~net worth, maximum ~~ratios~~ratio of total adjusted debt outstanding to total ~~capitalization)~~capitalization, and financial strength ratings) with which the Company iswas in compliance at September 30, ~~2019.~~

2020.

On August 2, 2017, the Company, and its wholly-owned subsidiary, JRG Re, together as borrowers, entered into a credit agreement (the "2017 Facility") that provides the Company with a revolving line of credit of up to ~~$100~~$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. Obligations under the 2017 Facility carry a variable rate of interest subject to terms in the credit agreement and will mature 30 days after notice of termination from the lender. The 2017 Facility contains certain financial and other covenants with which we are in compliance at September 30, ~~2019.~~2020. The loans and letters of credit made or issued under the revolving line of credit of the 2017 Facility may be used to finance the borrowers' general corporate purposes. On November 8, 2019, the Company entered into a First Amendment to Credit Agreement which, among other things, lowered the applicable interest rate and modified certain negative covenants to be less restrictive. Interest accrues quarterly and is payable in arrears at variable rates which are subject to change according to terms in the credit agreement. At September 30, ~~2019,~~2020, unsecured loans of ~~$10.0~~$39.0 million and secured letters of credit totaling ~~$5.3~~$17.5 million were outstanding on the 2017 Facility. We drew $59.0 million of unsecured capacity on this credit facility in the three months ended March 31, 2020 as a precautionary measure to increase our cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the coronavirus (COVID-19) outbreak. $30.0 million was repaid in the three months ended June 30, 2020.

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In May 2004, we issued $15.0 million of senior debt due April 29, 2034. The senior debt is not redeemable by the holder or subject to sinking fund requirements. Interest accrues quarterly and is payable in arrears at a floating rate per annum equal to the 3-month LIBOR plus 3.85%. This senior debt is redeemable at par prior to its stated maturity at our option in whole or in part. The terms of the senior debt contain certain covenants, with which we are in compliance at September 30, ~~2019,~~2020, and which, among other things, restrict our ability to assume senior indebtedness secured by our U.S. holding company’s common stock or its subsidiaries’ capital stock or to issue shares of its subsidiaries’ capital stock.

From May 2004 through January 2008, we sold trust preferred securities through five Delaware statutory trusts sponsored and wholly-owned by the Company or its subsidiaries. Each trust used the net proceeds from the sale of its trust preferred securities to purchase our floating-rate junior subordinated debt.

The following table summarizes the nature and terms of the junior subordinated debt and trust preferred securities outstanding at September 30, ~~2019~~2020 (including the Company’s repurchases of a portion of these trust preferred securities):


	James River Capital Trust I	James River Capital Trust II	James River Capital Trust III	James River Capital Trust IV	Franklin Holdings II (Bermuda) Capital Trust I		James River Capital Trust I	James River Capital Trust II	James River Capital Trust III	James River Capital Trust IV	Franklin Holdings II (Bermuda) Capital Trust I
	($ in thousands)						($ in thousands)
Issue date	May 26, 2004	December 15, 2004	June 15, 2006	December 11, 2007	January 10, 2008	Issue date	May 26, 2004	December 15, 2004	June 15, 2006	December 11, 2007	January 10, 2008
Principal amount of trust preferred securities	$7,000	$15,000	$20,000	$54,000	$30,000	Principal amount of trust preferred securities	$7,000	$15,000	$20,000	$54,000	$30,000
Principal amount of junior subordinated debt	$7,217	$15,464	$20,619	$55,670	$30,928	Principal amount of junior subordinated debt	$7,217	$15,464	$20,619	$55,670	$30,928
Carrying amount of junior subordinated debt net of repurchases	$7,217	$15,464	$20,619	$44,827	$15,928	Carrying amount of junior subordinated debt net of repurchases	$7,217	$15,464	$20,619	$44,827	$15,928
Maturity date of junior subordinated debt, unless accelerated earlier	May 24, 2034	December 15, 2034	June 15, 2036	December 15, 2037	March 15, 2038	Maturity date of junior subordinated debt, unless accelerated earlier	May 24, 2034	December 15, 2034	June 15, 2036	December 15, 2037	March 15, 2038
Trust common stock	$217	$464	$619	$1,670	$928	Trust common stock	$217	$464	$619	$1,670	$928
Interest rate, per annum	Three-Month LIBOR plus 4.0%	Three-Month LIBOR plus 3.4%	Three-Month LIBOR plus 3.0%	Three-Month LIBOR plus 3.1%	Three-Month LIBOR plus 4.0%	Interest rate, per annum	Three-Month LIBOR plus 4.0%	Three-Month LIBOR plus 3.4%	Three-Month LIBOR plus 3.0%	Three-Month LIBOR plus 3.1%	Three-Month LIBOR plus 4.0%

All of the junior subordinated debt is currently redeemable at 100.0% of the unpaid principal amount at our option.

The junior subordinated debt contains certain covenants with which we are in compliance as of September 30, ~~2019.~~2020.

At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the ratio of total debt outstanding, including both senior debt and junior subordinated debt, to total capitalization (defined as total debt plus total stockholders’ equity) was ~~20.8%~~28.1% and ~~23.9%~~25.2%, respectively. Having debt as part of our capital structure allows us to generate a higher return on equity and greater book value per share results than we could by using equity capital alone.

Ceded Reinsurance

Our insurance segments enter into reinsurance contracts to limit our exposure to potential losses arising from large risks, to protect against the aggregation of several risks in a common loss occurrence, and to provide additional capacity for growth. Our reinsurance is contracted under excess of loss and quota share reinsurance contracts. In excess of loss reinsurance, the reinsurer agrees to assume all or a portion of the ceding company’s losses in excess of a specified amount. The premiums payable to the reinsurer are negotiated by the parties based on their assessment of the amount of risk being ceded to the reinsurer because the reinsurer does not share proportionately in the ceding company’s losses. In quota share reinsurance, the reinsurer agrees to assume a specified percentage of the ceding company’s losses arising out of a defined class of business in exchange for a corresponding

percentage of premiums. For the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, our net premium retention was ~~57.7%~~46.5% and ~~62.0%~~57.7%, respectively ~~(61.3%~~(49.7% and ~~65.8%~~61.3% for the nine month periods, respectively).

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The following is a summary of our Excess and Surplus Lines segment’s net retention after reinsurance as of September 30, ~~2019:~~

2020:


						Company Retention

Casualty						~~Company Retention~~
~~Casualty~~
Primary Specialty Casualty, including Professional Liability						Up to $1.0 million per occurrence, subject to a $1.0 million aggregate deductible. (1)
Primary Casualty						Up to $2.0 million per occurrence. (2)
Excess Casualty						Up to $1.0 million per occurrence. (3)
Property						Up to $5.0 million per event. (4)


~~(1)~~	~~Except for Life Sciences quota share carve out, which is up to $2.0 million per occurrence~~


~~(2)~~	~~Total exposure to any one claim is generally $1.0 million.~~


~~(3)~~	~~For policies with an occurrence limit up to $10.0 million, the excess casualty treaty is set such that our retention is no more than $1.0 million.~~


~~(4)~~	~~The property catastrophe reinsurance treaty has a limit of $40.0 million with one reinstatement.~~

(1)Except for Life Sciences quota share carve out, which is up to $2.0 million per occurrence

(2)Total exposure to any one claim is generally $1.0 million.

(3)For policies with an occurrence limit up to $10.0 million, the excess casualty treaty is set such that our retention is no more than $1.0 million.

(4)The property catastrophe reinsurance treaty has a limit of $40.0 million with one reinstatement.

We use catastrophe modeling software to analyze the risk of severe losses from hurricanes and earthquakes on our exposure. We utilize the model in our risk selection, pricing, and to manage our overall portfolio probable maximum loss (“PML”) accumulations. A PML is an estimate of the amount we would expect to pay in any one catastrophe event within a given annual probability of occurrence (i.e. a return period or loss exceedance probability).

In our Excess and Surplus Lines segment, we write a small book of excess property insurance, but we do not write primary property insurance. The Excess and Surplus Lines segment has a surplus share reinsurance treaty in effect that was specifically designed to cover property risks. The surplus share treaty along with facultative reinsurance helps ensure that our net retained limit per risk will be $5.0 million or less.

Based upon the modeling of our Excess and Surplus Lines and Specialty Admitted segments, ~~a $45.0 million gross catastrophe loss~~it would ~~exceed~~take an event beyond our 1 in ~~1,000~~1000 year ~~PML.~~PML to exhaust our $45.0 million property catastrophe treaty. In the event of a catastrophe loss exhausting our $45.0 million ~~gross~~ property catastrophe ~~loss to these segments,~~treaty, we estimate our pre-tax cost at approximately ~~$11.6~~$7.3 million, including reinstatement premiums and net retentions. In addition to this retention, we would retain any losses in excess of our reinsurance coverage limits.

Effective March 1, 2019, Rasier, our largest Commercial Auto ~~ride share~~ account, iswas subject to an auto liability quota share reinsurance contract that ~~contains~~contained a $10.0 million occurrence cap and an annual aggregate of 200% of subject premium. In conjunction with the termination of the Rasier account, effective December 31, 2019, we simultaneously canceled our quota share reinsurance contract that protected this portfolio.

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The following is a summary of our Specialty Admitted Insurance segment’s ceded reinsurance in place as of September 30, ~~2019:~~

2020:



Line of Business						Coverage
Casualty
Workers’ Compensation						Quota share coverage for ~~50%~~70% of the first ~~$600,000.~~$1.0 million.⁽¹⁾⁽²⁾ Excess of loss coverage for ~~$29.4~~$29.0 million in excess of ~~$600,000.~~$1.0 million.⁽¹⁾⁽²⁾
Auto Programs						Quota share coverage for ~~85-90%~~75-90% of limits up to $1.5 million liability and $5.0 million physical damage per occurrence.
General Liability & Professional Liability – Programs						Quota share coverage for ~~87.5%~~70% - 100% of limits up to ~~$2.0~~$3.0 million per occurrence.
Umbrella and Excess Casualty - Programs						Quota share coverage for ~~92.5%~~95%-100% of limits up to $10.0 million per occurrence, and excess of loss coverage for $5.0 million in excess of $10.0 million.
Property
~~Commercial~~ Property within Package - Programs						Quota share coverage for 100% of limits up to $25.0 million per occurrence. ⁽³⁾
Catastrophe Coverage						Excess of Loss coverage for $44.0 million in excess of $1.0 million per occurrence.


~~(1)~~Aviation Programs			~~Excluding one program which has quota~~			Quota share coverage for ~~89%~~80% of ~~the first $1.0~~limits up to $20 million liability and $2.5 million hull per occurrence, each aircraft; and excess of loss coverage for ~~$49.0 million in~~up to $7.3M excess of ~~$1.0 million per~~$200 thousand of our 20% share of the quota share each occurrence.

(1) Excluding one program which has quota share coverage for 81.25% of the first $1.0 million per occurrence and excess of loss coverage for $49.0 million in excess of $1.0 million per occurrence.


~~(2)~~	~~Includes any residual market pools.~~


~~(3)~~	~~Excluding one program which has quota share coverage for 80% of the first $500,000 and excess of loss coverage for $39.5 million in excess of $500,000 per risk per occurrence.~~

(2) Includes any residual market pools.

(3) Excluding one program which has a reinsurance coverage for up to 90% of the first $1,000,000 and excess of loss coverage for $39.0 million in excess of $1,000,000 per risk per occurrence.

Our Specialty Admitted Insurance segment purchases reinsurance for at least ~~50%~~70% of the exposed limits on specialty admitted property-casualty business. The segment enters into reinsurance contracts for the individual risk workers’ compensation business as well as fronting and program business. While the segment focuses on casualty business, incidental property risk is incurred in the fronting and program business. The segment is covered for $44.0 million in excess of $1.0 million per occurrence to manage its property exposure to an approximate 1 in 1,000 year PML.

In our Casualty Reinsurance segment, we also have limited property catastrophe exposure, primarily through auto physical damage coverage. In the aggregate, we believe our pre-tax group-wide PML from a 1 in 1,000 year property catastrophe event would not exceed $10.0 million, inclusive of reinstatement premiums payable.

We also have a clash and contingency reinsurance treaty to cover both the Excess and Surplus Lines and Specialty Admitted Insurance segments in the event of a claims incident involving more than one of our insureds. The treaty covers $10.0 million in excess of a $2.0 million retention for loss occurrences within the treaty term. This coverage has two reinstatements in the event we exhaust any of the coverage. As of September 30, ~~2019,~~2020, our average net retained limit per risk is $2.5 million.

Effective January 1, 2020, we purchased an additional $10.0 million in claims made coverage for excess policy limits and extra contractual obligations exposures above the clash and contingency treaty for the period 2014 to present. This treaty has one reinstatement.

The Company’s insurance segments remain liable to policyholders if its reinsurers are unable to meet their contractual obligations under applicable reinsurance agreements. We establish allowances for amounts considered uncollectible. At September 30, ~~2019, there was no~~2020, the allowance for such uncollectible reinsurance ~~recoverables.~~recoverables was $335,000. To minimize exposure to significant losses from reinsurance insolvencies, the Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk. The Company generally seeks to purchase reinsurance from reinsurers with A.M. Best financial strength ratings of “A-” (Excellent) or better. The Company’s reinsurance contracts generally require reinsurers that are not authorized as reinsurers under U.S. state insurance regulations or that experience rating downgrades from rating agencies below specified levels to fund their share of the Company’s ceded outstanding losses and loss adjustment expense reserves, typically through the use of irrevocable and unconditional letters of credit. In fronting arrangements, which the Company conducts through its Specialty Admitted Insurance segment, we are subject to credit risk with regard to insurance companies who act as reinsurers for us in such arrangements. We customarily require a collateral trust arrangement to secure the obligations of the insurance entity for whom we are fronting.

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At September 30, ~~2019,~~2020, we had reinsurance recoverables on unpaid losses of ~~$614.8~~$769.8 million and reinsurance recoverables on paid losses of ~~$40.8~~$36.6 million, and all material recoverable amounts were from companies with A.M. Best ratings of “A-” or better or collateral had been posted by the reinsurer for our benefit.

Amounts Recoverable from an Indemnifying Party

The Company ~~is a party to~~previously issued a set of insurance contracts ~~with an insured group of companies~~to Rasier under which the Company pays losses and loss adjustment expenses on the ~~contract.~~contracts. The Company has indemnity agreements with ~~this group of insured parties~~Rasier (non-insurance entities) and is contractually entitled to receive reimbursement for a significant portion of the losses and loss adjustment expenses paid on behalf of ~~the insured parties~~Rasier and other expenses incurred by the Company. ~~The insured parties are~~Rasier is required to collateralize all amounts currently due to the Company and to provide additional collateral sufficient to cover the amounts that 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 of policy limits liabilities. The collateral is ~~currently~~ provided through a collateral trust arrangement established in favor of the Company by a captive insurance company affiliate of Rasier.

The Company has ongoing exposure to estimated losses and expenses on these contracts growing at a faster pace than 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, which are the basis for establishing 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 when our analysis indicates that we have uncollateralized exposure.

On October 8, 2019, the Company delivered a notice of early cancellation, effective December 31, 2019, of all insurance policies issued to the insured group of insured parties. As permitted under the indemnity agreements with this group of insured parties, the Company withdrew $1,170.7 million from the collateral trust account. The collateral funds may be used to reimburse the Company for a significant portion of the losses and loss adjustment expenses paid on behalf of the insured parties and other related expenses incurred by the Company to the extent not paid under the under the indemnity agreements. Amounts that may be recoverable under the indemnity agreement include, among other things, case loss and loss adjustment expense reserves, IBNR loss and loss adjustment expense reserves, extra contractual obligations and excess of policy limits liabilities.

~~For additional information regarding the termination of the insurance policies issued to the insured group of companies, see “Recent Developments”.~~

Cash Flows

Our sources of funds consist primarily of premiums written, investment income, reinsurance recoveries, proceeds from sales and redemptions of investments, borrowings on our credit facilities, and the issuance of common shares. We use operating cash flows primarily to pay operating expenses, losses and loss adjustment expenses, reinsurance premiums, and income taxes. The following table summarizes our cash flows:


								Nine Months Ended September 30,
	Nine Months Ended September 30,							2020		2019
	2019			2018				($ in thousands)
	($ in thousands)
Cash and cash equivalents provided by (used in):
Cash, cash equivalents, and restricted cash equivalents (used in) provided by:							Cash, cash equivalents, and restricted cash equivalents (used in) provided by:
Operating activities	$	213,787		$	251,913		Operating activities	$	(222,060)	$	213,787
Investing activities	(87,904		)	(205,574		)	Investing activities	(135,331)		(87,904)
Financing activities	(42,038		)	(25,417		)	Financing activities	31,505		(42,038)
Change in cash and cash equivalents	$	83,845		$	20,922
Change in cash, cash equivalents, and restricted cash equivalents							Change in cash, cash equivalents, and restricted cash equivalents	$	(325,886)	$	83,845

Cash used in operating activities for the nine months ended September 30, 2020 primarily reflects decreasing amounts of restricted cash equivalents as the collateral funds required on the terminated Rasier account declines as the outstanding claims on this business are settled (see Amounts Recoverable from an Indemnifying Party above). In the nine months ended September 30, 2020, the Company returned $258.9 million to its former insured, per the terms of the collateral trust. Excluding the reduction in the collateral funds, cash provided by operating activities was $36.9 million for the nine months ended September 30, 2020. Cash provided by operating activities for the nine months ended September 30, 2019 ~~and 2018 reflects the~~reflected growth in our U.S. segments and the ~~fact that we are collecting~~collection of premiums receivable at a quicker rate than ~~we are paying~~payments of loss and loss adjustment expenses. ~~Cash provided by operating activities has declined compared to the prior year due in part to higher paid losses in the nine months ended September 30, 2019.~~

Cash used in investing activities reflects our efforts to enhance the yield in our investment portfolio by investing available cash and cash equivalents into higher yielding ~~fixed maturity securities and bank loan participations.~~investments. Cash and cash equivalents (excluding restricted cash equivalents) comprised ~~12.3%~~6.1% and ~~10.2%~~12.3% of total cash and invested assets at September 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

Cash used in financing activities for the nine months ended September 30, 2020 and 2019 ~~and 2018~~ included ~~$27.5~~$27.8 million and ~~$27.0~~$27.5 million of dividends paid to shareholders, respectively. In addition, we drew a net $59.0 million on our senior credit facilities in the nine months ended September 30, 2020 as a precautionary measure to increase our cash position and preserve financial

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flexibility in light of uncertainty in the global markets resulting from the coronavirus (COVID-19) outbreak. We repaid $20.0 million on our 2017 Facility in the nine months ended September 30, 2019.

Ratings

The A.M. Best financial strength rating for our group’s regulated insurance subsidiaries is “A” (Excellent). This rating reflects A.M. Best’s opinion of our insurance subsidiaries’ financial strength, operating performance and ability to meet obligations to policyholders and is not an evaluation directed towards the protection of investors. The rating for our operating insurance and reinsurance companies of “A” (Excellent) is the third highest rating of the thirteen ratings issued by A.M. Best and is assigned to insurers that have, in A.M. Best’s opinion, an excellent ability to meet their ongoing obligations to policyholders.

The financial strength ratings assigned by A.M. Best have an impact on the ability of our regulated subsidiaries to attract and retain agents and brokers and on the risk profiles of the submissions for insurance that our subsidiaries receive. The “A” (Excellent) ratings assigned to our insurance and reinsurance subsidiaries are consistent with our business plans and we believe allow our subsidiaries to actively pursue relationships with the agents and brokers identified in their marketing plans.

EQUITY

The Company issued ~~412,810~~185,762 common shares in the nine months ended September 30, ~~2019 with 336,533 of the~~2020. The new shares were related to stock option exercises and ~~76,277 of the new shares related to~~ vesting of RSUs. The total common shares outstanding increased from ~~29,988,460~~30,424,391 at December 31, ~~2018~~2019 to ~~30,401,270~~30,610,153 at September 30, ~~2019.~~2020.

Share Based Compensation Expense

For the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, the Company recognized ~~$1.8~~$2.1 million and ~~$1.7~~$1.8 million ~~respectively,~~ of share based compensation expense, respectively ($~~5.3~~5.9 million and ~~$4.8~~$5.3 million for the respective nine month periods). As of September 30, ~~2019,~~2020, the Company had ~~$10.5~~$10.7 million of unrecognized share based compensation expense expected to be charged to earnings over a weighted-average period of 1.8 years.

Equity Incentive Plans

Options

The following table summarizes option activity:


	Nine Months Ended September 30,
	2020			2019
	Shares	Weighted- Average Exercise Price		Shares	Weighted- Average Exercise Price
Outstanding:
Beginning of period	643,851	$	30.41	1,115,324	$	29.02
Granted	—	$	—	—	$	—
Exercised	(79,615)	$	31.77	(450,514)	$	26.68
Forfeited	—	$	—	(12,058)	$	36.84
End of period	564,236	$	30.22	652,752	$	30.50
Exercisable, end of period	564,236	$	30.22	599,241	$	29.44

All of the outstanding options vest over three or four years and have a contractual life of seven years from the original date of grant.

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RSUs

The following table summarizes RSU activity:


	Nine Months Ended September 30,									Nine Months Ended September 30,
	2019				2018					2020			2019
	Shares		Weighted- Average Grant Date Fair Value		Shares		Weighted- Average Grant Date Fair Value			Shares	Weighted- Average Grant Date Fair Value		Shares	Weighted- Average Grant Date Fair Value

Unvested, beginning of period	300,142		$	39.22	178,882		$	37.93	Unvested, beginning of period	340,368	$	41.50	300,142	$	39.22
Granted	197,078		$	42.56	218,475		$	39.75	Granted	197,518	$	43.77	197,078	$	42.56
Vested	(111,212	)	$	39.90	(63,191	)	$	40.92	Vested	(156,434)	$	41.50	(111,212)	$	39.90
Forfeited	(22,445	)	$	41.32	(5,889	)	$	40.81	Forfeited	(16,846)	$	42.17	(22,445)	$	41.32
Unvested, end of period	363,563		$	40.69	328,277		$	38.51	Unvested, end of period	364,606	$	42.70	363,563	$	40.69

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RECONCILIATION OF NON-GAAP MEASURES

Reconciliation of Underwriting ~~(Loss)~~ Profit

We believe that the disclosure of underwriting profit by individual segment and of the Company as a whole is useful to investors, analysts, rating agencies and other users of our financial information in evaluating our performance because our objective is to consistently earn underwriting profits. We evaluate the performance of our segments and allocate resources based primarily on underwriting profit. Our definition of underwriting profit may not be comparable to that of other companies.

The following table reconciles the underwriting profit (loss) ~~profit~~ by individual segment and for the entire Company to consolidated income (loss) ~~income~~ before U.S. Federal income taxes:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Underwriting profit (loss) of the insurance segments:
Excess and Surplus Lines	$	15,581	$	(29,351)	$	39,788	$	(439)
Specialty Admitted Insurance	1,859		837		2,301		3,758
Casualty Reinsurance	(689)		(4,288)		(3,119)		(4,061)
Total underwriting profit (loss) of insurance segments	16,751		(32,802)		38,970		(742)
Other operating expenses of the Corporate and Other segment	(7,805)		(7,302)		(23,556)		(22,641)
Underwriting profit (loss) (1)	8,946		(40,104)		15,414		(23,383)
Net investment income	14,959		17,878		51,145		54,844
Net realized and unrealized gains (losses) on investments	8,929		(2,357)		(27,885)		331
Amortization of intangible assets	(149)		(149)		(447)		(447)
Other income and expenses	192		(91)		(967)		(223)
Interest expense	(2,129)		(2,594)		(7,970)		(8,086)
Income (loss) before taxes	$	30,748	$	(27,417)	$	29,290	$	23,036

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
(in thousands)
Underwriting (loss) profit of the insurance segments:

Excess and Surplus Lines $ (29,351 ) $ 11,302
$ (439 ) $ 32,718
Specialty Admitted Insurance 837
1,769
3,758
4,380
Casualty Reinsurance (4,288 ) 1,576
(4,061 ) 5,049
Total underwriting (loss) profit of insurance segments (32,802 ) 14,647
(742 ) 42,147
Other operating expenses of the Corporate and Other segment (7,302 ) (6,526 ) (22,641 ) (21,264 )
Underwriting (loss) profit (1)
(40,104 ) 8,121
(23,383 ) 20,883
Net investment income 17,878
16,410
54,844
45,801
Net realized and unrealized (losses) gains on investments (2,357 ) 467
331
(407 )
Amortization of intangible assets (149 ) (149 ) (447 ) (447 )
Other income and expenses (91 ) 258
(223 ) 366
Interest expense (2,594 ) (2,991 ) (8,086 ) (8,459 )
(Loss) income before taxes $ (27,417 ) $ 22,116
$ 23,036
$ 57,737

~~(1)~~

~~Included in underwriting results for the three and nine months ended September 30, 2019 is gross fee income of $6.1 million~~ ~~and~~ ~~$18.7 million, respectively ($6.8 million and $22.4~~(1)Included in underwriting results for the three and nine months ended September 30, 2020 is gross fee income of$4.6 million and $15.8 million, respectively ($6.1 million and $18.7 million for the same periods in the prior year).

Reconciliation of Adjusted Net Operating Income (Loss) ~~Income~~

We define adjusted net operating income (loss) ~~income~~ as net income (loss) ~~income~~ excluding certain non-operating expenses such as net realized and unrealized investment gains and losses, expenses related to due diligence costs for various merger and acquisition activities, professional service fees related to the filing of registration statements for the offering of securities, and severance costs associated with terminated ~~employees and interest expense and other income and expenses on a leased building that we were previously deemed to own for accounting purposes.~~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) ~~income~~ before taxes and net income (loss) ~~income~~ reconcile to our adjusted net operating income (loss) ~~income~~ as follows:


	Three Months Ended September 30,
	2020				2019
	Income Before Taxes		Net Income		(Loss) Income Before Taxes		Net (Loss) Income
	($ in thousands)
Income (loss) as reported	$	30,748	$	26,283	$	(27,417)	$	(25,167)
Net realized and unrealized investment (gains) losses	(8,929)		(8,824)		2,357		2,665
Other expenses	(21)		(77)		372		294
Adjusted net operating income (loss)	$	21,798	$	17,382	$	(24,688)	$	(22,208)

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	Nine Months Ended September 30,											Nine Months Ended September 30,
	2019					2018						2020				2019
	Income Before Taxes			Net Income		Income Before Taxes			Net Income			Income Before Taxes		Net Income		Income Before Taxes		Net Income
	($ in thousands)											($ in thousands)
Income as reported	$	23,036		$	17,868	$	57,737		$	52,198	Income as reported	$	29,290	$	25,082	$	23,036	$	17,868
Net realized and unrealized investment (gains) losses	(331		)	980		407			366
Net realized and unrealized investment losses (gains)											Net realized and unrealized investment losses (gains)	27,885		23,646		(331)		980
Other expenses	1,055			834		(34		)	45		Other expenses	1,711		1,451		1,055		834
Interest expense on leased building the Company was previously deemed to own for accounting purposes	—			—		1,179			931
Adjusted net operating income	$	23,760		$	19,682	$	59,289		$	53,540	Adjusted net operating income	$	58,886	$	50,179	$	23,760	$	19,682

Tangible Equity (per Share) and Pre Dividend Tangible Equity (per Share)

Key financial measures that we use to assess our longer term financial performance include the percentage growth in our tangible equity per share and our return on tangible equity. We believe tangible equity is a good measure to evaluate the strength of our balance sheet and to compare returns relative to this measure. For the nine months ended September 30, ~~2019,~~2020, our tangible equity per share increased by ~~10.8%~~7.1%. Absent the ~~$27.6~~$27.8 million in dividends to shareholders in the nine months ended September 30, ~~2019,~~2020, our tangible equity per share increased by ~~16.3%~~12.0% for the nine months ended September 30, ~~2019.~~2020. The coronavirus pandemic in 2020 has led to declines in the fair values of our investments and reduced tangible equity through earnings with $6.9 million of net unrealized losses on equity securities and $7.6 million of net unrealized losses on bank loan participations for the nine months ended September 30, 2020 (as discussed in Investing Results). Our operating return on tangible shareholders’ equity was ~~4.9%~~11.9% for the nine months ended September 30, ~~2019.~~2020.

We define tangible equity as the sum of shareholders’ equity less goodwill and intangible assets (net of amortization). Our definition of tangible equity may not be comparable to that of other companies, and it should not be viewed as a substitute for shareholders’ equity calculated in accordance with GAAP. The following table reconciles shareholders’ equity to tangible equity as of September 30, ~~2019~~2020 and December 31, ~~2018~~2019 and reconciles tangible equity to pre-dividend tangible equity ~~before dividends~~ as of September 30, ~~2019:~~2020:


	September 30, 2020				December 31, 2019
	Equity		Equity per Share		Equity		Equity per Share
	($ in thousands, except share amounts)
Shareholders’ equity	$	821,406	$	26.83	$	778,581	$	25.59
Less:
Goodwill	181,831		5.94		181,831		5.98
Intangible assets, net	36,493		1.19		36,940		1.21
Tangible equity	$	603,082	$	19.70	$	559,810	$	18.40
Dividends to shareholders for the nine months ended September 30, 2020	27,815		0.90
Pre-dividend tangible equity	$	630,897	$	20.60

September 30, 2019 December 31, 2018
Equity Equity per
Share Equity Equity per
Share
($ in thousands, except share amounts)
Shareholders’ equity $ 768,969
$ 25.29
$ 709,241
$ 23.65
Less:

Goodwill 181,831
5.98
181,831
6.06
Intangible assets 37,090
1.22
37,537
1.25
Tangible equity $ 550,048
$ 18.09
$ 489,873
$ 16.34
Dividends to shareholders for the nine months ended September 30, 2019 27,557
0.90

Pre-dividend tangible equity $ 577,605
$ 18.99

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of economic losses due to adverse changes in the estimated fair value of a financial instrument as the result of changes in equity prices, interest rates, foreign currency exchange rates and commodity prices. Our consolidated balance sheets include assets and liabilities with estimated fair values that are subject to market risk. Our primary market risks have been interest rate risk associated with investments in fixed maturities and equity price risk associated with investments in equity securities. We do not have material exposure to foreign currency exchange rate risk or commodity risk.

There have been no material changes in market risk from the information provided in Item 7A of our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required financial disclosure. In connection with the preparation of this quarterly report on Form 10-Q, our management carried out an evaluation, under the supervision and with the participation of our management, including the CEO and CFO, as of September 30, ~~2019,~~2020, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, ~~2019.~~2020.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our quarter ended September 30, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

The effectiveness of any system of controls and procedures is subject to certain limitations, and, as a result, there can be no assurance that our controls and procedures will detect all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be attained.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are party to legal proceedings which arise in the ordinary course of business. We believe that the outcome of such matters, individually and in the aggregate, will not have a material adverse effect on our consolidated financial position.

Item 1A. Risk Factors

There have been no material changes in our risk factors in the quarter ended September 30, ~~2019~~2020 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019, except as follows:

The recent global coronavirus outbreak could harm business and results of operations of the Company.

In December 2019, a coronavirus (COVID-19) outbreak was reported in China, and, in March 2020, the World Health Organization declared it a pandemic. The coronavirus has spread throughout the United States, including states in which the Company operates. In response, many governments, including Bermuda, the state and local governments of the States of Virginia and North Carolina, and governments in many other states in which our policyholders are located, have instituted emergency restrictions that have substantially limited the operation of non-essential businesses and the activities of individuals. Many states have extended the expiration date of restrictions and some states that eased restrictions subsequently re-imposed them as the spread of COVID-19 worsened. These restrictions could result in significant adverse effects on our policyholders and many different types of small and mid-sized businesses within the Company’s client base, particularly those in the retail, hospitality and food and beverage industries, among many others. The ultimate effect and severity of COVID-19 on the economy is not known nor is the ultimate length of the restrictions and any accompanying effects caused by it.

The effect of COVID-19 and related events, including those described above and those not yet known or knowable, began to impact our results of operations in March 2020 and could have a negative effect on the stock price, business prospects, financial condition and results of operations of the Company, including as a result of quarantines, market volatility, market downturns, actions of lawmakers and regulators, changes in consumer behavior, business closures, deterioration in the credit quality of policyholders or the inability of policyholders to pay their premium and deductible obligations to the Company, and

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deterioration in the credit quality of reinsurers or insurance entities with which we have a fronting arrangement or the inability of reinsurers or the insurance entities for which we are fronting to pay their obligations to the Company.

The uncertainty around the extent of the economic impact of COVID-19 caused severe volatility in global financial markets since February 2020. As a result of this volatility, the Company experienced net realized and unrealized losses on investments in its senior secured bank loan portfolio and its equity portfolio in the first quarter. While the investment markets meaningfully recovered since March 31, 2020, further disruptions in global financial markets could result in additional net realized and unrealized investment losses, including potential impairments in our fixed income portfolio. Moreover, the Federal Reserve has taken action to lower the Federal Funds rate, which, along with other factors, has placed pressure on net investment income by causing the yields on many of the types of investments that we make to decline. For further discussion of risks related to our investment portfolio see “Our investment portfolio is subject to significant market and credit risks, which could result in a material adverse impact on our financial condition and results of operations” in “Part I-Item 1A-Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

The outbreak has resulted in authorities implementing numerous measures in an attempt to contain the virus, such as quarantines and shelter in place orders. These measures may remain in place for a significant period of time and, even if they are lifted, may be reinstated if conditions deteriorate. These measures and the uncertainty they create may adversely affect the business, operations and financial condition of our policyholders and business partners and therefore our business, operations and financial condition. The Company may be materially affected by a downturn in the economic well-being of policyholders and business partners and the economy in general in numerous ways, including without limitation as follows:

•Collection of premiums, deductibles or self-insured retentions from our policyholders and reinsurance recoverables from our reinsurers may become increasingly difficult. We have incurred, and may continue to incur, increased estimated credit losses on premiums receivable.

•A material portion of the Company’s premiums are calculated based on policyholder payroll costs or revenues, and therefore such premiums will decrease, perhaps materially so, to the extent that policyholders reduce staffing levels or suffer declines in revenue.

•Declines in certain sectors of the economy may have an especially negative impact on the Company due to the concentration of premiums written in such sectors. For example, a material portion of the Company’s direct written premiums are related in various ways to construction. A decline in construction activity or employment would have a material adverse effect on the Company’s premium volume.

•Demand for the insurance policies that the Company offers is highly dependent upon the business environment in the markets in which the Company operates. Suppressed demand for the Company’s insurance policies may lead to reduced premium rates on new or renewal policies or on reinsurance contracts and such reduced rates may not be appropriate for the risks we insure, which in turn may adversely affect the number of policies or contracts we can write.

•Claims frequency and/or severity may increase in certain lines of business, such as, but not exclusively, workers’ compensation, and therefore we may incur increased losses and loss adjustment expenses.

A reduction in premium volume would increase the Company’s expense ratio and, combined with an increase in losses and loss adjustment expenses, would negatively affect the ability of the Company to earn an underwriting profit. For a further discussion of these risks, see “Adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity could result in the sale of fewer policies than expected or an increase in frequency or severity in claims and premium defaults or both, which, in turn, could affect our growth and profitability” in “Part I-Item 1A-Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Efforts of lawmakers at the federal and state level to address the effects of COVID-19 on businesses may have an adverse effect on the financial condition and results of operations of the Company. At the federal and state level, there have been proposals by lawmakers to retroactively amend business interruption insurance policies to cover claims related to COVID-19 when such insurance policies otherwise would exclude such risks. In addition, a number of states have instituted, and other states are considering instituting, changes designed to effectively expand workers’ compensation coverage by creating presumptions of compensability of claims for certain types of workers. The Company has received both business interruption and workers' compensation claims related to COVID-19, and we expect that we will continue to receive claims related to COVID-19. If the efforts of lawmakers to effectively expand coverage under business interruption, workers' compensation and other policies on a retroactive basis are successful and enforceable, the Company may be forced to pay claims under policies for which it received inadequate premiums to cover such risks, and therefore the Company’s reserves may be inadequate to pay such claims. At the state level, insurance departments throughout the country have issued bulletins and regulations urging or requiring insurers to extend grace periods for the payment of policy premiums and to refrain from canceling or non-renewing policies for the non-payment of policy premiums for policyholders adversely affected by COVID-19. While many of these

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requirements and recommendations have expired or are scheduled to expire in the near future, insurance departments could reinstate or extend them as conditions deteriorate and/or the negative impact of the pandemic on policyholders persists. It is uncertain what impact these government mandates may have on our ability to recover unpaid premiums on the affected policies or what our obligations may be for the payment of claims made under policies for which we have not received premium payments. Some state regulators have issued orders requiring insurers to issue premium refunds or credits, and regulators in other states could take similar action. It is not yet clear the extent of impact on the Company these new regulations will have or what other actions may be taken by government bodies, both legislative and regulatory, in reaction to COVID-19. For further discussion on risks related to emerging claim and coverage issues see “The effect of emerging claim and coverage issues on our business is uncertain” and “If we are unable to underwrite risks accurately and charge competitive yet profitable rates to our policyholders, our business, financial condition and results of operations will be materially adversely affected” in “Part I-Item 1A-Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

The spread of the virus has caused us to modify our business practices (including employee work locations and cancellation of physical participation in meetings) in ways that might become detrimental to the operation of our business (including working remotely and its attendant cybersecurity risks). We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees and policyholders. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities. A return to work in the office environment could result in an outbreak of COVID-19 illness affecting a large number of the Company's employees and/or require a large number of employees to self-quarantine. Our operations could be disrupted if key members of our senior management or a significant percentage of our workforce or the workforce of our agents, brokers or service providers are unable to continue to work because of illness from COVID-19, government directives, loss of childcare or eldercare resulting from the closure of schools and/or child or senior care facilities, or otherwise. For a further discussion of these risks, see “We rely on our systems and employees, and those of certain third-party vendors and service providers in conducting our operations, and certain failures, including internal or external fraud, operational errors, systems malfunctions, or cybersecurity incidents, could materially adversely affect our operations” in “Part I-Item 1A-Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Given the ongoing and dynamic nature of the circumstances, it is not possible to predict the ultimate impact of the coronavirus outbreak on the stock price, business prospects, financial condition or results of operations of the Company. Notwithstanding any actions by national, state and local governments to mitigate the impact of COVID-19 or by the Company to address the adverse impacts of COVID-19, there can be no assurance that any of the foregoing activities will be successful in mitigating or preventing significant adverse effects on the Company. The Company may also incur additional costs to remedy damages caused by such disruptions, which could adversely affect its financial condition and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other information

None.

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Item 6. Exhibits



Exhibit Number		Description
3.1		Certificate of Incorporation of James River Group Holdings, Ltd. (incorporated by reference to Exhibit 3.1 of the Registration Statement on Form S-1, Registration No. 333-199958, filed with the Commission on November 7, 2014)

3.2		Certificate of Incorporation on Change of Name (incorporated by reference to Exhibit 3.2 of the Registration Statement on Form S-1, Registration No. 333-199958, filed with the Commission on November 7, 2014)

3.3		Memorandum of Association of James River Group Holdings, Ltd. (incorporated by reference to Exhibit 3.3 of the Registration Statement on Form S-1, Registration No. 333-199958, filed with the Commission on November 7, 2014)

3.4		Certificate of Deposit of Memorandum of Increase of Share Capital, dated December 24, 2007 (incorporated by reference to Exhibit 3.4 of the Registration Statement on Form S-1, Registration No. 333-199958, filed with the Commission on November 7, 2014)

3.5		Certificate of Deposit of Memorandum of Increase of Share Capital, dated October 7, 2009 (incorporated by reference to Exhibit 3.5 of the Registration Statement on Form S-1, Registration No. 333-199958, filed with the Commission on November 7, 2014)

3.6		Third Amended and Restated Bye-Laws of James River Group Holdings, Ltd. (incorporated by reference to Exhibit 3.6 to the Annual Report on Form 10-K filed on March 12, 2015, Commission File No. 001-36777)

~~10.1~~31.1		Employment Agreement, dated as of August 5, 2019, by and among James River Group Holdings, Ltd., James River Group, Inc., and J. Adam Abram*

~~10.2~~	Amended and Restated Employment Agreement, effective August 5, 2019, by and between James River Group Holdings, Ltd. and Robert P. Myron*

~~31.1~~	Chief Executive Officer Certification pursuant to Rule 13a-14(a)/15d-14(a)

31.2		Chief Financial Officer Certification pursuant to Rule 13a-14(a)/15d-14(a)

32		Chief Executive Officer and Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document in Exhibit 101.

* Denotes a management contract or compensatory plan or arrangement.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		James River Group Holdings, Ltd.

Date:	~~November 7, 2019~~October 29, 2020	By:	/s/ J. Adam Abram
			J. Adam Abram
			Chief Executive Officer and Chairman of the Board
			(Principal Executive Officer)

Date:	~~November 7, 2019~~October 29, 2020	By:	/s/ Sarah C. Doran
			Sarah C. Doran
			Chief Financial Officer
			(Principal Financial Officer)

5558



Years ending December 31,	(in thousands)
2019	$	959
2020	3,680
2021	3,491
2022	3,293
2023	3,099
Thereafter	4,706
Total lease payments	19,228
Less imputed interest	(2,159		)
Total operating lease liabilities	$	17,069



	Gross Reserves at September 30, 2019
	Case		IBNR		Total
	($ in thousands)
Excess and Surplus Lines	$	432,618	$	739,194	$	1,171,812
Specialty Admitted Insurance	178,042		309,653		487,695
Casualty Reinsurance	111,524		170,276		281,800
Total	$	722,184	$	1,219,123	$	1,941,307