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Item 7. Management’s Discussion and Analysis

2024-02-29 compared with 2023-02-28 · 331 added, 406 removed, 765 unchanged (49% of the section changed)

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is a Bermuda-based holding company.

We own and operate a group of specialty insurance and reinsurance companies with the objective of generating compelling returns on tangible equity while limiting underwriting and investment volatility.

We seek to accomplish this by earning profits from insurance and reinsurance underwriting and generating meaningful risk-adjusted investment returns, while managing our capital.

For the year ended December 31, 2022, approximately 71.2% of our group-wide gross written premiums and 90.3% of our group-wide net written premiums originated from the U.S.

We own and operate a group of specialty insurance companies with the objective of generating compelling returns on tangible equity while limiting underwriting and investment volatility.

We seek to accomplish this by earning profits from insurance underwriting and generating meaningful risk-adjusted investment returns, while managing our capital.

For the year ended December 31, 2023, approximately 71.7% of our gross written premiums and 85.8% of our net written premiums from continuing operations originated from the U.S.

E&S lines market, which we believe puts us among the top three publicly traded insurers as ranked by highest concentrations of E&S risk.

We also have a specialty admitted insurance business in the United States.

We intend to concentrate substantially all of our underwriting in casualty insurance, and for the year ended December 31, 2022, we derived 96.5% of our group-wide gross written premiums from casualty insurance.

We intend to concentrate substantially all of our underwriting in casualty insurance, and for the year ended December 31, 2023, 95.7% of our gross written premiums from continuing operations were derived from casualty insurance.

We focus on writing business in specialty markets where our underwriters have particular expertise and where we have long-standing distribution relationships;

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and actively managing our capital.

We report our business in four segments:

Excess and Surplus Lines, Specialty Admitted Insurance, Casualty Reinsurance and Corporate and Other.

We report our continuing operations in three segments:

Excess and Surplus Lines, Specialty Admitted Insurance, and Corporate and Other.

The Excess and Surplus Lines segment offers E&S commercial lines liability and property insurance in every U.S.

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The Specialty Admitted Insurance segment focuses on niche classes within the standard insurance markets with a primary focus on fronting business, where we retain a minority share of the risk and seek to earn fee income by allowing other carriers and producers to use our licensure, ratings, expertise and infrastructure.

We also write workers’ compensation coverage for building trades, healthcare employees, light manufacturing and other light-to-medium hazard risks in select U.S.

Through Falls Lake National and its subsidiaries, this segment has admitted licenses and the authority to write excess and surplus lines insurance in 50 states and the District of Columbia and distributes through a variety of sources, including program administrators, MGAs, and independent retail agents.

The Specialty Admitted Insurance segment produced 33.2% of our gross written premiums and 15.0% of our net written premiums for the year ended December 31, 2023.

The Casualty Reinsurance segment provides proportional and working layer casualty reinsurance to third parties and, through December 31, 2021, to our U.S.-based insurance subsidiaries.

Typically, we structure our reinsurance contracts (also known as treaties) as quota share arrangements, with loss mitigating features, such as commissions that adjust based on underwriting results.

On a net premium volume basis, treaties with loss mitigation features including sliding scale ceding commissions represented 40.6% of the net premiums written by our Casualty Reinsurance segment during 2022.

We typically do not assume large individual risks in our Casualty Reinsurance segment, nor do we write property catastrophe reinsurance.

Most of the underlying policies assumed by our Casualty Reinsurance segment have a $1.0 million per occurrence limit, and we typically assume only a portion of that exposure.

We do not assume stand-alone third-party property business at our Casualty Reinsurance segment, but we do have a small amount of assumed business with ancillary property exposure.

Of the total gross premiums written by our Casualty Reinsurance segment during 2022, 64.8% were general liability accounts.

The Casualty Reinsurance segment distributes through reinsurance brokers.

The Casualty Reinsurance segment produced 5.7% of our gross written premiums and 11.1% of our net written premiums for the year ended December 31, 2022.

The Casualty Reinsurance segment writes third party business through one entity, JRG Re.

Through December 31, 2017, we had intercompany reinsurance agreements under which we ceded 70% of the net written premiums of our U.S.

subsidiaries (after taking into account third-party reinsurance) to JRG Re.

Effective January 1, 2018 through December 31, 2021, we generally discontinued ceding 70% of our U.S.-written premiums to JRG Re and instead ceded 70% of our U.S.-written premiums to Carolina Re, a Bermuda-domiciled, wholly-owned subsidiary of James River Group, Inc.

Carolina Re made an irrevocable election to be taxed as a U.S.

domestic corporation under Section 953(d) of the Code effective January 1, 2018.

Carolina Re was also the cedent on a stop loss reinsurance treaty with JRG Re through December 31, 2021.

Business in the Casualty Reinsurance segment is ceded under proportional, or quota-share, reinsurance treaties that provide for an arm’s length ceding commission.

We exclude the effects of intercompany reinsurance agreements from the presentation of our segment results, consistent with the way we manage the Company.

At December 31, 2022, 33.2% of our invested assets were held at JRG Re.

The Corporate and Other segment consists of the management and treasury activities of our holding companies, equity compensation for the group, and interest expense associated with our debt.

Our discontinued operations include JRG Re, which comprises the remaining operations of the former Casualty Reinsurance segment, and which, prior to the suspension of its underwriting activities in 2023, provided proportional and working layer casualty reinsurance to third parties and, through December 31, 2021, to our U.S.-based insurance subsidiaries.

On November 8, 2023, the Company entered into a definitive agreement to sell JRG Re.

The sale transaction is expected to close in the first quarter of 2024.

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 from January 1, 2018 through December 31, 2021, ceded 70% of their premiums and losses to Carolina Re.

Additionally, the Company’s U.S.-domiciled insurance subsidiaries were previously parties to intercompany quota share reinsurance agreements that in periods prior to January 1, 2018 ceded 70% of their premiums and losses to JRG Re, and from January 1, 2018 through December 31, 2021, ceded 70% of their premiums and losses to Carolina Re Ltd., a former wholly-owned subsidiary of James River Group (“Carolina Re”).

During 2022, Carolina Re commuted the outstanding obligations ceded under the intercompany quota-share reinsurance agreements back to the Company’s U.S.-based insurance subsidiaries with effect from January 1, 2022.

Carolina Re concluded all operations and was dissolved in December 2023.

During 2023, JRG Re commuted the outstanding obligations ceded under the intercompany quota share reinsurance agreements back to the Company's U.S.-based insurance subsidiaries with effect from January 1, 2023.

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.

Best Company (“A.M.

Best”) financial strength rating for our group’s regulated insurance and reinsurance subsidiaries is “A-” (Excellent) with a stable outlook.

Best”) financial strength rating for our group’s regulated U.S.

insurance subsidiaries is “A-” (Excellent) with a negative outlook.

This rating reflects A.M.

Best’s evaluation of our insurance and reinsurance 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 fourth highest rating of the thirteen ratings issued by A.M.

Best’s evaluation of our U.S.

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 U.S.

operating insurance companies of “A-” (Excellent) is the fourth highest rating of the thirteen ratings issued by A.M.

Best and is assigned to insurers that have, in A.M.

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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.

We believe the “A-” (Excellent) ratings assigned to our insurance and reinsurance subsidiaries allow our subsidiaries to actively pursue relationships with the agents and brokers identified in their marketing plans.

We believe the “A-” (Excellent) ratings assigned to our insurance subsidiaries allow our subsidiaries to actively pursue relationships with the agents and brokers identified in their marketing plans.

We discuss certain key metrics, described below, which we believe provide useful information about our business and the operational factors underlying our financial performance.

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We evaluate the performance of our segments and allocate resources based primarily on underwriting profit.

We define underwriting profit as net earned premiums and gross fee income (in specific instances when the Company is not retaining insurance risk) less losses and loss adjustment expenses on business not subject to retroactive reinsurance accounting for loss portfolio transfers (see Loss Portfolio Transfers in Strategic Actions below) and other operating expenses.

We define underwriting profit as net earned premiums and gross fee income (in specific instances when the Company is not retaining insurance risk) less losses and loss adjustment expenses on business from continuing operations not subject to retroactive reinsurance accounting for a loss portfolio transfer (see Loss Portfolio Transfer in Strategic Actions below) and other operating expenses.

Other operating expenses include the underwriting, acquisition, and insurance expenses of the operating segments and, for consolidated underwriting profit, the expenses of the Corporate and Other segment.

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See “Reconciliation of Non-GAAP Measures” for a reconciliation of underwriting profit to income before taxes and for additional information.

Loss ratio , expressed as a percentage, is the ratio of losses and loss adjustment expenses on business not subject to retroactive reinsurance accounting for loss portfolio transfers to net earned premiums.

Loss ratio , expressed as a percentage, is the ratio of losses and loss adjustment expenses on business from continuing operations not subject to retroactive reinsurance accounting for a loss portfolio transfer to net earned premiums.

Our definition of loss ratio may not be comparable to that of other companies.

See “Underwriting Performance Ratios” for a reconciliation of underwriting ratios.

Accident year loss ratio , expressed as a percentage, is the ratio of losses and loss adjustment expenses for the current accident year (excluding development on prior accident year reserves) to net earned premiums for the current year (excluding net earned premium adjustments on reinstatement premiums associated with prior years).

Expense ratio , expressed as a percentage, is the ratio of other operating expenses net of gross fee income included in other income to net earned premiums.

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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 is defined as income available to common shareholders excluding a) the impact of retroactive reinsurance accounting for loss portfolio transfers, b) net realized and unrealized gains (losses) on investments, c) certain non-operating expenses such as professional service fees related to a purported class action lawsuit, various strategic initiatives, and the filing of registration statements for the offering of securities, and d) severance costs associated with terminated employees.

Adjusted net operating income is defined as income available to common shareholders excluding a) income (loss) from discontinued operations b) the impact of retroactive reinsurance accounting for a loss portfolio transfer, c) net realized and unrealized gains (losses) on investments, d) certain non-operating expenses such as professional service fees related to a purported class action lawsuit, various strategic initiatives, and the filing of registration statements for the offering of securities, and e) severance costs associated with terminated employees.

Adjusted net operating income is a non-GAAP measure and should not be viewed as a substitute for net income calculated in accordance with GAAP.

Our definition of adjusted net operating income may not be comparable to that of other companies.

Our definition of

adjusted net operating income may not be comparable to that of other companies.

See “Reconciliation of Non-GAAP Measures” for a reconciliation of income available to common shareholders to adjusted net operating income.

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Gross investment yield is annualized investment income before any deductions for fees and expenses, expressed as a percentage of the average beginning and ending carrying values of those investments during the period.

Unless specified otherwise, all references to our defined metrics above in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are for our business that is not subject to retroactive reinsurance accounting for loss portfolio transfers.

Unless specified otherwise, all references to our defined metrics above in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are for our business from continuing operations that is not subject to retroactive reinsurance accounting for a loss portfolio transfer.

Management believes that the lack of economic impact of retroactive reinsurance accounting makes the presentation of our key metrics on business not subject to retroactive reinsurance accounting helpful to the users of our financial information.

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We estimate the reserve using individual case-basis valuations of reported claims and statistical analysis.

We believe that the use of judgment is necessary to arrive at a best estimate for the reserve for losses and loss adjustment expenses given the long-tailed nature of the business generally written by the Company and the limited operating experience of the Casualty Reinsurance segment, the fronting and program business in the Specialty Admitted Insurance segment and the commercial auto business in the Excess and Surplus Lines segment.

In applying this judgment, we may establish reserves that differ from our internal

actuaries’ estimate.

We believe that the use of judgment is necessary to arrive at a best estimate for the reserve for losses and loss adjustment expenses given the long-tailed nature of the business generally written by the Company and the limited operating experience of the fronting and program business in the Specialty Admitted Insurance segment and the commercial auto business in the Excess and Surplus Lines segment.

In applying this judgment, we may establish reserves that differ from our internal actuaries’ estimate.

We seek to establish reserves that will ultimately prove to be adequate.

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Our claims department personnel use their knowledge of the specific claim along with internal and external experts, including underwriters and legal counsel, to estimate the expected ultimate losses.

Our Casualty Reinsurance segment generally establishes case reserves based on reports received from ceding companies or their brokers.

For excess of loss contracts, we are typically notified of insurance losses on specific contracts, and we record case reserves based on the estimated ultimate losses on each claim.

For proportional contracts, we typically receive aggregated claims information and record case reserves based on that information.

We also use statistical analysis to estimate the cost of losses and loss adjustment expenses that have been incurred but not reported to us.

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Specialty Admitted Insurance 394,330 441,989 836,319 52.8 %

Casualty Reinsurance 147,401 280,632 428,033 65.6 %

Total $ 863,150 $ 1,742,957 $ 2,606,107 66.9 %

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Specialty Admitted Insurance 63,351 70,251 133,602 52.6 %

Casualty Reinsurance 60,213 107,292 167,505 64.1 %

Total $ 348,627 $ 898,346 $ 1,246,973 72.0 %

Our Reserve Committee consists of our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, and Chief Actuary.

Additionally, the presidents, chief financial officers and segment actuaries of each of our three insurance segments participate in the Reserve Committee meetings for their respective segments.

Additionally, the presidents, chief financial officers and segment actuaries of each of our insurance segments participate in the Reserve Committee meetings for their respective segments.

The Reserve Committee meets quarterly to review the actuarial recommendations made by each segment actuary and use their best judgment to determine the best estimate to be recorded for the reserve for losses and loss adjustment expenses on our balance sheet.

We engage an independent internationally recognized actuarial consulting firm to review our reserves for losses and loss adjustment expenses in the third and fourth quarters of each year.

This independent actuarial consulting firm prepares its own estimate of our reserve for loss and loss adjustment expenses, and we compare their estimate to the reserve for losses and loss adjustment expenses reviewed and approved by the Reserve Committee in order to corroborate the adequacy of our reserves.

The Reserve Committee believes that using judgment to supplement the actuarial recommendations is necessary to arrive at a best estimate given the nature of the business generally written by the Company and the limited operating experience of the

Casualty Reinsurance segment, the fronting and program business in the Specialty Admitted Insurance segment and the commercial auto business in the Excess and Surplus Lines segment.

This independent actuarial consulting firm prepares its own estimate of our reserve for losses and loss adjustment expenses, and we compare their estimate to the reserve for losses and loss adjustment expenses reviewed and approved by the Reserve Committee in order to corroborate the adequacy of our reserves.

The process of estimating the reserve for losses and loss adjustment expenses requires a high degree of judgment and is subject to a number of variables.

In establishing the quarterly actuarial recommendation for the reserve for losses and loss adjustment expenses, our actuaries estimate an initial expected ultimate loss ratio for each of our product lines by accident year (or for our Casualty Reinsurance segment, on a contract by contract basis).

Input from our underwriting and claims departments, including premium pricing assumptions and historical experience, are considered by our internal actuaries in estimating the initial expected loss ratios.

Our actuaries generally utilize five actuarial methods in their estimation process for the reserve for losses and loss adjustment expenses.

These five methods utilize, to varying degrees, the initial expected loss ratio, detailed statistical analysis of past claims reporting and payment patterns, claims frequency and severity, paid loss experience, industry loss experience, and changes in market conditions, policy forms, exclusions, and exposures.

The five actuarial methods that we use in our reserve estimation process are:

Our actuaries generally utilize five primary actuarial methods in their estimation process for the reserve for losses and loss adjustment expenses.

These primary methods are supplemented by additional actuarial methods as the Chief Actuary considers appropriate.

For example, these supplemental methods can include frequency and severity methods that use claim count data to estimate ultimate losses and loss adjustment expenses.

These claims frequency and severity methods may be appropriate for some lines of business and inappropriate for others.

The Chief Actuary uses professional judgment to determine when additional methods should be used to supplement the five primary methods.

The five primary methods utilize, to varying degrees, the initial expected loss ratio, detailed statistical analysis of past claims reporting and payment patterns, claims frequency and severity, paid loss experience, industry loss experience, and changes in market conditions, policy forms, exclusions, and exposures.

The five primary actuarial methods that we use in our reserve estimation process are:

Expected Loss Method

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In our Excess and Surplus Lines segment and for our Workers’ Compensation book in the Specialty Admitted Insurance segment, the initial expected loss ratio is estimated based on adjusting book of business prior year experience to current cost and rate level.

In our Programs business within the Specialty Admitted Insurance segment and in our Casualty Reinsurance segment, the expected loss ratio is based on the actuarial pricing of the individual account.

In our Programs business within the Specialty Admitted Insurance segment, the expected loss ratio is based on the actuarial pricing of the individual

Alternatively, when company experience lacks historical depth, initial expected loss ratios can be determined using loss ratios implied by industry loss costs for the class or reported industry loss ratios.

Incurred Loss Development Method

The Incurred Loss Development method uses historical loss reporting patterns by accident year or treaty year to estimate future loss reporting patterns.

The Incurred Loss Development method uses historical loss reporting patterns by accident year to estimate future loss reporting patterns.

In this method, our actuaries review historical loss reporting patterns to develop incurred loss development factors that are applied to current reported losses to calculate ultimate losses.

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Again, this technique is particularly valuable when there is a low volume of business being reviewed and paid losses lack historical depth.

Different reserving methods are appropriate in different situations, and our actuaries use their judgment and experience to determine the weighting of the methods detailed above to use for each accident year and each line of business and, for our Casualty Reinsurance segment, on a contract by contract basis.

For example, the current accident year has very little incurred and paid loss development data on which to base reserve projections.

As a result, we rely heavily on the Expected Loss Method in estimating reserves for the current accident year.

We generally set our initial expected loss ratio for the current accident year consistent with our pricing assumptions.

The Company generally sets the initial expected loss ratio for the current accident year consistent with the internal actuaries’ pricing assumptions adjusted upward where warranted based on management's judgment in order to produce the best estimate.

We believe that this is a reasonable and appropriate reserving assumption for the current accident year since our pricing assumptions are actuarially driven and since we expect to make an acceptable return on the new business that we write.

If actual loss emergence is better than our initial expected loss ratio assumptions, we will experience favorable development, and if it is worse than our initial expected loss ratio assumptions, we will experience adverse development.

Conversely, sufficient incurred and paid loss development is available for our oldest accident years, so more weight is given to the Incurred Loss Development method and the Paid Loss Development method than the Expected Loss

The Bornhuetter-Ferguson Incurred Loss Development and Paid Loss Development methods blend features of the Expected Loss Method and the Incurred and Paid Loss Development methods.

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In applying these methods to develop an estimate of the reserve for losses and loss adjustment expenses, our actuaries use judgment to determine three key parameters for each accident year and line of business:

the initial expected loss ratios, the incurred and paid loss development factors and the weighting of the five actuarial methods to be used for each accident year and line of business.

the initial expected loss ratios, the incurred and paid loss development factors and the weighting of the actuarial methods to be used for each accident year and line of business.

Judgment is also required to make actuarial adjustments, if needed, for changes in claims processing and case reserving that could cause current reported loss and paid loss development patterns to deviate from historical patterns.

For the Excess and Surplus Lines segment, the segment actuary performs a study on each of these parameters at least annually and makes recommendations for the initial expected loss ratios, the incurred and paid loss development factors and the weighting of the five actuarial methods by accident year and line of business.

Members of the Reserve Committee review and approve the parameter review actuarial recommendations, and absent any developments requiring an earlier review, these approved parameters are used in the reserve estimation process for the next four quarters at which time a new parameter study is performed.

For the Excess and Surplus Lines segment, the segment actuary performs a study on each of these parameters at least annually and makes recommendations for the initial expected loss ratios, the incurred and paid loss development factors and the weighting of the actuarial methods by accident year and line of business.

Members of the Reserve Committee review and approve the parameter review actuarial recommendations, and absent any developments requiring an earlier review, these approved parameters are generally used in the reserve estimation process for the next four quarters at which time a new parameter study is performed.

For the Specialty Admitted Insurance segment, expected loss ratios, loss development factors, and loss cost trends are reviewed and updated at least annually.

For the Casualty Reinsurance segment, periodic assessments are made on a contract by contract basis.

Method weights are generally less rigid for the Casualty Reinsurance segment given the heterogeneous nature of the various contracts, and the potential for significant changes in mix of business within individual treaties.

The table below quantifies the impact of extreme reserve deviations from our expected value at December 31, 2023.

The total carried net reserve for losses and loss adjustment expenses is displayed alongside 5th, 50th and 95th percentiles of likely ultimate net reserve outcomes.

The estimates of these percentiles are a result of a reserve variability analysis using a simulation approach.

The total carried net reserve for losses and loss adjustment expenses for our continuing operations is displayed alongside 5th, 50th

and 95th percentiles of likely ultimate net reserve outcomes.

The estimates of these percentiles are a result of a reserve variability analysis which is part of our internal capital modeling efforts using a simulation approach.

Sensitivity 5th Pct.

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Our reserve estimates also assume that we will not experience significant losses from mass torts and that we will not incur losses from future mass torts not known to us today.

While it is not possible to predict the impact of changes in the litigation environment, if new mass torts or expanded legal theories of liability emerge, our cost of claims may differ substantially from

our reserves.

Our reserve estimates assume that there will not be significant changes in the regulatory and legislative environment.

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Such adjustments are included in current operations.

We experienced $9.1 million of adverse development in 2022 on the reserve for losses and loss adjustment expenses held at December 31, 2021 (excluding adverse prior year development subject to retroactive reinsurance accounting - see Loss Portfolio Transfers in Strategic Actions below).

This adverse reserve development included $210,000 of favorable development in the Excess and Surplus Lines segment, $4.2 million of favorable development in the Specialty Admitted Insurance segment, and $13.4 million of adverse development in the Casualty Reinsurance segment.

We experienced $325.8 million of adverse development in 2021 on the reserve for losses and loss adjustment expenses held at December 31, 2020.

This adverse reserve development included $190.7 million of adverse development in the Excess and Surplus Lines segment including $200.1 million of adverse development in the commercial auto line of business that was primarily related to the 2019 and prior accident years with Rasier LLC and its affiliates (collectively, “Rasier”) .

The adverse development for commercial auto was partially offset by $9.4 million of favorable development in other Excess and Surplus Lines underwriting divisions.

Favorable reserve development in the Specialty Admitted Insurance segment was $2.5 million as losses on our workers’ compensation business written prior to 2020 continued to develop more favorably than we had anticipated.

The Casualty Reinsurance segment experienced $137.6 million of adverse development on prior accident years.

Actual reported and paid losses in the Casualty Reinsurance segment significantly exceeded expectations in 2021, particularly in the fourth quarter of 2021, causing us to refine some of the assumptions used to determine our best estimate of ultimate losses for this segment.

Specifically, we responded to this highly elevated loss emergence by making significant adjustments to our assumed tail factors, other development factors, initial expected loss ratios, and weights given to various actuarial methods.

In particular, we gave significantly more weight to incurred loss development methods and Bornhuetter – Ferguson incurred loss development methods than had been done previously.

These actuarial refinements resulted in material deterioration in ultimate loss selections for underwriting years 2014 through 2018.

In determining the amount of prior accident year development to recognize each year, we consider actual loss emergence (reported and paid) versus expected loss emergence, as well as our internal actuaries’ indications and the prior year development indicated in the actuarial analysis prepared by our independent third-party actuary.

We look at these different data

points with the goal of disclosing prior accident year development that is representative of loss emergence on prior accident years during the year, while also recording the Company’s best estimate of the aggregate reserve for losses and loss adjustment expenses on the Company’s Consolidated Balance Sheet.

At a high level, actual loss emergence on prior accident years in excess of actuarial expectations implies adverse development, while actual loss emergence less than expected emergence implies favorable development.

We experienced $31.6 million of net adverse development in 2023 on the reserve for losses and loss adjustment expenses held at December 31, 2022 (excluding adverse prior year development on the commercial auto loss portfolio transfer subject to retroactive reinsurance accounting - see Loss Portfolio Transfers and Impact of Retroactive Reinsurance below).

This net adverse reserve development included $32.6 million of net adverse development in the Excess and Surplus Lines segment, with adverse development in accident years 2020 and prior exceeding favorable development on accident years 2022 and 2021, and $972,000 of net favorable development in the Specialty Admitted Insurance segment.

We experienced $4.4 million of net favorable development in 2022 on the reserve for losses and loss adjustment expenses held at December 31, 2021 (excluding adverse prior year development on the commercial auto loss portfolio transfer subject to retroactive reinsurance accounting - see Loss Portfolio Transfers and Impact of Retroactive Reinsurance below).

This net favorable reserve development included $210,000 of net favorable development in the Excess and Surplus Lines segment and $4.2 million of net favorable development in the Specialty Admitted Insurance segment.

Investment Valuation and Impairment

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At December 31, 2023, we do not have any securities classified as “held-to-maturity” or “trading.”

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.

The Company periodically reviews its available-for-sale fixed maturities to determine whether any unrealized losses exist that 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 n et realized and unrealized gains (losses) on investments .

Unrealized losses that are not credit-related continue to be recognized in other comprehensive income (loss).

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 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.

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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.

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 December 31, 2023, 2022, or 2021.

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

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 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.

The Company elected the fair value option to account for 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 Consolidated Statements of (Loss) Income and Comprehensive Loss as net realized and unrealized gains (losses) on investments.

Losses due to credit-related impairments on bank loan participations are determined based upon consultations and advice from the Company's specialized investment manager and consideration of any adverse situations that could affect the borrower's ability to repay, the estimated value of underlying collateral, and other relevant factors.

For the year ended December 31, 2022, management concluded that $1.5 million of the unrealized losses were due to credit-related impairments.

For the years ended December 31, 2023 and 2022, management concluded that $946,000 and $592,000 of the unrealized losses were due to credit-related impairments, respectively.

Management concluded that none of the unrealized losses were due to credit-related impairments for the year ended December 31, 2021.

For the year ended December 31, 2020, management concluded that $8.3 million of the unrealized losses were due to credit-related impairments.

Fair values are measured in accordance with ASC 820, Fair Value Measurements.

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We also review and monitor changes in fair values and unrealized gains and losses.

We obtain an understanding of the methods, models, and inputs used by our investment managers and independent pricing services, and controls are in place to validate that

prices provided represent fair values.

We obtain an understanding of the methods, models, and inputs used by our investment managers and independent pricing services, and controls are in place to validate that prices provided represent fair values.

Our 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 accounting services provider and investment managers that obtain fair values from independent pricing services.

Recent Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

ASU 2020-06 simplifies the accounting for convertible debt instruments and convertible preferred stock and became effective for interim and annual periods beginning after December 15, 2021.

The Company adopted the new standard concurrent with the issuance of our 7% Series A Perpetual Cumulative Convertible Preferred Shares on March 1, 2022.

Under ASU 2020-06, embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital.

The new guidance also requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and generally requires them to include the effect of potential share settlement for instruments that may be settled in cash or shares.

Adoption of the new standard did not materially impact our financial position, results of operations, or earnings per share for the year ended December 31, 2022.

Impact of the COVID-19 Pandemic

The Company’s financial condition and results of operations were not materially impacted by the coronavirus (COVID-19) pandemic during 2022.

However, we are continuing to monitor a number of risks that COVID-19 poses to the Company.

For a description of these risks, see “Part I-Item 1A.

Risk Factors” in this Annual Report on Form 10-K.

Impact of Macroeconomic Events Including Higher Levels of Inflation and Rising Interest Rates

Current macroeconomic events including the war in Ukraine and sustained supply chain constraints stemming from the COVID-19 pandemic led to higher levels of inflation in 2022.

The Federal Reserve, attempting to gain control of inflation, implemented a series of federal funds rate increases in 2022 and early 2023.

Interest rates, in response, rose significantly in 2022 and fears of an impending economic slowdown have increased the likelihood of an economic recession, all of which negatively impacted financial markets.

The immediate impacts to the Company were on our investment portfolio and investing results.

Our investment portfolio is primarily comprised of fixed maturity investments (81.3% of total invested assets at December 31, 2022).

The fair values of fixed maturities generally move inversely with interest rates, and unrealized losses associated with the declines in fair values are recognized as a component of other comprehensive income (loss), contributing to declines in shareholders' equity and tangible equity.

For the year ended December 31, 2022, other comprehensive loss, representing the after-tax impact of the unrealized losses on fixed maturity investments, was $193.0 million.

We are monitoring our portfolio for signs of credit-related impairments, and to date, we have concluded that the declines are primarily interest rate and market-driven with no allowance for credit losses considered necessary.

As turnover has occurred in our portfolio and we invest cash generated from operations, we are benefiting from the higher yields now available on fixed maturities which is reflected in our investment income.

Our investment portfolio also contains investments in equity securities and bank loan participations (comprising 5.4% and 7.1% of total invested assets at December 31, 2022, respectively) that are carried on our Balance Sheets at fair value.

The fair values of these investments, the changes in which are recognized as unrealized gains and losses in our Statements of Income (Loss) and Comprehensive (Loss) Income, have been negatively impacted by the ongoing macroeconomic events and associated declines in financial markets.

Net realized and unrealized (losses) gains on investments for the year ended December 31, 2022 include unrealized losses of $11.2 million and $15.9 million, respectively, for the changes in fair values of equity securities and bank loan participations.

The rising interest rates have also increased interest expense on our outstanding variable rate senior and trust preferred debt.

The applicable rates on our debt reset quarterly or semi-annually and are structured as LIBOR plus a margin or spread.

Strategic Actions

Issuance of Series A Preferred Shares

The Company closed on the issuance and sale of 150,000 7% Series A Perpetual Cumulative Convertible Preferred Shares, par value $0.00125 per share (the “Series A Preferred Shares”) on March 1, 2022 for an aggregate purchase price of $150.0 million, or $1,000 per share, in a private placement.

The Series A Preferred Shares are convertible into the Company’s common shares at the option of the holder at any time, or at the Company’s option under certain circumstances.

Dividends on the Series A Preferred Shares accrue quarterly at the initial rate of 7% of the $1,000 liquidation preference per share (the “Liquidation Preference”) per annum, which may be paid in cash, in-kind in common shares or in Series A Preferred Shares, at the Company’s election.

During 2022, cash dividends of $8.8 million were declared, of which $2.6 million was payable at December 31, 2022.

Please see “Note 11.

Series A Preferred Shares” in the Notes to our Consolidated Financial Statements in this Form 10-K.

Loss Portfolio Transfers

Loss portfolio transfers are a form of reinsurance utilized by the Company to transfer losses and loss adjustment expenses and associated risk of adverse development on covered subject business, as defined in the respective agreements, to an assuming reinsurer in exchange for a reinsurance premium.

Loss portfolio transfers can bring economic finality on the subject risks when they no longer meet the Company's appetite or are no longer aligned with our risk management guidelines.

Commercial Auto Loss Portfolio Transfer

On September 27, 2021, James River Insurance Company and James River Casualty Company (together, “James River”) entered into a loss portfolio transfer transaction (the “Commercial Auto LPT”) with Aleka Insurance, Inc.

(“Aleka”), a captive insurance company affiliate of Rasier LLC, to reinsure substantially all of the Excess and Surplus Lines segment’s legacy portfolio of commercial auto policies previously issued to Rasier LLC and its affiliates (collectively, “Rasier”) for which James River is not otherwise indemnified by Rasier.

Under the terms of the transaction, effective as of July 1, 2021, James River ceded to Aleka approximately $345.1 million of commercial auto liabilities relating to Rasier policies written in the years 2013-2019, which amount constituted the reinsurance premium.

The reinsurance coverage is structured to be fully collateralized, is not subject to an aggregate limit, and is subject to certain exclusions.

A pre-tax loss of $29.6 million was recognized as adverse loss and loss adjustment reserve development in the Excess and Surplus Lines segment for the third quarter of 2021 associated with the loss portfolio transfer.

Casualty Re Loss Portfolio Transfer

On February 23, 2022, JRG Re entered into a loss portfolio transfer retrocession agreement (the “Casualty Re LPT”) with Fortitude Reinsurance Company Ltd.

(“FRL”) under which FRL reinsures the majority of the reserves in the Company’s Casualty Reinsurance segment.

Under the terms of the transaction, which closed on March 31, 2022 (the “Retrocession Closing Date”), JRG Re (a) ceded to FRL all existing and future claims for losses arising under certain casualty reinsurance agreements with underlying insurance companies with treaty inception dates ranging from 2011 to 2020 (the “Subject Business”), in each case net of third-party reinsurance and other recoveries, up to an aggregate limit of $400.0 million;

(b) continues to manage and retain the benefit of other third-party reinsurance on the Subject Business;

(c) paid FRL a reinsurance premium of $335.0 million, $310.0 million of which JRG Re credited to a notional funds withheld account (the “Funds Withheld Account”) and $25.0 million of which was paid in cash to FRL;

and (d) pays FRL a 2% per annum crediting rate on the Funds Withheld Account balance on a quarterly basis.

The total premium, initial Funds Withheld Account credit, and aggregate limit was adjusted for claims paid from October 1, 2021 to the Retrocession Closing Date.

The Casualty Reinsurance segment incurred $6.8 million of net adverse reserve development in the three months ended March 31, 2022 associated with the Casualty Re LPT.

The Funds Withheld Account balance was $213.6 million at December 31, 2022 and Funds Withheld Account crediting fees of $3.7 million are included in interest expense in our Statements of Income (Loss) and Comprehensive (Loss) Income for the year ended December 31, 2022.

Retroactive Reinsurance Accounting

The Company periodically reevaluates the remaining reserves subject to the Commercial Auto LPT and the Casualty Re LPT (together, the “Loss Portfolio Transfers”).

For the year ended December 31, 2022, due to adverse paid loss trends on the legacy Rasier business, the Company recognized adverse prior year development of $46.7 million on the reserves subject to the Commercial Auto LPT, resulting in a corresponding additional amount ceded under the Commercial Auto LPT.

As a result, the cumulative amounts ceded under the Commercial Auto LPT exceed the consideration paid, moving the Commercial Auto LPT into a gain position and requiring retroactive reinsurance accounting.

Similarly, due to adverse paid and reported loss trends on the business subject to the Casualty Re LPT, the Company ceded an additional $6.1 million of losses recoverable under the Casualty Re LPT for the year ended December 31, 2022, moving the Casualty Re LPT into a deferred gain position requiring retroactive reinsurance accounting.

At December 31, 2022, the Company has $58.9 million of aggregate limit remaining under the Casualty Re LPT.

Under retroactive reinsurance accounting, gains are deferred and recognized in earnings in proportion to actual paid recoveries under the Loss Portfolio Transfers using the recovery method.

Over the life of the contracts, we would expect no economic impact to the Company as long as any additional losses are within the limit of the loss portfolio transfer and the counterparty performs under the contract.

In periods where the Company recognizes a change in the estimate of the reserves subject to the Loss Portfolio Transfers that increases or decreases the amounts ceded under the Loss Portfolio Transfers, the proportion of actual paid recoveries to total ceded losses is affected and the change in deferred gain is recognized in earnings as if the revised estimate of ceded losses was available at the effective date of the loss portfolio transfer.

The effect of the deferred retroactive reinsurance benefit is recorded in losses and loss adjustment expenses on the Consolidated Statements of Income (Loss) and Comprehensive (Loss) Income.

Retroactive reinsurance benefits totaling $32.7 million ($31.0 million for the Commercial Auto LPT and $1.7 million for the Casualty Re LPT) were recorded in losses and loss adjustment expenses for the year ended December 31, 2022 using the

recovery method.

As of December 31, 2022, the cumulative amounts ceded under the Loss Portfolio Transfers was $732.9 million ($391.8 million under the Commercial Auto LPT and $341.1 million under the Casualty Re LPT).

At December 31, 2021, $345.1 million was ceded under the Commercial Auto LPT.

The total unrecognized deferred retroactive reinsurance gain of $20.1 million at December 31, 2022 under the Loss Portfolio Transfers ($15.7 million related to the Commercial Auto LPT and $4.4 million related to the Casualty Re LPT) is separately presented on the Company's Consolidated Balance Sheets.

Suspension of Underwriting Activities in Casualty Reinsurance Segment

In keeping with our previously announced plans to significantly shrink top-line writings of the Casualty Reinsurance segment, we have decided to suspend writing business in the Casualty Reinsurance segment, as we continue our focus on growing our higher returning U.S.

insurance and fronting businesses.

We expect the Casualty Reinsurance segment to continue earning premium due to the nature of the earnings patterns in the reinsurance business, which can extend over multiple years.

Aside from the suspension of underwriting activities, we plan for the Casualty Reinsurance segment to maintain its normal day-to-day operations, with a staff to continue servicing the business on its books and to facilitate compliance with its regulatory requirements.

No accounting standards were adopted during the year ended December 31, 2023 that had a material impact on our financial statements.

There are no prospective accounting standards which are expected to have a material impact on our financial statements subsequent to December 31, 2023 .

Recent Strategic Actions

James River Group Holdings, Ltd.

On November 10, 2023, the Company announced that its board of directors has initiated an exploration of strategic alternatives.

Sale of JRG Re

On November 8, 2023, the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Fleming Intermediate Holdings LLC, a Cayman Islands limited liability company (the “Buyer”).

Pursuant to the Stock Purchase Agreement, and on the terms and subject to the conditions therein, the Buyer agreed to purchase from the Company all of the common shares of JRG Re (the “Transaction”).

JRG Re comprises the remaining operations of the former Casualty Reinsurance segment, and the Transaction, which is expected to close in the first quarter of 2024, will result in the Company’s disposition of its casualty reinsurance business and related assets.

Total consideration to the Company for the sale of JRG Re includes (A) $277 million (the “Purchase Price”), which is comprised of (i) $138 million payable by the Buyer to the Company on the closing date in cash, subject to final closing adjustments based on changes in JRG Re’s adjusted net worth between March 31, 2023 and the closing date, and (ii) a $139 million dividend or return of capital or surplus by JRG Re to the Company prior to the closing date, which dividend or return of capital or surplus is subject to the availability of unencumbered assets on the closing date, and (B) $2.5 million to be paid by the

Buyer to the Company in the event that certain conditions outlined in the Stock Purchase Agreement are met on the date that is nine months following the closing date.

The Purchase Price is subject to adjustment based on changes in JRG Re’s adjusted net worth between March 31, 2023 and the closing date.

We have determined that the sale of JRG Re meets the criteria to be classified as held for sale and that the sale represents a strategic shift that will have a major effect on our operations.

Accordingly, the results of JRG Re's operations have been presented as discontinued operations, and the assets and liabilities of JRG Re have been classified as held for sale and segregated for all periods presented in the Annual Report on Form 10-K.

In the fourth quarter of 2023, we recorded an estimated loss on sale of $80.4 million to write down the carrying value of JRG Re to its estimated fair value based upon the estimated sales price of the transaction less costs to sell and other adjustments in accordance with the Stock Purchase Agreement.

Actions to Reduce Workers' Compensation Book

In June 2023, the Company non-renewed its large California workers' compensation program in the Specialty Admitted Insurance segment.

This action was taken due to persistent rate pressure and tighter reinsurance capacity.

Gross written premiums for the program were $96.5 million, $110.9 million, and $124.1 million for the years ended December 31, 2023, 2022, and 2021, respectively.

On September 25, 2023, the Company announced that certain of its subsidiaries entered into an agreement to sell the renewal rights to the Individual Risk Workers’ Compensation (“IRWC”) business in the Specialty Admitted Insurance segment.

The transaction includes the full operations of the business, including underwriting, loss control and claims, and transfer of the employees supporting the business.

The transaction, which closed on September 29, 2023, was aligned with our strategy to focus our resources on core businesses where we have meaningful scale.

Gross written premiums for IRWC were $45.5 million, $53.0 million, and $57.4 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Upon closing of the transaction, the Company recognized a $2.2 million gain on sale included in other income for the year ended December 31, 2023 representing the minimum guaranteed consideration to be received in the transaction.

The Company also recognized an impairment charge of $2.5 million related to the trademark intangible asset associated with the IRWC business.

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

9 unchanged sentences

Other operating expenses (188,355) (148,809) 26.6 %

Underwriting profit (loss) (1), (2)

Underwriting profit (1), (2)

24,484 56,025 (56.3) %

1 unchanged sentence

Net investment income 84,046 43,188 94.6 %

Net realized and unrealized investment (losses) gains (28,318) 15,564 —

Other income and expense (5,016) (2,232) 124.7 %

Net realized and unrealized investment gains (losses) 10,441 (15,720) —

Other income (expense) 424 (244) —

Interest expense (24,627) (13,872) 77.5 %

Amortization of intangible assets (363) (363) —

Income (loss) before taxes 49,387 (196,034) —

Income tax expense (benefit) 18,414 (23,235) —

Net income (loss) $ 30,973 $ (172,799) —

Impairment of intangible assets (2,500) — —

Income from continuing operations before taxes 86,914 53,272 63.2 %

Income tax expense on continuing operations 25,705 18,414 39.6 %

Net income from continuing operations 61,209 34,858 75.6 %

Net loss from discontinued operations (168,893) (3,885) —

Net (loss) income (107,684) 30,973 —

Dividends on Series A Preferred Shares (10,500) (8,750) 20.0 %

Net income (loss) available to common shareholders $ 22,223 $ (172,799) —

Adjusted net operating income (loss) (1)

Net (loss) income available to common shareholders $ (118,184) $ 22,223 —

Adjusted net operating income (1)

$ 50,317 $ 51,710 (2.7) %

5 unchanged sentences

64.0 % 67.4 %

(1) Underwriting profit (loss) and adjusted net operating income (loss) are non-GAAP measures.

(1) Underwriting profit and adjusted net operating income are non-GAAP measures.

See “Reconciliation of Non-GAAP Measures.”

(2) Underwriting results include gross fee income of $24.2 million and $23.6 million for the years ended December 31, 2023 and 2022, respectively.

(3) Accident year loss ratio excluding $5.0 million of net catastrophe losses related to Hurricane Ian in the year ended December 31, 2022 and $5.0 million of net catastrophe losses related to Hurricane Ida in the year ended December 31, 2021.

The Company produced an underwriting profit of $49.6 million and a combined ratio of 93.5% for the year ended December 31, 2022 compared to an underwriting loss of $256.9 million and a combined ratio of 136.9% for the year ended December 31, 2021.

The 10.1% growth in consolidated net earned premiums was driven by attractive market conditions, particularly for our Excess and Surplus Lines segment, which reported net earned premium growth of $69.6 million or 14.3% compared to the prior year.

The Excess and Surplus Lines segment is our largest segment, comprising 61.5% of consolidated gross written premiums and 72.5% of consolidated net earned premiums in 2022.

Our loss ratio improved from 113.9% in the prior year to 68.5% in the current year.

The improvement was primarily driven by net reserve development on prior accident years which was $9.1 million or 1.2 percentage points adverse for the year ended December 31, 2022 compared to $325.8 million or 46.8 percentage points adverse for the year ended December 31, 2021.

$9.1 million of net adverse reserve development for the year ended December 31, 2022 includes $210,000 of net favorable development from the Excess and Surplus Lines segment, $4.2 million of net favorable development from the Specialty Admitted Insurance segment, and $13.4 million of net adverse development from the Casualty Reinsurance segment, of which $6.8 million related to the Company's entrance into the Casualty Re LPT in March of 2022.

The $325.8 million of net adverse reserve development for the year ended December 31, 2021 included $190.7 million of net adverse reserve development from the Excess and Surplus Lines segment almost entirely related to a previous commercial auto account, $2.5 million of net favorable development from the Specialty Admitted Insurance segment, and $137.6 million of net adverse reserve development from the Casualty Reinsurance segment.

Refer to the discussion of segment underwriting results below for additional details on this adverse reserve development.

Current accident year losses in both years include $5.0 million of net catastrophe losses (Hurricane Ian in 2022 and Hurricane Ida in 2021) in our small Excess Property book within the Excess and Surplus Lines segment.

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.

Our expense ratio increased relative to the prior year driven by higher expense ratios for our Specialty Admitted Insurance and Casualty Reinsurance segments and higher operating expenses for our Corporate and Other segment.

The Specialty Admitted Insurance segment benefited from 4.3% growth in fee income, but the segment expense ratio was higher due to slightly lower net earned premiums and the net impact of commission, tax and assessment accrual adjustments in both years.

The Casualty Reinsurance segment typically structures its reinsurance treaties with loss mitigation features including profit and sliding scale ceding commissions.

Net adverse reserve development on treaties with such features reduced our commissions in 2021 by $11.8 million compared to $249,000 in 2022.

Operating expenses for our Corporate and Other segment increased driven by higher compensation expenses due to the hiring of additional employees.

Underwriting results in the prior year were also negatively impacted by $8.1 million of reinstatement premium, including $6.4 million triggered by one claim on a 2019 excess of loss treaty in the Excess and Surplus Lines segment.

The reinstatement premium reduced net written and net earned premium and increased the underwriting loss.

Our net income increased over the prior year due to the improved underwriting results and higher net investment income, with partially offsetting items including the $20.1 million of retroactive reinsurance losses and loss adjustment expenses under the loss portfolio transfers, the unfavorable swing in net realized and unrealized gains and losses on investments, and higher interest expense.

As discussed above, the Company recognized adverse prior year development of $52.8 million on the reserves subject to the LPT Agreements in the year ended December 31, 2022, resulting in corresponding additional amounts ceded under the LPT Agreements, and requiring retroactive reinsurance accounting.

Retroactive reinsurance benefits of $32.7 million were recorded in losses and loss adjustment expenses for the year ended December 31, 2022, resulting in a net impact of $20.1 million within our net losses and loss adjustment expenses.

Higher interest rates in the current year boosted yields on fixed income investments and increased investment income, but also resulted in higher interest expense on our variable rate senior and trust preferred debt.

Interest expense for the year ended December 31, 2022 also includes $3.7 million of crediting fees on the Funds Withheld Account balance under the Casualty Re LPT.

The unfavorable swing in net realized and unrealized gains and losses on investments (see Investing Results below) also had a negative impact on the comparative net results for the two years as market values of equity securities and bank loan participations have declined in the current year due to the effect of macroeconomic events on financial markets.

Net income available to common shareholders for the year ended December 31, 2022 reflects the $8.8 million of current year dividends on the Series A Preferred Shares.

Adjusted net operating income (loss) improved from a $184.2 million loss in the year ended December 31, 2021 to income of $69.5 million in the year ended December 31, 2022.

Tangible equity decreased by 1.2% in 2022 as net income of $31.0 million and proceeds from the Series A Preferred Share issuance of $144.9 million were offset by $193.0 million of unrealized losses on our fixed maturity investments in other comprehensive loss (see Investing Results below).

Tangible equity per share decreased by 14.4% for the year reflecting the small decrease in tangible equity over a larger share count including an assumed conversion of the Series A Preferred Shares.

Our adjusted net operating return on tangible equity of 13.5% for the year ended December 31, 2022 compares favorably to the prior year loss and reflects the turnaround in underwriting results and higher investment income.

(3) Accident year loss ratio excluding $5.0 million of net catastrophe losses related to Hurricane Ian in the year ended December 31, 2022.

The Company produced net income from continuing operations of $61.2 million for the year ended December 31, 2023, an increase of 75.6% over the prior year.

Adjusted net operating income was $50.3 million for the year ended December 31, 2023 compared to $51.7 million for the year ended December 31, 2022.

Underwriting profits were $24.5 million and $56.0 million (combined ratios of 96.5% and 91.1%) for the years ended December 31, 2023 and 2022, respectively.

Underwriting results for the current year were negatively impacted by $16.4 million of reinstatement premium in the Excess and Surplus Lines segment.

The reinstatement premium, triggered by claims on the 2020 and 2021 years of an excess of loss reinsurance treaty, reduced net written and net earned premiums, and underwriting profit.

The reinstatement premium resulted in a 2.1 percentage point increase in our combined ratio for the current year.

Net earned premiums grew by $78.3 million or 12.4% reflecting growth in both operating segments.

Net earned premiums for the Excess and Surplus Lines segment grew by $54.0 million or 9.7% driven primarily by growth in our larger underwriting divisions, in particular Excess Casualty, General Casualty, and Manufacturers and Contractors.

Segment renewal rate increases continue to be strong and broad based across underwriting divisions (+10.0% over the prior year).

Net earned premiums for the Specialty Admitted Insurance segment increased by $24.3 million or 32.8% due to higher retentions of individual risk workers compensation business following the termination of a quota share treaty effective January 1, 2023 and the growth in fronting with the mix of business and changes in reinsurance coverages contributing to higher retentions and higher earned premium.

Our loss ratio was 69.9% in the current year compared to 67.5% in the prior year.

The impact of the reinstatement premium was a 1.5 percentage point increase in our loss ratio for the current year.

Net reserve development on prior accident years was $31.6 million or 4.5 percentage points adverse for the year ended December 31, 2023 and included $32.6 million of net adverse development from the Excess and Surplus Lines segment, with adverse development in accident years 2020 and prior exceeding favorable development on accident years 2022 and 2021, and $972,000 of net favorable development from the Specialty Admitted Insurance segment.

For the year ended December 31, 2022, net reserve development on prior accident years was $4.4 million or 0.7 percentage points favorable including $210,000 of net favorable reserve development from the Excess and Surplus Lines segment and $4.2 million of net favorable development from the Specialty Admitted Insurance segment.

Current accident year losses for the year ended December 31, 2022 include $5.0 million or 0.8 percentage points of net catastrophe losses related to Hurricane Ian in our Excess Property book within the Excess and Surplus Lines segment.

Our expense ratio increased from 23.6% to 26.6% with the reinstatement premium impact on net earned premium in the current year contributing 0.6 percentage points of the increase.

Other contributors include lower reinsurance cessions that resulted in lower ceding commissions in the aggregate and higher net commissions and higher general and administrative expenses due to higher compensation, bad debts, and taxes, licenses and fees.

Investment income grew by $40.9 million or 94.6% over the prior year primarily driven by higher yields on fixed maturities, bank loans, and cash equivalents.

The higher yields reflect the rise in interest rates in the current year.

Net realized and unrealized gains and losses on investments include the impact of market volatility in the respective periods on the fair values of equity securities and bank loan participations (see Investing Results below).

Interest expense was $10.8 million higher in the current year largely driven by higher interest rates on our variable rate senior and trust preferred debt.

The applicable rates on our debt reset periodically and are structured as SOFR plus a margin or spread.

Our average rate of interest increased from 4.3% in the prior year to 7.5% in the current year.

As disclosed above, on September 29, 2023, the Company completed the sale of the renewal rights to the IRWC business in the Specialty Admitted Insurance segment.

Upon closing of the transaction, the Company recognized a $2.2 million gain on sale included in other income in the current year representing the minimum guaranteed consideration to be received in the transaction.

The Company also recognized an impairment charge of $2.5 million related to the trademark intangible asset associated with the IRWC business.

The Company entered into a definitive agreement on November 8, 2023 to sell JRG Re.

The sale is expected to close in the first quarter of 2024 and discontinued operations includes the operating results of JRG Re for the respective periods as well as certain transaction-related expenses in the current year.

The current year transaction-related expenses include $53.2 million of losses recognized on JRG Re's fixed maturity investments as the Company no longer has the intent or ability to hold securities in an unrealized loss position until a recovery of their fair value could occur, $1.4 million of professional services and other costs to sell, and an $80.4 million loss on the held-for sale classification of JRG Re's net assets adjusting them down to the anticipated closing price in the transaction.

Excluding the transaction-related expenses, JRG Re's operating results were a loss of $33.9 million compared to a $3.9 million loss in the prior year.

The operating results include net adverse development of $35.5 million on treaties not subject to the Casualty Re LPT for the year ended December 31, 2023 compared to $13.4 million of net adverse development in the prior year.

Adjusted net operating income decreased 2.7% from the prior year due to lower underwriting results and higher interest expense, partially offset by higher investment income.

Tangible equity and tangible equity per share decreased by 3.1% and 4.2%, respectively, in the current year mainly due to the loss from discontinued operations, partially offset by the positive results from continuing operations and unrealized gains on fixed maturities in other comprehensive income.

Our 9.6% adjusted net operating return on tangible equity for the year ended December 31, 2023 compares to a 10.0% return in the prior year.

Loss Portfolio Transfers and Impact of Retroactive Reinsurance

The Company has entered into two loss portfolio transfers, which are a form of reinsurance utilized by the Company to transfer losses and loss adjustment expenses and associated risk of adverse development on covered subject business, as defined in the respective agreements, to an assuming reinsurer in exchange for a reinsurance premium.

Loss portfolio transfers can bring economic finality on the subject risks as long as any additional losses are within the limit of the loss portfolio transfer and the counterparty performs under the contract.

The reinsurance coverage is structured to be fully collateralized, is not subject to an aggregate limit, and is subject to certain exclusions.

On February 23, 2022, JRG Re entered into a loss portfolio transfer retrocession agreement (the “Casualty Re LPT”) with Fortitude Reinsurance Company Ltd.

(“FRL”) under which FRL reinsures the majority of JRG Re's reserves.

(b) continues to manage and retain the benefit of other third-party reinsurance on the Subject Business;

and (d) pays FRL a 2% per annum crediting rate on the Funds Withheld Account balance on a quarterly basis.

The total premium, initial Funds Withheld Account credit, and aggregate limit was adjusted for claims paid from October 1, 2021 to the Retrocession Closing Date.

JRG Re incurred $6.8 million of net adverse reserve development in the three months ended March 31, 2022 associated with the Casualty Re LPT.

The Funds Withheld Account balance was $137.8 million and $213.6 million at December 31, 2023 and December 31, 2022, respectively.

Funds Withheld Account crediting fees of $3.6 million and $3.7 million are included in the loss from discontinued operations in our Consolidated Statements of (Loss) Income and Comprehensive Loss for the years ended December 31, 2023 and 2022, respectively.

The Company periodically reevaluates the remaining reserves subject to the Commercial Auto LPT and the Casualty Re LPT.

For the year ended December 31, 2023, due to adverse paid and reported loss trends on the business subject to the loss portfolio transfers, the Company recognized adverse prior year development of $117.3 million on the reserves subject to the Commercial Auto LPT ($64.4 million) and Casualty Re LPT ($52.9 million), resulting in corresponding additional amounts ceded under the respective loss portfolio transfers.

For the year ended December 31, 2022, the Company recognized adverse prior year development of $46.7 million on the reserves subject to the Commercial Auto LPT and $6.1 million on the reserves subject to the Casualty Re LPT.

Both loss portfolio transfers are in gain positions as the cumulative amounts ceded under the loss portfolio transfers exceed the consideration paid, requiring the application of retroactive reinsurance accounting.

Under retroactive reinsurance accounting, gains are deferred and recognized in earnings in proportion to actual paid recoveries under the loss portfolio transfers using the recovery method.

In periods where the Company recognizes a change in the estimate of the reserves subject to the loss portfolio transfers that increases or decreases the amounts ceded under the loss portfolio transfers, the proportion of actual paid recoveries to total ceded losses is affected and the change in deferred gain is recognized in earnings as if the revised estimate of ceded losses was available at the effective date of the loss portfolio transfer.

The effect of the deferred retroactive reinsurance benefit is recorded in losses and loss adjustment expenses on the Consolidated Statements of (Loss) Income and Comprehensive Loss.

Retroactive reinsurance benefits totaling $83.5 million including $59.4 million for the Commercial Auto LPT and $24.0 million for the Casualty Re LPT were recorded in losses and loss adjustment expenses for the year ended December 31, 2023 using the recovery method, resulting in a net impact of $33.8 million within our net losses and loss adjustment expenses for the year ended December 31, 2023.

For the year ended December 31, 2022, retroactive reinsurance benefits of $31.0 million and $1.7 million were recorded in losses and loss adjustment expenses for the Commercial Auto LPT and Casualty Re LPT, respectively, resulting in a net impact of $20.1 million within our net losses and loss adjustment expenses.

As of December 31, 2023, the cumulative amounts ceded under the loss portfolio transfers was $850.2 million ($456.2 million under the Commercial Auto LPT and $393.9 million under the Casualty Re LPT).

The total deferred retroactive reinsurance gain of $53.9 million at December 31, 2023 under the loss portfolio transfers includes $20.7 million related to the Commercial Auto LPT separately presented on the Company's Consolidated Balance Sheets, and $33.2 million related to the Casualty Re LPT which is included within the assets held-for sale of JRG Re on the Company's Consolidated Balance Sheets.

At December 31, 2023, the Company has $6.1 million of aggregate limit remaining under the Casualty Re LPT.

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.

Contracts and policies written on a “losses occurring” basis cover claims that may occur during the term of the contract or 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:

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Specialty Admitted Insurance 501,309 490,208 2.3 %

Casualty Reinsurance 85,208 182,081 (53.2) %

$ 1,508,660 $ 1,411,372 6.9 %

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Specialty Admitted Insurance 104,350 76,390 36.6 %

Casualty Reinsurance 83,033 159,195 (47.8) %

$ 693,901 $ 665,446 4.3 %

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Specialty Admitted Insurance 98,439 74,137 32.8 %

Casualty Reinsurance 136,427 134,223 1.6 %

$ 708,005 $ 629,734 12.4 %

Gross written premiums for the Excess and Surplus Lines segment (which represents 61.5% of our consolidated gross written premiums in 2022) increased 10.5% from the prior year.

Total policy submissions for Core E&S lines (excluding commercial auto) declined 4.9% in 2022, but renewal submissions increased 12.2% and our ratio of bound policies to quoted policies improved generating 1.5% more bound policies in the year ended December 31, 2022.

Renewal rates for the Excess and Surplus Lines segment were up 9.9% compared to 2021 and the total number of policies in force grew by 4.2% in 2022.

Gross written premiums for the Excess and Surplus Lines segment (which represents 66.8% of our consolidated gross written premiums from continuing operations in 2023) increased 9.4% from the prior year.

The growth was driven by our Core E&S lines, as we continue to de-emphasize commercial auto.

Total policy submissions for Core E&S lines (excluding commercial auto) increased 10.3% from the prior year in 2023 largely due to a 10.9% increase in new business submissions as the segment focused on growing new business with smaller account sizes.

Renewal rates for the Excess and Surplus Lines segment were up 10.0% compared to 2022.

The change in gross written premiums was notable in several divisions as shown below:

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Excess Property 64,574 52,104 23.9 %

Small Business 36,930 32,593 13.3 %

Sports & Entertainment 13,934 9,442 47.6 %

All other Core E&S divisions 190,593 190,484 0.1 %

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Specialty Admitted gross written premium $ 501,309 $ 490,208 2.3 %

Our fronting written premium increased slightly from the prior year driven by new fronting relationships in the current year and the continued expansion of existing fronting relationships (together representing an increase of $50.8 million for the year ended December 31, 2022), and partially offset by the loss of one relationship from merger and acquisition activity at a general agent and a decline of $13.2 million or 10.6% in written premium for our largest workers' compensation program due to a very competitive workers' compensation market in California.

Our two largest fronting relationships represented $231.8 million or 47.3% of segment gross written premium in 2022 compared to $213.6 million or 43.5% in 2021.

Individual risk workers' compensation premium declined in 2022 due to the soft market conditions currently present for workers' compensation.

Gross written premiums for the Casualty Reinsurance segment (which represents 5.7% of our consolidated gross written premiums in 2022) decreased 53.2% in 2022 reflecting our current strategic focus on downsizing the Casualty Reinsurance third party book, which resulted in the nonrenewal of several treaties in the current year and lower participations on certain renewing 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.

Our fronting written premium increased 4.2% over the prior year driven primarily by the continued expansion of existing fronting relationships.

Our largest fronting relationship represented $163.1 million or 32.5% of segment gross written premium in 2023 compared to $120.9 million or 24.7% in 2022.

In June 2023, the Company non-renewed its large California workers' compensation program in the Specialty Admitted Insurance segment, which represented $96.5 million and $110.9 million of gross written premiums for the years ended December 31, 2023 and 2022, respectively.

This action was taken due to persistent rate pressure and tighter reinsurance capacity.

On September 29, 2023, the Company completed the sale of the renewal rights to the IRWC business in the Specialty Admitted Insurance segment.

The transaction is aligned with our strategy to focus our resources on core businesses where we have meaningful scale.

Net Retention

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Specialty Admitted Insurance 20.8 % 15.6 %

Casualty Reinsurance 97.4 % 87.4 %

Total 46.0 % 47.1 %

The net premium retention for the Excess and Surplus Lines segment increased in 2022 largely driven by the segment's Excess Casualty division, which comprises approximately one-third of the segment's gross written premiums in the years ended December 31, 2022 and 2021.

The Excess Casualty division cedes a high percentage of written premiums under a reinsurance treaty and changes in growth rates for this division can impact comparable premium retention ratios for the segment.

In the third quarter of 2022, we increased our retention on the reinsurance treaty applicable to the Excess Casualty division.

Net retention for the Excess Casualty division was 20.3% in 2022 compared to 14.1% in 2021.

In addition, net retention for the segment in 2021 was impacted by $8.1 million of reinstatement premium in the prior year third quarter which reduced net written premium and the net retention for that year.

The net premium retention for the Specialty Admitted Insurance segment decreased in 2022 primarily due to a lower retention in the fronting business reflecting the mix of business and changes in reinsurance coverage as treaties renew.

The net retention on the segment’s fronting business was 13.9% and 15.7% in the years ended December 31, 2022 and 2021, respectively.

The net premium retention for the Excess and Surplus Lines segment decreased in 2023 driven by $16.4 million of reinstatement premium, which reduced the 2023 net retention ratio by 1.7%, and the renewal of a quota share treaty, effective July 1, 2023, that increased premium cessions across all underwriting divisions other than Excess Casualty and resulted in lower retentions for the segment.

The net premium retention for the Specialty Admitted Insurance segment increased in 2023 primarily due to the termination of an individual risk workers' compensation quota share treaty effective January 1, 2023.

The net retention on the workers’ compensation business was 76.0% and 29.8% for the years ended December 31, 2023 and 2022, respectively.

The renewal of the workers' compensation quota share treaty on January 1, 2022 resulted in a higher retention for this business.

The Casualty Reinsurance segment previously wrote a retrocessional treaty/fronting arrangement under which 100% of the premiums were ceded.

The treaty was nonrenewed for 2022 and higher net retention in the current year reflects adjustments to prior year assumed and ceded written premiums on the treaty.

The net retention on the segment’s fronting business, which reflects the mix of business and changes in reinsurance coverage as treaties renew, was 15.3% and 13.9% for the years ended December 31, 2023 and 2022, respectively.

Segment Results

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Specialty Admitted Insurance 95.9 % 94.3 %

Casualty Reinsurance 104.7 % 187.6 %

Total 96.5 % 91.1 %

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Underwriting expenses (135,175) (106,194) 27.3 %

Underwriting profit (loss) (1)

Underwriting profit (1)

$ 54,347 $ 83,051 (34.6) %

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61.9 % 65.1 %

(1) Underwriting Profit (Loss) is a non-GAAP Measure.

(1) Underwriting Profit is a non-GAAP Measure.

See “Reconciliation of Non-GAAP Measures.”

(2) Accident year loss ratio excluding $5.0 million of net catastrophe losses related to Hurricane Ian in the year ended December 31, 2022 and $5.0 million of net catastrophe losses related to Hurricane Ida in the year ended December 31, 2021.

The Excess and Surplus Lines segment produced an underwriting profit of $83.1 million and combined ratio of 85.1% for the year ended December 31, 2022 compared to an underwriting loss of $121.5 million and a combined ratio of 125.0% for the year ended December 31, 2021.

The loss ratio of 65.9% for the year ended December 31, 2022 includes $210,000 of net favorable reserve development (excluding adverse prior year development on the legacy Rasier business and the impact of retroactive reinsurance - see Commercial Auto Loss Portfolio Transfer in Strategic Actions ) in our loss estimates for prior accident years.

The loss ratio of 106.2% for the year ended December 31, 2021 included $190.7 million of net adverse reserve development (39.2 percentage points) in our loss estimates for prior accident years, including $200.1 million of net adverse reserve development on our commercial auto business that was almost entirely related to the legacy Rasier business that has been in runoff since 2019.

We had expected that reported losses on this terminated commercial auto account would decline as the account moved further into runoff, but the continued heavy reported loss emergence in 2021 indicated more inherent severity than anticipated.

In response, we meaningfully adjusted our actuarial methodology, resulting in a significant strengthening of reserves for this account.

Current accident year losses in both 2022 and 2021 include $5.0 million of net catastrophe losses (Hurricane Ian in 2022 and Hurricane Ida in 2021) in our small Excess Property book within the Excess and Surplus Lines segment.

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.

Written and earned premiums for our Excess and Surplus Lines segment grew due to attractive market conditions.

Net earned premiums increased $69.6 million or 14.3% over the prior year, including growth in lines that have meaningful ceding

The segment expense ratio increased slightly over the prior year primarily due to higher compensation related expenses.

The reinstatement premium reduced net written and net earned premium in the prior year quarter and year to date and increased the underwriting loss.

(2) Accident year loss ratio excluding $5.0 million of net catastrophe losses related to Hurricane Ian in the year ended December 31, 2022.

The Excess and Surplus Lines segment produced underwriting profits of $54.3 million and $83.1 million (combined ratios of 91.1% and 85.1%) for the years ended December 31, 2023 and 2022, respectively.

Underwriting results for the year ended December 31, 2023 include $16.4 million of reinstatement premium.

The reinstatement premium, triggered by claims on the 2020 and 2021 years of an excess of loss reinsurance treaty, reduced net written and net earned premiums, and underwriting profit for the current year.

Segment underwriting ratios were also impacted by the reinstatement premium, attributing to a 2.4 percentage point increase in the segment combined ratio for the year ended December 31, 2023.

Excluding the reinstatement premium, net earned premiums increased by $70.4 million or 12.7% for the year ended December 31, 2023 due to growth in our larger underwriting divisions and broad based renewal rate increases of 10.0% compared to the prior year.

The loss ratio of 68.9% for the year ended December 31, 2023 includes $32.6 million or 5.3 percentage points of net adverse reserve development (excluding adverse prior year development on the legacy Rasier business and the impact of retroactive reinsurance - see Commercial Auto Loss Portfolio Transfer in Strategic Actions ) in our loss estimates for prior accident years, with adverse development in accident years 2020 and prior exceeding favorable development on accident years 2022 and 2021.

The $16.4 million of reinstatement premium, which reduced net earned premiums in 2023, resulted in a 1.8 percentage point increase in our loss ratio for the year ended December 31, 2023.

The loss ratio of 65.9% for the year ended December 31, 2022 included $210,000 of net favorable reserve development in our loss estimates for prior accident years, including $9.1 million of net favorable development in Core E&S lines and $8.9 million of net adverse reserve development on our commercial auto business.

The 2022 loss ratio includes 0.9 percentage points related to $5.0 million of catastrophe losses for Hurricane Ian in the prior year.

The higher current year expense ratio was partially due to the $16.4 million of reinstatement premium, which reduced net earned premiums and contributed 0.6 percentage points of the expense ratio increase relative to the prior year.

The expense ratios also increased over the prior year due to the mix of business and reinsurance changes which resulted in higher net commissions expense, as well as higher compensation costs and bad debt expenses.

Specialty Admitted Insurance Segment

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The Specialty Admitted Insurance segment generated underwriting profits of $4.1 million and $4.2 million (combined ratios of 95.9% and 94.3%) for the years ended December 31, 2023 and 2022, respectively.

The loss ratios of 79.0% and 74.1% for the years ended December 31, 2022 and 2021 include $4.2 million and $2.5 million (5.6 and 3.3 percentage points, respectively) of net favorable development on prior accident years.

Net earned premiums increased by $24.3 million or 32.8% due to higher retentions of individual risk workers compensation business following the termination of a

quota share treaty effective January 1, 2023 and the growth in fronting with the mix of business and changes in reinsurance coverages contributing to higher retentions and higher earned premium.

The growth in fronting business produced a 2.5% increase in segment fee income.

The loss ratio improvement in the current year primarily reflects changes in the mix of business and improved loss trends which helped to produce a lower current accident year loss ratio, partially offset by lower net favorable development in our loss estimates for prior accident years.

Net favorable development in our loss estimates for prior accident years was $972,000 and $4.2 million (1.0 and 5.6 percentage points) for the years ended December 31, 2023 and 2022, respectively.

The favorable development in both 2023 and 2022 reflects the fact that actual loss emergence of the workers’ compensation book for prior accident years has been better than expected.

The higher current accident year loss ratio in 2022 (84.6% compared to 77.5% in the prior year) reflects current actuarial indications and higher loss trends in the business.

The expense ratio of the Specialty Admitted Insurance segment was 15.3% for the year ended December 31, 2022 compared to the prior year ratio of 13.1%, reflecting slightly lower net earned premiums, higher compensation related expenses, and the net impact of commission, tax and assessment accrual adjustments.

The segment also benefited from growth in our fronting business which led to a 4.3% increase in fee income.

Casualty Reinsurance Segment

Results for the Casualty Reinsurance segment are as follows:

Year Ended December 31,

2022 2021 % Change

($ in thousands)

Gross written premiums $ 85,208 $ 182,081 (53.2) %

Net written premiums $ 83,033 $ 159,195 (47.8) %

Net earned premiums $ 136,427 $ 134,223 1.6 %

Losses and loss adjustment expenses (99,823) (220,178) (54.7) %

Underwriting expenses (42,987) (31,571) 36.2 %

Underwriting loss (1)

$ (6,383) $ (117,526) (94.6) %

Loss ratio 73.2 % 164.0 %

Expense ratio 31.5 % 23.6 %

Combined ratio 104.7 % 187.6 %

Accident year loss ratio 63.3 % 61.5 %

(1) Underwriting Loss is a non-GAAP Measure.

See “Reconciliation of Non-GAAP Measures.”

The Casualty Reinsurance segment produced underwriting losses of $6.4 million and $117.5 million (combined ratios of 104.7% and 187.6%) for the years ended December 31, 2022 and 2021, respectively.

The loss ratio of 73.2% for the year ended December 31, 2022 includes net adverse reserve development of $13.4 million or 9.8 points (including $6.8 million of net adverse reserve development on prior accident years recognized in the three months ended March 31, 2022 associated with the Casualty Re LPT).

The loss ratio of 164.0% for the year ended December 31, 2021 includes $137.6 million, or 102.5 percentage points, of net adverse development in our loss estimates for prior accident years.

In particular, we gave significantly more weight to incurred loss development methods and Bornhuetter – Ferguson incurred loss development methods than had been done previously.

These actuarial refinements resulted in material deterioration in ultimate loss selections for underwriting years 2014 through 2018.

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

The segment typically structures its reinsurance treaties with loss mitigation features including sliding scale ceding commissions.

Net adverse reserve development on treaties with such features reduced our commissions by $11.8 million (8.8 percentage points) for the year ended December 31, 2021 compared to $249,000 for the year ended December 31, 2022.

The segment expense ratio increased over the prior year driven by higher net commission expense due to the January 1, 2023 termination of the individual risk workers' compensation quota share treaty as well as higher taxes, licenses, and fees in the current year due to adjustments to tax and assessment accruals in the prior year.

Corporate and Other Segment

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Total operating expenses of the Corporate and Other segment were $33.9 million and $31.3 million for the years ended December 31, 2023 and 2022, respectively.

The higher current year expenses as compared to the prior year were largely driven by higher compensation expenses due to the hiring of additional employees.

The higher current year expenses as compared to the prior year were largely driven by higher compensation expenses due to the hiring of additional employees and included share-based compensation ($9.1 million and $8.1 million for the years ended December 31, 2023 and 2022, respectively), as well as higher audit fees.

Investing Results

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Average fixed maturity securities 4.4 % 2.8 %

Of our total cash and invested assets of $2,365.5 million at December 31, 2022 (excluding restricted cash equivalents), $173.2 million represents the cash and cash equivalents portion of the portfolio.

Of our total cash and invested assets of $1,980.1 million at December 31, 2023 (excluding restricted cash equivalents and cash and invested assets of JRG Re included in assets held for sale), $274.3 million represents the cash and cash equivalents portion of the portfolio.

The majority of the portfolio, or $1,324.5 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.

The fair values of our fixed maturity securities were negatively impacted in 2022 by a heightened inflationary environment and rate actions of the Federal Reserve, which led to higher interest rates and lower fair values of our fixed maturity securities.

Unrealized losses on fixed maturities recognized in other comprehensive (loss) income resulted in a $193.0 million reduction in accumulated other comprehensive (loss) income in the year ended December 31, 2022.

Unrealized losses on fixed maturities recognized in other comprehensive (loss) income in 2022 resulted in a $193.0 million reduction in accumulated other comprehensive (loss) income in the year ended December 31, 2022.

During 2023, the fair values of our fixed maturity securities recovered some of the unrealized losses with signs of inflation easing and optimism about future Federal Reserve interest rate cuts.

The $99.3 million reduction in accumulated other comprehensive loss in the year ended December 31, 2023 reflects the increase in fair values of our fixed maturity securities as well as $53.2 million of losses recognized on JRG Re's fixed maturities.

The Company entered into a definitive agreement on November 8, 2023 to sell JRG Re.

The sale is expected to close in the first quarter of 2024 and the Company no longer has the intent or ability to hold securities in an unrealized loss position until a recovery of their fair value could occur.

Also included in our investments are $156.2 million of bank loan participations, $119.9 million of equity securities, $72.1 million of short-term investments, and $33.1 million of other invested assets.

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The Company invests selectively in private debt and equity opportunities.

These investments comprise the Company’s other invested assets and are primarily focused in renewable energy, limited partnerships, and bank holding companies.

Equity interests in various renewable energy LLCs generated investment income of $3.8 million and losses of $1.4 million for the years ended December 31, 2022 and 2021, respectively.

The LLCs are managed by an entity for which two of our former directors serve as officers, and the Company’s Non-Executive Chairman has invested in certain of these LLCs.

These investments comprise the Company’s other invested assets and are primarily focused in renewable energy, limited partnerships, and notes receivable for structured private specialty credit.

Equity interests in various renewable energy LLCs generated investment income of $2.9 million and $3.8 million for the years ended December 31, 2023 and 2022, respectively.

The Company’s former Non-Executive Chairman has invested in certain of these LLCs.

During the fourth quarter of 2022, the underlying projects in two of our LLCs were sold at the manager's discretion.

We received proceeds of $20.2 million, and could receive additional contingent payments in the future according to terms of the transaction.

We received proceeds of $3.6 million and $20.2 million from these sales during the years ended December 31, 2023 and 2022.

We could receive additional contingent payments in the future according to terms of the transaction.

The remaining investments had a carrying value of $8.4 million at December 31, 2023.

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During 2023, the Company received principal repayments of $1.3 million on the notes receivable.

These investments had a

carrying value of $2.7 million at December 31, 2022.

Two of our former directors are officers of the entities that issued the loans.

The Company has invested in several limited partnerships that invest in concentrated portfolios of 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.

Investment losses from these partnerships were $1.3 million in 2022 compared to income of $2.4 million in 2021.

These investments had a carrying value of $1.4 million at December 31, 2023.

The Company owns investments in limited partnerships that invest in concentrated portfolios including publicly-traded small cap equities, loans of middle market private equity sponsored companies, private equity general partnership interests, commercial mortgage-backed securities, specialty private credit, and tranches of distressed home loans.

Investment income from these partnerships was $1.6 million in 2023 compared to losses of $1.3 million in 2022.

Together, these limited partnerships had a carrying value of $12.6 million at December 31, 2023.

Income from the Company’s investments in renewable energy LLCs and limited partnerships is recognized under the equity method of accounting.

The Company also holds $4.5 million of subordinated notes issued by a bank holding company.

Interest income from the notes was $343,000 in each of the years ended December 31, 2022 and 2021.

The Company’s Non-Executive Chairman was previously the Lead Independent Director of the bank holding company and an investor in the bank holding company.

For the year ended December 31, 2022, the Company recognized net realized and unrealized investment losses of $28.3 million, including $275,000 of net realized investment gains on the sale of fixed maturity securities, $1.2 million of net realized investment losses on the sale of bank loans securities, $254,000 of net realized investment losses on the sale of equity securities, $15.9 million of losses for the change in fair value of bank loans, and $11.2 million of losses for the change in fair value of equity securities.

For the year ended December 31, 2021, the Company recognized net realized and unrealized investment gains of $15.6 million, including $4.9 million of net realized investment gains on the sale of fixed maturity securities, $833,000 of net realized investment losses on the sale of bank loans, $543,000 of net realized investment losses on the sale of equity securities, $6.7 million of gains for the change in fair value of bank loans, and $5.4 million of gains for the change in fair value of equity securities.

At December 31, 2023, the Company held $10.8 million in two notes receivable for structured private credit.

Previously, the Company held $4.5 million of subordinated notes issued by a bank holding company that matured on August 12, 2023.

The Company’s former Non-Executive Chairman was previously the Lead Independent Director of the bank holding company and an investor in the bank holding company.

Interest income from both notes was $340,000 and $343,000 for the years ended December 31, 2023 and 2022, respectively.

For the year ended December 31, 2023, the Company recognized net realized and unrealized investment gains of $10.4 million, including $339,000 of net realized investment losses on the sale of fixed maturity securities, $3.5 million of net realized investment losses on the sale of bank loans securities, $1.5 million of net realized investment gains on the sale of equity securities, $9.0 million of gains for the change in fair value of bank loans, and $3.7 million of gains for the change in fair value of equity securities.

For the year ended December 31, 2022, the Company recognized net realized and unrealized investment losses of $15.7 million, including $1.2 million of net realized investment gains on the sale of fixed maturity securities, $365,000 of net realized investment losses on the sale of bank loans, $563,000 of net realized investment gains on the sale of equity securities, $5.4

million of losses for the change in fair value of bank loans, and $11.7 million of losses for the change in fair value of equity securities.

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.

40 unchanged sentences

Total $ 505,728 100.0 %

Corporate available-for-sale fixed maturity securities include public traded securities and privately placed bonds as shown below as of December 31, 2022:

Corporate available-for-sale fixed maturity securities include publicly traded securities and privately placed bonds as shown below as of December 31, 2023:

Public/Private Fair Value % of Total

15 unchanged sentences

Total $ 1,405,136 $ 1,324,476 100.0 %

Other Income and Expense

Other income and expense primarily consists of non-operating expenses of $6.0 million and $2.6 million for the years ended December 31, 2022 and 2021, respectively.

Non-operating expenses include legal fees related to a purported class action lawsuit, legal and other professional fees related to the Company's May 2021 common share offering, legal and other professional fees and other expenses related to various strategic initiatives including loss portfolio transfers accounted for as retroactive reinsurance, and employee severance costs.

Other Income (Expense)

Other income and expense items netted to income of $424,000 and expense of $244,000 for the years ended December 31, 2023 and 2022, respectively.

I ncluded in 2023 are a $2.2 million gain on the sale of the renewal rights to the IRWC business in the Specialty Admitted Insurance segment, $1.3 million of broker incentive rebates in the Excess and Surplus Lines segment, and $693,000 of income related to interest income from trust preferred securities and distributions from a joint venture interest, partially offset by non-operating expenses of $3.8 million in the current year primarily consisting of legal fees related to a purported class action lawsuit and legal and other professional fees and other expenses related to various strategic initiatives including the sale of renewal rights to the IRWC business in the Specialty Admitted Insurance segment.

For 2022, the expense of $244,000 included non-operating expenses of $797,000 primarily consisting of legal fees related to a purported class action lawsuit and $553,000 of income primarily related to interest income from trust preferred securities and distributions from a joint venture interest.

Interest Expense

Interest expense was $24.6 million and $13.9 million for the years ended December 31, 2023 and 2022, respectively.

Interest expense for the year ended December 31, 2022 includes $3.7 million of crediting fees on the Funds Withheld Account balance under the Casualty Re LPT.

The impact of rising interest rates on our variable rate senior and trust preferred debt also contributed to the higher current year interest expense.

The increase reflects the impact of rising interest rates on our variable rate senior and trust preferred debt.

See “—Liquidity and Capital Resources—Sources and Uses of Funds” for information regarding our senior debt facilities and trust preferred securities.

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If the carrying value exceeds its estimated fair value, an impairment loss is recognized and the asset is written down accordingly.

On September 29, 2023, the Company completed the sale of the renewal rights to the IRWC business in the Specialty Admitted Insurance segment.

Upon closing of the transaction, the Company recognized an impairment charge of $2.5 million related to the trademark intangible asset associated with the IRWC business.

The Company completed its impairment tests and fair value analysis for goodwill and other intangible assets during the fourth quarter of 2023 and 2022.

No impairment was present for the years ended December 31, 2022 or 2021.

No impairment was present for the years ended December 31, 2023 or 2022 except for the $2.5 million related to the trademark intangible asset as mentioned above.

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 year ended December 31, 2022, our effective tax rate was 37.3%.

For the year ended December 31, 2021, we had an effective tax benefit that was 11.9% of our pre-tax loss for the year.

Bermuda had losses in both years due to significant adverse development on U.S.

commercial auto reserves ceded from the U.S.

to Bermuda under the internal quota share reinsurance in 2021 and because of the unprofitable underwriting results at JRG Re and the non-deductible Bermuda holding company expenses in both 2021 and 2022.

For the years ended December 31, 2023 and 2022, our effective tax rate was 29.6% and 34.6%, respectively.

The Company does not receive a U.S.

tax deduction for losses in Bermuda.

Bermuda had losses in both years because of Bermuda holding company expenses.

For U.S.-sourced income, the Company’s U.S.

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Sources and Uses of Funds

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 and Series A Preferred Shares.

We use operating cash flows primarily to pay operating expenses, losses and loss adjustment expenses, reinsurance premiums, and income taxes.

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The potential for a large claim under an insurance or reinsurance contract means that substantial and unpredictable payments may need to be made within relatively short periods of time.

The following table summarizes our cash flows:

The following table summarizes our total cash flows including both continuing and discontinued operations, consistent with the presentation in our Consolidated Statements of Cash Flows:

Year Ended December 31,

8 unchanged sentences

Change in cash, cash equivalents, and restricted cash equivalents $ 83,570 $ (15,749) $ (730,052)

Cash provided by operating activities excluding restricted cash equivalents of $221.5 million for the year ended December 31, 2022 was driven by the growth in our U.S.

Cash provided by operating activities excluding restricted cash equivalents of $118.7 million and $221.5 million for the years ended December 31, 2023 and 2022, respectively, was driven by the growth in our U.S.

segments and the collection of premiums receivable at a quicker rate than payments of loss and loss adjustment expenses.

The cash provided by operating activities declined in 2023 relative to the prior year due to the suspension of underwriting activities of JRG Re in 2023.

Cash used in operating activities excluding restricted cash equivalents of $155.6 million for the year ended December 31, 2021 primarily reflects the outflow of funds to effect the Commercial Auto LPT in the third quarter of that year.

For the year ended December 31, 2020, cash provided by operations of $65.4 million was impacted by the run-off of Rasier.

There were no associated premiums collected in 2020 for the Rasier policies terminated on December 31, 2019, but claim payments associated with the run-off continued in 2020.

In 2022 and 2020, cash used in investing activities of $328.2 million and $176.0 million reflects our efforts to enhance the yield in our investment portfolio by investing available cash and cash equivalents into higher yielding investments.

Cash provided by (used in) operating activities from continuing operations excluding restricted cash equivalents was $234.6 million, $246.6 million, and $(134.4) million for the years ended December 31, 2023, 2022, and 2021, respectively, compared to cash used in operating activities of discontinued operations of $115.9 million, $25.1 million, and $21.2 million in the respective years.

Because JRG Re is currently in run off, we believe that its sale, expected to be completed in the first quarter of 2024, will increase our future cash flows from operations relative to 2023.

Proceeds from the sale of JRG Re will support additional growth in our U.S.

continuing operations.

In 2023, cash provided by investing activities of $16.7 million was driven by the suspension of underwriting activities of JRG Re and the withdrawal of invested assets in that company to fund claims and operating expenses.

Cash used in investing activities for 2022 of $328.2 million reflects our efforts to enhance the yield in our investment portfolio by investing available cash and cash equivalents into higher yielding investments.

Cash provided by investing activities of $35.8 million for the year ended December 31, 2021 was primarily due to the investments sold and funds withdrawn from our investment portfolio to effect the Commercial Auto LPT in the third quarter of that year.

Cash and cash equivalents (excluding restricted cash equivalents) comprised 13.9%, 7.3%, and 8.2% of total cash and invested assets at December 31, 2023, 2022, and 2021, respectively.

Cash (used in) provided by investing activities from continuing operations was $(98.4) million, $(336.7) million, and $8.1 million for the years ended December 31, 2023, 2022, and 2021, respectively, compared to cash provided by investing activities of discontinued operations of $115.1 million, $8.5 million, and $27.7 million in the respective years.

Because JRG Re is currently in run off, we believe that its sale, expected to be completed in the first quarter of 2024, will increase our future cash flows from operations relative to 2023 which will lead to higher amounts invested and more cash used in investing activities.

Proceeds from the sale of JRG Re supporting additional growth in our U.S.

continuing operations are expected to be invested and will increase the invested assets of our continuing operations.

Cash (used in) provided by financing activities above relate entirely to continuing operations for all years.

Cash used in financing activities of $21.1 million for the year ended December 31, 2023 includes $7.7 million of dividends paid to common shareholders, $10.5 million of dividends paid on the Series A Preferred Shares, $1.1 million of paid issuance costs related to the amendment of the 2013 Facility in July, 2023, and $1.7 million of payroll taxes withheld and remitted on net settlement of RSUs.

Cash provided by financing activities of $89.7 million for the year ended December 31, 2022 includes $144.9 million of net proceeds (after expenses) from the issuance and sale of 150,000 Series A Preferred Shares on March 1, 2022.

The proceeds were used for general corporate purposes and to repay $40.0 million of loans outstanding on the 2017 Facility (as defined below) on March 28, 2022.

Financing activities for the year ended December 31, 2022 includes $6.1 million of dividends paid on the Series A Preferred Shares.

Cash provided by financing activities also includes dividends paid to common shareholders of $7.8 million in 2022, $43.2 million in 2021, and $37.1 million in 2020.

On May 10, 2021, the Company closed on a public offering of its common shares.

The Company received net proceeds (before expenses) of $192.1 million.

The proceeds were used for general corporate purposes.

In 2020, net draws on our senior credit facilities of $104.0 million were used to help support our growth.

Financing activities for the year ended December 31, 2022 also include $7.8 million of dividends paid to common shareholders, $6.1 million of dividends paid on the Series A Preferred Shares, and $1.3 million of payroll taxes withheld and remitted on net settlement of RSUs.

Cash provided by financing activities of $147.7 million for the year ended December 31, 2021 includes $192.1 million of net proceeds (before expenses) from the May 10, 2021 public offering of common shares which was used for general corporate purposes, $43.2 million of dividends paid to common shareholders, $3.1 million of payroll taxes withheld and remitted on net settlement of RSUs, and $1.9 million of proceeds from the issuance of common shares resulting from share option exercises.

As permitted under the agreements establishing the Indemnity Trust and the LPT Trust, we have withdrawn collateral from the Indemnity Trust and the LPT Trust to fund the Loss Fund Trust as required under the Administrative Services Agreement.

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However, any dividend payment is contingent upon continued compliance with Bermuda regulatory requirements, including but not limited to the enhanced solvency requirement calculations.

Holders of the Series A Preferred Shares are entitled to a dividend at the initial rate of 7% of the Liquidation Preference per annum, paid in cash, in-kind in common shares or in Series A Preferred Shares, at our election.

Holders of the Series A Preferred Shares are entitled to a dividend at the initial rate of 7% of the $1,000 liquidation preference per share (the “Liquidation Preference”) per annum, paid in cash, in-kind in common shares or in Series A Preferred Shares, at our election.

On the five-year anniversary of the Closing Date, and each five-year anniversary thereafter, the dividend rate will reset to a rate equal to the five-year U.S.

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Dividends accrue and are payable quarterly.

During 2022, cash dividends of $8.8 million were declared, of which $2.6 million was payable at December 31, 2022.

At December 31, 2022, our Bermuda holding company had $277,000 of cash and cash equivalent assets.

holding company had $28.1 million of cash and invested assets at December 31, 2022, comprised of cash and cash equivalents of $15.5 million, short-term investments of $10.0 million and other invested assets of $2.6 million, which are not subject to regulatory restrictions.

For the years ended December 31, 2023 and 2022, cash dividends of $10.5 million and $8.8 million were declared, respectively, of which $2.6 million was payable at December 31 of both years.

At December 31, 2023, our Bermuda holding company had $2.0 million of cash and cash equivalent assets.

holding company had $15.2 million of cash and invested assets at December 31, 2023, comprised of cash and cash equivalents of $13.8 million and other invested assets of $1.4 million, which are not subject to regulatory restrictions.

Additionally, our U.K.

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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 at December 31, 2022 was 1.5% and is subject to change according to terms in the credit agreement.

Interest accrues quarterly and is payable in arrears, currently at 1-month SOFR (the Company, per the terms of the credit agreement, can elect between one, three, or six month interest periods) plus a 0.1% SOFR index adjustment and a SOFR margin which is currently 1.75% and is subject to change according to terms in the credit agreement.

At December 31, 2023 and 2022, the Company had a drawn balance of $185.8 million outstanding on the unsecured revolver.

The 2013 Facility has been amended from time to time since its inception in 2013.

On November 8, 2019, the Company entered into a Second Amended and Restated Credit Agreement for the 2013 Facility which, among other things, extended the maturity date of the 2013 Facility until November 8, 2024, increased the amount available under the unsecured revolving credit facility to $212.5 million, lowered the applicable interest rate and letter of credit fees, and modified certain negative covenants to be less restrictive.

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 December 31, 2022.

On July 7, 2023, the Company entered into a Third Amended and Restated Credit Agreement for its $315.0 million senior revolving credit facility which, among other things, extended the maturity date of such facility until July 7, 2026 and increased the applicable interest rate and letter of credit fees.

December 31, 2023, with the exception of a default of the financial strength rating covenant due to the downgrade of JRG Re by A.M.

Best on December 20, 2023 from “A-” (Excellent) to “B++” (good).

The financial strength rating covenant requires that each of our regulated insurance subsidiaries maintain an A.M.

Best rating not lower than “A- ” (Excellent).

Our lenders have waived this default through March 1, 2025, and in any event, we expect it to be cured upon the closing of the sale of JRG Re, at which time we expect JRG Re to be removed as a borrower under the 2013 Facility.

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 $100.0 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 (LIBOR plus a margin of 1.5% at December 31, 2022) 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 December 31, 2022.

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 December 31, 2023, with the exception of a default of the financial strength rating covenant due to the downgrade of JRG Re by A.M.

Best on December 20, 2023 from “A-” (Excellent) to “B++” (good).

The financial strength rating covenant requires that each of our regulated insurance subsidiaries maintain an A.M.

Best rating not lower than “A- ” (Excellent).

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.

The 2017 Facility has been amended from time to time since its inception in 2017.

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.

The 2017 Facility has been amended from time to time since its inception in 2017, including on November 8, 2019 when 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 and is payable in arrears at variable rates which are subject to change according to terms in the credit agreement.

At December 31, 2023, unsecured loans of $21.5 million and secured letters of credit totaling $25.5 million were outstanding on the 2017 Facility.

During the three months ended March 31, 2022, the Company repaid $40.0 million of loans that were outstanding under the 2017 Facility.

The Company expects to have reduced borrowing needs following the expected disposition of JRG Re (See “Recent Strategic Actions—Sale of JRG Re” above), and therefore expects to reduce the size of its 2013 Facility and its 2017 Facility in connection with the removal of JRG Re as a borrower thereunder as referenced above.

On May 26, 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%.

Interest accrues quarterly and is payable in arrears at a floating rate per annum equal to the 3-month SOFR and 3.85% margin plus a spread adjustment of 0.26%.

This senior debt is redeemable at par prior to its stated maturity at our option in whole or in part.

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The maximum leverage ratio permitted by the agreements is 35.0%.

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.

Our reinsurance is contracted under excess of loss and proportional 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.

In proportional 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.

The Company also utilizes facultative reinsurance to reduce the amount of exposure it retains on individual accounts according to its guidelines for accepting risk across various industry segments, locations and types of exposure.

For the years ended December 31, 2023, 2022, and 2021 our net premium retention was 46.0%, 47.1% and 44.2%, respectively.

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Line of Business Company Retention

Primary Specialty Casualty, including Professional Liability

Up to $1.0 million per occurrence, subject to a $1.0 million aggregate deductible.

Specialty Casualty Up to $3.2 million per occurrence.

Primary Casualty Up to $1.38 million per occurrence.

Excess Casualty Up to $1.98 million per occurrence.

Property Up to $5.0 million per event.

(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 $2.0 million.

(4) The property catastrophe reinsurance treaty has a limit of $55.0 million with one reinstatement.

Excess Property Up to $5.0 million per risk.

(1) Excluding Excess Casualty.

(2) Total exposure to any one claim is generally $690,000.

(3) The property catastrophe reinsurance treaty has a limit of $20.0 million per event with one reinstatement.

We use catastrophe modeling software to analyze the risk of severe losses from hurricanes and earthquakes on our exposure.

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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, it would take an event at the 1 in 1000 year PML to exhaust our $60.0 million property catastrophe reinsurance.

In the event of a catastrophe loss exhausting our $60.0 million property catastrophe reinsurance, we estimate our pre-tax cost would not exceed 2.5% of shareholders’ equity, including reinstatement premiums payable and net retentions.

The Excess and Surplus Lines segment has a specific proportional quota share treaty in effect to cover property risks.

The proportional quota share treaty along with facultative reinsurance helps ensure that our net retained limit per risk will be $5.0 million or less.

Also in our Excess and Surplus Lines segment, a specialty casualty treaty providing $9.0 million in excess of $2.0 million coverage is subject to reinstatement premiums for treaty years spanning July 1, 2017 through July 1, 2022.

Based upon the modeling of our Excess and Surplus Lines and Specialty Admitted segments, it would take an event greater than the 1 in 1,000 year PML to exhaust our $20.0 million property catastrophe reinsurance.

In the event of a catastrophe loss exhausting our $20.0 million property catastrophe reinsurance, we estimate our pre-tax cost would not exceed 2.5% of shareholders’ equity, including reinstatement premiums and net retentions.

In addition to this retention, we would retain any losses in excess of our reinsurance coverage limits.

On September 27, 2021, James River entered into the Commercial Auto LPT with Aleka to reinsure substantially all of the Excess and Surplus Lines segment’s legacy portfolio of commercial auto policies previously issued to Rasier.

The Commercial Auto LPT with Aleka reinsures substantially all of the Excess and Surplus Lines segment’s legacy portfolio of commercial auto policies previously issued to Rasier.

See “ Amounts Recoverable from an Indemnifying Party and Reinsurer on the Legacy Commercial Auto Book ” below for further information on this reinsurance agreement.

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Line of Business Coverage

Workers’ Compensation Quota share coverage for 65.5% of the first $1.0 million.

Excess of loss coverage for $29.0 million in excess of $1.0 million.

Workers’ Compensation Excess of loss coverage for $29.5 million in excess of $500,000.

Auto Programs Quota share coverage for 50%-90% of limits up to $1.5 million liability and $7.5 million physical damage per occurrence.

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Umbrella and Excess Casualty - Programs Quota share coverage for at least 85% of limits up to $10.0 million per occurrence, and 82% of excess of loss coverage for $5.0 million in excess of $10.0 million.

Property within Package - Programs Quota share coverage for 100% of limits up to $40.0 million per occurrence.

Excess Property Quota share coverage for 100% of limits up to $16.9 million.

Catastrophe Coverage Excess of Loss coverage for $59.0 million in excess of $1.0 million per occurrence.

Aviation Programs Quota share coverage for 80% of limits up to $20 million liability and $2.5 million hull per occurrence, each aircraft;

and excess of loss coverage for up to $8.7 million excess of $300,000 of our 20% share of the quota share each occurrence.

(1) Excluding one program which has quota share coverage for 84% 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.

Property within Package - Programs Quota share coverage for 100% of limits up to $40.0 million per risk.

Excess Property Quota share coverage for 100% of limits up to $58.9 million per occurrence.

Aviation Programs Quota share coverage for 80% of limits up to $25 million liability, $5.0 million hull, and $5.0 million spares per occurrence, each aircraft;

and excess of loss coverage for up to $8.7M excess of $300,000 of our 20% share of the quota share each occurrence.

Our Specialty Admitted Insurance segment purchases reinsurance for at least 50% of the exposed limits on specialty admitted property-casualty business.

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The segment is covered for $20.0 million in excess of $5.0 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 on treaties in run-off, 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 2.5% of shareholders’ equity, inclusive of reinstatement premiums payable.

On February 23, 2022, JRG Re entered into the Casualty Re LPT with FRL to reinsure the majority of the segment risk, which closed on March 31, 2022.

See “ Strategic Actions – Loss Portfolio Transfers - Casualty Re Loss Portfolio Transfer” above for further information on this retrocession agreement.

Under the terms of the transaction, JRG Re (a) ceded to FRL all existing and future claims for losses arising under certain casualty reinsurance agreements with underlying insurance companies with treaty inception dates ranging from 2011 to 2020 (the “Subject Business”), in each case net of third-party reinsurance and other recoveries, up to an aggregate limit of $400.0 million;

(b) continues to manage and retain the benefit of other third-party reinsurance on the Subject Business;

We also had a contingency clash reinsurance treaty to cover both the Excess and Surplus Lines and Specialty Admitted Insurance segments in the event of a claim incident involving more than one of our insureds in addition to Extra Contractual and Excess Policy Limits protection.

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This coverage was put into runoff effective July 1, 2022.

As of December 31, 2022, 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.

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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.

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 require collateral, in the form of a trust arrangement or letter of credit, to secure the obligations of the insurance entity for whom we are fronting.

At December 31, 2023, we had reinsurance recoverables on unpaid losses of $1,358.5 million (net of a $660,000 allowance for credit losses) and reinsurance recoverables on paid losses of $158.0 million, and all material recoverable amounts were from companies with A.M.

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Swiss Reinsurance America Corporation $ 366,107 A+

Fortitude Re (Casualty Re LPT) 244,657 A

Aleka Insurance Company (Commercial Auto LPT) 132,049 Unrated (1)

Berkley Insurance Company 162,120 A+

Aleka Insurance Company (Commercial Auto LPT) 78,065 Unrated (1)

Hannover Ruck SE 57,280 A+

Safety National Casualty 46,769 A++

Endurance Assurance Corporation 51,850 A+

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Munich Reinsurance America 37,024 A+

Aioi Nissay Dowa Insurance Company 25,583 A+

Safety National Casualty 32,919 A++

Aspen Insurance 29,397 A

Motors Insurance 29,395 A

Top 10 Total 885,586

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Under the terms of the Commercial Auto LPT, effective as of July 1, 2021, James River ceded to Aleka approximately $345.1 million of commercial auto liabilities relating to Rasier Commercial Auto Policies written in the years 2013-2019, which amount constituted the reinsurance premium.

For the year ended December 31, 2022, due to adverse paid loss trends on the legacy Rasier business, the Company recognized adverse prior year development of $46.7 million on the reserves subject to the Commercial Auto LPT, bringing the cumulative amount ceded under the Commercial Auto LPT to $391.8 million at December 31, 2022.

For the years ended December 31, 2023 and 2022, due to adverse paid and reported loss trends on the legacy Rasier business, the Company recognized adverse prior year development of $64.4 million and $46.7 million, respectively, on the reserves subject to the Commercial Auto LPT, bringing the cumulative amount ceded under the Commercial Auto LPT to $456.2 million at December 31, 2023.

Each of Rasier and Aleka are required to post collateral under the Indemnity Agreements and the Commercial Auto LPT:

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In connection with the execution of the Commercial Auto LPT, James River returned $691.3 million to the Indemnity Trust, representing the remaining balance of the amount withdrawn in October 2019, as was permitted under the indemnification agreements with Rasier and the associated trust agreement.

At December 31, 2022, the balance in the Indemnity Trust was $267.0 million, and, together with the balance of the Loss Fund Trust (as defined below) attributable to the

Indemnity Agreements as described below, the total balance of collateral securing Rasier’s obligations under the Indemnity Agreements was $336.2 million.

At December 31, 2023, the balance in the Indemnity Trust was $138.4 million, and, together with the balance of the Loss Fund Trust (as defined below) attributable to the Indemnity Agreements as described below, the total balance of collateral securing Rasier’s obligations under the Indemnity Agreements was $183.6 million.

• Pursuant to the Commercial Auto LPT, Aleka is required to post collateral equal to 102% of James River's estimate of Aleka's obligations under the Commercial Auto LPT, calculated in accordance with standard actuarial principles and based on reserves recorded in our statutory financial statements.

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In connection with the execution of the Commercial Auto LPT, James River and Aleka entered into an administrative services agreement (the “Administrative Services Agreement”) with a third party claims administrator (the “Administrator”) pursuant to which the Administrator handles the claims on the Rasier Commercial Auto Policies for the remaining life of those claims.

The claims paid by the Administrator are reimbursable by James River, and pursuant to the Administrative Services Agreement, James River established a loss fund trust account for the benefit of the Administrator (the “Loss Fund Trust”) to collateralize its claims payment reimbursement obligations.

The claims paid by the Administrator are reimbursable by James River, and pursuant to the Administrative Services Agreement, James River established the Loss Fund Trust account for the benefit of the Administrator (the “Loss Fund Trust”) to collateralize its claims payment reimbursement obligations.

James River funds the Loss Fund Trust using funds withdrawn from the Indemnity Trust, funds withdrawn from the LPT Trust, and its own funds, in each case in an amount equal to the pro rata portion of the required Loss Fund Trust balance attributable to the Indemnity Agreements, the Commercial Auto LPT and James River’s existing third party reinsurance agreements, respectively.

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To mitigate these risks, we closely and frequently monitor our exposure compared to our collateral held, and we request additional collateral in accordance with the terms of the Commercial Auto LPT and Indemnity Agreements when our analysis indicates that we have uncollateralized exposure.

Best financial strength rating for our group’s regulated insurance and reinsurance subsidiaries is “A-” (Excellent) with a stable outlook.

Best financial strength rating for our group’s regulated U.S.

insurance subsidiaries is “A-” (Excellent) with a negative outlook.

This rating reflects A.M.

Best’s opinion of our insurance and reinsurance 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 fourth highest rating of the thirteen ratings issued by A.M.

Best’s opinion of our U.S.

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 U.S.

operating insurance companies of “A-” (Excellent) is the fourth 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.

On March 4, 2021, A.M.

Best announced that it reduced the outlook on our regulated insurance subsidiaries to negative from stable on the “A” (Excellent) financial strength rating on such entities following our announcement of $86.0 million of adverse development on reserves for losses and loss adjustment expenses in the fourth quarter of 2020 principally related to our commercial auto business in our Excess and Surplus Lines segment.

On May 7, 2021, following the Company's announcement of $168.7 million of further adverse development in the first quarter of 2021 on reserves for losses and loss adjustment expenses in our Excess and Surplus Lines segment, inclusive of $170.0 million of unfavorable development in our commercial auto business, A.M.

Best announced a downgrade of our financial strength rating to “A-” (Excellent) and maintained a negative outlook on our regulated insurance subsidiaries.

The Company's outlook was upgraded to stable by A.M.

Best in the third quarter of 2021 following the closing of the Commercial Auto LPT which reinsures substantially all of the legacy commercial auto business.

On December 20, 2023, A.M.

Best announced that it reduced the outlook on our regulated U.S.

insurance subsidiaries to negative from stable on the “A-” (Excellent) financial strength rating on such entities following our announcements in November 2023 that we identified a material weakness in our internal control over financial reporting, that we entered into an agreement to sell JRG Re and our announcement that James River Group's board of directors will explore strategic business alternatives.

We have since received all required regulatory approvals for the sale of JRG Re and have remediated the material weakness in our internal control over financial reporting.

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.

Best have an impact on the ability of our regulated U.S.

subsidiaries to attract and retain agents and brokers and on the risk profiles of the submissions for insurance that our subsidiaries receive.

We believe the “A-” (Excellent) ratings assigned to our U.S.

insurance subsidiaries allow our subsidiaries to actively pursue relationships with the agents and brokers identified in their marketing plans.

Series A Preferred Shares

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Exercised — $ — — $ — (126,798) $ 22.26

Lapsed (164,548) $ 32.07 — $ — — $ —

Forfeited (49,036) $ 35.50 — $ — (48,552) $ 40.42

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Accordingly, it is highly likely that the total amounts paid out in the time periods shown will be greater than those indicated in the table.

Interest on debt obligations was calculated using the LIBOR rate as of December 31, 2022 with the assumption that interest rates would remain flat over the remainder of the period that the debt was outstanding.

Interest on debt obligations was calculated using the SOFR rate as of December 31, 2023 with the assumption that interest rates would remain flat over the remainder of the period that the debt was outstanding.

The Company owns investments in limited partnerships that invest in concentrated portfolios including publicly traded small cap equities, loans of middle market private equity sponsored companies, private equity general partnership interests, commercial mortgage-backed securities, and tranches of distressed home loans.

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Underwriting Performance Ratios

The following table provides the underwriting performance ratios of the Company inclusive of the business subject to retroactive reinsurance accounting for loss portfolio transfers.

The following table provides the underwriting performance ratios of the Company's continuing operations inclusive of the business subject to retroactive reinsurance accounting for a loss portfolio transfer.

There is no economic impact to the Company over the life of a loss portfolio transfer contract so long as any additional losses subject to the contract are within the limit of the loss portfolio transfer and the counterparty performs under the contract.

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Combined Ratio including impact of retroactive reinsurance 91.9 % 87.9 % 125.0 %

Casualty Reinsurance:

Loss Ratio 73.2 % 164.0 % 88.1 %

Impact of retroactive reinsurance 3.2 % — % — %

Loss Ratio including impact of retroactive reinsurance 76.4 % 164.0 % 88.1 %

Combined Ratio 104.7 % 187.6 % 113.7 %

Impact of retroactive reinsurance 3.2 % — % — %

Combined Ratio including impact of retroactive reinsurance 107.9 % 187.6 % 113.7 %

Consolidated:

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Reconciliation of Underwriting Profit

We define underwriting profit as net earned premiums and gross fee income (in specific instances when the Company is not retaining insurance risk) less losses and loss adjustment expenses on business from continuing operations not subject to retroactive reinsurance accounting for loss portfolio transfers and other operating expenses.

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Specialty Admitted Insurance 4,077 4,234 9,667

Casualty Reinsurance (6,383) (117,526) (18,364)

Total underwriting profit (loss) of the operating segments 58,424 87,285 (111,811)

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Amortization of intangible assets (363) (363) (363)

Income (loss) before income taxes $ 49,387 $ (196,034) $ 11,937

Impairment of intangible assets (2,500) — —

Income (loss) from continuing operations before income taxes $ 86,914 $ 53,272 $ (108,130)

(1) Underwriting profit (loss) includes gross fee income of $24.2 million, $23.6 million, and $22.7 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Reconciliation of Adjusted Net Operating Income (Loss)

Adjusted net operating income is defined as income available to common shareholders excluding a) the impact of loss portfolio transfers accounted for as retroactive reinsurance, b) net realized and unrealized gains (losses) on investments, c) certain non-operating expenses such as professional service fees related to a purported class action lawsuit, various strategic initiatives, and the filing of registration statements for the offering of securities, and d) severance costs associated with terminated employees.

Adjusted net operating income should not be viewed as a substitute for net income calculated in accordance with GAAP, and our definition of adjusted net operating income may not be comparable to that of other companies.

Our income (loss) available to common shareholders for the years ended December 31, 2022, 2021 and 2020 reconciles to our adjusted net operating income (loss) as follows:

Our (loss) income available to common shareholders for the years ended December 31, 2023, 2022 and 2021 reconciles to our adjusted net operating income (loss) as follows:

Year Ended December 31,

2 unchanged sentences

(in thousands)

Income (loss) available to common shareholders $ 40,637 $ 22,223 $ (196,034) $ (172,799) $ 11,937 $ 4,824

(Loss) income available to common shareholders $ (92,479) $ (118,184) $ 40,637 $ 22,223 $ (196,034) $ (172,799)

Loss from discontinued operations 168,893 168,893 3,885 3,885 87,904 87,904

Losses and loss adjustment expenses - retroactive reinsurance 4,991 3,943 15,742 12,437 — —

Net realized and unrealized investment losses (gains) 28,318 25,014 (15,564) (13,292) 16,030 14,840

Net realized and unrealized investment (gains) losses (10,441) (8,248) 15,720 12,418 (10,818) (8,547)

Other expenses 1,588 1,938 747 747 2,214 1,847

Impairment of intangible assets 2,500 1,975 — — — —

Adjusted net operating income (loss) $ 75,052 $ 50,317 $ 76,731 $ 51,710 $ (116,734) $ (91,595)

20 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis