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4 Mar, 2022
By Hailey Ross
James River Group Holdings Ltd. shares plummeted this week after it disclosed a $115 million fourth-quarter 2021 adverse reserve development in its casualty reinsurance segment that CEO Frank D'Orazio referred to as "unexpected and extremely disappointing."
The ongoing impact of Russia's invasion of Ukraine dominated trading in the equities and commodities markets during the week ending March 4. The S&P 500 declined 1.27% to 4,328.87, and the S&P 500 Insurance Index dropped 2.09% to 553.41.
Keefe Bruyette & Woods analyst Meyer Shields in an interview called James River's reserve charge "really big" relative to its overall reserves and said it likely upset investors because it confirmed that there was not much insight into how profitable the business was.
"What it tells you about how well, or how not well, the underwriting was, I think that's the major disappointment," Shields said.
The capital raise associated with the reserve charge was also unexpected and another cause of concern, the analyst added.
James River said it will reduce its casualty reinsurance and focus more on the excess and surplus line of business, which Shields said was the "right call" for the insurer.
When asked if James River might be vulnerable to involvement from activist investors, Shields said while it would not be impossible, he is not sure what an activist would bring to the table that is not already underway.
"It's very disappointing to learn that things are much worse than we thought," Shields said. "But that doesn't mean that there's necessarily a better direction for them to take than what they're doing."
James River was among the biggest losers of the week among all publicly traded insurance companies, with its stock tumbling 21.79%.
A handful of other insurance companies released their results as earnings season wrapped up.
Shares of eHealth Inc. plunged as the company logged a $32.2 million GAAP net loss in the fourth quarter of 2021, reflecting a $46.3 million impairment charge related to goodwill and intangible assets. The stock finished down 24.26%.
Metromile Inc. reported a contribution loss of $2.4 million for the fourth quarter of 2021, a sharp reversal from the contribution profit of $5.6 million in the year-ago quarter. Metromile is set to be acquired by Lemonade Inc., with the deal expected to close by the end of the second quarter.
Metromile's stock declined 16.52%, while Lemonade dropped 16.78%.
Jackson Financial Inc. shares dipped 6.94% in the same week the company disclosed higher year-over-year net income and improved adjusted operating earnings in the fourth quarter of 2021.
The Progressive Corp. CEO Tricia Griffith during a conference call this week said the insurer has had mixed responses to increase requests for private auto insurance rates needed in order to combat rising frequency and severity trends.
Progressive's stock ended the week essentially flat.
Elsewhere, American International Group Inc. announced this week that it is committing to net-zero greenhouse gas emissions across its global underwriting and investment portfolios by 2050. The insurer's stock fell 8.99% for the week.