UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2021

or

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _______ to _______

Commission File Number: 001-36777

JAMES RIVER GROUP HOLDINGS, LTD.

(Exact name of registrant as specified in its charter)

Bermuda	98-0585280
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Wellesley House, 2nd Floor, 90 Pitts Bay Road, Pembroke HM08, Bermuda

(Address of principal executive offices)

(Zip Code)

(441) 278-4580

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Names of each exchange on which registered
Common Shares, par value $0.0002 per share	JRVR		NASDAQ	Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x    No   ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer ☐ Non-accelerated filer  ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   ☐     No   x

Number of shares of the registrant's common shares outstanding at November 1, 2021: 37,291,149

James River Group Holdings, Ltd.

Form 10-Q

Index

		Page Number
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets—September 30, 2021 and December 31, 2020	5
	Condensed Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income—Three and Nine Months Ended September 30, 2021 and 2020	7
	Condensed Consolidated Statements of Changes in Shareholders’ Equity—Three and Nine Months Ended September 30, 2021 and 2020	8
	Condensed Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2021 and 2020	10
	Notes to Condensed Consolidated Financial Statements	11
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
	Critical Accounting Policies and Estimates	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	56
Item 4.	Controls and Procedures	56
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	56
Item 1A.	Risk Factors	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62
Item 3.	Defaults Upon Senior Securities	62
Item 4.	Mine Safety Disclosure	62
Item 5.	Other Information	62
Item 6.	Exhibits	63
Signatures		64

2

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements may be identified by the fact that they do not relate strictly to historical or current facts. You may identify forward-looking statements in this Quarterly Report by the use of words such as “anticipates,” “estimates,” “expects,” “intends,” “plans”, “seeks” and “believes,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could.” These forward-looking statements include, among others, all statements relating to our future financial performance, our business prospects and strategy, anticipated financial position and financial strength ratings, liquidity and capital needs and other similar matters. These forward-looking statements are based on management’s current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict.

Our actual results may differ materially from those expressed in, or implied by, the forward-looking statements included in this Quarterly Report as a result of various factors, many of which are beyond our control, including, among others:

•the inherent uncertainty of estimating reserves and the possibility that incurred losses may be greater than our loss and loss adjustment expense reserves;

•inaccurate estimates and judgments in our risk management may expose us to greater risks than intended;

•the downgrade in the financial strength rating of our regulated insurance subsidiaries announced May 7, 2021, or further downgrades, impacting our ability to attract and retain insurance and reinsurance business that our subsidiaries write, our competitive position, and our financial condition;

•the potential loss of key members of our management team or key employees and our ability to attract and retain personnel;

•adverse economic factors resulting in the sale of fewer policies than expected or an increase in the frequency or severity of claims, or both;

•reliance on a select group of brokers and agents for a significant portion of our business and the impact of our potential failure to maintain such relationships;

•reliance on a select group of customers for a significant portion of our business and the impact of our potential failure to maintain, or decision to terminate, such relationships;

•our ability to obtain reinsurance coverage at prices and on terms that allow us to transfer risk and adequately protect our Company against financial loss;

•losses resulting from reinsurance counterparties failing to pay us on reinsurance claims, insurance companies with whom we have a fronting arrangement failing to pay us for claims, or a former customer with whom we have an indemnification arrangement failing to perform their reimbursement obligations;

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

•changes in laws or government regulation, including tax or insurance law and regulations;

•the ongoing effect of Public Law No. 115-97, informally titled the Tax Cuts and Jobs Act, which may have a significant effect on us including, among other things, by potentially increasing our tax rate, as well as on our shareholders;

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

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

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

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

•the effects of the COVID-19 pandemic and associated government actions on our operations and financial  performance;

3

•potential effects on our business of emerging claim and coverage issues;

•exposure to credit risk, interest rate risk and other market risk in our investment portfolio;

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

•our ability to manage our growth effectively;

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

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

Additional information about these risks and uncertainties, as well as others that may cause actual results to differ materially from those in the forward-looking statements, is contained in Part II, Item 1A "Risk Factors" in this Quarterly Report, and our filings with the U.S. Securities and Exchange Commission ("SEC"), including our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 26, 2021.

Forward-looking statements speak only as of the date of this Quarterly Report. Except as expressly required under federal securities laws and the rules and regulations of the SEC, we do not have any obligation, and do not undertake, to update any forward-looking statements to reflect events or circumstances arising after the date of this Quarterly Report, whether as a result of new information or future events or otherwise. You should not place undue reliance on the forward-looking statements included in this Quarterly Report or that may be made elsewhere from time to time by us, or on our behalf. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

4

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

JAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

	(Unaudited) September 30, 2021		December 31, 2020
	(in thousands)
Assets
Invested assets:
Fixed maturity securities, available-for-sale, at fair value (amortized cost: 2021 – $1,673,281; 2020 – $1,690,890)	$	1,721,727	$	1,783,642
Equity securities, at fair value (cost:  2021 – $88,900; 2020 – $81,698)	99,980		88,975
Bank loan participations, at fair value	154,989		147,604
Short-term investments	26,942		130,289
Other invested assets	57,744		46,548
Total invested assets	2,061,382		2,197,058
Cash and cash equivalents	220,551		162,260
Restricted cash equivalents	10,000		859,920
Accrued investment income	11,801		10,980
Premiums receivable and agents’ balances, net	369,191		369,577
Reinsurance recoverable on unpaid losses, net	1,348,864		805,684
Reinsurance recoverable on paid losses	82,110		46,118
Prepaid reinsurance premiums	292,490		243,741
Deferred policy acquisition costs	62,456		62,953
Intangible assets, net	36,130		36,402
Goodwill	181,831		181,831
Other assets	107,293		86,548
Total assets	$	4,784,099	$	5,063,072

See accompanying notes.

5

JAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (continued)

	(Unaudited) September 30, 2021		December 31, 2020
	(in thousands, except share amounts)
Liabilities and Shareholders’ Equity
Liabilities:
Reserve for losses and loss adjustment expenses	$	2,596,829	$	2,192,080
Unearned premiums	702,246		630,371
Payables to reinsurers	139,720		110,431
Funds held	—		859,920
Senior debt	262,300		262,300
Junior subordinated debt	104,055		104,055
Accrued expenses	57,264		55,989
Other liabilities	108,046		52,318
Total liabilities	3,970,460		4,267,464
Commitments and contingent liabilities	—		—
Shareholders’ equity:
Common Shares – 2021 and 2020: $0.0002 par value; 200,000,000 shares authorized; 37,287,244 and 30,649,261 shares issued and outstanding, respectively	7		6
Preferred Shares – 2021 and 2020: $0.00125 par value; 20,000,000 shares authorized; no shares issued and outstanding	—		—
Additional paid-in capital	859,634		664,476
Retained (deficit) earnings	(89,112)		49,227
Accumulated other comprehensive income	43,110		81,899
Total shareholders’ equity	813,639		795,608
Total liabilities and shareholders’ equity	$	4,784,099	$	5,063,072

See accompanying notes.

6

 JAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIES

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in thousands, except share amounts)
Revenues
Gross written premiums	$	346,599	$	311,852	$	1,100,000	$	897,332
Ceded written premiums	(188,389)		(166,693)		(573,587)		(451,762)
Net written premiums	158,210		145,159		526,413		445,570
Change in net unearned premiums	12,398		7,803		(22,507)		2,125
Net earned premiums	170,608		152,962		503,906		447,695
Net investment income	15,289		14,959		44,726		51,145
Net realized and unrealized gains (losses) on investments	3,983		8,929		13,738		(27,885)
Other income	1,113		615		3,170		3,543
Total revenues	190,993		177,465		565,540		474,498
Expenses
Losses and loss adjustment expenses	166,078		106,155		549,578		301,757
Other operating expenses	43,193		38,224		136,414		133,242
Other expenses	706		60		2,231		1,792
Interest expense	2,227		2,129		6,692		7,970
Amortization of intangible assets	90		149		272		447
Total expenses	212,294		146,717		695,187		445,208
(Loss) income before taxes	(21,301)		30,748		(129,647)		29,290
Income tax expense (benefit)	2,588		4,465		(23,141)		4,208
Net (loss) income	(23,889)		26,283		(106,506)		25,082
Other comprehensive (loss) income:
Net unrealized (losses) gains, net of taxes of $(1,882) and $(5,517) in 2021 and $849 and $6,384 in 2020	(11,459)		5,039		(38,789)		47,433
Total comprehensive (loss) income	$	(35,348)	$	31,322	$	(145,295)	$	72,515
Per share data:
Basic (loss) earnings per share	$	(0.64)	$	0.86	$	(3.12)	$	0.82
Diluted (loss) earnings per share	$	(0.64)	$	0.85	$	(3.12)	$	0.81
Dividend declared per share	$	0.30	$	0.30	$	0.90	$	0.90
Weighted-average common shares outstanding:
Basic	37,278,469		30,582,540		34,161,022		30,529,557
Diluted	37,278,469		30,946,843		34,161,022		30,838,595

See accompanying notes.

7

JAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIES

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

	Number of Common Shares Outstanding	Common Shares (Par)		Preferred Shares		Additional Paid-in Capital		Retained  (Deficit) Earnings		Accumulated Other Comprehensive Income		Total
	(in thousands, except share amounts)
Balances at June 30, 2021	37,275,562	$	7	$	—	$	857,916	$	(53,993)	$	54,569	$	858,499
Net loss	—	—		—		—		(23,889)		—		(23,889)
Other comprehensive loss	—	—		—		—		—		(11,459)		(11,459)
Dividends	—	—		—		—		(11,230)		—		(11,230)
Exercise of stock options	11,508	—		—		242		—		—		242
Vesting of RSUs	174	—		—		—		—		—		—
Compensation expense under share incentive plans	—	—		—		1,476		—		—		1,476
Balances at September 30, 2021	37,287,244	$	7	$	—	$	859,634	$	(89,112)	$	43,110	$	813,639
Balances at December 31, 2020	30,649,261	$	6	$	—	$	664,476	$	49,227	$	81,899	$	795,608
Net loss	—	—		—		—		(106,506)		—		(106,506)
Other comprehensive loss	—	—		—		—		—		(38,789)		(38,789)
Dividends	—	—		—		—		(31,833)		—		(31,833)
Issuance of common shares	6,497,500	1		—		192,106		—		—		192,107
Exercise of stock options	27,979	—		—		401		—		—		401
Vesting of RSUs	112,504	—		—		(2,592)		—		—		(2,592)
Compensation expense under share incentive plans	—	—		—		5,243		—		—		5,243
Balances at September 30, 2021	37,287,244	$	7	$	—	$	859,634	$	(89,112)	$	43,110	$	813,639

8

JAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIES

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

	Number of Common Shares Outstanding	Common Shares (Par)		Preferred Shares		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total
	(in thousands, except share amounts)
Balances at June 30, 2020	30,553,178	$	6	$	—	$	660,427	$	61,770	$	73,508	$	795,711
Net income	—	—		—		—		26,283		—		26,283
Other comprehensive income	—	—		—		—		—		5,039		5,039
Dividends	—	—		—		—		(9,292)		—		(9,292)
Exercise of stock options	50,474	—		—		1,691		—		—		1,691
Vesting of RSUs	6,501	—		—		(123)		—		—		(123)
Compensation expense under share incentive plans	—	—		—		2,097		—		—		2,097
Balances at September 30, 2020	30,610,153	$	6	$	—	$	664,092	$	78,761	$	78,547	$	821,406
Balances at December 31, 2019	30,424,391	$	6	$	—	$	657,875	$	89,586	$	31,114	$	778,581
Net income	—	—		—		—		25,082		—		25,082
Other comprehensive income	—	—		—		—		—		47,433		47,433
Dividends	—	—		—		—		(27,815)		—		(27,815)
Exercise of stock options	79,615	—		—		2,529		—		—		2,529
Vesting of RSUs	106,147	—		—		(2,186)		—		—		(2,186)
Compensation expense under share incentive plans	—	—		—		5,874		—		—		5,874
Cumulative effect of fair value option election	—	—		—		—		(7,827)		—		(7,827)
Cumulative effect of adoption of ASU No. 2016-13	—	—				—		(265)		—		(265)
Balances at September 30, 2020	30,610,153	$	6	$	—	$	664,092	$	78,761	$	78,547	$	821,406

See accompanying notes.

9

 JAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

	Nine Months Ended September 30,
	2021		2020
	(in thousands)
Operating activities
Net cash used in operating activities (a)	$	(1,061,314)	$	(222,060)
Investing activities
Securities available-for-sale:
Purchases – fixed maturity securities	(326,483)		(509,764)
Sales – fixed maturity securities	118,260		17,465
Maturities and calls – fixed maturity securities	226,280		163,974
Purchases – equity securities	(14,339)		(10,057)
Sales – equity securities	6,757		3,945
Bank loan participations:
Purchases	(88,376)		(36,168)
Sales	48,854		113,432
Maturities	39,058		22,786
Other invested assets:
Purchases	(11,644)		(1,687)
Return of capital	610		314
Redemptions	—		16,292
Short-term investments, net	103,347		84,939
Securities receivable or payable, net	12,365		(487)
Purchases of property and equipment	(2,930)		(315)
Net cash provided by (used in) investing activities	111,759		(135,331)
Financing activities
Senior debt issuances	—		119,000
Senior debt repayments	—		(60,000)
Dividends paid	(31,990)		(27,838)
Issuance of common shares - public offering (Note 12)	192,107		—
Issuance of common shares under equity incentive plans	571		2,529
Common share repurchases	(2,762)		(2,186)
Net cash provided by financing activities	157,926		31,505
Change in cash, cash equivalents, and restricted cash equivalents	(791,629)		(325,886)
Cash, cash equivalents, and restricted cash equivalents at beginning of period	1,022,180		1,406,076
Cash, cash equivalents, and restricted cash equivalents at end of period	$	230,551	$	1,080,190
Supplemental information
Interest paid	$	7,473	$	9,023
Restricted cash equivalents at beginning of period	$	859,920	$	1,199,164
Restricted cash equivalents at end of period	$	10,000	$	940,221
Change in restricted cash equivalents	$	(849,920)	$	(258,943)

(a) Cash used in operating activities for the nine months ended September 30, 2021 and 2020 primarily reflect $849.9 million and $258.9 million, respectively, of restricted cash equivalents returned to a former insured, per the terms of a collateral trust (see Amounts Recoverable from an Indemnifying Party in Liquidity and Capital Resources). Excluding the reduction in the collateral funds, cash (used in) provided by operating activities was $(211.4) million and $36.9 million for the nine months ended September 30, 2021 and 2020, respectively. The cash used in operating activities excluding the reduction in collateral funds for the nine months ended September 30, 2021 primarily reflects $317.6 million paid to effect a loss portfolio transfer reinsurance transaction in the third quarter.

See accompanying notes.

10

 JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

1.    Accounting Policies

Organization

James River Group Holdings, Ltd. (referred to as “JRG Holdings” or, with its subsidiaries, the “Company”) is an exempted holding company registered in Bermuda, organized for the purpose of acquiring and managing insurance and reinsurance entities.

The Company owns five insurance companies based in the United States (“U.S.”) focused on specialty insurance niches and two Bermuda-based reinsurance companies as described below:

•James River Group Holdings UK Limited (“James River UK”) is an insurance holding company formed in 2015 in the United Kingdom (“U.K.”). JRG Holdings contributed James River Group, Inc. (“James River Group”), a U.S. insurance holding company, to James River UK in 2015.

▪James River Group is a Delaware domiciled insurance holding company formed in 2002 which owns all of the Company’s U.S.-based subsidiaries, either directly or indirectly through one of its wholly-owned U.S. subsidiaries. James River Group oversees the Company’s U.S. insurance operations and maintains all of the outstanding debt in the U.S.

◦James River Insurance Company is an Ohio domiciled excess and surplus lines insurance company that, with its wholly-owned insurance subsidiary, James River Casualty Company, a Virginia domiciled company, is authorized to write business in every state and the District of Columbia.

◦Falls Lake National Insurance Company (“Falls Lake National”) is an Ohio domiciled insurance company which wholly owns Stonewood Insurance Company (“Stonewood Insurance”), a North Carolina domiciled company, and Falls Lake Fire and Casualty Company, a California domiciled company. Falls Lake National and its subsidiaries primarily write specialty admitted fronting and program business and individual risk workers' compensation insurance.

◦JRG Reinsurance Company Ltd. (“JRG Re”) was formed in 2007 and commenced operations in 2008. JRG Re, a Bermuda domiciled reinsurer, primarily provides non-catastrophe casualty reinsurance to U.S. third parties and, through December 31, 2017, to the Company’s U.S.-based insurance subsidiaries.

◦Carolina Re Ltd (“Carolina Re”) was formed in 2018 and as of January 1, 2018 provides reinsurance to the Company’s U.S.-based insurance subsidiaries. Carolina Re is also the cedent on an aggregate stop loss reinsurance treaty with JRG Re.

Basis of Presentation

The accompanying condensed consolidated financial statements and notes have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and do not contain all of the information and footnotes required by U.S. GAAP for complete financial statements. The condensed consolidated financial statements include the results of the Company and its subsidiaries from their respective dates of inception or acquisition, as applicable. Readers are urged to review the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 for a more complete description of the Company’s business and accounting policies. In the opinion of management, all adjustments necessary for a fair presentation of the condensed consolidated financial statements have been included. Such adjustments consist only of normal recurring items. Interim results are not necessarily indicative of results of operations for the full year. The consolidated balance sheet as of December 31, 2020 was derived from the Company’s audited annual consolidated financial statements.

Intercompany transactions and balances have been eliminated.

Estimates and Assumptions

Preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying disclosures. Those estimates are inherently subject to change, and actual results may ultimately differ from those estimates.

11

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

Variable Interest Entities

Entities that do not have sufficient equity at risk to allow the entity to finance its activities without additional financial support or in which the equity investors, as a group, do not have the characteristic of a controlling financial interest are referred to as variable interest entities (“VIE”). A VIE is consolidated by the variable interest holder that is determined to have the controlling financial interest (primary beneficiary) as a result of having both the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company determines whether it is the primary beneficiary of an entity subject to consolidation based on a qualitative assessment of the VIE’s capital structure, contractual terms, nature of the VIE’s operations and purpose, and the Company’s relative exposure to the related risks of the VIE on the date it becomes initially involved in the VIE. The Company reassesses its VIE determination with respect to an entity on an ongoing basis.

The Company holds interests in VIEs through certain equity method investments included in “other invested assets” in the accompanying condensed consolidated balance sheets. The Company has determined that it should not consolidate any of the VIEs as it is not the primary beneficiary in any of the relationships. Although the investments resulted in the Company holding variable interests in the entities, they did not empower the Company to direct the activities that most significantly impact the economic performance of the entities. The Company’s investments related to these VIEs totaled $28.2 million and $30.1 million at September 30, 2021 and December 31, 2020, respectively, representing the Company’s maximum exposure to loss.

Income Tax Expense

Our effective tax rate fluctuates from period to period based on the relative mix of income reported by country and the respective tax rates imposed by each tax jurisdiction. For U.S.-sourced income, the Company’s U.S. federal income tax expense differs from the amounts computed by applying the federal statutory income tax rate to income before taxes due primarily to interest income on tax-advantaged state and municipal securities, dividends received income, and excess tax benefits on share based compensation. The Company had a pre-tax loss of $129.6 million for the nine months ended September 30, 2021 and recorded a U.S. federal income tax benefit of $23.1 million. The pre-tax loss was largely driven by the $210.8 million of net adverse reserve development on prior accident years, including $190.7 million of net adverse development from the Excess and Surplus Lines segment that was primarily related to a former commercial auto account. For the nine months ended September 30, 2021, our U.S. federal income tax benefit was 17.8% of the loss before taxes. For the nine months ended September 30, 2020, our U.S. federal income tax expense was 14.4% of income before taxes. The change in effective tax rate for the two periods reflects changes in reserve estimates in the commercial auto business, and the related impact on the mix of income reported by country in those respective periods.

12

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

2.    Investments

The Company’s available-for-sale fixed maturity securities are summarized as follows:

	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in thousands)
September 30, 2021
Fixed maturity securities:
State and municipal	$	324,050	$	13,032	$	(1,447)	$	335,635
Residential mortgage-backed	258,302		3,877		(1,104)		261,075
Corporate	698,454		31,511		(4,093)		725,872
Commercial mortgage and asset-backed	307,223		6,899		(964)		313,158
U.S. Treasury securities and obligations guaranteed by the U.S. government	85,252		1,032		(297)		85,987
Total fixed maturity securities, available-for-sale	$	1,673,281	$	56,351	$	(7,905)	$	1,721,727
December 31, 2020
Fixed maturity securities:
State and municipal	$	277,241	$	19,203	$	(39)	$	296,405
Residential mortgage-backed	286,104		7,784		(40)		293,848
Corporate	715,145		52,098		(421)		766,822
Commercial mortgage and asset-backed	314,911		12,611		(803)		326,719
U.S. Treasury securities and obligations guaranteed by the U.S. government	97,489		2,360		(1)		99,848
Total fixed maturity securities, available-for-sale	$	1,690,890	$	94,056	$	(1,304)	$	1,783,642

The amortized cost and fair value of available-for-sale investments in fixed maturity securities at September 30, 2021 are summarized, by contractual maturity, as follows:

	Cost or Amortized Cost		Fair Value
	(in thousands)
One year or less	$	103,777	$	104,859
After one year through five years	458,454		477,708
After five years through ten years	303,453		310,034
After ten years	242,072		254,893
Residential mortgage-backed	258,302		261,075
Commercial mortgage and asset-backed	307,223		313,158
Total	$	1,673,281	$	1,721,727

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

13

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

The following table shows the Company’s gross unrealized losses and fair value for available-for-sale securities aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position:

	Less Than 12 Months				12 Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in thousands)
September 30, 2021
Fixed maturity securities:
State and municipal	$	85,803	$	(1,402)	$	1,155	$	(45)	$	86,958	$	(1,447)
Residential mortgage-backed	126,424		(1,100)		311		(4)		126,735		(1,104)
Corporate	160,709		(3,186)		9,060		(907)		169,769		(4,093)
Commercial mortgage and asset-backed	110,471		(956)		2,438		(8)		112,909		(964)
U.S. Treasury securities and obligations guaranteed by the U.S. government	24,600		(297)		—		—		24,600		(297)
Total fixed maturity securities, available-for-sale	$	508,007	$	(6,941)	$	12,964	$	(964)	$	520,971	$	(7,905)
December 31, 2020
Fixed maturity securities:
State and municipal	$	7,193	$	(39)	$	—	$	—	$	7,193	$	(39)
Residential mortgage-backed	3,649		(40)		—		—		3,649		(40)
Corporate	28,607		(421)		—		—		28,607		(421)
Commercial mortgage and asset-backed	18,427		(447)		38,802		(356)		57,229		(803)
U.S. Treasury securities and obligations guaranteed by the U.S. government	2,291		(1)		—		—		2,291		(1)
Total fixed maturity securities, available-for-sale	$	60,167	$	(948)	$	38,802	$	(356)	$	98,969	$	(1,304)

At September 30, 2021, the Company held fixed maturity securities of 200 issuers that were in an unrealized loss position with a total fair value of $521.0 million and gross unrealized losses of $7.9 million. None of the fixed maturity securities with unrealized losses has ever missed, or been delinquent on, a scheduled principal or interest payment. At September 30, 2021, 99.4% of the Company’s fixed maturity security portfolio was rated “BBB-” or better (“investment grade”) by Standard & Poor’s or received an equivalent rating from another nationally recognized rating agency. Fixed maturity securities with ratings below investment grade by Standard & Poor’s or another nationally recognized rating agency at September 30, 2021 had an aggregate fair value of $10.0 million and an aggregate net unrealized gain of $96,000.

The Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments on January 1, 2020. This update changed the impairment model for available-for-sale fixed maturities and requires the Company to determine whether unrealized losses on available-for-sale fixed maturities are due to credit-related factors. An allowance for credit losses is established for any credit-related impairments, limited to the amount by which fair value is below amortized cost. Changes in the allowance for credit losses are recognized in earnings and included in net realized and unrealized gains (losses) on investments. Unrealized losses that are not credit-related continue to be recognized in other comprehensive income.

The Company considers the extent to which fair value is below amortized cost in determining whether a credit-related loss exists. The Company also considers the credit quality rating of the security, with a special emphasis on securities downgraded below investment grade. A comparison is made between the present value of expected future cash flows for a security and its amortized cost. If the present value of future expected cash flows is less than amortized cost, a credit loss is presumed to exist and an allowance for credit losses is established. Management may conclude that a qualitative analysis is sufficient to support its conclusion that the present value of the expected cash flows equals or exceeds a security’s amortized cost. As a result of this review, management concluded that there were no credit-related impairments of fixed maturity securities at September 30, 2021, December 31, 2020, or September 30, 2020. Management does not intend to sell the securities in an unrealized loss position, and it is not “more likely than not” that the Company will be required to sell these securities before a recovery in their value to their amortized cost basis occurs.

14

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

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.

Applying the fair value option to the bank loan portfolio increases volatility in the Company's financial statements, but management believes it is less subjective and less burdensome to implement and maintain than ASU 2016-13, which would have otherwise been required. At September 30, 2021, the Company's bank loan portfolio had an aggregate fair value of $155.0 million and unpaid principal of $158.5 million. Investment income on bank loan participations included in net investment income was $2.8 million and $8.2 million for the three and nine months ended September 30, 2021, respectively ($2.4 million and $9.7 million for the three and nine months ended September 30, 2020, respectively). Net realized and unrealized gains (losses) on investments includes gains of $375,000 and $6.6 million for the three and nine months ended September 30, 2021, respectively, related to changes in unrealized gains and losses on bank loan participations (gains of $9.7 million and losses of $7.6 million in the three and nine months ended September 30, 2020, respectively). For the three and nine months ended September 30, 2021, management concluded that none of the unrealized losses were due to credit-related impairments. Management concluded that $437,000 and $8.2 million of unrealized losses in the three and nine months ended September 30, 2020, respectively, were due to credit-related impairments. Losses due to credit-related impairments 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.

Bank loan participations generally provide a higher yield than our portfolio of fixed maturities and have a credit rating that is below investment grade (i.e. below “BBB-” for Standard & Poor’s) at the date of purchase. These bank loans are primarily senior, secured floating-rate debt rated “BB”, “B”, or “CCC” by Standard & Poor’s or an equivalent rating from another nationally recognized rating agency. These bank loans include assignments of, and participations in, performing and non-performing senior corporate debt generally acquired through primary bank syndications and in secondary markets. Bank loans consist of, but are not limited to, term loans, the funded and unfunded portions of revolving credit loans, and other similar loans and investments. Management believed that it was probable at the time that these loans were acquired that the Company would be able to collect all contractually required payments receivable.

Interest income on bank loan participations is accrued on the unpaid principal balance, and discounts and premiums on bank loan participations are amortized to income using the interest method. Generally, the accrual of interest on a bank loan participation is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest. A bank loan participation may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. Generally, bank loan participations are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt. Interest received on nonaccrual loans generally is reported as investment income. There were no bank loans on nonaccrual status at September 30, 2021 or December 31, 2020.

15

JAMES RIVER GROUP HOLDING, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in thousands)
Fixed maturity securities:
Gross realized gains	$	3,170	$	386	$	4,361	$	906
Gross realized losses	(3)		—		(27)		(1)
	3,167		386		4,334		905
Bank loan participations:
Gross realized gains	130		24		448		357
Gross realized losses	(310)		(3,506)		(1,093)		(14,484)
Changes in fair values of bank loan participations