James River Group Holdings Ltd Stock

Thank you. today. At this time, I would like to welcome everyone to the James River Group second quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Bob DiMardo, Senior Vice President, Investments and Investations.

Go ahead. James Rivergroup, Thank you, operator. Good morning, everybody. Welcome to James Rivergroup's second quarter of 2026 earnings conference call. A reminder that during the call, we'll be making forward-looking statements that are based on current beliefs, intentions, expectations, and assumptions that are subject to various risks and uncertainties, which may cause actual results to differ materially. Such risks and uncertainties are detailed in the cautionary language regarding forward-looking statements in yesterday's earnings release and the risk factors of our most recent report. in Form 10-K, Form 10-Q, and other reports and filings we have made with the SEC. We do not undertake any duty to update any forward-looking statements. In addition, during this presentation, we may reference non-GAAP financial measures. Please refer to our earnings press release for a reconciliation of these numbers to GAAP, a copy of which can be found on our website.

Lastly, unless otherwise specified for the reasons described in our earnings press release, all underwriting performance ratios referred to are for our continuing operations and business that is not subject to retroactive reinsurance accounting for lost portfolio transfers. I will now turn the call over to Frank D'Orazio, James River's Chief Executive Officer.

Thank you for that introduction, Bob. Good morning, everyone, and thank you for joining us today. I'd like to pick up today's call with the very same theme we've emphasized over the last several quarters. Organizationally, profitability remains our primary focus, and we saw that evidence in the 92.8% combined ratio we achieved for our E&S segment, a meaningful improvement from the 96.5% we recorded last quarter, which was largely impacted by some unique and legacy reinsurance dynamics. As you've heard from other competitors this quarter, property and casualty market continues to transition As conditions shift, our objectives remain the same, to direct underwriting capacity and capital towards areas offering the most attractive risk-adjusted returns, while maintaining the discipline to walk away from opportunities that do not meet our profitability expectations. We are stewarding the portfolio amidst a transitioning market, while taking meaningful expense out of our business and strategically capitalizing on more efficient ways to target profitability over growth. A prime example of this activity is evident in our specialty admitted segment, where we have significantly downsized our writings and deliberately reduced our net exposures affronting market, while removing over 40% of the expense base in the segment during the year.

While the decrease in the group's overall gross written premium is largely impacted by the intentional downsizing of our specialty admitted segment, at the same time, we've increased our gross net premium retention nine points to 55% this quarter from 47% in the same quarter last year. With the shift away from fronting, I'll also... taking advantage of several years of underwriting improvements in our ENS segment that we see manifesting in our most recent underwriting year results. As for market conditions, we continue to observe additional capacity entering sectors of the E&S market, primarily through MGAs and other newer market participants. As has been the case for several quarters now, property remains characterized by abundant capacity and a more competitive pricing environment. Story and casualty is more nuanced social inflation and elevated loss severity continue to create pressure across many casualty classes So positive rate opportunities remain available in several areas where we continue to focus including excess casualty and certain specialty lines today Today's market requires underwriters to pick their spots and for established participants to leverage long-standing distribution and client relationships. While the impact of industry competition is prevalent in the property marketplace and also notably pronounced in the larger account casualty space, we have continued to remain focused on smaller insurers as market conditions have softened based on our own historical views of the profitability and renewal retention levels of this sector of the market. During the quarter, submission activity continued to grow.

Our submissions for active divisions increased 4% and 10 of our 13 underwriting divisions quoted more business than they did a year ago, with quotes on new business also increasing by 4%. As we discussed last quarter, the implementation of our AI-enabled underwriting workbench continues to progress with a handful of new business. of departments now employing the initial deliverables from these tools, including excess casualty and small business. Our objective is to improve underwriting efficiency, increase quote responsiveness, and more directly focus our underwriters' attention on submissions that fit our appetite and pricing objectives. We are still early in the implementation process, but our initial progress is encouraging. Turning to production, the drivers of the lower premium volume in the quarter are largely tied to a few specific dynamics, including deliberate underwriting appetite changes in the business mix and competitive dynamics within certain areas of the market, reflective of ongoing portfolio management in a shifting marketplace. There are a few important dynamics to cite when analyzing our production, in particular when comparing levels versus prior year. First, our previously discussed decisions to put our contract binding department into runoff and to non-renew certain tract housing exposures within our Manufacturers and Contractors Division removed nearly $10 million of renewable premium from the quarter and approximately $25 million of premium from the portfolio over the past year.

In particular, the construction accounts also carried average premium sizes that were significantly larger than our overall average premiums for policy. Secondly, the quarter was marked by an unusually significant amount of account premium that remains in force but did not renew because account renewal effective dates have moved to other quarters, as well as a large non-recurring project in our energy department. an impact from this renewal timing dynamic, as well as the energy project, amounted to over $60 million in gross rent premiums. Finally, business mix has become increasingly important as the market continues to transition. For example, within our specialty E&S division, we continue to see attractive opportunities and healthy margins, but the business we are writing today in these areas generally consists of smaller accounts, lower average premium per policy levels of recent years. As a result, early growth growth opportunity is initially seen through increased submissions, quote activity, and policy count before translating into meaningful premium growth. But aided by our technology investment, we believe we are positioning the segment well for future profitable growth. And on the other side of the P&L, our focus on expense discipline continues to produce tangible benefits.

In the aggregate, our G&A expense was down 9% through the first half of the year compared with the same period last year. Those savings have been driven primarily by our specialty admitted and corporate segments and represent another example of our continued effort to improve efficiency, particularly in a transitioning market. With that, I'll turn it over to Sarah to discuss our financial results in greater detail.

Thank you, Frank. Good morning, everyone. This quarter, we reported net income available to common shareholders of $4.4 million, which compares to net income of $2.8 million in the second quarter of 2025, which is a 59% increase. Operating earnings were $10 million or 20 cents per diluted share as compared to 11.7 million or 23 cents per share in the prior year quarter. Our annualized operating return on tangible common equity for the quarter was 10%, and tangible common book value per share increased slightly from the start of the year to $9.01. The consolidated combined ratio was 100.2% and consists of a 66.3% loss ratio and 33.9% expense ratio for the quarter. While as Frank mentioned, the ENS segment in particular generated a combined ratio of 92.8%. As Frank mentioned, the consolidated results heavily reflect our deliberate actions leading to lower earned premium, particularly within specialty admitted. we've deliberately shrunk our segment given the competitive conditions in the fronting and admitted market generally, and have done so while removing a significant part of the expense supporting the business.

Expense reduction remains an important contributor to our overall performance and is an active and ongoing effort. General and administrative expenses declined $2.5 million, or 7%, compared to the prior year quarter, and we're down 9% on a year-to-date basis. Savings were primarily driven by our specialty admitted and corporate segments, down 39% and 9% respectively. reflect the actions we've taken over the last several quarters to simplify the organization, improve efficiency, and better align expenses with the size and composition of the business. The largest portion of these savings came from lower compensation-related expenses, including the impact of organizational efficiencies. We continue to actively improve operating efficiency across our business functions, and expenses remain firmly in focus. On taxes, our effective tax rate was 21.8% in line with the U.S. statutory rate following our domicile last year. As a reminder, our November 2025 redomicile itself was a significant and lasting expense savings effort, everything from where and how we operate to our financing costs.

And in the same quarter last year, which was prior to the reddamas aisle, our effective tax rate was over 30%. Turning to reserves, underlying loss trends remain stable during the quarter. We recorded net adverse reserve development of under $1 million compared to $3 million of adverse development reported in the prior year quarter. prior year development stems from the 2023 time, the pre 2023 timeframe and does not change our overall review of reserve adequacy or the underlying performance in particular of more recent accident years, which continue to benefit from meaningfully improved risk collection, underwriting, governance, and discipline. During the quarter, we ceded the remaining $7.5 million of development to the ENS top-up adverse development cover related to accident years 2010 through 2023. and consistent with prior quarters, this development was largely due to our product liability book. Turning to investments, portfolio performance remains stable and continue to support earnings and growth in book value. Net investment income was $20.3 million for the quarter, consistent with the prior year period, and supported primarily by income generated from our high-quality fixed income portfolio, where we've been able to put new money to work well above our portfolio book yields. As a reminder, the capital supporting our specialty. and mid-business continues to drive results in our overall net investment income.

Turning back to the components of net investment income, private investment income was lower than the prior year quarter, reflecting a stronger comparison period in 2025, rather than any meaningful change to portfolio strategy. Net realized and unrealized gains contributed approximately a million dollars during the quarter. Our portfolio remains conservatively positioned, but well positioned to support growth in book value. Approximately 75% of invested assets in cash are allocated to high-grade fixed income securities with an average duration of 3.6 years and average credit quality of A+. You remain focused on generating consistent investment income over time while preserving capital. Finally, we completed the third renewal of our ENS Reinsurance Treaty structure put in place beginning in July 2023. The structure was maintained with modest changes based on current conditions, but retained a similar and consistent panel of quality reinsurance. insurance partners in very similar terms and conditions otherwise.

With that, I'll turn the call back to the operator and open the line for questions.

At this time, I would like to remind everyone, if you would like to ask a question, please press star 1 on your telephone keypad. Your first question comes from the line of Mark Hughes with Truist Security. Please go ahead.

Yes, good morning. Frank, just a question about the written premium in the ENS business. Obviously, you had some timing and project impact in the quarter. Maybe that's about five points, I think. How did that competition progress through the quarter? kind of month to month when we think about what to expect in Q3, um, And should we anticipate, you know, this sustained pressure, we'll have – continuing impact or perhaps will be offset by some of your initiatives around submissions and getting more quotes out. Just to kind of a few thoughts about the Q3 second half would be very helpful in a volatile environment.

Sure, thanks, Mark. There's a lot there, so let me try to cover it all, and then I think your last piece was really about Outlook. So just in terms of the premium drop-off in E&S, we had a number of, I'll call it noisy dynamics. I think most instances you wouldn't call out some of those items because when you have over thirty thousand in force accounts, you can see some semblance of these items in any given quarter. But. When they aggregate into tens of millions of premium dollars that, you know, I think they're worth clarifying, particularly for a company of our size. So the runoff of contract, finding the tract home construction decision, and then some of the. timing and non-recurring items accounted for about 26 million at GWP alone. we had that about about a nine point kind of movement just relative to prior GWP. I think you had a little bit less. But in terms of the market conditions, I mean, clearly the market's been transitioning for several quarters now.

We're seeing increased competition beyond property. And you can see that I think probably most evident in the overall rate change for the portfolio. So sometimes rate change jumps around from quarter to quarter, but we were at a higher single digit range in Q1 and about 3% in Q2. So still positive, but moderating. And we felt the difference in the quarter. And I don't you were asking for month to month. I'm not sure I can give you a sense in terms of how that moved from April through June. But fortunately, with the significant underwriting changes that we made over the past several years and the continual overlay of the performance monitoring, which we've put in place and has informed our decisions to exit certain classes, I feel the portfolio is in a much better position today to navigate changing mark additions and target-specific areas. that we feel that we can grow profitably focused on underwriting margins.

So the shift continues within the company and we continue to really focus on SME and smaller accounts. We believe they're more profitable across market cycles for Q2 2026. over Q2 2025 our average account premium was down 22.9% and that's while the rate increases for the portfolio as a whole were still positive so you get a real sense for the shift in the size of the insurance in the portfolio but also I think some of the the pure premium headwinds when looking at prior So, we think the trade off makes sense, particularly in this phase of the market. We've analyzed historical loss ratios across the portfolio by premium band, and our history tells us that there's a comfortable, our view, double-digit spread in loss ratio points between business that we're targeting and, let's say, a company that's a little bit more upper middle market to larger accounts where the premiums drift, let's say, north of $500,000 or so. But, again, in terms of competition, I said it earlier, it's hard to deny that we're seeing general competition in the areas that we write increase. We've seen some business moving to the admitted markets, especially in property, but I wouldn't say necessarily at a concerning rate elsewhere across the book. Biggest competition remains from MGAs in front of facilities, particularly in excess property, and I would say in the excess or the general casualty space as well, so basically primary GL, but also from other ENS carriers and newer entrants into the space. We spent a little bit of time on property, but I think that's pretty well chronicled.

I mean, in a nutshell, increased capacity supply over the last two years has well outpaced the growth. or the need in the market, and the results pretty tangible. Rates are off significantly, and as an excess player, we see program layers being replaced with much larger stretches. of primaries and some terms in addition pressure on deductibles. But I think the more recent development that we've seen really this year is in the general casualty space. And we talked a little bit about it in Q1. It's become exceptionally competitive and the pressures and competition differ regionally and so So there are pricing pressures. I think the bigger concerns that we see are on the terms and conditions that the market has fought hard over the last several years to establish, particularly relative to assault and battery supplements. But you pick a territory. In the Southeast, there's about 30 MGAs that are going hard after this business without So general casualty, excess property.

I think those are some areas that we're going to be off our numbers in the quarter, but with good reason. That said, overall for the segment, submissions were up 4% in total in the quarter. Quotes were up overall 10 of 13 under a department's increased quote count. and seven of 13 increased binders overall. Again, just the business that we're writing is typically smaller account premium than we have traditionally. So generally, I don't feel the sector as a whole is in a very significant growth phase, but the areas that we feel most confidently about trying to profitably grow, I would say, are in the specialty division. So professional liability, allied health, energy, environmental come to mind. Our small business unit is a place that we feel we can grow.

And in all those areas, we feel we've got a strong view relative to the historical underwriting margins. had a strong focus in their class. And then elsewhere, I think we'll still be able to push rate in certain areas like excess casualty, which is a big part of the book. Those are the areas that we're going to continue to focus on and push to offset some of what we're seeing in the marketplace, Mark.

Yes, great. Appreciate that detail, Frank. Sarah, anything on the expenses this quarter, the corporate expenses? Obviously, very good progress. over here. Anything non-recurring or unusual, or is this a good kind of starting point to go forward?.

Thanks for the question, Mark. I think it's a fair starting point. There's nothing exceptional in this quarter, only that I would just make the point that we're not finished on our expenses. We're actively managing them as we're managing the business through the rest of the year. safe to say and I'd be comfortable with where we are now with obviously giving us some room going forward.

Understood. Thank you. Thank you. Again, if you would like to ask a question, please press star 1. Your next question comes from Brian Meredith with UBA.

Yes, thanks. Sarah, I appreciate you said that the more recent action years are looking pretty good on the reserve side. I wonder if you could talk a little bit about the reserves associated with the ADC that's now been exhausted. What action years was the development coming from and maybe a little bit in depth on what line the business is coming from?.

trying to get comfortable with those reserves won't continue to develop adversely. I'll have a start and then Frank can give some more color, Brian. So, the reserves, the additions were really primarily related to 2022 through 2020. Those were the more significant years of addition. And as I mentioned in my comment it's almost entirely from our product liability book, which we've talked about the last few quarters. And I think Frank is probably better positioned to give you a little bit more color on that, but that answers, I think, your threshold level questions there. Yes, that's it, Greg. Thanks.

Yes, Brian, let me give you a little bit of just additional cover in terms of where that stands. So, you know, Sarah just addressed what was the driver in the quarter. I just want to talk more broadly about the legacy covers in general. And obviously, we put them in place a few years ago. And by about 235 million dollars over the last call two years. So, I take some comfort in the fact that the amounts that we see it to the. Legacy structures. have generally become progressively smaller.

And perhaps more importantly, I focus on the overall reserve position inclusive of all years, which we feel is adequate. reserve cover has really just been a piece of the overall position and thankfully we continue to see a clear demarcation in both claim counts and incurred loss ratios in recent accident year performance that we believe has been a reflection of the underwriting changes that we made over the past few years while we've utilized the legacy cover. So we put the legacy structure in place coming out of our 2023 strategic review to retain any volatility coming out of the company's legacy years. And since that time, we've been through a couple of annual reviews of our reserves, both internally and externally. And while our more recent accident years continue to mature with those positive indications, In essence, we never had any type of preconceived notion in terms of when and if the covers would be exhausted, but the structure has, I think, provided the protections as intended. And the recent underlying years have continued to develop favorably. And we talked about it in terms of what does that mean? in essence, if you look at our 2024 year, which is now 30 months on the triangle, you see real improvements in claims counts being down 23% overall and the incurred loss ratio being down 34% for the same period. So perhaps one of the more helpful indicators just regarding the work that we've done with.

the underwriting portfolio over the last couple of years? The only thing I just add a couple of numbers just to contextualize, because I've seen some different data out there, so to speak. Just to be clear, we've got a billion point zero five million of total reserve total net reserves on our balance sheet. Nine hundred and fifty million of those to the ENS business and only about 15% of those, a little bit more than that, relate to the 2023 and prior years. So we are building up, point being, building up a significant balance of reserves in the 24, 25 and 26 years, to the tune of over $800 million at this point. So that's what you would expect given the tail on our business. But just wanted to lay out a few numbers as Frank has contextualized some of the more recent developments.

Thanks for the call. I appreciate that. And a second question, Frank, I'm just curious, on the specialty admitted segment, maybe give us a little color on what kind of the medium-term and long-term plans are for that business, and is there any visibility to maybe break even results on an underwriting basis at some point?.

Sure. So, listen, I think the view on specially-admitted, it's been fairly consistent the last couple years now. like the rationale in terms of the steps that we've taken. Obviously, plenty of carriers in the space, some less obvious but real exposures in the sector with heavy MGA competition for... lines like commercial auto and larger casualty accounts, we now have less than one handful of active programs today and are really maintaining just a, I'd say, capital-light platform. We still have a need to handle the claims and process the programs in runoff, so we'll continue to manage the segment to what are low net retentions and have very diligent focus relative to expense management. But right now, its main contribution is to NAI. I mean, it contributes roughly 25% of our overall NAI, so that we think outshadows a small art writing loss there, but you see kind of the direction that we're taking the business here. You know, it was once dozens of programs, and we're down to less than one handful.

Thank you. Again, if you would like to ask a question, please press star 1 on your telephone keypad. There are no, oh, we have a follow-up from Mark Hughes with Truist Securities. You may go ahead.

Yes, thank you, Frank or Sarah. Just the crowd into general casualty these days, do you think it's just something Soft market behavior, properties down, people are stretching for premium, there's more capacity in the market. Or I'm just sort of curious, you talked about the recent action years developing pretty well. Do you think there's some sense that frequency and severity are really under control and And so therefore, it's leading to more people being comfortable taking these long tail lines. And obviously, you've got interest rates that are influencing that. So I'm just sort of curious. I'm curious whether you think how you would weigh some of those factors when you consider the depth of competition in the general casualty.

Yes, Mark, I'll take a shot. I mean, obviously the property market has been kind of on this glide path now for about two years. So kind of coming into planning for 26, I think the general view was that there were more attractive returns in casualty and heck, a lot of new MGA kind of startups. focusing and align where reinsurers are starting to target more capital deployment. And we know what the formula is just relative to how MGA's are viewed as being successful. So we see it really kind of throughout the country, but you know, slightly different shades in terms of focus. But I think it's as simple as, being able to more readily put together, you know, reinsurance support for a primary million dollars and pretty, pretty aggressive MGA community. Okay, appreciate that. Thank you. Thanks, Mark.

At this time, there are no further questions. I would like to turn it back over to Frank D'Orazio, CEO, for closing remarks.

Thank you, moderator, and thank you to everyone for your time and for the questions we received this morning. Before we conclude, I want to recognize and thank Dennis Langwell for his service on our Board of Directors following his retirement. We certainly wish him all the best. I'd also like to welcome Rajiv Basu to the board. decades of insurance industry experience and we're pleased to have him join the board of James River. Stepping back, we continue to believe the company is well positioned in today's market. The quarter was not without pressure and premium trends remained affected by the underwriting and market dynamics we discussed this morning, but our core E&S business remained profitable, expenses continue to improve, and our balance sheet protections have significantly bolstered our reserve balances over the last two years. as our more recent underwriting years have continued to mature. Undoubtedly, our focus remains clear. We will manage the business for underwriting profitability and long-term value rather than near-term volume.

We believe the actions taken over the last several years have created a more focused organization, a more disciplined E&S portfolio, and a stronger foundation for profitable growth over time. Importantly, I want to thank all of my James Ewer colleagues for their efforts and continued commitment to the pursuit of our corporate objectives. And for those listening to the call, we appreciate your continued interest in James River and look forward to speaking with you again next quarter.

Ladies and gentlemen, this concludes today's call. You may disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the James River Group Holdings, Inc. First Quarter 2026 Earnings Call. [Operator Instructions] I will now turn the conference over to Bob Zimardo, Senior Vice President of Investor Relations. You may begin.

Good morning, everyone, and welcome to James River Group's First Quarter 2026 Earnings Conference Call. A quick reminder that during the call, we will be making forward-looking statements that are based on current beliefs, intentions, expectations and assumptions that are subject to various risks and uncertainties, which may cause actual results to differ materially. Such risks and uncertainties are detailed in the cautionary language regarding forward-looking statements in yesterday's earnings release and the risk factors of our most recent Form 10-K and other reports and filings we have made with the SEC. We do not undertake any duty to update any forward-looking statements.

In addition, during this presentation, we may reference non-GAAP financial measures. Please refer to our earnings press release for a reconciliation of these numbers to GAAP, a copy of which can be found on our website. And lastly, unless otherwise specified for the reasons described in our earnings press release, all underwriting performance ratios referred to are for our continuing operations and business that is not subject to retroactive reinsurance accounting for loss portfolio transfers.

I will now turn the call over to Frank D'Orazio, Chief Executive Officer of James River Group.

Thank you for the introduction, Bob. Good morning, everyone, and thank you for joining us today. As we do each quarter, we look forward to discussing notable highlights of our performance, updates on the execution of key corporate objectives and the progress that James River continues to make in becoming a best-in-class E&S carrier. This quarter, our E&S results were negatively impacted by a sizable reinsurance reinstatement charge on a 2022 casualty treaty triggered by an individual claim, a disappointing development on an otherwise solid quarter.

As we've discussed in the past, the organization restructured its E&S treaty placements in July of 2023 to prevent these types of outsized adjustments from impacting future results. In a few moments, Sarah will provide additional details on the specifics of this reinsurance charge. But before she does, I'd like to spend a few minutes discussing our current view of the market opportunity for James River as well as our progress across a number of prioritized corporate initiatives.

First and foremost, relative to market opportunities, we continue to believe that heightened discipline is essential in a transitioning marketplace, and James River has been well served by the refinement of our underwriting appetite, focus on smaller insureds, investment in underwriting governance and performance monitoring and prioritization on underwriting margin, particularly over the last several years.

For 2026, we feel our greatest opportunity to push rate remains in our Excess Casualty division and the greatest opportunities for overall growth reside in our specialty lines division as well as our small business unit, underwriting areas that we feel hold the most attractive margin in today's marketplace. At the segment level, casualty rates were positive at 7.7% for the quarter and were consistent with our expectations.

While pressure on rates has been most pronounced in our excess property division for several quarters now, we've also recently seen increasing competitive pressure in our primary general casualty department. And as a result, our underwriters are navigating opportunities in those lines with appropriate prudence. For the segment, submission growth was strong at 4%.

And for the first time in several quarters, we modestly grew gross written premiums across our E&S Casualty and Specialty portfolios with 7 of our 14 underwriting divisions reporting positive growth. Excluding our manufacturers and contractors business, where we made refinements and appetite last year and our small delegated contract binding portfolio, which is currently in runoff, our casualty portfolio was up over 6% when compared to the prior year.

Looking more closely at production, targeted growth during the quarter was driven by several areas I have highlighted this morning. In the aggregate, specialty lines were up 6%, driven by professional liability, energy and health care and excess casualty premiums increased 15%, largely driven by our underwriters' ability to continue to drive rate. As mentioned earlier, during 2026, the company has prioritized a number of initiatives aimed largely at making James River a more efficient organization while also significantly improving our business development acumen and expanding our presence with our distribution partners. Continuing the same discipline that we exhibited during 2025, we also reduced G&A expenses across the group during the quarter by 11%.

Finally, as we discussed during last quarter's call, we are excited about the significant investments in technology that we believe will increase underwriting efficiency while improving the underwriting tools and resources available to our E&S underwriting staff. The rollout of AI-enabled underwriting workbench technology is already underway with our first 2 underwriting departments being rolled out this quarter, and we expect to report on the progress of the initiative in future quarters.

We are confident that the combination of underwriting improvements and appetite changes we have made over the last several years in concert with continued expense vigilance and technology adoption will allow us to optimize our SME platform and further differentiate our very special wholesale-only distribution model. As we manage the market cycle, I'm encouraged by the uptick in focus production in areas we are hoping to scale and by our ability to continue to push rate where necessary as we navigate through 2026. It continues to be a dynamic and competitive marketplace, but we are well positioned to succeed, strongly supported by our underwriters and wholesale distribution partners.

With that, I'll turn it over to Sarah to walk through the financial results in more detail.

Thank you, Frank, and good morning, everyone. This quarter, we reported a net loss to common shareholders of $10.9 million, which compares to net income of $7.6 million for the first quarter of 2025. Operating earnings were $5.8 million or $0.12 per diluted share as compared to $9.1 million or $0.19 per share. As Frank mentioned, our results this quarter were negatively impacted by $6.7 million of reinsurance reinstatement premiums, largely related to a single E&S claim from 2022 that was booked and settled in the first quarter and subject to our prior $9 million excess of $2 million casualty reinsurance treaty.

The runoff structure of that treaty includes specific amounts of reinstatement premium potential for each accident year, leaving reinstatement premium aggregate exposure of about $9 million across accident years 2022 and prior. The structural changes that we made to that treaty should mitigate the forward impact of earnings volatility for accident years 2023 and on as we now pay a higher rate on such a premium upfront rather than pay meaningfully for these reinstatement premiums.

Absent the reinsurance reinstatement impact, operating earnings would have been $0.22 per diluted share. This impact reduced net written premium, net earned premium and underwriting income for the quarter. It added approximately 5 points to the group combined ratio of 104.6%, including almost 2 points to our expense ratio, which was 35.4%. Absent this impact, the consolidated combined ratio would have been 99.7%, comprised of an adjusted loss ratio of 66% and expense ratio of 33.7%.

For E&S specifically, the combined ratio of 96.5% was driven by a 68% loss ratio and a 28.5% expense ratio. And again, when adjusted for the impact of reinstatement premiums, the E&S combined ratio would be 91.8%, which is right in line with that of the prior quarter.

Moving quickly to expenses. As Frank mentioned, expense efficiency continues to be a priority and G&A expenses declined 11% compared to the prior year quarter, driven by reductions within Specialty Admitted, where they were down 46% in the Corporate segment, where they were down 15%. Underlying loss trends remain stable, and the reserves continue to reflect improved risk selection in the more recent accident years.

We recorded de minimis favorable reserve development of $165,000 split between E&S and Specialty Admitted. Consistent with the prior year period, and we continue to observe lower frequency and incurred losses in recent accident years, while remaining appropriately cautious in recognizing those trends as the business seasons. During the quarter, we ceded $16.2 million of development to the E&S top-up adverse development cover, which covers accident years 2010 through 2023. There is $7.5 million remaining on that cover.

Finally, moving on to investments. Net investment income was $21.3 million for the quarter, an increase of 6.6% year-over-year. These results were driven by improved private investment income due to our move over the last 18 months to invest capital efficiently in private credit rated note vehicles as well as the deployment of cash into our high-grade portfolio. While we did have strong income from our diversified bank loan portfolio, which represents about 8% of our total cash and invested assets, we also saw some volatility there as the largest driver of net realized and unrealized investment losses.

Overall, though, the portfolio remains positioned fairly conservatively with about 73% of it invested in high-grade fixed income at an average duration of 3.5 years and an A+ average credit rating. Tangible common equity per share declined modestly to $8.77, reflecting the combination of investment market movements and the impact of the legacy reinsurance structures.

With that, I'll turn the call back to the operator to open the line for questions.

[Operator Instructions] Your first question comes from the line of Mark Hughes with Truist.

Frank, you had mentioned a little more competition in the primary general casualty. Where do you see that coming from? How significant do you think that is?

So in casualty lines, first of all, thanks for the question, Mark. In casualty lines, we've seen fairly aggressive MGAs and just an overall increase in capacity from carriers interested in the E&S sector as others, I think, have reported. We've also seen some of the newer competition not only competing on price, but in terms and conditions that at this point, seem unwise, particularly in the GC space.

I mean fortunately, for James River, we've been in the sector for greater than 20 years with an existing portfolio and long-standing relationships with distribution partners and insurers. But we definitely see a break between underwriters being able to push rate in the excess lines versus the primary lines, much more significant. There seems to be more respect for loss trend from excess casualty underwriters at this point.

Understood. And then, Sarah, on the adverse development cover, the top-up cover, what through the total reserves that are covered by that? And then if you've got it in front of you, how much has been paid on those expected losses? Just trying to figure out what the paid versus unpaid is at this point on the relevant reserves.

Yes. Thanks, Mark, for the question. I don't have the page right in front of me, but very little of the reserves subject to those -- both of those structures would have been paid by now. I can certainly follow up with that. But order of magnitude, I would expect that number to be fairly low. And then the top-up adverse development cover and the other E&S ADC, LPT cover all E&S accident years 2010 through 2023 with the exception of the excess property book and the exception of the runoff Uber portfolio, which is covered by a legacy structure as well.

Understood. If I could slip a third one in. Frank, you talked about the AI-enabled technology on the underwriters work bench, I think. Could you expand a little bit more on that, kind of what are the kind of practical implications of their day-to-day underwriting activity? And what do you think it could mean in terms of either efficiency, underwriting effectiveness? Just curious.

Sure, Mark. So we spent the first -- really the last few years, I would say, kind of updating and upgrading our core systems, which has enabled us to now explore and invest in these AI-enabled work benches. And we see it as a competitive enabler just allowing us to optimize operational efficiency. But it really runs a gamut of clearance through risk prioritization against our appetite and production source relationships, data ingestion from third parties and ultimately, we will facilitate quote and buying processes. So we see it as a major efficiency play relative to being able to turn around quotes quicker and in a more targeted fashion.

Your next question comes from the line of Brian Meredith with UBS.

Frank, just following up on the market conditions. Perhaps you can kind of give us a little color on what's going on as far as movements between E&S and the admitted markets. We've heard that we're starting to see some business move back to the admitted market.

We've definitely seen that as well, particularly in property. We've definitely seen that. But we've now started to see it in some of the more standard lines like primary casualty as well. So from a primary basis, some lines that have historically been in the E&S marketplace now starting to attract some attention from standard markets as well. But I would say, to date, it's been most broadly observed in the property area for us specifically.

So would you like characterize as like a typical cycle here where business starts to move back a little bit? The market has been transitioning...

I'm sorry, Brian, did I catch that?

You think it will continue?

Yes. So listen, I think we're several quarters now into a transitioning market, and this is kind of an old story, right? So we start to see some of this business now get the attention of the admitted market. But I think it's going to be more specific to certain classes of business. And anybody who hangs a shingle, writes a primary general casualty capability or has a primary casualty capability. So that's an obvious choice as is property as well. We're seeing, I think, a little bit more resilience in some of the specialty lines.

Appreciate that. That's great. And then, Sarah, just one other just quick question on this reinstatement. Just trying to get my hands around it. So I think what's going on here, right, is that because there was perhaps some development on this claim is why you had the reinstatement premium come through. Is that true? So like if the treaty wasn't in effect, would there have been adverse development booked this quarter on this claim?

Well, that -- let me just be clear. The 9X 2, there's an awful that covers the majority of our E&S book. That's obviously a prospective treaty. So I want to differentiate that from the retrospective treaties. And we have reinstatement premiums pretty frequently. I think what stood out this quarter, Brian, was that it was more sizable. So it was a larger claim that settled. But there is a fair amount in that book that, that treaty protects us from on an ongoing basis.

[Operator Instructions] There are no further questions at this time. I will now turn the call back over to Frank D'Orazio, CEO, for any closing comments.

Thank you, moderator. I also want to thank everyone who listened to our call for their time and thoughtful questions this morning. While the quarter did have its headwinds, a very positive takeaway that remains is the underlying strength of the improved business model that we continue to build and most notably, the very targeted growth in Specialty and Casualty lines, the expense discipline and a team that is executing in today's market. We are well positioned for 2026 and look forward to keeping you updated on our progress in just a few months.

Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.

Ladies and gentlemen, thank you for standing by. Hello, and welcome to James River Group Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Thank you.

I would now like to turn the conference over to Bob Zimardo, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good morning, everybody, and welcome to James River Group's fourth quarter 2025 earnings conference call.

A reminder that during the call, we'll be making forward-looking statements that are based on current beliefs, intentions, expectations and assumptions that are subject to various risks and uncertainties, which may cause actual results to differ materially. Such risks and uncertainties are detailed in the cautionary language regarding forward-looking statements in yesterday's earnings release and the risk factors of our most recent Form 10-K and other reports and filings we have made with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements.

In addition, during this presentation, we may reference non-GAAP financial measures. Please refer to our earnings press release for a reconciliation of these numbers to GAAP, a copy of which can be found on our website. Lastly, unless otherwise specified for the reasons described in our earnings press release, all underwriting performance ratios referred to are for our continuing operations and business that is not subject to retroactive reinsurance accounting for loss portfolio transfers.

Thank you. And I'll now turn the call over to Frank D'Orazio, Chief Executive Officer of James River Group.

Okay. Thanks, Bob. Good morning, everyone, and thank you for joining our call today. We're speaking to you this morning, already 2 months into 2026 and keenly focused on executing our business plan and strategic objectives for the year.

Today, I'm eager to discuss our fourth quarter and full year results with you. But just as importantly, I want to communicate our vision and share our optimism for 2026.

Over the past few quarters, we have commented at length on the strides that the company has taken to focus on its wholesale-only E&S platform, maintaining a strong position in the E&S marketplace, while delivering shareholder value to our investors. I think it's fair to say that our future success will not be driven by a single factor, but rather the combination of several purposeful prioritized initiatives working in concert to drive our future results.

At a high level, I believe 3 primary themes both underlie and empower our ability to perform in 2026 and beyond. First, I would point to our refined risk appetite and enhanced performance monitoring that we have invested in over the last few years, which has resulted in a focus on smaller and more profitable accounts across our casualty universe, while exiting or reengineering our stance on several classes that have proven to be unprofitable to James River over time.

Secondly, we will benefit from the lasting operational efficiencies and expense management focus achieved through substantial cost-saving initiatives across the business during 2025, including our redomicile to the United States. And finally, our continued engagement and deployment of our technology platform will support both of these efforts, which we expect will drive efficiencies and future profitable scale in our E&S business.

Now as for execution, we've begun the year with a refreshed and reorganized E&S leadership team fully in place with a compelling game plan for the implementation of our strategic vision. With respect to our redefined appetite in E&S, that work has largely been done already. We will continue to target smaller accounts that tend to have higher renewal retention ratios that we believe have proven to be more profitable for James River over the company's 20-plus year history.

In Q4, that same focus saw our average policy size decreased by 9.6% compared to the prior year quarter. And for the full year, the impact has been an average policy size decrease of 8.4%. While our approach tempered top line growth in the quarter and much of 2025, the prioritized focus of the organization is on profitability. And admittedly, we were comfortable with that trade-off.

Submission flow across our casualty focused business remains healthy with 4% overall growth for 2025. With increased competition in a transitioning market, we are seeing a combination of both strong renewal submission activity, which we view as a sign of continued relevance with our distribution partners and an increase in new submissions overall.

Rate change remained positive at 9% for the year, consistent with 2024 and above loss trend. But clearly, the level of rate increases have moderated and there is dispersion by product line and division.

Expense discipline remains an essential part of our story. In the fourth quarter, we executed on our redomicile to the U.S., which simplifies our corporate structure, improves tax efficiency and gives us greater flexibility as a U.S. specialty insurer. Through the redomicile and other initiatives, we removed meaningful expenses permanently, lowering our full year expense ratio over 1 point from 2024 and the quarterly expense ratio over 2.5 points from the first quarter, all on fairly flat net earned premium.

Combined with the underwriting improvements and appetite changes we've made over the last several years, our expense discipline has meaningfully improved the company's profitability and earnings profile.

Perhaps even more importantly, deliberately taking these measures has enhanced the organization's future ability to further leverage profitability and increase scale, utilizing the investments we have made in technology, most notably, a complete multiyear upgrade of our core operating systems to Guidewire that will be completed in 2026 and our recently announced partnership with Kalepa to roll out AI-enabled underwriting workbench capabilities throughout our E&S segment.

The Guidewire implementation has afforded our platform a notable modernization uplift, while allowing us to fully engage in the deployment of customized AI underwriting workbench technology, which we believe will enhance our underwriting efficiency in 2026 and beyond. We're using advanced data and decision support tools to enhance underwriting judgment, not replace it. These tools will help us assess risk more consistently, identify outliers earlier and improve operating efficiency in an increasingly competitive environment.

While speed in our market is a priority, the goal isn't speed for its own sake. It's about better decisions made more efficiently and having a positive impact on our day-to-day underwriting workflows and quote and buying rates.

We are confident that continued technology adoption will undoubtedly be a tangible differentiator for us as we optimize our SME platform and our very special wholesale-only distribution model.

Moving back to our performance. Our 2025 results validate the balance sheet actions over the last few years, but more so positions us for continued success ahead. For the full year, we delivered a 96.6% combined ratio and generated a 15.3% annualized adjusted net operating return on tangible common equity, while growing tangible common book value per share by 34%.

Those outcomes weren't driven by a favorable market surprise. Rather, they are a result of strong execution, deliberate choices around underwriting, expenses and risk selection. Our fourth quarter E&S combined ratio of 86% reflects that progress and represents our strongest quarterly profitability in several years.

When we look at production over the course of 2025, our gross written premium was down approximately 5% overall. That said, 2 of our 5 primary divisions are driving most of that reduction with property down 27% year-over-year and manufacturers and contractors, one of our larger divisions, down 11% year-over-year.

Property remains a small component of our overall focus, and our construction production has been impacted by our decision to refine our underwriting guidelines relative to track housing exposure.

Despite these dynamics, we did see growth in the year across several specialty departments, including Allied Health, Professional Liability and Management Liability and maintained flat performance in our largest division, Excess Casualty. Overall, we remain encouraged by the profitability headroom we see across even more divisions in 2026.

On recent accident years, we continue to be encouraged by a lower frequency of claims and improved loss emergence, but we remain cautious in recognizing those trends as the book continues to mature. Importantly, we continue to operate with reserve protection in place, which has allowed us to focus on the company's current performance profile rather than its legacy.

In sum, while growth in certain lines has slowed, we believe that the trade-off has been the right one for James River. Profitability, balance sheet strength and earnings durability were priorities in 2025, and our results reflect that focus.

We enter 2026 with a leadership reorganization complete, a cleaner corporate structure, improving margins, a more disciplined portfolio and a team that is empowered by technology and positioned well to execute.

The North American E&S market is vast. And although the market has been transitioning for several quarters now, we see attractive opportunities for James River in 2026, particularly with our focus on smaller insureds and with the benefit of refreshed underwriting guidelines, new technology and the emphasis we have placed on performance monitoring.

In particular, we see an opportunity to scale our small business unit as well as several underwriting departments in our Specialty division like Allied Health and Professional Liability, departments that have historically been very profitable for the company.

We also expect to push rate in areas like Excess Casualty and parts of our general casualty portfolio in an effort to stay ahead of our view of loss trends. We have also identified areas across the E&S segment where we can relax rate and attempt to gain a bit of scale in those businesses.

In short, we feel 2026 holds significant promise and opportunity for James River.

With that, I'll turn it over to Sarah to walk through more details for the quarter and the year.

Thank you, Frank, and good morning, everyone. James River generated very strong financial results for 2025. We reported $47.4 million of net income, $39.6 million of it available to common shareholders, which is a marked improvement from the $81.1 million net loss of 2024. Operating earnings were $54.1 million or $0.79 per share diluted for the 2025 year.

As Frank pointed out, we delivered a full year combined ratio of 96.6% as compared to 117.6% for 2024. Our operating return on average tangible common equity was 15.3% for the year and tangible common book value per share increased 34% to $8.94 per share. For the fourth quarter, we reported operating earnings of $16 million as compared to a loss of $40.8 million in the prior year quarter. Annualized return on tangible common equity was 16.2%.

As we review them, our results included strong underwriting income, meaningfully improved expenses, solid investment returns as well as a tax benefit, which I will address first.

As previously discussed, the onetime $14.1 million tax benefit was driven by interest expense deduction in connection with the company's November redomicile from Bermuda to Delaware. Importantly, we excluded that tax benefit from our operating earnings due to its onetime nature.

I'm drawing this important distinction as most analysts did include it in operating earnings, which distorted a comparison this quarter. If we had included it, fourth quarter operating earnings would have been $0.53 per share rather than the $0.30 per share that we reported. On top of that, annualized operating return on tangible equity would have been 19.7% for the quarter and 19.3% for the full year.

Looking ahead, alongside the expense work accomplished in 2025, we see meaningful efficiency benefits to our tax rate coming out of the redomicile as on a go-forward basis, we expect our effective tax rate to be in line with the U.S. statutory rate.

Moving to underwriting results. Our E&S segment generated $59.5 million of underwriting income for the year and $19.7 million for the quarter. Our full group results were $20.3 million and $8.6 million, respectively. Our full year expense ratio of 30.2% was below the 31% indication discussed earlier in the year.

While we have made meaningful permanent changes to our structure throughout the year, it's notable that we reduced the expense ratio in a year when we also reduced gross written premium and more so than net earned premium was flat given our portfolio management, as Frank reviewed.

Throughout the year, we've created nearly $13 million -- $30 million in expense savings and reduced G&A expenses by about 9% overall. We ended the year with 578 total employees, over 60 fewer than when we began the year. These changes were driven by continued optimization and operating efficiency gains at both operating segments.

As a result, lasting changes in items, including compensation expenses, drove a material amount of the savings throughout the year, while rent and professional fees contributed as well.

Regarding the quarter's loss activity, we recorded $1.8 million of net favorable impact from prior year development. This consisted of $5 million of favorable development in the E&S segment, partially offset by adverse development attributed to Specialty Admitted.

Within E&S, we continue to observe declining trends in frequency for recent accident years and now, we have removed meaningful exposure to accounts and risks that drove prior year development in 2023 and prior. We start 2026 with $23 million of aggregate limit on the adverse development cover for E&S, covering accident years 2010 through 2023 with no retention.

During the quarter, we ceded $28.6 million of development to the cover, largely related to product liability in the 2019 through 2023 years. As you know, our external opining actuary completes their work and opinion in the fourth quarter with the filing of our statutory opinions.

Turning to investments. We had $21 million of net investment income for the quarter, down about $1 million from the previous quarter in a year when interest rates also declined generally. The quarterly result reflects outperformance within the company's fixed income portfolio, which had about 72% of cash and invested assets generated meaningful income as new money yields remain in the 5% range, well above our current book yield of 4.5%.

We mentioned earlier this year that we have been able to put a meaningful amount of cash to work at attractive yields and high credit quality securities, as we work through our cash aggregation from year-end 2024. Still, compared to the prior year quarter, a lower rate environment overall impacted both the bank loan portfolio and short-term cash returns. Our portfolio remains conservatively positioned with an average credit rating of A+ and duration of 3.5 years.

Finally, as we close out last year and move further into 2026, we expect our performance for the year to generate a low to mid-teen return on average tangible common equity. While we continue to prioritize the protection of our balance sheet, we feel our active portfolio management actions are largely behind us. That means that, especially given our employment of technology, which Frank covered, we see meaningful opportunities for profitable top line growth this year.

Finally, we expect to continue to be vigilant with our expenses as we look for profitable growth to bring improved scale benefits across our E&S business, especially.

But with that, I would like to turn the call back over to the operator to open the line for any questions.

[Operator Instructions] And we have not received any questions from any of our analysts. I'll be turning the call back over to Frank D'Orazio, our CEO, for closing remarks.

Thank you, operator, and many thanks to those of you who are able to join our call this morning.

To conclude, we're pleased with how the organization performed in 2025, particularly given the competitive market we're operating in. The progress we've made reflects a continued focus on bottom line profitability. And with new leadership in place across the organization, we're motivated and encouraged to perform well in 2026.

Thank you again for your time, and we look forward to speaking to you again in just a few short weeks.

The meeting has now concluded. Thank you all for joining. You may now disconnect.

Good morning. My name is Carrie, and I will be your conference operator today. At this time, I would like to welcome everyone to the James River Group Q3 2025 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Bob Zimardo with Investor Relations. Please go ahead.

Thank you, operator, and good morning, everybody, and welcome to the James River Group Third Quarter 2025 Earnings Conference Call. During the call, we will be making forward-looking statements. These statements are based on current beliefs, intentions, expectations and assumptions that are subject to various risks and uncertainties, which may cause actual results to differ materially. For a discussion of such risks and uncertainties, please see the cautionary language regarding forward-looking statements in yesterday's earnings release and the risk factors of our most recent Form 10-K and other reports and filings we have made with the SEC. We do not undertake any duty to update any forward-looking statements.

In addition, during this presentation, we may reference non-GAAP financial measures. Please refer to our earnings press release for a reconciliation of these numbers to GAAP, a copy of which can be found on our website.

Lastly, unless otherwise specified for the reasons described in our earnings press release, all underwriting performance ratios referred to are for our continuing operations and business that is not subject to retroactive reinsurance accounting for loss portfolio transfers.

I will now turn the call over to Frank D’Orazio, Chief Executive Officer of James River Group.

Thank you for that introduction, Bob. Good morning, everyone, and welcome to James River's Third Quarter 2025 Earnings Call. I'm pleased to be joining you today on this election day morning and would like to start by emphasizing the fact that we feel a focus on profitability above all else, is a critical North Star for success in a transitioning property and casualty marketplace. We believe the underwriting and derisking actions that we've taken throughout James River demonstrate that commitment and the fruits of our labor are beginning to show up in our operating results, specifically in the company's bottom line performance that we'll discuss today. As usual, I'll start the conversation, and we'll turn it over to Sarah before we open up the discussion for questions.

We ended the third quarter with an annualized adjusted net operating return on tangible common equity of 19.3%, well above our mid-teens return target and with $0.32 per share of adjusted net operating income. Notably, tangible common book value per share has grown 23.4% year-to-date. Our group combined ratio of 94% is down over 40 percentage points from the 135.5% reported in the third quarter of 2024 and also down more than 4 percentage points compared to the 98.6% we reported in the second quarter of this year. We're very proud of our deliberate efforts to significantly reduce our expense ratio now at 28.3%, reflecting a decrease of more than 3 percentage points compared to the prior year quarter and 2 percentage points lower than our second quarter this year.

Since the start of the year, we have taken actions to make lasting changes and increase efficiency across our organization with savings largely attributed to headcount and professional fee reductions. These savings, coupled with the impact of our anticipated redomicile have created material and tangible efficiencies for the company going forward. In a few minutes, Sarah will provide additional context and detail regarding these actions.

As alluded to, James River continues to build a resilient E&S business that prioritizes profitability. This focus is extremely relevant in today's transitioning market where competition continues to increase, particularly in larger accounts and across property risks where rate pressures persist. While our portfolio is not immune to these headwinds, we remain constructive on the market opportunity ahead given our positioning, which emphasizes small- to medium-sized casualty risks and specialty third-party lines with limited property exposure. As we have previously discussed, we continue to be intentional in our shift to smaller accounts with lower average premiums, which we believe have historically proven to be more profitable than larger account segments of the market.

Our segment leadership reorganization now complete has created a more agile structure focused on improving speed while driving execution and accountability. Underwriting teams have leaned into smaller accounts and delivered strong performance in our specialty divisions. Empowered by technology and data, our underwriters are acting decisively and efficiently with continued overwhelming support from our wholesale broker partners. While our innovation journey continues, we're focused on streamlining our workflows with the benefit of technology and greater efficiency in our underwriting operations.

In our E&S segment, we remain focused on profitable underwriting production, business mix improvements and appropriate underwriting governance. Year-to-date, rates are up 11% across casualty lines in the aggregate, moderating since last quarter, but still comfortably in excess of our view of loss cost trends. For the quarter, casualty rates increased 6.1% with notable gains in commercial auto at plus 29.8%, energy at plus 19%, excess casualty at plus 10% and general casualty at plus 7.9%. Submission volumes, which rose 3% over the prior year quarter, are up nearly 5% year-to-date, while our average renewal premium size is down 12.7%, also year-to-date.

Over the past several years, we've worked diligently to refine our underwriting appetite, institute tools for better performance monitoring and further embed the culture of enterprise risk management throughout the organization. These efforts are paying off, particularly in the most recent accident years. After 33 months, the reported loss ratio for the 2023 accident year reflects a 21% improvement compared to 2020 despite a significant increase in earned premium. Claim count decreases for the same period are in the low to mid-teen percentages as well. This performance gave us the confidence to modestly increase our net retention at our midyear reinsurance treaty renewal. This quarter, the E&S net retention on the portfolio exceeded 58% for the first time in over 2 years, up from 56% in the same quarter last year.

From a production standpoint, gross written premiums declined 8.9% compared to the prior year quarter. However, production dynamics were not uniform in the segment. 6 of our 15 underwriting departments showed growth led by our Specialty division, which grew by 4% in aggregate compared to the prior year quarter and includes Allied Health, Energy, Environmental, Life Sciences, management liability and professional liability. Within Specialty, Allied Health has now grown 20-plus percent for a second consecutive quarter, while Energy and Life Sciences grew at 16% and 10%, respectively. These departments are delivering strong performance with what we believe are attractive margins, and we're encouraged by the continued opportunity these divisions hold.

Our Excess Casualty and general casualty portfolios were down 4% and 2%, respectively, reflecting increased competition as well as our intentional focus on smaller accounts and in Nexus Casualty specifically, our more conservative positioning on large commercial auto fleets, acknowledging many of the same unattractive dynamics that market competitors continue to report. Although a small line of business for us, rates were down 19.6% and subsequently, gross premiums decreased by 38.2% in our excess property unit, where for the second year in a row, we continue to see greater market pressures than anywhere else in our portfolio due to a significant increase in market appetite and capacity. However, the biggest driver of decreased production for the segment in the quarter was in our Manufacturers and Contractors division, which decreased its gross premium writings by 30% or $13.5 million.

While we have seen increased competition in certain pockets of the market, this is an area where we have taken direct underwriting response to an increased frequency of low severity claims over the last several quarters despite frequency being down across our other 14 underwriting departments. While we believe some of the increased frequency may be attributable to the Florida statute change introduced last year, we've taken deliberate actions to reduce our exposure to subcontractors serving the tracked home building space as we believe this subclass has been a driver of the uptick we've experienced in low severity frequency.

As mentioned, while E&S gross premiums declined by 8.9% in the quarter, net earned premium grew 1%, which helped to drive $16.4 million in underwriting income and a much improved 88.3% combined ratio. Our accident year loss ratio of 63.5% was 1.2 points lower than the prior year quarter simply due to business mix, but consistent on a year-to-date basis. As our press release highlighted, during the quarter, we completed our annual detailed valuation review or DVR process. As a reminder, the DVR is the first principles ground-up review of all assumptions and selections underpinning our E&S segment's reserve base. By definition, our actuaries complete this in-depth study once a year during the third quarter. This review of our entire E&S reserve balance provides a detailed analysis of the assumptions underlying reserves, adding additional rigor to our internal quarterly actuarial processes. While the company has long completed its DVR parameter process during the third quarter, this is the third annual review of what has evolved into a much deeper and more granular process.

The outcome of our DVR process is a $51 million charge in accident years 2022 and prior, which we ceded to the legacy covers that we purchased last year. The largest portion of the charge is driven by other liability occurrence and product completed operations related to accident years 2020 to 2022. In essence, we feel the legacy covers are serving their purpose as intended, responding to any development from older years as they reach maturity or allowing for the company's more recent years to age favorably given the numerous underwriting actions and positive indicators reflected in those years. I should point out that while it varies by line of business for the majority of our portfolio, our tail continues to be characterized as 75% developed at about 5 years, meaning that the underwriting years of concern, 2022 and prior are largely already at that vintage or older. we continue to see a stark contrast in the indicators and performance of the portfolio between the 2022 and prior years and the positive performance trends of the more recent accident years of 2023 forward.

Claims frequency is meaningfully down in those most recent years as our incurred losses despite meaningful portfolio growth since 2020. Importantly, we have not experienced any adverse development for the period of 2023 through the current accident year, and our diagnostics continue to substantiate our favorable view of those years.

Moving on from E&S. As discussed in prior quarters, we are actively managing our specialty admitted fronting business with a focus on expense management and significantly reduced net retentions as we take meaningful underwriting actions based on our view of the sector's dynamics and a decisive shift away from commercial auto. As a result, segment expenses have declined 44% year-to-date as we've continued to manage expenses aggressively while also reducing our net premium retention to below 5% this quarter. Despite the reductions in both gross premiums and net retentions, we continue to renew programs that meet our underwriting criteria while selectively reviewing new opportunities.

Looking ahead, our strategy remains sharply focused on profitability. We expect to maintain discipline, continue our deliberate mix shift towards smaller, more profitable accounts and uphold underwriting guardrails in challenging areas. We are closely monitoring casualty pricing trends, submission velocity and quote-to-bind efficiency to ensure we remain data-driven and responsive to market signals. Expense management will remain a core area of focus as we seek to improve operational leverage without compromising the quality of our underwriting or claim service.

Now I'll turn the call over to Sarah to expand on several of the areas that we referenced this morning before we open up the call to questions.

Thanks very much, Frank. Good morning, everyone, and thanks for joining us today. We continue to make notable progress on our strategic goals through 2025 in our efforts to increase lasting operating efficiency while demonstrating the stability of our balance sheet. This quarter, we're reporting a small net loss from continuing operations available to common shareholders of $376,000 or about $0.01 per diluted share. On an adjusted net operating basis, we're reporting $17.4 million or $0.32 of income per share. As Frank mentioned, our annualized operating return on tangible common equity for the quarter was 19.3% and tangible common book value per share increased 23.4% from the start of the year to $8.24 a share as we've made meaningful strides to grow our capital base.

Strong investment results and a meaningful improvement in AOCI from market interest rate reductions this quarter provided some uplift. Our third quarter combined ratio of 94% consists of a 65.7% loss ratio and a 28.3% expense ratio much improved from the 135.5% we reported in the prior year quarter, and that's really driven by strong performance across our E&S segment. On a year-to-date basis, we reported an expense ratio of 30.5%, which is below our full year 31% target. Just as a reminder, we started the year with an expense ratio of 32.7%. Year-to-date, we've recorded lasting savings of about $8 million coming out of all 3 of our reportable segments, E&S, Specialty Admitted and Corporate. The largest area of reduction has come from reduced compensation expense across the group. And notably, we began the year with 640 full-time employees and had 590 or 50 fewer by the end of the third quarter.

We've also reduced costs meaningfully in areas like rent and professional fees. The 28.3% group expense ratio this quarter is more notable given the decline in gross written and net earned premium quarter-over-quarter, up 28% and 7%, respectively.

Reviewing by segment, quarter-over-quarter, E&S had a $3 million G&A reduction, Specialty admitted about $2.5 million; and corporate, a little over $1 million. Year-to-date, corporate expenses have declined 7.5% compared to the same period in 2024, well within the 5% to 10% decline in corporate expenses we're working towards for the full year.

And finally, on expenses, our planned redomicile to bring our holding company from Bermuda to Delaware is expected to be complete this coming Friday, November 7. That will bring significantly more expense benefits via a more efficient structure and a lower expected effective tax rate. We expect that this transition will be meaningfully accretive to our fourth quarter earnings and going forward, bring our effective tax rate closer in line with the U.S. statutory rate. As mentioned previously, the redomicile is expected to bring a onetime tax savings of $10 million to $13 million during the fourth quarter of 2025 and ongoing quarterly expense savings of between $3 million and $6 million going forward.

Let me quickly wrap up my comments with investments. We reported $21.9 million of net investment income, up from $20.5 million in the previous quarter. The portfolio remains conservatively positioned with an average credit rating of A+ and a duration of 3.4 years. We've been strategically reducing our allocation to cash and short-term investments during the year taking advantage of strong relative value opportunities across our fixed income allocation, where we've been putting money to work at an average book yield of 5.2%, which is well above our current book yield of 4.5%. And we've been doing this while not sacrificing credit quality. I do expect a more favorable quarter-over-quarter comparison of NII next quarter, given the impact from the payment of the retroactive structures that we purchased in the second half of 2024.

With all that, I'd like to turn the call back over to the operator and open the line for questions.

[Operator Instructions] Your first question will come from Mark Hughes with Truist Securities.

Frank, you had spoken about the recent accident years, 2023 and forward, you're seeing a much more favorable loss experience. Any way to distinguish how much of that might be just your underwriting actions versus the broader market trends perhaps in the last couple of years?

Thanks, Mark. I think our view is it's heavily tied to the underwriting actions that we took. It's such a dichotomy in terms of experience. We kind of went through the number just relative to the decrease in claim counts as well as the reduction in incurred losses. So if you remember, we instituted a number of sublimits and exclusions. We exited certain classes. We really, at the same time, also improved our performance monitoring and the rate in which we do that and some of the processes relative to feedback loops within the organization. So I would say it is directly tied to the underwriting actions we've taken as well as the rate environment. So we have been able to produce rate in excess of our view of loss trends. So that obviously helps as well.

Yes, very good. Sarah, did you provide any sort of expense ratio target? I think you may have commented on that in the past. But with the improvement this quarter, it sounds like more expense savings flowing through the P&L. Is there a particular target you've got in mind?

Yes. Thanks, Mark. I think our full year target is consistent with what we've said a couple of quarters ago, and that's 31%, which would be certainly down from where we started the year at 32% and change. So I still feel very good about that. I'm obviously hesitating a little bit because we're doing this while we're making the underwriting changes, which has pushed down net earned. So I'm much more focused on the dollars we've taken out of the organization because I think those dollars have permanently left the organization than the ratio because I think the ratio also is going to miss the tax savings and the additional benefits that we're getting through the red. But a long way of saying, I still feel good about 31%, but I think there are other levers there that tell the story in a more effective way as well.

And then excess property, I know it's small in your book. Rates are down, business is down. What's your judgment about where that stands now? It was obviously a light storm season. Is that business continuing to see further declines and not your book necessarily, but just kind of your judgment of market conditions? Is it softening further here in the fourth quarter? Or is that maybe stabilized?

Yes, Mark. Well, I think you kind of alluded to it. I mean the industry U.S. property losses, the experience this year is certainly well within most carriers' plans. So my expectation would be from a rate environment perspective, I would expect more of the same, so double-digit rate decreases. We're also seeing some loosening up of terms and conditions. So just plenty of capacity out there, whether it's carrier, MGA and MGU. So I guess the wildcard would be that if something significant, very significant, like $50 billion event type significant happen between now and year-end, that could be perhaps a game changer to kind of slow down the rate of the aggression in the property marketplace. But right now, that's what we see. We're kind of thinking more of the same.

Your next question will come from Brian Meredith with UBS.

A couple of questions here for you. First, I'm just curious, the reserve charge that took that went to the ADC cover, the lines of business that, that was involved in, how much of that business are you still writing today? And was anything kind of learned through that study that maybe affected your kind of thoughts on what you're underwriting today and how you're booking stuff?

Yes. Sure, Brian. Let me take a crack at that. So we're talking about primarily the charge being driven by other liability occurrence and product completed operations from 2020 to 2022. The other liability occurrence primarily was non [indiscernible] space. These are lines of business that we're still in, so that would include energy, sports and entertainment, some elements of general casualty and then the product completed operations charts clearly coming out of MC. I'll draw a direct kind of parallel to the actions that we're taking first in MC. We've done a pretty deep analysis of what we see as an increase in low severity claims over the last, call it, 1.5 years or so and have made the decision to take some significant underwriting actions relative to tracked homebuilding in a number of different states.

So we're not necessarily exiting the class, but we've got certain prohibited applications that we're paying attention to and a number of guidelines relative to the class. So I would say that's already in process. And I would say relative to the OLO, the other liability occurrence, those are changes that have been kind of, I think, already recognized and built into the organization over the last couple of years of underwriting changes that we've really started commencing at the end of '22.

Great. And then the second question, I'm just curious, maybe you can provide some outlook and what you think the ultimate happens with your Specialty Admitted segment. I mean it looks like it's shrunk pretty meaningfully.

It has, Brian. And so we developed a view that we wanted to significantly reduce the commercial auto exposure in the portfolio based on our view of the behavior in the sector as well as the rated reinsurance market appetite, and we wanted to take less risk there. So we've greatly reduced our net retentions, and that view has not changed. You kind of see that playing through from quarter-to-quarter. We have -- I would say we've kind of picked our horses, so to speak, and have a handful of active programs today, mostly fully fronted. We feel like they're on a very solid footing and stable with low net retentions.

We're now less than 5% in terms of retention. It's a far cry from where we've been in the past and certainly, I would say, a fraction of where probably the rest of the sector is. And we're continuing to focus on expense management. So as you know, the segment capital contributes fairly meaningfully to net investment income, circa, call it, 20% or so. And so we've shown and stated in the past that we'll continue to manage the business to take advantage of what we view as profitable opportunities that meet our criteria.

Got you. I was just wondering, it's getting so small, just the relevance of that business in the marketplace? And does it make sense in even being in it?

I think we're tag teaming on the question, Brian. I think we're -- the way that we thought about managing the segment, we're certainly still in it. We're getting inquiries into it. We've got active programs, but we're managing it for profitability. So to Frank's point, getting the retention is actually at 3.7% this quarter, managing the expenses. We've taken over 1/3 of the expenses out of it. I think that there's very little that we're able to or have to continue to invest in it to keep it online. I would also say is that the last thing I'd say is I think those profitability ratios that you're probably looking at as well, they've become, I think, less important indicators of the health of the business when you see net written premium drop 94% quarter-over-quarter.

So as we look at this to manage net investment income and to focus on the rest of our business, it's not much of an effort as we've continued to move forward there.

Yes. And I guess if I just one final word on it, Brian. Our track record, I think, has demonstrated that we regularly evaluate all of our businesses and underwriting units to make sure they fit our corporate goals and objectives and it's just good stewardship, and we'll continue to do that.

There are no further questions at this time. And I'll turn the call back over to management for any closing remarks.

Thank you, operator. As we approach the end of 2025, it's worth reflecting on the transformation this company has undergone. Our experienced and reenergized leadership team continues to build and improve James River, distinguished by underwriting profitability while flexibly reallocating capital to the most attractive opportunities as market dynamics evolve. I'm pleased with our continued progress as an organization. With every passing quarter, we're seeing the demarcation between the company's legacy performance and the more recent accident years characterized by significant underwriting changes and marked improvement in performance. Our primary goal remains to enhance shareholder value through consistent and deliberate execution over the years ahead.

Thank you to all for listening to the call today. We look forward to speaking to you again in a few months.

Thank you for your participation. This does conclude today's conference. You may now disconnect.