AM Best Revises Outlooks to Negative for James River Group Holdings, Ltd. and Most Subsidiaries; Downgrades Credit Ratings of JRG Reinsurance Company, Ltd.
AM Best Revises Outlook to Negative for James River Group Holdings, Ltd. (NASDAQ: JRVR)
Negative
The negative outlook reflects the uncertainty and execution risk associated with the recent announcements of identified material weakness in internal control, sale of JRG Re, and exploration of strategic business alternatives.
The revision of outlooks to negative and the affirmation of the Financial Strength Rating (FSR) and Long-Term Issuer Credit Ratings (Long-Term ICR) for James River Group Holdings, Ltd. (JRG Holdings) subsidiaries, alongside the downgrade of JRG Reinsurance Company, Ltd. (JRG Re), presents a nuanced picture of the company's financial health. The negative outlook suggests potential concerns about the company's future performance and the impact of strategic decisions, such as the sale of JRG Re and exploration of business alternatives. Investors and stakeholders should be aware of the increased risk implied by these changes and closely monitor the company's strategic moves and their effects on its financial stability and market position.
The sale of JRG Re at a price below book value indicates a potential loss on investment for the shareholders and could reflect broader issues within the company's operations or strategy. The suspension of underwriting at JRG Re due to operating losses further underscores operational challenges. The raised execution risk associated with these strategic initiatives may affect investor confidence and could lead to volatility in the company's stock. It is crucial for stakeholders to evaluate the long-term implications of these changes on the company's financial performance and risk profile.
AM Best's rating actions reflect a comprehensive assessment of JRG Holdings' balance sheet strength, operating performance, business profile and enterprise risk management (ERM). The balance sheet strength of the subsidiaries is still considered very strong, which is a positive sign for the company's financial resilience. However, the marginal ERM and adequate operating performance may be areas of concern that could impact the company's ability to adapt to market changes and manage risks effectively.
For industry stakeholders, the negative outlook and the rating downgrade of JRG Re suggest a realignment within JRG Holdings' strategic focus. The decision to sell JRG Re and consider strategic business alternatives can be seen as a move to streamline operations and focus on core areas that may offer better growth prospects. This strategic shift could have implications for competitors, as JRG Holdings may emerge as a more focused entity or potentially integrate with another player in the market.
The identification of a material weakness in internal control over financial reporting is a significant concern, as it may indicate deeper issues in governance and risk oversight. Such weaknesses can lead to inaccurate financial reporting, which in turn can affect investor trust and the company's cost of capital. The revision of outlooks to negative reflects the heightened uncertainty and risk that these governance issues introduce.
Furthermore, the company's marginal ERM rating points to potential vulnerabilities in its approach to identifying, assessing and managing risks. For a reinsurance company, robust ERM practices are critical to maintaining financial health and market confidence. The marginal rating and recent strategic decisions may signal a need for JRG Holdings to strengthen its risk management framework, which could involve significant changes to policies, procedures and corporate culture.
12/20/2023 - 09:25 AM
OLDWICK, N.J. --(BUSINESS WIRE)--
AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” (Excellent) of most of the rated operating subsidiaries of James River Group Holdings, Ltd. (JRG Holdings) [NASDAQ: JRVR]. In addition, AM Best has revised the outlook to negative from stable and affirmed the Long-Term ICR of “bbb-” (Good) of JRG Holdings. Concurrently, AM Best has downgraded the FSR to B++ (Good) from A- (Excellent) and the Long-Term ICR to “bbb+” (Good) from “a-” (Excellent) of JRG Reinsurance Company, Ltd. (JRG Re). Concurrently, AM Best has placed JRG Re’s Credit Ratings (ratings) under review with negative implications. JRG Holdings is domiciled in Pembroke , Bermuda , while its subsidiaries are based in Pembroke , Richmond, VA , and Raleigh, NC . (See below for a detailed listing of the subsidiaries.)
The ratings of JRG Holdings’ subsidiaries reflect their balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and marginal enterprise risk management (ERM).
These rating actions follow JRG Holdings’ recent announcements that it has identified a material weakness in its internal control over financial reporting, it will sell JRG Re and it will explore strategic business alternatives for the organization. As part of this process, the board stated that it will consider a wide range of options including, among other things, a potential sale, merger or other strategic action. The negative outlook reflects the uncertainty that these announcements will have on the organization, whilst also reflecting the execution risk associated with some of these initiatives.
The ratings of JRG Re reflect the company’s balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, limited business profile and marginal ERM. The ratings also benefit from lift that is attributable to operational and past financial support from JRG Holdings.
The rating downgrade of JRG Re reflects AM Best’s view that the company is less integral to JRG Holdings’ strategic, operational and financial objectives. This view is supported by management’s decision to suspend underwriting business in JRG Re earlier this year following operating losses over the past several quarters. Furthermore, JRG Holdings recently announced that it had entered into a definitive agreement to sell JRG Re to Fleming Intermediate Holdings LLC at .75x the book value of JRG Re at closing.
JRG Re has been placed under review with negative implications. Pending required regulatory approvals, the transaction is expected to close during the first quarter of 2024.
The FSR of A- (Excellent) and the Long-Term ICRs of “a-” (Excellent) have been affirmed with the outlooks revised to negative from stable for the following subsidiaries of JRG Holdings:
James River Insurance Company
James River Casualty Company
Falls Lake National Insurance Company
Stonewood Insurance Company
Falls Lake Fire and Casualty Company
Carolina Re, Ltd.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings . For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments .
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States , the company does business in over 100 countries with regional offices in London , Amsterdam , Dubai , Hong Kong , Singapore and Mexico City . For more information, visit www.ambest.com .
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Source: AM Best
What are the recent rating actions for James River Group Holdings, Ltd. (NASDAQ: JRVR)?
AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” (Excellent) of most of the rated operating subsidiaries of James River Group Holdings, Ltd. (JRG Holdings) [NASDAQ: JRVR].
Where is JRG Holdings domiciled and where are its subsidiaries based?
JRG Holdings is domiciled in Pembroke, Bermuda, while its subsidiaries are based in Pembroke, Richmond, VA, and Raleigh, NC.
What are the recent announcements made by JRG Holdings?
JRG Holdings has identified a material weakness in its internal control over financial reporting, it will sell JRG Re, and it will explore strategic business alternatives for the organization.
What is the reason for the negative outlook on JRG Holdings?
The negative outlook reflects the uncertainty that the recent announcements will have on the organization, whilst also reflecting the execution risk associated with some of these initiatives.
What is the recent rating downgrade for JRG Re?
AM Best has downgraded the FSR to B++ (Good) from A- (Excellent) and the Long-Term ICR to “bbb+” (Good) from “a-” (Excellent) of JRG Reinsurance Company, Ltd. (JRG Re).
What is the reason for the rating downgrade of JRG Re?
The rating downgrade of JRG Re reflects AM Best’s view that the company is less integral to JRG Holdings’ strategic, operational, and financial objectives.
What are the recent developments related to the sale of JRG Re?
JRG Holdings recently announced that it had entered into a definitive agreement to sell JRG Re to Fleming Intermediate Holdings LLC at .75x the book value of JRG Re at closing. Pending required regulatory approvals, the transaction is expected to close during the first quarter of 2024.
Which subsidiaries of JRG Holdings have had their outlooks revised to negative?
The FSR of A- (Excellent) and the Long-Term ICRs of “a-” (Excellent) have been affirmed with the outlooks revised to negative from stable for the following subsidiaries of JRG Holdings: James River Insurance Company, James River Casualty Company, Falls Lake National Insurance Company, Stonewood Insurance Company, Falls Lake Fire and Casualty Company, and Carolina Re, Ltd.
