Thank you, operator. Good morning, everyone. And welcome to the James River Group third quarter 2020 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 section of our most recent Form 10-K, Form 10-Qs and other reports and filings we make with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements.

Thanks very much, Kevin. As Kevin said, I'm here with Sarah Doran, who's our Chief Financial Officer; and Bob Myron, our Chief Operating Officer, and we're looking forward to answering your questions in a minute. Before we do that, we'd like to set the stage with a few observations about our quarter and about market conditions in general. This is one of the most favorable markets I've witnessed in 30 years. The E&S business, which is at the core of our franchise is growing with more policies in force, substantially higher rates, and lower loss cost. We wrote 28% more E&S premium this quarter than in the prior year. New submissions were up by 9% in E&S and renewal submissions were up 27%. The increase in renewal submissions is an indication that standard companies continue to retrench and are not seeking to move accounts from the E&S market to the standard market. We're selective underwriters and 8 of our 12 E&S underwriting divisions grew. Trailing 12-month Core E&S premium is $615 million, a 91% increase over the same period just 2 years ago. We continue to be able to get more rate per unit of exposure. This last quarter was the 15th quarter in a row that we've reported significant rate increases. In 8 of these 15 quarters, renewal rate increases on our E&S business have been greater than 5%. In every quarter this year, rates were up over 10%, and this quarter, rates were up 12.8%. An already hard market continues to gain strength. Year-to-date, our policies in force have increased by 26%. And while we're growing both premium and policy, claims counts in Core E&S are down 15% this quarter compared to 2019. In the most recent months, claims frequency has been dropping rather precipitously. New claims count within E&S were down 18% in April, 31% in May, 15% in June, 11% in July, 23% in August, and 9% in September, and 32% through mid-October. This drop in claims count is all the more notable as we have more policies in force than in prior years and earned premium from Core E&S is increasing. Core E&S claims counts per $1 million in earned premium through the third quarter are 30% lower than the 3-year average between 2017 and 2019. So obviously, these trends bode very well for the future. Our fully developed core E&S loss and LAE ratio from 2003 through 2017 is 54.4%. We're carrying the 2018 through 2020 years at a 65.5% loss in LAE ratio. Our calendar year paid and reported loss ratios in Core E&S is 24% on a reported through 3 quarters. These are among the lowest reported and paid ratios since 2005. Our expense ratio is 24.8% this quarter, down from over 30% in the first quarter. Sarah will speak in a moment about more about this positive trend in expenses. So we reported a combined ratio of 85.2% for the E&S division after adding approximately $10 million to reserves for the runoff of the large commercial account canceled at the end of last year. We raised reserves in the runoff book because in September, we observed a spike in medical cost. This unexpected rise in cost seems to be the result of people with non-life-threatening injuries having postponed surgeries and inpatient treatments due to concerns about being in a hospital or a surgical clinic during the pandemic. We continue to close claims rapidly in this runoff book. And as of quarter end, we've closed slightly more than half the claims outstanding at December 31, 2019. And at this point, we have roughly 2% of the open claims that we ever received from the commercial auto accounts. So this is moving out rapidly. Our rapidly growing and very well-priced book of E&S premium can absorb spikes in the runoff costs while still delivering very strong returns to shareholders and maintaining our 65.5% loss in LAE ratio from 2018 to 2020. In this quarter, we were particularly glad that our focus on casualty business allowed us to avoid significant exposure to, or losses from, the very difficult hurricane season or from COVID-19 losses. At the same time, the large industry losses from these events will tend to reinforce the attractive pricing we're benefiting from. Our specialty admitted segment is also gaining traction. Third quarter gross written premiums were 12.1% higher than a year ago. We've added 8 new programs within the segment over the course of 2020. Three of these new programs have already added $15.4 million in gross premiums through 3 quarters. And many others are just beginning to produce premiums and fee income, and we enjoyed a 22.8% increase in fee income in the first 3 quarters. Our net retention of gross written premiums in our specialty admitted segment is under 15%. We're developing partnerships in which while we retain some risk to align our interest with reinsurers, we're focused on earning fee income. Year-to-date, our return on equity in the specialty admitted segment is in the low double digits. Having developed our sea legs in this division, we're directing our marketing efforts toward larger fronting programs, we believe the margins from this business, already good, can still improve. Within the specialty admitted segment, we've reduced net written premiums from workers' compensation policies by about 1/3 as we feel pricing in that area of the market is a little soft. In our Reinsurance Division, we wrote $91 million in gross written premiums through 9 months, which was a 21% reduction compared to last year. Some of that reduction is only a timing difference as the renewal moved from the third to the fourth quarter. The reinsurance segment has reported a 102.1% combined ratio for the quarter. Pricing in this segment is improving, and our internal study shows renewal rate increases, including changes in terms and conditions of 4.3%, 6.4%, and 8.7% in 2018, 2019, and year-to-date 2020, respectively. I'd now like to address some important and very good news for our company. We announced last evening that Frank D'Orazio, formerly the Chief Operating Officer and Chief of Staff to the CEO with Allied World, will become CEO of James River next week. Some of you will recall that I retired previously and returned in August of 2019. Our company is in a very good position, thanks to the hard work of all my colleagues. We are in a rising market, and it really seemed to me that this was a good time to introduce a new CEO who can make the transition when we are enjoying great momentum. The board conducted a very broad search and attracted many highly qualified candidates. I'm very pleased Frank will be taking the helm. I suspect some of you on this call may already know him. He has tremendous depth as an executive, having run large profitable insurance operations in the U.S. and from Bermuda. His management style and experience fit our culture. He's an underwriter by training, and he has a long history of building successful underwriting businesses. He is keenly aware of the opportunity the hard market presents. Frank and our team have already begun to work on the transition. I will remain as non-executive Chair of the Board and look forward to supporting Frank and his executive team. I have no doubt we are in very good hands. I anticipate over time under Frank's leadership and with the support of the terrific James River team, we will become even more profitable and demonstrate more capabilities than we do today.

Thanks, Adam. Let me highlight a few of the financial points from the quarter. Last night, we reported third quarter operating earnings of $0.56 per share and year-to-date annualized adjusted net operating return on average tangible equity of 11.9%. As Adam said, market conditions are very attractive for our business. And while still early, revenue has exceeded our early estimates at the start of the pandemic. First, expenses. Our expense ratio decreased to 24.8% this quarter as compared to 34.2% in the first quarter of this year and 29.2% year-to-date. We mentioned on prior calls that we've been working to reduce expenses and gain efficiency. The ratio also benefited from strong growth in lines where we cede significant premium for attractive ceding commissions such as excess casualty in our E&S segment. Gross premiums written in excess casualty have increased over 85% year-to-date from the third quarter of 2019, as rate increases in that line have been either the highest or among the highest across our E&S book. As it's our largest line of business in E&S, it's also pushed the retention ratio in that segment down to 60% this quarter. The expense ratio has also benefited from the offset of sliding scale commissions in our casualty reinsurance portfolio this quarter. We expect that our expense ratio for the full year will be close to our year-to-date figure. Moving on, this quarter, we posted a loss ratio of 69.4% and accident year loss ratio of 66.6%, largely in line with the balance of this year despite powerful rate increases, low loss emergence, and meaningfully reduced claims frequency. As Adam highlighted, E&S renewal rate increases were 12.8% this quarter and have increased 30% cumulatively since the start of 2017. Reported losses have remained benign for multiple quarters falling again this quarter. Core E&S continues to make up approximately 75% of the company's net written premiums and close to half of our $1.3 billion of net reserves. As Adam mentioned, we added $10 million of reserves to our large commercial auto account in runoff this quarter but had a similar level of reserve takedowns from our core E&S book, which continues to run very well. The reserve increase relates to the 2017 and 2018 years. We have continued to close claims rapidly on this block, closing 14% this quarter and are receiving very few new claims at this point, almost a year into the runoff. Through nine months of the year, as Adam said, open claims for all years of the account represented 1.7% of total reported claims for the account. At the end of the fourth quarter of 2019, by comparison, open claims for all years of the account represented 5.2% of reported claims. Of our approximately $1.3 billion of total group-wide net loss reserves at quarter end, approximately $300 million supports the runoff block of business. This quarter, we had $12.9 million of favorable development from our core E&S business, emanating from the years 2019 and prior. As Adam said, we continue to hold the most recent 3 years of our Core E&S business at a loss ratio of 65.5%. We had adverse development of about $6.2 million in our casualty reinsurance book, but $2.9 million of this was offset by sliding scale commission adjustments, which come through the expense ratio. The development was concentrated in a few treaties related to general liability and non-standard in commercial auto business, much of which we no longer write. We also had $2 million of favorable development in our individual risk workers' compensation business within our specialty admitted segment. Finally, on investments. Net investment income for the third quarter was similar to last quarter at $15 million, a decrease from the same quarter last year, largely due to lower income from our bank loan portfolio and to a lesser degree, from our renewable energy portfolio. We sold about $100 million of our bank loan portfolio back in the second quarter, and the impact of that has been to reduce gross yield on the portfolio. This quarter, our gross yield was 3.2% or about 70 basis points reduced from the third quarter of 2019. Returns on our renewable energy portfolio were decreased due to the manager's revaluation of the assets, which flowed through to us. Both investments have benefited us well for many years. Lastly, I know I speak for my colleagues when I thank Adam for his deep strategic and entrepreneurial insight, his thoughtful and energetic leadership, and generous friendship. He and Bob have led us on a path of success, and we look forward to more ahead. I've had the benefit of working with Frank, and I'm very excited to welcome him as our CEO.

Thank you, Sarah. And operator, we're ready to take questions if there are any.

Our first question comes from Mark Hughes from Truist.

The claims frequency statistics you provided are very interesting. Any judgment you formed about what is causing that? Are these delayed reports that are going to come later? What kind of influences your thinking one way or the other about how material this is to the business?

I believe this situation is quite significant. We are discussing claims from our Core E&S book, and I don't anticipate any changes in the speed or pattern of claims reporting. I believe the frequency of claims is decreasing, likely due to the ongoing pandemic. While we regret the decline in economic activity and its implications, it has resulted in fewer events that lead to claims. Therefore, the reduction in claims we are observing is not a matter of deferral; it suggests that claims will not emerge later. Although every portfolio experiences late-reported claims, this has never posed a significant issue for our business model due to the types of layers we underwrite, primarily writing primary layers. I think this indicates that the cautious reserve we maintain at 65.5 will perform very well, potentially making these years some of the best in our history.

There were increases in medical costs in the runoff reserves in September. You noted that there was a delay in treatment. How has that situation evolved in recent weeks? Do you have more information regarding the duration of this increase in expenses?

Yes. Early in the quarter, we didn't see it, but it emerged in the last couple of weeks of September. We reacted quickly to it. We are actively trying to gather this information as soon as possible, even though it can be a bit challenging at times. I want to add that, concerning our growing Core E&S book and the way we're managing our reserves for the years 2018 to 2020, I feel confident about our status in that runoff. Although we moved swiftly in response to a small piece of data, I’m not overly concerned about it, especially given the significant reduction in both claims count and the percentage of open claims.

Understood. Then one more question on small business. There's been a lot of question about the impact of COVID on small business. What does that mean for a small mid-sized account, E&S underwriters? Any observations you got about the small business trends?

Yes. We are seeing growth in our small business sector, which, while performing well, is not our primary focus and remains a smaller division within our company. Our average premium in casualty stands at approximately $23,000, whereas the average premium for our small business division is significantly lower and constitutes a minor portion of our overall portfolio, although it is growing. The recent stimulus packages have positively impacted small businesses, likely more so than other areas of our portfolio. I am optimistic that there will be more stimulus support after the election, but if that doesn’t happen, I don't foresee it having a significant impact on our business. This is because small businesses represent a relatively minor part of our total E&S premium, and the industry's capital constraints are the main drivers behind the rate increases, along with the prior year development seen in announcements from various companies.

And this is Bob Myron. Let me just add a comment there. Within our small Business division, probably the biggest class therein is really small contractors. As Adam said, that continued to be fine from a production standpoint during the quarter. In our General Casualty Division, not surprisingly, we did see a decline in some bars, restaurants, and taverns, but the other major part of that division is habitational related risks. There is tremendous demand for E&S products and very strong pricing power in that space. Bars, restaurants, and taverns are not a huge part of that division, Mark.

I want to echo what Bob mentioned. Apologies, Bob, but your excellent point prompted me to double-check a number. Our small business division has grown this quarter, increasing by 25% to reach $6.3 million, so we're not experiencing a decline. This growth is attributed to the many small contractors in that segment. Anyone watching residential development sales knows there has been a significant constraint on those available to build houses, decks, or conduct renovations. Additionally, our General Casualty Division, which handles larger risks, also saw growth, rising by 7.6% this quarter.

Our next question comes from the line of Matt Carletti from JMP.

Adam, could you help us break down the Core E&S business a bit? We appreciate the statistics you provide, which are quite informative. However, I understand that rate increases can fluctuate based on the mix of business in any given quarter. We're also entering a phase where I believe your clients are starting to experience second and third rounds of rate increases, leading to a compounding effect. Can you help us understand which of the various classes of business in E&S you find most promising? Additionally, how do you assess those businesses collectively in terms of absolute pricing compared to historical points, beyond just price changes?

Okay. Let me start with pricing because we have seen significant increases quarter-over-quarter in a book that was already performing well before these increases. I believe these price hikes are benefiting an already strong portfolio, which is healthy due to our strategic choices and the high-quality underwriting from our teams across the company. If it weren't for their expertise, I would feel less confident. They have consistently delivered excellent combined ratios over the years. This quarter, we've seen growth in general casualty, life sciences, manufacturers and contractors, professional liabilities, small business, sports and entertainment, excess casualty, and excess property. The growth in excess casualty particularly helps improve our expense ratio, as does the structure of our excess property. Additionally, it's worth mentioning that we have limited exposure to recent storms, with only about $2 million affecting our loss ratio. We avoid significant catastrophe losses, which applies to our excess casualty lines as well. I believe we are not done with rate increases as an industry. Given our submission and retention rates, I expect this trend to continue. I don't think we have reached the peak yet.

Great. That's very helpful. And congrats on the next retirement; I hope you enjoy it, and very warm welcome to Frank.

And by the way, this transition, I'll just take this opportunity to say we have been working, and the whole team has started working very closely with Frank. We're in the very early stages of it. But this transition is going very well. His management style is just really in tune with the attitudes and underwriting focus that we have as a company. He's fitting right into the culture, and he will bring new skills. And deep experience to the company. He's going to add a lot to our company, and I am really excited about what we're going to see under his leadership.

Our next question comes from Randy Binner from B. Riley.

Yes, Adam, congratulations, and it’s nice to work with you again. Regarding net investment income, I wanted to ask about the changes you mentioned. What can increase that to above the $15 million per quarter run rate? Are there alternative investments, partnerships, or other strategies you can pursue to potentially boost that amount?

Yes. Thanks for the question, Randy. It's Sarah. So it's tough in the old environment that we're all living in right now to push that much above the $15 million a quarter that we've been generating for the last little bit. I do think there are probably some things we could do around the edges. But right now, I think we're trying to manage this interest rate environment as best we can, and I know our competitors are as well. So looking to consider potentially a little bit more risk over the next year or so. But right now, we're pretty comfortable with the portfolio that we have having wanted to de-risk that volatility and focused on our underwriting returns and our attractive opportunities to grow core E&S and all the other things we're doing there. So we view it as a portfolio and a trade-off. And while we're looking for other things, I think the environment is what it is, to some degree at this moment.

Fair enough. I apologize for missing part of the call, but regarding fronting, there is significant focus on E&S, which is justified. Can you elaborate on the fronting aspect? What stage is that opportunity in? Are you seeing increased opportunities there, and what is the demand like? The underlying risk appears to be somewhat different.

We are going to involve Bob Myron in this discussion because he has been closely engaged. We are all very enthusiastic about the progress made by Falls Lake, our specialty admitted group, particularly with the new fee-generating programs due to the small retentions we maintain. We believe this area has grown significantly as a percentage and is already achieving a low double-digit return on equity. However, we feel we are just getting started. Bob, would you like to add your thoughts on the initiatives you and your team have been working on?

Yes, I believe we are still in the early stages. Although we have been working on this for some time, we are continuing to invest significant effort. We have now achieved full excess and surplus licensure and are involved with several statutory entities. One area where we see growth and opportunity is in fronting for excess and surplus related deals and risks, mainly within the commercial line space. There is a strong and increasing demand for our products. One reason we may not have grown as much as desired in the past is that a substantial portion of our gross premiums written in this segment comes from workers' compensation, which has faced challenges in a declining pricing environment. We are closely monitoring classes and exposures, but this shouldn't overshadow the accomplishments of Terry McCafferty and his team, who have secured several new deals this year, with the size of these deals increasing compared to previous efforts. We already have an in-force book of business that can become significantly large once integrated. We will continue to focus on building relationships and developing potential larger transactions, with the group working collaboratively on this. I also believe we will benefit from Frank's contributions in this area. Overall, I think the outlook is positive for meaningful growth and an increase in fee income in the future.

Great. I think of fronting as being more relevant in terms of admitted on the comp side. Can you provide a rough breakdown of your programs currently between admitted and non-admitted?

Yes, I’m not sure if I have that information readily available. I can mention that we are currently underwriting $60 million in gross individual risk workers' compensation business, 70% of which is ceded away, along with $140 million in California workers' compensation-related business. It’s likely that around 70% to 80% of that is from the admitted market. However, the percentage of Excess and Surplus Lines has been increasing.

Our next question comes from Sean Reitenbach from KWB.

Adam, we at KBW, wish you the best, and we're looking forward to getting to know Frank. The rate commentary has been pretty positive, and it's been going on a bit. But do you feel rates are mostly adequate too? Or are there still a few areas that need to see more rate in your book before you would say it's broadly adequate? And maybe how would rates be impacted, do you think, if a corporate tax rate hike becomes increasingly likely?

Yes, if you look at our historical developed loss and loss adjustment expense ratio, you'll see that the rates indicate we've been pricing our business adequately for many years. We've experienced a fully developed loss and LAE ratio of 52.5% over the past 13 years, which suggests our historical book is well priced. The price increases we've seen in the last 15 quarters are enhancing our margins. There is a question of social inflation, but we've focused primarily on the first $1 million, where we have already taken on that exposure, and social inflation is not significantly affecting that layer. Therefore, these rate increases are beneficial and indicate positive future results. Was there a second part to your question that I missed?

Just how you would think a corporate tax rate hike might affect rate momentum that might further accelerate rate?

Taxes are just one aspect of the return on tangible equity. If I consider our rate increases, they are likely better than what we might experience with a corporate tax hike, but I can’t predict the future. The entire industry will need to respond to these rate increases to maintain margins. There is significant focus within the industry on achieving better margins, as indicated by comments from CEOs across the U.S. property and casualty industry. There's considerable momentum in that direction. Given that interest rates are currently low, the only way to go is upward in rates.

Great. Given your comments on the double-digit rate on top of rate, would it be reasonable for us to expect kind of low- to even mid-single-digit improvement in the accident year loss ratio next year?

We're not going to preannounce.

Sarah, what is the typical percentage for the ceding commission in the E&S? Is it around 25% or 30%?

It starts with a 3 in the 30s, yes. That's the meaningful benefit to the expense ratio. And obviously, we've already talked about the retentions in the segment.

I'm sorry, I don't know if you mentioned this, but what are your updated thoughts on the expense ratio across the board, including E&S, specialty admitted, and overall? Is Q3 a good barometer?

Good question, Mark. When I consider the expense ratio, the nine-month year-to-date serves as a good indicator for our annual performance. This will apply across all segments, although the strength in the excess casualty market, particularly within Core E&S, is something I can't predict precisely, which is a positive aspect. The rates in that line have been excellent, making it one of the top performers in our E&S portfolio. We've seen substantial growth there, and it has significantly influenced the expense ratio. Therefore, I believe this trend could remain beneficial for the E&S expense ratio. There were some unique factors affecting casualty reinsurance this quarter, which is why I'm more focused on the nine-month figures overall.

In the specialty admitted sector, the situation is similar. You have fee income that is balancing out the expenses. Regarding the year-to-date results, I understand your concerns, but the year-to-date figures differ from Q3. Is there a reason why performance shouldn't be as strong as it was in Q3, especially in specialty admitted and E&S, or is this just a cautious outlook?

No, I'm talking about year-to-date. We'd end the year-to-date with the full year, so not particularly in the fourth quarter. So I know I’m mixing and matching a little bit there. On specialty admitted, there were some small one-offs, and there's not a lot of premium in that segment, again, with the focus on front the fronted business. So I think about the run rate in that segment for where we are now, and we'll get a benefit as we continue to grow the fronted business of being closer to that 20%, 21% where we are on a 9-month basis there. I'm happy to follow-up in more detail offline, if that's helpful, too. All right. We're disappointed that there are no more questions, operator.

Operator, thank you and everybody on the phone call. Thank you very much for your attention to our company and following us, and we look forward to reporting, and you'll be hearing from Frank next quarter. And I think we're very excited with the prospect of his leadership. Thank you, and we'll speak soon.

Ladies and gentlemen, that does conclude our conference for today. Thank you all for joining. You may all disconnect.