James River Announces Third Quarter 2022 Results

PEMBROKE, Bermuda, Nov. 01, 2022 (GLOBE NEWSWIRE) -- James River Group Holdings, Ltd. ("James River" or the "Company") (NASDAQ: JRVR) today reported a third quarter 2022 net loss available to common shareholders of $7.2 million ($0.19 per diluted share), compared to a net loss available to common shareholders of $23.9 million ($0.64 per diluted share) for the third quarter of 2021. Adjusted net operating income1 for the third quarter of 2022 was $15.5 million ($0.41 per diluted share), compared to an adjusted net operating loss1 of $26.8 million ($0.72 per diluted share) for the third quarter of 2021.

Highlights for the quarter included:

  • Third quarter 2022 Group combined ratio of 94.1% on business not subject to retroactive reinsurance accounting for loss portfolio transfers ("combined ratio"), and 91.5% excluding the impact of catastrophe losses; adjusted net operating return on tangible common equity1 of 17.5%. Unless specified otherwise, all underwriting performance ratios presented herein are for our business not subject to retroactive reinsurance accounting for loss portfolio transfers.
  • Excess and Surplus Lines ("E&S") segment combined ratio of 88.2%, and 84.6% excluding the impact of catastrophe losses.
  • As a result of adverse development on the reserves subject to the commercial auto loss portfolio transfer agreement ("Commercial Auto LPT"), retroactive reinsurance accounting treatment results in a net loss for the quarter. However, the Company recognized a substantial benefit in the quarter from the Commercial Auto LPT, which provides unlimited coverage of adverse development on the portfolio.
  • Net written premium growth of 20.3% due to increased net retention in the E&S segment; E&S renewal pricing increased 8.4%, largely unchanged from the increase in renewal pricing of the same quarter last year.
  • Net catastrophe losses related to Hurricane Ian of $5.0 million, or 2.6 percentage points on the Group loss ratio.
  • Net investment income increased 17.7% sequentially compared to the second quarter of 2022.
  • Year to date combined ratio of 94.2% and adjusted net operating return on tangible common equity1 of 16.0%.

________________

1 Adjusted net operating income (loss) and adjusted net operating return on tangible common equity are non-GAAP financial measures. See “Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” at the end of this press release.

2 Tangible equity is a non-GAAP financial measure. See “Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” at the end of this press release.

Frank D'Orazio, the Company’s Chief Executive Officer, commented, “During the third quarter of 2022 we continued to demonstrate our focus on disciplined underwriting and consistent performance, with all segments reporting an underwriting profit. E&S renewal rate increases remain strong and in excess of our view of loss trend. While we took proactive underwriting actions on discrete elements of our portfolio where renewal pricing did not meet our appetite, we continued to benefit from ample opportunities and robust market conditions overall as policy count grew by 7.3% and we increased our net retention in E&S by ten percentage points. Additionally, our results validate our heightened focus on risk management and highlight the value of recent strategic actions as we had modest exposure to Hurricane Ian and benefited from the legacy commercial auto loss portfolio transfer that we executed last year. The results of these combined actions produced a very attractive adjusted net operating return on tangible common equity of 17.5% in the quarter.”

Third Quarter 2022 Operating Results

  • Gross written premium of $358.5 million, consisting of the following:
 Three Months Ended
September 30,
 
($ in thousands) 2022  2021 % Change
Excess and Surplus Lines$204,785 $217,673 (6)%
Specialty Admitted Insurance 123,389  121,175 2%
Casualty Reinsurance 30,331  7,751 291%
 $358,505 $346,599 3%
  • Net written premium of $190.3 million, consisting of the following:
 Three Months Ended
September 30,
 
($ in thousands) 2022  2021 % Change
Excess and Surplus Lines$140,984 $127,881 10%
Specialty Admitted Insurance 18,929  22,578 (16)%
Casualty Reinsurance 30,338  7,751 291%
 $190,251 $158,210 20%
  • Net earned premium of $190.2 million, consisting of the following:
 Three Months Ended
September 30,
 
($ in thousands) 2022  2021 % Change
Excess and Surplus Lines$139,095 $119,760 16%
Specialty Admitted Insurance 17,824  19,704 (10)%
Casualty Reinsurance 33,270  31,144 7%
 $190,189 $170,608 11%
  • E&S gross written premium decreased 5.9% compared to the prior year quarter, while net written premium increased 10.2% due to higher net retention. The decline was driven by discrete actions taken on renewal business that did not meet our appetite. Renewal rate increases were 8.4% during the third quarter of 2022, representing the twenty-third consecutive quarter of renewal rate increases compounding to 61.5%. On a year to date basis, E&S gross written premium has increased 10.2% with most underwriting divisions experiencing double digit growth.
  • Gross written premium for the Specialty Admitted Insurance segment increased 1.8% from the prior year quarter. During the quarter there was a combined 4.0% reduction to premium from our individual risk workers' compensation business and our large workers' compensation fronted program. The remaining segment premium increased 5.1% despite the loss of a fronting partner that was acquired at the end of 2021.
  • Gross written premium in the Casualty Reinsurance segment increased significantly compared to the prior year quarter primarily driven by premium adjustments and a timing difference with one renewal and extension. On a year to date basis, gross premium has declined 37.6% and we remain on track to reduce gross premium by approximately $100 million during 2022. Since the earning patterns of the business can extend over multiple years, changes in net earned premium for this segment will lag the expected decline in gross and net written premium.
  • Pre-tax favorable (unfavorable) reserve development by segment on business not subject to retroactive reinsurance accounting for loss portfolio transfers was as follows:
 Three Months Ended
September 30,
($ in thousands) 2022   2021 
Excess and Surplus Lines$(139) $(29,535)
Specialty Admitted Insurance 1,268   500 
Casualty Reinsurance 0   (15,063)
 $1,129  $(44,098)
  • During the third quarter of 2022, due to adverse paid loss trends on the legacy commercial auto portfolio, the Company recognized adverse prior year development of $46.7 million on the reserves subject to the Commercial Auto LPT. Because the reserves were fully subject to the agreement that provides unlimited coverage, the Company does not expect any economic impact from this development. The Company recorded a retroactive reinsurance benefit of $25.9 million in loss and loss adjustment expenses and a deferred retroactive reinsurance gain of $20.8 million on the Balance Sheet.
  • Net catastrophe losses related to Hurricane Ian were $5.0 million, or 2.6 percentage points on the Group loss ratio. The losses were primarily related to the Excess Property underwriting division in the E&S segment. Because the Company purchases significant property catastrophe reinsurance, it does not expect additional net catastrophe losses from events during the quarter.
  • Gross fee income was as follows:
 Three Months Ended
September 30,
 
($ in thousands) 2022  2021 % Change
Specialty Admitted Insurance$5,935 $5,627 5%
  • The consolidated expense ratio was 24.6% for the third quarter of 2022, largely unchanged from 24.8% in the prior year third quarter. The expense ratio benefited from 11.5% growth in net earned premium and 5.5% growth in fee income, while underwriting expenses increased at a slightly lower rate.

Investment Results

Net investment income for the third quarter of 2022 was $17.3 million, an increase of 13.2% compared to $15.3 million for the same period in 2021. Income from fixed maturities and equities increased due to higher yields and growth in the portfolio, while income from renewable energy and other private investments declined from the prior year period primarily due to market volatility. Growth in income from fixed maturities, bank loans and equities increased 31.0% compared to the prior year period and 16.7% compared to the second quarter of 2022.

The Company’s net investment income consisted of the following:

 Three Months Ended
September 30,
 
($ in thousands) 2022   2021 % Change
Renewable Energy Investments$134  $918 (85)%
Other Private Investments (557)  842 NM
All Other Net Investment Income 17,729   13,529 31%
Total Net Investment Income$17,306  $15,289 13%

The Company’s annualized gross investment yield on average fixed maturity, bank loan and equity securities for the three months ended September 30, 2022 was 3.6% (versus 2.8% for the three months ended September 30, 2021). The investment yield increased primarily as a result of higher market yields on fixed maturity securities and bank loans.

Net realized and unrealized losses on investments of $7.8 million for the three months ended September 30, 2022 compares to net realized and unrealized gains on investments of $4.0 million in the prior year quarter. The majority of the realized and unrealized losses during the third quarter of 2022 were related to changes in fair values of our preferred and common equity securities and, to a lesser extent, our secured bank loan portfolio.

Taxes

Generally the Company's effective tax rate fluctuates from period to period based on the relative mix of income reported by country and the respective tax rates imposed by each tax jurisdiction. The tax rate for the nine months ended September 30, 2022 was 30.9%. The tax rate is impacted by the geographic mix of income.

Tangible Equity

Tangible equity2 of $474.9 million at September 30, 2022 declined 9.0% compared to tangible equity of $521.6 million at June 30, 2022, due to an increase in unrealized losses in the Company's fixed maturity portfolio. Accumulated other comprehensive (loss) income ("AOCI") declined by $60.7 million during the third quarter of 2022, with higher interest rates driving a decline in the value of the Company's fixed maturity securities. Tangible equity excluding AOCI was $650.1 million at September 30, 2022 compared to $477.5 million at December 31, 2021, with the increase driven by proceeds from the Series A preferred shares issued during the first quarter of 2022 and positive net income available to common shareholders.

Capital Management

The Company announced that its Board of Directors declared a cash dividend of $0.05 per common share. This dividend is payable on Friday, December 30, 2022 to all shareholders of record on Monday, December 12, 2022.

Conference Call

James River will hold a conference call to discuss its third quarter results tomorrow, November 2, 2022 at 8:00 a.m. Eastern Time. Investors may access the conference call by dialing (800) 715-9871, Conference ID 2262462, or via the internet by visiting www.jrvrgroup.com and clicking on the “Investor Relations” link. A webcast replay of the call will be available by visiting the company website.

Forward-Looking Statements

This press release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. In some cases, such forward-looking statements may be identified by terms such as believe, expect, seek, may, will, should, intend, project, anticipate, plan, estimate, guidance or similar words. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Although it is not possible to identify all of these risks and uncertainties, they include, among others, the following: the inherent uncertainty of estimating reserves and the possibility that incurred losses may be greater than our loss and loss adjustment expense reserves; inaccurate estimates and judgments in our risk management may expose us to greater risks than intended; downgrades in the financial strength rating of our regulated insurance subsidiaries impacting our ability to attract and retain insurance and reinsurance business that our subsidiaries write, our competitive position, and our financial condition; the potential loss of key members of our management team or key employees and our ability to attract and retain personnel; adverse economic factors resulting in the sale of fewer policies than expected or an increase in the frequency or severity of claims, or both; the impact of a persistent high inflationary environment on our reserves, the values of our investment returns, and on our compensation expenses; exposure to credit risk, interest rate risk and other market risk in our investment portfolio; reliance on a select group of brokers and agents for a significant portion of our business and the impact of our potential failure to maintain such relationships; reliance on a select group of customers for a significant portion of our business and the impact of our potential failure to maintain, or decision to terminate, such relationships; our ability to obtain reinsurance coverage at prices and on terms that allow us to transfer risk and adequately protect our company against financial loss; losses resulting from reinsurance counterparties failing to pay us on reinsurance claims, insurance companies with whom we have a fronting arrangement failing to pay us for claims, or a former customer with whom we have an indemnification arrangement failing to perform its reimbursement obligations, and our potential inability to demand or maintain adequate collateral to mitigate such risks; inadequacy of premiums we charge to compensate us for our losses incurred; changes in laws or government regulation, including tax or insurance law and regulations; the ongoing effect of Public Law No. 115-97, informally titled the Tax Cuts and Jobs Act, which may have a significant effect on us including, among other things, by potentially increasing our tax rate, as well as on our shareholders; in the event we do not qualify for the insurance company exception to the passive foreign investment company (“PFIC”) rules and are therefore considered a PFIC, there could be material adverse tax consequences to an investor that is subject to U.S. federal income taxation; the Company or any of its foreign subsidiaries becoming subject to U.S. federal income taxation; a failure of any of the loss limitations or exclusions we utilize to shield us from unanticipated financial losses or legal exposures, or other liabilities; losses from catastrophic events, such as natural disasters and terrorist acts, which substantially exceed our expectations and/or exceed the amount of reinsurance we have purchased to protect us from such events; the effects of the COVID-19 pandemic and associated government actions on our operations and financial performance; potential effects on our business of emerging claim and coverage issues; the potential impact of internal or external fraud, operational errors, systems malfunctions or cyber security incidents; our ability to manage our growth effectively; failure to maintain effective internal controls in accordance with Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley”); and changes in our financial condition, regulations or other factors that may restrict our subsidiaries’ ability to pay us dividends. Additional information about these risks and uncertainties, as well as others that may cause actual results to differ materially from those in the forward-looking statements, is contained in our filings with the U.S. Securities and Exchange Commission ("SEC"), including our most recently filed Annual Report on Form 10-K. These forward-looking statements speak only as of the date of this release and the Company does not undertake any obligation to update or revise any forward-looking information to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.

Non-GAAP Financial Measures

In presenting James River Group Holdings, Ltd.’s results, management has included financial measures that are not calculated under standards or rules that comprise accounting principles generally accepted in the United States (“GAAP”). Such measures, including underwriting profit (loss), adjusted net operating income (loss), tangible equity, tangible common equity, adjusted net operating return on tangible equity (which is calculated as annualized adjusted net operating income (loss) divided by the average quarterly tangible equity balances in the respective period), and adjusted net operating return on tangible common equity (which is calculated as annualized adjusted net operating income (loss) divided by the average quarterly tangible common equity balances in the respective period), are referred to as non-GAAP measures. These non-GAAP measures may be defined or calculated differently by other companies. These measures should not be viewed as a substitute for those measures determined in accordance with GAAP. Reconciliations of such measures to the most comparable GAAP figures are included at the end of this press release.

About James River Group Holdings, Ltd.

James River Group Holdings, Ltd. is a Bermuda-based insurance holding company that owns and operates a group of specialty insurance and reinsurance companies. The Company operates in three specialty property-casualty insurance and reinsurance segments: Excess and Surplus Lines, Specialty Admitted Insurance and Casualty Reinsurance. Each of the Company’s regulated insurance subsidiaries are rated “A-” (Excellent) by A.M. Best Company.

Visit James River Group Holdings, Ltd. on the web at www.jrvrgroup.com

For more information contact:

Brett Shirreffs
SVP, Finance, Investments and Investor Relations
InvestorRelations@jrgh.net 

James River Group Holdings, Ltd. and Subsidiaries
Condensed Consolidated Balance Sheet Data
(Unaudited)

($ in thousands, except for share data) September 30, 2022 December 31, 2021
ASSETS   
Invested assets:   
Fixed maturity securities, available-for-sale, at fair value$1,639,248 $1,677,561
Equity securities, at fair value 118,114  108,410
Bank loan participations, at fair value 160,296  156,043
Short-term investments 208,904  136,563
Other invested assets 49,471  51,908
Total invested assets 2,176,033  2,130,485
    
Cash and cash equivalents 187,544  190,123
Restricted cash equivalents (a) 102,485  102,005
Accrued investment income 13,778  11,037
Premiums receivable and agents’ balances, net 341,655  393,967
Reinsurance recoverable on unpaid losses, net 1,584,836  1,348,628
Reinsurance recoverable on paid losses 110,260  82,235
Deferred policy acquisition costs 62,883  68,526
Goodwill and intangible assets 217,598  217,870
Other assets 408,419  403,674
Total assets$5,205,491 $4,948,550
    
LIABILITIES AND SHAREHOLDERS’ EQUITY   
Reserve for losses and loss adjustment expenses$2,786,700 $2,748,473
Unearned premiums 696,452  727,552
Funds held (a) 335,233  97,360
Deferred reinsurance gain 20,773  0
Senior debt 222,300  262,300
Junior subordinated debt 104,055  104,055
Accrued expenses 52,010  57,920
Other liabilities 316,266  225,528
Total liabilities 4,533,789  4,223,188
    
Series A redeemable preferred shares 144,898  0
Total shareholders’ equity 526,804  725,362
Total liabilities, Series A redeemable preferred shares, and shareholders’ equity$5,205,491 $4,948,550
    
Tangible equity (b)$474,877 $507,492
Tangible equity per share outstanding (b)$11.02 $13.58
Shareholders' equity per share outstanding$14.07 $19.41
Common shares outstanding 37,450,438  37,373,066
    
(a) Restricted cash equivalents and the funds held liability includes funds posted by the Company to a trust account for the benefit of a third party administrator handling the claims on the Rasier commercial auto policies in run-off. Such funds held in trust secure the Company's obligations to reimburse the administrator for claims payments, and are primarily sourced from the collateral posted to the Company by Rasier and its affiliates to support their obligations under the indemnity agreements and the loss portfolio transfer reinsurance agreement with the Company. The funds held liability also includes a notional funds withheld account balance related to the loss portfolio transfer retrocession transaction that our Casualty Reinsurance segment entered into in the first quarter of 2022, which will be reduced on a quarterly basis by paid losses on the subject business.
(b) See “Reconciliation of Non-GAAP Measures”   

James River Group Holdings, Ltd. and Subsidiaries
Condensed Consolidated Income (Loss) Statement Data
(Unaudited)

 Three Months Ended
September 30,
 Nine Months Ended
September 30,
($ in thousands, except for share data) 2022   2021   2022   2021 
REVENUES       
Gross written premiums$358,505  $346,599  $1,118,155  $1,100,000 
Net written premiums 190,251   158,210   560,801   526,413 
        
Net earned premiums 190,189   170,608   566,275   503,906 
Net investment income 17,306   15,289   48,278   44,726 
Net realized and unrealized (losses) gains on investments (7,754)  3,983   (29,874)  13,738 
Other income 1,488   1,113   3,304   3,170 
Total revenues 201,229   190,993   587,983   565,540 
        
EXPENSES       
Losses and loss adjustment expenses (a) 153,008   166,078   409,985   549,578 
Other operating expenses 47,584   43,193   146,681   136,414 
Other expenses 210   706   578   2,231 
Interest expense 4,950   2,227   11,291   6,692 
Amortization of intangible assets 90   90   272   272 
Total expenses 205,842   212,294   568,807   695,187 
(Loss) income before taxes (4,613)  (21,301)  19,176   (129,647)
Income tax (benefit) expense 8   2,588   5,928   (23,141)
NET (LOSS) INCOME$(4,621) $(23,889) $13,248  $(106,506)
Dividends on Series A preferred shares (2,625)  0   (6,125)  0 
NET (LOSS) INCOME AVAILABLE TO COMMON SHAREHOLDERS$(7,246) $(23,889) $7,123  $(106,506)
ADJUSTED NET OPERATING INCOME (LOSS)(b)$15,499  $(26,814) $49,391  $(116,780)
        
(LOSS) INCOME PER COMMON SHARE       
Basic$(0.19) $(0.64) $0.19  $(3.12)
Diluted$(0.19) $(0.64) $0.19  $(3.12)
        
ADJUSTED NET OPERATING INCOME (LOSS) PER COMMON SHARE    
Basic$0.41  $(0.72) $1.32  $(3.42)
Diluted$0.41  $(0.72) $1.31  $(3.42)
        
Weighted-average common shares outstanding:       
Basic 37,450,381   37,278,469   37,435,798   34,161,022 
Diluted 37,450,381   37,278,469   37,642,656   34,161,022 
Cash dividends declared per common share$0.05  $0.30  $0.15  $0.90 
        
Ratios:       
Loss ratio 69.5%  97.3%  68.7%  109.1%
Expense ratio (c) 24.6%  24.8%  25.5%  26.5%
Combined ratio 94.1%  122.1%  94.2%  135.6%
Accident year loss ratio 70.1%  71.5%  68.0%  67.2%
Accident year loss ratio ex-catastrophe losses 67.5%  68.6%  67.1%  66.2%
        
(a) Losses and loss adjustment expenses include $20.8 million of unrecognized deferred retroactive reinsurance gain for the three and nine months ended September 30, 2022.
(b) See "Reconciliation of Non-GAAP Measures".
(c) Calculated with a numerator comprising other operating expenses less gross fee income (in specific instances when the Company is not retaining insurance risk) included in “Other income” in our Condensed Consolidated Income Statements of $914,000 and $2.6 million for the three and nine months ended September 30, 2022, respectively ($1.0 million and $2.9 million in the respective prior year periods), and a denominator of net earned premiums.

James River Group Holdings, Ltd. and Subsidiaries
Segment Results

EXCESS AND SURPLUS LINES

 Three Months Ended
September 30,
   Nine Months Ended
September 30,
  
($ in thousands) 2022   2021  % Change  2022   2021  % Change
Gross written premiums$204,785  $217,673  (5.9)% $675,702  $613,045  10.2%
Net written premiums$140,984  $127,881  10.2% $432,698  $371,477  16.5%
            
Net earned premiums$139,095  $119,760  16.1% $408,280  $351,413  16.2%
Losses and loss adjustment expenses excluding retroactive reinsurance (96,355)  (117,214) (17.8)%  (270,464)  (428,550) (36.9)%
Underwriting expenses (26,338)  (24,073) 9.4%  (77,623)  (68,419) 13.5%
Underwriting profit (loss) (a)$16,402  $(21,527)   $60,193  $(145,556)  
            
Ratios:           
Loss ratio 69.3%  97.9%    66.2%  122.0%  
Expense ratio 18.9%  20.1%    19.1%  19.4%  
Combined ratio 88.2%  118.0%    85.3%  141.4%  
Accident year loss ratio 69.2%  73.2%    66.2%  67.7%  
Accident year loss ratio ex-catastrophe losses 65.6%  69.0%    65.0%  66.3%  
            
(a) See "Reconciliation of Non-GAAP Measures".

SPECIALTY ADMITTED INSURANCE

 Three Months Ended
September 30,
   Nine Months Ended
September 30,
  
($ in thousands) 2022   2021  % Change  2022   2021  % Change
Gross written premiums$123,389  $121,175  1.8% $374,066  $377,400  (0.9)%
Net written premiums$18,929  $22,578  (16.2)% $57,524  $66,081  (12.9)%
            
Net earned premiums$17,824  $19,704  (9.5)% $55,283  $54,656  1.1%
Losses and loss adjustment expenses (15,377)  (15,263) 0.7%  (44,029)  (39,371) 11.8%
Underwriting expenses (2,162)  (1,357) 59.3%  (9,508)  (8,797) 8.1%
Underwriting (loss) profit (a), (b)$285  $3,084  (90.8)% $1,746  $6,488  (73.1)%
            
Ratios:           
Loss ratio 86.3%  77.5%    79.6%  72.0%  
Expense ratio 12.1%  6.8%    17.2%  16.1%  
Combined ratio 98.4%  84.3%    96.8%  88.1%  
Accident year loss ratio 93.4%  80.0%    84.6%  76.6%  
            
(a) See "Reconciliation of Non-GAAP Measures".          
(b) Underwriting results for the three and nine months ended September 30, 2022 include gross fee income of $5.9 million and $17.4 million, respectively ($5.6 million and $16.2 million in the respective prior year periods).

CASUALTY REINSURANCE

 Three Months Ended
September 30,
   Nine Months Ended
September 30,
  
($ in thousands) 2022   2021  % Change  2022   2021  % Change
Gross written premiums$30,331  $7,751  291.3% $68,387  $109,555  (37.6)%
Net written premiums$30,338  $7,751  291.4% $70,579  $88,855  (20.6)%
            
Net earned premiums$33,270  $31,144  6.8% $102,712  $97,837  5.0%
Losses and loss adjustment expenses (20,503)  (33,601) (39.0)%  (74,719)  (81,657) (8.5)%
Underwriting expenses (9,723)  (9,454) 2.8%  (31,727)  (33,037) (4.0)%
Underwriting profit (loss) (a)$3,044  $(11,911)   $(3,734) $(16,857) (77.8)%
            
Ratios:           
Loss ratio 61.6%  107.9%    72.7%  83.5%  
Expense ratio 29.3%  30.3%    30.9%  33.7%  
Combined ratio 90.9%  138.2%    103.6%  117.2%  
Accident year loss ratio 61.6%  59.5%    66.1%  60.4%  
            
(a) See "Reconciliation of Non-GAAP Measures".          

Underwriting Performance Ratios

The following table provides the underwriting performance ratios of the Company inclusive of the business subject to retroactive reinsurance accounting for loss portfolio transfers. There is no economic impact to the Company over the life of a loss portfolio transfer contract so long as any additional losses subject to the contract are within the limit of the loss portfolio transfer and the counterparty performs under the contract. Retroactive reinsurance accounting is not indicative of our current and ongoing operations. Management believes that providing loss ratios and combined ratios on business not subject to retroactive reinsurance accounting for loss portfolio transfers gives the users of our financial statements useful information in evaluating our current and ongoing operations.

 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2022  2021  2022  2021 
Excess and Surplus Lines:       
Loss Ratio69.3% 97.9% 66.2% 122.0%
Impact of retroactive reinsurance14.9% % 5.1% %
Loss Ratio including impact of retroactive reinsurance84.2% 97.9% 71.3% 122.0%
        
Combined Ratio88.2% 118.0% 85.3% 141.4%
Impact of retroactive reinsurance14.9% % 5.1% %
Combined Ratio including impact of retroactive reinsurance103.1% 118.0% 90.4% 141.4%
        
Consolidated:       
Loss Ratio69.5% 97.3% 68.7% 109.1%
Impact of retroactive reinsurance10.9% % 3.7% %
Loss Ratio including impact of retroactive reinsurance80.4% 97.3% 72.4% 109.1%
        
Combined Ratio94.1% 122.1% 94.2% 135.6%
Impact of retroactive reinsurance10.9% % 3.7% %
Combined Ratio including impact of retroactive reinsurance105.0% 122.1% 97.9% 135.6%

RECONCILIATION OF NON-GAAP MEASURES

Underwriting Profit

The following table reconciles the underwriting profit by individual operating segment and for the entire Company to consolidated income before taxes. We believe that the disclosure of underwriting profit by individual segment and of the Company as a whole is useful to investors, analysts, rating agencies and other users of our financial information in evaluating our performance because our objective is to consistently earn underwriting profits. We evaluate the performance of our segments and allocate resources based primarily on underwriting profit. We define underwriting profit as net earned premiums and gross fee income (in specific instances when the Company is not retaining insurance risk) less losses and loss adjustment expenses excluding the impact of loss portfolio transfers accounted for as retroactive reinsurance and other operating expenses. Other operating expenses include the underwriting, acquisition, and insurance expenses of the operating segments and, for consolidated underwriting profit, the expenses of the Corporate and Other segment. Our definition of underwriting profit may not be comparable to that of other companies.

 Three Months Ended
September 30,
 Nine Months Ended
September 30,
($ in thousands) 2022   2021   2022   2021 
Underwriting profit (loss) of the operating segments:       
Excess and Surplus Lines$16,402  $(21,527) $60,193  $(145,556)
Specialty Admitted Insurance 285   3,084   1,746   6,488 
Casualty Reinsurance 3,044   (11,911)  (3,734)  (16,857)
Total underwriting profit (loss) of operating segments 19,731   (30,354)  58,205   (155,925)
Other operating expenses of the Corporate and Other segment (8,447)  (7,287)  (25,209)  (23,258)
Underwriting profit (loss) (a) 11,284   (37,641)  32,996   (179,183)
Losses and loss adjustment expenses - retroactive reinsurance (20,773)     (20,773)   
Net investment income 17,306   15,289   48,278   44,726 
Net realized and unrealized (losses) gains on investments (7,754)  3,983   (29,874)  13,738 
Other income (expense) 364   (615)  112   (1,964)
Interest expense (4,950)  (2,227)  (11,291)  (6,692)
Amortization of intangible assets (90)  (90)  (272)  (272)
Consolidated (loss) income before taxes$(4,613) $(21,301) $19,176  $(129,647)
        
(a) Included in underwriting results for the three and nine months ended September 30, 2022 is gross fee income of $5.9 million and $17.4 million, respectively ($5.6 million and $16.2 million in the respective prior year periods).

Adjusted Net Operating Income

We define adjusted net operating income as income available to common shareholders excluding a) the impact of loss portfolio transfers accounted for as retroactive reinsurance, b) net realized and unrealized gains (losses) on investments, c) certain non-operating expenses such as professional service fees related to a purported class action lawsuit, various strategic initiatives, and the filing of registration statements for the offering of securities, and d) severance costs associated with terminated employees. We use adjusted net operating income as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance. Adjusted net operating income should not be viewed as a substitute for net income calculated in accordance with GAAP, and our definition of adjusted net operating income may not be comparable to that of other companies.

Our income (loss) available to common shareholders reconciles to our adjusted net operating income (loss) as follows:

 Three Months Ended September 30,
  2022   2021 
($ in thousands)Income
Before
Taxes
 Net
Income
 Loss
Before
Taxes
 Net
Loss
Loss available to common shareholders$(7,238) $(7,246) $(21,301) $(23,889)
Losses and loss adjustment expenses - retroactive reinsurance 20,773   16,411       
Net realized and unrealized investment losses (gains) 7,754   6,581   (3,983)  (3,422)
Other (income) expenses (247)  (247)  625   497 
Adjusted net operating income (loss)$21,042  $15,499  $(24,659) $(26,814)
        
 Nine Months Ended September 30,
  2022   2021 
($ in thousands)Income
Before
Taxes
 Net
Income
 Loss
Before
Taxes
 Net
Loss
Income (loss) available to common shareholders$13,051  $7,123  $(129,647) $(106,506)
Losses and loss adjustment expenses - retroactive reinsurance 20,773   16,411       
Net realized and unrealized investment losses (gains) 29,874   25,757   (13,738)  (11,914)
Other expenses 100   100   1,963   1,640 
Adjusted net operating income (loss)$63,798  $49,391  $(141,422) $(116,780)

Tangible Equity (per Share) and Tangible Common Equity (per Share)

We define tangible equity as shareholders' equity plus mezzanine Series A preferred shares and the unrecognized deferred retroactive reinsurance gain on loss portfolio transfers less goodwill and intangible assets (net of amortization). We define tangible common equity as tangible equity less mezzanine Series A preferred shares. Our definition of tangible equity and tangible common equity may not be comparable to that of other companies, and it should not be viewed as a substitute for shareholders’ equity calculated in accordance with GAAP. We use tangible equity and tangible common equity internally to evaluate the strength of our balance sheet and to compare returns relative to this measure. The following table reconciles shareholders’ equity to tangible equity and tangible common equity for September 30, 2022, June 30, 2022, and December 31, 2021.

 September 30, 2022 June 30, 2022 December 31, 2021
($ in thousands, except for share data)Equity Equity per share Equity Equity per share Equity Equity per share
Shareholders' equity$526,804 $14.07 $594,386 $15.87 $725,362 $19.41
Plus: Series A redeemable preferred shares 144,898    144,898      
Plus: Deferred reinsurance gain 20,773          
Less: Goodwill and intangible assets 217,598    217,688    217,870  
Tangible equity$474,877 $11.02 $521,596 $12.10 $507,492 $13.58
Less: Series A redeemable preferred shares 144,898    144,898      
Tangible common equity$329,979 $8.81 $376,698 $10.06 $507,492 $13.58
            
Common shares outstanding 37,450,438    37,450,264    37,373,066  
Common shares from assumed conversion of Series A preferred shares 5,640,158    5,640,158      
Common shares outstanding after assumed conversion of Series A preferred shares 43,090,596    43,090,422    37,373,066  

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