Kevin Copeland – Head of Investor Relations Adam Abram – Chairman and Chief Executive Officer Bob Myron – President and Chief Operating Officer.

Charles Sebaski – BMO Capital Markets Kevin Alloway – SunTrust Christopher Campbell – Keefe, Bruyette & Woods Alex Combs – FBR Capital Markets.

Good morning, ladies and gentlemen, and welcome to the James River Group Holdings Limited Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Adam Abram, Head of Investor Relations. You may begin..

Thank you, Catlin. This is actually Kevin Copeland and we will hand it over to Adam briefly. Good morning, everyone, and welcome to the James River Group second quarter 2016 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 the forward-looking statements in yesterday's earnings release, and the Risk Factor section in 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. I will now turn the call over to Adam Abram, Chairman and CEO of James River Group..

Thanks, Kevin, and welcome everybody. I’m here in Bermuda today with Bob Myron, our President and COO; and Gregg Davis, our Chief Financial Officer. I’m going to have just a few brief remarks and then we’re anxious to get into a dialogue with those of you, who may have questions.

We had a strong and very straight ahead results this quarter that I think reflect the enduring earnings power of our franchise and so we were really pleased.

Here are a few of the indicators that came through to us and that we look at in analyzing the quarter and that give us a feeling of real strength about our earnings and the potential for our company. Our earnings per share are up. Our combined ratio is down.

We reported redundancies at all three of our segments, our underwriting segments and their reserves. Our very profitable E&S segment grew by 26% in the quarter compared to the second quarter of last year.

The fee income in the group, which, you know, we’ve been emphasizing, doubled from $3.3 million in the first six months of last year to $6.6 million in the first six months of this year and so more about that in just a second. And then finally another thing that we’re looking at is that pricing is steady and loss trends remain benign.

So, we feel confident about the future profitability of the business we’re writing. Another indicator that we’re very proud of is that A.M. Best recognized the consistency of our earnings and our operations and the strength of our balance sheet by awarding us an A rating and that was announced last week and we’re very pleased about that.

I think that will certainly help us in our fronting business and our reinsurance business. It’s a nice recognition and a good validation to both of those parts of our operation.

I will say though that we were doing just fine with our growth and underwriting profitability supporting the A minus that we’ve had since inception, but we’re very glad to have that A.

Just another little point of clarification before we get to questions, if you read our financials and I’m sure many of you on the phone have, you might have the impression that we’re shrinking our third party reinsurance business, but the apparent decline is not really so.

We book 100% of the expected premium from a reinsurance contract when we book the contract or when we renew contract.

And so a delay in a renewal or a push-out of a contract from 12 to 15 months can create some volatility in reported gross written premiums, but we actually expect the gross written premiums and the reinsurance business will be flat across the year. I want to talk a little bit, I mentioned fee income, and so I’d like to talk just a second about that.

We signaled during our last earnings call that we thought 2016 would be the year in which we showed a substantial progress in our fee business.

And so, I’m really very pleased to report that in the last month, our specialty admitted segment signed a fronting transaction, which we expect to generate between $6 million and $7 million in fees over the course of a year. Now that estimate is based on $200 million in gross written premiums in that program.

During the year, our net retention is very modest in the program. This is a book that we have seen before as a reinsurer and we’re very happy now to be the fronting company and to take a small piece of the risk in that.

Based on the first couple of months of production in our history with that, we believe that we’ll be on track to achieve the estimated gross written premiums and the fee income. However for friends on this phone call, who are working on Excel spreadsheets with models of future earnings; let me remind you that these fees will be earned over 24 months.

And so – and the $6 million to $7 million in fees that I mentioned will be spread out over a long period of time. But it’s an indication that our fronting and fee generation business is taking off. It’s another indication that that we’re proud of it.

So given the strong top and bottom line, we have had this quarter as well as what we see in the pipeline and we remain very pleased and optimistic about our prospects. And we’re anxious to get your questions about the business. And so, operator, Kevin, let’s open up the line and take questions from people who might have them..

[Operator Instructions] Your first question comes from the line of Charles Sebaski from BMO Capital Markets. Your line is open..

Good morning guys..

Good morning, Charles..

Good morning, Charles..

Just, I guess, E&S, really nice quarter. Just appreciate any additional color on some of this submission flow. If there’s any insight on where it’s coming from, if it’s any geography skew, and if that’s something you think in the current market is just going to continue on for you guys. I mean, I think, double-digit submissions and quoting.

There’s no abnormality and this is just a particularly strong quarter, this is something that you expect to continue at this pace.

Is that reasonable?.

I think we feel really, really good about the leading indicators we’re seeing in the E&S. I don’t like us to make too far out projections in terms of market conditions because they can change. But I want to emphasize that we think our relationships with our wholesalers are really strong. Submissions, as you noted Charles, are up.

They’re up really across the board in most of our divisions. And we’re writing our business. Let me give you an example. I don’t think we mentioned this because believe it or not in our Allied Health division, I think we were up 9.4% in that division. And it didn’t even make the list of the top income lifts that we had there.

But there we’re seeing small care homes, larger skilled homes coming in, more healthcare, there’re more people who are ill or elderly or just for some other reason need home healthcare, and we’re ensuring that the companies, who provide that. So there’s a division. It’s not huge premium, but it’s up 9.4%.

We mentioned, of course, our Manufacturers and Contractors division. We’ve mentioned commercial auto. We’ve become in hired and non-owned auto. So, if you have someone who’s engaged in transportation on your behalf using their vehicle, we become a go-to market for that. I think that we’re really seeing an awful lot of that business across the board.

Now, we wouldn’t have seen it if we hadn’t built the infrastructure to handle that business.

Really efficiently, we’ve made a major investment and had great success in that – by doing that and commend our leadership enrichment for the great job they’ve done on driving that business for us, but it’s – that’s really a big business, small businesses, so I’m trying to give you a sense….

Yes..

That this is broad and it is deep and we don’t see a diminution in the flow. Small business submissions were up 60%, the volumes only up 20%, 25%, but that will show you we think more business is flowing into the E&S business then is leaving us. Now, we know that others are commenting about competition they’re seeing from admitted markets.

But remember, we only write casualty, we’re not on the property side of this account. We do write some property, but it’s – our emphasis is 97% to 98% casualty. And those casualty accounts are coming in. Let me give you another example. There have been significant constructions of condominiums and apartments in New York, New Jersey, Alabama and Georgia.

And there we’ve seen those markets have been well priced and we’ve been able to go in those markets. We’re not writing the property, we’re writing the liability in those complexes. And that’s been another really nice growth area for us. So it’s broad.

We see it continuing and we feel really – we feel very positive and we like the pricing on a quite a bit. And these are complicated classes and we’ve added a lot of underwriters, who are skilled by the way.

If you’re on this phone call and you have – if you have someone in your family, a young person in your family, bright talented person, we’re recruiting. So send them our way and so very positive from our point of view.

Bob, did you have anything?.

No, I wouldn’t add anything to that..

Excellent, and just for confirmation for this growth in E&S, you guys haven’t changed your risk appetite, this growth hasn’t come from putting down bigger lines from changing your historic view on risk in these lines of business?.

Absolutely not. We’re always tweaking our policies to reflect the reality or new opportunities, but our risk appetite is constant..

All right. And just a couple of quick numbers questions.

Corporate and operating expenses ticked up a little bit year-over-year is this $5.5 million level, is kind of viewed as a run rate going forward?.

Well, let me first just talk about the uptick. It’s really more related to personnel cost than anything else. And just as we’ve grown, we’ve got a few more people from a headcount perspective. At corporate, we’ve had to build an internal audit team, for example.

The other thing is that naturally, of course, with another year under our belt, we had another round of equity grants in February. And as a result of that you’ve got expense associated with – some expense associated with those grants and you’ve got expense associated with the grants that were made in the IPO date.

So that’s really the biggest piece of that. And I would say that it’s likely more of a run rate for the year, obviously that could change again next year with another set of – another set of equity grants. But overall, of course, the expense ratio on a group wide basis is down 2.4 points in the quarter.

So, we’ve certainly been able to stomach the increase so to speak..

All right. And the – I guess going along with that follow up on the expenses for the E&S, the step down to roughly 21% in the quarter down meaningfully from last year, this is just growth related – I mean even from last quarter down.

Is this at your current pace and size due to the growth in this business? Do you think is this a 21%, 22% run rate expense business? Or is there some unusualness in this quarter?.

Well, as you know, we don’t provide guidance specifically on expense ratio either for the group as a whole or by individual segment.

I think – but to answer the question, the story at the segment is really the story of the whole group, which is that that continues to decline not only because of scale and we think we’re in a nice position from a fixed cost leverage perspective.

But also because of the fee income growth and the fee income, of course, is meaningful in the Excess and Surplus Lines segment. We booked that as a reduction to the expense ratio. So a good scale and then improving fee income, obviously back to the scale that segment had 34% growth in net earned premium.

And so while they’re all obviously variable expenses such as brokerage and other things that come along with that growth, we know that we have great leverage with respect to systems and claims and other fixed overheads that is pretty powerful..

Excellent..

One example of that is that in the most recent quarter, our ratio of policies bound to quotes was as good as it’s been since the first quarter of 2015.

And that’s a combination of growing experience, systems, relationships with the agents and just growing more efficient in the way that we’re processing the slew of submissions that we’re seeing, so very positive from our point of view..

Excellent. And then just one final one, does the – Bob, do you think the – does the A.M. Best's rating upgrade in the quarter help at all from debt costs prospect.

I mean, is there ability to lower refinance, existing debt or is that just kind of comfortable where it is?.

Yes, so, it doesn’t – in term so of the enforced debt, it doesn’t make any – make for any specific changes for example for the spreads on the trust preferred debt or on our bank facility or anything like that. We like the cost of the debt that we have in place currently.

And a fair amount of it is, of course, I think what we would think about is the junior subordinated stuff for the trust preferred that was issued a long time ago, and it is pretty equally subordinated and has a very reasonable cost and good equity credit from the rating agencies. I don’t that that window to issue new debt.

There’re refinance that is really not opened right now, but certainly if we were to consider something more in the senior debt space or the bank loan space and a new issuance or rolling something over it, it probably would help a little bit on the margin.

But I don’t – in terms of the impact that would have in the near-term on our interest expense, I think it’s negligible..

Excellent. Thanks a lot for the answers guys..

Thanks, Charles..

Thanks, Charles..

Your next question comes from the line of Mark Hughes from SunTrust. Your line is open..

Hi, this is actually Kevin Alloway on for Mark Hughes. You talked a little bit about fees and specialty admitted. I’m just wondering to look at E&S. Do you expect that to kind of move along at the same level? Are you pursuing more outsourcing of claims there? Just a little more color on that please..

Kevin, let me make sure that I understand that you’re asking whether we’re outsourcing claims in the E&S or whether we’re earning fees off of that claims activity, I guess it’s the later, yes..

Yes..

Yes, well, what’s happening is that we do earn fees for handling claims for which we have no liability associated with the claim and we earn fees for that and that that is generating part of that fee income for us. And it’s a business that we’re constantly working up, becoming more efficient then.

And it is generating good revenues and it is part of the drive down of the expense ratio in that segment. We very substantially expanded our capability in that area..

Yes, and I think you may have also been asking about the trajectory of them. And I would think that as we continue to grow relationships and continue to do the servicing that the modest growth trajectory that we had on fees and that segment can continue.

I think we’ve got a little bit more fee income than we did in the first quarters on a sequential quarter basis and obviously a bit more than we had a year ago..

All right, okay. It makes sense. Thank you..

Your next question comes from the line of Christopher Campbell from Keefe, Bruyette & Woods. Your line is open..

Yes. Good morning and congrats on the quarter..

Thanks you so much, Chris..

Okay. My first question is on the casualty reinsurance premium growth, where you guided towards a flat growth rate year-over-year. Given that you’re only at half of year-to-date levels.

How should we thinking about the earnings for the second half of – or the premium growth for the second half?.

Yes. So, Adam mentioned in his comments that we expect by the end of the year gross premiums written will be about the same as the prior year plus or minus, probably a little bit, because of the timing of it – timing of the production, there could be a small decrease in net earned premium in that segment for the year.

It won’t be – we don’t have an expectation that it will be huge, but definitely could be $5 million to $10 million..

Okay, thanks. And my second question is on the strong fronting and program growth in specialty admitted.

Where are you seeing this demand come from? Like what types of customers or product lines are you seeing increased demand for?.

Well, we’re primarily right now is casualty related business. Workers comp is the area where we’re seeing the most submissions right now, but it’s also in commercial auto. It’s also in general liability line. So, it’s across the book. We have not done any significant property fronting..

Okay. And do the retentions vary for each of those lines, because you do….

They do..

Okay, perfect. And then….

But generally, as mentioned, they are quite low and certain relationships we may have a 5% retention, we may have a 10% retention. We are not retaining most of the risk whether it’s been fronting or programs..

Programs, right..

Okay. And just a follow-on question on the E&S progress. So, as Charles mentioned, the expense ratio was down pretty significantly, but the core loss ratio was also up 200 bps year-over-year.

So is there any pricing adjustment that’s happening in that segment for the scale advantages you’re starting to see?.

No, as I mentioned, we think pricing is flat and loss trends are benign. But this really has to do with the methodology that we have used for 15 or for a long, long time, for years and years and years, which is – let’s build a strong balance sheet that we have a high level of confidence and let the tax emerge over time.

So we put up – using our methodology, we put up reserves that we think are prudent.

And if you look at our combined ratios, accident year combined ratios expressed over time, you’ll see a remarkable consistency even as we’ve also enjoyed a long, long, many, many year string of reductions in our calendar year loss ratios, because of reserve release from prior years. So, for example, I was looking last night.

We reported accident year combined ratio at June 30, 2015 of 100.2 compared to a 100.1 today. And for the quarter, the second quarter of 2015, we recorded a calendar year – I mean, sorry, accident year combined ratio of 100.2 versus 100.1.

So, we’re really very consistent about the way and the methodology we used to develop our conservative we hope where prudent balance sheet and let the facts emerge over time. And that’s worked really well for us and we expect it will continue to work well for us and well for our investors..

Okay, great. That’s really helpful. And then just finally a very macro level question just with some market rumors out there.

Are you seeing any like just more chatter on like specialty M&A? There’s just been – there has been things out there, so I’m just trying to see if that’s becoming more of an interest possibly what’s happening at Lloyds or any just background or color you could give on that would be great..

I’ve never been through a period of time in 30 plus years when there wasn’t a lot of chatter about this combination or couldn’t we imagine that combination or what. And so, it seems like a constant to me. And we’re really focused – very focused on building the business, serving the customers.

We don’t get too wrapped up in the background noise associated with that. I’m probably reading the same things you are that Brexit or interest rates in Asia or other world macro conditions are going to lead to M&A activity or not, but we’re just really focused on building the business..

Okay..

It doesn’t feel to me like it’s different than it’s been at many times..

Okay, so it’s roughly constant..

Yes..

So, you’re not seeing – not a dramatic improvement..

Yes..

Okay. Well, great. Thanks for all the extra color and best of luck on 3Q..

Thank you very much..

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

Good morning. This is Mike on for Brian. I’ve got a couple questions. First quarter, you provided guidance for the year in terms of 12% or better return on average tangible equity and combined ratio between 92% and 95%.

Are you still on track to hit these targets or it become a bit more difficult to achieve? And then as a follow on I know you’ve briefly touched on this before, but the company wide underline loss ratio ticked up during the quarter.

Do you expect that to be more consistent going forward? And then lastly and more broadly, could you discuss competition across the segments and how that’s impacting rates? Thank you..

Well, this is Bob Myron. Why don’t I take the first one, which – sorry remind me what that once again..

Guidance..

With respect to guidance, yes, but there is no change to our guidance. I guess by being silent, we were in effect suggesting that there is no change. And I think our plan would be to give it in February once a year. And if we don’t comment on it then there would be no change.

With respect to the change in the loss, I think you said the underlying and I think you mean the underlying loss ratio. I would default back to what Adam just said in answering the previous question. I think unless you’re asking a different question, I think that probably answered it pretty comprehensively.

And then do you want to take the last one Adam, the third one I think it was a question about competition..

Yes. Look at the competitive world, but we’re growing with flat rates. And we’re – we see plenty of opportunities and we’re taking advantage of those. We feel like across the board, rate, per unit of risk, if you assemble the whole portfolio is pretty constant and we like that and we’re growing. So we’re getting more of it.

This is a competitive industry. It always is a competitive industry. But right now in this period of low interest rates when people can’t reasonably look themselves of their investors in the eye and estimate a long series of earnings off of reserves at a high yield rate. I think the discipline in the industry is pretty decent.

And meanwhile, the E&S segment, which represents the overwhelming majority of our total premium because you have to add the E&S business that we write in our reinsurance segment in when you measure this. The E&S segment is enjoying a continued growth and really good profitability.

So don’t feel it all squeezed and just to the contrary we feel very optimistic..

And let me just add to that that in a rate environment that we think is good and rates are flat and with benign loss trends, the scale benefit that we’re getting with our growth and the lower expense ratio makes us to feel good about the existing margins that we’re getting in the fact that for us the margins kind of improved because of that expense scale.

So we think that this is a good environment to be continuing the writing business, in particular Excess and Surplus Lines business at these prices given our expense efficiency..

Great, thanks..

Your next question comes from the line of Alex Combs from FBR Capital Markets. Your line is open..

Hi, good morning, everyone. Mostly asked and answered at this point, but I guess if you could talk about reserves quickly. Redundancies continue to be strong in the E&S segment this quarter.

Can you give any color on what accident years or classes you’re seeing redundancies in here?.

Sure. To be – it’s pretty spread out. There wasn’t one year in particular where there was a huge movement in reserves from an accident year perspective. And so, it was I think 2010, 2011 – 2009, 2010, 2011, 2012, 2013, 2014 and no one year was particularly large when we look at the group as a whole. So we were pleased with that..

And its backend and you might want to just talk about the approach to reserve and generally being backend in the second half of the year..

Yes, generally, as you may know, we in conjunction with having third party actuarial studies done in the third and fourth quarter, we have a tendency to wait until the latter half of the year to give consideration to potentially larger reserve releases.

As a result of that we’ve always guided to the last two quarters of year potentially having higher underwriting income than the first – than the first couple of quarters in the year. And that’s the case in any period and was the case in our actual results in the prior year..

Okay, understood. And then a pretty diverse spread across the various underwriting divisions within E&S as well..

Yes, I would say that it was. Nothing jumped out in terms of different divisions. I mean we do have a tendency to focus very much on the accident years, but there is also a divisional analysis. And I don’t think that there was anything that was any wild swings or significant swings between divisions..

Okay, and then sticking on reserves and jumping over to the casualty reinsurance segment, the past few quarters, we’re seeing some adverse development here and this quarter we actually saw a redundancy come through.

So how should we think about this going forward and anything in particular that drove this redundancy?.

I’ll just point out that we’ve got favorable development on a year-to-date basis as well. I think that it’s several things. I think we’ve got a new team of people that have been on board in our reinsurance segment since 2012 and we’ve been really pleased with how they’ve priced and underwritten the business.

The underlying business has been moved to more of a specialty focus. Obviously, there’s a significant amount of Excess and Surplus Lines in there with a focus on general liability. The underlying pricing for the business, as you know, is 95% plus quota share. The underlying pricing has been pretty good over the last few years.

And so, we think that it’s a situation whereby we’ve had several years of a new team with improved underwriting and approved underlying rates, 2011 and prior is farther away in the rearview mirror. So, we feel better about the reserve position there than we would have a few years ago.

And that’s been manifested in the results that we’ve seen in the reserves..

Okay, great. Thanks for the answers. That’s all I have..

[Operator Instructions] Your next question comes from the line of Mark Hughes from SunTrust. Your line is open..

Just a quick follow up actually….

Good morning, Mark..

Sorry, this is Kevin again. A quick follow up on the increased submissions.

Do you see that’s coming in as more of – from existing relationships or these new relationships coming on?.

So, these are existing relationships where we’re working very hard to make sure that we do from time to time, add relationships, but we have very broad relationships with the wholesale brokerage community. We are – by the way it’s worth noting that we are completely a wholesale market in the E&S side of that business.

And those relationships are deep and they’re broad. And we worked very hard. Our team in Richmond and their offices in Arizona and Atlanta worked very hard to service that business efficiently for ourselves and for the brokers, and it pays off in terms of increased submissions and deeper penetration.

And so, we’re very appreciative of those partners and proud of what we’re doing together..

Good, thank you so much..

We have no further questions at this time. I turn the call back over to you Adam Abram..

Thank you, Catlin, and thank you everybody, who participated on the call. And we look forward to further communications with you and appreciate the support for our company. Thank you and we’ll speak soon..

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation and have a wonderful day. You may all disconnect..