James River Group’s outlook downgraded by AM Best amid discovery of material weakness

AM Best has updated its outlook on several subsidiaries of James River Group, revising it to negative from stable, while the financial strength rating (FSR) of A- (Excellent) and the long-term issuer credit ratings (Long-Term ICR) of “a-” (Excellent) for most of these subsidiaries have been affirmed. Additionally, the Long-Term ICR of “bbb-” (Good) for JRG Holdings has also been affirmed with a revised negative outlook.

Concurrently, JRG Reinsurance (JRG Re) also experienced a downgrade in its FSR to B++ (Good) from A- (Excellent) and its Long-Term ICR to “bbb+” (Good) from “a-” (Excellent). JRG Re’s credit ratings have also been placed under review with negative implications.

The affirmed FSR of A- (Excellent) and the Long-Term ICRs of “a-” (Excellent) with negative outlooks apply to the following JRG Holdings subsidiaries:

• James River Insurance Company
• James River Casualty Company
• Falls Lake National Insurance Company
• Stonewood Insurance Company
• Falls Lake Fire and Casualty Company
• Carolina Re, Ltd.

The subsidiaries of JRG Holdings, located in Pembroke, Bermuda, Richmond, VA, and Raleigh, NC, are recognized for their strong balance sheet, adequate operating performance, neutral business profile, and marginal enterprise risk management (ERM).

These rating adjustments follow recent announcements by JRG Holdings regarding material weakness in its internal control over financial reporting and plans to sell JRG Re. Furthermore, the company is exploring strategic business alternatives, including a potential sale, merger, or other strategic action. The negative outlook reflects the uncertainty these announcements bring to the organization, as well as the risks associated with executing these initiatives.

The downgraded ratings of JRG Re are also influenced by AM Best’s perception of the company’s reduced integral role in JRG Holdings’ strategic, operational, and financial plans. This perspective is supported by JRG Holdings’ decision to halt underwriting business in JRG Re in 2023 following operating losses over several quarters.

Additionally, JRG Holdings has entered into a definitive agreement to sell JRG Re to Fleming Intermediate Holdings LLC at 0.75 times the book value of JRG Re at closing. The transaction’s closure is anticipated in the first quarter of 2024, pending regulatory approvals.

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