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In This List

James River commercial loss estimates rise after growth of ride-hailing business

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James River commercial loss estimates rise after growth of ride-hailing business

James River Group Holdings Ltd. sharply increased its presence in the commercial auto space through its arrangement with a ride-hailing giant even as that insurance segment overall has struggled in the last few years.

Now the partnership is ending, as James River announced it will cancel all insurance policies for Uber Technologies Inc. affiliate Rasier LLC, effective Dec. 31, after the account failed to meet the company's profitability expectations.

S&P Global Market Intelligence data shows that the company scaled up its commercial auto business beginning in 2016. Its loss ratios appeared to improve for the next two accident years, declining to 71.7% in 2018 from 108.2% in 2016 as net premiums earned nearly tripled to $95.8 million over the same period. However, its initial estimates for losses have climbed steeply along with those premium gains and reserve development spiked for the 2016 accident year.

The commercial auto industry posted overall losses for the last several years, and most of the largest underwriters in the sector reported combined ratios of at least 100% for 2018.

In the same announcement disclosing its decision to cancel the policies for Rasier LLC, James River said pretax adverse development of up to $60 million will be added to its 2016 and 2017 accident years. The company said those losses were "primarily" related to its commercial auto line within the excess and surplus segment. The remainder, less than $10 million, are related to the casualty reinsurance segment.

James River's arrangement with the Uber affiliate accounted for nearly half of the business in its excess and surplus lines segment. The account generated $294.3 million of gross written premiums and $13.9 million of gross fee income, or 44.8% of the business. It also represented more than 25% of the company's total consolidated gross written premiums in 2018, according to an annual financial report.

Back in April, sell-side analyst Bijan Moazami said he did not think the company would be able to hold onto the business given the profile of Uber's other insurers. And a day after the Rasier news broke, B. Riley analyst Randy Binner cut James River's shares to "sell" from "neutral," citing the likely persistence of reserving concerns.

James River CEO Robert Myron acknowledged during a May conference call that the insurer experienced elevated losses from its Uber business, with a considerable concentration in Florida for the 2016 accident year. At the time, the executive expressed confidence that Uber's safety initiatives and James River's claims investments would quiet the static for the line.

However, James River ultimately forecast that the business would not be profitable enough justify maintaining.

The insurer's stock tumbled more than 22% the day after the announcement.

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