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KBW upgrades James River Group to 'outperform' on reserve position

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KBW upgrades James River Group to 'outperform' on reserve position

Keefe Bruyette & Woods analyst Meyer Shields upgraded his call on James River Group Holdings Ltd. to "outperform" from "market perform" after finding that the company may have overstated its year-end 2017 GAAP loss and loss adjustment expense reserves by approximately $80 million.

The analyst noted that the vast majority of the redundancies are in the company's noncommercial auto excess and surplus lines business, for which its initial accident-year loss figures have generally developed very favorably over time. The only year between 2008 and 2016 in which that segment saw adverse reverse development was 2002, Shields said, adding that he does not expect this "anomaly" to recur.

The analyst also sees James River Group as an attractive M&A candidate due to its solid long-term underwriting track record and "demonstrated innovation skills" should the industrywide consolidation persist.

Shields raised his price target to $42 per share from $38 per share. He increased his EPS predictions for 2018 and 2019 to $2.65 and $2.75 from $2.50 and $2.60, respectively.