James River Group Holdings Ltd Annual Report 2017

Plain-text annual report

TABLE OF CONTENTS UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549FORM 10-KFOR ANNUAL AND TRANSITIONAL REPORTS PURSUANT TOSECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934(Mark One)xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended December 31, 2017or¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Commission file number 001-36777JAMES RIVER GROUP HOLDINGS, LTD.(Exact name of registrant as specified in its charter)Bermuda98-0585280(State of Incorporation)(IRS Employer Identification No.)Wellesley House, 2nd Floor90 Pitts Bay Road, Pembroke, BermudaHM 08(Address of principal executive offices)(Zip Code)Registrant’s telephone number, including area code: (441) 278-4580Securities registered pursuant to Section 12(b) of the Act:Common Shares, par value $0.0002 per share(Title of Class)NASDAQ Global Select Market(Name of Exchange on which Registered)Securities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No xIndicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act. Yes ¨ No xIndicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and postedpursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, a smaller reporting company, or emerging growth company. Seethe definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer xAccelerated filer oNon-accelerated filer oSmaller reporting company oEmerging Growth Company oIf an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No xThe aggregate market value of the Registrant’s common shares held by non-affiliates of the Registrant as of June 30, 2017, computed by reference to the closing sales price on theNASDAQ Global Select Market on that date, was approximately $879,232,250.The number of the Registrant’s common shares outstanding was 29,739,509 as of February 26, 2018.DOCUMENTS INCORPORATED BY REFERENCE:Portions of the James River Group Holdings, Ltd. Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-Kwith respect to the 2018 Annual General Meeting of Shareholders are incorporated by reference into Part III hereof. TABLE OF CONTENTS PagePART I 4Item 1.BUSINESS4Item 1A.RISK FACTORS38Item 1B.UNRESOLVED STAFF COMMENTS60Item 2.PROPERTIES60Item 3.LEGAL PROCEEDINGS69Item 4.MINE SAFETY DISCLOSURE60PART II 61Item 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES61Item 6.SELECTED FINANCIAL DATA64Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS67Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK110Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA111Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE111Item 9A.CONTROLS AND PROCEDURES111Item 9B.OTHER INFORMATION112PART III 113Item 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE113Item 11.EXECUTIVE COMPENSATION113Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS113Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE113Item 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES113PART IV 113Item 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES113Item 16.FORM 10-K SUMMARY117TABLE OF CONTENTSUnless the context indicates or suggests otherwise, references in this Annual Report on Form 10-K to “the Company,” “we,” “us” and “our” refer toJames River Group Holdings, Ltd. and its consolidated subsidiaries.SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K (“Annual Report”) contains forward-looking statements. These statements can be identified by the fact that they donot relate strictly to historical or current facts. In some cases, forward-looking statements may be identified by the use of words such as “anticipates,”“estimates,” “expects,” “intends,” “plans”, “seeks” and “believes,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,”“may” and “could.” These forward-looking statements include, among others, statements relating to our future financial performance, our business prospectsand strategy, anticipated financial position, liquidity and capital needs and other similar matters. These forward-looking statements are based onmanagement’s current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstancesthat are difficult to predict.Our actual results may differ materially from those expressed in, or implied by, the forward-looking statements included in this Annual Report as a resultof various factors, many of which are beyond our control, including, among others:•the inherent uncertainty of estimating reserves and the possibility that incurred losses may be greater than our loss and loss adjustment expensereserves;•inaccurate estimates and judgments in our risk management which may expose us to greater risks than intended;•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;•a decline in our financial strength rating resulting in a reduction of new or renewal business;•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 suchrelationships;•reliance on a select group of customers for a significant portion of our business and the impact of our potential failure to maintain such relationships;•a failure of any of the loss limitations or exclusions we employ;•losses from catastrophic events which substantially exceed our expectations and/or exceed the amount of reinsurance we have purchased to protectus from such events;•potential effects on our business of emerging claim and coverage issues;•exposure to credit risk, interest rate risk and other market risk in our investment portfolio;•changes in laws or government regulation, including tax or insurance law and regulations;•our ability to obtain reinsurance coverage at reasonable prices or on terms that adequately protect us;•losses resulting from reinsurance counterparties failing to pay us on reinsurance claims or insurance companies with whom we have a frontingarrangement failing to pay us for claims;•the potential impact of internal or external fraud, operational errors, systems malfunctions or cyber security incidents;•our ability to manage our growth effectively;•inadequacy of premiums we charge to compensate us for our losses incurred;•the recently enacted Public Law No. 115-97, informally titled the Tax Cuts and Jobs Act, may have a significant effect on us and our shareholders;•in the event we do not qualify for the insurance company exception to the passive foreign investment company (“PFIC”) rules and are thereforeconsidered 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;2TABLE OF CONTENTS•failure to maintain effective internal controls in accordance with Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley”);•changes in our financial condition, regulations or other factors that may restrict our subsidiaries’ ability to pay us dividends; and•other risks and uncertainties discussed under “Risk Factors” and elsewhere in this Annual Report.Accordingly, you should read this Annual Report completely and with the understanding that our actual future results may be materially different fromwhat we expect.Forward-looking statements speak only as of the date of this Annual Report. Except as expressly required under federal securities laws and the rules andregulations of the Securities and Exchange Commission (the “SEC”), we do not have any obligation, and do not undertake, to update any forward-lookingstatements to reflect events or circumstances arising after the date of this Annual Report, whether as a result of new information or future events or otherwise.You should not place undue reliance on the forward-looking statements included in this Annual Report or that may be made elsewhere from time to time byus, or on our behalf. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.3TABLE OF CONTENTSPART IItem 1.BUSINESSGeneralJames River Group Holdings, Ltd. is a Bermuda-based holding company. We own and operate a group of specialty insurance and reinsurance companies.For the year ended December 31, 2017, approximately 63.2% of our group-wide gross written premiums originated from the U.S. excess and surplus (“E&S”)lines market. Substantially all of our business is casualty insurance and reinsurance, and for the year ended December 31, 2017, we derived 96.1% of ourgroup-wide gross written premiums from casualty insurance and reinsurance. Our objective is to generate compelling returns on tangible equity, whilelimiting underwriting and investment volatility. We seek to accomplish this by consistently earning profits from insurance and reinsurance underwriting andgenerating meaningful risk-adjusted investment returns, while managing our capital opportunistically. Our group includes three specialty property-casualtyinsurance and reinsurance segments: Excess and Surplus Lines, Specialty Admitted Insurance and Casualty Reinsurance.We write very little property or catastrophe insurance and no property catastrophe reinsurance. For the year ended December 31, 2017, propertyinsurance and reinsurance represented 3.9% of our gross written premiums. When we do write property insurance, we buy reinsurance to significantly mitigateour risk. We have structured our reinsurance arrangements so that our modeled net pre-tax loss from a 1/1000 year probable maximum loss event is no morethan $10.0 million on a group-wide basis.We report our business in four segments: Excess and Surplus Lines, Specialty Admitted Insurance, Casualty Reinsurance and Corporate and Other.The Excess and Surplus Lines segment sells E&S commercial lines liability and property insurance in every U.S. state and the District of Columbiathrough James River Insurance Company (“James River Insurance”) and its wholly-owned subsidiary, James River Casualty Company (“James RiverCasualty”). James River Insurance and James River Casualty are both non-admitted carriers. Non-admitted carriers writing in the E&S market are not boundby most of the rate and form regulations imposed on standard market companies, allowing them flexibility to change the coverage terms offered and the ratecharged without the time constraints and financial costs associated with the filing of such changes with state regulators. In 2017, the average account in thissegment (excluding commercial auto policies) generated annual gross written premiums of approximately $19,000. The Excess and Surplus Lines segmentdistributes primarily through wholesale insurance brokers. Members of our management team have participated in this market for over three decades and havelong-standing relationships with the wholesale brokers who place E&S lines accounts. The Excess and Surplus Lines segment produced 49.0% of our grosswritten premiums and 61.3% of our net written premiums for the year ended December 31, 2017.The Specialty Admitted Insurance segment has two areas of focus. We write a select book of workers’ compensation coverage for building trades,healthcare employees and light manufacturing, among other light to medium hazard risks in select Southeastern and Eastern U.S. states, as well as frontingbusiness which has become a significant element of our revenues and profits in this segment, and program business which we are de-emphasizing as webelieve fronting offers better risk adjusted return potential. We have admitted licenses in 49 states and the District of Columbia. In our fronting business, weretain a small percentage of the risk, generally 10% or less, and seek to earn fee income by allowing other carriers and producers to access our licensure,ratings, and underwriting and claims expertise. In our program business, our historic net retention was more than 10%. The Specialty Admitted Insurancesegment accepts applications for insurance from a variety of sources, including independent retail agents, program administrators and managing generalagents (“MGAs”). The segment produced 29.2% of our gross written premiums and 8.0% of our net written premiums for the year ended December 31, 2017.The Casualty Reinsurance segment consists of JRG Reinsurance Company, Ltd. (“JRG Re”), our Bermuda domiciled reinsurance subsidiary, whichprovides proportional and working layer casualty reinsurance to third parties and, until December 31, 2017, to our U.S.-based insurance subsidiaries. TheCasualty Reinsurance segment’s underwriting results only include the results of reinsurance written with unaffiliated companies and do not include thepremiums and losses ceded under our internal quota share arrangement described below. All underwriting profits and losses in our Excess and Surplus Linesand Specialty Admitted Insurance segments are before our internal quota share arrangements are reported in those segments. Our Casualty Reinsurancesegment reflects the underwriting profits and losses of our unaffiliated business only.Typically, we structure our reinsurance contracts (also known as treaties) as quota share arrangements, with loss mitigating features, such as commissionsthat adjust based on underwriting results. We frequently include risk mitigating features in our excess working layer treaties, which allow the cedingcompany to capture a greater percentage of the profits should the business prove more profitable than expected, or alternatively, with additional premiumsshould the business incur higher than expected losses. We believe these structures best align our interests with the interests of our cedents. On a premiumvolume basis, treaties with loss mitigation features including sliding scale ceding commissions represented 67% of the gross premiums written by ourCasualty Reinsurance segment during 2017. We typically do not assume large individual risks in our Casualty4TABLE OF CONTENTSReinsurance segment, nor do we write property catastrophe reinsurance. Most of the policies assumed by our Casualty Reinsurance segment have a $1.0million per occurrence limit, and we typically assume only a portion of that exposure. We believe this structure reduces volatility in our underwriting results.We do not assume third-party property business at our Casualty Reinsurance segment, but we do have a small amount of assumed business with propertyexposure. Two of the three largest unaffiliated accounts written by JRG Re during 2017 were casualty accounts assumed from E&S carriers. The CasualtyReinsurance segment distributes through traditional reinsurance brokers. The Casualty Reinsurance segment produced 21.8% of our gross written premiumsand 30.8% of our net written premiums for the year ended December 31, 2017.Through December 31, 2017, we had intercompany reinsurance agreements under which we ceded 70% of the net written premiums of our U.S.subsidiaries (after taking into account third-party reinsurance) to JRG Re. This business was ceded to JRG Re under proportional, or quota-share, reinsurancetreaties that provide for an arm’s length ceding commission. We exclude the effects of these agreements from the presentation of Excess and Surplus Linesand Specialty Admitted Insurance segments included herein. At December 31, 2017, approximately 69.5% of our cash and invested assets were held inBermuda, which benefits from a favorable operating environment, including an absence of corporate income or investment taxes. We pay a 1% excise tax onpremiums ceded to JRG Re by our U.S. insurance subsidiaries.On December 22, 2017, the United States enacted Public Law No. 115-97, informally titled the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Actsignificantly changed the U.S. Internal Revenue Code of 1986, as amended (the “Code”), including by reducing the U.S. corporate income tax rate from 35%to 21% and imposing a base erosion and anti-abuse tax (“BEAT”). In general, BEAT operates similar to a minimum tax in that it applies to the extent ataxpayer’s BEAT liability exceeds a taxpayer’s regular corporate income tax liability in a given year. BEAT is calculated on a “modified taxable income”base, which adds to the taxpayer’s regular taxable income the amount of certain otherwise deductible payments made to certain foreign affiliates (includingintercompany reinsurance premiums ceded to a related foreign reinsurance company). We plan to make changes to the Company’s structure in 2018 tominimize the impact of BEAT that include the formation of Carolina Re, Ltd. (“Carolina Re”), a Bermuda-domiciled, wholly owned subsidiary of JamesRiver Group, Inc. We expect Carolina Re to be a Class 3A reinsurer and make an irrevocable election to be taxed as a U.S. domestic corporation under Section953(d) of the Code. Effective January 1, 2018, we will discontinue ceding 70% of our U.S.-written premiums to JRG Re and will instead cede 70% of ourU.S.-written premiums to Carolina Re. We also expect Carolina Re will enter into a stop loss reinsurance agreement with JRG Re. While Carolina Re will besubject to U.S. corporate income tax, we do not expect that it will be subject to BEAT in fiscal year 2018 as the Company is expected to have sufficientregular U.S. income tax liability compared to the BEAT liability. The applicability of BEAT depends on a number of factors, and it is unclear whether we willbe subject to BEAT in future periods.The Corporate and Other segment consists of the management and treasury activities of our holding companies and interest expense associated with ourdebt.In 2017, our operating subsidiaries wrote $1,081.9 million of gross written premiums, allocated by segment and underlying market as follows:Gross Written Premiums by Segment Gross WrittenPremiumsYear EndedDecember 31, 2017 % of Total (in thousands) Excess and Surplus Lines segment $530,120 49.0%Specialty Admitted Insurance segment 316,430 29.2%Casualty Reinsurance segment 235,355 21.8% $1,081,905 100.0%Gross Written Premiums by Market Non-admitted markets $683,386 63.2%Admitted markets 398,519 36.8% $1,081,905 100.0%The A.M. Best Company (“A.M. Best”) financial strength rating for our group’s regulated insurance subsidiaries is “A” (Excellent). This rating reflectsA.M. Best’s evaluation of our insurance subsidiaries’ financial strength, operating performance and ability to meet obligations to policyholders and is not anevaluation directed towards the protection of investors.The financial strength ratings assigned by A.M. Best have an impact on the willingness of brokers and agents to submit applications for insurance andreinsurance to our regulated subsidiaries and on the risk profiles of the submissions for insurance5TABLE OF CONTENTSthat our subsidiaries receive. The “A” (Excellent) ratings assigned to our insurance and reinsurance subsidiaries are consistent with our business plans and webelieve allow our subsidiaries to actively pursue relationships with the agents and brokers identified in their marketing plans.Our HistoryIn 2002, a group of experienced insurance executives with a history of starting and operating profitable specialty insurance operations created JamesRiver Group, Inc. (“James River Group”). James River Group was listed on the NASDAQ Stock Market (symbol: JRVR) in 2005 and consistently producedattractive underwriting results. James River Group had two insurance company subsidiaries, James River Insurance and Stonewood Insurance Company(“Stonewood Insurance”). Both of these subsidiaries as well as James River Group remain subsidiaries of ours.In 2007, James River Group’s management team decided to enhance James River Group’s long-term profitability by combining the earnings power ofJames River Group with the efficiency of an affiliated Bermuda domiciled reinsurer. A group of investors led by affiliates of D. E. Shaw & Co., L.P., a globalinvestment and technology firm, acquired James River Group, at which point it ceased trading as a public company. Simultaneously, the investors andmanagement founded and capitalized JRG Re, and we began the process of building our present company.In December 2014, we completed an initial public offering of our common shares (the “IPO”). Affiliates of D. E. Shaw & Co., L.P. and anotherinstitutional investor and its affiliate sold all of the common shares in the IPO. Neither the Company nor any of its management or other shareholders soldshares in the IPO.Our Competitive StrengthsWe believe we have the following competitive strengths:Proven and Strong Management Team Whose Financial Interests are Aligned with Shareholders. Our Chairman and previous Chief Executive Officer,J. Adam Abram, has a history of forming and managing profitable specialty insurance companies. Mr. Abram was the founder of Front Royal Group in 1992,which was sold to Argo Group International Holdings Limited (Nasdaq: AGII) in August 2001. In 2002, Mr. Abram formed James River Group, ourpredecessor company, which enjoyed strong underwriting profits until it was sold to James River Group Holdings, Ltd. in December 2007. Mr. Abram hasalso founded and run successful businesses in the banking and commercial real estate sectors. On October 31, 2017, Mr. Abram announced his retirement asChief Executive Officer effective January 1, 2018. Mr. Abram continues to serve as non-executive Chairman of the Company’s Board of Directors (the“Board”) following his retirement as Chief Executive Officer.Our Chief Executive Officer, Robert P. Myron, who has served in various capacities with our group since 2010, has a history of working in a seniormanagement capacity in the insurance and reinsurance industries in both the United States and Bermuda. Mr. Myron has significant experience working infinance, underwriting and operations of several different insurance and reinsurance companies over the course of his career. On October 31, 2017, Mr. Myronwas appointed as the Company’s new Chief Executive Officer, effective upon Mr. Abram’s retirement (January 1, 2018).Our Chief Financial Officer, Sarah C. Doran, joined our group in January 2017. She has significant experience with capital markets and corporatedevelopment related to the insurance and financial services industry. Ms. Doran has a history of working in a senior manager capacity in finance and advisoryboth within the insurance and reinsurance industry and for various investment banks.The President and Chief Executive Officer of our Excess and Surplus Lines segment, Richard Schmitzer, who has been with our group since July 2009,has a history of working in a senior management capacity in the E&S lines industry. Mr. Schmitzer has significant experience working in underwriting andoperations of several different insurance companies over the course of his career.The President and Chief Executive Officer of our Specialty Admitted Insurance segment, Steven Hartman, has extensive experience as an insurance andreinsurance underwriter and executive, and has the experience and industry knowledge to continue to build out our business initiatives in specialty admittedindividual risk and in fronting business.The President and Chief Executive Officer of our Casualty Reinsurance segment, Dennis Johnson, has a long track-record underwriting specialtyreinsurance risks, particularly in the small account market where we concentrate.All members of our executive management and senior management have equity grants that we believe help align their interests with those of our long-term shareholders.Broad Underwriting Expertise. We strive to be innovative in tailoring our products to provide solutions for our distribution partners and insureds, andwe are willing to entertain insuring many types of risk classifications. As a result, we believe we are a “go to” market for a wide variety of risks. We are able tostructure solutions for our insureds and the wholesale brokers with whom we work because of our deep technical expertise and experience in the niches andspecialties we underwrite.6TABLE OF CONTENTSEmphasis on Lowering Volatility. We earn our profits by taking underwriting and investment risk. We underwrite many classes of insurance and investin many types of assets. We actively seek to avoid underwriting business or making investments that expose us to an unacceptably high risk of large losses.We seek to limit our catastrophic underwriting exposure in all areas, but in particular to property risks and catastrophic events. Our U.S. primarycompanies purchase reinsurance from unaffiliated reinsurers to reduce our net exposure to any one risk or occurrence. In addition, our policy forms andpricing are subject to regular formal analysis to ensure we are insuring the types of risks we intend and that we are being appropriately compensated fortaking on those risks. When we write reinsurance, we seek to avoid catastrophic risks and contractually limit the amount of exposure we have on any one riskor occurrence. We prefer to structure our assumed reinsurance treaties as proportional or quota share reinsurance, which is generally less volatile than excessof loss or catastrophe reinsurance. We believe this structure aligns our interests with those of the ceding company.Meaningful Risk Adjusted Investment Returns. We seek to generate meaningful contributions to company profitability from our investment portfolio.We attempt to follow a diversified strategy that emphasizes the preservation of our invested assets, provides adequate liquidity for the prompt payment ofclaims and produces attractive results for our shareholders. Within that context, we seek to improve risk-adjusted returns in our investment portfolio byallocating a portion of our portfolio to investments where we take measured risks based upon detailed knowledge of certain niche asset classes. Investmentgrade fixed maturity securities make up the majority of our investment portfolio, but we are comfortable allocating a portion of our assets to non-traditionalinvestments. We consider non-traditional investments to include investments that are (1) unrated bond or fixed income securities, (2) non-listed equities or(3) investments that generally have less liquidity than rated bond or fixed income securities or listed equities. Non-traditional investments held atDecember 31, 2017 and their respective percentage of our total invested assets at such date consist of syndicated bank loans (16.5%), interests in limitedliability companies that invest in renewable energy opportunities (2.2%), limited partnerships that invest in debt or equity securities (1.8%), notes receivablefor renewable energy projects (0.5%), and a private debt security (0.3%). While we are willing to make investments in non-traditional types of investments,we seek to avoid asset classes and investments that we do not understand. The weighted average credit rating of our portfolio of fixed maturity securities,bank loans and redeemable preferred stocks as of December 31, 2017 was “A”. At December 31, 2017, the average duration of our investment portfolio was3.5 years.Talented Underwriters and Operating Leadership. The managers of our 15 underwriting divisions have an average of over 27 years of industryexperience, substantial subject matter expertise and deep technical knowledge. They have been successful and profitable underwriters for us in the specialtycasualty insurance and reinsurance sectors. Our segment presidents have an average of 34 years of experience and all have extensive backgrounds andhistories working in management capacities in specialty casualty insurance and reinsurance.Robust Technology and Data Capture. We seek to ground our underwriting decisions in reliable historical data and technical evaluation of risks. Ourunderwriters utilize intuitive systems and differentiated technologies, many of which are proprietary. We have implemented processes to capture extensivedata on our book of business, before, during and after the underwriting analysis and decision. We use the data we collect to inform and, we believe, improveour judgment about similar risks as we refine our underwriting criteria. We use the data we collect in regular formal review processes for each of our lines ofbusiness and significant reinsurance treaties.Focus on Small and Medium-Sized Casualty Niche and Specialty Business. We believe that small and medium-sized casualty accounts, in niche areaswhere we focus, are consistently among the most attractive subsets of the property casualty insurance and reinsurance market. We think the uniquecharacteristics of the risks within these markets require each account to be individually underwritten in an efficient manner.Many carriers have chosen either to reject business that requires individual underwriting or have attempted to automate the underwriting of this highlyvariable business. While we use technology to greatly reduce the cost of individually underwriting these accounts in our Excess and Surplus Lines andSpecialty Admitted Insurance segments, we continue to have our underwriters make individual judgments regarding the underwriting and pricing ofaccounts. Our experience leads us to believe this approach is more likely to produce consistent results over time and across markets. In addition, while webelieve that the insurance and reinsurance industry is generally overcapitalized at this time, we are currently achieving stable rates in our Excess and SurplusLines and Specialty Admitted Insurance segments, which represented 78.2% of our gross written premiums and 69.2% of our net written premiums for thetwelve months ended December 31, 2017. We believe that there are compelling opportunities for measured but profitable growth in many sectors of theinsurance markets we target.Active Claims Management. Our U.S.-based primary insurance companies actively manage claims as part of keeping losses and loss adjustmentexpenses low. We attempt to investigate thoroughly and settle promptly all covered claims, which we generally accomplish through direct contact with theinsured and other affected parties. We have historically been able to close approximately 95% of claims within five years, and as of December 31, 2017, ourreserves for claims incurred but not reported (“IBNR”) were approximately 65.0% of our total net loss reserves.7TABLE OF CONTENTSEfficient Operating Platform. Our Bermuda domicile and operations provide for capital flexibility and an efficient tax structure. At December 31, 2017,approximately 69.5% of our cash and invested assets were held in Bermuda, which benefits from a favorable operating environment, including an absence ofcorporate income or investment taxes. We also have a competitive expense ratio, as we carefully manage personnel and all other costs throughout our groupwhile growing our business. In addition, Bermuda has many advantages as a place of domicile, including a large population of experienced insuranceexecutives, a deep market for reinsurance business and a well-established regulatory regime that has fostered the acceptance of Bermuda-based reinsurers byrating agencies and insurance buyers.Our StrategyWe believe our approach to our business will help us achieve our goal of generating compelling returns on tangible equity while limiting volatility inour financial results. This approach involves the following:Generate Consistent Underwriting Profits. We seek to make underwriting profits each and every year. We attempt to find ways to grow in markets thatwe believe to be profitable, but are less concerned about growth than maintaining profitability in our underwriting activities (without regard to investmentincome). Accordingly, we are willing to reduce the premiums we write when we cannot achieve the pricing and contract terms we believe are necessary tomeet our financial goals.Maintain a Strong Balance Sheet. Balance sheet integrity is key to our long-term success. In order to maintain balance sheet integrity, we seek toestimate the amount of future obligations, especially reserves for losses and loss adjustment expenses, in a consistent and appropriate fashion. FromDecember 31, 2007 through December 31, 2017, we have experienced $123.7 million of cumulative net favorable reserve development.Earn a Meaningful Contribution from Investments. We seek to earn a meaningful contribution to our overall returns from our investment portfolioactivities each year. We attempt to balance the preservation of assets, liquidity needs and mitigation of volatility with returns across our portfolio. We believeour diversified portfolio and ability to source investment opportunities positions us well to generate returns while balancing the importance of maintaining astrong balance sheet.Focus on Specialty Insurance Markets. By focusing on specialty markets in which our underwriters have particular expertise and in which we havefewer competitors than in standard markets, we have greater flexibility to price and structure our products in accordance with our underwriting strategy. Webelieve underwriting profitability can best be achieved through restricting our risk taking on insurance and reinsurance to niches where, because of ourexpertise, we can distinguish ourselves in the underwriting and pricing process.Use Timely and Accurate Data. We design our internal processing and data collection systems to provide our management team with accurate andrelevant information in real-time. We collect premium, commission and claims data, including detailed information regarding policy price, terms, conditionsand the nature of the insured’s business. This data allows us to analyze trends in our business, including results by individual agent or broker, underwriter andclass of business and expand or contract our operations quickly in response to market conditions. We rely on our information technology systems in thisprocess. Additionally, the claims staff also contributes to our underwriting operations through its communication of claims information to our underwriters.Respond Rapidly to Market Opportunities and Challenges. We plan to grow our business to take advantage of opportunities in markets in which webelieve we can use our expertise to generate consistent underwriting profits. We seek to measure rates monthly and react quickly to changes in the rates orterms the market will accept. For the year ended December 31, 2017, our Excess and Surplus Lines segment gross written premiums increased by 42.9% overthe same period in 2016. In this favorable pricing environment, we have taken steps to grow and are increasing gross written premiums across mostunderwriting divisions in this segment. In 2017, our growth was focused in our Commercial Auto, Excess Casualty, Allied Health, Environmental,Manufacturers and Contractors, Small Business, Life Sciences, General Casualty, Sports and Entertainment, and Excess Property divisions within our Excessand Surplus Lines segment. During the same period, we felt rates and terms and conditions were generally less adequate for risks submitted to our ProfessionalLiability, Medical Professionals, and Energy divisions, and we reduced our writings in those divisions. This very specific evaluation of each risk or class ofrisks is a hallmark of our underwriting.When market conditions have been challenging, or when actual experience has not been as favorable as we anticipated, we have tried to act quickly toevaluate our situation and to make course corrections in order to protect our profits and preserve tangible equity. Our actions have included reducing ourwritings when margins tightened and exiting lines or classes of business when we believed the risk of continuing in a line outweighed the potential rewardsfrom underwriting. We do not hesitate to increase loss estimates when we determine that it is appropriate.Manage Capital Actively. We seek to make “both sides” of our balance sheet generate better than average risk-adjusted returns. We invest and manageour capital with a goal of consistently increasing tangible equity for our shareholders and generating attractive returns on tangible equity. We intend toexpand our premium volume and capital base to take advantage of opportunities to earn an underwriting profit or to reduce our premium volume and capitalbase if attractive underwriting8TABLE OF CONTENTSopportunities are not available. We expect to finance our future operations with a combination of debt and equity and do not intend to raise or retain morecapital than we believe we can profitably deploy in a reasonable time frame. We may not, however, always be able to raise capital when needed. We declareddividends to our shareholders of $50.7 million ($1.70 per share including a $0.50 per share special dividend) during 2017, $66.3 million ($2.25 per shareincluding a $1.35 per share special dividend) in 2016 and $47.8 million ($1.64 per share including a $1.00 per share special dividend) in 2015. Specialdividends are only declared when we believe we have excess capital beyond the level needed to support our insurance operations. Our ratings from A.M. Bestare very important to us and maintaining them will be a principal consideration in our decisions regarding capital management.Our StructureThe chart below displays our corporate structure as of December 31, 2017 as it pertains to our holding and operating subsidiaries.Business SegmentsExcess and Surplus Lines SegmentWe report our U.S.-based E&S lines of business in our Excess and Surplus Lines segment. We underwrite non-admitted business through our subsidiaries,James River Insurance Company and James River Casualty Company, from offices in Richmond, Virginia; Scottsdale, Arizona; and Atlanta, Georgia. JamesRiver Insurance is our largest subsidiary as measured by gross written premiums (49.0% of consolidated gross written premiums for the year endedDecember 31, 2017 came from our Excess and Surplus Lines segment) and has been engaged in E&S insurance for 15 years. James River Insurance has had aconsistent record of underwriting profits since its second year of operation. We added James River Casualty in 2009 to give us the ability to write E&S risksin Ohio.E&S lines insurance focuses on insureds that generally cannot purchase insurance from standard lines insurers typically due to perceived risk related totheir businesses. Our Excess and Surplus Lines segment underwrites property casualty insurance on an E&S lines basis in all states and the District ofColumbia. Our Excess and Surplus Lines segment distributes its policies through a network of authorized independent wholesale brokers throughout theUnited States. In 2017, our Excess and Surplus Lines segment’s gross written premiums grew by 42.9% over 2016 through the growth of our commercial autodivision (with a focus on rideshare), as well as across a number of other divisions. The Excess and Surplus Lines segment produced an average combined ratioof 84.9% from 2010 through 2017.Companies that underwrite on an E&S lines basis operate under a different regulatory structure than standard market carriers. E&S lines carriers aregenerally permitted to craft the terms of the insurance contract to suit the particular risk they are assuming. Also, E&S lines carriers are, for the most part, freeof rate regulation. In contrast, standard market carriers are generally required to use approved insurance forms and to charge rates that have been authorizedby or filed with state insurance departments. However, as E&S carriers, our insurance subsidiaries in the Excess and Surplus Lines segment are not backed byany state’s guarantee fund, and in most states these subsidiaries may only write coverage for an insured after they have been denied coverage by the standardmarket and signed declarations stating that the insured is aware that it will not have access to any state guarantee funds should these subsidiaries be unable tosatisfy their obligations.9TABLE OF CONTENTSOur Excess and Surplus Lines segment writes policies for a wide range of businesses and does not write personal lines insurance. Applications forinsurance are presented to us by authorized wholesale brokers who are typically engaged by retail agents after their clients have been rejected by standardmarkets.In late 2017, the Excess and Surplus Lines segment started a Binding Contract Division where limited authority for underwriting is granted to a selectgroup of agents on a select group of General Liability classes through a company designed portal. We expect to produce less than 1% of our total grosswritten premium through that distribution model in the coming year.All claims for business written by the Excess and Surplus Lines segment are managed by its internal claims department although we use independentadjusters for inspection and payment of certain claims.The chart below identifies the Excess and Surplus Lines segment’s divisions and sets forth the amount of gross written premiums by each division. Gross Written PremiumsYear Ended December 31,E&S Division 2017 Percentageof Total2017 2016 2015 2014 2013 Commercial Auto $247,960 46.8% $110,050 $73,770 $34,605 $2,527Manufacturers and Contractors 85,719 16.2% 83,279 78,315 72,063 58,509Excess Casualty 51,160 9.7% 43,574 32,458 31,688 32,489General Casualty 38,097 7.2% 36,858 30,972 25,853 20,109Energy 29,704 5.6% 29,709 30,623 28,980 21,400Allied Health 19,181 3.6% 14,413 13,513 9,707 9,148Excess Property 14,447 2.7% 14,083 12,498 11,795 10,988Life Sciences 12,981 2.4% 11,132 8,917 10,155 9,978Small Business 11,307 2.1% 9,104 6,916 6,971 6,313Environmental 7,920 1.5% 5,321 4,437 3,431 2,557Professional Liability 6,326 1.2% 8,361 10,046 10,784 10,695Sports and Entertainment 3,021 0.6% 2,221 2,667 2,753 3,189Medical Professionals 2,297 0.4% 2,739 3,585 3,922 4,492Total $530,120 100.0% $370,844 $308,717 $252,707 $192,394Commercial Auto underwrites primarily the hired and non-owned auto liability exposures for a variety of industry segments including package deliveryservices, food delivery services and livery service organizations, and has developed a particular niche for insuring organizations' operating networksconnecting independent contractors with customers (rideshare). One insured (Rasier LLC) produced $216.1 million of gross written premiums, representing40.8% of the Excess and Surplus Lines segment’s gross written premiums and 20.0% of our consolidated gross written premiums for the year endedDecember 31, 2017. The head underwriter in this division has 30 years of experience. Limits assumed are retained by the Company, in some cases subject toself-insured retentions of the insureds.Manufacturers and Contractors writes primary general liability coverage for a number of classes, including manufacturers of consumer, commercial, andindustrial products and general and trade contractors. Typically, we issue a $1.0 million per occurrence limit in this division and we retain the entire $1.0million limit. The individual overseeing this division has 34 years of industry experience.General Casualty writes primary liability coverage on businesses exposed to premises liability type claims, including: real estate, mercantile and retailoperations, apartments and condominiums, daycare facilities, hotels and motels, restaurants, bars, taverns and schools. The head underwriter in this divisionhas 30 years of experience. Typically, we write $1.0 million per occurrence in limits, and we retain the entire $1.0 million limit.Excess Casualty underwrites excess liability coverage for a variety of risk classes, including: manufacturers, contractors, distributors and transportationrisks. Typically, we provide between $1.0 million and $10.0 million per occurrence limits above a $1.0 million attachment point. Of this amount, we retainup to $1.0 million of exposure per occurrence and cede the balance to our reinsurers. We write excess liability coverage above our own primary policies, aswell as policies issued by third parties. When we write above others’ policies, we are selective regarding underlying carriers, focusing on the nature of thebusiness, the10TABLE OF CONTENTSfinancial strength of the carrier, their pricing and their claims handling capabilities. The underwriter who heads this division has 34 years of industryexperience.Energy writes risks engaged in the business of energy production, distribution or mining, and the manufacture of equipment used in the energy businesssegment. Examples of classes underwritten by this division include oil and gas exploration companies, oil or gas well drillers, oilfield consultants, oil or gaslease operators, oil well servicing companies, oil or gas pipeline construction companies, fireworks manufacturing, mining-related risks, and utility andutility contractors. We provide policy limits up to $11.0 million, with typical limits between $1.0 million and $5.0 million per occurrence, retaining up to$1.0 million in limit net on either a primary or excess basis. The underwriter leading this division has 46 years of experience in the business.Allied Health underwrites casualty insurance for allied health and social service types of risks, such as long-term care facilities, independent livingapartments, group homes, half-way houses and shelters, drug rehab, home health care and medical staffing enterprises. We provide policy limits up to $11.0million, with typical limits between $1.0 million and $5.0 million per occurrence, retaining up to $1.0 million in limit net. The underwriter responsible forthis unit has 24 years of experience in the business. Approximately 89% of the premiums written by our Allied Health division from inception through 2017have been written on a claims made and reported form. We believe this policy form significantly reduces our long-term exposure in this complicated class ofbusiness.Excess Property writes property risks providing limits in various layers above the primary coverage layer for a variety of classes, including apartments,condominiums, resorts, shopping centers, offices and general commercial properties. Typical per risk limits offered range from $5.0 million to $30.0 millionon a gross basis, and a maximum of $5.0 million on a net of reinsurance basis. The average net per risk limit is approximately $3.2 million as of December 31,2017. We retain up to the first $5.0 million in any one event or catastrophe. We have purchased catastrophe reinsurance of $40.0 million in excess of a $5.0million retention. The underwriter leading our Excess Property division has 32 years of experience in the industry.Life Sciences underwrites general liability, products liability and/or professional liability coverage for manufacturers, distributors and developers ofbiologics (antibodies & vaccines used for the prevention of disease), nutraceuticals (health, nutrition and herbal supplements), human clinical trials,pharmaceuticals (mainly generics and over-the-counters) and medical devices. This division also writes a book of medical and recreational marijuanabusiness. We provide policy limits up to $11.0 million, with typical limits between $1.0 million and $5.0 million per occurrence, retaining up to $1.0 millionin limit net. The underwriter at the head of this division has 34 years of experience in the industry.Small Business concentrates on accounts with annual primary liability insurance premiums of less than $10,000. For these small risks, we limitflexibility in coverage options and pricing to facilitate quick turnaround and efficient processing. We generally write $1.0 million per occurrence limits andretain the entire amount. The underwriter leading this division has 30 years of industry experience.Professional Liability writes professional liability coverage for accountants, architects, engineers, lawyers and certain other professions. We providepolicy limits up to $11.0 million, with typical limits between $1.0 million and $5.0 million per occurrence, retaining up to $1.0 million in limit net. Theindividual who directs our professional liability division has 24 years of industry experience. All of our professional liability coverage is written on a claimsmade and reported basis.Environmental underwrites contractors’ pollution liability, products pollution liability, site specific pollution liability and consultant’s professionalliability coverage on a stand-alone basis and in conjunction with the general liability coverage. The underwriter heading our Environmental division has 46years of experience in the business. We generally write environmental coverage for contractors who are not engaged in environmental remediation work onan occurrence form. We provide policy limits up to $11.0 million, with typical limits between $1.0 million and $5.0 million per occurrence, retaining up to$1.0 million in limit net on a primary or excess basis.Medical Professionals underwrites non-standard physicians’ professional liability for individuals or small groups. Our healthcare business is a mix ofboth surgical and non-surgical classes. We typically provide between $1.0 million and $3.0 million per occurrence limits and retain up to $1.0 million ofexposure per occurrence and cede the balance to our reinsurers. All of the policies written by this division have been issued on a claims made and reportedbasis. The underwriter leading this division has 24 years of experience.Sports and Entertainment underwrites primary liability coverage for sports and entertainment related risks, including special events, familyentertainment centers, tourist attractions, health clubs and sport teams, leagues and complexes. Typical limits offered are up to $1.0 million per occurrence,and we retain the entire $1.0 million limit. The underwriter at the head of this division has 30 years of experience in the industry.The following table identifies the top ten producing states by amount of gross written premium for our Excess and Surplus Lines segment for the yearended December 31, 2017 and the amount of gross written premium produced by such states for the years ended December 31, 2016, 2015, 2014 and 2013.The table also shows the percentage of each states’ gross written11TABLE OF CONTENTSpremium to total gross written premium in the Excess and Surplus Lines segment for the years ended December 31, 2017, 2016 and 2015. 2017 2016 2015 2014 2013State GrossWrittenPremiums % ofTotal GrossWrittenPremiums % ofTotal GrossWrittenPremiums % of Total GrossWrittenPremiums GrossWrittenPremiumsCalifornia $153,340 28.9% $114,107 30.8% $125,343 40.6% $94,837 $56,241Florida 55,502 10.5% 35,765 9.6% 23,853 7.7% 17,295 14,277New York 47,585 9.0% 39,407 10.6% 24,314 7.9% 19,970 14,258Texas 29,567 5.6% 26,708 7.2% 24,491 7.9% 21,644 16,963Illinois 25,853 4.9% 16,548 4.5% 8,335 2.7% 7,295 6,318New Jersey 17,486 3.3% 11,150 3.0% 7,025 2.3% 6,462 6,237Georgia 15,787 3.0% 7,464 2.0% 3,768 1.2% 3,327 2,859Washington 13,697 2.6% 10,270 2.8% 7,069 2.3% 6,094 5,007Massachusetts 13,587 2.5% 8,496 2.3% 4,835 1.6% 3,010 2,816Pennsylvania 12,041 2.3% 8,666 2.3% 7,135 2.3% 6,631 4,285All other states 145,675 27.4% 92,263 24.9% 72,549 23.5% 66,142 63,133Total $530,120 100.0% $370,844 100.0% $308,717 100.0% $252,707 $192,394Marketing and DistributionThe Excess and Surplus Lines segment distributes its products through a select group of licensed E&S lines brokers that we believe can producereasonable volumes of quality business for James River Insurance consistently. These brokers procure policies for their clients from us as well as from otherinsurance companies. At December 31, 2017, the segment had authorized 121 broker groups to work with us. The Excess and Surplus Lines segmentgenerally makes broker authorizations by brokerage office and underwriting division. With the exception of one hired and non-owned auto program(combined premiums of approximately $11.5 million for 2017) the Excess and Surplus Lines segment does not grant its brokers underwriting or claimsauthority. In late 2017, we introduced a Binding Contract Division where limited authority for underwriting is granted to a select group of agents on a selectgroup of General Liability classes through a company designed online portal.Our Excess and Surplus Lines segment selects its brokers based upon management’s review of the experience, knowledge and business plan of eachbroker. While many of our Excess and Surplus Lines segment’s brokers have more than one office, we evaluate each office as if it were a separate entity.Often, our Excess and Surplus Lines segment authorizes some but not all offices owned by a brokerage for specialized lines of business. Brokers must be ableto demonstrate an ability to competently produce both the quality and quantity of business that we seek. Brokers unable to produce consistently profitablebusiness, or who produce unacceptably low volumes of business, may be terminated. Our Excess and Surplus Lines segment’s underwriters regularly visitwith brokers in their offices in order to discuss the products that we offer and the needs of the brokers. We believe the personal relationships we foster withindividual brokers and our ability to respond to a wide variety of risks placed by these brokers make us an important market for them.Our Excess and Surplus Lines segment’s two largest brokers produced $324.0 million of gross written premiums for the year ended December 31, 2017,representing approximately 61.2% of the Excess and Surplus Lines segment’s gross written premiums for 2017. The two largest brokers produced $253.7million (BB&T Insurance Services represented 23.5% of consolidated gross written premiums) and $70.3 million of gross written premiums for the year endedDecember 31, 2017, respectively. One insured (Rasier LLC) produced $216.1 million of gross written premiums (representing 20.0% of our consolidatedgross written premiums) and $16.9 million of fee income for the year ended December 31, 2017.In 2017 and 2016, our Excess and Surplus Lines segment paid an average commission to producers of 10.9% and 14.9%, respectively, of gross writtenpremiums.UnderwritingOur Excess and Surplus Lines segment’s staff includes over 145 individuals directly employed in underwriting policies as of December 31, 2017. We arevery selective about the policies we bind. Our Excess and Surplus Lines segment binds approximately 3% of new submissions and one out of every six newquotes. We realize all excess and surplus lines applications have already been rejected by the standard market. If our underwriters cannot reasonably expectto bind coverage at the combination of premiums and coverage that meet our standards, they are encouraged to quickly move on to another prospective12TABLE OF CONTENTSopportunity. For the year ended December 31, 2017, we received approximately 203,200 submissions (new and renewal, excluding commercial autopolicies), quoted 47,400 policies and bound 13,700 policies.When we accept risk in our Excess and Surplus Lines segment, we are careful to establish terms that are suited to the risk and the pricing. As an excessand surplus lines writer, we use our freedom of rate and form in order to make it possible to take on risks that have already been rejected by admitted carrierswho have determined they cannot insure these risks on approved forms at filed rates.We attempt to craft policies that offer affordable protection to our insureds by tailoring coverage in ways that make potential losses more predictable andare intended to reduce claims costs. For example, we frequently use a “punitive damages exclusion” and “defense inside the limits” endorsements, intendedto prevent excessive defense costs; “assault and battery” exclusions or sub limits that are less than the full policy limits which allows us to quantify and limitour losses more precisely than in policies without the exclusion; and “classification limitation” and “specified location” endorsements that limit coverage toknown exposures and locations. We have no material exposure to asbestos, lead paint, silica, mold, or nuclear, biological, or chemical terrorism.We design our internal processing and data collection systems to provide our management team with accurate and relevant information in real-time. Ourdata warehouse collects premium, commission and claims data, including detailed information regarding policy price, terms, conditions and the nature of theinsured’s business. This data allows us to analyze trends in our business, including results by individual broker, underwriter and class of business and expandor contract our operations quickly in response to market conditions. We rely on our information technology systems in this process. Additionally, the claimsstaff also contributes to our underwriting operations through its communication of claims information to our underwriters.ClaimsWe believe that effective management of claims settlement and any associated litigation avoids delays and associated additional costs.Our Excess and Surplus Lines segment’s claims department consists of over 370 claims professionals as of December 31, 2017 with significant claimsexperience in the property casualty industry.Our excess and surplus lines business generally results in claims from premises/operations liability, professional liability, hired, and non-owned autoliability, auto physical damage, first party property losses and products liability. We believe the key to effective claims management is timely and thoroughclaims investigation. We seek to complete all investigations and adjust reserves appropriately as soon as is practicable after the receipt of a claim. We seek tomanage the number of claims per adjuster to allow adjusters sufficient time to investigate and resolve claims. Each quarter, senior management reviews eachcase above a specified amount to evaluate whether the key issues in the case are being considered and to monitor case reserve levels. We keep the settlementauthority of front-line adjusters low to ensure the practice of having two or more members of the department participate in the decision as to whether to settleor defend. In addition, cases with unusual damage, liability or policy interpretation issues are subjected to peer reviews. Members of the underwriting staffparticipate in this process. Prior to any scheduled mediation or trial involving a claim, claims personnel conduct further peer review to make sure all issuesand exposures have been adequately analyzed.Our claims staff also contributes to our underwriting operations through communication of claims information to our underwriters. The Senior VicePresident and Chief Claims Officer heads our forms committee, which reviews and develops all policy forms and exclusions and is also a member of theunderwriting review committee.Approximately 95% of all claims received are closed within five years in the Excess and Surplus Lines segment.13TABLE OF CONTENTSThe calendar year net loss ratios for the Excess and Surplus Lines segment for the last ten years were:200861.4%200962.6%201054.9%201148.5%201252.6%201340.4%201455.2%201554.5%201662.6%201780.2%The 2017 calendar year loss ratio for the Excess and Surplus Lines segment was impacted by adverse reserve development of $38.7 million in the commercialauto line of business that was primarily related to the 2016 contract year with one insured.Specialty Admitted Insurance SegmentThe Falls Lake Insurance Companies (“Falls Lake”) comprise our other U.S. insurance segment, Specialty Admitted Insurance. Falls Lake is currentlylicensed to underwrite admitted insurance in 49 states and the District of Columbia. Falls Lake consists of Falls Lake National Insurance Company (an Ohiodomiciled company, licensed in 48 states and the District of Columbia), and its subsidiaries Stonewood Insurance Company (a North Carolina domiciledcompany, licensed in North Carolina, South Carolina, Georgia, Tennessee, Virginia, Louisiana, Mississippi, Kansas, Missouri, and Alabama), Falls LakeGeneral Insurance Company (an Ohio domiciled company, licensed in OH and registered as a surplus lines company in several states), and Falls Lake Fire andCasualty Company (a California domiciled company, licensed in California). The Specialty Admitted Insurance segment produced 29.2% of consolidatedgross written premiums for the year ended December 31, 2017.Our plan is to continue to use our broad licensure and significant management expertise to earn substantial fee income as well as underwriting profits.The Specialty Admitted Insurance segment consists of:•our individual risk workers’ compensation business, underwritten by our staff and generated by appointed agents in North Carolina, Tennessee,Virginia, South Carolina, Georgia, New Jersey, Pennsylvania, Massachusetts and Rhode Island, produced 13.9% of 2017 gross written premiums inthis segment, (21.7% in 2016, 39.5% in 2015, 50.7% in 2014, and 97.3% in 2013); and•fronting and program business written through selected MGAs, insurance carriers, and other producers which represented 86.1% of 2017 grosswritten premiums in this segment, (78.3% in 2016, 60.5% in 2015, 49.3% in 2014, and 2.7% in 2013).Traditional Workers’ Compensation BusinessOur individual risk workers’ compensation business, produced through a distribution channel comprised of appointed independent retail agents and alimited number of appointed wholesale brokers, remains a regionally focused effort in select Southeastern and Eastern U.S. states. For the year endedDecember 31, 2017, approximately 60% of our retail produced workers’ compensation direct written premiums were in North Carolina, 18% were in Virginia,15% were in South Carolina, and 5% were in Tennessee, with the remainder from the combination of Georgia, Massachusetts, Pennsylvania and New Jersey.Building trades represented approximately 29% of the direct premiums in force in our retail produced workers’ compensation book in 2017. Other significantindustry groups include healthcare employees (16%), goods and services (14%), manufacturing (11%), specialty transportation (9%) and agriculture (6%).We view our retail produced workers’ compensation business as a core competency, and seek to make consistent underwriting profits from it. We recognizethe cyclical nature of this line, and are prepared to contract the business rapidly when rates decline or the regulatory or economic environment makes itdifficult to contain costs.Fronting BusinessIn our fronting business we issue insurance policies for another insurance company which may not have the licensure, product suite or rating to serve itsdesired market, or for a program supported by reinsurance or alternative capital provider(s). We generally retain 10% or less of the underwriting risk in ourfronting business. The issuance of our policy makes us contractually responsible to the insured in the event they experience a covered loss. We enter intothese arrangements selectively with counterparties which have significant experience and market presence in their desired segment of property/casualty,workers compensation or automobile business. Underwriting, claims and financial performance is subject to regular14TABLE OF CONTENTSreview by our staff, and we hold appropriate collateral to manage counterparty credit risk. We specifically grant limited authority for underwriting and claimsadministration, and employ a rigorous review process to ensure the authority is appropriately used within the terms of our contract, and that collateral held byus is appropriate as determined by our personnel. We charge fees as a percentage of gross written premiums for issuing these policies. We establish frontingopportunities through a variety of sources, including direct carrier relationships, General Agents and reinsurance brokers.Due to our broad licensure and product filings, we are positioned to support this business on a broad basis throughout the U.S. As a result of the limitedcapital allocation required to support it, we believe the fronting business represents a very efficient use of capital with a high relative return potential. Wematerially expanded this business in 2017. One fronting program (Atlas General Insurance Services) produced $183.0 million of gross written premiums in2017 representing 16.9% of consolidated gross written premiums and 57.8% of the Specialty Admitted Insurance segment's gross written premiums.Our objective over time is to utilize the combination of fee income and underwriting profits from our Specialty Admitted Insurance segment to leverageour capital and enhance returns on tangible equity. Additionally, we expect that this fee income, which was $11.3 million in 2017, will be increasinglymaterial in future periods and provide us with a steady revenue stream.Program BusinessAs part of our plan to become less susceptible to admitted market cycles in our core business, we expanded into the program business beginning in 2013.In a program arrangement, we give selected General Agents authority to produce, underwrite and administer policies that meet our strict underwriting andpricing guidelines. We enter into these arrangements selectively with agents who have significant experience and market presence in specialty class ofproperty/casualty and automobile risks. Underwriting, claims and financial performance is subject to regular review by our staff. We only work with GeneralAgents who permit us to actively engage with them through a combination of onsite and offsite resources to facilitate our real-time supervision of their work.We specifically grant limited authority for underwriting and claims administration, and employ a rigorous review process to ensure the authority isappropriately used. Given market conditions and poor underwriting results, we began de-emphasizing program business in 2017.Two programs were active and producing business as of December 31, 2017. During 2017, 6% of the segment’s gross written premium was from programsources. By way of reference, we had 10 programs active and producing business as of December 31, 2016, which represented 21% of the segment’s grosswritten premium. We focus our coverage on casualty risks, although some incidental property insurance is written. We seek to limit our risk generally throughreinsurance either on a proportional or excess of loss basis, or sometimes both. We generally take up to $250,000 of loss per occurrence or per risk, net ofreinsurance. For initial claims oversight and administration in our program business, we generally outsource frequency layer claims management to third-party administrators for the first $50,000 of a claim, and then assume direct control above this amount.Under the terms of these program agreements, we pay variable commissions with lower commissions when underwriting profits are suppressed andincreased commissions when the business proves particularly profitable. In addition, we typically build in a substantial “spread” between the commission weearn from our reinsurers and the commissions paid to the General Agent. This spread enhances our net underwriting returns and profitability. Our programbusiness is distributed primarily through General Agents and program managers. One program accounted for 3.7% of the segment’s gross written premium forthe year ended December 31, 2017.Casualty Reinsurance SegmentWe report our business of writing insurance for insurance companies in our Casualty Reinsurance segment (representing 21.8% of consolidated grosswritten premiums for the year ended December 31, 2017). We participate in the reinsurance business through our Bermuda domiciled reinsurance subsidiary,JRG Re, which is a Class 3B reinsurer. JRG Re provides proportional and working layer reinsurance to third parties and, through December 31, 2017, also toour U.S.-based insurance subsidiaries. For purposes of management evaluation, this segment’s underwriting results only include premiums ceded by, andlosses incurred with respect to business assumed from unaffiliated companies and does not include premiums and losses ceded under the internal quota sharearrangement described below. During the year ended December 31, 2017, our Casualty Reinsurance segment had an underwriting loss of $1.8 million whenanalyzed as a stand-alone entity.Business flows to JRG Re from the following two sources:•We provide proportional and working layer reinsurance to unaffiliated U.S.-based insurance companies. We underwrote $235.4 million in grosswritten premiums for the year ended December 31, 2017. Of those third-party premiums written by JRG Re, 47% was for general liability coverage(much of this business is E&S premium), 34% was personal auto coverage, 9% was commercial auto coverage (much of this business is also E&Spremium), and the rest was excess casualty or non-medical professional liability. We typically structure our reinsurance treaties as quota sharearrangements with loss and risk mitigating features that align our interest with that of the ceding companies. On a premium volume basis, treatieswith loss mitigation features including sliding scale ceding commissions represented15TABLE OF CONTENTS67% of the third-party gross written premiums during 2017 and treaties written as “proportional” arrangements represented 99%. We purchase verylittle retrocessional coverage in this segment.•Through December 31, 2017, we also had direct intercompany reinsurance agreements under the terms of which 70% of the net written premiums ofour U.S. subsidiaries (after taking into account third-party reinsurance) were ceded to JRG Re in Bermuda. In 2017, our U.S. subsidiaries ceded$370.4 million in premiums to JRG Re. This business was ceded to JRG Re under proportional, or quota-share, reinsurance treaties that had arm’slength ceding commissions.Almost all of the segment’s premiums are for casualty coverages. The Casualty Reinsurance segment writes virtually no reinsurance designed to respondspecifically to catastrophes. We had estimated losses of $1.8 million from Hurricanes Harvey and Irma, which occurred in 2017, primarily related tononstandard auto losses in Texas.The Casualty Reinsurance segment’s four largest brokers generated $182.6 million of gross written premiums in the year ended December 31, 2017,representing 77.6% of the segment’s gross written premiums. The four largest brokers produced $56.1 million, $55.0 million, $38.1 million, and $33.4million of gross written premiums for the year ended December 31, 2017, respectively. The Casualty Reinsurance segment’s two largest relationships withunaffiliated ceding companies generated $120.3 million (State National Insurance Company, representing 11.1% of consolidated gross written premiums and51.1% of the Casualty Reinsurance segment's gross written premiums) and $48.4 million of gross written premiums respectively for the year endedDecember 31, 2017, all of which related to program business.Underwriting profits and investment income earned by JRG Re are exempt from U.S. taxation. We do, however, pay a 1% U.S. Federal excise tax onpremiums ceded to JRG Re. One effect of the quota share arrangement between our domestic companies and JRG Re has been that an increasing percentage ofour assets are located in Bermuda. At December 31, 2017, approximately 69.5% of our total cash and invested assets were located in Bermuda.In response to the Tax Act, we plan to make changes to the Company’s structure in 2018 to minimize the impact of BEAT that include the formation ofCarolina Re, a Bermuda-domiciled, wholly owned subsidiary of James River Group, Inc. We expect Carolina Re to be a Class 3A reinsurer and make anirrevocable election to be taxed as a U.S. domestic corporation under Section 953(d) of the Code. Effective January 1, 2018, we will discontinue ceding 70%of our U.S.-written premiums to JRG Re and will instead cede 70% of our U.S.-written premiums to Carolina Re. We also expect Carolina Re will enter into astop loss reinsurance agreement with JRG Re. While Carolina Re will be subject to U.S. corporate income tax, we do not expect that it will be subject toBEAT in fiscal year 2018 as the Company is expected to have sufficient regular U.S. income tax liability compared to the BEAT liability. The applicabilityof BEAT depends on a number of factors, and it is unclear whether we will be subject to BEAT in future periods.Corporate and Other SegmentOur Chairman and Chief Executive Officer, President and Chief Operating Officer and Chief Financial Officer and other holding company employees arepart of the Corporate and Other segment. This is where we set and direct strategy for the group as a whole as well as high level objectives for each of the threeoperating segments. We make all capital management, capital allocation, treasury functions, information technology and group wide risk managementdecisions in this segment. Our decisions at this level also include reinsurance purchasing.Financial Information About SegmentsFinancial and other information by segment for the fiscal years ended December 31, 2017, December 31, 2016 and December 31, 2015 is set forth inNote 17 to our Consolidated Financial Statements included elsewhere in this Annual Report.Purchase of ReinsuranceWe routinely purchase reinsurance for our Excess and Surplus Lines and Specialty Admitted Insurance segments and, less frequently purchaseretrocessional coverage for our Casualty Reinsurance segment to reduce volatility by limiting our exposure to large losses and to provide capacity forgrowth. In a reinsurance transaction, an insurance company transfers, or cedes, all or part of its exposure in return for a portion of the premium. In aretrocession transaction, a reinsurer transfers, or cedes, all or part of its exposure in return for a portion of the premium. Our companies remain legallyresponsible for the entire obligation to policyholders and ceding companies, irrespective of any reinsurance or retrocession coverage we may purchase.Typically, we pay claims from our own funds and then seek reimbursement from the reinsurer or retrocessionaire, as applicable. There is credit exposure withrespect to losses ceded to the extent that any reinsurer or retrocessionaire is unable or unwilling to meet the obligations ceded by us under reinsurance orretrocessional treaties. The ability to collect on reinsurance or retrocessional reinsurance is subject to many factors, including the solvency of thecounterparty and their interpretation of contract language and other factors. We currently have no disputes with any reinsurer or retrocessionaire and we arenot aware of any credit problems with any of the group’s reinsurers or retrocessionaires.16TABLE OF CONTENTSPurchased Property ReinsuranceOur focus on return on tangible equity leads us to avoid lines of business that we know are exposed to high degrees of volatility. The Excess and SurplusLines segment writes a limited book of excess property risks (approximately $14.4 million direct written premiums in 2017). The risks assumed in this bookare geographically dispersed and significantly reinsured to limit losses. The Excess and Surplus Lines segment retains up to $5.0 million per risk on ourexcess property book; however, the average retained amount per risk is approximately $3.2 million. In our Specialty Admitted Insurance segment, we focuson casualty business, but we do write a limited amount of property insurance, principally through our programs and fronting business. The focus in ourCasualty Reinsurance segment is also primarily casualty business, but we do have a small amount of assumed business with property exposure.In our Excess and Surplus Lines segment, we purchased a surplus share reinsurance treaty specifically designed to cover property risks. The surplus sharetreaty along with facultative reinsurance helps ensure that our net retained limit per risk will be $5.0 million or less. Additionally, we purchased catastrophereinsurance of $40.0 million in excess of a $5.0 million retention that is intended to cover the 1 in 1,000 year modeled aggregate PML on the segment’sexcess property book. We buy such high limits because we believe the property catastrophe models are less accurate when applied to small books of business(like ours) than when applied to larger portfolios. Where the Specialty Admitted Insurance segment incurs incidental property risks in its program book ofbusiness, the segment has purchased coverage for $4.0 million in excess of $1.0 million per occurrence, in addition to the protection provided under thecorporate $40.0 million in excess of $5.0 million catastrophe treaty. This is also intended to cover the 1 in 1,000 year modeled aggregate PML on anyproperty exposures the Specialty Admitted Insurance segment assumes. In our Casualty Reinsurance segment, we believe that our maximum loss from acatastrophic event is approximately $2.0 million and, as a result, we do not currently purchase retrocessional reinsurance coverage for property-catastropherisks. In aggregate, we believe our pre-tax group-wide PML from a 1 in 1,000 year catastrophic event is approximately $10.0 million, inclusive ofreinstatement premiums payable.Purchased Casualty ReinsuranceIn our Excess and Surplus Lines segment, there are five divisions where we only write $1.0 million per occurrence limits (Commercial Auto,Manufacturers and Contractors, General Casualty, Small Business and Sports and Entertainment), and therefore, we do not purchase any reinsurance for thesepolicies. In the other divisions, where we issue policies with larger limits, we purchase reinsurance in excess of $1.0 million per occurrence.In our Specialty Admitted Insurance segment, there are two distinct reinsurance strategies. For individual risk workers' compensation, we purchase $30.0million excess of $600,000 per occurrence; and, effective October 1, 2017, we also purchased a 50% quota share coverage of the primary $600,000. For ourfronting and program business, we purchase proportional reinsurance and excess of loss reinsurance to limit our exposure to no more than $250,000 peroccurrence.For both our Excess and Surplus Lines segment and our Specialty Admitted Insurance segment, we purchase a clash and contingency reinsurance treatythat covers all casualty business for $6.0 million in excess of $2.0 million per occurrence. This coverage is intended to respond in a situation where we havemultiple insured losses from the same event.In our Casualty Reinsurance segment, we currently do not purchase any material retrocessional reinsurance. In prior periods, we have purchasedproportional and excess of loss retrocessional coverage for particular situations related to specific treaties, but have only done so on a limited basis.17TABLE OF CONTENTSFor 2017, our top ten reinsurers represented 78.2% of our total ceded reinsurance recoverables, and all of these reinsurance recoverables were fromreinsurers with an A.M. Best rating of “A-” (Excellent) or better or are collateralized with letters of credit or by a trust agreement. The following table setsforth our ten most significant reinsurers by amount of reinsurance recoverables on unpaid losses and the amount of reinsurance recoverables pertaining toeach such reinsurer as well as its A.M. Best rating as of December 31, 2017:Reinsurer ReinsuranceRecoverable as ofDecember 31, 2017 A.M. Best RatingDecember 31, 2017 (in thousands) Swiss Reinsurance America Corporation $88,755 A+Berkley Insurance Company 37,834 A+Safety National Casualty 23,783 A+Mountain States Insurance Company 17,614 ANorth Carolina Reinsurance Facility 16,284 Unrated(1)Cincinnati Insurance Company 14,195 A+Endurance Reinsurance Corporation of America 12,035 A+Munich Reinsurance America 11,621 A+American European Insurance Company 7,695 B(1)Lloyds Syndicate Number 1458 6,654 ATop 10 Total 236,470 Other 66,054 Total $302,524 (1)These reinsurers are unrated, or below “A-”. All material reinsurance recoverables from these reinsurers are collateralized.Credit Risk on Amounts Recoverable from an Indemnifying PartyThe Company is also exposed to credit risk relating to a set of insurance contracts with an insured group of companies under which the Company payslosses and loss adjustment expenses on the contract. The Company has indemnity agreements with this group of insured parties (non-insurance entities) andis contractually entitled to receive reimbursement for a significant portion of the losses and loss adjustment expenses paid on behalf of the insured parties andother expenses incurred by the Company. The insured parties are required to collateralize all amounts currently due to the Company and to provideadditional collateral sufficient to cover the amounts that may be recoverable under the indemnity agreements, including among other things case loss andloss adjustment expense reserves, IBNR loss and loss adjustment expense reserves, extra contractual obligations and excess of policy limits liabilities. Thiscollateral is currently provided through a collateral trust arrangement established in favor of the Company by a captive insurance company affiliate of theinsured group. At December 31, 2017, the cash equivalent collateral held in the collateral trust arrangement was approximately $780.9 million, whichexceeds the amount of claims receivable and unpaid reported losses and loss adjustment expenses outstanding. This is a rapidly growing relationship, and assuch, there is ongoing exposure to estimated losses and expenses on these contracts growing at a faster pace than growth in our collateral balances. Inaddition, we have credit exposure if our estimates of future losses and loss adjustment expenses and other amounts recoverable, which are the basis forestablishing collateral balances, are lower than actual amounts paid or payable. The amount of our credit exposure in any of these instances could bematerial. To mitigate these risks, we closely and frequently monitor our exposure compared to our collateral held, and we request additional collateral whenour analysis indicates that we have uncollateralized exposure.Reserve PolicyOver time, many insurance companies have underestimated the cost of future losses associated with insurance policies issued. We seek to establishreserves that will adequately meet our obligations. We have four credentialed actuaries on staff, and we engage independent actuarial consultants to reviewour decisions regarding reserves twice a year.We maintain reserves for specific claims incurred and reported, reserves for claims incurred but not reported (“IBNR”) and reserves for uncollectiblereinsurance when appropriate. Our ultimate liability may be greater or less than current reserves. In the insurance industry, there is always the risk thatreserves may prove inadequate. We continually monitor reserves using new information on reported claims and a variety of statistical techniques and adjustour estimates as necessary as experience18TABLE OF CONTENTSdevelops or new information becomes known. Such adjustments (referred to as reserve development) are included in current operations. Anticipated inflationis reflected implicitly in the reserving process through analysis of cost trends and the review of historical development. We do not discount our reserves forlosses and loss adjustment expenses to reflect estimated present value.When setting our reserves, we use a blend of actuarial techniques that are chosen to reflect the nature of the lines of insurance we underwrite. We seek tobe consistent and transparent in establishing our reserves.In many cases, several years may elapse between the occurrence of an insured loss, the reporting of the loss and our eventual payment of the loss. Weestablish loss and loss adjustment expense reserves for the ultimate payment of all losses and loss adjustment expenses incurred. We estimate the reserve forlosses and loss adjustment expenses using individual case-basis valuations of reported claims. We also use statistical analyses to estimate the cost of lossesthat have been incurred but not reported to us. These estimates are based on historical information and on estimates of future trends that may affect thefrequency of claims and changes in the average cost of claims that may arise in the future. We also consider various factors such as:•Loss emergence and insured reporting patterns;•Underlying policy terms and conditions;•Business and exposure mix;•Trends in claim frequency and severity;•Changes in operations;•Emerging economic and social trends;•Inflation;•Changes in the regulatory and litigation environments; and•Discussions with third-party actuarial consultants.The procedures we use to estimate loss reserves assume that past experience, adjusted for the effects of current developments and anticipated trends, is anappropriate basis for predicting future events. It also assumes that adequate historical or other data exists upon which to make these judgments. Theseestimates are by their nature subjective and imprecise, and ultimate losses and loss adjustment expenses may vary from established reserves.Our Reserve Committee consists of our Chief Actuary, Chief Executive Officer (formerly Chief Operating Officer), Chief Financial Officer, and ChiefAccounting Officer. Additionally, the presidents and chief actuaries of each of our three insurance segments assist in the evaluation of reserves in theirrespective segments. The Reserve Committee meets quarterly to review the actuarial recommendations made by each chief actuary and uses its best judgmentto determine the best estimate to be recorded for the reserve for losses and loss adjustment expenses on our quarterly balance sheet.19TABLE OF CONTENTSThe following table reflects our reserve development by segment during the calendar years 2017 to 2008 individually and in aggregate.Segment Excess andSurplus Lines SpecialtyAdmittedInsuranceCasualtyReinsuranceGrand TotalCalendar Year 2017 $(20,023)(1) $2,721 $(4,170) $(21,472)2016 24,079(2) 3,822(4,185)23,7162015 25,424(3) 3,531(12,637)16,3182014 27,283(4) 5,854(5,719)27,4182013 40,734(5) 1,410(4,692)37,4522012 20,122(6) (4,898)(16,617)(7) (1,393)2011 21,034 1,712(2,835)19,9112010 10,922 (381)(857)9,6842009 3,193 1,591(1,067)3,7172008 6,496 1,875—8,371Cumulative Development $159,264 $17,237$(52,779)$123,722(1)Includes $38.7 million of adverse development in the commercial auto line of business that was primarily related to the 2016 contract year with oneinsured, partially offset by $18.6 million of favorable development from other divisions primarily from the 2014 through 2016 accident years.(2)Includes $10.0 million of favorable development from the 2015 accident year, $10.7 million from the 2014 accident year and $4.5 million from the 2013accident year.(3)Includes $17.3 million and $10.5 million of favorable development from the 2014 and 2013 accident year, respectively.(4)Includes $7.9 million of favorable development from the 2011 accident year, $4.2 million from the 2007 accident year and $5.0 million from the 2009accident year.(5)Includes $11.8 million of favorable development from the 2009 accident year, $7.3 million of favorable development from the 2007 accident year and$5.8 million of favorable development from the 2008 accident year.(6)Includes $8.0 million of favorable development from the 2009 accident year, $4.3 million of favorable development from the 2008 accident year and$4.1 million of favorable development from the 2007 accident year.(7)Includes $9.0 million of adverse development on assumed crop business almost entirely from the 2011 accident year and $7.6 million of adversedevelopment on other assumed business.Among the indicators of reserve strength that we monitor closely are the number of claims outstanding from a given year and the amount of IBNRreserves held on our balance sheet for claims that have been incurred but not yet reported to us. As a general rule, every known claim has a specific casereserve established against it which management believes is adequate to resolve the claim and pay attendant expenses based on information available at thetime.A significant portion of reported claims from prior policy years were closed at December 31, 2017. The table below sets forth the percentage of claimsclosed by policy year for our Excess and Surplus Lines and Specialty Admitted Insurance segments for the policy years indicated.20TABLE OF CONTENTSPercentage of Claims Closed at December 31, 2017Policy Year Excess andSurplus LinesSegment ExcludingCommercialAuto Excess andSurplus LinesSegmentCommercialAutoSpecialtyAdmittedInsuranceSegmentIndividualRisk Workers’CompSpecialtyAdmittedInsuranceSegmentFrontingandPrograms2004 99.9% —99.8%—2005 99.6% —100.0%—2006 99.7% —100.0%—2007 99.5% —100.0%—2008 99.0% —99.8%—2009 98.7% —99.9%—2010 98.2% —99.9%—2011 96.3% —99.7%—2012 94.2% —99.6%—2013 91.9% 98.3%99.4%97.6%2014 84.8% 97.8%99.4%96.8%2015 81.6% 99.6%95.8%91.9%2016 72.7% 95.7% 78.0% 75.1%Another indicator of reserve strength that we monitor closely is the percentage of our gross and net loss reserves that are comprised of IBNR reserves. Thetable below sets forth our IBNR, total gross reserves and the percentage that IBNR represents of the total gross reserves, in each case by segment and in theaggregate, at December 31, 2017. The percentage that IBNR represents of total gross reserves at December 31, 2017 is 64.6%. Gross Reserves at December 31, 2017 IBNR TotalIBNR% of Total (in thousands) Excess and Surplus Lines $525,044 $759,04369.2%Specialty Admitted Insurance 149,621 271,44655.1%Casualty Reinsurance 159,801 261,86061.0%Total $834,466 $1,292,34964.6%The table below sets forth our IBNR, total net reserves and the percentage that IBNR represents of the total net reserves, in each case by segment and inthe aggregate, at December 31, 2017. The percentage that IBNR represents of total net reserves at December 31, 2017 is 65.0%. Net Reserves at December 31, 2017 IBNR TotalIBNR% of Total (in thousands) Excess and Surplus Lines $446,016 $655,82068.0%Specialty Admitted Insurance 41,548 80,75351.5%Casualty Reinsurance 156,168 253,25261.7%Total $643,732 $989,82565.0%Investment StrategyWe attempt to generate better than market average risk-adjusted returns in our investment portfolio by taking measured risks based upon detailedknowledge of certain niche asset classes. While we are willing to make investments in non-traditional types of investments, we avoid risks that we do notunderstand well, as well as structures or situations we think could cause substantial loss of capital. The vast majority of our investment portfolio is managedby third party, independent investment managers.21TABLE OF CONTENTSThe majority of our investment portfolio is invested in what we refer to as our Core Portfolio of investment grade fixed income securities. This portfolioprovides predictable income with low risk of principal loss. We seek to augment the return on the Core Portfolio by investing in bank loans, higher yieldingsecurities and private investments. We designed these strategies to improve our investment return and are focused on opportunistic investing in areas wherewe believe our management, directors or employees have expertise or understanding of the risk and return of the investment.Our strategy is designed to earn higher returns than an investment grade fixed income approach alone while maintaining a high average portfolio creditrating and investing in asset classes and allocations that are consistent with the insurance regulatory and rating agency framework within which we operate.We generally focus on securities that provide some current income.As a result of affiliated and third party reinsurance contracts we have been able to grow our asset base at JRG Reinsurance Company Ltd, which isdomiciled in Bermuda and is not subject to U.S. corporate taxation. At December 31, 2017, 69.5% of our cash and invested assets were held in Bermuda withthe remainder held by our U.S. subsidiaries.The prolonged low interest rate environment made it difficult for insurance companies to earn attractive returns on capital because of reducedinvestment income. If sustained, recent increases in interest rates will slowly improve investment income from fixed income investments. Our premiumgrowth has allowed us to build our asset base. Cash and invested assets now represent 3.1 times our tangible equity.A summary of our investment portfolio at December 31, 2017 is as follows: December 31, 2017Portfolio Book Value Market Value Carrying Value Book Yield % of CarryingValue ($ in thousands)Core $1,016,406 $1,020,304 $1,020,304 2.64% 67.9%Bank Loans 270,133 268,405 270,086 5.81% 18.0%Incremental Yield 130,620 141,415 141,415 7.18% 9.4%Private Investments 71,208 NA 4.7%Total 1,503,013 100.0%Less cash and cash equivalents in Core andBank Loans (55,359) Total Invested Assets $1,447,654 We have generally managed our overall portfolio to a duration of 3 to 5 years. At December 31, 2017, the average duration of our investment portfoliowas 3.5 years.Core PortfolioThe Core Portfolio consists of cash and investment grade fixed income securities. Our objective in the Core Portfolio is to earn attractive risk-adjustedreturns with a low risk of loss of principal. We use a third-party manager to manage the Core Portfolio.Bank LoansThe Bank Loan portfolio primarily consists of investments in participations in syndicated bank loans, but may also include a small allocation of bonds.Bank loans in our portfolio are generally senior secured loans with an average credit quality of “B” as of December 31, 2017 and floating interest rates basedon spreads over LIBOR. We believe bank loans are an attractive asset class because (1) floating-rate loans help to reduce our risk of loss in the event of risinginterest rates, (2) the loans are generally senior secured, (3) the asset class has a history of relatively high recovery rates in the event of default, (4) theportfolio provides an attractive yield and (5) the maturities of the loans are relatively short (average of 5 years). We invest in this asset class by owningindividual loan participations that are carried at amortized cost less any loan loss allowance. We have over eight years of experience in investing in this assetclass through a third-party manager.Incremental Yield PortfolioThe Incremental Yield Portfolio consists of investments in low investment grade and below investment grade bonds, preferred stocks, dividend payingcommon equities and exchange traded funds. The average credit quality of the fixed income securities in this portfolio as of December 31, 2017 is BBB. Wegenerally invest in fixed income securities where we believe that risk of default is low relative to the potential yield on the securities. Historically, we madesignificant purchases of below investment grade securities that were trading at a discount to par. More recently as such opportunities are limited, we havebeen22TABLE OF CONTENTSopportunistically investing in high yield securities where we believe we have expertise or an understanding of the risk. We own preferred stocks, generally inthe financial services industry. In some instances, we will purchase common equity securities and exchange traded funds. However, these purchases aregenerally used as an effective means to get access to a high yielding asset class. As of December 31, 2017, only $15.5 million of the Incremental YieldPortfolio is invested in common equities and exchange traded funds. The Incremental Yield Portfolio was initiated in 2010.Private Investment PortfolioWe make selective investments in private debt or equity securities in areas where we see significant opportunity or attractive risk and returncharacteristics. We focus on investments where we believe we have an understanding of the risk and opportunity and have the ability to monitor themclosely. At December 31, 2017, we held 10 private investments with a total carrying value of $71.2 million. Our portfolio consists of investments in wind andsolar energy, banking, small cap equities, loans of middle market private equity sponsored companies, equity tranches of collateralized loan obligations(CLOs), and tranches of distressed home loans. We are opportunistic in our private investment strategy and our portfolio may grow or shrink based on theopportunities available to us. Despite being only 4.7% of our portfolio, we believe our Private Investment Portfolio has added meaningful returns to ourtangible equity. Our Private Investment strategy has significant risk and not all investments are successful. As a result, we intentionally keep this portfolio asa small portion of the overall investment portfolio.Our recent total returns on our portfolio are as follows: 2015 2016 2017 Trailing 3 yearsEnded 2017Core 1.16 % 2.34% 3.09% 2.20%Bank Loans (1.00)% 14.09% 6.56% 6.37%Incremental 7.26 % 9.23% 10.86% 9.11%Total 1.47 % 5.18% 4.49% 3.70%Total returns are calculated as the realized or unrealized gain or loss of an asset plus interest and dividends paid while the asset is held.We consider a portion of our investment portfolio to be invested in non-traditional investments. We consider non-traditional investments to includeinvestments that are (1) not rated bond or fixed income securities (2) non-listed equities or (3) investments that generally have less liquidity than rated bondor fixed income securities or listed equities. Non-traditional investments held at December 31, 2017 and their respective percentage of our total investedassets at such date consist of syndicated bank loans (16.5%), interests in limited liability companies that invest in renewable energy opportunities (2.2%),limited partnerships that invest in debt or equity securities (1.8%), notes receivable for renewable energy projects (0.5%), and a private debt security (0.3%).We will continue to actively review opportunities to invest in non-traditional assets and may invest in additional non-traditional assets in the future.Our invested assets totaled $1,447.7 million as of December 31, 2017. The weighted average credit rating of our portfolio of fixed maturity securities,bank loans and redeemable preferred stocks as of December 31, 2017 was “A”. We have intentionally maintained a cautious interest rate risk position byhaving an average duration of 3.5 years at December 31, 2017. This compares to an average duration at December 31, 2016 of 3.6 years. Based on the currentduration of 3.5 years, a 1.0% increase in interest rates would result in a pre-tax decline in the market value of our portfolio of approximately $50.1 million.Insurance Cycle Management and GrowthThe insurance and reinsurance business is cyclical in nature, with “hard” and “soft” cycles. Hard markets occur when insurance underwriters limit theirexposure in a line of business or across their entire portfolio. When underwriters exercise restraint, insurance buyers are forced to pay more to induceunderwriters to cover their risks. A hard market can also be created by economic expansions when capital committed to backing insurance policies does notgrow as fast as the demand for insurance. There is generally a correlation between interest rates and the willingness of insurance companies to commit theircapital to writing insurance. When fixed income yields are low, insurance companies need to raise insurance prices to improve underwriting results in order tooffset loss of investment income.We are currently in a growth phase for our U.S. primary operations. In both our Excess and Surplus Lines and Specialty Admitted Insurance segments, weare experiencing growth in premiums driven by stable rates as well as increases in policy count and exposures. The table below shows the changes in grosswritten premiums we have experienced in our operating segments from 2015 through 2017.23TABLE OF CONTENTS 2017 2016 2015Gross Written Premiums $% Change $% Change $ % Change ($ in thousands)Excess and Surplus Lines $530,12042.9% $370,84420.1% $308,717 22.2 %Specialty Admitted Insurance 316,43073.7% 182,221100.3% 90,978 53.2 %Casualty Reinsurance 235,35527.7% 184,3336.9% 172,499 (16.5)%Total $1,081,90546.7% $737,39828.9% $572,194 10.3 %In years prior to those presented, the business written at our U.S. primary operations has, at times, been subject to “soft” market conditions, reflected bothin price decreases and reduced underlying exposures. The recession in the United States from 2008 to 2010 was a significant driver of these soft marketconditions.Our Excess and Surplus Lines segment is the most sensitive to hard and soft markets. We have, therefore, sought to diversify this business by geography,line of business and also revenue stream. From 2006 to 2010, we reduced the gross written premiums in this business from $249.1 million to $116.1 million,or 53.4%. While we have been growing this business, and achieving increasing or stable rates for several periods through December 31, 2017, there willlikely be periods in the future where our growth moderates, stagnates or turns negative.The Excess and Surplus Lines segment has historically been able to make an underwriting profit regardless of the state of the underwriting cycle. Thissegment's weighted average combined ratio for 2008 through 2017 is 85.6%.Traditionally, admitted insurance lines have been very susceptible to market cycles. We believe this trend is continuing. We seek to isolate ourselvesfrom these trends in our Specialty Admitted Insurance segment by writing lines of business we believe are slightly less competitive, by prudently purchasingreinsurance and by being willing to dramatically reduce our writings when market conditions warrant.A material portion of the profitability we seek to achieve from our fronting business will come from fee income that is generated via policies that areissued by our insurance companies and then mostly or wholly reinsured to third parties. Because we earn substantial fees from underwriting business onwhich we retain little or no insurance risk, this business can be profitable to us even in soft market conditions. We have $272.3 million of gross writtenpremiums for fronting and program business for 2017 ($32.4 million on a net basis), and we expect that this fee income will continue to grow in futureperiods and provide us with a steady revenue stream that will be relatively insulated from conditions in the admitted insurance market.In the Casualty Reinsurance segment, we have the ability to manage the cycle by growing or shrinking our business according to market conditions andthe corresponding prices and terms being offered for the assumption of specific risks. We have a small team of eight people in Bermuda who underwrite andadminister the business written by JRG Re in Bermuda. Accordingly, our overhead is low and does not necessitate us growing this business from its currentsize.CompetitionWe compete in a variety of markets against a variety of competitors depending on the nature of the risk and coverage being underwritten. Thecompetition for any one account may range from large international firms to smaller regional companies in the domiciles in which we operate. To remaincompetitive, our strategy includes, among other measures: (1) focusing on rate adequacy and underwriting discipline, (2) leveraging our distribution network,(3) controlling expenses, (4) maintaining financial strength and issuer credit ratings and (5) providing quality services to agents and policyholders.Excess and Surplus LinesCompetition within the E&S lines marketplace comes from a wide range of carriers. In addition to mature E&S companies that operate nationwide, thereis competition from carriers formed in recent years. The Excess and Surplus Lines segment may also compete with national and regional carriers from thestandard market willing to underwrite selected accounts on an admitted basis. Competitors in this segment include Scottsdale Insurance Company(Nationwide Mutual Group), Markel Corporation, Burlington Insurance Group, Inc., Admiral Insurance Company (W. R. Berkley Corporation), LexingtonInsurance Company (American International Group, Inc.), Mt. Hawley Insurance Company (RLI Corp.), Colony Specialty Insurance Company (Argo GroupInternational Holdings, Ltd.), Houston Casualty Company (a subsidiary of Tokio Marine HCC), Kinsale Capital Group, and other large national and multi-national insurance carriers.Specialty Admitted InsuranceDue to the diverse nature of the products offered by the Specialty Admitted Insurance segment, competition comes from various sources. The majority ofthe competition for our workers’ compensation business comes from regional companies or regional subsidiaries of national carriers in the domiciles in whichthey operate. National carriers tend to compete for fronting and program accounts along all product lines. Competitors in our workers’ compensation businessinclude Builders Mutual24TABLE OF CONTENTSInsurance Company, Accident Fund Insurance Company of America, W. R. Berkley Corporation, American Interstate Insurance Company (AMERISAFE,Inc.), and Amtrust Group. Competition for our fronting business includes State National (now part of Markel), Argo Group, Clear Blue, Spinnaker, Trisura,Red Point, Equity Insurance Company, Worth Insurance, Amtrust, and various Texas based county mutual insurance companies.Casualty ReinsuranceThe reinsurance industry is highly competitive. We expect to compete with major reinsurers, most of which are well-established, have a significantoperating history and strong financial strength ratings and have developed long-standing client relationships. Competitors in this segment include HamiltonRe, Ltd., PartnerRe Ltd., Tokio Milennium Re AG, MS Amlin, XL Catlin and Third Point Reinsurance Ltd.RegulationBermuda Insurance RegulationThe Insurance Act 1978 and related rules and regulations (the “Insurance Act”) which regulates the insurance business of JRG Re provides that noperson shall carry on insurance business in or from within Bermuda unless registered as an insurer under the Insurance Act by the Bermuda MonetaryAuthority (the “BMA”). The BMA, in deciding whether to grant registration, has broad discretion to act as it thinks fit in the public interest. The BMA isrequired by the Insurance Act to determine whether the applicant is a fit and proper body to be engaged in the insurance business and, in particular, whether ithas, or has available to it, adequate knowledge and expertise. The registration of an applicant as an insurer is subject to its complying with the terms of itsregistration and such other conditions as the BMA may impose at any time.It is not necessary that the insurance company be incorporated in Bermuda. A foreign corporation may obtain a permit under the Companies Act ofBermuda, 1981 (the “Companies Act”) to carry on business in Bermuda and then be registered as an insurer in Bermuda under the Insurance Act.The Insurance Act does not distinguish between insurers and reinsurers; companies are registered (licensed) under the Insurance Act as “insurers”(although in certain circumstances a condition to registration may be imposed to the effect that the company may carry on only reinsurance business). TheInsurance Act uses the defined term “insurance business” to include reinsurance business.The Insurance Act also grants to the BMA powers to supervise, investigate and intervene in the affairs of insurance companies.An Insurance Advisory Committee appointed by the Bermuda Minister of Finance advises the BMA on matters connected with the discharge of theBMA’s functions and subcommittees thereof supervise, investigate and review the law and practice of insurance in Bermuda, including reviews of accountingand administrative procedures.The Insurance Act imposes solvency and liquidity standards on Bermuda insurance companies, as well as auditing and reporting requirements.Certain significant aspects of the Bermuda insurance regulatory framework applicable to Class 3B insurers are set forth below.Classification of InsurersThe Insurance Act distinguishes between insurers carrying on long-term business, insurers carrying on general business and insurers carrying on specialpurpose business. There are six classifications of insurers carrying on general business, ranging from Class 1 insurers (pure captives) to Class 4 insurers (largecommercial underwriters). JRG Re is licensed as a Class 3B insurer and is regulated as such under the Insurance Act.Classification as a Class 3B InsurerA body corporate is registrable as a Class 3B insurer where (1) 50% or more of its net premiums written or (2) 50% or more of its net loss and loss expenseprovisions, represent unrelated business and its total net premiums written from unrelated business are $50.0 million or more.Minimum Paid-Up Share CapitalA Class 3B insurer is required to maintain fully paid up share capital of at least $120,000.25TABLE OF CONTENTSPrincipal Representative and Principal OfficeA Class 3B insurer is required to maintain a principal office and to appoint and maintain a principal representative in Bermuda. For the purposes of theInsurance Act, the principal office of JRG Re is located at Wellesley House, 2nd Floor, 90 Pitts Bay Road, Pembroke, HM 08, Bermuda. JRG Re’s principalrepresentative is Helen Gillis, the Chief Financial Officer of JRG Re.Without a reason acceptable to the BMA, a Class 3B insurer may not terminate the appointment of its principal representative, and the principalrepresentative may not cease to act as such, unless 30 days’ prior notice in writing to the BMA is given of the intention to do so.It is the duty of the principal representative to forthwith notify the BMA where the principal representative reaches the view that there is a likelihood ofthe Class 3B insurer (for which the principal representative acts) becoming insolvent, or the personal representative becoming aware of, or having reasonablegrounds to believe that a reportable “event” has occurred. Examples of a reportable “event” include a failure by the Class 3B insurer to comply substantiallywith a condition imposed upon it by the BMA relating to a solvency margin or a liquidity or other ratio, a significant loss reasonably likely to cause theClass 3B insurer to fail to comply with its enhanced capital requirement (discussed below) and the occurrence of a material change (as such term is definedunder the Insurance Act) in its business operations.Within 14 days of such notification to the BMA, the principal representative must furnish the BMA with a written report setting out all the particulars ofthe case that are available to the principal representative.Where there has been a significant loss which is reasonably likely to cause the Class 3B insurer to fail to comply with its enhanced capital requirement,the principal representative must also furnish the BMA with a capital and solvency return reflecting an enhanced capital requirement prepared using post-lossdata. The principal representative must provide this within 45 days of notifying the BMA regarding the loss.Furthermore, where a notification has been made to the BMA regarding a material change, the principal representative has 30 days from the date of suchnotification to furnish the BMA with unaudited interim statutory financial statements in relation to such period as the BMA may require, together with ageneral business solvency certificate in respect of those statements.Head OfficeA Class 3B insurer shall maintain its head office in Bermuda. In determining whether the insurer satisfies this requirement, the BMA shall consider, interalia, the following factors: (i) where the underwriting, risk management and operational decision making of the insurer occurs; (ii) whether the presence ofsenior executives who are responsible for, and involved in, the decision making related to the insurance business of the insurer are located in Bermuda; and(iii) where meetings of the board of directors of the insurer occur. In making its determination, the BMA may also have regard to (a) the location wheremanagement of the insurer meets to effect policy decisions of the insurer; (b) the residence of the officers, insurance managers or employees of the insurer;and (c) the residence of one or more directors of the insurer in Bermuda. This provision does not apply to an insurer that has a permit to conduct business inBermuda under the Companies Act or the Non-Resident Insurance Undertakings Act 1967.Loss Reserve SpecialistA Class 3B insurer is required to appoint an individual approved by the BMA to be its loss reserve specialist. In order to qualify as an approved lossreserve specialist, the applicant must be an individual qualified to provide an opinion in accordance with the requirements of the Insurance Act and the BMAmust be satisfied that the individual is fit and proper to hold such an appointment.A Class 3B insurer is required to submit annually an opinion of its approved loss reserve specialist with its capital and solvency return in respect of itstotal general business insurance technical provisions (i.e. the aggregate of its net premium provisions, net loss and loss expense provisions and risk margin, aseach is reported in the insurer’s statutory economic balance sheet). The loss reserve specialist’s opinion must state, among other things, whether or not theaggregate amount of technical provisions shown in the statutory economic balance sheet as at the end of the relevant financial year (i) meets the requirementsof the Insurance Act and (ii) makes reasonable provision for the total technical provisions of the insurer under the terms of its insurance contracts andagreements.Annual Financial StatementsA Class 3B insurer is required to prepare and submit to the BMA, on an annual basis, audited financial statements which have been prepared undergenerally accepted accounting principles or international financial reporting standards (“GAAP financial statements”) and audited statutory financialstatements.The Insurance Act prescribes rules for the preparation and substance of statutory financial statements (which include, in statutory form, a balance sheet,an income statement, a statement of capital and surplus and notes thereto). The statutory26TABLE OF CONTENTSfinancial statements include detailed information and analysis regarding premiums, claims, reinsurance and investments of the insurer.The Class 3B insurer’s annual GAAP financial statements, and the auditor’s report thereon, and the statutory financial statements are required to be filedwith the BMA within four months from the end of the relevant financial year (unless specifically extended with the approval of the BMA). The statutoryfinancial statements do not form a part of the public records maintained by the BMA but the GAAP financial statements are available for public inspection.Declaration of ComplianceAt the time of filing its statutory financial statements, a Class 3B insurer is also required to deliver to the BMA a declaration of compliance, in such formand with such content as may be prescribed by the BMA, declaring whether or not the Class 3B insurer has, with respect to the preceding financial year(i) complied with all requirements of the minimum criteria applicable to it, (ii) complied with the minimum margin of solvency as at its financial year end,(iii) complied with the applicable enhanced capital requirements as at its financial year end, (iv) complied with applicable conditions, directions andrestrictions imposed on, or approvals granted to, the Class 3B insurer and (v) complied with the minimum liquidity ratio for general business as at itsfinancial year end. The declaration of compliance is required to be signed by two directors of the Class 3B insurer, and if the Class 3B insurer has failed tocomply with any of the requirements referenced in (i) through (v) above or observe any limitations, restrictions or conditions imposed upon the issuance of itslicense, if applicable, the Class 3B insurer will be required to provide the BMA with particulars of such failure in writing. A Class 3B insurer shall be liable toa civil penalty by way of a fine for failure to comply with a duty imposed on it in connection with the delivery of the declaration of compliance.Annual Statutory Financial Return and Annual Capital and Solvency ReturnA Class 3B insurer is required to file with the BMA a statutory financial return no later than four months after its financial year end (unless specificallyextended with the approval of the BMA).The statutory financial return of a Class 3B insurer shall consist of (i) an insurer information sheet, (ii) an auditor’s report, (iii) the statutory financialstatements and (iv) notes to the statutory financial statements.The insurer information sheet shall state, among other matters, (i) whether the general purpose financial statements of the insurer for the relevant yearhave been audited and an unqualified opinion issued, (ii) the minimum margin of solvency applying to the insurer and whether such margin was met,(iii) whether or not the minimum liquidity ratio applying to the insurer for the relevant year was met and (iv) whether or not the insurer has complied withevery condition attached to its certificate of registration. The insurer information sheet shall state if any of the questions identified in items (ii), (iii) or (iv)above is answered in the negative, whether or not the insurer has taken corrective action in any case and, where the insurer has taken such action, describe theaction in an attached statement.The directors are required to certify whether the minimum solvency margin has been met, and the independent approved auditor is required to statewhether in its opinion it was reasonable for the directors to make this certification.Where an insurer’s accounts have been audited for any purpose other than compliance with the Insurance Act, a statement to that effect must be filedwith the statutory financial return.In addition, each year the insurer is required to file with the BMA a capital and solvency return along with its annual statutory financial return. Theprescribed form of capital and solvency return comprises the insurer’s Bermuda Solvency Capital Requirement (“BSCR”) model or an approved internalcapital model in lieu thereof (more fully described below), a schedule of fixed income and equity investments by BSCR rating, a schedule of funds held byceding reinsurers in segregated accounts/trusts by BSCR rating, a schedule of net loss and loss expense provisions by line of business, a schedule ofgeographic diversification of net loss and loss expense provisions, a schedule of premiums written by line of business, a schedule of geographicdiversification of net premiums written by line of business, a schedule of risk management, a schedule of fixed income securities, a schedule of commercialinsurer’s solvency self-assessment (CISSA), a schedule of catastrophe risk return, a schedule of loss triangles or reconciliation of net loss reserves, a scheduleof eligible capital, a statutory economic balance sheet, the loss reserve specialist’s opinion, a schedule of regulated non-insurance financial operatingentities, a schedule of solvency, particulars of reinsurance balances, a schedule of cash and cash equivalents counterparty analysis, a schedule of currency riskand a schedule of concentration risk.Neither the statutory financial return nor the capital and solvency return is available for public inspection.Quarterly Financial ReturnA Class 3B insurer, not otherwise subject to group supervision, is required to prepare and file quarterly financial returns with the BMA on or before thelast day of the months of May, August and November of each year. The quarterly financial returns consist of (i) quarterly unaudited financial statements foreach financial quarter (which must minimally include a27TABLE OF CONTENTSbalance sheet and income statement and must also be recent and not reflect a financial position that exceeds two months), (ii) a list and details of materialintra-group transactions that the Class 3B insurer is a party to and the Class 3B insurer’s risk concentrations that have materialized since the most recentquarterly or annual financial returns, details surrounding all intra-group reinsurance and retrocession arrangements and other intra-group risk transferinsurance business arrangements that have materialized since the most recent quarterly or annual financial returns and (iii) details of the ten largest exposuresto unaffiliated counterparties and any other unaffiliated counterparty exposures exceeding 10% of the Class 3B insurer’s statutory capital and surplus.Public DisclosuresPursuant to recent amendments to the Insurance Act, all commercial insurers and insurance groups are required to prepare and file with the BMA, andalso publish on their web site, a financial condition report. The BMA has discretion to approve modifications and exemptions to the public disclosure ruleson application by the insurer if, among other things, the BMA is satisfied that the disclosure of certain information will result in a competitive disadvantageor compromise confidentiality obligations of the insurer.Independent Approved AuditorA Class 3B insurer must appoint an independent auditor who will audit and report on the Class 3B insurer’s GAAP financial statements and statutoryfinancial statements, each of which are required to be filed annually with the BMA. The auditor must be approved by the BMA as the independent auditor ofthe insurer. If the insurer fails to appoint an approved auditor or at any time fails to fill a vacancy for such auditor, the BMA may appoint an approved auditorfor the insurer and shall fix the remuneration to be paid to the approved auditor within 14 days, if not agreed sooner by the insurer and the auditor.Non-insurance BusinessNo Class 3B insurer may engage in non-insurance business unless that non-insurance business is ancillary to its core business. Non-insurance businessmeans any business other than insurance business and includes carrying on investment business, managing an investment fund as operator, carrying onbusiness as a fund administrator, carrying on banking business, underwriting debt or securities or otherwise engaging in investment banking, engaging incommercial or industrial activities and carrying on the business of management, sales or leasing of real property.Minimum Liquidity RatioThe Insurance Act provides a minimum liquidity ratio for general business insurers. A Class 3B insurer engaged in general business is required tomaintain the value of its relevant assets at not less than 75% of the amount of its relevant liabilities. Relevant assets include cash and time deposits, quotedinvestments, unquoted bonds and debentures, first liens on real estate, investment income due and accrued, accounts and premiums receivable, reinsurancebalances receivable, funds held by ceding reinsurers and any other assets which the BMA, on application in any particular case made to it with reasons,accepts in that case.There are certain categories of assets which, unless specifically permitted by the BMA, do not automatically qualify as relevant assets, such as unquotedequity securities, investments in and advances to affiliates and real estate and collateral loans.The relevant liabilities are total general business insurance reserves and total other liabilities less deferred income taxes and letters of credit, guaranteesand other instruments.Minimum Solvency Margin and Enhanced Capital RequirementsThe Insurance Act provides that the value of the statutory assets of an insurer must exceed the value of its statutory liabilities by an amount greater thanits prescribed minimum solvency margin (“MSM”).The MSM that must be maintained by a Class 3B insurer with respect to its general business is the greater of (i) $1,000,000, (ii) 20% of the first$6,000,000 of net premiums written (but if the net premiums written are in excess of $6,000,000, the figure is $1,200,000 plus 15% of net premiums written inexcess of $6,000,000) or (iii) 15% of the aggregate of net loss and loss expense provisions and other insurance reserves or (iv) 25% of the ECR (as definedbelow) as reported at the end of the relevant year.Class 3B insurers are also required to maintain available statutory economic capital and surplus at a level equal to or in excess of its enhanced capitalrequirement (“ECR”) which is established by reference to either the BSCR model or an approved internal capital model.The BSCR model is a risk-based capital model which provides a method for determining an insurer’s capital requirements (statutory economic capitaland surplus) by taking into account the risk characteristics of different aspects of the insurer’s business. The BSCR formula establishes capital requirementsfor ten categories of risk: fixed income investment risk, equity investment risk, interest rate/liquidity risk, currency risk, concentration risk, premium risk,reserve risk, credit risk, catastrophe28TABLE OF CONTENTSrisk and operational risk. For each category, the capital requirement is determined by applying factors to asset, premium, reserve, creditor, probable maximumloss and operation items, with higher factors applied to items with greater underlying risk and lower factors for less risky items.While not specifically referred to in the Insurance Act (or required thereunder), the BMA has also established a target capital level (“TCL”) for eachClass 3B insurer equal to 120% of its ECR. The TCL serves as an early warning tool for the BMA, and failure to maintain statutory capital at least equal tothe TCL will likely result in increased regulatory oversight.Any Class 3B insurer which at any time fails to meet its MSM requirements must, upon becoming aware of such failure, immediately notify the BMAand, within 14 days thereafter, file a written report with the BMA containing particulars of the circumstances that gave rise to the failure and setting out itsplan detailing specific actions to be taken and the expected timeframe in which the insurer intends to rectify the failure.Any Class 3B insurer which at any time fails to meet its applicable enhanced capital requirement shall, upon becoming aware of that failure or of havingreason to believe that such a failure has occurred, immediately notify the BMA in writing and within 14 days of such notification file with the BMA a writtenreport containing particulars of the circumstances leading to the failure, and a plan detailing the manner, specific actions to be taken and time within whichthe insurer intends to rectify the failure, and within 45 days of becoming aware of that failure or of having reason to believe that such a failure has occurred,furnish the BMA with (i) unaudited statutory economic balance sheets and unaudited interim statutory financial statements prepared in accordance withGAAP covering such period as the BMA may require; (ii) the opinion of a loss reserve specialist in relation to the total general business insurance technicalprovisions as set out in the economic balance sheet, where applicable; (iii) a general business solvency certificate in respect of the financial statements; and(iv) a capital and solvency return reflecting an enhanced capital requirement prepared using post failure data where applicable.Eligible CapitalTo enable the BMA to better assess the quality of a Class 3B insurer’s capital resources, the Class 3B insurer is required to disclose the makeup of itscapital in accordance with the recently introduced “3-tiered eligible capital system”. Under this system, all of the Class 3B insurer’s capital instruments willbe classified as either basic or ancillary capital which in turn will be classified into one of three tiers based on their “loss absorbency” characteristics. Highestquality capital will be classified Tier 1 Capital, and lesser quality capital will be classified as either Tier 2 Capital or Tier 3 Capital. Under this regime, up tocertain specified percentages of Tier 1, Tier 2 and Tier 3 Capital may be used to support a Class 3B insurer’s MSM, ECR and TCL.The characteristics of the capital instruments that must be satisfied to qualify as Tier 1, Tier 2 and Tier 3 Capital are set out in the Insurance (EligibleCapital) Rules 2012, and amendments thereto. Under these rules, Tier 1, Tier 2 and Tier 3 Capital may, until January 1, 2026, include capital instruments thatdo not satisfy the requirement that the instrument be non-redeemable or settled only with the issuance of an instrument of equal or higher quality upon abreach, or if it would cause a breach, of the ECR.Where the BMA has previously approved the use of certain instruments for capital purposes, the BMA’s consent will need to be obtained if suchinstruments are to remain eligible for use in satisfying the MSM and the ECR.Code of ConductThe Insurance Code of Conduct (the “Code”) prescribes the duties, standards, procedures and sound business principles that must be complied with byall insurers registered under the Insurance Act. The BMA will assess an insurer’s compliance with the Code in a proportional manner relative to the nature,scale and complexity of its business. Failure to comply with the requirements of the Code will be taken into account by the BMA in determining whether aninsurer is conducting its business in a sound and prudent manner as prescribed by the Insurance Act, may result in the BMA exercising its powers ofintervention and investigation (see below) and will be a factor in calculating the operational risk charge under the insurer’s BSCR or approved internalmodel.Restrictions on Dividends and DistributionsA Class 3B insurer is prohibited from declaring or paying a dividend if it is in breach of its MSM, ECR or minimum liquidity ratio or if the declaration orpayment of such dividend would cause such a breach. Where a Class 3B insurer fails to meet its MSM or minimum liquidity ratio on the last day of anyfinancial year, it will be prohibited from declaring or paying any dividends during the next financial year without the approval of the BMA.In addition, a Class 3B insurer is prohibited from declaring or paying in any financial year dividends of more than 25% of its total statutory capital andsurplus (as shown on its previous financial year’s statutory balance sheet), unless it files (at least seven days before payment of such dividends) with the BMAan affidavit signed by at least two directors (one of whom must be a Bermuda resident director if any of the Class 3B insurer’s directors are resident inBermuda) and the principal representative29TABLE OF CONTENTSstating that it will continue to meet its solvency margin and minimum liquidity ratio. Where such an affidavit is filed, it shall be available for publicinspection at the offices of the BMA.Reduction of CapitalNo Class 3B insurer may reduce its total statutory capital by 15% or more, as set out in its previous year’s financial statements, unless it has received theprior approval of the BMA. Total statutory capital consists of the insurer’s paid in share capital, its contributed surplus (sometimes called additional paid incapital) and any other fixed capital designated by the BMA as statutory capital (such as letters of credit).A Class 3B insurer seeking to reduce its statutory capital by 15% or more, as set out in its previous year’s financial statements, is also required to submitan affidavit signed by at least two directors (one of whom must be a Bermuda-resident director if any of the Class 3B insurer’s directors are resident inBermuda) and the principal representative stating that the proposed reduction will not cause it to fail its relevant margins and such other information as theBMA may require. Where such an affidavit is filed, it shall be available for public inspection at the offices of the BMA.Fit and Proper ControllerThe BMA maintains supervision over the controllers of all registered insurers in Bermuda.A controller includes (i) the managing director of the registered insurer or its parent company, (ii) the chief executive of the registered insurer or of itsparent company, (iii) a shareholder controller, and (iv) any person in accordance with whose directions or instructions the directors of the registered insurer orof its parent company are accustomed to act.The definition of shareholder controller is set out in the Insurance Act, but generally refers to (i) a person who holds 10% or more of the shares carryingrights to vote at a shareholders’ meeting of the registered insurer or its parent company, (ii) a person who is entitled to exercise 10% or more of the votingpower at any shareholders’ meeting of such registered insurer or its parent company, or (iii) a person who is able to exercise significant influence over themanagement of the registered insurer or its parent company by virtue of its shareholding or its entitlement to exercise, or control the exercise of, the votingpower at any shareholders’ meeting.A shareholder controller that owns 10% or more, but less than 20% of the shares as described above is defined as a 10% shareholder controller. Ashareholder controller that owns 20% or more, but less than 33% of the shares as described above is defined as a 20% shareholder controller. A shareholdercontroller that owns 33% or more but less than 50% of the shares as described above is defined as a 33% shareholder controller. A shareholder controller thatowns 50% or more of the shares as described above is defined as a 50% shareholder controller.As the shares of JRG Re’s parent company are traded on a recognized stock exchange, a person who becomes a 10%, 20%, 33% or 50% shareholdercontroller of the insurer, shall, within 45 days, notify the BMA in writing that he or she has become such a controller. In addition, a person who is ashareholder controller of JRG Re must serve on the BMA a notice in writing that he or she has reduced or disposed of his or her holding in the insurer wherethe proportion of voting rights in the insurer held by him or her will have reached or has fallen below 10%, 20%, 33% or 50% as the case may be, not laterthan 45 days after such disposal.Any person who contravenes the Insurance Act by failing to give notice or knowingly becomes a controller of any description before the required 45days has elapsed is guilty of an offence and liable to a fine of $25,000 on summary conviction.The BMA may file a notice of objection to any person who has become a controller of any description where it appears that such person is not or is nolonger, a fit and proper person to be a controller of the registered insurer. Before issuing a notice of objection, the BMA is required to serve upon the personconcerned a preliminary written notice stating the BMA’s intention to issue formal notice of objection. Upon receipt of the preliminary written notice, theperson served may, within 28 days, file written representations with the BMA, which shall be taken into account by the BMA in making their finaldetermination. Any person who continues to be a controller of any description after having received a notice of objection shall be guilty of an offense andshall be liable on summary conviction to a fine of $25,000 (and a continuing fine of $500 per day for each day that the offense is continuing) or, if convictedon indictment, to a fine of $100,000 and/or two years in prison.Notification by Registered Person of Change of Controllers and OfficersA Class 3B insurer is required to give written notice to the BMA of the fact that a person has become, or ceased to be, a controller or officer of the Class3B insurer within 45 days of becoming aware of such fact. An officer in relation to a registered insurer means a director, chief executive or senior executiveperforming duties of underwriting, actuarial, risk management, compliance, internal audit, finance or investment matters.30TABLE OF CONTENTSNotification of Material ChangesAll registered insurers are required to give notice to the BMA of their intention to effect a material change within the meaning of the Insurance Act. Forthe purposes of the Insurance Act, the following changes are material: (i) the transfer or acquisition of insurance business being part of a scheme falling underSection 25 of the Insurance Act or Section 99 of the Companies Act, (ii) the amalgamation with or acquisition of another firm, (iii) engaging in unrelatedbusiness that is retail business, (iv) the acquisition of a controlling interest in an undertaking that is engaged in non-insurance business which offers servicesand products to persons who are not affiliates of the insurer, (v) outsourcing all or substantially all of the company’s actuarial, risk management complianceor internal audit functions, (vi) outsourcing all or a material part of an insurer’s underwriting activity, (vii) the transfer other than by way of reinsurance of allor substantially all of a line of business, (viii) expansion into a material new line of business, (ix) the sale of an insurer, and (x) outsourcing of an officer role.No registered insurer shall take any steps to give effect to a material change unless it has first served notice on the BMA that it intends to effect suchmaterial change, and before the end of 30 days, either the BMA has notified such company in writing that it has no objection to such change or that periodhas lapsed without the BMA having issued a notice of objection.Before issuing a notice of objection, the BMA is required to serve upon the person concerned a preliminary written notice stating the BMA’s intentionto issue a formal notice of objection. Upon receipt of the preliminary written notice, the person served may, within 28 days, file written representations withthe BMA which shall be taken into account by the BMA in making their final determination.Group SupervisionThe BMA may, in respect of an insurance group, determine whether it is appropriate for it to act as its group supervisor. An insurance group is defined asa group of companies that conducts insurance business. The BMA may make such determination where it ascertains that (i) the group is headed by a“specified insurer” (that is to say, it is headed by either a Class 3A, Class 3B or Class 4 general business insurer or a Class C, Class D or Class E long terminsurer or another class of insurer designated by order of the BMA); or (ii) where the insurance group is not headed by a “specified insurer”, where it is headedby a parent company which is incorporated in Bermuda or (iii) where the parent company of the group is not a Bermuda company, in circumstances where theBMA is satisfied that the insurance group is directed and managed from Bermuda or the insurer with the largest balance sheet total is a specified insurer.Where the BMA determines that it should act as the group supervisor, it shall designate a specified insurer that is a member of the insurance group to bethe designated insurer (the “Designated Insurer”) and it shall give to the Designated Insurer and other applicable insurance regulatory authority written noticeof its intention to act as group supervisor. Before the BMA makes a final determination whether or not to act as group supervisor, it shall take into accountany written representations made by the Designated Insurer submitted within such period as is specified in the notice.The BMA may exclude any company that is a member of an insurance group from group supervision on the application of the Designated Insurer, or onits own initiative, provided the BMA is satisfied that (i) the company is situated in a country or territory where there are legal impediments to cooperationand exchange of information, (ii) the financial operations of the company have a negligible impact on insurance group operations or (iii) the inclusion of thecompany would be inappropriate with respect to the objectives of group supervision.The BMA may, on its own initiative or on the application of the relevant Designated Insurer, include within group supervision a company that is amember of the group that is not on the Register of Group Particulars (described below) if it is satisfied the financial operations of the company in questionmay have a material impact on the insurance group’s operations and its inclusion would be appropriate having regard to the objectives of group supervision.Once the BMA has been designated as group supervisor, the Designated Insurer must ensure that the insurance group of which it is a member appoints (i)an individual approved by the BMA who is qualified as a group actuary to provide an opinion on the insurance group’s insurance technical provisions inaccordance with the requirements of Schedule XIV “Group Statutory Economic Balance Sheet” of the Insurance (Prudential Standards) (Insurance GroupSolvency Requirement) Rules 2011 and (ii) an auditor approved by the BMA to audit the financial statements of the group.Pursuant to its powers under the Insurance Act, the BMA will maintain a register of particulars for every insurance group (the “Register of GroupParticulars”) for which it acts as the group supervisor, detailing the names and addresses of (i) the Designated Insurer; (ii) each member company of theinsurance group falling within the scope of group supervision; (iii) the principal representative of the insurance group in Bermuda; (iv) other competentauthorities supervising other member companies of the insurance group; and (v) the insurance group auditors. The Designated Insurer must immediatelynotify the BMA of any changes to the above details entered on the Register of Group Particulars.As group supervisor, the BMA will perform a number of supervisory functions including (i) coordinating the gathering and dissemination of relevant oressential information for going concerns and emergency situations, including the dissemination of31TABLE OF CONTENTSinformation which is of importance for the supervisory task of other competent authorities; (ii) carrying out supervisory reviews and assessments of theinsurance group; (iii) carrying out assessments of the insurance group’s compliance with the rules on solvency, risk concentration, intra-group transactionsand good governance procedures; (iv) planning and coordinating through regular meetings held at least annually (or by other appropriate means) with othercompetent authorities, supervisory activities in respect of the insurance group, both as a going concern and in emergency situations; (v) coordinatingenforcement actions that may need to be taken against the insurance group or any of its members; and (vi) planning and coordinating meetings of colleges ofsupervisors in order to facilitate the carrying out of the functions described above.The BMA may, for the purposes of group supervision, make rules applying to Designated Insurers which take into account any activities of the insurancegroup of which they are members or of other members of the insurance group. Such rules may make provision for the assessment of the financial situation ofthe insurance group; the solvency position of the insurance group (including the imposition of prudential standards in relation to enhanced capitalrequirements, capital and solvency returns, insurance reserves and eligible capital that must be complied with by the Designated Insurers); the system ofgovernance and risk management of the insurance group; intra-group transactions and risk concentrations; and supervisory reporting and disclosure inrespect of the insurance group.Supervision, Investigation, Intervention and DisclosureThe BMA may, by notice in writing served on a registered person or a designated insurer, require the registered person or designated insurer to providesuch information and/or documentation as the BMA may reasonably require with respect to matters that are likely to be material to the performance of itssupervisory functions under the Insurance Act. In addition, it may require such person’s auditor, underwriter, accountant or any other person with relevantprofessional skill of such registered person or designated insurer to prepare a report on any aspect pertaining thereto. In the case of a report, the person soappointed shall immediately give the BMA written notice of any fact or matter of which he becomes aware or which indicates to him that any conditionattaching to his registration under the Insurance Act is not or has not, or may not be or may not have, been fulfilled and that such matters are likely to bematerial to the performance of its functions under the Insurance Act. If it appears to the BMA to be desirable in the interests of the clients of a registeredperson or relevant insurance group, the BMA may also exercise these powers in relation to subsidiaries, parent companies and other affiliates of the registeredperson or designated insurer.If the BMA deems it necessary to protect the interests of the policyholders or potential policyholders of an insurer or insurance group, it may appointone or more competent persons to investigate and report on the nature, conduct or state of the insurer’s or the insurance group’s business, or any aspectthereof, or the ownership or control of the insurer or insurance group. If the person so appointed thinks it necessary for the purposes of the investigation, suchperson may also investigate the business of any person who is or has been, at any relevant time, a member of the insurance group or of a partnership of whichthe person being investigated is a member. In this regard, it shall be the duty of every person who is or was a controller, officer, employee, agent, banker,auditor, accountant, barrister and attorney or insurance manager to produce to the person appointed such documentation as the appointed person mayreasonably require for purposes of the investigation, and to attend and answer questions relevant to the investigation and to otherwise provide suchassistance as may be necessary in connection therewith.Where the BMA suspects that a person has failed to properly register under the Insurance Act or that a registered person or designated insurer has failedto comply with a requirement of the Insurance Act or that a person is not, or is no longer, a fit and proper person to perform functions in relation to a regulatedactivity, it may, by notice in writing, carry out an investigation into such person (or any other person connected thereto). In connection therewith, the BMAmay require every person who is or was a controller, officer, employee, agent, banker, auditor, accountant, barrister and attorney or insurance manager tomake a report and produce such documents in his care, custody and control and to attend before the BMA to answer questions relevant to the BMA’sinvestigation and to take such actions as the BMA may direct. The BMA may also enter any premises for the purposes of carrying out its investigation andmay petition the court for a warrant if it believes a person has failed to comply with a notice served on him, there are reasonable grounds for suspecting theinformation or documentation produced in response to such notice is incomplete, or that its directions will not be complied with or that any relevantdocuments would be removed, tampered with or destroyed.If it appears to the BMA that the business of the registered insurer is being conducted in a way that there is a significant risk of the insurer becominginsolvent or being unable to meet its obligations to policyholders, or that the insurer is in breach of the Insurance Act or any conditions imposed upon itsregistration, or the minimum criteria stipulated in the Insurance Act is not or has not been fulfilled in respect of a registered insurer, or that a person hasbecome a controller without providing the BMA with the appropriate notice or in contravention of a notice of objection, or the registered insurer is in breachof its ECR, or that a designated insurer is in breach of any provision of the Insurance Act or the regulations or rules applicable to it, the BMA may issue suchdirections as it deems desirable for safeguarding the interests of policyholders or potential policyholders of the insurer or the insurance group. The BMA may,among other things, direct an insurer, for itself and in its capacity as designated insurer of the insurance group of which it is a member, (i) not to take on anynew insurance business, (ii) not to vary any insurance contract if the effect would be to increase the insurer’s liabilities, (iii) not to make certain investments,(iv) to realize32TABLE OF CONTENTScertain investments, (v) to maintain in or transfer to the custody of a specified bank, certain assets, (vi) not to declare or pay any dividends or otherdistributions or to restrict the making of such payments, (vii) to limit its premium income, (viii) not to enter into specified transactions with any specifiedperson or persons of a specified class, (ix) to provide such written particulars relating to the financial circumstances of the insurer as the BMA thinks fit, (x) asan individual insurer only, and not in its capacity as designated insurer, to obtain the opinion of a loss reserve specialist and submit it to the BMA, and/or (xi)to remove a controller or officer.The BMA has the power to assist other regulatory authorities, including foreign insurance regulatory authorities, with their investigations involvinginsurance and reinsurance companies in Bermuda if it is satisfied that the assistance being requested is in connection with the discharge of regulatoryresponsibilities and that such cooperation is in the public interest. The grounds for disclosure by the BMA to a foreign regulatory authority without consentof the insurer are limited and the Insurance Act provides for sanctions for breach of the statutory duty of confidentiality.Cancellation of Insurer’s RegistrationAn insurer’s registration may be cancelled by the BMA at the request of the insurer or on certain grounds specified in the Insurance Act. Failure by theinsurer to comply with its obligations under the Insurance Act, or if the BMA believes that the insurer has not been carrying on business in accordance withsound insurance principles, would be examples of such grounds.Certain Other Bermuda Law ConsiderationsCorporate Bermuda Law ConsiderationsAlthough James River Group Holdings, Ltd. is incorporated in Bermuda, it is designated as a non-resident for Bermuda exchange control purposes bythe BMA. Pursuant to its non-resident status, James River Group Holdings, Ltd. may engage in transactions in currencies other than the Bermuda dollar, andthere are no restrictions on its ability to transfer funds (other than funds denominated in Bermuda dollars) in and out of Bermuda or to pay dividends to non-residents who are holders of its common shares in currencies other than the Bermuda dollar.In accordance with Bermuda law, share certificates are issued only in the names of companies, partnerships or individuals. In the case of an applicantacting in a special capacity (for example, as an executor or trustee), certificates may, at the request of the applicant, record the capacity in which the applicantis acting. Notwithstanding the recording of any such special capacity, we are not bound to investigate or see to the execution of any such trust. We will takeno notice of any trust applicable to any of our common shares whether or not we have notice of such trust.Each of James River Group Holdings, Ltd. and JRG Re is incorporated in Bermuda as an “exempted company.” Under Bermuda law, exemptedcompanies are companies formed for the purpose of conducting business outside Bermuda from a principal place of business in Bermuda. As a result, they areexempt from Bermuda laws restricting the percentage of share capital that may be held by non-Bermudians. However, exempted companies may notparticipate in certain business transactions, including: (i) the acquisition or holding of land in Bermuda except that required for their business and held byway of lease or tenancy for a term not exceeding 50 years or, with the consent of the Minister of Finance granted in his discretion by way of lease or tenancyfor a term not exceeding 21 years in order to provide accommodation or recreational facilities for its officers and employees, (ii) the taking of mortgages onland in Bermuda to secure an amount in excess of B.D.$50,000 without the consent of the Minister of Finance, (iii) the acquisition of any bonds ordebentures secured by any land in Bermuda, other than certain types of Bermuda government securities or securities issued by Bermuda public authorities, or(iv) the carrying on of business of any kind in Bermuda, except in furtherance of business carried on outside Bermuda or under license granted by theMinister of Finance . Generally, it is not permitted without a special license granted by the Minister of Finance to insure Bermuda domestic risks or risks ofpersons of, in or based in Bermuda. JRG Re is a licensed insurer in Bermuda, and so it may carry on activities from Bermuda that are related to and in supportof its insurance business.Each of James River Group Holdings, Ltd. and JRG Re must comply with the provisions of the Companies Act regulating the payment of dividends andmaking distributions from contributed surplus. A company may not declare or pay a dividend, or make a distribution out of contributed surplus, if there arereasonable grounds for believing that (i) it is, or would after the payment be, unable to pay its liabilities as they become due, or (ii) the realizable value of theassets would thereby be less than its liabilities. In addition, certain provisions of the Insurance Act will limit our ability to pay dividends.Under the Companies Act, where a Bermuda company issues shares at a premium (that is, for a price above the par value), whether for cash or otherwise, asum equal to the aggregate amount or value of the premium on those shares must be transferred to an account called “the share premium account.” Theprovisions of the Companies Act relating to the reduction of the share capital of a company apply as if the share premium account were paid up share capitalof that company, except for certain matters such as: (i) paying up unissued shares to be issued to members as fully paid bonus shares, (ii) writing off thepreliminary expenses of the company or the expenses of, or the commission paid or discount allowed on any issue of shares or debentures of the company, or(iii) providing for the premiums payable on redemption of shares or of any debentures of the company. The paid up share capital may not be reduced if, onthe date the reduction is to be effected, there are reasonable33TABLE OF CONTENTSgrounds for believing that the company is, or after the reduction would be, unable to pay its liabilities as they become due. See “- Restrictions on Dividendsand Distributions”.Securities may be offered or sold in Bermuda only in compliance with the provisions of the Investment Business Act 2003 and the Exchange Control Act1972 and related regulations of Bermuda which regulate the sale of securities in Bermuda. In addition, the permission of the BMA is required under theprovisions of the Exchange Control Act 1972 and related regulations for all issuances and transfers of shares of Bermuda companies to or from a non-residentof Bermuda for exchange control purposes, other than in cases where the BMA has granted a general permission. The BMA, in its notice to the public datedJune 1, 2005, has granted a general permission for the issue and subsequent transfer of any securities of a Bermuda company from and/or to a non-resident ofBermuda for exchange control purposes for so long as any “equity securities” of the company (which would include our common shares) are listed on an“Appointed Stock Exchange” (which would include the NASDAQ Stock Market). In granting the general permission, the BMA accepts no responsibility forour financial soundness or the correctness of any of the statements made or opinions expressed herein.We have received consent from the BMA to issue, grant, create, sell and transfer freely any of our shares, stock, bonds, notes (other than promissorynotes), debentures, debenture stock, units under a unit trust scheme, shares in an oil royalty, options, warrants, coupons, rights and depository receipts to andamong persons who are either resident or non-resident of Bermuda for exchange control purposes.Bermuda Work Permit ConsiderationsUnder Bermuda law, non-Bermudians (other than spouses of Bermudians and individuals holding permanent resident’s certificates) may not engage inany gainful occupation in Bermuda without the appropriate government standard work permit.Standard work permits can be obtained for a one-, two-, three-, four- or five-year period. Where a standard work permit is being applied for, it is arequirement that the job must be advertised for three days (within an eight-day period) in the local newspaper in addition to the Bermuda Government JobBoard. Should no Bermudian (or spouse of a Bermudian or holder of a permanent resident’s certificate) meet the minimum standards as stipulated in theadvertisements, the employer may then apply for a standard work permit for the non-Bermudian. Employers must complete a Recruitment Disclosure Formand provide information, including the qualifications of all applicants. The Department of Immigration will compare the qualifications and experience of anyBermudian applicants (or spouse of a Bermudian or holder of a permanent resident’s certificate) to that stipulated in the advertisements and to the non-Bermudian to be satisfied that the role could not have been filled by a Bermudian (or spouse of a Bermudian or holder of a permanent resident’s certificate).In addition to the advertising, there are also many other documents that are required prior to the Department of Immigration making its decision.If the position for which the standard work permit is being applied is that of a Chief Executive Officer or other chief officer post, the Minister of HomeAffairs will waive the requirement to advertise the job and on occasion may waive the requirement to advertise for other senior executive positions.If an employer wishes to change an employee’s job title, provided that the job description, duties, remuneration and benefits remain unchanged, theemployer does not need to advertise or obtain the permission of the Minister of Home Affairs to do this, but it must inform the Department of Immigration andpay the necessary fee after the change has occurred.If an employer wishes to promote an employee currently on a work permit from his current job to another within the same business, the permission of theMinister of Home Affairs must first be obtained. The employer will need to provide evidence of internal recruitment efforts and consideration of internalBermudian candidates.A temporary work permit can take up to 10 working days to process and a standard work permit can take up to four weeks to process.U.S. Insurance RegulationState RegulationOur U.S. insurance subsidiaries are subject to extensive regulation and supervision by their state of domicile, as well as those states in which they dobusiness. The purpose of such regulation and supervision is primarily to provide safeguards for policyholders, rather than to protect the interests ofshareholders. The insurance laws of the various states establish regulatory agencies with broad administrative powers, including the power to grant or revokeoperating licenses and regulate trade practices, investments, premium rates, deposits of securities, the form and content of financial statements and insurancepolicies, dividend limitations, cancellation and non-renewal of policies, accounting practices and the maintenance of specified reserves and capital for theprotection of policyholders.The payment of dividends by our subsidiaries to us is limited by statute. In general, the laws and regulations applicable to our domestic insurancesubsidiaries limit the aggregate amount of dividends or other distributions that they may declare or pay within any 12 month period without advanceregulatory approval. In Ohio, the domiciliary state of James River Insurance, Falls34TABLE OF CONTENTSLake General Insurance Company (formerly Stonewood General Insurance Company) (“Falls Lake General”) and Falls Lake National Insurance Company(formerly Stonewood National Insurance Company) (“Falls Lake National”), the limitation is the greater of statutory net income for the preceding calendaryear or 10% of the statutory surplus at the end of the preceding calendar year, provided that such dividends may only be paid out of the earned surplus ofeach of the companies without obtaining regulatory approvals. In North Carolina, the domiciliary state of Stonewood Insurance, this limitation is the greaterof statutory net income excluding realized capital gains for the preceding calendar year or 10% of the statutory surplus at the end of the preceding calendaryear, provided that such dividends may only be paid out of unassigned surplus without obtaining regulatory approval. In Virginia, the domiciliary state ofJames River Casualty Company, this limitation is the greater of statutory net income excluding realized capital gains of the preceding calendar year or 10%of the statutory surplus at the end of the preceding calendar year, provided that such dividends may only be paid out of unassigned surplus without obtainingregulatory approval. In California, the domiciliary state of Falls Lake Fire and Casualty Company, this limitation is the greater of statutory net income for thepreceding calendar year or 10% of the statutory surplus at the end of the preceding calendar year, provided that such dividends may only be paid out ofunassigned surplus without obtaining regulatory approval. Moreover, as a condition to obtaining its license in California, Falls Lake Fire and CasualtyCompany provided a commitment to the California Department of Insurance that it would not pay any shareholder dividends for a five-year periodcommencing January 1, 2016. In addition, insurance regulators have broad powers to prevent reduction of statutory surplus to inadequate levels and couldrefuse to permit the payment of dividends calculated under any applicable formula.Premium rate regulation varies greatly among jurisdictions and lines of insurance. In most states in which our subsidiaries write insurance, premium ratesfor the various lines of insurance are subject to either prior approval or limited review upon implementation. States require rates for property casualtyinsurance that are adequate, not excessive, and not unfairly discriminatory.Our insurance subsidiaries are required to file quarterly and annual reports with the appropriate regulatory agency in its state of domicile and with TheNational Association of Insurance Commissioners (“NAIC”) based on applicable statutory regulations, which differ from U.S. generally accepted accountingprinciples. Their business and accounts are subject to examination by such agencies at any time.Many jurisdictions have laws and regulations that limit an insurer’s ability to withdraw from a particular market. For example, states may limit aninsurer’s ability to cancel or non-renew policies. Furthermore, certain states prohibit an insurer from withdrawing one or more lines of business from the states,except pursuant to a plan approved by the state insurance department. Laws and regulations that limit cancellation and non-renewal and that subject programwithdrawals to prior approval requirements may restrict our ability to exit unprofitable marketplaces in a timely manner.State laws governing insurance holding companies and insurance companies require an insurance holding company and their insurance subsidiaries toregister with the insurance department authority, to file certain reports disclosing information, including but not limited to capital structure, ownership,management, and financial condition. Such holding company laws also impose standards and filing requirements on certain transactions between relatedcompanies, which include, among other requirements, that all transactions be fair and reasonable, that an insurer’s surplus as regards policyholders bereasonable and adequate in relation to its liabilities and that expenses and payments be allocated to the appropriate party in accordance with customaryaccounting practices. These transactions between related companies include transfers of assets, loans, reinsurance agreements, service agreements, certaindividend payments by the insurance companies and certain other material transactions and modifications to such transactions. In 2012, the NAIC adoptedsignificant changes to the insurance holding company act and regulations (the “NAIC Amendments”). The NAIC Amendments, when adopted by the variousstates, are designed to respond to perceived gaps in the regulation of insurance holding company systems in the United States. One of the major changes is arequirement that an insurance holding company system’s ultimate controlling person submit annually to its lead state insurance regulator an “enterprise riskreport” that identifies activities, circumstances or events involving one or more affiliates of an insurer that, if not remedied properly, are likely to have amaterial adverse effect upon the financial condition or liquidity of the insurer or its insurance holding company system as a whole. Other changes include (i)requiring a controlling person to submit prior notice to its domiciliary insurance regulator of its divestiture of control, (ii) having detailed minimumrequirements for cost sharing and management agreements between an insurer and its affiliates and (iii) expanding the types of agreements between an insurerand its affiliates to be filed with its domiciliary insurance regulator. The NAIC Amendments must be adopted by a state legislature and such state’s insuranceregulator in order to be effective in that state. Each of California, North Carolina, Ohio, and Virginia, the states in which our U.S. insurance subsidiaries aredomiciled, include this enterprise risk report. In addition, in 2012, the NAIC adopted the Risk Management and Own Risk and Solvency Assessment ModelAct (the “ORSA Model Act”). The ORSA Model Act, when adopted by the various states, will require an insurance holding company system’s Chief RiskOfficer to submit at least annually to its lead state insurance regulator an Own Risk and Solvency Assessment Summary Report (“ORSA”). The ORSA is aconfidential internal assessment, appropriate to the nature, scale and complexity of an insurer, of the material and relevant risks identified by the insurerassociated with an insurer’s current business plan and the sufficiency of capital resources to support those risks. The ORSA Model Act must be adopted by35TABLE OF CONTENTSa state legislature in order to be effective in that state. Each of California, North Carolina, Ohio, and Virginia, the states in which our U.S. insurancesubsidiaries are domiciled, adopted and require an ORSA filing.The insurance holding company laws and regulations of the states in which our insurance companies are domiciled also generally require that before aperson can acquire direct or indirect control of an insurer domiciled in the state, and in some cases prior to divesting its control, prior written approval mustbe obtained from the insurer’s domiciliary state insurance regulator. In addition to insurance holding company laws and regulations, under the organizationalpermit issued by the California Department of Insurance to Falls Lake Fire and Casualty Company, Falls Lake Fire and Casualty Company, as a new insurer,was required to enter into an agreement with Falls Lake National restricting the transfer of Falls Lake Fire and Casualty Company’s shares (the “AgreementRestricting Shares”) for a five-year period commencing January 1, 2016. Specifically, under the agreement, the restriction on share transfer is releasedautomatically without further approval or consent by the California Department of Insurance, or any other party, at the following respective times: 5% at theend of the first year of the 5-year restriction period; an additional 5% at the end of the second year; an additional 10% at the end of the third year; anadditional 20% at the end of the fourth year; and the remainder at the end of the fifth year. Therefore, under the organizational permit and the AgreementRestricting Shares, Falls Lake National’s ability to directly or indirectly transfer the shares of Falls Lake Fire and Casualty Company to anyone without theprior written approval of the California Department of Insurance is limited. These laws and the similar conditions applicable to Falls Lake Fire and CasualtyCompany’s shares may discourage potential acquisition proposals and may delay, deter or prevent an investment in or a change of control involving us, orone or more of our regulated subsidiaries, including transactions that our management and some or all of our shareholders might consider desirable. Pursuantto applicable laws and regulations, “control” over an insurer is generally presumed to exist if any person, directly or indirectly, owns, controls, holds thepower to vote or holds proxies representing, 10 percent or more of the voting securities of that insurer. Indirect ownership includes ownership of theCompany’s common shares.Under state insurance guaranty fund laws, insurance companies doing business in a state can be assessed for certain obligations of insolvent insurancecompanies to such insolvent companies’ policyholders and claimants. Maximum assessments allowed in any one year generally vary between one percentand two percent of annual premiums written in that state, but it is possible that caps on such assessments could be raised if there are numerous or largeinsolvencies. In most states, guaranty fund assessments are recoverable either through future policy surcharges or offsets to state premium tax liabilities.The admitted market is subject to more state regulation than the E&S market, particularly with regard to rate and form filing requirements, restrictions onthe ability to exit lines of business, premium tax payments and membership in various state associations, such as guaranty funds. Some states havederegulated their commercial insurance markets. We cannot predict the effect that further deregulation would have on our business, financial condition orresults of operations.The state insurance regulators utilize a risk-based capital model to help assess the capital and surplus adequacy of insurance companies in relation toinvestment and insurance risks and identify insurers that are in, or are perceived as approaching, financial difficulty. This model establishes minimum capitalneeds based on the risks applicable to the operations of the individual insurer. The risk-based capital requirements for property casualty insurance companiesmeasure three major areas of risk: asset risk, credit risk and underwriting risk. Under risk-based capital requirements, regulatory compliance is determined bythe ratio of a company’s total adjusted capital, as defined by the NAIC, to its company action level risk-based capital. Companies having less statutorysurplus than required by the risk-based capital requirements are subject to varying degrees of regulatory scrutiny and intervention, depending on the severityof the inadequacy. At December 31, 2017, the Company’s U.S.-based insurance subsidiaries had total adjusted statutory capital of $219.1 million, which is inexcess of the minimum risk-based capital requirement.From time to time, states consider and/or enact laws that may alter or increase state authority to regulate insurance companies and insurance holdingcompanies. States also consider and/or enact laws that impact the competitive environment and marketplace for property casualty insurance. Changes inlegislation or regulations and actions by regulators, including changes in administrative and enforcement policies, could require operational modificationsfrom time to time. We cannot predict the effect that such changes or actions would have on our business, financial condition or results of operations.Federal RegulationThe U.S. federal government generally has not directly regulated the insurance industry except for certain areas of the market, such as insurance forflood, nuclear and terrorism risks. However, the U.S. federal government has undertaken initiatives or considered legislation in several areas that may impactthe insurance industry, including tort reform, corporate governance and the taxation of reinsurance companies. The Dodd-Frank Wall Street Reform andConsumer Protection Act (the “Dodd-Frank Act”) established the Federal Insurance Office which is authorized to study, monitor and report to Congress onthe insurance industry and to recommend that the Financial Stability Oversight Council (“FSOC”) designate an insurer as an entity posing risks to the U.S.financial stability in the event of the insurer’s material financial distress or failure. In December 2013, the Federal Insurance Office issued a report onalternatives to modernize and improve the system of insurance regulation in the United States, including by increasing national uniformity36TABLE OF CONTENTSthrough either a federal charter or effective action by the states. Additionally, the Dodd-Frank Act streamlined E&S placements, the payment of E&S taxes,the regulation of credit for reinsurance, and simplified the process for insurers to become an eligible E&S insurer in the U.S. In addition, legislation has beenintroduced from time to time that, if enacted, could result in the U.S. federal government assuming a more direct role in the regulation of the insuranceindustry, including federal licensing in addition to or in lieu of state licensing and reinsurance for natural catastrophes. Changes to federal legislation andadministrative policies in several areas, including changes in federal taxation, can also significantly impact the insurance industry and us.On January 12, 2015, the Terrorism Risk Insurance Act of 2002 and its successors, the Terrorism Risk Insurance Extension Act of 2005 and the TerrorismRisk Insurance Program Reauthorization Act of 2007 (collectively, the “Terrorism Acts”), were extended until 2020. Under the Terrorism Acts, commercialproperty and casualty insurers, in exchange for making terrorism insurance available, may be entitled to be reimbursed by the federal government for aportion of their aggregate losses. As required by the Terrorism Acts, we offer policyholders in specific lines of commercial insurance the option to electterrorism coverage.In order for a loss to be covered under the Terrorism Acts, the loss must meet the aggregate industry loss minimum and must be the result of an act ofterrorism as certified by the Secretary of the Treasury. Beginning in 2016, insurers participating in the Terrorism Acts are required to provide informationregarding insurance coverage for terrorism losses, including: (i) lines of business with exposure to such losses, (ii) premiums earned on such coverage, (iii)geographical location of exposures, (iv) pricing of such coverage, (v) the take-up rate for such coverage, and (vi) the amount of private reinsurance for acts ofterrorism purchased.Geographic InformationFor each of the years ended December 31, 2017, 2016 and 2015, 100% of our gross written premiums and net earned premiums were generated frompolicies issued to U.S.-based insureds.EmployeesAs of December 31, 2017, we had 760 employees located in the United States and Bermuda. All of our employees are full time. Our employees are notsubject to any collective bargaining agreement and we are not aware of any current efforts to implement such an agreement. We believe we have goodworking relations with our employees.Intellectual PropertyWe hold U.S. federal service mark registration of our corporate logo and several other company trademark registrations or applications for registrationwith the U.S. Patent and Trademark Office. Such registrations protect our intellectual property from confusingly similar use. We monitor our trademarks andservice marks and protect them from unauthorized use.We use licensed and proprietary systems and technologies in our underwriting. The licenses have terms that expire at various times through 2028. Webelieve that we can utilize other available systems and technologies in the event that the licenses are not renewed upon their expiration.Available InformationWe file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other information with the SEC. Members of thepublic may read and copy materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Members ofthe public may also obtain information on the Public Reference Room by calling the SEC at 1-800-732-0330. The SEC also maintains an Internet web sitethat contains reports, proxy and information statements and other information regarding issuers, including us, that file electronically with the SEC. Theaddress of that site is http://www.sec.gov. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and otherinformation filed by us with the SEC are available, without charge, on our Internet web site, http://www.jrgh.net, as soon as reasonably practicable after theyare filed electronically with the SEC. Copies are also available, without charge, by writing to us at James River Group Holdings, Ltd., Wellesley House, 2ndFloor, 90 Pitts Bay Road, Pembroke, HM 08, Bermuda. The information on our web site is not a part of this Annual Report.37TABLE OF CONTENTSItem 1A.RISK FACTORSYou should carefully consider the following risks, together with the cautionary statement under the caption “Special Note Regarding Forward-LookingStatements” above and the other information included in this Annual Report. The risks described below are not the only ones we face. Additional risks thatare currently unknown to us or that we currently consider immaterial may also impair our business or materially adversely affect our financial condition orresults of operations. If any of the following risks actually occurs, our business, financial condition or results of operation could be materially adverselyaffected.Risks Related to Our Business and IndustryOur actual incurred losses may be greater than our loss and loss adjustment expense reserves, which could have a material adverse effect on our financialcondition and results of operations.Our financial condition and results of operations depend upon our ability to assess accurately the potential losses and loss adjustment expenses underthe terms of the insurance policies or reinsurance contracts we underwrite. Reserves do not represent an exact calculation of liability. Rather, reservesrepresent an estimate of what we expect the ultimate settlement and administration of claims will cost us, and our ultimate liability may be greater or less thancurrent reserves. These estimates are based on our assessment of facts and circumstances then known, as well as estimates of future trends in claim severity,claim frequency, judicial theories of liability and other factors. These variables are affected by both internal and external events that could increase ourexposure to losses, including changes in actuarial projections, claims handling procedures, inflation, climate change, economic and judicial trends, andlegislative changes. We continually monitor reserves using new information on reported claims and a variety of statistical techniques.In the insurance and reinsurance industry, there is always the risk that reserves may prove inadequate, and actual results always differ from our reserveestimates. It is possible for insurance and reinsurance companies to underestimate the cost of claims. Our estimates could prove to be low, and thisunderestimation could have a material adverse effect on our financial strength.Among the uncertainties we encounter in establishing our reserves for losses and related expenses in connection with our insurance businesses are:•When we write “occurrence” policies in our Excess and Surplus Lines segment, we are obligated to pay covered claims, up to the contractuallyagreed amount, for any covered loss that occurs while the policy is in force. Losses can emerge many years after a policy has lapsed. Accordingly,our first notice of a claim or group of claims may arise many years after a policy has lapsed. Approximately 92.5% of our net casualty loss reserves inthis segment are associated with “occurrence form” policies at December 31, 2017.•Even when a claim is received (irrespective of whether the policy is a “claims made” or “occurrence” basis form), it may take considerable time tofully appreciate the extent of the covered loss suffered by the insured and, consequently, estimates of loss associated with specific claims canincrease over time.•New theories of liability are enforced retroactively from time to time by courts. See also “The effect of emerging claim and coverage issues on ourbusiness is uncertain” risk factor herein.•Volatility in the financial markets, economic events and other external factors may result in an increase in the number of claims and the severity ofthe claims reported. In addition, elevated inflationary conditions could, among other things, cause loss costs to increase.•If claims became more frequent, even if we had no liability for those claims, the cost of evaluating these potential claims could escalate beyond theamount of the reserves we have established. As we enter new lines of business, or as a result of new theories of claims, we may encounter an increasein claims frequency and greater claims handling costs than we had anticipated.•We regularly enter new lines of insurance, and as a consequence, we sometimes have to make estimates of future losses for risk classes with which wedo not have a great deal of experience. This lack of experience may contribute to making errors of judgment when establishing reserves.In addition, reinsurance reserve estimates are typically subject to greater uncertainty than insurance reserve estimates, primarily due to reliance on theoriginal underwriting decisions made by the ceding company. As a result, we are subject to the risk that our ceding companies may not have adequatelyevaluated the risks reinsured by us and the premiums ceded may not adequately compensate us for the risks we assume. Other factors resulting in additionaluncertainty in establishing reinsurance reserves include:38TABLE OF CONTENTS•The increased lapse of time from the occurrence of an event to the reporting of the claim and the ultimate resolution or settlement of the claim.•The diversity of development patterns among different types of reinsurance treaties.•The necessary reliance on the ceding company for information regarding claims.If any of our insurance or reinsurance reserves should prove to be inadequate for the reasons discussed above, or for any other reason, we will be requiredto increase reserves, resulting in a reduction in our net income and shareholders’ equity in the period in which the deficiency is identified. Future lossexperience substantially in excess of established reserves would also have a material adverse effect on future earnings and liquidity and financial rating,which would affect our ability to attract business and could affect our ability to retain or hire qualified personnel.Our risk management is based on estimates and judgments that are subject to significant uncertainties.Our approach to risk management relies on subjective variables that entail significant uncertainties. For example, we rely heavily on estimates ofprobable maximum losses for certain events that are generated by computer-run models. In addition, we rely on historical data and scenarios in managingcredit and interest rate risks in our investment portfolio. These estimates, models, data and scenarios may not produce accurate predictions and consequently,we could incur losses both in the risks we underwrite and to the value of our investment portfolio.Small changes in assumptions, which depend heavily on our judgment and foresight, can have a significant impact on the modeled outputs. Althoughwe believe that these probabilistic measures provide a meaningful indicator of the relative risk of certain events and changes to our business over time, thesemeasures do not predict our actual exposure to, nor guarantee our successful management of, future losses that could have a material adverse effect on ourfinancial condition and results of operations.If we are unable to retain key management and employees or recruit other qualified personnel, we may be materially adversely affected.We believe that our future success depends, in large part, on our ability to retain our experienced management team and key employees. For instance,our specialty insurance operations require the services of a number of highly experienced employees, including underwriters, to source quality business andanalyze and manage our risk exposure. There can be no assurance that we can attract and retain the necessary employees to conduct our business activities ona timely basis or at all. Our competitors may offer more favorable compensation arrangements to our key management or employees to incentivize them toleave our Company. Furthermore, our competitors may make it more difficult for us to hire their personnel by offering excessive compensation arrangementsto certain employees to induce them not to leave their current employment and bringing litigation against employees who do leave (and possibly us as well)to join us. Although we have employment agreements with all of our executive officers, we do not have employment agreements with our senior underwritersor claims personnel. We do not have key person insurance on the lives of any of our key management personnel. Our inability to attract and retain qualifiedpersonnel and the loss of services of key personnel could have a material adverse effect on our financial condition and results of operations.Adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity could result in the sale of fewer policiesthan expected or an increase in frequency or severity of claims and premium defaults or both, which, in turn, could affect our growth and profitability.Factors, such as business revenue, economic conditions, the volatility and strength of the capital markets and inflation can all affect the business andeconomic environment. These same factors affect ourability to generate revenue and profits. In an economic downturn that is characterized by higher unemployment, declining spending and reduced corporaterevenues, the demand for insurance products is adversely affected, which directly affects our premium levels and profitability. Negative economic factors mayalso affect our ability to receive the appropriate rate for the risk we insure with our policyholders and may adversely affect the number of policies we canwrite, including with respect to our opportunities to underwrite profitable business. In an economic downturn, our customers may have less need for insurancecoverage, cancel existing insurance policies, modify their coverage, self insure their risks, or not renew with us. Existing policyholders may exaggerate oreven falsify claims to obtain higher claims payments. These outcomes would reduce our underwriting profit to the extent these factors are not reflected in therates we charge.We underwrite a significant portion of our insurance in (i) the Excess and Surplus Lines segment in California, Texas, Florida, New York, Illinois andNew Jersey, (ii) the individual risk workers’ compensation business of the Specialty Admitted Insurance segment in North Carolina, Virginia, South Carolinaand Tennessee, and (iii) the fronting and program business of the Specialty Admitted Insurance segment in Texas, New York, New Mexico and Florida. Anyeconomic downturn in any such state could have a material adverse effect on our financial condition and results of operations.39TABLE OF CONTENTSA decline in our financial strength rating may result in a reduction of new or renewal business.Companies, insurers and reinsurance brokers use ratings from independent ratings agencies as an important means of assessing the financial strength andquality of reinsurers. A.M. Best has assigned a financial strength rating of “A” (Excellent),” which is the third highest of 15 ratings that A.M. Best issues, toeach of James River Insurance, James River Casualty, Falls Lake Fire and Casualty, Falls Lake National, Falls Lake General, Stonewood Insurance and JRGRe. A.M. Best assigns ratings that are intended to provide an independent opinion of an insurance or reinsurance company’s ability to meet its obligations topolicyholders and such ratings are not an evaluation directed to investors. A.M. Best periodically reviews our rating and may revise it downward or revoke itat its sole discretion based primarily on its analysis of our balance sheet strength (including capital adequacy and loss and loss adjustment expense reserveadequacy), operating performance and business profile. Factors that could affect such an analysis include but are not limited to:•if we change our business practices from our organizational business plan in a manner that no longer supports our A.M. Best’s rating;•if unfavorable financial, regulatory or market trends affect us, including excess market capacity;•if our losses exceed our loss reserves;•if we have unresolved issues with government regulators;•if we are unable to retain our senior management or other key personnel;•if our investment portfolio incurs significant losses; or•if A.M. Best alters its capital adequacy assessment methodology in a manner that would adversely affect our rating.These and other factors could result in a downgrade of our rating. A downgrade of our rating could cause our current and future brokers and agents, retailbrokers and insureds to choose other, more highly-rated competitors. A downgrade of this rating could also increase the cost or reduce the availability ofreinsurance to us.In addition, in view of the earnings and capital pressures recently experienced by many financial institutions, including insurance companies, it ispossible that rating organizations will heighten the level of scrutiny that they apply to such institutions, will increase the frequency and scope of their creditreviews, will request additional information from the companies that they rate and may increase the capital and other requirements employed in the ratingorganizations’ models for maintenance of certain ratings levels. It is possible that such reviews of us may result in adverse ratings consequences, which couldhave a material adverse effect on our financial condition and results of operations. A downgrade below “A-” or withdrawal of any rating could severely limitor prevent us from writing new and renewal insurance or reinsurance contracts. See also “Management’s Discussion and Analysis of Financial Condition andResults of Operations—Liquidity and Capital Resources—Ratings.”We distribute products through a select group of brokers and agents, several of which account for a significant portion of our business, and there can be noassurance that such relationships will continue, or if they do continue, that the relationship will be on favorable terms to us. In addition, reliance onbrokers and agents subjects us to their credit risk.We distribute our products through a select group of brokers and agents. In 2017:•the Excess and Surplus Lines segment conducted business with two brokers that produced an aggregate of $324.0 million in gross written premiums,or 61.2% of that segment’s gross written premiums for the year;•the Specialty Admitted Insurance segment conducted business with one agency that produced $183.0 million in gross written premiums,representing 57.8% of that segment’s gross written premiums for the year; and•the Casualty Reinsurance segment conducted business with four brokers that generated $182.6 million of gross written premiums, or 77.6% of thatsegment’s gross written premiums for the year.We cannot assure you that the relationship with any of these brokers will continue. Even if the relationships do continue, they may not be on terms thatare profitable for us. The termination of a relationship with one or more significant brokers or agents could result in lower direct written premiums and couldhave a material adverse effect on our results of operations or business prospects.There is a trend toward consolidation among brokers and agents who produce our business. As brokers and agents consolidate and competition amongthem declines, they may seek and receive higher commissions. Increases in commissions could reduce our underwriting profit.40TABLE OF CONTENTSCertain premiums from policyholders, where the business is produced by brokers or agents, are collected directly by the brokers or agents and forwardedto our insurance subsidiaries. In certain jurisdictions, when the insured pays its policy premium to brokers or agents for payment on behalf of our insurancesubsidiaries, the premiums might be considered to have been paid under applicable insurance laws and regulations. Accordingly, the insured would no longerbe liable to us for those amounts, whether or not we have actually received the premiums from that broker or agent. Consequently, we assume a degree ofcredit risk associated with brokers and agents. Where necessary, we review the financial condition of potential new brokers and agents before we agree totransact business with them. Although failures by brokers and agents to remit premiums have not been material to date, there may be instances where brokersand agents collect premiums but do not remit them to us and we may be required under applicable law to provide the coverage set forth in the policy despitethe absence of premiums.Because the possibility of these events depends in large part upon the financial condition and internal operations of our brokers and agents (which inmost cases is not public information), we are not able to quantify the exposure presented by this risk. If we are unable to collect premiums from brokers andagents in the future, underwriting profits may decline and our financial condition and results of operations could be materially adversely affected.We rely on a select group of customers for a significant portion of our business, and the loss of any of these customers, or a material reduction in businesswith any of these customers, would materially adversely affect our rate of growth, results of operations and financial condition.Our three largest customers accounted for approximately $216.1 million (Rasier LLC), $183.0 million (Atlas General Insurance Services), and $120.3million (State National Insurance Company) of our gross written premium in 2017, representing 20.0%, 16.9%, and 11.1% of our gross written premiums in2017, respectively. No other insured generated 10.0% or more of consolidated gross written premiums for 2017. The loss of any of these customers, or asignificant reduction in the amount of business that we conduct with such customers, could have a material adverse effect on our results of operations.The failure of any of the loss limitations or exclusions we employ, or changes in other claims or coverage issues, could have a material adverse effect onour financial condition or results of operations.Although we seek to mitigate our loss exposure through a variety of methods, the future is inherently unpredictable. It is difficult to predict the timing,frequency and severity of losses with statistical certainty. It is not possible to completely eliminate our exposure to unforecasted or unpredictable events and,to the extent that losses from such risks occur, our financial condition and results of operations could be materially adversely affected.For instance, various provisions of our policies, such as limitations or exclusions from coverage or choice of forum, which have been negotiated to limitour risks, may not be enforceable in the manner we intend. At the present time, we employ a variety of endorsements to our policies that limit exposure toknown risks.In addition, we design our E&S Lines segment’s policy terms to manage our exposure to expanding theories of legal liability like those which havegiven rise to claims for lead paint, asbestos, mold, construction defects and environmental matters. Many of the policies we issue also include conditionsrequiring the prompt reporting of claims to us and entitle us to decline coverage in the event of a violation of that condition. Also, many of our policies limitthe period during which a policyholder may bring a claim under the policy, which in many cases is shorter than the statutory period under which such claimscan be brought against our policyholders. While these exclusions and limitations help us assess and reduce our loss exposure and help eliminate knownexposures to certain risks, it is possible that a court or regulatory authority could nullify or void an exclusion or legislation could be enacted modifying orbarring the use of such endorsements and limitations. These types of governmental actions could result in higher than anticipated losses and loss adjustmentexpenses, which could have a material adverse effect on our financial condition or results of operations. In some instances, these changes may not becomeapparent until sometime after we have issued insurance policies that are affected by the changes. As a result, the full extent of liability under our insurancecontracts may not be known for many years after a contract is issued.We have exposure to losses arising from unpredictable natural disasters, terrorist acts, and other catastrophic events. Claims from these events couldreduce our earnings and cause volatility in our results of operations.We have exposure to losses arising from unpredictable natural disasters, terrorist acts, and other catastrophic events. Natural disasters, terrorist acts, andother catastrophes can cause losses in a variety of our property/casualty lines and generally result in an increase in the number of claims filed as well as theamount of compensation sought by claimants. For example, in 2017, the Company had net losses of $6.9 million from Hurricanes Harvey and Irma.The incidence and severity of catastrophes and terrorist acts are inherently unpredictable. The extent of losses from catastrophes is a function of thefrequency of loss events, the total amount of insured exposure in the area affected by each event and the severity of the events. Claims from catastrophicevents could exceed our amount of reinsurance purchased to protect us from such events, reduce our earnings and cash flows, cause volatility in our results ofoperations and cash flows for any fiscal period or materially impact our financial condition.41TABLE OF CONTENTSWe may have exposure to losses from terrorism for which we are required by law to provide coverage regarding such losses.U.S. insurers are required by state and federal law to offer coverage for terrorism in certain commercial lines, including workers’ compensation. Asdiscussed under “Item 1. Business—Regulation—U.S. Insurance Regulation—Federal Regulation,” the Terrorism Acts require commercial property andcasualty insurance companies to offer coverage for acts of terrorism, whether foreign or domestic, and established a federal assistance program through theend of 2020 to help cover claims related to future terrorism-related losses. The impact of any terrorist act is unpredictable, and the ultimate impact on uswould depend upon the nature, extent, location and timing of such an act.The effect of emerging claim and coverage issues on our business is uncertain.As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims andcoverage may emerge. These issues may materially adverselyaffect our business by either broadening coverage beyond our underwriting intent or by increasing the number or size of claims. In some instances, thesechanges may not become apparent until sometime after we have issued insurance or reinsurance contracts that are affected by the changes. As a result, the fullextent of liability under our insurance or reinsurance contracts may not be known for many years after a contract is issued.Three examples of unanticipated risks that affected the insurance industry are:•Asbestos liability applied to manufacturers of products and contractors who installed those products;•Apportionment of liability for settlement assigned to subcontractors who may have been involved in mundane tasks (such as installing sheetrock ina home); and•Court decisions, such as the 1995 Montrose decision in California, that read policy exclusions narrowly so as to expand coverage, thereby requiringinsurers to create and write new exclusions.Our investment portfolio is subject to significant market and credit risks, which could result in a material adverse impact on our financial condition orresults of operations.Our results of operations depend, in part, on the performance of our investment portfolio. We seek to hold a diversified portfolio of investments that ismanaged by professional investment advisory management firms in accordance with our investment policy and periodically reviewed by our InvestmentCommittee. However, our investments are subject to general economic conditions and market risks as well as risks inherent to particular securities.Our primary market risk exposures are to changes in interest rates and equity prices. See Item 7A, “Quantitative and Qualitative Disclosures AboutMarket Risk.” In recent years, interest rates have been at or near historic lows. A protracted low interest rate environment would continue to place pressure onnet investment income, particularly related to fixed income securities and short-term investments, which, in turn, may materially adversely affect ouroperating results. Future increases in interest rates could cause the values of our fixed income securities portfolios to decline, with the magnitude of thedecline depending on the duration of our portfolio and the amount by which interest rates increase. Some fixed income securities have call or prepaymentoptions, which represent possible reinvestment risk in declining rate environments. Other fixed income securities such as mortgage-backed and asset-backedsecurities carry prepayment risk or, in a rising interest rate environment, may not pre-pay as quickly as expected. In addition, individual securities in ourfixed income securities portfolio are subject to credit risk and default. Downgrades in the credit ratings of fixed maturities can have a significant negativeeffect on the market valuation of such securities.The severe downturn in the public debt and equity markets beginning in 2008 resulted in significant realized and unrealized losses in our investmentportfolio. In the event of another financial crisis, we could incur substantial realized and unrealized investment losses in future periods, which would have amaterial adverse impact on our financial condition, results of operations, debt and financial strength ratings, insurance subsidiaries’ capital liquidity andability to access capital markets.The value of our investment portfolio is subject to the risk that certain investments may default or become impaired due to deterioration in the financialcondition of one or more issuers of the securities held, or due to deterioration in the financial condition of an insurer that guarantees an issuer’s payments ofsuch investments. Such defaults and impairments could reduce our net investment income and result in realized investment losses.We hold investments in publicly-traded syndicated bank loans (16.5% of the carrying value of our invested assets as of December 31, 2017). Most ofthese loans are issued to sub-investment grade borrowers. While this class of investment has been profitable for us, a severe downturn in the markets couldmaterially adversely affect the value of these investments, including the possibility that we would suffer substantial losses on this portfolio. As ofDecember 31, 2017, the fair value of our investments in publicly traded syndicated bank loans was $236.5 million.42TABLE OF CONTENTSAs of December 31, 2017, we held equity investments of $32.1 million in non-public limited liability companies that have invested in renewable energyinvestments. These investments were sponsored and are managed by an affiliate of one of our principal shareholders. We invested in the equity of theseprojects because we anticipate earning attractive risk-adjusted returns from these investments. However, our investments in these projects are illiquid and theultimate results from these investments may be unknown for some time.We also invest in marketable equity securities. These securities are carried on the balance sheet at fair market value and are subject to potential lossesand declines in market value. Our invested assets also include interests in limited partnerships and privately held debt investments totaling $38.1 million atDecember 31, 2017. These investments were designed to provide diversification of risk and enhance the return on the overall portfolio. However, theseinvestments entail substantial risks and are generally illiquid. Our investment portfolio is subject to increased valuation uncertainties when investmentmarkets are illiquid. The valuation of investments is more subjective when markets are illiquid, thereby increasing the risk that the estimated fair value (i.e.,the carrying amount) does not reflect prices at which actual transactions would occur.Risks for all types of securities are managed through application of our investment policy, which establishes investment parameters that include (but arenot limited to) maximum percentages of investment in certain types of securities and minimum levels of credit quality, which we believe are withinguidelines established by the NAIC, BMA and various state insurance departments, as applicable.Although we seek to preserve our capital, we cannot be certain that our investment objectives will be achieved, and results may vary substantially overtime. In addition, although we seek to employ investment strategies that are not correlated with our insurance and reinsurance exposures, losses in ourinvestment portfolio may occur at the same time as underwriting losses and, therefore, exacerbate the adverse effect of the losses on us.We may become subject to additional government or market regulation which may have a material adverse impact on our business.Market disruptions like those experienced during the credit-driven financial market collapse in 2008, as well as the dramatic increase in the capitalallocated to alternative asset management during recent years, have led to increased governmental as well as self-regulatory scrutiny of the insurance industryin general. In addition, certain legislation proposing greater regulation of the industry is periodically considered by governing bodies of some jurisdictionsas well as the U.S. federal government, and the credit-driven equity market collapse may increase the likelihood that some increased regulation of theindustry is mandated.Because we are a Bermuda company, we are subject to changes in Bermuda law and regulation that may have a material adverse impact on ouroperations, including through the imposition of tax liability or increased regulatory supervision. In addition, we will be exposed to any changes in thepolitical environment in Bermuda.Our business could be materially adversely affected by changes in state laws, including those relating to asset and reserve valuation requirements,surplus requirements, limitations on investments and dividends, enterprise risk and risk-based capital requirements and, at the federal level, by laws andregulations that may affect certain aspects of the insurance industry, including proposals for preemptive federal regulation. The U.S. federal governmentgenerally has not directly regulated the insurance industry except for certain areas of the market, such as insurance for flood, nuclear and terrorism risks.However, the U.S. federal government has undertaken initiatives or considered legislation in several areas that may affect the insurance industry, includingtort reform, corporate governance and the taxation of reinsurance companies. The Dodd-Frank Act also established the Federal Insurance Office, which isauthorized to study, monitor and report to Congress on the insurance industry and to recommend that the FSOC designate an insurer as an entity posing risksto U.S. financial stability in the event of the insurer’s material financial distress or failure. In December 2013, the Federal Insurance Office issued a report onalternatives to modernize and improve the system of insurance regulation in the United States, including increasing national uniformity through either afederal charter or effective action by the states. Any additional regulations established as a result of the Dodd-Frank Act or actions in response to the FederalInsurance Office Report could increase our costs of compliance or lead to disciplinary action. In addition, legislation has been introduced from time to timethat, if enacted, could result in the U.S. federal government assuming a more direct role in the regulation of the insurance industry, including federal licensingin addition to or in lieu of state licensing and reinsurance for natural catastrophes. We are unable to predict whether any legislation will be enacted or anyregulations will be adopted, or the effect that any such developments could have on our business, financial condition or results of operations.The Bermuda insurance and reinsurance regulatory framework has become subject to increased scrutiny in many jurisdictions. The BMA sought“regulatory equivalency” which enables Bermuda’s commercial insurers to transact business with the European Union on a “level playing field”. Inconnection with its initial efforts to achieve equivalency under Solvency II, the BMA implemented and imposed additional requirements on the companies itregulates, such as JRG Re. On November 26, 2015, via delegated act, the European Commission granted Bermuda’s commercial insurers full equivalence inall areas of Solvency II for an indefinite period of time. The European Commission’s act was reviewed and approved by the43TABLE OF CONTENTSEuropean Parliament and Council. On March 4, 2016, the delegated act was published in the official journal of the European Union. The grant of fullequivalence came into force on March 24, 2016 and applies from January 1, 2016.It is impossible to predict what, if any, changes in the regulations applicable to us, the markets in which we operate, trade and invest or thecounterparties with which we do business may be instituted in the future. Any such regulation could have a material adverse impact on our business.We are subject to extensive regulation, which may materially adversely affect our ability to achieve our business objectives. In addition, if we fail tocomply with these regulations, we may be subject to penalties, including fines and suspensions, which may materially adversely affect our financialcondition and results of operations.Our admitted insurance and reinsurance subsidiaries are subject to extensive regulation, primarily by California (the domiciliary state for Falls Lake Fireand Casualty Company), Ohio (the domiciliary state for James River Insurance, Falls Lake National and Falls Lake General), North Carolina (the domiciliarystate for Stonewood Insurance), Virginia (the domiciliary state for James River Casualty), Bermuda (the domicile of JRG Re), and to a lesser degree, the otherjurisdictions in the United States in which we operate. Most insurance regulations are designed to protect the interests of insurance policyholders, as opposedto the interests of shareholders. These regulations generally are administered by a department of insurance in each state and relate to, among other things,authorizations to write certain lines of business, capital and surplus requirements, reserve requirements, rate and form approvals, investment and underwritinglimitations, affiliate transactions, dividend limitations, cancellation and non-renewal of policies, changes in control, solvency, receipt of reinsurance credit,accounting principles and a variety of other financial and non-financial aspects of our business. These laws and regulations are regularly re-examined andany changes in these laws and regulations or new laws or interpretations thereof may be more restrictive, could make it more expensive to conduct business orotherwise materially adversely affect our financial condition or operations. State insurance departments and the BMA also conduct periodic examinations ofthe affairs of insurance companies and reinsurance companies and require the filing of annual and other reports relating to financial condition, holdingcompany issues and other matters. These regulatory requirements may impose timing and expense or other constraints that could materially adversely affectour ability to achieve some or all of our business objectives.In addition, regulatory authorities have broad discretion to deny or revoke licenses for various reasons, including the violation of regulations. Forexample, an insurer’s registration may be cancelled by the BMA on certain grounds specified in the Insurance Act, including failure by the insurer to complywith its obligations under the Insurance Act, or if the BMA believes that the insurer has not been carrying on business in accordance with sound insuranceprinciples. In some instances, where there is uncertainty as to applicability, we follow practices based on our interpretations of regulations or practices that webelieve are generally followed by the industry. These practices may turn out to be different from the interpretations of regulatory authorities. If we do nothave the requisite licenses and approvals or do not comply with applicable regulatory requirements, insurance regulatory authorities could preclude ortemporarily suspend us from carrying on some or all of our activities or otherwise penalize us. This could materially adversely affect our ability to operate ourbusiness.The admitted market is subject to more state regulation than the E&S market, particularly with regard to rate and form filing requirements, restrictions onthe ability to exit lines of business, premium tax payments and membership in various state associations, such as guaranty funds. Some states havederegulated their commercial insurance markets. We cannot predict the effect that further deregulation would have on our business, financial condition orresults of operations.The NAIC has developed a system to test the adequacy of statutory capital of U.S.-based insurers, known as risk-based capital or “RBC,” that many stateshave adopted. This system establishes the minimum amount of risk-based capital necessary for an insurer to support its overall business operations. Itidentifies property casualty insurers that may be inadequately capitalized by looking at certain inherent risks of each insurer’s assets and liabilities and itsmix of net written premiums. Insurers falling below a calculated threshold may be subject to varying degrees of regulatory action, including supervision,rehabilitation or liquidation. Failure to maintain adequate risk-based capital at the required levels could materially adversely affect the ability of ourinsurance subsidiaries to maintain regulatory authority to conduct their business. See “Business—U.S. Insurance Regulation—State Regulation.”In addition, the various state insurance regulators have increased their focus on risks within an insurer’s holding company system that may poseenterprise risk to the insurer. In 2012, the NAIC adopted the NAIC Amendments. The NAIC Amendments, when adopted by the various states, are designed torespond to perceived gaps in the regulation of insurance holding company systems in the United States. One of the major changes is a requirement that aninsurance holding company system’s ultimate controlling person submit annually to its lead state insurance regulator an “enterprise risk report” thatidentifies activities, circumstances or events involving one or more affiliates of an insurer that, if not remedied properly, are likely to have a material adverseeffect upon the financial condition or liquidity of the insurer or its insurance holding company system as a whole. Other changes include (i) requiring acontrolling person to submit prior notice to its domiciliary insurance regulator of a divestiture of control, (ii) having detailed minimum requirements for costsharing and management agreements between an insurer and its affiliates and (iii) expanding the types of agreements between an insurer and its affiliates tobe filed44TABLE OF CONTENTSwith its domiciliary insurance regulator. The NAIC Amendments must be adopted by a state legislature and such state’s insurance regulator in order to beeffective in that state. Each of California, North Carolina, Ohio and Virginia, the states in which our U.S. insurance subsidiaries are domiciled, include thisenterprise risk report requirement.In 2012, the NAIC also adopted the ORSA Model Act. The ORSA Model Act, when adopted by the various states, will require an insurance holdingcompany system’s Chief Risk Officer to submit annually to its lead state insurance regulator an ORSA. The ORSA is a confidential internal assessmentappropriate to the nature, scale and complexity of an insurer of the material and relevant risks identified by the insurer associated with an insurer’s currentbusiness plan and the sufficiency of capital resources to support those risks. The ORSA Model Act must be adopted by a state legislature in order to beeffective in that state. Each of California, North Carolina, Ohio and Virginia, the states in which our U.S. insurance subsidiaries are domiciled, adopted andrequire an ORSA filing.We cannot predict with certainty the effect any enacted, proposed or future state or federal regulation or NAIC initiative may have on the conduct of ourbusiness. Furthermore, there can be no assurance that the regulatory requirements applicable to our business will not become more stringent in the future orresult in materially higher cost than current requirements. Changes in regulation of our business may materially reduce our profitability, limit our growth orotherwise materially adversely affect our operations.We may be unable to obtain reinsurance coverage at reasonable prices or on terms that provide us adequate protection.We purchase reinsurance in many of our lines of business to help manage our exposure to insurance and reinsurance risks that we underwrite and toreduce volatility in our results. In addition, JRG Re has managed its risk through retrocession arrangements with third-party reinsurers. A retrocession is apractice whereby a reinsurer cedes risk to one or more other reinsurers.The availability and cost of reinsurance are subject to prevailing market conditions, both in terms of price and available capacity, each of which canaffect our business volume and profitability. The availability of reasonably affordable reinsurance is a critical element of our business plan. One importantway we utilize reinsurance is to reduce volatility in claims payments by limiting our exposure to losses from large risks. Another way we use reinsurance is topurchase substantial protection against concentrated losses when we enter new markets. As a result, our ability to manage volatility and avoid significantlosses, expand into new markets or grow by offering insurance to new kinds of enterprises may be limited by the unavailability of reasonably pricedreinsurance. We may not be able to obtain reinsurance on acceptable terms or from entities with satisfactory creditworthiness. In such event, if we areunwilling to accept the terms or credit risk of potential reinsurers, we would have to reduce the level of our underwriting commitments, which would reduceour revenues.Many reinsurance companies have begun to exclude certain coverages from, or alter terms in, the reinsurance contracts we enter into with them. Someexclusions relate to risks that we cannot in turn exclude from the policies we write due to business or regulatory constraints. In addition, reinsurers areimposing terms, such as lower per occurrence and aggregate limits, on direct insurers that do not wholly cover the risks written by these direct insurers. As aresult, we, like other direct insurance companies, write insurance policies which to some extent do not have the benefit of reinsurance protection. These gapsin reinsurance protection expose us to greater risk and greater potential losses. For example, certain reinsurers have excluded coverage for terrorist acts orpriced such coverage at unreasonably high rates. Many direct insurers, including us, have written policies without terrorist act exclusions and in many caseswe cannot exclude terrorist acts because of regulatory constraints. We may, therefore, be exposed to potential losses as a result of terrorist acts. See also“Business—Purchase of Reinsurance.”We are subject to credit risk with regard to our reinsurance counterparties and insurance companies with which we have a fronting arrangement.Although reinsurance makes the assuming reinsurer liable to us to the extent of the risk ceded, we are not relieved of our primary liability to our insuredsas the direct insurer. At December 31, 2017, reinsurance recoverable on unpaid losses from our three largest reinsurers was $150.4 million in the aggregateand represented 49.7% of the total balance. Additionally, prepaid reinsurance premiums ceded to three reinsurers at December 31, 2017 was $50.0 million inthe aggregate, or 54.3% of the total balance. At December 31, 2017, all of our material reinsurance recoverable amounts are from companies with A.M. Bestratings of “A-” or better or are collateralized by the reinsurer, but we cannot be sure that our reinsurers will pay all reinsurance claims on a timely basis or atall. For example, reinsurers may default in their financial obligations to us as the result of insolvency, lack of liquidity, operational failure, fraud, asserteddefenses based on agreement wordings or the principle of utmost good faith, asserted deficiencies in the documentation of agreements or for other reasons.The failure of a reinsurer to pay us does not lessen our contractual obligations to insureds. If a reinsurer fails to pay the expected portion of a claim or claims,our net losses might increase substantially and materially adversely affect our financial condition. Any disputes with reinsurers regarding coverage underreinsurance contracts could be time-consuming, costly and uncertain of success.Downgrades to the credit ratings of our reinsurance counterparties may result in the reduction of rating agency capital credit provided by thosereinsurance contracts and could, therefore, result in a downgrade of our own credit ratings. In addition,45TABLE OF CONTENTSunder the reinsurance regulations, in many states where our U.S. insurance subsidiaries are domiciled, certain reinsurers are required to collateralize theirobligations to us and to the extent they do not do so, our ability for regulators to recognize this reinsurance will be impaired. We evaluate each reinsuranceclaim based on the facts of the case, historical experience with the reinsurer on similar claims and existing case law and include any amounts deemeduncollectible from the reinsurer in our reserve for uncollectible reinsurance. See also “Business—Purchase of Reinsurance.”Similarly, in our fronting business, which we conduct through our Specialty Admitted Insurance segment, we are primarily liable to the insureds becausewe have issued the policies. While we customarily require a collateral trust arrangement to secure the obligations of the insurance entity for which we arefronting, we do not obtain collateral in every instance and in situations where we do obtain collateral for the obligations of the other insurance entity, it ispossible that the collateral could be insufficient to cover all claims, either as a result of a decline in the value of the collateral, an increase in the obligationbeing collateralized, or a failure of management to monitor the adequacy of the collateral held. In that event, we would be contractually entitled to recoveryfrom the entity for which we are fronting, but it is possible that, for any of a variety of reasons, the other party could default in its obligations. See also“Business — Business Segments—Specialty Admitted Insurance Segment—Fronting Business.”We, or agents we have appointed, may act based on inaccurate or incomplete information regarding the accounts we underwrite, or such agents mayexceed their authority or commit fraud when binding policies on our behalf.We, and our MGAs and other agents who have the ability to bind our policies, rely on information provided by insureds or their representatives whenunderwriting insurance policies. While we may make inquiries to validate or supplement the information provided, we may make underwriting decisionsbased on incorrect or incomplete information. It is possible that we will misunderstand the nature or extent of the activities or facilities and the correspondingextent of the risks that we insure because of our reliance on inadequate or inaccurate information.In addition, in the Specialty Admitted Insurance segment, MGAs and other agents have the authority to bind policies on our behalf. If any such agentsexceed their authority or engage in fraudulent activities, our financial condition and results of operations could be materially adversely affected.We rely on our systems and employees, and those of certain third-party vendors and service providers in conducting our operations, and certain failures,including internal or external fraud, operational errors, systems malfunctions, or cyber-security incidents, could materially adversely affect our operations.We are exposed to many types of operational risk, including the risk of fraud by employees and outsiders, clerical and recordkeeping errors andcomputer or telecommunications systems malfunctions. Our business depends on our ability to process a large number of increasingly complex transactions.If any of our operational, accounting, or other data processing systems fail or have other significant shortcomings, we could be materially adversely affected.Similarly, we depend on our employees and could be materially adversely affected if one or more of our employees causes a significant operationalbreakdown or failure, either as a result of human error, intentional sabotage or fraudulent manipulation of our operations or systems.Third parties with whom we do business, including vendors that provide services or security solutions for our operations, could also be sources ofoperational and information security risk to us, including from breakdowns, failures, or capacity constraints of their own systems or employees. Any of theseoccurrences could diminish our ability to operate our business, or cause financial loss, potential liability to insureds, inability to secure insurance,reputational damage or regulatory intervention, which could materially adversely affect us.We rely on our multiple proprietary operating systems as well as operating systems of third-party providers to issue policies, pay claims, run modelingfunctions and complete various internal processes. We may be subject to disruptions of such operating systems arising from events that are wholly or partiallybeyond our control, which may include, for example, electrical or telecommunications outages, natural or man-made disasters, such as earthquakes,hurricanes, floods or tornados, or events arising from criminal or terrorist acts. Such disruptions may give rise to losses in service to insureds and loss orliability to us. In addition, there is the risk that our controls and procedures as well as our business continuity, disaster recovery and data security systemsprove to be inadequate. The computer systems and network systems we and others use could be vulnerable to unforeseen problems. These problems may arisein both our internally developed systems and the systems of third-party service providers. In addition, our computer systems and network infrastructurepresent security risks and could be susceptible to hacking, computer viruses, data breaches, or ransomware attacks. Any such failure could affect ouroperations and could materially adversely affect our results of operations by requiring us to expend significant resources to correct the defect, as well as byexposing us to litigation or losses not covered by insurance. Although we have business continuity plans and other safeguards in place, our businessoperations may be materially adversely affected by significant and widespread disruption to our physical infrastructure or operating systems and those ofthird-party service providers that support our business.46TABLE OF CONTENTSOur operations rely on the secure processing, transmission and storage of confidential information in our computer systems and networks. Ourtechnologies, systems and networks may become the target of cyber-attacks or information security breaches that could result in the unauthorized release,gathering, monitoring, misuse, loss or destruction of our or our insureds’ or reinsured’s confidential, proprietary and other information, or otherwise disruptour or our insureds’, reinsured’s or other third parties’ business operations, which in turn may result in legal claims, regulatory scrutiny and liability,reputational damage, the incurrence of costs to eliminate or mitigate further exposure and the loss of customers. Although to date we have not experiencedany material losses relating to cyber-attacks or other information security breaches, there can be no assurance that we will not suffer such losses in the future.Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats and the outsourcing of someof our business operations. As a result, cyber-security and the continued development and enhancement of our controls, processes and practices designed toprotect our systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority. As cyber-threats continue toevolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate andremediate any information security vulnerabilities.Disruptions or failures in the physical infrastructure or operating systems that support our business and customers, or cyber-attacks or security breachesof the networks, systems or devices that our customers use to access our products and services could result in customer attrition, regulatory fines, penalties orintervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially adverselyaffect our financial condition or results of operations.We may not be able to manage our growth effectively.We intend to grow our business in the future, which could require additional capital, systems development and skilled personnel. We cannot assure youthat we will be able to meet our capital needs, expand and maintain our systems and our internal controls effectively, allocate our human resources optimally,identify and hire qualified employees or incorporate effectively the components of any businesses we may acquire in our effort to achieve growth. The failureto manage our growth effectively could have a material adverse effect on our business, financial condition and results of operations.If we are unable to underwrite risks accurately and charge competitive yet profitable rates to our policyholders, our business, financial condition andresults of operations will be materially adversely affected.In general, the premiums for our insurance policies are established at the time a policy is issued and, therefore, before all of our underlying costs areknown. Like other insurance companies, we rely on estimates and assumptions in setting our premium rates. Establishing adequate premium rates isnecessary, together with investment income, to generate sufficient revenue to offset losses, loss adjustment expenses and other underwriting costs and to earna profit. If we do not accurately assess the risks that we assume, we may not charge adequate premiums to cover our losses and expenses, which wouldmaterially adversely affect our results of operations and our profitability. Alternatively, we could set our premiums too high, which could reduce ourcompetitiveness and lead to lower revenues.Pricing involves the acquisition and analysis of historical loss data and the projection of future trends, loss costs and expenses, and inflation trends,among other factors, for each of our products in multiple risk tiers and many different markets. In order to accurately price our policies, we:•collect and properly analyze a substantial volume of data from our insureds;•develop, test and apply appropriate actuarial projections and rating formulas;•closely monitor and timely recognize changes in trends; and•project both frequency and severity of our insureds’ losses with reasonable accuracy.We seek to implement our pricing accurately in accordance with our assumptions. Our ability to undertake these efforts successfully and, as a result,accurately price our policies, is subject to a number of risks and uncertainties, including:•insufficient or unreliable data;•incorrect or incomplete analysis of available data;•uncertainties generally inherent in estimates and assumptions;•our failure to implement appropriate actuarial projections and rating formulas or other pricing methodologies;•regulatory constraints on rate increases;47TABLE OF CONTENTS•our failure to accurately estimate investment yields and the duration of our liability for loss and loss adjustment expenses; and•unanticipated court decisions, legislation or regulatory action.The insurance and reinsurance business is historically cyclical, and we may experience periods with excess underwriting capacity and unfavorablepremium rates, which could materially adversely affect our business.Historically, insurers and reinsurers have experienced significant fluctuations in operating results due to competition, frequency and severity ofcatastrophic events, levels of capacity, adverse trends in litigation, regulatory constraints, general economic conditions and other factors. We haveexperienced these types of fluctuations during our Company’s short history. The supply of insurance and reinsurance is related to prevailing prices, the levelof insured losses and the level of capital available to the industry that, in turn, may fluctuate in response to changes in rates of return on investments beingearned in the insurance and reinsurance industry. As a result, the insurance and reinsurance business historically has been a cyclical industry characterized byperiods of intense price competition due to excessive underwriting capacity as well as periods when shortages of capacity increased premium levels. Demandfor insurance and reinsurance depends on numerous factors, including the frequency and severity of catastrophic events, levels of capacity, the introductionof new capital providers, general economic conditions and underwriting results of primary insurers. All of these factors fluctuate and may contribute to pricedeclines generally in the insurance and reinsurance industry.We cannot predict with certainty whether market conditions will improve, remain constant or deteriorate. Negative market conditions may impair ourability to underwrite insurance and reinsurance at rates we consider appropriate and commensurate relative to the risk assumed. If we cannot underwriteinsurance or reinsurance at appropriate rates, our ability to transact business will be materially adversely affected. Any of these factors could lead to a materialadverse effect on our business, financial condition and results of operations.Our reinsurance business is subject to loss settlements made by ceding companies and fronting carriers, which could materially adversely affect ourperformance.Where JRG Re enters into assumed reinsurance contracts with third parties, all loss settlements made by the ceding company will be unconditionallybinding upon us, provided they are within the terms of the underlying policies and within the terms of the relevant contract. While we believe the cedingcompanies will settle such claims in good faith, we are bound to accept the claims settlements agreed to by the ceding companies. Under the underlyingpolicies, each ceding company typically bears the burden of proving that a contractual exclusion applies to a loss, and there may be circumstances where thefacts of a loss are insufficient to support the application of an exclusion. In such circumstances, we assume such losses under the reinsured policies, whichcould materially adversely affect our performance.Our operating results have in the past varied from quarter to quarter and may not be indicative of our long-term prospects.Our operating results are subject to fluctuation and have historically varied from quarter to quarter. We expect our quarterly results to continue tofluctuate in the future due to a number of factors, including the general economic conditions in the markets where we operate, the frequency of occurrence orseverity of catastrophic or other insured events, fluctuating interest rates, claims exceeding our loss reserves, competition in our industry, deviations fromexpected renewal rates of our existing policies and contracts, adverse investment performance and the cost of reinsurance and retrocessional coverage.In particular, we seek to underwrite products and make investments to achieve favorable returns on tangible equity over the long term. In addition, ouropportunistic nature and focus on long-term growth in tangible equity may result in fluctuations in total premiums written from period to period as weconcentrate on underwriting contracts that we believe will generate better long-term, rather than short-term, results. Accordingly, our short-term results ofoperations may not be indicative of our long-term prospects.We could be forced to sell investments to meet our liquidity requirements.We invest the premiums we receive from our insureds and ceding companies until they are needed to pay policyholder claims or until they arerecognized as profits. Consequently, we seek to manage the duration of our investment portfolio based on the duration of our loss and loss adjustmentexpense reserves to ensure sufficient liquidity and avoid having to liquidate securities to fund claims. Risks such as inadequate loss and loss adjustmentreserves or unfavorable trends in litigation could potentially result in the need to sell investments to fund these liabilities. Such sales could result insignificant realized losses depending on the conditions of the general market, interest rates and credit issues with individual securities.Our associates could take excessive risks, which could negatively affect our financial condition and business.As an insurance enterprise, we are in the business of binding certain risks. The associates who conduct our business, including executive officers andother members of management, underwriters, sales managers, investment professionals, product managers, sales agents, and other associates, as well as MGAs,do so in part by making decisions and choices that48TABLE OF CONTENTSinvolve exposing us to risk. These include decisions such as setting underwriting guidelines and standards, product design and pricing, determining whichbusiness opportunities to pursue and other decisions. We endeavor, in the design and implementation of our compensation programs and practices, to avoidgiving our associates incentives to take excessive risks. Associates may, however, take such risks regardless of the structure of our compensation programsand practices. Similarly, although we employ controls and procedures designed to monitor associates’ business decisions and prevent us from takingexcessive risks, these controls and procedures may not be effective. If our associates take excessive risks, the impact of those risks could have a materialadverse effect on our financial condition and business operations.We may require additional capital in the future, which may not be available or available only on unfavorable terms.Our future capital requirements depend on many factors, including our ability to write new and renewal business successfully and to establish premiumrates and reserves at levels sufficient to cover losses. Our ability to underwrite depends largely upon the expected quality of our claims paying process andour perceived financial strength as estimated by potential insureds, brokers, other intermediaries and independent rating agencies. To the extent that ourexisting capital is insufficient to fund our future operating requirements, cover claim losses, or satisfy ratings agencies in order to maintain a satisfactoryrating, we may need to raise additional capital in the future through offerings of debt or equity securities or otherwise to:•fund liquidity needs caused by underwriting or investment losses;•replace capital lost in the event of significant reinsurance losses or adverse reserve developments;•satisfy letters of credit or guarantee bond requirements that may be imposed by our clients or by regulators;•meet rating agency or regulatory capital requirements; or•respond to competitive pressures.Any equity or debt financing, if available at all, may be on terms that are unfavorable to us. Further, any additional capital raised through the sale ofequity could dilute your ownership interest in the Company and would likely cause the value of our shares to decline. Additional capital raised through theissuance of debt would most likely result in creditors having rights, preferences and privileges senior or otherwise superior to those of the holders of ourshares and may limit our flexibility in operating our business and make it more difficult to obtain capital in the future. Disruptions, uncertainty, or volatilityin the capital and credit markets may also limit our access to capital required to operate our business. If we are not able to obtain adequate capital, or obtain iton favorable terms, our business, financial condition and results of operations could be materially adversely affected.If we are unable to keep pace with the technological advancements in the insurance industry, our ability to compete effectively could be impaired.We are committed to developing and maintaining information technology systems that will allow our insurance subsidiaries to compete effectively.There can be no assurance that the development of current technology for future use will not result in our being competitively disadvantaged, especially withthose carriers that have greater resources. If we are unable to keep pace with the advancements being made in technology, our ability to compete with otherinsurance companies who have advanced technological capabilities will be negatively affected. Further, if we are unable to effectively execute and update orreplace our key legacy technology systems as they become obsolete or as emerging technology renders them competitively inefficient, our competitiveposition and our cost structure could be adversely affected.We operate in a highly competitive environment and we may not continue to be able to compete effectively against larger or more well-establishedbusiness rivals.We face competition from other specialty insurance companies, standard insurance companies and underwriting agencies, as well as from diversifiedfinancial services companies that are larger than we are and that have greater financial, marketing and other resources than we do. Some of these competitorsalso have longer experience and more market recognition than we do in certain lines of business. In addition, it may be difficult or prohibitively expensivefor us to implement technology systems and processes that are competitive with the systems and processes of these larger companies.In particular, competition in the insurance and reinsurance industry is based on many factors, including price of coverage, the general reputation andperceived financial strength of the company, relationships with brokers, terms and conditions of products offered, ratings assigned by independent ratingagencies, speed of claims payment and reputation, and the experience and reputation of the members of our underwriting team in the particular lines ofinsurance and reinsurance we seek to underwrite. See “Business—Competition.”A number of new, proposed or potential legislative or industry developments could further increase competition in our industry. These developmentsinclude:49TABLE OF CONTENTS•An increase in capital-raising by companies in our lines of business, which could result in new entrants to our markets and an excess of capital in theindustry;•The deregulation of commercial insurance lines in certain states and the possibility of federal regulatory reform of the insurance industry, whichcould increase competition from standard carriers for our E&S lines of insurance business; and•Changing practices facilitated by the Internet may lead to greater competition in the insurance business. Among the possible changes are shifts inthe way in which commercial insurance is purchased, which could affect both admitted and excess and surplus lines.We currently depend largely on the wholesale distribution model for our Excess and Surplus Lines segment’s premiums. If the wholesale distributionmodel were to be significantly altered by changes in the way E&S lines risks were marketed, including, without limitation, through use of the Internet, itcould have a material adverse effect on our premiums, underwriting results and profits.There is no assurance that we will be able to continue to compete successfully in the insurance or reinsurance markets. Increased competition in thesemarkets could result in a change in the supply and/or demand for insurance or reinsurance, affect our ability to price our products at risk-adequate rates, affectour ability to retain business with existing customers, or underwrite new business on favorable terms. If this increased competition so limits our ability totransact business, our operating results could be materially adversely affected.If actual renewals of our existing contracts do not meet expectations, our premiums written in future years and our future results of operations could bematerially adversely affected.Most of our contracts are written for a one-year term. In our financial forecasting process, we make assumptions about the renewal of our prior year’scontracts. The insurance and reinsurance industries have historically been cyclical businesses with intense competition, often based on price. If actualrenewals do not meet expectations or if we choose not to write a renewal because of pricing conditions, our premiums written in future years and our futureoperations would be materially adversely affected.We may change our underwriting guidelines or our strategy without shareholder approval.Our management has the authority to change our underwriting guidelines or our strategy without notice to our shareholders and without shareholderapproval. As a result, we may make fundamental changes to our operations without shareholder approval, which could result in our pursuing a strategy orimplementing underwriting guidelines that may be materially different from the strategy or underwriting guidelines described in the section titled “Business”or elsewhere in this Annual Report.Litigation and legal proceedings against our subsidiaries could have a material adverse effect on our business, financial condition and/or results ofoperations.As an insurance and reinsurance holding company, our subsidiaries are named as defendants in various legal actions in the ordinary course of business.We believe that the outcome of presently pending matters, individually and in the aggregate, will not have a material adverse effect on our consolidatedfinancial position. However, the outcomes of lawsuits cannot be predicted and, if determined adversely, could require us to pay significant damage amountsor to change aspects of our operations, which could have a material adverse effect on our financial results.Changes in accounting practices and future pronouncements may materially affect our reported financial results.Developments in accounting practices may require us to incur considerable additional expenses to comply, particularly if we are required to prepareinformation relating to prior periods for comparative purposes or to apply the new requirements retroactively. The impact of changes in current accountingpractices and future pronouncements cannot be predicted but may affect the calculation of net income, shareholders’ equity and other relevant financialstatement line items.Further, our U.S. insurance subsidiaries are required to comply with statutory accounting principles (“SAP”). SAP and various components of SAP (suchas actuarial reserving methodology) are subject to constant review by the NAIC and its task forces and committees, as well as state insurance departments, inan effort to address emerging issues and otherwise improve financial reporting. Various proposals are pending before committees and task forces of the NAIC,some of which, if enacted, could have negative effects on insurance industry participants. The NAIC continuously examines existing laws and regulations inthe United States. We cannot predict whether or in what form such reforms will be enacted and, if so, whether the enacted reforms will positively or negativelyaffect us.In addition, the NAIC Accounting Practices and Procedures manual provides that state insurance departments may permit insurance companiesdomiciled in their jurisdiction to depart from SAP by granting them permitted accounting practices. We50TABLE OF CONTENTScannot predict whether or when the insurance departments of the states of domicile of our competitors may permit them to utilize advantageous accountingpractices that depart from SAP, the use of which may not be permitted by the insurance departments of the states of domicile of our U.S. insurancesubsidiaries. Further, we cannot assure that future changes to SAP or components of SAP or the grant of permitted accounting practices to our competitors willnot have a negative impact on us.Our ability to implement our business strategy could be delayed or adversely affected by Bermuda employment restrictions relating to the ability to obtainand retain work permits for key employees in Bermuda.Under Bermuda law, non-Bermudians (other than spouses of Bermudians and holders of permanent residents’ certificates) may not engage in any gainfuloccupation in Bermuda without a valid government work permit. A work permit may be granted or renewed upon showing that, after proper publicadvertisement, no Bermudian, spouse of a Bermudian or a holder of a permanent resident’s certificate who meets the minimum standards reasonably requiredby the employer has applied for the job. A work permit is issued with an expiry date (up to five years) and no assurances can be given that any work permitwill be issued or, if issued, renewed upon the expiration of the relevant term. If work permits are not obtained or are not renewed for our key employees, wewould lose their services, which could materially affect our business.If California, North Carolina, Ohio, or Virginia significantly increase the assessments our insurance companies are required to pay, our financialcondition and results of operations will suffer.Our insurance companies are subject to assessments in California (the domiciliary state for Falls Lake Fire and Casualty Company), North Carolina (thedomiciliary state for Stonewood Insurance), Ohio (the domiciliary state for James River Insurance, Falls Lake National and Falls Lake General) and Virginia(the domiciliary state for James River Casualty), for various purposes, including the provision of funds necessary to fund the operations of the variousinsurance departments and the state funds that pay covered claims under certain policies written by impaired, insolvent or failed insurance companies. Theseassessments are generally set based on an insurer’s percentage of the total premiums written in the insurer’s state within a particular line of business. As ourU.S.-based insurance subsidiaries grow, our share of any assessments may increase. We cannot predict with certainty the amount of future assessments becausethey depend on factors outside our control, such as insolvencies of other insurance companies. Significant assessments could result in higher than expectedoperating expenses and have a material adverse effect on our financial condition or results of operations.Our use of third-party claims administrators in certain lines of business may result in higher losses and loss adjustment expenses.Historically, our Excess and Surplus Lines and Specialty Admitted Insurance segments handled all claims using employed staff. As we have entered newlines of business, we now use third-party claims administrators and contract employees to administer claims subject to the supervision of our employed staff.It is possible that these contract employees and third-party claims administrators may achieve less desirable results on claims than has historically been thecase for our internal staff, which could result in significantly higher losses and loss adjustment expenses in those lines of business.Risks Related to TaxationThe recently passed Tax Act may have a significant impact on the Company.On December 22, 2017, the President of the United States signed into law Public Law No. 115-97, informally titled the Tax Cuts and Jobs Act (the “TaxAct”), which introduced significant changes to the U.S. Internal Revenue Code of 1986, as amended (the “Code”). The Tax Act contains provisions thatreduce the U.S. corporate tax rate, impose a base erosion and anti-abuse tax (“BEAT”) on income of a U.S. corporation determined without regard to certainotherwise deductible payments made to certain foreign affiliates (including premium or other consideration paid or accrued to a related foreign reinsurancecompany for reinsurance), and accelerates taxable income with respect to certain controlled foreign corporations. These provisions could materially affect usor our shareholders. The Tax Act also includes provisions that could materially affect our shareholders as a result of provisions that broaden the definition ofUnited States shareholder for purposes of the controlled foreign corporation rules and make it more difficult for a foreign insurance company to not be treatedas a passive foreign investment company.Further, the Tax Act imposes a one-time inclusion in gross income of cumulative earnings and profits from certain non-U.S. subsidiaries. A U.S. 10%Shareholder (as defined below) may be required to include its pro rata share of any “accumulated post-1986 deferred foreign income” in taxable income withrespect to the taxable year ending on or after December 31, 2017. Accumulated post-1986 deferred foreign income generally means, subject to certainexclusions, the previously untaxed post-1986 accumulated earnings and profits (determined on a net basis) of such foreign corporations, determined as ofNovember 2, 2017 or December 31, 2017, whichever is higher. Dividends to U.S. 10% Shareholders (as defined below) will not be taxable to the extent of anypreviously undistributed accumulated post-1986 deferred foreign income.The Tax Act will be fully effective in the 2018 fiscal year. While we are continuing to study the consequences of the Tax Act, its ultimate impact maydiffer from the Company’s description below due to changes in interpretations, as well as additional regulatory guidance that may be issued. Although thisdiscussion takes into account provisions enacted under the Tax51TABLE OF CONTENTSAct, given the complexity of this new law you are strongly encouraged to consult your own tax advisor regarding its potential impact on the U.S. federalincome tax consequences to you in light of your particular circumstances.Base Erosion and Anti-Abuse Tax. The Tax Act’s BEAT provision imposes a minimum tax on “applicable taxpayers,” which are generally corporationsthat are part of a group with at least $500 million of applicable annual gross receipts and that make certain payments to related foreign persons, includingpayments that are deductible for U.S. tax purposes, payments to purchase depreciable or amortizable property, and reinsurance payments. BEAT subjects the“modified taxable income” of an applicable taxpayer to tax at a rate of 5% in 2018, 10% in 2019-2025, and 12.5% in 2026 and thereafter. In general,modified taxable income is calculated by adding back to a taxpayer’s regular taxable income the amount of certain “base erosion tax benefits” with respect tocertain payments to foreign affiliates, as well as the “base erosion percentage” of any net operating loss deductions. BEAT applies only to the extent itexceeds a taxpayer’s regular corporate income tax liability (determined without regard to certain tax credits).We plan to make changes to the Company’s structure in 2018 to minimize the impact of BEAT that include the formation of Carolina Re, a Bermuda-domiciled, wholly owned subsidiary of James River Group, Inc. We expect Carolina Re to be a Class 3A reinsurer and make an irrevocable election to betaxed as a U.S. domestic corporation under Section 953(d) of the Code. Effective January 1, 2018, we will discontinue ceding 70% of our U.S.-writtenpremiums to JRG Re and will instead cede 70% of our U.S.-written premiums to Carolina Re. We also expect Carolina Re will enter into a stop lossreinsurance agreement with JRG Re. While Carolina Re will be subject to U.S. corporate income tax, we do not expect that it will be subject to BEAT in fiscalyear 2018 as the Company is expected to have sufficient regular U.S. income tax liability compared to the BEAT liability.There is significant uncertainty regarding the application of BEAT to affiliate reinsurance arrangements. Although we may be able to take proactivesteps to reduce the impact of BEAT, there is no assurance that we will be able to do so. An adverse interpretation of BEAT could cause a significant increasein our effective tax rate.U.S. persons who own our shares may be subject to U.S. federal income taxation on our undistributed earnings and may recognize ordinary income upondisposition of shares.If we are considered a passive foreign investment company as defined in Section 1297(a) of the Code (“PFIC”) for U.S. federal income tax purposes, aU.S. person who owns any of our shares could be subject to adverse tax consequences, including becoming subject to a greater tax liability than mightotherwise apply and to tax on amounts in advance of when tax would otherwise be imposed, in which case your investment could be materially adverselyaffected. We believe that we are not and have not been, and currently do not expect to become, a PFIC for U.S. federal income tax purposes. Our belief that weare not and have not been a PFIC is based, in part, on the fact that the PFIC rules include provisions intended to provide an exception for qualifyinginsurance companies (“QIC”) actively engaged in the conduct of an insurance business. Generally, a QIC is a company (i) that would be subject to tax underspecial provisions related to insurance companies if the company was a U.S. entity, and (ii) the applicable insurance liabilities of which constitute more than25% of its total assets as reported on the company’s applicable financial statement. We believe that we are a QIC, however the scope of this exception is notentirely clear, especially in its application to holding companies indirectly engaged in an insurance business, and there are no administrativepronouncements, judicial decisions or current regulations that provide guidance as to the application of the PFIC rules to insurance companies. Newregulations or pronouncements interpreting or clarifying these rules may be forthcoming. We cannot predict what impact, if any, such guidance would haveon an investor that is subject to U.S. federal income taxation. As a result, we cannot assure you that we, or one of our subsidiaries, will not be deemed a PFICby the U.S. Internal Revenue Service (the “IRS”). If we, or one of our subsidiaries, were considered a PFIC, it could have material adverse tax consequencesfor an investor that is subject to U.S. federal income taxation.A non-U.S. corporation generally will be classified as a controlled foreign corporation (“CFC”) if U.S. persons, each of whom owns, directly, indirectly,or constructively, at least 10% of the voting power or value of such corporation’s stock (“U.S. 10% Shareholders”), own in the aggregate more than 50% ofthe voting power or value of the stock of such corporation. Under these rules, if a foreign corporation is a CFC, each U.S. 10% Shareholder who owns sharesof the CFC on the last day of the CFC’s taxable year must annually include in its taxable income its pro rata share of the CFC’s “subpart F income,” even ifno distributions are made. Subpart F income typically includes “foreign personal holding company income” (such as interest, dividends and other types ofpassive income), as well as insurance and reinsurance income (including underwriting and investment income). In general (subject to the special rulesapplicable to “related person insurance income” described below), for purposes of taking into account insurance income, a foreign insurance company will betreated as a CFC if U.S. 10% Shareholders collectively own more than 25% of the voting power or value of the company’s shares at any point during anyyear. Some of our existing shareholders may be U.S. 10% Shareholders, and depending on aggregate share ownership of all U.S. 10% Shareholders, we may bea CFC and JRG Re may be a CFC with respect to taking into account insurance income as subpart F income. We cannot assure you that these rules will notapply to you. If you are a U.S. person, we strongly urge you to consult your own tax advisor concerning the CFC rules.52TABLE OF CONTENTSRelated Person Insurance Income. If (i) our gross income attributable to insurance or reinsurance policies pursuant to which the direct or indirectinsureds are our direct or indirect U.S. shareholders or persons related to such U.S. shareholders equals or exceeds 20% of our gross insurance income in anytaxable year; and (ii) direct or indirect insureds and persons related to such insureds own directly or indirectly 20% or more of the voting power or value ofour shares (together, the “RPII Test”), a U.S. person who owns any of our shares directly or indirectly on the last day of such taxable year would most likely berequired to include its allocable share of our related person insurance income for such taxable year in its income, even if no distributions are made. We do notbelieve that the 20% gross insurance income threshold has been, or will be, met. However, we cannot assure you that this will continue to be the case.Consequently, we cannot assure you that a person who is a direct or indirect U.S. shareholder will not be required to include amounts in its income in respectof related person insurance income in any taxable year.Dispositions of Our Shares. If a U.S. shareholder is treated as disposing of shares in a CFC of which it is a U.S. 10% Shareholder, or of shares in a foreigninsurance corporation that has related person insurance income and in which U.S. persons collectively own 25% or more of the voting power or value of thecompany’s shares, any gain from the disposition will generally be treated as a dividend to the extent of the U.S. shareholder’s portion of the corporation’sundistributed earnings and profits, as the case may be, that were accumulated during the period that the U.S. shareholder owned the shares. In addition, theshareholder will be required to comply with certain reporting requirements, regardless of the amount of shares owned by the direct or indirect U.S.shareholder.The Company, JRG Re and James River Group Holdings UK Limited may be subject to U.S. federal income taxation.The Company, Carolina Re and JRG Re are each incorporated under the laws of Bermuda. James River Group Holdings UK Limited (“James River UK”)is incorporated under the laws of England and Wales. Carolina Re expects to make an irrevocable election to be taxed as a U.S. domestic corporation underSection 953(d) of the Code. In general, a corporation organized under the laws of a foreign country or U.S. possession is subject to U.S. federal income tax onits net income only if it is considered as engaged in a U.S. trade or business. We believe that the activities of each of the Company’s non-U.S. holdingcompanies and JRG Re, as contemplated, will not cause them to be treated as engaging in a U.S. trade or business and as such, will not be subject to currentU.S. federal income taxation on their net income. However, there are no definitive standards provided by the Code, regulations or court decisions as to thespecific activities that constitute being engaged in the conduct of a trade or business within the United States, and any such determination is essentiallyfactual in nature and must be made annually. The IRS could successfully assert that our non-U.S. holding companies or JRG Re (or both) are engaged in atrade or business in the United States or, under the applicable income tax treaty, are engaged in a trade or business in the United States through a permanentestablishment, and thus are subject to current U.S. federal income taxation. If our non-U.S. holding companies or JRG Re were deemed to be engaged in atrade or business in the United States (or, under the applicable income tax treaty, were deemed to be so engaged through a permanent establishment), our non-U.S. holding companies or JRG Re, as applicable, would become subject to U.S. federal income tax on income “effectively connected” (or treated aseffectively connected) with the U.S. trade or business and would become subject to the “branch profits” tax on earnings and profits that are both effectivelyconnected with the U.S. trade or business and deemed repatriated out of the United States. Any such federal tax liability could materially adversely affect ourresults of operations.U.S. tax-exempt organizations who own our shares may recognize unrelated business taxable income.A U.S. tax-exempt organization may recognize unrelated business taxable income if a portion of our subpart F insurance income is allocated to it. Ingeneral, subpart F insurance income will be allocated to a tax-exempt organization owning (or treated as owning) our shares if we are a CFC as discussedabove and it is a U.S. 10% Shareholder or we earn related person insurance income and we satisfy the RPII Test. We cannot assure you that U.S. personsholding our shares (directly or indirectly) will not be allocated subpart F insurance income. U.S. tax-exempt organizations should consult their own taxadvisors regarding the risk of recognizing unrelated business taxable income as a result of their ownership of our shares.We may become subject to U.S. withholding and information reporting requirements under the Foreign Account Tax Compliance Act (“FATCA”)provisions.The FATCA provisions of the Code generally impose a 30% withholding tax regime with respect to (i) certain U.S. source income (including interest anddividends) and gross proceeds from any sale or other disposition (after December 31, 2018) of property that can produce U.S. source interest or dividends(“withholdable payments”) and (ii) “passthru payments” (generally, withholdable payments and payments that are attributable to withholdable payments)made by foreign financial institutions (“FFIs”). As a general matter, FATCA was designed to require U.S. persons’ direct and indirect ownership of certainnon-U.S. accounts and non-U.S. entities to be reported to the IRS. The application of the FATCA withholding rules were phased in beginning July 1, 2014,with withholding on foreign passthru payments made by FFIs taking effect after the later of January 1, 2019 or the date of publication of final regulationsdefining the term foreign passthru payment.53TABLE OF CONTENTSThe United States has entered into intergovernmental agreements between the United States and Bermuda and between the United States and the UnitedKingdom (the “IGAs”), which potentially modify the FATCA withholding regime described above with respect to us and our common shares. There can be nocertainty as to whether we, Carolina Re or JRG Re will be treated as a FFI under FATCA. We strongly urge you to consult your own tax advisor regarding thepotential impact of FATCA, the IGAs and any non-U.S. legislation implementing FATCA.Changes in U.S. tax laws may be retroactive and could subject us and/or U.S. persons who own our shares to U.S. income taxation.Apart from enactment of the Tax Act, other legislative proposals or administrative or judicial developments could also result in an increase in the amountof U.S. tax payable by us or by an owner of our shares or reduce the attractiveness of our products. Any such developments could materially adversely affectour results of operations.The tax laws and interpretations thereof, including with respect to whether a company is engaged in a U.S. trade or business, is a CFC, has related partyinsurance income, is a PFIC, or is subject to BEAT, are subject to change, possibly on a retroactive basis. There are currently only proposed regulationsregarding the RPII Test and the application of the PFIC rules to an insurance company. New regulations or pronouncements interpreting or clarifying suchrules may be forthcoming from the IRS or the U.S. Department of Treasury. We are not able to predict if, when or in what form such guidance will be providedand whether such guidance will have a retroactive effect.If reinsurance premiums paid by our U.S. subsidiaries to Carolina Re or JRG Re do not reflect arm’s-length terms, the IRS could seek to recharacterize thepayments in a way that is unfavorable to us.The IRS is permitted to reallocate or recharacterize income, deductions or certain other items, and to make any other adjustment, to reflect the properamount, source or character of the taxable income in respect of payments among related parties to reflect an arm’s-length transaction. We have in placeintercompany loans from our U.S. subsidiaries to our parent company and have intercompany reinsurance agreements among consolidated entities. Webelieve the terms of these transactions are appropriate and reflect arm’s-length terms and are consistent with all applicable rules and regulations. It is possible,however, that the U.S. Department of Treasury or the IRS may review our intercompany agreements and successfully assert, under Sections 482 or 845 of theCode, that they are not on an arm’s-length basis and that as a result, we owe taxes on account of past or future periods.Reduced tax rates for qualified dividend income may not be available in the future.We believe that the dividends paid on our common shares should qualify as “qualified dividend income” as long as the common shares are listed on anational securities exchange. Qualified dividend income received by non-corporate U.S. persons is generally eligible for long-term capital gain rates. Whilethe Tax Act did not modify these rules, there has been proposed legislation before the U.S. Senate and House of Representatives that would excludeshareholders of certain foreign corporations from this advantageous tax treatment. If such legislation were to become law, non-corporate U.S. persons wouldno longer qualify for the reduced tax rate on the dividends paid by us.Our non-U.K. companies may be subject to U.K. tax that may have a material adverse effect on our operating results.We intend to operate in such a manner so that none of our companies other than our intermediate holding company incorporated in the United Kingdomshould be resident in the U.K. for tax purposes or have a permanent establishment in the U.K. Accordingly, we expect that none of our companies other thanJames River UK should be subject to U.K. taxation. However, since applicable law and regulations do not conclusively define the activities that constituteconducting business in the U.K. through a permanent establishment, the U.K. HM Revenue & Customs might contend successfully that one or more of ourother companies is conducting business in the U.K. through a permanent establishment in the U.K.We may become subject to taxes in Bermuda after March 31, 2035, which may have a material adverse effect on our results of operations and yourinvestment.The Bermuda Minister of Finance, under the Exempted Undertakings Tax Protection Act 1966 of Bermuda, as amended, has given us an assurance that ifany legislation is enacted in Bermuda that would impose tax computed on profits or income, or computed on any capital asset, gain or appreciation, or anytax in the nature of estate duty or inheritance tax, then the imposition of any such tax will not be applicable to us or any of our operations, shares, debenturesor other obligations until March 31, 2035, except insofar as such tax applies to persons ordinarily resident in Bermuda or to any taxes payable by us inrespect of real property owned or leased by us in Bermuda. We cannot assure you that we will not be subject to any Bermuda tax after March 31, 2035.54TABLE OF CONTENTSRisks Related to Ownership of Our Common SharesThe price of our common shares may fluctuate significantly and you could lose all or part of your investment.Volatility in the market price of our common shares may prevent you from being able to sell your common shares at or above the price you paid for yourcommon shares. The market price for our common shares could fluctuate significantly for various reasons, including, without limitation:•our operating and financial performance and prospects;•our quarterly or annual earnings or earnings estimates, or those of other companies in our industry;•failure to meet external expectations or management guidance;•the loss of one or more individually large clients, and its impact on our growth rate, profitability and financial condition;•exposure to capital market risks related to changes in interest rates, realized investment losses, credit spreads, equity prices, foreign exchange ratesand performance of insurance-linked investments;•our creditworthiness, financial condition, performance and prospects;•termination of payment of dividends on our common shares, or payment of a reduced amount of dividends;•actual or anticipated growth rates relative to our competitors;•perceptions of the investment opportunity associated with our common shares relative to other investment alternatives;•speculation by the investment community regarding our business;•future announcements concerning our business or our competitors’ businesses;•the public’s reaction to our press releases, other public announcements and filings with the SEC;•changes in accounting standards, policies, guidance, interpretations or principles;•market and industry perception of our success, or lack thereof, in pursuing our strategy;•strategic actions by us or our competitors, such as acquisitions, restructurings, significant contracts or joint ventures;•catastrophes that are perceived by investors as impacting the insurance and reinsurance market in general;•changes in laws or government regulation, including tax or insurance laws and regulations;•potential characterization of us as a PFIC;•general market, economic and political conditions;•changes in conditions or trends in our industry, geographies or customers;•arrival and departure of key personnel;•the number of common shares that are publicly traded;•sales of common shares by us, our directors, executive officers or principal shareholders; and•adverse resolution of litigation against us.In addition, stock markets, including the NASDAQ Stock Market (the market on which our common shares are traded), have experienced price andvolume fluctuations that have affected and continue to affect the market prices of equity securities issued by many companies, including companies in ourindustry. In the past, some companies that have had volatile market prices for their securities have been subject to class action or derivative lawsuits. Thefiling of a lawsuit against us, regardless of the outcome, could have a negative effect on our business, as it could result in substantial legal costs and adiversion of management’s attention and resources.As a result of the factors described above, shareholders may not be able to resell their common shares at or above their purchase price or may not be ableto resell them at all. These market and industry factors may materially reduce the market price of our common shares, regardless of our operating performance.55TABLE OF CONTENTSIf securities or industry analysts do not continue to publish research or publish misleading or unfavorable research about our business, our common shareprice and trading volume could decline.The trading market for our common shares depends in part on the research and reports that securities or industry analysts publish about us or ourbusiness. If one or more of these analysts downgrades our shares or publishes misleading or unfavorable research about our business, our share price wouldlikely decline. If one or more of these analysts ceases coverage of our Company or fails to publish reports on us regularly, demand for our shares coulddecrease, which could cause our share price or trading volume to decline.Failure to maintain effective internal controls in accordance with Sarbanes-Oxley could have a material adverse effect on our business and common shareprice.As a public company with SEC reporting obligations, we are required to document and test our internal control procedures to satisfy the requirements ofSection 404(b) of Sarbanes-Oxley, which require annual assessments by management of the effectiveness of our internal control over financial reporting.During the course of our assessment, we may identify deficiencies that we are unable to remediate in a timely manner. Testing and maintaining ourinternal control over financial reporting may also divert management’s attention from other matters that are important to the operation of our business. Wemay not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404(b) ofSarbanes-Oxley. If we conclude that our internal control over financial reporting is not effective, we cannot be certain as to the timing of completion of ourevaluation, testing and remediation actions or its effect on our operations. Moreover, any material weaknesses or other deficiencies in our internal controlover financial reporting may impede our ability to file timely and accurate reports with the SEC. Any of the above could cause investors to lose confidence inour reported financial information or our common share listing on the NASDAQ Stock Market to be suspended or terminated, which could have a negativeeffect on the trading price of our common shares.Affiliates of D. E. Shaw & Co., L.P. own a significant amount of our outstanding common shares, which allows them to have significant influence overmatters requiring shareholder approval, and provides them with the right to appoint one director.D. E. Shaw CF-SP Franklin, L.L.C., D. E. Shaw Oculus Portfolios, L.L.C. and D. E. Shaw CH-SP Franklin, affiliates of D. E. Shaw & Co., L.P. (the “D. E.Shaw Affiliates”) beneficially own approximately 11.1% of our outstanding common shares in the aggregate making them our largest affiliated shareholders.Based upon such ownership, the D. E. Shaw Affiliates have significant influence over all matters requiring shareholder approval, including the election ofdirectors, determination of significant corporate actions, amendments to our organizational documents, and the approval of any business transaction, such asa merger or other sale of us or our assets. In addition, D. E. Shaw & Co., L.P. acts as an investment advisor to the D. E. Shaw Affiliates and may earninvestment and management fees from the investment of the D. E. Shaw Affiliates in the Company which may influence their decision with respect to anyproposed change of control of the Company.Additionally, our bye-laws provide that for so long as the D. E. Shaw Affiliates collectively beneficially own shares representing at least 10% of ouroutstanding common shares, the D. E. Shaw Affiliates have the right to appoint one director to our board of directors. The D. E. Shaw Affiliates presently ownapproximately 11.1% of our outstanding common shares, and if they maintain such ownership through the record date for our 2018 annual general meeting,then they will have the power to appoint a director for a new three year term as a Class I director at such meeting. The D. E. Shaw Affiliates have advised usthat they intend to appoint Bryan Martin, an affiliate of the D. E. Shaw Affiliates, pursuant to this right.Both Bryan Martin and David Zwillinger, also an affiliate of the D. E. Shaw Affiliates, are Class I directors of the Company. In their capacity as directors,Messrs. Martin and Zwillinger have significant influence over our management, business plans and policies. The significant share ownership of our commonshares and affiliation of two of our directors with the D. E. Shaw Affiliates may materially adversely affect the trading price of our common shares due toinvestors’ perception that conflicts of interest may exist or arise.Our bye-laws permit D. E. Shaw & Co., L.P. and its affiliates (including the D. E. Shaw Affiliates) and non-employee members of our board of directors tocompete with us, which may result in conflicts of interest.Our bye-laws provide that no shareholder, or any of its affiliates or members of our board of directors (other than those who are our officers, managers oremployees), has any duty to (i) communicate or present to the Company any investment or business opportunity or prospective transaction or arrangement inwhich the Company may have any interest or expectancy or (ii) refrain from engaging, directly or indirectly, in the same business activities or similarbusiness activities or lines of business in which we operate. D. E. Shaw & Co., L.P. and its affiliates (including the D. E. Shaw Affiliates) are in the business ofmaking investments in companies and our bye-laws will not restrict them from acquiring and holding interests in businesses that compete directly orindirectly with us. For example, certain affiliates of D. E. Shaw & Co., L.P. are currently engaged in the reinsurance business. D. E. Shaw & Co., L.P., itsaffiliates and non-employee directors may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisitionopportunities may not be available to us. These potential conflicts of interest could have a material adverse effect on our business, financial condition, resultsof56TABLE OF CONTENTSoperations or prospects if we are not able to pursue attractive corporate opportunities because they are allocated by one or more of the D. E. Shaw Affiliates tothemselves or their other affiliates instead of being presented to us.We depend upon dividends and distributions from our subsidiaries, and we may be unable to distribute dividends to our shareholders to the extent we donot receive dividends from our subsidiaries.We are a holding company that has no substantial operations of our own and, accordingly, we rely primarily on cash dividends or distributions from ouroperating subsidiaries to pay our operating expenses and any dividends that we may pay to shareholders. The payment of dividends by our insurance andreinsurance subsidiaries is limited under the laws and regulations of its applicable domicile. These regulations stipulate the maximum amount of annualdividends or other distributions available to shareholders without prior approval of the relevant regulatory authorities. As a result of such regulations, we maynot be able to pay our operating expenses as they become due and our payment of future dividends to shareholders may be limited.The payment of dividends by our subsidiaries to us is limited by statute. In general, the laws and regulations applicable to our U.S. insurancesubsidiaries limit the aggregate amount of dividends or other distributions that they may declare or pay within any 12 month period without advanceregulatory approval. In Ohio, the domiciliary state of Falls Lake General, Falls Lake National and James River Insurance, this limitation is the greater ofstatutory net income for the preceding calendar year or 10% of the statutory surplus at the end of the preceding calendar year, provided that such dividendsmay only be paid out of earned surplus of each of the companies, without obtaining regulatory approval. In North Carolina, the domiciliary state ofStonewood Insurance, this limitation is the greater of statutory net income excluding realized capital gains for the preceding calendar year or 10% of thestatutory surplus at the end of the preceding calendar year, provided that such dividends may only be paid out of unassigned surplus without obtainingregulatory approval. In Virginia, the domiciliary state of James River Casualty, this limitation is the greater of statutory net income excluding realized capitalgains for the preceding calendar year or 10% of the statutory surplus at the end of the preceding calendar year, provided that such dividends may only bepaid out of unassigned surplus without obtaining regulatory approval. In California, the domiciliary state of Falls Lake Fire and Casualty Company, thislimitation is the greater of statutory net income for the preceding calendar year or 10% of the statutory surplus at the end of the preceding calendar year,provided that such dividends may only be paid out of unassigned surplus without obtaining regulatory approval. Moreover, as a condition to obtaining itslicense in California, Falls Lake Fire and Casualty Company provided a commitment to the California Department of Insurance that it would not pay anyshareholder dividends for a five-year period commencing January 1, 2016 without prior written approval. In addition, insurance regulators have broad powersto prevent reduction of statutory surplus to inadequate levels and could refuse to permit the payment of dividends calculated under any applicable formula.See “Business—Regulation—U.S. Insurance Regulation—State Regulation” for more information. In addition, dividends paid by our U.S. subsidiaries to ourU.K. holding company are subject to a 5% withholding tax by the IRS. Under U.K. domestic law, no withholding tax is applied to dividends paid by U.K. taxresident companies.JRG Re, which is domiciled in Bermuda, is registered as a Class 3B insurer under the Insurance Act. The Insurance Act, the conditions listed in theinsurance license and the applicable approvals issued by the BMA provide that JRG Re is required to maintain a minimum statutory solvency margin of$109.9 million as of December 31, 2017. See “Business—Regulation—Bermuda Insurance Regulation—Minimum Solvency Margin and Enhanced CapitalRequirements” for more information. A Class 3B insurer is prohibited from declaring or paying a dividend if it fails to meet, before or after declaration orpayment of such dividend, its: (i) requirements under the Companies Act, (ii) minimum solvency margin, (iii) enhanced capital requirement or (iv) minimumliquidity ratio. If a Class 3B insurer fails to meet its minimum solvency margin or minimum liquidity ratio on the last day of any financial year, it isprohibited from declaring or paying any dividends during the next financial year without the approval of the BMA. In addition, JRG Re, as a Class 3B insureris prohibited from declaring or paying in any financial year dividends of more than 25% of its total statutory capital and surplus (as shown on its previousfinancial year’s statutory balance sheet) unless it files (at least seven days before payment of such dividends) with the BMA an affidavit signed by at least 2directors (one of whom must be a Bermuda resident director if any of the insurer’s directors are resident in Bermuda) and the principal representative statingthat it will continue to meet its solvency margin and minimum liquidity ratio. Where such an affidavit is filed, it shall be available for public inspection atthe offices of the BMA. See “Business— Regulation—Bermuda Insurance Regulation—Restrictions on Dividends and Distributions” for more information.The inability of our subsidiaries to pay dividends or make distributions to us, including as a result of regulatory or other restrictions, may prevent usfrom paying our expenses or paying dividends to our shareholders.We cannot assure you that we will declare or pay dividends on our common shares in the future.In 2017, we paid a dividend of $0.30 per share during each quarter, as well as a special dividend of $0.50 per share during the fourth quarter. We paiddividends of $0.20 per share in each of the first three quarters of 2016 and, in the fourth quarter, a $0.30 per share dividend plus a special dividend of $1.35per share. In 2015, we paid a dividend of $0.16 per share during each quarter, as well as a special dividend of $1.00 per share during the fourth quarter. Thedeclaration, payment and amount of future dividends is subject to the discretion of our board of directors. Our board of directors may take into account avariety of factors when determining whether to declare any future dividends, including (1) our financial condition, liquidity, results of57TABLE OF CONTENTSoperations (including our ability to generate cash flow in excess of expenses and our expected or actual net income), retained earnings and collateral andcapital requirements, (2) general business conditions, (3) legal, tax and regulatory limitations, (4) contractual prohibitions and other restrictions, (5) the effectof a dividend or dividends upon our financial strength ratings and (6) any other factors that our board of directors deems relevant. See “Item 5. Market ForRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity Securities - Dividends.”Dividends paid by our U.S. subsidiaries to James River UK may not be eligible for benefits under the U.S.-U.K. income tax treaty.Under U.S. federal income tax law, dividends paid by a U.S. corporation to a non-U.S. shareholder are generally subject to a 30% withholding tax, unlessreduced by treaty. The income tax treaty between the United Kingdom and the United States (the “U.K. Treaty”) reduces the rate of withholding tax oncertain dividends to 5%. Were the IRS to contend successfully that James River UK is not eligible for benefits under the U.K. Treaty, any dividends paid byJames River Group, Inc., our U.S. holding company, to James River UK would be subject to the 30% withholding tax. Such a result would substantiallyreduce the amount of dividends that our shareholder may receive.Future sales of our common shares, or the possibility of such sales, may cause the trading price of our common shares to decline and could impair ourability to raise capital through subsequent equity offerings.Future sales of substantial amounts of our common shares in the public market, or the perception that these sales could occur, could cause the marketprice of our common shares to decline and impair our ability to raise capital through the sale of additional shares. In January 2016, we filed a registrationstatement that registered under the Securities Act all of the common shares owned by the D. E. Shaw Affiliates, as well as securities that we may issue and sell(including common shares) that have a maximum aggregate value of $250,000,000. Since January 2016, the D. E. Shaw Affiliates have sold an aggregate of10,750,000 common shares in registered offerings. The remaining 3,297,238 common shares owned by the D. E. Shaw Affiliates remain eligible for sale underthe registration statement.In December 2014 and May 2017, we filed registration statements under the Securities Act to register the common shares to be issued under our equityincentive plans and, as a result, all common shares acquired upon exercise of share options or vesting of RSUs granted under our plans will also be freelytradable under the Securities Act, unless acquired by our affiliates. As of December 31, 2017, there were share options outstanding to purchase a total of1,479,236 common shares and there were 178,882 common shares subject to restricted share units. In addition, 1,895,285 common shares are reserved forfuture issuances under our equity incentive plans.In the future, we may issue additional common shares or other equity or debt securities convertible into common shares in connection with a financing,acquisition or employee arrangement or otherwise. Any of these issuances could result in substantial dilution to our existing shareholders and could causethe trading price of our common shares to decline.Our bye-laws and provisions of Bermuda law may impede or discourage a change of control transaction, which could deprive our investors of theopportunity to receive a premium for their shares.Our bye-laws and provisions of Bermuda law to which we are subject contain provisions that could discourage, delay or prevent “change of control”transactions or changes in our board of directors and management that certain shareholders may view as beneficial or advantageous. These provisionsinclude, among others:•the total voting power of any U.S. person owning more than 9.5% of our common shares will be reduced to 9.5% of the total voting power of ourcommon shares, excluding the D. E. Shaw Affiliates and other shareholders that held more than 9.5% of our common shares on the day of completionof our IPO;•our board of directors has the authority to issue preferred shares without shareholder approval, which could be used to dilute the ownership of apotential hostile acquirer;•our shareholders may only remove directors for cause and so long as the D. E. Shaw Affiliates have the right to designate one director, the directordesignated by the D. E. Shaw Affiliates may only be replaced by the D. E. Shaw Affiliates;•there are advance notice requirements for shareholders with respect to director nominations and actions to be taken at annual meetings; and•under Bermuda law, for so long as JRG Re is registered under the Insurance Act, the BMA may object to a person holding more than 10%, 20%, 33%or 50% of our common shares if it appears to the BMA that the person is not or is no longer fit and proper to be such a holder (See “— There areregulatory limitations on the ownership and transfer of our common shares.”).58TABLE OF CONTENTSThe foregoing factors, as well as the significant share ownership by the D. E. Shaw Affiliates could impede a merger, takeover or other businesscombination, which could reduce the market value of our shares.We may repurchase your common shares without your consent.Under our bye-laws and subject to Bermuda law, we have the option, but not the obligation, to require a shareholder, other than the D. E. Shaw Affiliatesand other shareholders holding more than 9.5% of our common shares on the day of completion of our IPO, to sell to us at fair market value the minimumnumber of common shares which is necessary to avoid or cure any adverse tax consequences or materially adverse legal or regulatory treatment to us, oursubsidiaries or our shareholders, if our board of directors reasonably determines, in good faith, that failure to exercise this option would result in such adverseconsequences or treatment.Bermuda law differs from the laws in effect in the United States and may afford less protection to holders of our shares.We are organized under the laws of Bermuda. As a result, our corporate affairs are governed by the Companies Act, which differs in some materialrespects from laws typically applicable to U.S. corporations and shareholders, including the provisions relating to interested directors, amalgamations,mergers and acquisitions, takeovers, shareholder lawsuits and indemnification of directors. Generally, the duties of directors and officers of a Bermudacompany are owed to the company only. Shareholders of Bermuda companies typically do not have rights to take action against directors or officers of thecompany and may only do so in limited circumstances. Class actions are not available under Bermuda law. The circumstances in which derivative actionsmay be available under Bermuda law are substantially more proscribed and less clear than they would be to shareholders of U.S. corporations. The Bermudacourts, however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong to the companywhere the act complained of is alleged to be beyond the corporate power of the company or illegal, or would result in the violation of the company’smemorandum of association or bye-laws. Furthermore, consideration would be given by a Bermuda court to acts that are alleged to constitute a fraud againstminority shareholders or, for instance, where an act requires the approval of a greater percentage of the company’s shareholders than that which actuallyapproved it.When the affairs of a company are being conducted in a manner that is oppressive or prejudicial to the interests of some shareholders, one or moreshareholders may apply to the Supreme Court of Bermuda, which may make such order as it sees fit, including an order regulating the conduct of thecompany’s affairs in the future or ordering the purchase of the shares of any shareholders by other shareholders or by the company. Additionally, under ourbye-laws and as permitted by Bermuda law, each shareholder has waived any claim or right of action against our directors or officers for any action taken bydirectors or officers in the performance of their duties, except for actions involving fraud or dishonesty. In addition, the rights of holders of our commonshares and the fiduciary responsibilities of our directors under Bermuda law are not as clearly established as under statutes or judicial precedent in existencein jurisdictions in the United States, particularly the State of Delaware. Therefore, holders of our common shares may have more difficulty protecting theirinterests than would shareholders of a corporation incorporated in a jurisdiction within the United States.There are regulatory limitations on the ownership and transfer of our common shares.Common shares may be offered or sold in Bermuda only in compliance with the provisions of the Investment Business Act 2003 and the ExchangeControl Act 1972 and related regulations of Bermuda, which regulate the sale of securities in Bermuda. In addition, the permission of the BMA is requiredunder the provisions of the Exchange Control Act 1972 and related regulations for all issuances and transfers of shares of Bermuda companies to or from anon-resident of Bermuda for exchange control purposes, other than where the BMA has granted a general permission. The BMA, in its notice to the publicdated June 1, 2005 has granted a general permission for the issue and subsequent transfer of any securities of a Bermuda company from and/or to a non-resident of Bermuda for exchange control purposes for so long as any “equity securities” of such company are listed on an appointed stock exchange, whichincludes the NASDAQ Stock Market. This general permission will apply to our common shares, but would cease to apply if we were to cease to be listed onthe NASDAQ Stock Market.In connection with the IPO, we received consent from the BMA to issue and transfer freely any of our shares, options, warrants, depository receipts, rightsloan notes, debt instruments or other securities to and among persons who are either residents or non-residents of Bermuda for exchange control purposes.The Insurance Act requires that where the shares of the registered insurer, or the shares of its parent company, are traded on a recognized stock exchange,and a person becomes a 10%, 20%, 33% or 50% shareholder controller of the insurer, that person shall, within 45 days, notify the BMA in writing that he hasbecome such a controller. In addition, a person who is a shareholder controller of a Class 3B insurer whose shares or the shares of its parent company (if any)are traded on a recognized stock exchange must serve on the BMA a notice in writing that he has reduced or disposed of his holding in the insurer where theproportion of voting rights in the insurer held by him will have reached or has fallen below 10%, 20%, 33% or 50% as the case may be, not later than 45 daysafter such disposal. This requirement will apply to us as long as our shares are listed on the NASDAQ Stock Market or another stock exchange recognized bythe BMA. The BMA may, by written notice,59TABLE OF CONTENTSobject to a person holding 10%, 20%, 33% or 50% of our common shares if it appears to the BMA that the person is not fit and proper to be such a holder.The BMA may require the holder to reduce its shareholding in us and may direct, among other things, that the voting rights attaching to its shares shall notbe exercisable. A person that does not comply with such a notice or direction from the BMA will be guilty of an offense.JRG Re is also required to notify the BMA in writing in the event any person has become or has ceased to be a controller or an officer of it (an officerincludes a director, chief executive or senior executive performing duties of underwriting, actuarial, risk management, compliance, internal audit, finance orinvestment matters).Except in connection with the settlement of trades or transactions entered into through the facilities of the NASDAQ Stock Market, our board of directorsmay generally require any shareholder or any person proposing to acquire our common shares to provide the information required under our bye-laws. If anysuch shareholder or proposed acquiror does not provide such information, or if our board of directors has reason to believe that any certification or otherinformation provided pursuant to any such request is inaccurate or incomplete, our board of directors may decline to register any transfer or to effect anyissuance or purchase of our common shares to which such request is related.In addition, the insurance holding company laws and regulations of the states in which our insurance companies are domiciled generally require that,before a person can acquire direct or indirect control of an insurer domiciled in the state, and in some cases prior to divesting its control, prior writtenapproval must be obtained from the insurer’s domiciliary state insurance regulator. In addition to insurance holding company laws and regulations, under theOrganizational Permit issued by the California Department of Insurance to Falls Lake Fire and Casualty Company, Falls Lake Fire and Casualty Company, asa new insurer, was required to enter into an agreement with Falls Lake National restricting the transfer of Falls Lake Fire and Casualty Company’s shares for afive-year period commencing January 1, 2016. Specifically, under the agreement, the restriction on share transfer is released automatically without furtherapproval or consent by the California Department of Insurance, or any other party, at the following respective times: 5% at the end of the first year of the 5-year restriction period; an additional 5% at the end of the second year; an additional 10% at the end of the third year; an additional 20% at the end of thefourth year; and the remainder at the end of the fifth year Therefore, under the Organizational Permit and the Agreement Restricting Shares, Falls LakeNational’s ability to directly or indirectly transfer the shares of Falls Lake Fire and Casualty Company to anyone without the prior written approval of theCalifornia Department of Insurance is limited. These laws and the similar conditions applicable to Falls Lake Fire and Casualty Company’s shares maydiscourage potential acquisition proposals and may delay, deter or prevent an investment in or a change of control involving us, or one or more of ourregulated subsidiaries, including transactions that our management and some or all of shareholders might consider desirable. Pursuant to applicable laws andregulations, “control” over an insurer is generally presumed to exist if any person, directly or indirectly, owns, controls, holds the power to vote or holdsproxies representing, 10% or more of the voting securities of that reinsurer or insurer. Indirect ownership includes ownership of the Company’s commonshares.Item 1B.UNRESOLVED STAFF COMMENTSNot applicable.Item 2.PROPERTIESWe lease office space in Bermuda, where our principal executive office is located and our casualty reinsurance segment is based. We also lease offices in(1) Chapel Hill, North Carolina, where our U.S. holding company, James River Group is based, (2) Raleigh, North Carolina, Santa Margarita, California,Princeton, New Jersey, and Saratoga Springs, New York where we conduct business in our Specialty Admitted Insurance segment and (3) Richmond, Virginia,Scottsdale, Arizona and Atlanta, Georgia for the conduct of business in our Excess and Surplus Lines segment. We believe that our facilities are adequate forour current needs and that suitable additional or substitute space will be available as needed.Item 3.LEGAL PROCEEDINGSWe are party to legal proceedings which arise in the ordinary course of business. We believe that the outcome of such matters, individually and in theaggregate, will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.Item 4.MINE SAFETY DISCLOSURENot applicable.60TABLE OF CONTENTSPART IIItem 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIESMarket InformationOur common shares began trading on the NASDAQ Global Select Market under the symbol “JRVR” on December 12, 2014. Prior to that time, there wasno public market for our common shares. The following table sets forth the high and low sales prices for our common shares as reported by the NASDAQGlobal Select Market for the period indicated:Fiscal Year 2014 High LowFourth Quarter (beginning December 12, 2014) $23.38 $20.46Fiscal Year 2015 High LowFirst Quarter $24.74 $20.61Second Quarter $26.08 $21.91Third Quarter $28.77 $24.63Fourth Quarter $34.58 $26.23Fiscal Year 2016 High LowFirst Quarter $34.24 $28.68Second Quarter $36.14 $25.86Third Quarter $38.31 $33.04Fourth Quarter $42.17 $35.25Fiscal Year 2017 High LowFirst Quarter $46.20 $39.21Second Quarter $44.11 $38.33Third Quarter $42.18 $37.28Fourth Quarter $44.34 $37.24As of February 28, 2018, there were approximately 11 holders of record of our common shares.DividendsIn 2017, we paid a dividend of $0.30 per share during each quarter, as well as a special dividend of $0.50 per share during the fourth quarter. We paiddividends of $0.20 per share in each of the first three quarters of 2016 and, in the fourth quarter, a $0.30 per share dividend plus a special dividend of $1.35per share. In 2015, we paid a dividend of $0.16 per share during each quarter, as well as a special dividend of $1.00 per share during the fourth quarter. InAugust 2014, we declared a cash dividend of $2.45 per share payable to shareholders of record as of June 30, 2014.We are a holding company that has no substantial operations of our own, and we rely primarily on cash dividends or distributions from our subsidiariesto pay our operating expenses and dividends to shareholders. The payment of dividends by our insurance and reinsurance subsidiaries is limited under thelaws and regulations of their respective domicile. These regulations stipulate the maximum amount of annual dividends or other distributions available toshareholders without prior approval of the relevant regulatory authorities. Additionally, dividends from our U.S. subsidiaries to our U.K. intermediate holdingcompany are generally subject to a 5% withholding tax by the IRS. Under U.K. domestic law, no withholding tax is applied to dividends paid by U.K. taxresident companies. As a result of such regulations, or a change in applicable tax law, we may not be able to pay our operating expenses as they become dueand our payment of future dividends to shareholders may be limited. See “Risk Factors — Risks Related to our Business and Industry—We depend upondividends and distributions from our subsidiaries, and we may be unable to distribute dividends to our shareholders to the extent we do not receive dividendsfrom our subsidiaries,” and “—Dividends paid by our U.S. subsidiaries to James River UK may not be eligible for benefits under the U.S.-U.K. income taxtreaty.”The declaration, payment and amount of future dividends is subject to the discretion of our board of directors. Our board of directors will giveconsideration to various risks and uncertainties, including those discussed under the headings “Risk61TABLE OF CONTENTSFactors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report whendetermining whether to declare and pay dividends, as well as the amount thereof. Our board of directors may take into account a variety of factors whendetermining whether to declare any future dividends, including (1) our financial condition, liquidity, results of operations (including our ability to generatecash flow in excess of expenses and our expected or actual net income), retained earnings and collateral and capital requirements, (2) general businessconditions, (3) legal, tax and regulatory limitations, (4) contractual prohibitions and other restrictions, (5) the effect of a dividend or dividends upon ourfinancial strength ratings and (6) any other factors that our board of directors deems relevant.Performance GraphThe graph below compares the cumulative total shareholder return of our common shares relative to the cumulative total returns of the Russell 2000index and two selected peer groups of nine companies (the 2016 Peer Group) and seven companies (the 2017 Peer Group). In modifying our peer group for2017, we took into consideration, among other factors, size and lines of business of the component companies in our peer group, and removed a companythat was acquired in 2017. The calculation of cumulative total shareholder return assumes an initial investment of $100 and the reinvestment of alldividends, if any, for the period from December 12, 2014 (the date of our initial public offering) through December 31, 2017. Such returns are based onhistorical results and are not intended to suggest future performance. The companies in the peer group are weighted by market capitalization.The 2016 Peer Group consists of nine companies which are: Amerisafe Inc., Amtrust Financial Services Inc., Argo Group International Holdings Ltd,Kinsale Capital Group Inc., Markel Corp, Navigators Group Inc., RLI Corp, State National Companies Inc. and W. R. Berkley CorpThe 2017 Peer Group consists of seven companies which are: Amerisafe Inc., Argo Group International Holdings Ltd, Kinsale Capital Group Inc., MarkelCorp, Navigators Group Inc., RLI Corp and W. R. Berkley Corp.62TABLE OF CONTENTS 12/12/2014 12/14 12/15 12/16 12/17James River Group Holdings, Ltd. 100.00 107.11 166.93 219.56 220.59Russell 2000 100.00 104.65 100.03 121.34 139.112016 Peer Group 100.00 101.37 121.72 132.76 137.362017 Peer Group 100.00 101.78 123.89 139.82 159.20The performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of theSecurities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to beincorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that we specificallyincorporate it by reference into such filing.63TABLE OF CONTENTSItem 6.SELECTED FINANCIAL DATAThe following tables present selected historical financial information of James River Group Holdings, Ltd. derived from our consolidated balance sheetsas of December 31, 2017, 2016, 2015, 2014 and 2013, and the related consolidated statements of income and comprehensive income, changes inshareholders’ equity and cash flows for each of the five years in the period ended December 31, 2017, which have been audited by Ernst & Young LLP.You should read this selected financial data along with the consolidated financial statements and accompanying notes included elsewhere in thisAnnual Report, as well as the section of this Annual Report titled “Management’s Discussion and Analysis of Financial Condition and Results ofOperations.” Year Ended December 31, 2017 2016 2015 2014 2013 ($ in thousands, except for per share data)Operating Results: Gross written premiums(1) $1,081,905 $737,398 $572,194 $518,767 $368,518Ceded written premiums(2) (315,279) (179,690) (101,162) (68,684) (43,352)Net written premiums $766,626 $557,708 $471,032 $450,083 $325,166Net earned premiums $741,109 $515,663 $461,205 $396,212 $328,078Net investment income 61,119 52,638 44,835 43,005 45,373Net realized investment gains (losses) (1,989) 7,565 (4,547) (1,336) 12,619Other income 17,386 10,361 3,428 1,122 222Total revenues 817,625 586,227 504,921 439,003 386,292Losses and loss adjustment expenses 555,377 325,421 279,016 237,368 184,486Other operating expenses 196,993 170,828 157,803 133,055 114,804Other expenses 539 1,590 730 16,012 677Interest expense 8,974 8,448 6,999 6,347 6,777Amortization of intangible assets 597 597 597 597 2,470Total expenses 762,480 506,884 445,145 393,379 309,214Income before income tax expense 55,145 79,343 59,776 45,624 77,078Income tax expense (benefit) 11,579 4,872 6,279 939 9,741Net income $43,566 $74,471 $53,497 $44,685 $67,337Adjusted net operating income(4) $47,385 $71,318 $61,090 $58,424 $58,918Earnings per Share: Basic $1.48 $2.56 $1.87 $1.57 $2.21Diluted $1.44 $2.49 $1.82 $1.55 $2.21Weighted — average shares outstanding — diluted 30,273,149 29,894,378 29,334,918 28,810,301 30,500,80064TABLE OF CONTENTS At or for the Year Ended December 31, 2017 2016 2015 2014 2013 ($ in thousands, except for per share amounts and ratios)Balance Sheet Data: Cash and invested assets $1,611,149 $1,442,114 $1,350,697 $1,310,628 $1,217,078Reinsurance recoverables 313,816 185,614 143,086 128,979 120,477Goodwill and intangible assets 220,165 220,762 221,359 221,956 222,553Total assets 2,756,695 2,346,533 2,055,497 1,959,292 1,806,793Reserve for losses and loss adjustment expenses 1,292,349 943,865 785,322 716,296 646,452Unearned premiums 418,114 390,563 301,104 277,579 218,532Senior debt 98,300 88,300 88,300 88,300 58,000Junior subordinated debt 104,055 104,055 104,055 104,055 104,055Total liabilities 2,061,996 1,653,312 1,374,459 1,271,371 1,105,303Total stockholders’ equity 694,699 693,221 681,038 687,921 701,490GAAP Underwriting Ratios: Loss ratio(5) 74.9% 63.1% 60.5% 59.9% 56.2%Expense ratio(6) 24.3% 31.2% 33.5% 33.4% 35.0%Combined ratio(7) 99.2% 94.3% 94.0% 93.3% 91.2%Other Data: Tangible equity(8) $474,534 $472,459 $459,679 $465,965 $478,937Tangible equity per common share outstanding $15.98 $16.15 $15.88 $16.33 $16.78Debt to total capitalization ratio(9) 22.6% 21.7% 22.0% 21.9% 18.8%Regulatory capital and surplus(10) $628,877 $605,298 $601,436 $593,580 $580,267Net written premiums to surplus ratio(3) 1.2x 0.9x 0.8x 0.8x 0.6x (1)The amount received or to be received for insurance policies written or assumed by us during a specific period of time without reduction for acquisitioncosts, reinsurance costs or other deductions.(2)The amount of written premiums ceded to (reinsured by) other insurers.(3)We believe this measure is useful in evaluating our insurance subsidiaries’ operating leverage. It may not be comparable to the definition of net writtenpremiums to surplus ratio for other companies.(4)Adjusted net operating income is a non-GAAP measure. We define adjusted net operating income as net income excluding net realized investment gainsand losses, expenses related to due diligence costs for various merger and acquisition activities, severance costs associated with terminated employees,impairment charges on goodwill and intangible assets, gains on extinguishment of debt, expenses on a leased building we are deemed to own foraccounting purposes, and professional services and other expenses associated with securities offerings and the payment of special dividends. We useadjusted net operating income as an internal performance measure in the management of our operations because we believe it gives our management andother users of our financial information useful insight into our results of operations and our underlying business performance. Adjusted net operatingincome should not be viewed as a substitute for net income in accordance with GAAP. See “Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Reconciliation of Non-GAAP Measures” for a reconciliation of adjusted net operating income to net income inaccordance with GAAP.(5)The loss ratio is the ratio, expressed as a percentage, of losses and loss adjustment expenses to net earned premiums, net of the effects of reinsurance.(6)The expense ratio is the ratio, expressed as a percentage, of other operating expenses to net earned premiums.(7)The combined ratio is the sum of the loss ratio and the expense ratio. A combined ratio under 100% generally indicates an underwriting profit. Acombined ratio over 100% generally indicates an underwriting loss.65TABLE OF CONTENTS(8)Tangible equity is shareholders’ equity less goodwill and intangible assets. Tangible equity should not be viewed as a substitute for shareholders’ equitycalculated in accordance with GAAP. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Reconciliationof Non-GAAP Measures” for a reconciliation of tangible equity to shareholders’ equity in accordance with GAAP.(9)The ratio, expressed as a percentage, of total indebtedness for borrowed money to the sum of total indebtedness for borrowed money and shareholders’equity.(10)For our U.S. insurance subsidiaries, the excess of assets over liabilities as determined in accordance with statutory accounting principles as determinedby the NAIC. For our Bermuda reinsurer, shareholders’ equity in accordance with U.S. generally accepted accounting principles (“GAAP”).66TABLE OF CONTENTSItem 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including those describedunder the heading “Risk Factors.” Actual results may differ materially from those contained in any forward-looking statements. You should read thisdiscussion and analysis together with our audited consolidated financial statements and related notes included elsewhere in this Form 10-K.OverviewJames River Group Holdings, Ltd. is a Bermuda-based holding company. We own and operate a group of specialty insurance and reinsurance companieswith the objective of generating compelling returns on tangible equity while limiting underwriting and investment volatility. We seek to accomplish this byconsistently earning profits from insurance and reinsurance underwriting and generating meaningful risk-adjusted investment returns, while managing ourcapital opportunistically.For the year ended December 31, 2017, approximately 63.2% of our group-wide gross written premiums originated from the U.S. E&S lines marketincluding business assumed by our Casualty Reinsurance segment. We also have a specialty admitted insurance business in the United States. We intend toconcentrate substantially all of our underwriting in casualty insurance and reinsurance, and for the year ended December 31, 2017, we derived 96.1% of ourgroup-wide gross written premiums from casualty insurance and reinsurance. We focus on writing business in specialty markets where our underwriters haveparticular expertise and where we have long-standing distribution relationships; maintaining a strong balance sheet with appropriate reserves; monitoringreinsurance recoverables carefully; managing our investment portfolio actively without taking undue risk; using technology to monitor trends in ourbusiness; responding rapidly to market opportunities and challenges; and actively managing our capital.We report our business in four segments: Excess and Surplus Lines, Specialty Admitted Insurance, Casualty Reinsurance and Corporate and Other.The Excess and Surplus Lines segment offers E&S commercial lines liability and property insurance in every U.S. state and the District of Columbiathrough James River Insurance and its wholly-owned subsidiary, James River Casualty. James River Insurance and James River Casualty are both non-admitted carriers. Non-admitted carriers writing in the E&S market are not bound by most of the rate and form regulations imposed on standard marketcompanies, allowing them flexibility to change the coverage terms offered and the rate charged without the time constraints and financial costs associatedwith the rate and form filing process. In 2017, the average account in this segment (excluding commercial auto policies) generated annual gross writtenpremiums of approximately $19,000. The Excess and Surplus Lines segment distributes primarily through wholesale insurance brokers. Members of ourmanagement team have participated in this market for over three decades and have long-standing relationships with the wholesale agents who place E&Slines accounts. The Excess and Surplus Lines segment produced 49.0% of our gross written premiums and 61.3% of our net written premiums for the yearended December 31, 2017.The Specialty Admitted Insurance segment focuses on niche classes within the standard insurance markets, such as workers’ compensation coverage forresidential contractors, light manufacturing operations, transportation workers and healthcare workers and fronting and program business. In our frontingbusiness, we retain a small percentage of the risk and seek to earn fee income by allowing other carriers and producers to use our licensure, ratings, andinfrastructure. Given market conditions and availability of reinsurance for program opportunities, we began de-emphasizing program business in 2017.Through Falls Lake National Insurance Company and its subsidiaries, this segment has admitted licenses in 49 states and the District of Columbia anddistributes through a variety of sources, including independent retail agents, program administrators and MGAs. The Specialty Admitted Insurance segmentproduced 29.2% of our gross written premiums and 8.0% of our net written premiums for the year ended December 31, 2017.The Casualty Reinsurance segment consists of JRG Re, our Bermuda domiciled reinsurance subsidiary, which provides proportional and working layercasualty reinsurance to third parties and to our U.S.-based insurance subsidiaries. The Casualty Reinsurance segment’s underwriting results presented hereininclude only the results of reinsurance written with unaffiliated companies and do not include the premiums and losses ceded under our internal quota sharearrangement described below, which are captured in our Excess and Surplus Lines and Specialty Admitted Insurance segments. Typically, we structure ourreinsurance contracts as quota share arrangements, with loss mitigating features, such as commissions that adjust based on underwriting results. We frequentlyinclude risk mitigating features in our excess working layer treaties, which allows the ceding company to capture a greater percentage of the profits shouldthe business prove more profitable than expected, or alternatively provides us with additional premiums should the business incur higher than expectedlosses. We believe these structures allow us to participate in the risk side-by-side with the ceding company and best align our interests with the interests ofour cedents. On a premium volume basis, treaties with loss mitigation features including sliding scale ceding commissions represented 67.1% of the grosspremiums written by our Casualty Reinsurance segment during 2017. We typically do not67TABLE OF CONTENTSassume large individual risks in our Casualty Reinsurance segment, nor do we write property catastrophe reinsurance. Two of the three largest unaffiliatedaccounts written by JRG Re in 2017 were assumed from E&S carriers. The Casualty Reinsurance segment distributes through traditional reinsurance brokers.The Casualty Reinsurance segment produced 21.8% of our gross written premiums and 30.8% of our net written premiums for the year ended December 31,2017.We had intercompany reinsurance agreements through December 31, 2017 under which we ceded 70% of the net written premiums of our U.S.subsidiaries (after taking into account third-party reinsurance) to JRG Re. This business was ceded to JRG Re under proportional, or quota-share, reinsurancetreaties that provided for arm’s length ceding commissions. We exclude the effects of these agreements for the presentation of the Excess and Surplus Linesand Specialty Admitted Insurance segments included herein consistent with the manner in which we manage the business. At December 31, 2017, 69.5% ofour cash and invested assets were held in Bermuda, which benefits from a favorable operating environment, including an absence of corporate income orinvestment taxes. We pay a 1% U.S. excise tax on premiums ceded to JRG Re by our U.S.-based insurance subsidiaries.We plan to make changes to the Company’s structure in 2018 to minimize the impact of BEAT that include the formation of Carolina Re, a Bermuda-domiciled, wholly owned subsidiary of James River Group, Inc. We expect Carolina Re to be a Class 3A reinsurer and make an irrevocable election to betaxed as a U.S. domestic corporation under Section 953(d) of the Code. Effective January 1, 2018, we will discontinue ceding 70% of our U.S.-writtenpremiums to JRG Re and will instead cede 70% of our U.S.-written premiums to Carolina Re. We also expect Carolina Re will enter into a stop lossreinsurance agreement with JRG Re. While Carolina Re will be subject to U.S. corporate income tax, we do not expect that it will be subject to BEAT in fiscalyear 2018 as the Company is expected to have sufficient regular U.S. income tax liability compared to the BEAT liability.The Corporate and Other segment consists of the management and treasury activities of our holding companies and interest expense associated with ourdebt.The A.M. Best financial strength rating for our group’s regulated insurance subsidiaries is “A” (Excellent). This rating reflects A.M. Best’s opinion of ourinsurance subsidiaries’ financial strength, operating performance and ability to meet obligations to policyholders and is not an evaluation directed towardsthe protection of investors.Critical Accounting Policies and EstimatesWe identified the accounting estimates below as critical to the understanding of our financial position and results of operations. Critical accountingestimates are defined as those estimates that are both important to the portrayal of our financial condition and results of operations and which require us toexercise significant judgment. We use significant judgment concerning future results and developments in applying these critical accounting estimates andin preparing our consolidated financial statements. These judgments and estimates affect the reported amounts of assets, liabilities, revenues and expensesand the disclosure of material contingent assets and liabilities. Actual results may differ materially from the estimates and assumptions used in preparing theconsolidated financial statements. We evaluate our estimates regularly using information that we believe to be relevant. For a detailed discussion of ouraccounting policies, see the Notes to Consolidated Financial Statements included in this Form 10-K.Reserve for Losses and Loss Adjustment ExpensesThe reserve for losses and loss adjustment expenses represents our estimated ultimate cost of all reported and unreported losses and loss adjustmentexpenses incurred and unpaid at the balance sheet date. We do not discount this reserve. We estimate the reserve using individual case-basis valuations ofreported claims and statistical analysis. We believe that the use of judgment is necessary to arrive at a best estimate for the reserve for losses and lossadjustment expenses given the long-tailed nature of the business we write and the limited operating experience of the Casualty Reinsurance segment and ofthe fronting and program business in the Specialty Admitted Insurance segment and the commercial auto business in our Excess and Surplus lines segment. Inapplying this judgment, we frequently establish reserves that differ from our internal actuaries’ estimate. We seek to establish reserves that will ultimatelyprove to be adequate. If we have indications that claims frequency or severity exceeds our initial expectations, we generally increase our reserves for lossesand loss adjustment expenses. Conversely, when claims frequency and severity trends are more favorable than initially anticipated, we generally reduce ourreserves for losses and loss adjustment expenses once we have sufficient data to confirm the validity of the favorable trends.Our Excess and Surplus Lines and Specialty Admitted Insurance segments generally are notified of losses by our insureds or their brokers. Based on theinformation provided, we establish case reserves by estimating the ultimate losses from the claim, including administrative costs associated with the ultimatesettlement of the claim. Our claims department personnel use their knowledge of the specific claim along with internal and external experts, includingunderwriters and legal counsel, to estimate the expected ultimate losses.Our Casualty Reinsurance segment generally establishes case reserves based on reports received from ceding companies or their brokers. For excess ofloss contracts, we are typically notified of insurance losses on specific contracts, and we record68TABLE OF CONTENTScase reserves based on the estimated ultimate losses on each claim. For proportional contracts, we typically receive aggregated claims information and recordcase reserves based on that information.We also use statistical analysis to estimate the cost of losses and loss adjustment expenses that have been incurred but not reported to us (“IBNR”).Those estimates are based on our historical information, industry information and estimates of future trends that may affect the frequency of claims andchanges in the average cost of claims (severity) that may arise in the future.The Company’s gross reserve for losses and loss adjustment expenses at December 31, 2017 was $1.3 billion. Of this amount, 64.6% relates to IBNR. TheCompany’s gross reserve for losses and loss adjustment expenses by segment are summarized as follows: Gross Reserves at December 31, 2017 Case IBNR Total IBNR %of Total ($ in thousands)Excess and Surplus Lines $233,999233,999$525,044 $759,043 69.2%Specialty Admitted Insurance 121,825 149,621 271,446 55.1%Casualty Reinsurance 102,059 159,801 261,860 61.0%Total $457,883 $834,466 $1,292,349 64.6%The Company’s net reserve for losses and loss adjustment expenses at December 31, 2017 was $989.8 million. Of this amount, 65.0% relates to IBNR.The Company’s net reserve for losses and loss adjustment expenses by segment are summarized as follows: Net Reserves at December 31, 2017 Case IBNR Total IBNR %of Total ($ in thousands)Excess and Surplus Lines $209,804209,804$446,016446,016$655,820655,82068.0%Specialty Admitted Insurance 39,205 41,548 80,753 51.5%Casualty Reinsurance 97,084 156,168 253,252 61.7%Total $346,093 $643,732 $989,825 65.0%Our Reserve Committee consists of our Chief Actuary, Chief Executive Officer (formerly Chief Operating Officer), Chief Financial Officer, and ChiefAccounting Officer. Additionally, the presidents and chief actuaries of each of our three operating segments assist in the evaluations of their respectivesegments. The Reserve Committee meets quarterly to review the actuarial recommendations made by each chief actuary and uses its best judgment todetermine the best estimate to be recorded for the reserve for losses and loss adjustment expenses on our balance sheet. The Reserve Committee believes thatusing judgment to supplement the actuarial recommendations is necessary to arrive at a best estimate given the nature of the business that we write and thelimited operating experience of the Casualty Reinsurance segment, the fronting and program business in the Specialty Admitted Insurance segment and thecommercial auto underwriting division in the Excess and Surplus Lines segment.The process of estimating the reserve for losses and loss adjustment expenses requires a high degree of judgment and is subject to a number of variables.In establishing the quarterly actuarial recommendation for the reserve for losses and loss adjustment expenses, our internal actuaries estimate an initialexpected ultimate loss ratio for each of our product lines by accident year (or for our Casualty Reinsurance segment, on a contract by contract basis). Inputfrom our underwriting and claims departments, including premium pricing assumptions and historical experience, are considered by our internal actuaries inestimating the initial expected loss ratios. Our actuaries generally utilize five actuarial methods in their estimation process for the reserve for losses and lossadjustment expenses. These five methods utilize, to varying degrees, the initial expected loss ratio, detailed statistical analysis of past claims reporting andpayment patterns, claims frequency and severity, paid loss experience, industry loss experience, and changes in market conditions, policy forms, exclusions,and exposures. The five actuarial methods that we use in our reserve estimation process are:Expected Loss MethodThe Expected Loss method multiplies earned premiums by an initial expected loss ratio.69TABLE OF CONTENTSIncurred Loss Development MethodThe Incurred Loss Development method uses historical loss reporting patterns to estimate future loss reporting patterns. In this method, our actuariesapply historical loss reporting patterns to develop incurred loss development factors that are applied to current reported losses to calculate expected ultimatelosses.Paid Loss Development MethodThe Paid Loss Development method is similar to the Incurred Loss Development method, but it uses historical loss payment patterns to estimate futureloss payment patterns. In this method, our actuaries apply historical loss payment patterns to develop paid loss development factors that are applied tocurrent paid losses to calculate expected ultimate losses.Bornhuetter-Ferguson Incurred Loss Development MethodThe Bornhuetter-Ferguson Incurred Loss Development method divides the projection of ultimate losses into the portion that has already been reportedand the portion that has yet to be reported. The portion that has yet to be reported is estimated as the product of premiums earned for the accident year, theinitial expected ultimate loss ratio and an estimate of the percentage of ultimate losses that are unreported at the valuation date.Bornhuetter-Ferguson Paid Loss Development MethodThe Bornhuetter-Ferguson Paid Loss Development method is similar to the Bornhuetter-Ferguson Incurred Loss Development method, except thismethod divides the projection of ultimate losses into the portion that has already been paid and the portion that has yet to be paid. The portion that has yet tobe paid is estimated as the product of premiums earned for the accident year, the initial expected ultimate loss ratio and an estimate of the percentage ofultimate losses that are unpaid at the valuation date.Different reserving methods are appropriate in different situations, and our actuaries use their judgment and experience to determine the weighting of themethods detailed above to use for each accident year and each line of business and, for our Casualty Reinsurance segment, on a contract by contract basis.For example, the current accident year has very little incurred and paid loss development data on which to base reserve projections. As a result, we relyheavily on the Expected Loss Method in estimating reserves for the current accident year. We generally set our initial expected loss ratio for the currentaccident year consistent with our pricing assumptions. We believe that this is a reasonable and appropriate reserving assumption for the current accident yearsince our pricing assumptions are actuarially driven and since we expect to make an acceptable return on the new business that we write. If actual lossemergence is better than our initial expected loss ratio assumptions, we will experience favorable development, and if it is worse than our initial expectedloss ratio assumptions, we will experience adverse development. Conversely, sufficient incurred and paid loss development is available for our oldestaccident years, so more weight is given to the Incurred Loss Development method and the Paid Loss Development method than the Expected Loss method.The Bornhuetter-Ferguson Incurred Loss Development and Paid Loss Development methods blend features of the Expected Loss method and the Incurredand Paid Loss Development methods. The Bornhuetter-Ferguson methods are typically used for the more recent prior accident years.In applying these methods to develop an estimate of the reserve for losses and loss adjustment expenses, our internal actuaries use judgment todetermine three key parameters for each accident year and line of business: the initial expected loss ratios, the incurred and paid loss development factors andthe weighting of the five actuarial methods to be used for each accident year and line of business. For the Excess and Surplus Lines and Specialty AdmittedInsurance segments, the actuary performs a study on each of these parameters annually in the third quarter and makes recommendations for the initialexpected loss ratios, the incurred and paid loss development factors and the weighting of the five actuarial methods by accident year and line of business.Members of the Reserve Committee review and approve the parameter review actuarial recommendations, and these approved parameters are used in thereserve estimation process for the next four quarters at which time a new parameter study is performed. For the Casualty Reinsurance segment, periodicassessments are made on a contract by contract basis with the goal of keeping the initial expected loss ratios and the incurred and paid loss developmentfactors as constant as possible until sufficient evidence presents itself to support adjustments. Method weights are generally less rigid for the CasualtyReinsurance segment given the heterogeneous nature of the various contracts, and the potential for significant changes in mix of business within individualtreaties.We engage an independent internationally recognized actuarial consulting firm to review our reserves for losses and loss adjustment expenses twiceeach year, once prior to closing the third quarter and once for the closing of the fourth quarter. This independent actuarial consulting firm prepares its ownestimate of our reserve for loss and loss adjustment expenses, and we compare their estimate to the reserve for losses and loss adjustment expenses reviewedand approved by the Reserve Committee in order to gain additional comfort on the adequacy of our reserves.The table below quantifies the impact of extreme reserve deviations from our expected value at December 31, 2017. The total carried net reserve forlosses and loss adjustment expenses is displayed alongside 5th, 50th and 95th percentiles of likely70TABLE OF CONTENTSultimate net reserve outcomes. The estimates of these percentiles are a result of a reserve variability analysis using a simulation approach.Sensitivity 5th Pct. 50th Pct. Carried 95th Pct. (in thousands)Reserve for losses and loss adjustment expenses $865,959 $976,482 $989,825 $1,087,005Changes in reserves (123,866) (13,343) — 97,180The impact of recording the net reserve for losses and loss adjustment expenses at the highest value from the sensitivity analysis above would be toincrease losses and loss adjustment expenses incurred by $97.2 million, reduce after-tax net income by $91.4 million, reduce shareholders’ equity by $91.4million and reduce shareholders’ tangible equity by $91.4 million, in each case at or for the period ended December 31, 2017.The impact of recording the net reserve for losses and loss adjustment expenses at the lowest value from the sensitivity analysis above would be toreduce losses and loss adjustment expenses incurred by $123.9 million, increase after-tax net income by $112.7 million, increase shareholders’ equity by$112.7 million, and increase tangible equity by $112.7 million, in each case at or for the year ended December 31, 2017. Such changes in the net reserve forlosses and loss adjustment expenses would not have an immediate impact on our liquidity, but would affect cash flow and investment income in futureperiods as the incremental or reduced amount of losses are paid and investment assets adjusted to reflect the level of paid claims.Loss reserve estimates are subject to a high degree of variability due to the inherent uncertainty of ultimate claims settlement values. In recording ourbest estimate of our reserve for losses and loss adjustment expenses, our Reserve Committee typically selects an amount above the actuarial recommendationdue to the inherent variation associated with our reserve estimates and the likelihood that there are unforeseen or under-valued liabilities in the actuarialrecommendations. We believe that the insurance that we write is subject to above-average variation in reserve estimates. The Excess and Surplus Linesmarket is subject to high policyholder turnover and changes in underlying mix of exposures. This turnover and change in underlying mix of exposures cancause actuarial estimates based on prior experience to be less reliable than estimates for more stable, admitted books of business. As a casualty insurer, losseson our policies often take a number of years to develop, making it difficult to estimate the ultimate losses associated with this business. Judicial andregulatory bodies have frequently interpreted insurance contracts in a manner that expands coverage beyond that which was contemplated at the time that thepolicy was issued. In addition, many of our policies are issued on an occurrence basis, and insureds suffering a loss frequently seek coverage beyond thepolicies’ original intent. The difficulty in pinpointing actual ultimate losses and loss adjustment expenses (“LAE”) is illustrated by the fact that atDecember 31, 2017, 68.0% of our net reserve for losses and loss adjustment expenses in the Excess and Surplus Lines segment is for claims that have not beenreported.Our reserves are driven by a number of important assumptions, including litigation and regulatory trends, legislative activity, climate change, social andeconomic patterns and claims inflation assumptions. Our reserve estimates reflect current inflation in legal claims’ settlements and assume we will not besubject to losses from significant new legal liability theories. Our reserve estimates also assume that we will not experience significant losses from mass tortsand that we will not incur losses from future mass torts not known to us today. While it is not possible to predict the impact of changes in the litigationenvironment, if new mass torts or expanded legal theories of liability emerge, our cost of claims may differ substantially from our reserves. Our reserveestimates assume that there will not be significant changes in the regulatory and legislative environment. The impact of potential changes in the regulatory orlegislative environment is difficult to quantify in the absence of specific, significant new regulation or legislation. In the event of significant new regulationor legislation, we will attempt to quantify its impact on our business but no assurance can be given that our attempt to quantify such inputs will be accurateor successful.Prior to 2013, our reserve selections for the Excess and Surplus Lines segment gave more weight to industry indications due to our limited operatinghistory. When we reviewed the Excess and Surplus Lines segment’s reserve parameters in 2013, we had ten years of accumulated historical data of theCompany to analyze, and we felt that we had enough history to give more weight to our own experience. Our initial expected loss ratios and our paid lossdevelopment factors and incurred loss development factors were adjusted to more closely resemble our own internal indications. Method weights were alsochanged as management, in consultation with our actuaries, deemed appropriate. These changes had the cumulative effect of reducing our then best estimatefor the reserve for losses and loss adjustment expenses.IBNR reserve estimates are inherently less precise than case reserve estimates. A 5% change in net IBNR reserves at December 31, 2017 would equate toa $32.2 million change in the reserve for losses and loss adjustment expenses at such date, a $29.6 million change in after-tax net income, a 4.3% change inshareholders’ equity and a 6.2% change in tangible equity, in each case at or for the year ended December 31, 2017.71TABLE OF CONTENTSAlthough we believe that our reserve estimates are reasonable, it is possible that our actual loss experience may not conform to our assumptions.Specifically, our actual ultimate loss ratio could differ from our initial expected loss ratio or our actual reporting and payment patterns could differ from ourexpected reporting and payment patterns, which are based on our own data and industry data. Accordingly, the ultimate settlement of losses and the relatedloss adjustment expenses may vary significantly from the estimates included in our financial statements. We regularly review our estimates and adjust themas necessary as experience develops or as new information becomes known to us. Such adjustments are included in current operations.$21.5 million of adverse development was experienced in 2017 on the reserve for losses and loss adjustment expenses held at December 31, 2016. Thisadverse reserve development included $20.0 million of adverse development in the Excess and Surplus Lines segment, including $38.7 million of adversedevelopment in the commercial auto line of business that was primarily related to the 2016 contract year with one insured. The adverse development forcommercial auto was partially offset by favorable development of $18.6 million in other Excess and Surplus Lines underwriting divisions primarily from the2014 through 2016 accident years. This favorable development occurred because our actuarial studies at December 31, 2017 for the Excess and Surplus Linessegment indicated that our loss experience on our casualty business excluding commercial auto continues to be below our initial expected ultimate lossratios. The Company also experienced $2.7 million of favorable development on prior accident years in the Specialty Admitted Insurance segment primarilyfrom accident years 2010 through 2015, as losses on our workers’ compensation business written prior to 2016 continued to develop more favorably than wehad anticipated. The Casualty Reinsurance segment experienced $4.2 million of adverse development on prior accident years primarily from two contractsfrom 2010 through 2013 that had higher than expected reported losses in 2017.A $23.7 million redundancy developed in 2016 on the reserve for losses and loss adjustment expenses held at December 31, 2015. This favorable reservedevelopment included $24.1 million of favorable development in the Excess and Surplus Lines segment. The Excess and Surplus Lines segment favorabledevelopment included $10.0 million of favorable development from the 2015 accident year, $10.7 million of favorable development from the 2014 accidentyear and $4.5 million from the 2013 accident year. This favorable development occurred because our actuarial studies at December 31, 2016 showed that theexperience on our casualty business continued to be below our initial expected ultimate loss ratios driven by favorable calendar year emergence (39.7%calendar year loss ratio compared to our expected calendar year loss ratio of 46.0%). Favorable reserve development in the Specialty Admitted Insurancesegment was $3.8 million, and primarily came from accident years 2010 through 2014, as losses on our workers’ compensation business written prior to 2015continued to develop more favorably than we had anticipated. The Specialty Admitted Insurance segment’s favorable development from accident years 2010– 2014 was partially offset by unfavorable development for the 2015 accident year. In addition, $4.2 million of adverse development occurred in theCasualty Reinsurance segment, with the majority of this adverse development coming from two contracts from the 2012 and 2013 underwriting years thatexperienced higher loss development in 2016 than expected.A $16.3 million redundancy developed in 2015 on the reserve for losses and loss adjustment expenses held at December 31, 2014. This favorable reservedevelopment included $25.4 million of favorable development in the Excess and Surplus Lines segment. The Excess and Surplus Lines segment favorabledevelopment included $17.3 million of favorable development from the 2014 accident year and $10.5 million of favorable development from the 2013accident year. This favorable development occurred because our actuarial studies at December 31, 2015 for the Excess and Surplus Lines segment indicatedthat our loss experience for our shorter-tailed general casualty division for the 2014 accident year is below our initial expected ultimate loss ratios. Theactuarial studies at December 31, 2015 also showed that the experience on our casualty business excluding our shorter-tailed general casualty businesscontinued to be below our initial expected ultimate loss ratios driven by favorable 2015 calendar year emergence (45.4% calendar year loss ratio compared toour expected calendar year loss ratio of 48.1%). Favorable reserve development in the Specialty Admitted Insurance segment was $3.5 million and primarilycame from accident years 2011 through 2013, as losses on our workers’ compensation business written prior to 2013 continued to develop more favorablythan we had anticipated. In addition, $12.6 million of adverse development occurred in the Casualty Reinsurance segment, with the majority of this adversedevelopment coming from three reinsurance relationships from the 2011, 2012, and 2013 underwriting years that experienced higher loss development in2015 than expected.Investment Valuation and ImpairmentWe carry fixed maturity and equity securities classified as “available-for-sale” at fair value, and unrealized gains and losses on such securities, net of anydeferred taxes, are reported as a separate component of accumulated other comprehensive income. Fixed maturity securities purchased for short-term resaleare classified as “trading” and are carried at fair value with unrealized gains and losses included in earnings as a component of investment income. We do nothave any securities classified as “held-to-maturity.”We evaluate our available-for-sale investments regularly to determine whether there have been declines in value that are other-than-temporary. Ouroutside investment managers assist us in this evaluation. When we determine that a security has experienced an other-than-temporary impairment, theimpairment loss is recognized as a realized investment loss.72TABLE OF CONTENTSWe consider a number of factors in assessing whether an impairment is other-than-temporary, including (1) the amount and percentage that current fairvalue is below cost or amortized cost, (2) the length of time that the fair value has been below cost or amortized cost and (3) recent corporate developments orother factors that may impact an issuer’s near term prospects. In addition, for fixed maturity securities, we also consider the credit quality ratings for thesecurities, with a special emphasis on securities downgraded to below investment grade. We also consider our intent to sell available-for-sale fixed maturitysecurities in an unrealized loss position, and if it is “more likely than not” that we will be required to sell these securities before a recovery in fair value totheir amortized cost or cost basis. For equity securities, we evaluate the near-term prospects of these investments in relation to the severity and duration of theimpairment, and we consider our ability and intent to hold these investments until they recover their fair value. As a starting point for our evaluation, wecompare the fair value of each available-for-sale security to its amortized cost or cost to identify any securities with a fair value less than amortized cost orcost. Effective with the adoption of ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assetsand Financial Liabilities, equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of theinvestee) will be measured at fair value with changes in fair value recognized in net income. See “Recent Accounting Pronouncements” for additionaldiscussion of this update.In 2015, the Company held two municipal bonds issued by the Commonwealth of Puerto Rico. These bonds were backed by future sales tax revenues inPuerto Rico. Puerto Rico’s weak economic conditions and heavy debt burden, combined with the passage of new legislation that allowed public corporationsto defer or reduce payments on outstanding debt, heightened the risk of default on the bonds. We concluded that the bonds, which had been downgraded tobelow investment grade, were other-than-temporarily impaired, and we recognized impairment losses of $660,000 on these bonds in 2015 before selling themduring the second quarter of 2015. We concluded that none of the other fixed maturity securities in an unrealized loss position at December 31, 2016 or 2015had experienced an other-than temporary impairment. At December 31, 2017, all of our fixed maturity securities had a fair value greater than 80% of theircost or amortized cost. We concluded that our fixed maturity securities were not other-than-temporarily impaired at December 31, 2017 based in part on thefact that they had never missed a scheduled principal or interest payment, and that they were rated investment grade by a nationally recognized statisticalrating organization.Management concluded that based on the severity and duration of the impairment associated with an equity security, the security had experienced another-than-temporary impairment. Accordingly, the Company recorded an impairment loss of $1.5 million in 2017 on the equity security. Managementconcluded that none of the other equity securities with an unrealized loss at December 31, 2017, 2016, and 2015 experienced an other-than-temporaryimpairment. Management evaluated the near-term prospects of these other equity securities in relation to the severity and duration of the impairment, andmanagement has the ability and intent to hold these securities until a recovery of their fair value.Bank loan participations held-for-investment are managed by a specialized outside investment manager and are generally stated at their outstandingunpaid principal balances net of unamortized premiums or discounts and net of any allowance for credit losses.We maintain the allowance for credit losses at a level we believe is adequate to absorb estimated probable credit losses. Our periodic evaluation of theadequacy of the allowance is based on consultations and the advice of our specialized investment manager, known and inherent risks in the portfolio, adversesituations that may affect the borrowers’ ability to repay, the estimated value of any underlying collateral, current economic conditions and other relevantfactors. The Company has recorded an allowance equal to the difference between the fair value and the amortized cost of bank loans that it has determined tobe impaired as a practical expedient for an estimate of probable future cash flows to be collected on those bank loans. As a starting point for our evaluation,we compare the carrying value of each loan to its fair value to identify any loans that had a fair value less than its carrying value.The Company holds a participation in a loan issued by a company that produces and sells power to Puerto Rico through a power purchase agreementwith Puerto Rico Electric Power Authority (“PREPA”), a public corporation and governmental agency of the Commonwealth of Puerto Rico. PREPA’s creditstrength has been affected by the economic conditions in Puerto Rico, thus raising doubt about its ability to make full and timely payments on the debtobligations held by the Company. In July 2017, PREPA filed a petition for relief in U.S. District Court under Title III of the Puerto Rico Oversight,Management and Economic Stability Act. Also, in 2017, the devastation caused by Hurricane Maria on Puerto Rico raised additional doubt about PREPA'sability to make payments to the issuer. We determined that a credit allowance was needed at December 31, 2017, 2016, and 2015 on loans issued bycompanies that produce and supply power to Puerto Rico. Accordingly, we established credit allowances totaling $759,000, $177,000, and $414,000 atDecember 31, 2017, 2016, and 2015, respectively. At December 31, 2017, the loan had a carrying value of $0 and unpaid principal of $807,000.During 2017, 2016, and 2015, we had a number of our bank loans to oil and gas companies in the energy sector. The market value of these loansdeclined significantly in response to declining energy prices. We determined that a total credit allowance of $2.3 million on three loans at December 31,2017, $545,000 on one loan at December 31, 2016 and $3.9 million on two loans at December 31, 2015 was needed on bank loans to companies in theenergy sector with oil and gas exposure. At73TABLE OF CONTENTSDecember 31, 2017, our exposure to bank loans of oil and gas companies consisted of four loans with a carrying value of $7.9 million and a market value of$7.7 million.Management concluded that one non-energy sector loan was impaired at December 31, 2017 and this loan had an allowance for credit losses of$145,000 at that date. Management also concluded that three non-energy sector loans were impaired at December 31, 2016. The impaired loans had anallowance for credit losses of $221,000. At December 31, 2015, one non-energy sector loan was impaired with an allowance for credit losses of $34,000.The aggregate allowance for credit losses was $3.2 million at December 31, 2017 on five impaired loans with a total carrying value of $5.1 million andunpaid principal of $8.4 million. At December 31, 2016, the aggregate allowance for credit losses was $943,000 on five impaired loans.Fair values are measured in accordance with ASC 820, Fair Value Measurements. The guidance establishes a framework for measuring fair value and athree-level hierarchy based upon the quality of inputs used to measure fair value. The three levels of the fair value hierarchy are: (1) Level 1: quoted price(unadjusted) in active markets for identical assets, (2) Level 2: inputs to the valuation methodology include quoted prices for similar assets and liabilities inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument and (3)Level 3: inputs to the valuation methodology are unobservable for the asset or liability.The fair values of fixed maturity securities and equity securities have been determined using fair value prices provided by our investment manager, whoutilizes internationally recognized independent pricing services. The prices provided by the independent pricing services are generally based on observablemarket data in active markets (e.g. broker quotes and prices observed for comparable securities). Values for U.S. Treasury and publicly-traded equitysecurities are generally based on Level 1 inputs which use the market approach valuation technique. The values for all other fixed maturity securities(including state and municipal securities and obligations of U.S. government corporations and agencies) generally incorporate significant Level 2 inputs, andin some cases, Level 3 inputs, using the market approach and income approach valuation techniques.The fair values of cash and cash equivalents and short-term investments approximate their carrying values due to their short-term maturity.In the determination of the fair value for bank loan participations and certain high yield bonds, the Company’s investment manager endeavors to obtaindata from multiple external pricing sources. External pricing sources may include brokers, dealers, and price data vendors that provide a composite pricebased on prices from multiple dealers. Such external pricing sources typically provide valuations for normal institutional size trading units of such securitiesusing methods based on market transactions for comparable securities, and various relationships between securities, as generally recognized by institutionaldealers. For investments in which the investment manager determines that only one external pricing source is appropriate or if only one external price isavailable, the investment is generally recorded based on such price.Investments for which external sources are not available or are determined by the investment manager not to be representative of fair value are recordedat fair value as determined by the investment manager. In determining the fair value of such investments, the investment manager considers one or more ofthe following factors: type of security held, convertibility or exchangeability of the security, redeemability of the security (including the timing ofredemptions), application of industry accepted valuation models, recent trading activity, liquidity, estimates of liquidation value, purchase cost and pricesreceived for securities with similar terms of the same issuer or similar issuers. At December 31, 2017 and 2016 there were bank loan participations with anunpaid principal balance of $807,000 and $2.3 million, respectively, and a carrying value of $0 and $2.0 million, respectively, for which external sourceswere unavailable to determine fair value.We review fair value prices provided by our outside investment managers for reasonableness by comparing the fair values provided by the managers tothose provided by our investment custodian. We also review and monitor changes in unrealized gains and losses. We obtain an understanding of themethods, models, and inputs used by our investment managers and independent pricing services, and controls are in place to validate that prices providedrepresent fair values. Our control process includes, but is not limited to, initial and ongoing evaluation of the methodologies used, a review of specificsecurities and an assessment for proper classification within the fair value hierarchy, and obtaining and reviewing internal control reports for our investmentmanager that obtains fair values from independent pricing services.Goodwill and Intangible AssetsAt December 31, 2017, we have $181.8 million of goodwill and $38.3 million of net intangible assets on our consolidated balance sheet, primarilyresulting from the acquisition of James River Group in December 2007.The goodwill reported on the December 31, 2017 balance sheet is an asset of the Excess and Surplus Lines segment only. Goodwill is tested annually forimpairment in the fourth quarter of each calendar year, or more frequently if events or changes in circumstances indicate that the carrying amount of ourreporting units, including goodwill, may exceed their fair values. We first assess qualitative factors in determining whether it is necessary to perform thequantitative goodwill impairment test. If we74TABLE OF CONTENTSdetermine that it is more likely than not that the fair value of a reporting unit is less than the carrying value based on qualitative factors, we are required toperform the quantitative goodwill impairment test. Our assessments in 2017, 2016 and 2015 resulted in a conclusion that it was not more likely than not thatthe fair value of a reporting unit is less than the carrying value based on qualitative factors. However, we generally perform the quantitative analysis at leastevery third year, even if the qualitative factors do not indicate a need for quantitative testing. Accordingly, we performed quantitative testing in 2016, eventhough our qualitative analysis did not indicate that it was more likely than not that our good will was impaired. During quantitative goodwill impairmenttesting, the fair value of the reporting units is determined using a combination of a market approach and an income approach which projects the future cashflows produced by the reporting units and discounts those cash flows to their present value. The projection of future cash flows is necessarily dependent uponassumptions about the future levels of income as well as business trends, prospects, market, and economic conditions. The results of the two approaches areweighted to determine the fair value of each reporting unit. When the fair value is less than the carrying value of the net assets of the reporting unit, includinggoodwill, an impairment loss is charged to earnings. To determine the amount of any goodwill impairment, the implied fair value of reporting unit goodwillis compared to the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwillrecognized in a business combination is determined. That is, the fair value of a reporting unit is assigned to all of the assets and liabilities of that unit(including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. The excess of the fair value of areporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. The Company’s annual testing performed in thefourth quarters of 2017, 2016 and 2015 indicated that no impairment of goodwill had occurred.Intangible assets are initially recognized and measured at fair value. Specifically identified intangible assets with indefinite lives include trademarks andstate insurance licenses and authorities. Intangible assets with indefinite useful lives are reviewed for impairment at least annually. In evaluating whetherthere has been impairment to the intangible asset, management determines the fair value of the intangible asset and compares the resulting fair value to thecarrying value of the intangible asset. If the carrying value exceeds the fair value, the intangible asset is written down to fair value, and the impairment isreported through earnings. During the fourth quarters of 2017, 2016 and 2015, the indefinite-lived intangible assets for trademarks and insurance licenses andauthorities were tested for impairment. There were no impairments recognized in 2017, 2016 or 2015. The Relief From Royalty method utilized in ourevaluation of the value of our trademarks requires a number of assumptions including the projected gross written premium base against which the royaltysavings rate is applied, the size of the royalty rate to be applied, the discount rate and the terminal value (if any) of the trademarks at the end of the projectionperiod.Other specifically identified intangible assets with lives ranging from 7.0 to 27.5 years include relationships with customers and brokers. Theseintangible assets are amortized on a straight-line basis over their estimated useful lives. We evaluate intangible assets with definite lives for impairment whenimpairment indicators are noted that indicate that the carrying value of these assets may not be recoverable. If indicators of impairment are present, fair valueis calculated using estimated future cash flows expected to be generated from the use of those assets. An impairment loss is recognized only if the carryingamount of a long-lived asset or asset group is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset or asset group is notrecoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group. Thatassessment is based on the carrying amount of the asset or asset group at the date it is tested for recoverability. An impairment loss is measured as the amountby which the carrying amount of a long-lived asset or asset group exceeds its fair value. Intangible assets for customer and broker relationships that havespecific lives and are subject to amortization were reviewed for impairment during the fourth quarters of 2017, 2016 and 2015. There were no impairmentsrecognized in 2017, 2016 or 2015.Assumed Reinsurance PremiumsAssumed reinsurance written premiums include amounts reported by brokers and ceding companies, supplemented by the Company’s own estimates ofpremiums when reports have not been received. Premiums on the Company’s excess of loss and pro rata reinsurance contracts are estimated when the businessis underwritten. For excess of loss contracts, the deposit premium, as defined in the contract, is generally recorded as an estimate of premiums written at theinception date of the treaty. Estimates of premiums written under pro rata contracts are recorded in the period in which the underlying risks are expected tobegin and are based on information provided by the brokers and the ceding companies.Reinsurance premium estimates are reviewed by management periodically. Any adjustment to these estimates is recorded in the period in which itbecomes known. The impact of any premium adjustments on net income is offset by corresponding changes to related policy acquisition costs and losses andloss adjustment expenses. For the years ended December 31, 2017, 2016 and 2015, these adjustments were immaterial.Reinsurance premiums assumed are earned over the terms of the underlying policies or reinsurance contracts. Contracts and policies written on a “lossesoccurring” basis cover claims that may occur during the term of the contract or policy, which is typically 12 months. Accordingly, the premiums are earnedevenly over the term. Contracts which are written on a “risks75TABLE OF CONTENTSattaching” basis cover claims which attach to the underlying insurance policies written during the terms of such contracts. Premiums earned on such contractsusually extend beyond the original term of the reinsurance contract, typically resulting in recognition of premiums earned over a 24-month period inproportion to the level of underlying exposure.Certain of the Company’s reinsurance contracts include provisions that adjust premiums or acquisition expenses based upon the experience under thecontracts. Premiums written and earned, as well as related acquisition expenses, are recorded based upon the projected experience under the contracts.Recent Accounting PronouncementsIn May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). The guidanceapplies to all companies that either enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancialassets, unless those contracts are within the scope of other standards, such as insurance contracts. Under this guidance, a company will recognize revenuewhen it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled inexchange for those goods or services. Judgments required in adopting this update may include identifying performance obligations in the contract,estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performanceobligation. The Company has completed its evaluation of ASU 2014-09 and determined that adopting this standard will have no impact on reported feeincome. The Company will adopt this ASU in the first quarter of 2018, with no cumulative effect of initially applying the update.In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assetsand Financial Liabilities. Among other things, this ASU will require equity investments (except those accounted for under the equity method of accountingor those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. This ASU is effective forinterim and annual reporting periods beginning after December 15, 2017. Upon adoption on January 1, 2018, the Company expects to make a $4.7 millioncumulative effect adjustment to increase retained earnings and reduce accumulated other comprehensive income.In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under current guidance for lessees, leases are only included on the balance sheetif certain criteria, classifying the agreement as a capital lease, are met. This update will require the recognition of a right-of-use asset and a correspondinglease liability, discounted to the present value, for all leases that extend beyond 12 months. This ASU is effective for annual and interim reporting periodsbeginning after December 15, 2018. Upon adoption, leases will be recognized and measured at the beginning of the earliest period presented using amodified retrospective approach. The Company is currently evaluating ASU 2016-02 to determine the potential impact that adopting this standard will haveon its consolidated financial statements.Effective January 1, 2017, we adopted ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-BasedPayment Accounting using the prospective method. The guidance requires that all tax effects related to share-based payments be made through the incomestatement at the time of settlement as opposed to excess tax benefits being recognized in additional paid-in capital under the previous guidance.Additionally, all tax related cash flows resulting from share-based payments are now reported as operating activities on the statement of cash flows, a changefrom the previous requirement to present tax benefits as an inflow from financing activities and an outflow from operating activities. For the years endedDecember 31, 2016 and 2015, net cash provided by operating activities increased by $3.2 million and $3.6 million, respectively, and net cash used infinancing activities increased by $3.2 million and $3.6 million, respectively, for the adoption of ASU 2016-09. We have elected to recognize forfeitures asthey occur in accordance with ASU 2016-09. The adoption of ASU 2016-09 did not materially impact the Company’s consolidated income statement.In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on FinancialInstruments. Current GAAP delays the recognition of credit losses until it is probable a loss has been incurred. The update will require financial assetsmeasured at amortized cost, such as bank loan participations held for investment, to be presented at the net amount expected to be collected by means of anallowance for credit losses that runs through net income. Credit losses relating to available-for-sale debt securities will also be recorded through an allowancefor credit losses, with the amount of the allowance limited to the amount by which fair value is below amortized cost. This ASU is effective for annual andinterim reporting periods beginning after December 15, 2019. Upon adoption, this ASU will be applied using the modified retrospective approach, by whicha cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period presented. The Company has not yetcompleted the analysis of how adopting this ASU will affect Company’s financial statements.In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments toaddress the diversity in practice of how certain cash receipts and payments are classified in the statement of cash flows. The update addresses specific issues,including distributions received from equity method investees and the classification of cash receipts and payments that have aspects of more than one classof cash flows. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017. Upon adoption, the update will be76TABLE OF CONTENTSapplied using the retrospective transition method. The Company does not expect the adoption of this ASU will have a material impact on its statement ofcash flows.In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain TaxEffects from Accumulated Other Comprehensive Income as a result of the enactment of the Tax Cuts and Jobs Act of 2017 (TCJA) on December 22, 2017.Current guidance requires the effect of a change in tax laws or rates on deferred tax balances to be reported in income from continuing operations in theaccounting period that includes the period of enactment, even if the related income tax effects were originally charged or credited to accumulated othercomprehensive income. This ASU allows for the option to reclassify the stranded tax effects resulting from the implementation of the TCJA out ofaccumulated other comprehensive income and into retained earnings. This ASU is effective for annual and interim reporting periods beginning afterDecember 15, 2018. Early adoption is permitted. As the adoption of ASU 2016-01 in 2018 will result in the reclassification of the entire unrealized balanceon equity securities from accumulated other comprehensive income into retained earnings, only the stranded tax effects on the unrealized balances of ourfixed income securities will be impacted by the adoption of ASU 2018-02 . The reclassification will result in a $710,000 decrease to the Company's retainedearnings with a corresponding increase to accumulated other comprehensive income in the first quarter of 2018.77TABLE OF CONTENTSYear Ended December 31, 2017 Compared to Year Ended December 31, 2016The following table summarizes our results for the years ended December 31, 2017 and 2016:Year Ended December 31, 2017 2016 % Change($ in thousands) Gross written premiums$1,081,905 $737,398 46.7 %Net retention(1)70.9% 75.6% Net written premiums$766,626 $557,708 37.5 %Net earned premiums$741,109 $515,663 43.7 %Losses and loss adjustment expenses(555,377) (325,421) 70.7 %Other operating expenses(179,968) (160,762) 11.9 %Underwriting profit(2), (3)5,764 29,480 (80.4)%Net investment income61,119 52,638 16.1 %Net realized investment (losses) gains(1,989) 7,565 —Other income361 295 22.4 %Other expenses(539) (1,590) (66.1)%Interest expense(8,974) (8,448) 6.2 %Amortization of intangible assets(597) (597) —Income before taxes55,14579,343 (30.5)%Income tax expense(11,579) (4,872) 137.7 %Net income$43,566$74,471 (41.5)%Adjusted net operating income$47,385 $71,318 (33.6)%Ratios: Loss ratio74.9% 63.1% Expense ratio24.3% 31.2% Combined ratio99.2% 94.3% (1)Net retention is defined as the ratio of net written premiums to gross written premiums.(2)See “—Reconciliation of Non-GAAP Measures” for further detail.(3)Underwriting profit includes fee income of $28.3 million and $14.2 million for the years ended December 31, 2017 and 2016, respectively.We had an underwriting profit of $5.8 million for the year ended December 31, 2017. This compares to an underwriting profit of $29.5 million for theprior year. On a consolidated basis, the Company recognized $21.5 million of net unfavorable reserve development for the year ended December 31, 2017and $23.7 million of net favorable reserve development for the year ended December 31, 2016.The results for the years ended December 31, 2017 and 2016 included certain non-operating items that are significant to the Company. These items (on apre-tax basis) include:•$2.0 million of net realized investment losses and $7.6 million of net realized investment gains for the years ended December 31, 2017 and 2016,respectively. Net realized investment losses in 2017 were primarily from $4.0 million of impairment losses on one equity security and an increase inthe allowance for credit losses on impaired bank loans, offset by realized gains of $1.3 million from the sale of bank loan participations, $328,000from the sale of fixed maturity securities and $369,000 from the sale of equity securities. Net realized investment gains in 2016 include net realizedgains from equity securities of $4.8 million and net realized gains from fixed maturity securities of $1.8 million.78TABLE OF CONTENTS•$539,000 and $1.6 million of other expenses for the years ended December 31, 2017 and 2016, respectively. Other expenses for 2017 include$535,000 of legal and other professional services related to secondary share offerings in 2017. Other expenses for 2016 include $1.5 million ofemployee severance costs. •Interest expense for the years ended December 31, 2017 and 2016 include $1.3 million and $1.4 million, respectively, relating to finance expensesin connection with a minority interest in a real estate partnership pursuant to which we are deemed an owner for accounting purposes. The debt isnonrecourse to us and was not arranged by us. See Note 1 to the Notes to the Audited Consolidated Financial Statements for additional informationwith respect to our minority interest.We define adjusted net operating income as net income excluding certain non-operating expenses such as net realized investment gains and losses,expenses related to due diligence costs for various merger and acquisition activities, professional service fees related to the filing of registration statementsfor the offering of securities, severance costs associated with terminated employees, and interest expense and other income and expenses on a leased buildingthat we are deemed to own for accounting purposes. We use adjusted net operating income as an internal performance measure in the management of ouroperations because we believe it gives our management and other users of our financial information useful insight into our results of operations and ourunderlying 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 before taxes and net income for the years ended December 31, 2017 and 2016 reconcile to our adjusted net operating income as follows:Year Ended December 31,2017 2016IncomeBeforeTaxes Net Income IncomeBeforeTaxes NetIncome(in thousands)Income as reported$55,145 $43,566 $79,343 $74,471Net realized investment losses (gains)1,989 1,375 (7,565) (5,207)Other expenses539 575 1,590 1,136Dividend withholding taxes— 1,053 — —Interest expense on leased building the Company is deemed to ownfor accounting purposes1,256 816 1,412 918Adjusted net operating income$58,929 $47,385 $74,780 $71,318The combined ratio is a measure of underwriting performance and represents the relationship of incurred losses, loss adjustment expenses and otheroperating expenses to net earned premiums. Our combined ratio for the year ended December 31, 2017 was 99.2%. A combined ratio of less than 100%indicates an underwriting profit, while a combined ratio greater than 100% reflects an underwriting loss. In 2017, the combined ratio included $21.5 million,or 2.9 percentage points, of adverse reserve development on direct and assumed business underwritten by the Company on prior accident years, including$20.0 million of adverse reserve development from the Excess and Surplus Lines segment and $4.2 million of adverse reserve development from the CasualtyReinsurance segment offset partially by $2.7 million of favorable reserve development from the Specialty Admitted Insurance segment. The combined ratiofor the year ended December 31, 2017 also includes $6.9 million, or 0.9 percentage points, of catastrophe losses from Hurricanes Harvey, Irma, and Maria.Our combined ratio for the year ended December 31, 2016 was 94.3%. It included $23.7 million, or 4.6 percentage points, of net favorable reservedevelopment on direct and assumed business underwritten by the Company on prior accident years, including $24.1 million of favorable reservedevelopment from the Excess and Surplus Lines segment and $3.8 million of favorable development from the Specialty Admitted Insurance segment,partially offset by $4.2 million of adverse reserve development from the Casualty Reinsurance segment.All of the Company’s U.S. domiciled insurance subsidiaries are party to an intercompany pooling agreement that distributes the net underwriting resultsamong the group companies based on their approximate level of statutory capital and surplus. Additionally, through December 31, 2017, each of theCompany’s U.S. domiciled insurance subsidiaries was a party to a quota share reinsurance agreement that ceded 70% of their premiums and losses to JRG Re.We report all segment information in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” prior to the effects ofintercompany reinsurance, consistent with the manner in which we evaluate the operating performance of our reportable segments.79TABLE OF CONTENTSExpense RatiosOur expense ratio was 24.3% and 31.2% for the years ended December 31, 2017 and 2016, respectively. The reduced expense ratio for 2017 reflects the53.8% increase in the Excess and Surplus segment’s net earned premiums and an increase in fee income for the Company as a whole. Our Excess and SurplusLines segment (our largest segment with 62.5% of consolidated net earned premiums for the year ended December 31, 2017) has significant scale andproduces a lower expense ratio than our other operating segments. Fee income for the Company increased year over year from $14.2 million to $28.3 million,as we grew our fee business in both the Excess and Surplus Lines segment and the Specialty Admitted Insurance segment.PremiumsInsurance premiums are earned ratably over the terms of our insurance policies, generally twelve months. Reinsurance premiums assumed are earned overthe terms of the underlying policies or reinsurance contracts. Contracts and policies written on a “losses occurring” basis cover claims that may occur duringthe term of the contract or policy, which is typically twelve months. Contracts which are written on a “risks attaching” basis cover claims which attach to theunderlying insurance policies written during the terms of such contracts. Premiums earned on such contracts usually extend beyond the original term of thereinsurance contract, typically resulting in recognition of premiums earned over a 24-month period in proportion to the level of underlying exposure.The following table summarizes the change in premium volume by component and business segment:Year Ended December 31, 2017 2016 % Change($ in thousands) Gross written premiums: Excess and Surplus Lines$530,120 $370,844 42.9%Specialty Admitted Insurance316,430 182,221 73.7%Casualty Reinsurance235,355 184,333 27.7%$1,081,905$737,398 46.7%Net written premiums: Excess and Surplus Lines$469,891 $316,922 48.3%Specialty Admitted Insurance60,957 55,803 9.2%Casualty Reinsurance235,778 184,983 27.5%$766,626$557,708 37.5%Net earned premiums: Excess and Surplus Lines$463,521 $301,404 53.8%Specialty Admitted Insurance68,110 52,281 30.3%Casualty Reinsurance209,478 161,978 29.3%$741,109$515,663 43.7%For the Excess and Surplus Lines segment (which represents 49.0% of our 2017 consolidated gross written premiums), gross written premiums for theyear ended December 31, 2017 increased 42.9% over the prior year. Excess and Surplus Lines segment policy submissions, excluding commercial auto, were8.5% higher and bound policies were 3.0% higher, which was partially offset by a 2.2% decrease in the average premium from $19,682 to $19,253. The grosswritten premiums increase was most notable in the following divisions within the Excess and Surplus Lines segment:•Commercial Auto division (representing 46.8% of this segment’s 2017 business) which increased $137.9 million (or 125.3%) over the prior year.This division is focused on underwriting the hired and non-owned auto liability exposures for a variety of industry segments with a particular nichefor insuring organizations that operate networks connecting independent contractors with customers.•Excess Casualty division (representing 9.7% of this segment’s 2017 business) which increased $7.6 million (or 17.4%) over the prior year.•Allied Health division (representing 3.6% of this segment’s 2017 business) which increased $4.8 million (or 33.1%) over the prior year.80TABLE OF CONTENTS•Environmental division (representing 1.5% of this segment’s 2017 business) which increased $2.6 million (or 48.8%) over the prior year; and•Manufacturers and Contractors division (representing 16.2% of this segment’s 2017 business) which increased $2.4 million (or 2.9%) over the prioryear.The components of gross written premiums for the Specialty Admitted Insurance segment (which represents 29.2% of our 2017 consolidated grosswritten premiums) are as follows:Year Ended December 31, 2017 2016 % Change($ in thousands) Workers’ compensation premiums$44,121 $39,627 11.3%Specialty admitted fronting and program business272,309 142,594 91.0%Total$316,430$182,221 73.7%A significant portion of the fronting and program business is ceded to third party reinsurers. As a result, our net written premium for this segmentincreased by less than our gross written premiums, increasing 9.2% and 24.2% for the years ended December 31, 2017 and 2016, respectively.For the Casualty Reinsurance segment (which represents 21.8% of our 2017 consolidated gross written premiums), gross written premiums increased27.7%, from $184.3 million for the year ended December 31, 2016 to $235.4 million for the year ended December 31, 2017. The Casualty Reinsurancesegment generally writes large casualty-focused treaties that are expected to have lower volatility relative to property and catastrophe treaties. We rarely writestand-alone property reinsurance. When treaties that include property exposure are written, it is done with relatively low catastrophe sub-limits.Net RetentionThe ratio of net written premiums to gross written premiums is referred to as our net premium retention. Our net premium retention by segment is asfollows:Year Ended December 31,2017 2016Excess and Surplus Lines88.6% 85.5%Specialty Admitted Insurance19.3% 30.6%Casualty Reinsurance100.2% 100.4%Total70.9% 75.6%The net premium retention for the Excess and Surplus Lines segment increased from 2016 to 2017 due to increased premium on our commercial autobusiness. We generally retain all of the premium written by the Commercial Auto division.The net premium retention for the Specialty Admitted Insurance segment decreased from 2016 to 2017 as a result of growth in the segment's fronting andprogram business, which has much lower net premium retention than our workers’ compensation business. Fronting and program gross written premium grew91.0% from December 31, 2016 to December 31, 2017. Net retention on the segment’s fronting and program business was 11.9% and 14.0%, respectively, forthe years ended December 31, 2017 and 2016. The net retention on the workers’ compensation business was 64.8% and 90.3%, respectively, for the yearsended December 31, 2017 and 2016. The significant decline in the net retention from the prior year is due to the 50% quota share reinsurance coveragepurchased on this business effective October 1, 2017.The net retention for the Casualty Reinsurance segment includes adjustments to the estimates of both gross and net written premiums from the prior yearthat caused this segment’s net premium retention to slightly exceed 100% in both periods.81TABLE OF CONTENTSUnderwriting ResultsThe following table compares our combined ratios by segment:Year Ended December 31,2017 2016Excess and Surplus Lines93.6% 84.3%Specialty Admitted Insurance95.4% 94.5%Casualty Reinsurance100.8% 100.1%Total99.2% 94.3%Excess and Surplus Lines SegmentResults for the Excess and Surplus Lines segment are as follows:Year Ended December 31, 2017 2016 % Change($ in thousands) Gross written premiums$530,120 $370,844 42.9 %Net written premiums$469,891 $316,922 48.3 %Net earned premiums$463,521 $301,404 53.8 %Losses and loss adjustment expenses(371,717) (188,768) 96.9 %Underwriting expenses(62,111) (65,401) (5.0)%Underwriting profit(1), (2)$29,693 $47,235 (37.1)%Ratios: Loss ratio80.2% 62.6% Expense ratio13.4% 21.7% Combined ratio93.6% 84.3% (1)Underwriting Profit is a non-GAAP Measure. See “Reconciliation of Non-GAAP Measures” for a reconciliation to income before tax and for additionalinformation.(2)Underwriting results include fee income of $17.0 million and $10.1 million for the years ended December 31, 2017 and 2016, respectively.Combined Ratio. The combined ratio of the Excess and Surplus Lines segment for the year ended December 31, 2017 was 93.6%, comprised of a lossratio of 80.2% and an expense ratio of 13.4%. The combined ratio of the Excess and Surplus Lines segment for the year ended December 31, 2016 was 84.3%,comprised of a loss ratio of 62.6% and an expense ratio of 21.7%.Loss Ratio. The loss ratio of 80.2% for the year ended December 31, 2017 includes $20.0 million, or 4.3 percentage points, of adverse development inour loss estimates for prior accident years. The adverse reserve development in this segment was almost entirely from one large commercial auto account inthe 2016 accident year. The loss ratio for the year ended December 31, 2017 also includes $5.2 million of losses from Hurricanes Harvey, Irma, and Mariaprimarily related to property losses in Florida. The catastrophe losses represent 1.1 percentage points of loss ratio additions for the year. The loss ratio of62.6% for the year ended December 31, 2016 includes $24.1 million, or 8.0 percentage points, of net favorable development in our loss estimates for prioraccident years.Expense Ratio. The expense ratio decreased from 21.7% in 2016 to 13.4% in 2017. The decrease in the expense ratio is attributable to the 53.8%increase in net earned premiums as well as a decrease in the total amount of operating expenses. Additionally, fee income increased as a percentage of netearned premiums and contributed to a reduction in the expense ratio of 3.7 and 3.3 percentage points for the years ended December 31, 2017 and 2016,respectively.The reduced expense ratio and higher loss ratio in this segment reflects an increase in the commercial auto premium as a percentage of the segment’stotal premium. Our commercial auto business has a lower expense ratio and higher loss ratio than82TABLE OF CONTENTSour other business in the segment. Commercial auto made up 46.8% of the segment’s gross written premium for 2017 compared to 29.7% for 2016.Underwriting Profit. As a result of the items discussed above, underwriting profit of the Excess and Surplus Lines segment decreased by 37.1%, from$47.2 million for the year ended December 31, 2016 to $29.7 million for the year ended December 31, 2017.Specialty Admitted Insurance SegmentResults for the Specialty Admitted Insurance segment are as follows:Year Ended December 31, 2017 2016 % Change($ in thousands) Gross written premiums$316,430 $182,221 73.7%Net written premiums$60,957 $55,803 9.2%Net earned premiums$68,110 $52,281 30.3%Losses and loss adjustment expenses(44,863) (30,897) 45.2%Underwriting expenses(20,081) (18,512) 8.5%Underwriting profit(1), (2)$3,166 $2,872 10.2%Ratios: Loss ratio65.9% 59.1% Expense ratio29.5% 35.4% Combined ratio95.4% 94.5% (1)Underwriting Profit is a non-GAAP Measure. See “Reconciliation of Non-GAAP Measures” for a reconciliation to income before tax and for additionalinformation.(2)Underwriting profit includes fee income of $11.3 million and $4.2 million for the years ended December 31, 2017 and 2016, respectively.Combined Ratio. The combined ratio of the Specialty Admitted Insurance segment for the year ended December 31, 2017 was 95.4%, comprised of aloss ratio of 65.9% and an expense ratio of 29.5%. This compares to the combined ratio in the prior year of 94.5%, comprised of a loss ratio of 59.1% and anexpense ratio of 35.4%.Loss Ratio. The loss ratio for the year ended December 31, 2017 of 65.9% included $2.7 million, or 4.0 percentage points of net favorable developmenton prior accident years. The loss ratio for the year ended December 31, 2016 of 59.1% included $3.8 million, or 7.3 percentage points of net favorabledevelopment on prior accident years. The favorable development in both 2017 and 2016 reflects the fact that actual loss emergence of the workers’compensation book for prior accident years has been better than expected.Expense Ratio. The expense ratio of 29.5% for the year ended December 31, 2017 decreased from 35.4% in the prior year. The expense ratio declined in2017 for this segment primarily due to a 30.3% increase in net earned premiums as the fronting and program business continued to achieve scale.Additionally, fee income reduced the Specialty Admitted Insurance segment's overall expense ratio 16.5 and 8.0 percentage points for the years endedDecember 31, 2017 and 2016, respectively.Underwriting Profit. As a result of the items discussed above, the underwriting profit improved from $2.9 million for the year ended December 31, 2016to $3.2 million for the year ended December 31, 2017.83TABLE OF CONTENTSCasualty Reinsurance SegmentResults for the Casualty Reinsurance segment are as follows:Year Ended December 31, 2017 2016 % Change($ in thousands) Gross written premiums$235,355 $184,333 27.7%Net written premiums$235,778 $184,983 27.5%Net earned premiums$209,478 $161,978 29.3%Losses and loss adjustment expenses(138,797) (105,756) 31.2%Underwriting expenses(72,446) (56,416) 28.4%Underwriting loss(1)$(1,765) $(194) 809.8%Ratios: Loss ratio66.3% 65.3% Expense ratio34.5% 34.8% Combined ratio100.8% 100.1% (1)Underwriting loss is a non-GAAP Measure. See “Reconciliation of Non-GAAP Measures” for a reconciliation to income before tax and for additionalinformation.The Casualty Reinsurance segment focuses on lower volatility, proportional reinsurance which requires larger ceding commissions resulting in a highercommission expense than in our other segments.Combined Ratio. The combined ratio of the Casualty Reinsurance segment for the year ended December 31, 2017 was 100.8%, comprised of a loss ratioof 66.3% and an expense ratio of 34.5%. This compares to the combined ratio in the prior year of 100.1%, comprised of a loss ratio of 65.3% and an expenseratio of 34.8%.Loss Ratio. The loss ratio for the year ended December 31, 2017 of 66.3% included $4.2 million, or 2.0 percentage points, of adverse reservedevelopment in our loss estimates for prior accident years. The loss ratio for the year ended December 31, 2017 also includes $1.8 million of losses fromHurricanes Harvey and Irma primarily related to nonstandard auto losses in Texas. These catastrophe losses represented 0.8 percentage points of loss ratioadditions for the year. The loss ratio for the year ended December 31, 2016 of 65.3% included $4.2 million, or 2.6 percentage points, of adverse reservedevelopment in our loss estimates for prior accident years.Expense Ratio. The expense ratio of the Casualty Reinsurance segment decreased from 34.8% for the year ended December 31, 2016 to 34.5% for theyear ended December 31, 2017, as net earned premiums increased 29.3% in 2017 while underwriting expenses increased by 28.4%.Underwriting Results. As a result of the items discussed above, the underwriting loss for the Casualty Reinsurance segment for the year endedDecember 31, 2017 was $1.8 million compared to an underwriting loss of $194,000 for the year ended December 31, 2016.Other Operating ExpensesIn addition to the underwriting, acquisition and insurance expenses of the Excess and Surplus Lines segment, the Specialty Admitted Insurance segmentand the Casualty Reinsurance segment discussed previously, other operating expenses also includes the expenses of the Corporate and Other segment.Corporate and Other SegmentOther operating expenses for the Corporate and Other segment include personnel costs associated with the Bermuda and U.S. holding companies,professional fees and various other corporate expenses that are included in the calculation of our expense ratio and combined ratio. Accordingly, otheroperating expenses of the Corporate and Other segment represent the expenses of both the Bermuda and U.S. holding companies that were not reimbursed byour subsidiaries, including costs associated with potential acquisitions and other strategic initiatives. These costs vary from period to period based on thestatus of these initiatives.For the years ended December 31, 2017 and 2016, the total operating expenses of the Corporate and Other segment were $25.3 million and $20.4million, respectively. The increase in these expenses was primarily related to increases in stock84TABLE OF CONTENTScompensation expense resulting from the options and restricted stock units granted in February 2017, increases in public company expenses and otherprofessional service fees.Investing ResultsNet investment income was $61.1 million for the year ended December 31, 2017 compared to $52.6 million in the prior year. The change in our netinvestment income is as follows:Year Ended December 31, 2017 2016 % Change(in thousands) Renewable energy LLCs$10,578 $3,480 204.0 %Other private investments3,501 6,056 (42.2)%Other invested assets14,079 9,536 47.6 %All other net investment income47,040 43,102 9.1 %Total net investment income$61,119 $52,638 16.1 %The $8.5 million increase in net investment income year-over-year was largely driven by the performance of the Company’s renewable energy LLCs. Netinvestment income from renewable energy LLCs increased from $3.5 million for the year ended December 31, 2016 to $10.6 million for the year endedDecember 31, 2017. Excluding the private investments, our net investment income increased by $3.9 million over the prior year due to a 11.7% increase inour cash and invested assets from $1,442.1 million at December 31, 2016 to $1,611.1 million at December 31, 2017 and an increase in investment yield.Major categories of the Company’s net investment income are summarized as follows:Year Ended December 31,2017 2016(in thousands)Fixed maturity securities$26,833 $25,917Bank loan participations17,388 14,486Equity securities5,045 5,617Other invested assets14,079 9,536Cash, cash equivalents, and short-term investments1,708 824Trading (losses) gains(4) 18Gross investment income65,049 56,398Investment expense(3,930) (3,760)Net investment income$61,119 $52,638The following table summarizes our investment returns:Year Ended December 31,2017 2016Annualized gross investment yield on: Average cash and invested assets4.3% 4.0%Average fixed maturity securities3.6% 3.5%Of our total cash and invested assets of $1,611.1 million at December 31, 2017, $163.5 million represents the cash and cash equivalents portion of theportfolio. The majority of the portfolio, or $1,098.6 million, is comprised of fixed maturity and equity securities that are classified as available-for-sale andcarried at fair value with unrealized gains and losses on these securities reported, net of applicable taxes, as a separate component of accumulatedcomprehensive income or loss. Also included in our investments are $238.2 million of bank loan participations, $70.2 million of other invested assets, $36.8million of short-term investments, and $3.8 million of fixed maturity securities classified as trading and held at the U.S. holding company. Our tradingportfolio is carried at fair value with changes to the value reported as net investment income in our consolidated income statement.85TABLE OF CONTENTSThe $238.2 million of bank loan participations are classified as held-for-investment and reported at amortized cost, net of an allowance for credit losses.Changes in this credit allowance are included in realized gains or losses. These bank loan participations are primarily senior, secured floating-rate debt whichare generally rated “BB,” “B,” or “CCC” by Standard & Poor’s or an equivalent rating from another nationally recognized statistical rating organization, andare therefore below investment grade. Bank loans include assignments of and participations in, performing and non-performing senior corporate debtgenerally acquired through primary bank syndications and in secondary markets. They consist of, but are not limited to, term loans, the funded and unfundedportions of revolving credit loans, and similar loans and investments. At December 31, 2017 and 2016, the fair market value of these securities was $236.5million and $203.1 million, respectively.The Company invests selectively in private debt and equity opportunities. These investments comprise the Company’s other invested assets and areprimarily focused in renewable energy, limited partnerships, and bank holding companies. Equity interests in various renewable energy LLCs managed by anaffiliate of the Company’s largest shareholder, the D. E. Shaw Affiliates, generated investment income of $10.6 million and $3.5 million for the years endedDecember 31, 2017 and 2016, respectively. These investments had a carrying value of $32.1 million at December 31, 2017. Investments in loans forrenewable energy projects, primarily with the D. E. Shaw Affiliates, had investment income $526,000 and $450,000 for the years ended December 31, 2017and 2016, respectively. In 2016, the Company received a $6.5 million repayment on one note. During 2015, the Company invested a total of $36.3 million inthese notes and received repayments totaling $30.8 million. The Company has invested in several limited partnerships that invest in concentrated portfoliosof publicly-traded small cap equities, loans of middle market private equity sponsored companies, and equity tranches of collateralized loan obligations(CLOs). Income from these partnerships was $2.6 million in 2017 compared to $5.3 million in 2016. Together, these limited partnerships had a carrying valueof $26.4 million at December 31, 2017. Income from the Company’s investments in renewable energy LLCs and limited partnerships is recognized under theequity method of accounting. The Company also holds $4.5 million of subordinated notes issued by a bank holding company affiliated with the Chairmanand former Chief Executive Officer of the Company. Interest income from the notes was $343,000 for the years ended December 31, 2017 and 2016.For the year ended December 31, 2017, the Company recognized net realized investment losses of $2.0 million. This net loss was made up of an increasein our bank loan credit allowance and an other than temporary impairment on an equity security, offset by net realized gains of $1.3 million from bank loansecurities, $368,000 from equity securities, and $328,000 from fixed maturity securities.In conjunction with its outside investment managers, the Company performs quarterly reviews of all securities within its investment portfolio todetermine whether any impairment has occurred.Management concluded that based on the severity and duration of the impairment associated with an equity security, the security had experienced another-than-temporary impairment. Accordingly, the Company recorded an impairment loss of $1.5 million in 2017. Management concluded that none of theother equity securities with an unrealized loss at December 31, 2017 and 2016 experienced an other-than-temporary impairment. Management has evaluatedthe near-term prospects of these other equity securities in relation to the severity and duration of the impairment, and management has the ability and intentto hold these securities until a recovery of their fair value.At December 31, 2015, the Company held participations in two loans issued by companies that produce and supply power to Puerto Rico through powerpurchase agreements with PREPA, a public corporation and governmental agency of the Commonwealth of Puerto Rico. PREPA’s credit strength and abilityto make timely payments was impacted by the economic conditions in Puerto Rico, thus raising doubt about the companies’ ability to meet the debtobligations held by the Company. In June 2016, one of the loans was repaid in full at its scheduled maturity. Management concluded that the remaining loanwas impaired at December 31, 2016. The loan had a carrying value of $1.7 million, unpaid principal of $2.0 million, and an allowance for credit losses of$177,000 at December 31, 2016. In July 2017, PREPA filed a petition for relief in U.S. District Court under Title III of the Puerto Rico Oversight,Management, and Economic Stability Act. Also in 2017, the devastation caused by Hurricane Maria on the island of Puerto Rico raised additional doubtabout PREPA's ability to make payments to the issuer. The maturity of the remaining loan, originally scheduled for November 2017, was deferred until March2018. Management established an allowance for credit losses of $759,000 to reduce the loan's carrying value to zero at both September 30, 2017 andDecember 31, 2017. The unpaid principal on the loan was $807,000 at December 31, 2017.The Company’s bank loan portfolio includes loans to oil and gas companies in the energy sector. The market values of these loans have been impactedby declining energy prices. At December 31, 2017, the Company’s oil and gas exposure in the bank loan portfolio was in four loans with a carrying value of$7.9 million and an unrealized loss of $180,000. Management concluded that three of these loans were impaired as of December 31, 2017, and accordingly,an allowance for credit losses of $2.3 million was established on the loans. After recording this impairment, the loans had a carrying value of $4.6 million atDecember 31, 2017 and unpaid principal of $6.9 million. All of the other loans are current at December 31, 2017. At December 31, 2016, one loan wasimpaired with a carrying value of $1.6 million, unpaid principal of $2.2 million and an allowance for credit losses of $545,000.86TABLE OF CONTENTSManagement also concluded that one non-energy sector loan was impaired at December 31, 2017. At December 31, 2017, the impaired loan had acarrying value of $561,000, unpaid principal of $706,000, and an allowance for credit losses of $145,000. At December 31, 2016, three non-energy sectorloans were impaired with a total carrying value of $3.2 million, unpaid principal of $3.5 million, and an allowance for credit losses of $221,000.The aggregate allowance for credit losses was $3.2 million at December 31, 2017 on five impaired loans with a total carrying value of $5.1 million andunpaid principal of $8.4 million. At December 31, 2016, the aggregate allowance for credit losses was $943,000 on five impaired loans with a total carryingvalue of $6.5 million and unpaid principal of $7.6 million.At December 31, 2017, our available-for-sale investment portfolio of fixed maturity and equity securities had net unrealized gains of $14.6 millionrepresenting 1.4% of the cost or amortized cost of the portfolio. Additionally, at December 31, 2017, 99.4% of our fixed maturity security portfolio was rated“BBB-” or better (“investment grade”) by Standard & Poor’s or had an equivalent rating from another nationally recognized statistical rating organization.Fixed maturity securities with ratings below investment grade by Standard & Poor’s or another nationally recognized statistical rating organization atDecember 31, 2017 had an aggregate fair value of $6.5 million and an aggregate net unrealized gain of $305,000. The average duration of our investmentportfolio was 3.5 years at December 31, 2017.The amortized cost and fair value of our investments in available-for-sale securities were as follows:December 31, 2017 December 31, 2016Cost orAmortizedCost Fair Value % of TotalFair Value Cost orAmortizedCost Fair Value % of TotalFair Value($ in thousands)Fixed maturity securities: State and municipal$139,382 $144,366 13.1% $101,793 $105,841 10.4%Residential mortgage-backed160,379 158,661 14.4% 152,703 150,798 14.8%Corporate408,857 413,721 37.7% 379,727 378,448 37.2%Commercial mortgage and asset-backed182,595 182,611 16.6% 167,967 168,047 16.5%Obligations of U.S. governmentcorporations and agencies35,948 35,847 3.3% 64,823 65,014 6.4%U.S. Treasury securities andobligations guaranteed by the U.S.government79,476 78,874 7.2% 71,174 71,120 7.0%Redeemable preferred stock2,025 2,018 0.2% 2,025 1,809 0.2%Total1,008,6621,016,098 92.5% 940,212 941,077 92.5%Equity securities: Preferred stock59,102 66,281 6.0% 61,806 64,827 6.4%Common stock16,216 16,241 1.5% 12,747 11,574 1.1%Total75,318 82,522 7.5% 74,553 76,401 7.5%Total investments$1,083,980 $1,098,620 100.0% $1,014,765 $1,017,478 100.0%The following table sets forth the composition of the Company’s portfolio of fixed maturity securities (both available-for-sale and trading) by rating asof December 31, 2017:Standard & Poor’s or Equivalent Designation Fair Value % of Total ($ in thousands)AAA $185,202 18.2%AA 405,296 39.7%A 315,405 30.9%BBB 107,473 10.5%BB 1,611 0.2%Below BB and unrated 4,919 0.5%Total $1,019,906 100.0%87TABLE OF CONTENTSAt December 31, 2017, our portfolio of available-for-sale fixed maturity securities contained corporate fixed maturity securities with a fair value of$413.7 million. A summary of these securities by industry segment is shown below as of December 31, 2017:Industry Fair Value % of Total ($ in thousands)Industrials and other $152,129 36.7%Consumer Discretionary 74,829 18.1%Financial 69,778 16.9%Health Care 61,461 14.9%Utilities 55,524 13.4%Total $413,721 100.0%Corporate available-for-sale fixed maturity securities include public traded securities and privately placed bonds is shown below as of December 31,2017:Public/Private Fair Value % of Total ($ in thousands)Publicly traded $384,812 93.0%Privately placed 28,909 7.0%Total $413,721 100.0%The amortized cost and fair value of our available-for-sale investments in fixed maturity securities summarized by contractual maturity are as follows:December 31, 2017AmortizedCost Fair Value % of TotalFair Value($ in thousands)Due in: One year or less$66,852 $66,770 6.6%After one year through five years274,095 274,421 27.0%After five years through ten years195,333 195,995 19.3%After ten years127,383 135,622 13.3%663,663672,808 66.2%Residential mortgage-backed160,379 158,661 15.6%Commercial mortgage and asset-backed182,595 182,611 18.0%Redeemable preferred stock2,025 2,018 0.2%Total$1,008,662 $1,016,098 100.0%At December 31, 2017, the Company had no investments in securitizations of alternative-A mortgages or sub-prime mortgages.Other ExpensesOther expenses for the years ended December 31, 2017 and 2016 were $539,000 and $1.6 million, respectively. In 2017, these expenses include$535,000 of legal and other professional services related to secondary share offerings in 2017. In 2016, these expenses include $1.5 million of employeeseverance costs.Interest ExpenseInterest expense was $8.9 million and $8.4 million for the years ended December 31, 2017 and 2016, respectively. See “—Liquidity and CapitalResources—Sources and Uses of Funds” for information regarding our senior bank debt facility and trust preferred securities.88TABLE OF CONTENTSAmortization of IntangiblesThe Company recorded $597,000 of amortization of intangibles for each of the years ended December 31, 2017 and 2016, respectively.Goodwill and ImpairmentWe test goodwill and other intangible assets in each operating segment for impairment at least annually. The fair value of the reporting units isdetermined by weighting the results of a discounted cash flow analysis and a valuation derived from a market-based approach. Intangible assets are valuedusing various methodologies. The projection of future cash flows is dependent upon assumptions on the future levels of income as well as business trends,prospects and market and economic conditions.We perform this assessment to determine whether there has been any impairment in the value of goodwill or intangible assets by comparing its fair valueto the net carrying value of the reporting units. If the carrying value exceeds its estimated fair value, an impairment loss is recognized and the asset is writtendown accordingly.The Company completed its impairment tests and fair value analysis for goodwill and other intangible assets during the fourth quarter of 2017 and 2016.No impairment was present for the years ended December 31, 2017 or 2016.Income Tax ExpenseOur effective tax rate fluctuates from period to period based on the relative mix of income reported by country and the respective tax rates imposed byeach tax jurisdiction. In 2017, particularly, the Company experienced a higher proportion of U.S.-sourced income, increasing the effective tax rate for theyear. For U.S.-sourced income, our U.S. federal income tax expense differs from the amounts computed by applying the federal statutory income tax rate toincome before taxes due primarily to interest income on tax-advantaged state and municipal securities (state and municipal securities represented 13.1% and10.4% of our available-for-sale securities at December 31, 2017 and 2016, respectively), dividends received income, and excess tax benefits on share basedcompensation. For the years ended December 31, 2017 and 2016, our effective tax rate was 21.0% and 6.1%, respectively. Income taxes for 2017 included$1.1 million of U.S. withholding taxes on an intercompany dividend paid from the U.S. holding company to our U.K. intermediate holding company. Incometaxes for 2017 also include a $3.5 million tax benefit as the U.S. net deferred tax liability was remeasured at 21%, down from 35% in prior periods, due to theenactment of Public Law No. 115-97, informally titled the Tax Cuts and Jobs Act (the "Tax Act").Financial results for 2017 reflect provisional amounts related to the December 2017 enactment of the Tax Act. These provisional estimates are based onthe Company’s initial analysis and current interpretation of the legislation. Given the complexity of the Tax Act, anticipated guidance from the U.S.Department of the Treasury, and the potential for additional guidance from the Securities and Exchange Commission (SEC) or the Financial AccountingStandards Board, these estimates may be adjusted during 2018.89TABLE OF CONTENTSYear Ended December 31, 2016 Compared to Year Ended December 31, 2015The following table summarizes our results for the years ended December 31, 2016 and 2015:Year Ended December 31, 2016 2015 % Change($ in thousands) Gross written premiums$737,398 $572,194 28.9 %Net retention(1)75.6% 82.3% Net written premiums$557,708 $471,032 18.4 %Net earned premiums$515,663 $461,205 11.8 %Losses and loss adjustment expenses(325,421) (279,016) 16.6 %Other operating expenses(160,762) (154,620) 4.0 %Underwriting profit(2), (3)29,480 27,569 6.9 %Net investment income52,638 44,835 17.4 %Net realized investment gains (losses)7,565 (4,547) —Other income295 245 20.4 %Other expenses(1,590) (730) 117.8 %Interest expense(8,448) (6,999) 20.7 %Amortization of intangible assets(597) (597) —Income before taxes79,34359,776 32.7 %Income tax expense(4,872) (6,279) (22.4)%Net income$74,471$53,497 39.2 %Adjusted net operating income$71,318 $61,090 16.7 %Ratios: Loss ratio63.1% 60.5% Expense ratio31.2% 33.5% Combined ratio94.3% 94.0% (1)Net retention is defined as the ratio of net written premiums to gross written premiums.(2)See “—Reconciliation of Non-GAAP Measures” for further detail.(3)Underwriting profit includes fee income of $14.2 million and $5.0 million for the year ended December 31, 2016 and 2015, respectively.We had an underwriting profit of $29.5 million for the year ended December 31, 2016. This compares to an underwriting profit of $27.6 million for theprior year. On a consolidated basis, the Company recognized $23.7 million and $16.3 million of net favorable reserve development for the years endedDecember 31, 2016 and 2015, respectively.The results for the years ended December 31, 2016 and 2015 included certain non-operating items that are significant to the Company. These items (on apre-tax basis) include:•$7.6 million of net realized investment gains and $4.5 million of net realized investment losses for the years ended December 31, 2016 and 2015,respectively. Net realized investment gains in 2016 include net realized gains from equity securities of $4.8 million and net realized gains fromfixed maturity securities of $1.8 million. Net realized investment losses in 2015 were primarily from the sale of fixed maturity securities and bankloan participations. We sold fixed maturity securities and bank loan participations in 2015 to fund the $47.4 million of dividends paid to ourcommon shareholders in 2015. Also included in net realized investment losses in 2015 are $3.9 million of impairment losses on two bank loans tooil and gas companies in the energy sector whose market values had declined significantly in response to declining energy prices.•$1.6 million and $730,000 of other expenses the years ended December 31, 2016 and 2015, respectively. Other expenses for 2016 include $1.5million of employee severance costs. Other expenses for 2015 include $276,000 of expenses associated with a related party leasing arrangement fora minority-interest in a real estate limited partnership90TABLE OF CONTENTSpursuant to which we were deemed to be an owner for accounting purposes, $170,000 of employee severance costs, and $284,000 of legal, tax, andother professional services related to the formation of James River UK, the December 2015 dividend, and a securities registration statement.•Interest expense for the years ended December 31, 2016 and 2015 include $1.4 million and $661,000, respectively, relating to finance expenses inconnection with a minority interest in a real estate partnership pursuant to which we are deemed an owner for accounting purposes. The debt isnonrecourse to us and was not arranged by us. See Note 1 to the Notes to the Audited Consolidated Financial Statements for additional informationwith respect to our minority interest.Our income before taxes and net income for the years ended December 31, 2016 and 2015 reconcile to our adjusted net operating income as follows:Year Ended December 31,2016 2015IncomeBeforeTaxes Net Income IncomeBeforeTaxes NetIncome(in thousands)Income as reported$79,343 $74,471 $59,776 $53,497Net realized investment (gains) losses(7,565) (5,207) 4,547 4,090Other expenses1,590 1,136 730 574Dividend withholding taxes— — — 2,500Interest expense on leased building the Company is deemed to ownfor accounting purposes1,412 918 661 429Adjusted net operating income$74,780 $71,318 $65,714 $61,090Our combined ratio for the year ended December 31, 2016 was 94.3%. It included $23.7 million, or 4.6 percentage points, of net favorable reservedevelopment on direct and assumed business underwritten by the Company on prior accident years, including $24.1 million of favorable reservedevelopment from the Excess and Surplus Lines segment and $3.8 million of favorable reserve development from the Specialty Admitted Insurance segmentpartially offset by $4.2 million of adverse development from the Casualty Reinsurance segment.Our combined ratio for the year ended December 31, 2015 was 94.0%. It included $16.3 million, or 3.5 percentage points, of net favorable reservedevelopment on direct and assumed business underwritten by the Company on prior accident years, including $25.4 million of favorable reservedevelopment from the Excess and Surplus Lines segment and $3.5 million of favorable reserve development from the Specialty Admitted Insurance segmentpartially offset by $12.6 million of adverse development from the Casualty Reinsurance segment.Expense RatiosOur expense ratio was 31.2% and 33.5% for the years ended December 31, 2016 and 2015, respectively. The reduced expense ratio for 2016 reflects the25.1% increase in the Excess and Surplus segment’s net earned premiums and an increase in fee income for the Company as a whole. Our Excess and SurplusLines segment (our largest segment with 58.4% of consolidated net earned premiums for the year ended December 31, 2016) has significant scale andproduces a lower expense ratio than our other operating segments. Fee income for the Company increased year over year from $5.0 million to $14.2 million,as we grew our fee business in both the Excess and Surplus Lines segment and the Specialty Admitted Insurance segment.91TABLE OF CONTENTSPremiumsThe following table summarizes the change in premium volume by component and business segment:Year Ended December 31, 2016 2015 % Change($ in thousands) Gross written premiums: Excess and Surplus Lines$370,844 $308,717 20.1 %Specialty Admitted Insurance182,221 90,978 100.3 %Casualty Reinsurance184,333 172,499 6.9 %$737,398$572,194 28.9 %Net written premiums: Excess and Surplus Lines$316,922 $253,285 25.1 %Specialty Admitted Insurance55,803 44,917 24.2 %Casualty Reinsurance184,983 172,830 7.0 %$557,708$471,032 18.4 %Net earned premiums: Excess and Surplus Lines$301,404 $240,878 25.1 %Specialty Admitted Insurance52,281 42,206 23.9 %Casualty Reinsurance161,978 178,121 (9.1)%$515,663$461,205 11.8 %Our net premium retention by segment is as follows:Year Ended December 31,2016 2015Excess and Surplus Lines85.5% 82.0%Specialty Admitted Insurance30.6% 49.4%Casualty Reinsurance100.4% 100.2%Total75.6% 82.3%For the Excess and Surplus Lines segment, gross written premiums for the year ended December 31, 2016 increased 20.1% over the prior year. Excessand Surplus Lines segment policy submissions, excluding commercial auto, were 12.8% higher and bound policies were 10.4% higher, which was partiallyoffset by a 4.3% decrease in the average premium from $19,253 to $18,417. The gross written premiums increase was most notable in the following divisionswithin the Excess and Surplus Lines segment:•Commercial Auto division (representing 29.7% of this segment’s 2016 business) which increased $36.3 million (or 49.2%) over the prior year.•Excess Casualty division (representing 11.7% of this segment’s 2016 business) which increased $5.9 million (or 19.0%) over the prior year.•General Casualty division (representing 9.9% of this segment’s 2016 business) which increased $5.9 million (or 19.0%) over the prior year; and•Manufacturers & Contractors division (representing 22.5% of this segment’s 2016 business) which increased $5.0 million (or 6.3%) over the prioryear.For the Specialty Admitted Insurance segment, gross written premiums increased 100.3% year over year. Gross written premiums for 2016 included$142.6 million ($20.0 million on a net basis) from fronting and program business where there had been $55.0 million ($12.4 million on a net basis) of grosswritten premiums in 2015. We cede a significant portion of the specialty admitted fronting and program business to third-party reinsurers. As a result, neitherour net written premiums nor level of assumed risk for this segment has increased at a rate which corresponds to the increase in our gross written premiums. Inaddition, workers’ compensation gross written premiums increased 10.2% for 2016 over 2015.92TABLE OF CONTENTSThe components of the increase in gross written premiums for the Specialty Admitted Insurance segment are as follows:Year Ended December 31, 2016 2015 % Change($ in thousands) Total workers’ compensation premium$39,627$35,969 10.2%Specialty admitted fronting and program business142,594 55,009 159.2%Total$182,221$90,978 100.3%It is our policy to audit payroll for each expired workers’ compensation insurance policy in the Specialty Admitted Insurance segment to determine thedifference between the original estimated payroll at the time the policy was written and the final actual payroll of the insured after the policy is completed.Audit premiums increased both written and earned premiums for the year ended December 31, 2016 by $3.1 million (in the prior year, audit premiumsincreased both written and earned premiums by $1.6 million).For the Casualty Reinsurance segment, gross written premiums increased 6.9%, from $172.5 million for the year ended December 31, 2015 to $184.3million for the year ended December 31, 2016. The Casualty Reinsurance segment generally writes large casualty-focused treaties that are expected to havelower volatility relative to property and catastrophe treaties. We rarely write stand-alone property reinsurance. When treaties that include property exposureare written, it is done with relatively low catastrophe sub-limits.Net RetentionThe net premium retention for the Company decreased from 82.3% to 75.6% for the years ended December 31, 2015 and 2016, respectively. Thedecrease in retention is due primarily to the Specialty Admitted Insurance segment, which saw a decline in its net premium retention from 49.4% for the yearended December 31, 2015 to 30.6% for the year ended December 31, 2016. Fronting and program business generally has much lower net premium retentionthan our workers’ compensation business which we write on an admitted basis. For the year ended December 31, 2016, the net retention on the segment’sfronting and program business was 14.0%, while the net retention on the workers’ compensation business was 90.3%. This compares to net retention on thesegment’s fronting and program business of 22.6% and net retention of the workers’ compensation business of 90.4% for year ended December 31, 2015. Thenet retention for the Excess and Surplus Lines segment increased from 80.2% in 2015 to 84.3% in 2016. The net retention for the Casualty Reinsurancesegment for 2016 and 2015 includes adjustments of both gross and net written premiums from the prior year that caused this segment’s net premium retentionto slightly exceed 100% for both years.Underwriting ResultsThe following table compares our combined ratios by segment:Year Ended December 31,2016 2015Excess and Surplus Lines84.3% 80.2%Specialty Admitted Insurance94.5% 97.5%Casualty Reinsurance100.1% 101.4%Total94.3% 94.0%93TABLE OF CONTENTSExcess and Surplus Lines SegmentResults for the Excess and Surplus Lines segment are as follows:Year Ended December 31, 2016 2015 % Change($ in thousands) Gross written premiums$370,844 $308,717 20.1 %Net written premiums$316,922 $253,285 25.1 %Net earned premiums$301,404 $240,878 25.1 %Losses and loss adjustment expenses(188,768) (131,221) 43.9 %Underwriting expenses(65,401) (62,050) 5.4 %Underwriting profit(1), (2)$47,235 $47,607 (0.8)%Ratios: Loss ratio62.6% 54.5% Expense ratio21.7% 25.8% Combined ratio84.3% 80.2% (1)See “—Reconciliation of Non-GAAP Measures.”(2)Underwriting results include fee income of $10.1 million and $3.2 million for the years ended December 31, 2016 and 2015, respectively.Combined Ratio. The combined ratio of the Excess and Surplus Lines segment for the year ended December 31, 2016 was 84.3%, comprised of a lossratio of 62.6% and an expense ratio of 21.7%. The combined ratio of the Excess and Surplus Lines segment for the year ended December 31, 2015 was 80.2%,comprised of a loss ratio of 54.5% and an expense ratio of 25.8%.Loss Ratio. The loss ratio of 62.6% for the year ended December 31, 2016 includes $24.1 million, or 8.0 percentage points, of net favorabledevelopment in our loss estimates for prior accident years. The loss ratio of 54.5% for the year ended December 31, 2015 includes $25.4 million, or 10.6percentage points, of net favorable development in our loss estimates for prior accident years. The significant favorable reserve development in this segmentreflects benign loss activity and continuing positive loss trends.Expense Ratio. The expense ratio decreased from 25.8% in 2015 to 21.7% in 2016. The decrease in the expense ratio is primarily attributable to the25.1% increase in net earned premiums without a proportional increase in the total amount of operating expenses and to the increase in fee income from $3.2million in 2015 to $10.1 million in 2016.Underwriting Profit. As a result of the items discussed above, underwriting profit of the Excess and Surplus Lines segment decreased slightly by 0.8%,from $47.6 million for the year ended December 31, 2015 to $47.2 million for the year ended December 31, 2016.94TABLE OF CONTENTSSpecialty Admitted Insurance SegmentResults for the Specialty Admitted Insurance segment are as follows:Year Ended December 31, 2016 2015 % Change($ in thousands) Gross written premiums$182,221 $90,978 100.3%Net written premiums$55,803 $44,917 24.2%Net earned premiums$52,281 $42,206 23.9%Losses and loss adjustment expenses(30,897) (25,623) 20.6%Underwriting expenses(18,512) (15,509) 19.4%Underwriting profit(1), (2)$2,872 $1,074 167.4%Ratios: Loss ratio59.1% 60.7% Expense ratio35.4% 36.7% Combined ratio94.5% 97.5% (1)See “—Reconciliation of Non-GAAP Measures.”(2)Underwriting profit includes fee income of $4.2 million and $1.8 million for the years ended December 31, 2016 and 2015, respectively.Combined Ratio. The combined ratio of the Specialty Admitted Insurance segment for the year ended December 31, 2016 was 94.5%, comprised of aloss ratio of 59.1% and an expense ratio of 35.4%. This compares to the combined ratio in the prior year of 97.5%, comprised of a loss ratio of 60.7% and anexpense ratio of 36.7%.Loss Ratio. The loss ratio for the year ended December 31, 2016 of 59.1% included $3.8 million, or 7.3 percentage points of net favorable developmenton prior accident years. The loss ratio for the year ended December 31, 2015 of 60.7% included $3.5 million, or 8.4 percentage points of net favorabledevelopment on prior accident years. The favorable development in both 2016 and 2015 reflects the fact that actual loss emergence of the workers’compensation book for prior accident years has been better than expected.Expense Ratio. The expense ratio of 35.4% for the year ended December 31, 2016 decreased from 36.7% in the prior year. The expense ratio declined in2016 for this segment primarily due to a 25.1% increase in net earned premiums as the fronting and program business continued to achieve scale. The grosswritten premiums on this fronting and program business were $142.6 million and $55.0 million for the years ended December 31, 2016 and 2015,respectively. We believe the expense ratio for this segment will continue to decline as this segment increases premium volume in its new businesses andterritories during 2017 and in future periods.Underwriting Profit. As a result of the items discussed above, the underwriting profit improved from $1.1 million for the year ended December 31, 2015to $2.9 million for the year ended December 31, 2016.95TABLE OF CONTENTSCasualty Reinsurance SegmentResults for the Casualty Reinsurance segment are as follows:Year Ended December 31, 2016 2015 % Change($ in thousands) Gross written premiums$184,333 $172,499 6.9 %Net written premiums$184,983 $172,830 7.0 %Net earned premiums$161,978 $178,121 (9.1)%Losses and loss adjustment expenses(105,756) (122,172) (13.4)%Underwriting expenses(56,416) (58,507) (3.6)%Underwriting profit (loss)(1)$(194) $(2,558) (92.4)%Ratios: Loss ratio65.3% 68.6% Expense ratio34.8% 32.8% Combined ratio100.1% 101.4% (1)See “—Reconciliation of Non-GAAP Measures.”The Casualty Reinsurance segment focuses on lower volatility, proportional reinsurance which requires larger ceding commissions resulting in a highercommission expense than in our other segments.Combined Ratio. The combined ratio of the Casualty Reinsurance segment for the year ended December 31, 2016 was 100.1%, comprised of a loss ratioof 65.3% and an expense ratio of 34.8%. This compares to the combined ratio in the prior year of 101.4%, comprised of a loss ratio of 68.6% and an expenseratio of 32.8%.Loss Ratio. The loss ratio for the year ended December 31, 2016 of 65.3% included $4.2 million, or 2.6 percentage points, of adverse reservedevelopment in our loss estimates for prior accident years. The loss ratio for the year ended December 31, 2015 of 68.6% included $12.6 million, or 7.1percentage points, of adverse reserve development in our loss estimates for prior accident years.Expense Ratio. The expense ratio of the Casualty Reinsurance segment increased from 32.8% for the year ended December 31, 2015 to 34.8% for theyear ended December 31, 2016, as net earned premiums decreased 9.1% in 2016 while underwriting expenses decreased by 3.6%.Underwriting Results. As a result of the items discussed above, the underwriting loss for the Casualty Reinsurance segment for the year endedDecember 31, 2016 was $194,000 compared to an underwriting loss of $2.6 million for the year ended December 31, 2015.Other Operating ExpensesIn addition to the underwriting, acquisition and insurance expenses of the Excess and Surplus Lines segment, the Specialty Admitted Insurance segmentand the Casualty Reinsurance segment discussed previously, other operating expenses also includes the expenses of the Corporate and Other segment.Corporate and Other SegmentOther operating expenses for the Corporate and Other segment include personnel costs associated with the Bermuda and U.S. holding companies,professional fees and various other corporate expenses that are included in the calculation of our expense ratio and combined ratio. Accordingly, otheroperating expenses of the Corporate and Other segment represent the expenses of both the Bermuda and U.S. holding companies that were not reimbursed byour subsidiaries, including costs associated with potential acquisitions and other strategic initiatives. These costs vary from period to period based on thestatus of these initiatives.For the years ended December 31, 2016 and 2015, the total operating expenses of the Corporate and Other segment were $20.4 million and $18.6million, respectively. The increase in these expenses was primarily related to a $1.8 million increase in stock based compensation expense resulting fromoptions and restricted share units granted in February and May 2016.96TABLE OF CONTENTSInvesting ResultsNet investment income was $52.6 million for the year ended December 31, 2016 compared to $44.8 million in the prior year. The change in our netinvestment income is as follows:Year Ended December 31, 2016 2015 % Change(in thousands) Renewable energy LLCs$3,480 $3,936 (11.6)%Other private investments6,056 2,011 201.1 %Other invested assets9,536 5,947 60.3 %All other net investment income43,102 38,888 10.8 %Total net investment income$52,638 $44,835 17.4 %The $7.8 million increase in net investment income year-over-year was largely driven by the performance of the Company’s private investments. Strongperformance by our other private investments, most notably a limited partnership that invests in equity tranches of collateralized loan obligations (CLOs),more than offset a decline in income from the renewable energy investments. The limited partnership, with a carrying value of $17.5 million at December 31,2016, reported income of $4.6 million in 2016 compared to a loss of $958,000 in 2015. Excluding the private investments, our net investment incomeincreased by $4.2 million over the prior year due to a 6.8% increase in our cash and invested assets from $1,350.7 million at December 31, 2015 to $1,442.1million at December 31, 2016 and an increase in investment yield.Major categories of the Company’s net investment income are summarized as follows:Year Ended December 31,2016 2015(in thousands)Fixed maturity securities$25,917 $24,178Bank loan participations14,486 13,432Equity securities5,617 4,444Other invested assets9,536 5,947Cash, cash equivalents, and short-term investments824 672Trading gains (losses)18 (9)Gross investment income56,398 48,664Investment expense(3,760) (3,829)Net investment income$52,638 $44,835The following table summarizes our investment returns:Year Ended December 31,2016 2015Annualized gross investment yield on: Average cash and invested assets4.0% 3.7%Average fixed maturity securities3.5% 3.4%Of our total cash and invested assets of $1,442.1 million at December 31, 2016, $109.8 million represents the cash and cash equivalents portion of theportfolio. The majority of the portfolio, or $1,017.5 million, is comprised of fixed maturity and equity securities that are classified as available-for-sale andcarried at fair value with unrealized gains and losses on these securities reported, net of applicable taxes, as a separate component of accumulatedcomprehensive income or loss. Also included in our investments are $203.5 million of bank loan participations, $55.4 million of other invested assets, $50.8million of short-term investments, and $5.1 million of fixed maturity securities classified as trading and held at the U.S. holding company. Our tradingportfolio is carried at fair value with changes to the value reported as net investment income in our consolidated income statement.The $203.5 million of bank loan participations are classified as held-for-investment and reported at amortized cost, net of an allowance for credit losses.Changes in this credit allowance are included in realized gains or losses. These bank loan97TABLE OF CONTENTSparticipations are primarily senior, secured floating-rate debt which are generally rated “BB,” “B,” or “CCC” by Standard & Poor’s or an equivalent ratingfrom another nationally recognized statistical rating organization, and are therefore below investment grade. Bank loans include assignments of andparticipations in, performing and non-performing senior corporate debt generally acquired through primary bank syndications and in secondary markets.They consist of, but are not limited to, term loans, the funded and unfunded portions of revolving credit loans, and similar loans and investments. AtDecember 31, 2016 and 2015, the fair market value of these securities was $203.1 million and $180.1 million, respectively.The Company invests selectively in private debt and equity opportunities. These investments comprise the Company’s other invested assets and areprimarily focused in renewable energy, limited partnerships, and bank holding companies. Equity interests in various renewable energy LLCs managed by anaffiliate of the Company’s largest shareholder, the D.E. Shaw Affiliates, generated investment income of $3.5 million and $3.9 million for the years endedDecember 31, 2016 and 2015, respectively. These investments had a carrying value of $27.1 million at December 31, 2016. Investments in bridge loans forrenewable energy projects, primarily with affiliates of D.E. Shaw, had investment income $450,000 and $3.1 million for the years ended December 31, 2016and 2015, respectively. In 2016, the Company received a $6.5 million repayment on one note. During 2015, the Company invested a total of $36.3 million inthese notes and received maturities and repayments totaling $30.8 million. The Company has invested in several limited partnerships that invest inconcentrated portfolios of publicly-traded small cap equities, loans of middle market private equity sponsored companies, and equity tranches ofcollateralized loan obligations (CLOs). Income from these partnerships was $5.3 million in 2016 compared to losses of $1.5 million in 2015. Together, theselimited partnerships had a carrying value of $23.9 million at December 31, 2016. Income from the Company’s investments in renewable energy LLCs andlimited partnerships is recognized under the equity method of accounting. The Company also holds $4.5 million of subordinated notes issued by a bankholding company affiliated with the Chairman and Chief Executive Officer of the Company. Interest income from the notes was $343,000 for the years endedDecember 31, 2016 and 2015.For the year ended December 31, 2016, we recognized net realized investment gains of $7.6 million. These realized investment gains included $1.8million and $4.8 million, respectively, of net realized investment gains recognized on the sale of fixed maturity and equity securities. In addition, theCompany recognized $579,000 of net realized gains on sales of bank loan participations and $415,000 of net realized gains related to changes in theallowance for credit losses on bank loan participations.Market values of energy sector holdings were negatively impacted in 2015 by declining oil and gas prices. Net realized investment losses of $4.5million for the year ended December 31, 2015 were principally related to impairments of two energy loans totaling $3.9 million and $3.6 million of netrealized losses on sales of bank loans, mostly in the energy sector. Sales of fixed maturities and equities, a portion of which were used to fund the specialdividend in the fourth quarter, generated net realized gains of $2.0 million and $1.0 million, respectively, offsetting some of the energy sector losses.In conjunction with its outside investment managers, the Company performs quarterly reviews of all securities within its investment portfolio todetermine whether any impairment has occurred. The Company previously held two municipal bonds issued by the Commonwealth of Puerto Rico. PuertoRico’s weak economic conditions and heavy debt burden heightened the risk of default on the bonds and management concluded that the bonds, which hadbeen downgraded to below investment grade, were other-than-temporarily impaired. The Company recognized impairment losses of $660,000 on these bondsfor the year ended December 31, 2015. The bonds were sold during the second quarter of 2015 and a net realized gain of $22,000 was recognized on the sales.At December 31, 2015, the Company held participations in two loans issued by companies that produce and supply power to Puerto Rico through powerpurchase agreements with PREPA, a public corporation and governmental agency of the Commonwealth of Puerto Rico. PREPA’s credit strength and abilityto make timely payments was impacted by the economic conditions in Puerto Rico, thus raising doubt about the companies’ ability to meet the debtobligations held by the Company. At December 31, 2015, the allowance for credit losses on these loans was $414,000. The loans had a carrying value of $3.9million at December 31, 2015 and unpaid principal of $4.6 million. In June 2016, one of the loans was repaid in full at its scheduled maturity. Managementconcluded that the remaining loan, scheduled to mature in 2017, remained impaired at December 31, 2016. The allowance for credit losses on the loan was$177,000 at December 31, 2016. The loan had a carrying value of $1.7 million and unpaid principal of $2.0 million at December 31, 2016.The Company’s bank loan portfolio includes loans to oil and gas companies in the energy sector. The market values of these loans were impacted bydeclining energy prices in 2015. At December 31, 2015, the Company’s oil and gas exposure in the bank loan portfolio was in eight loans with a carryingvalue of $15.8 million and an unrealized loss of $4.1 million. Management concluded that two of these loans were impaired as of December 31, 2015, andaccordingly, an allowance for credit losses of $3.9 million was established on the loans. After recording this impairment, the loans had a carrying value of$1.7 million at December 31, 2015 and unpaid principal of $5.8 million. At December 31, 2016, the Company’s oil and gas exposure was in four bank loansand with a total carrying value of $9.8 million and an unrealized loss of $1.3 million.98TABLE OF CONTENTSManagement concluded that one of these loans was impaired with a carrying value of $1.6 million, unpaid principal of $2.2 million and an allowance forcredit losses of $545,000. All of the other loans are current at December 31, 2016.Management also concluded that three non-energy sector loans were impaired at December 31, 2016. At December 31, 2016, the impaired loans had acarrying value of $3.2 million, unpaid principal of $3.5 million, and an allowance for credit losses of $221,000. At December 31, 2015, one non-energysector loan was impaired with a carrying value of $689,000, unpaid principal of $722,000, and an allowance for credit losses of $34,000.The aggregate allowance for credit losses was $943,000 at December 31, 2016 on five impaired loans with a total carrying value of $6.5 million andunpaid principal of $7.6 million. At December 31, 2015, the aggregate allowance for credit losses was $4.3 million on five impaired loans with a totalcarrying value of $6.3 million and unpaid principal of $11.1 million.At December 31, 2016, our available-for-sale investment portfolio of fixed maturity and equity securities had net unrealized gains of $2.7 millionrepresenting 0.3% of the cost or amortized cost of the portfolio. Additionally, at December 31, 2016, 99.0% of our fixed maturity security portfolio was rated“BBB-” or better (“investment grade”) by Standard & Poor’s or had an equivalent rating from another nationally recognized statistical rating organization.Fixed maturity securities with ratings below investment grade by Standard & Poor’s or another nationally recognized statistical rating organization atDecember 31, 2016 had an aggregate fair value of $9.2 million and an aggregate net unrealized loss of $979,000. The average duration of our investmentportfolio was 3.6 years at December 31, 2016.The amortized cost and fair value of our investments in available-for-sale securities were as follows:December 31, 2016 December 31, 2015Cost orAmortizedCost Fair Value % of TotalFair Value Cost orAmortizedCost Fair Value % of TotalFair Value($ in thousands)Fixed maturity securities: State and municipal$101,793 $105,841 10.4% $95,864 $103,457 10.6%Residential mortgage-backed152,703 150,798 14.8% 137,308 136,887 14.1%Corporate379,727 378,448 37.2% 368,961 363,168 37.3%Commercial mortgage and asset-backed167,967 168,047 16.5% 130,231 130,696 13.4%Obligations of U.S. governmentcorporations and agencies64,823 65,014 6.4% 89,734 90,163 9.3%U.S. Treasury securities andobligations guaranteed by the U.S.government71,174 71,120 7.0% 73,322 73,255 7.5%Redeemable preferred stock2,025 1,809 0.2% 2,025 2,034 0.2%Total940,212941,077 92.5% 897,445 899,660 92.4%Equity securities: Preferred stock61,806 64,827 6.4% 50,631 54,092 5.5%Common stock12,747 11,574 1.1% 19,199 20,019 2.1%Total74,553 76,401 7.5% 69,830 74,111 7.6%Total investments$1,014,765 $1,017,478 100.0% $967,275 $973,771 100.0%The following table sets forth the composition of the Company’s portfolio of fixed maturity securities (both available-for-sale and trading) by rating asof December 31, 2016:Standard & Poor’s or Equivalent Designation Fair Value % of Total ($ in thousands)AAA $164,855 17.4%AA 394,369 41.7%A 277,487 29.3%BBB 100,226 10.6%BB 2,568 0.3%Below BB and unrated 6,635 0.7%Total $946,140 100.0%99TABLE OF CONTENTSAt December 31, 2016, our portfolio of available-for-sale fixed maturity securities contained corporate fixed maturity securities with a fair value of$378.4 million. A summary of these securities by industry segment is shown below as of December 31, 2016:Industry Fair Value % of Total ($ in thousands)Industrials and other $267,803 70.8%Financial 48,949 12.9%Utilities 61,696 16.3%Total $378,448 100.0%Corporate available-for-sale fixed maturity securities include public traded securities and privately placed bonds is shown below as of December 31,2016:Public/Private Fair Value % of Total ($ in thousands)Publicly traded $347,487 91.8%Privately placed 30,961 8.2%Total $378,448 100.0%The amortized cost and fair value of our available-for-sale investments in fixed maturity securities summarized by contractual maturity are as follows:December 31, 2016AmortizedCost Fair Value % of TotalFair Value($ in thousands)Due in: One year or less$70,635 $71,165 7.5%After one year through five years263,261 263,140 28.0%After five years through ten years168,705 167,490 17.8%After ten years114,916 118,628 12.6%617,517620,423 65.9%Residential mortgage-backed152,703 150,798 16.0%Commercial mortgage and asset-backed167,967 168,047 17.9%Redeemable preferred stock2,025 1,809 0.2%Total$940,212 $941,077 100.0%At December 31, 2016, the Company had no investments in securitizations of alternative-A mortgages, sub-prime mortgages, or collateralized debtobligations.Other ExpensesOther expenses for the years ended December 31, 2016 and 2015 were $1.6 million and $730,000, respectively. In 2016, these expenses include $1.5million of employee severance costs. In 2015, these expenses include $276,000 of expenses associated with a related party leasing arrangement for aminority-interest in a real estate limited partnership pursuant to which we were deemed to be an owner for accounting purposes, $170,000 of severanceexpenses, and $284,000 of legal, tax, and other professional services related to the formation of James River UK, the December 2015 dividend, and asecurities registration statement.Interest ExpenseInterest expense was $8.4 million and $7.0 million for the years ended December 31, 2016 and 2015, respectively. See “—Liquidity and CapitalResources—Sources and Uses of Funds” for information regarding our senior bank debt facility and trust preferred securities.100TABLE OF CONTENTSAmortization of IntangiblesThe Company recorded $597,000 of amortization of intangibles for each of the years ended December 31, 2016 and 2015, respectively.Goodwill and ImpairmentThe Company completed its impairment tests and fair value analyses for goodwill and other intangible assets during the fourth quarter. No impairmentwas present for the years ended December 31, 2016 or 2015.Income Tax ExpenseOur effective tax rate fluctuates from period to period based on the relative mix of income reported by country and the respective tax rates imposed byeach tax jurisdiction. For U.S.-sourced income, our U.S. federal income tax expense differs from the amounts computed by applying the federal statutoryincome tax rate to income before taxes due primarily to interest income on tax-advantaged state and municipal securities (state and municipal securitiesrepresented 10.4% and 10.6% of our available-for-sale securities at December 31, 2016 and 2015, respectively), dividends received income, and tax creditson certain renewable energy investments. For the years ended December 31, 2016 and 2015, our effective tax rate was 6.1% and 10.5%, respectively. Incometaxes for 2015 included $2.5 million of U.S. withholding taxes on an intercompany dividend paid from the U.S. holding company to our U.K. intermediateholding company resulting in a higher effective tax rate in 2015 compared to 2016.Liquidity and Capital ResourcesSources and Uses of FundsWe are organized as a Bermuda holding company with our operations conducted by our wholly-owned subsidiaries. Accordingly, our holding companymay receive cash through loans from banks, issuance of equity and debt securities, corporate service fees or dividends received from our subsidiaries and/orother transactions. Our U.S. holding company may receive cash in a similar manner and also through payments from our subsidiaries pursuant to our U.S.consolidated tax allocation agreement.The payment of dividends by our subsidiaries to us is limited by statute. In general, the laws and regulations applicable to our domestic insurancesubsidiaries limit the aggregate amount of dividends or other distributions that they may declare or pay within any 12-month period without advanceregulatory approval. Generally, the limitations are based on the greater of statutory net income for the preceding year or 10.0% of statutory surplus at the endof the preceding year. In addition, insurance regulators have broad powers to prevent reduction of statutory surplus to inadequate levels and could refuse topermit the payment of dividends calculated under any applicable formula. See Item 1— “U.S. Insurance Regulation—State Regulation” for additionalinformation. Pursuant to Bermuda regulations, the maximum amount of dividend and return of capital available to be paid by a reinsurer is determinedpursuant to a formula. See Item 1 “Regulation—Bermuda Insurance Regulation—Restrictions on Dividends and Distributions” for additional information.Under this formula, the maximum amount of dividends and return on capital available to us from JRG Re in 2018 is calculated to be approximately $102.3million. However, this dividend amount is subject to annual enhanced solvency requirement calculations. Additionally, the maximum amount of dividendsavailable to the U.S. holding company from our U.S. insurance subsidiaries during 2018 without regulatory approval is $37.0 million.At December 31, 2017, our Bermuda holding company had $2.8 million of cash and cash equivalent assets. At December 31, 2017, our U.S. holdingcompany had $57.9 million of cash and invested assets, comprised of cash and cash equivalents of $6.1 million, fixed maturity securities of $3.8 million,other invested assets of $46.8 million, and short-term investments of $1.2 million, which are not subject to regulatory restrictions. Additionally, our U.K.intermediate holding company had no invested assets and cash of less than $10,000 at December 31, 2017.Our net written premiums to surplus ratio (defined as net written premiums to regulatory capital and surplus) is reviewed by management as well as ourrating agency as a component of leverage and efficiency of deployed capital. Our net written premiums to surplus ratio was 1.2x, 0.9x, and 0.8x for the yearsended December 31, 2017, 2016, and 2015, respectively.The Company has a $215.0 million senior revolving credit facility (the “Facility”). The Facility is comprised of the following at December 31, 2017:•A $102.5 million secured revolving facility utilized by JRG Re to issue letters of credit for the benefit of third-party reinsureds. At December 31,2017, the Company had $98.5 million of letters of credit issued under the secured facility.•A $112.5 million unsecured revolving facility to meet the working capital needs of the Company. All unpaid principal on the revolver is due atmaturity. Interest accrues quarterly and is payable in arrears at LIBOR plus a margin of 1.5%,101TABLE OF CONTENTSwhich is subject to change according to terms in the credit agreement. At December 31, 2017 and 2016, the Company had a drawn balance of $73.3million outstanding on the unsecured revolver.The facility has been amended from time to time since its inception in 2013. On December 7, 2016, the Company entered into an Amended and RestatedCredit Agreement for the Facility which, among other things, extended the maturity date of the Facility until December 7, 2021 and modified other termsincluding reducing the rate of interest and reducing the number of financial covenants. On June 8, 2017, the Company entered into a First Amendment to theFacility, which among other things, modified the financial covenants and increased the amount of additional debt the Company may incur under newfinancings, subject to compliance with certain conditions.The senior revolving credit facility contains certain financial and other covenants (including risk-based capital, minimum shareholders’ equity levels,maximum ratios of total debt outstanding to total capitalization and minimum fixed charge coverage ratios) with which the Company was in compliance atDecember 31, 2017.On August 2, 2017, the Company, and its wholly-owned subsidiary, JRG Re, together as borrowers, entered into a credit agreement that provides theCompany with a revolving line of credit of up to $100 million, which may be used for loans and letters of credit made or issued, at the borrowers' option, on asecured or unsecured basis. Obligations under the credit agreement will carry a variable rate of interest subject to terms in the credit agreement and willmature 30 days after notice of termination from the lender. The credit agreement contains certain financial and other covenants which we are in compliancewith at December 31, 2017. The loans and letters of credit made or issued under the revolving line of credit may be used to finance the borrowers' generalcorporate purposes. At December 31, 2017, unsecured loans of $10.0 million and secured letters of credit totaling $6.9 million were outstanding under thefacility.On May 26, 2004, James River Group issued $15.0 million of unsecured, floating rate senior debentures (the “Senior Debt”), due April 29, 2034 unlessaccelerated earlier, through an indenture. The Senior Debt is not redeemable by the holder and is not subject to sinking fund requirements. Interest accruesquarterly and is payable in arrears at a per annum rate of the three-month LIBOR on the Determination Date (as defined in the indenture) plus 3.85%. TheSenior Debt is redeemable prior to its stated maturity in whole or in part, at the option of James River Group. The terms of the indenture generally providethat so long as the Senior Debt is outstanding, neither James River Group nor any of its subsidiaries may:•assume or permit to exist any indebtedness that is secured by any encumbrance on the capital stock of James River Group or any of its subsidiarieswhich is senior to the Senior Debt; or•issue, sell, transfer or otherwise dispose of any shares of, securities convertible into, or warrants, rights or options to subscribe for or purchase sharesof, capital stock of any subsidiary.James River Group is in compliance with all covenants of the indenture at December 31, 2017.Interest payable is included in “accrued expenses” in the accompanying consolidated balance sheets.In 2017, we declared $50.6 million of dividends payable to our shareholders. These dividends (and the related $1.1 million of U.S. dividendwithholding tax) were funded with a $20.0 million dividend that we received through our U.K. intermediate holding company and a $35.0 million dividendthat we received from JRG Re.In 2016, we declared $66.3 million of dividends payable to our shareholders. These dividends were funded by total dividends of $80.0 million that wereceived from JRG Re.In 2015, we declared $47.8 million of dividends payable to our shareholders. These dividends (and the related $2.5 million of U.S. dividendwithholding tax) were funded with a $47.5 million dividend that we received through our U.K. intermediate holding company and a $4.8 million dividendthat we received from JRG Re.We sold trust preferred securities through five Delaware statutory trusts sponsored and wholly-owned by the Company or its subsidiaries. Each trust usedthe net proceeds from the sale of its trust preferred securities to purchase our floating-rate junior subordinated debt.The following table summarizes the nature and terms of the junior subordinated debt and trust preferred securities outstanding at December 31, 2017(including the Company’s repurchase of a portion of these trust preferred securities):102TABLE OF CONTENTSJames RiverCapitalTrust I James RiverCapitalTrust II James RiverCapitalTrust III James RiverCapitalTrust IV FranklinHoldings II(Bermuda)CapitalTrust I($ in thousands)Issue dateMay 26, 2004 December 15, 2004 June 15, 2006 December 11, 2007 January 10, 2008Principal amount of trust preferred securities$7,000 $15,000 $20,000 $54,000 $30,000Principal amount of junior subordinated debt$7,217 $15,464 $20,619 $55,670 $30,928Carrying amount of junior subordinated debtnet of repurchases$7,217 $15,464 $20,619 $44,827 $15,928Maturity date of junior subordinated debt,unless accelerated earlierMay 24, 2034 December 15, 2034 June 15, 2036 December 15, 2037 March 15, 2038Trust common stock$217 $464 $619 $1,670 $928Interest rate, per annumThree-MonthLIBOR plus4.0% Three-MonthLIBOR plus3.4% Three-MonthLIBOR plus3.0% Three-MonthLIBOR plus3.1% Three-MonthLIBOR plus4.0%All of the junior subordinated debt is currently redeemable at 100.0% of the unpaid principal amount at our option.The junior subordinated debt contains certain covenants with which we are in compliance as of December 31, 2017.At December 31, 2017 and December 31, 2016, the ratio of total debt outstanding, including both senior debt and junior subordinated debt, to totalcapitalization (defined as total debt plus total stockholders’ equity) was 22.6% and 21.7%, respectively. Having debt as part of our capital structure allows usto generate a higher return on equity and greater book value per share results than we could by using equity capital alone.Ceded ReinsuranceOur insurance segments enter into reinsurance contracts to limit our exposure to potential losses arising from large risks, to protect against theaggregation of several risks in a common loss occurrence, and to provide additional capacity for growth. Our reinsurance is contracted under excess of lossand quota share reinsurance contracts. In excess of loss reinsurance, the reinsurer agrees to assume all or a portion of the ceding company’s losses in excess ofa specified amount. The premiums payable to the reinsurer are negotiated by the parties based on their assessment of the amount of risk being ceded to thereinsurer because the reinsurer does not share proportionately in the ceding company’s losses. In quota share reinsurance, the reinsurer agrees to assume aspecified percentage of the ceding company’s losses arising out of a defined class of business in exchange for a corresponding percentage of premiums. Forthe years ended December 31, 2017, 2016, and 2015 our net premium retention was 70.9%, 75.6% and 82.3%, respectively.The following is a summary of our Excess and Surplus Lines segment’s ceded reinsurance in place as of December 31, 2017:Line of BusinessCompany RetentionCasualty Primary Specialty Casualty, includingProfessional LiabilityUp to $1.0 million per occurrence, subject to a $1.0 million aggregate deductible.Primary CasualtyUp to $2.0 million per occurrence.(1)Excess CasualtyUp to $1.0 million per occurrence.(2)PropertyUp to $5.0 million per event.(3)(1)Total exposure to any one claim is generally $1.0 million.(2)For policies with an occurrence limit of $1.0 million or higher, the excess casualty treaty is set such that our retention is $1.0 million. For policieswhere we also write an underlying primary casualty policy, the excess casualty limit is added to the primary limit and the retention remains the same at$1.0 million.(3)The property catastrophe reinsurance treaty has a limit of $40.0 million with one reinstatement.In our Excess and Surplus Lines segment, we write a small book of excess property insurance, but we do not write primary property insurance. In ourExcess and Surplus Lines segment, we have a surplus share reinsurance treaty in effect that was specifically designed to cover property risks. The surplusshare treaty along with facultative reinsurance helps ensure that our net retained limit per risk will be $5.0 million or less.103TABLE OF CONTENTSWe use catastrophe modeling software to analyze the risk of severe losses from hurricanes and earthquakes on our exposure. We utilize the model in ourrisk selection, pricing, and to manage our overall portfolio probable maximum loss (“PML”) accumulations. A PML is an estimate of the amount we wouldexpect to pay in any one catastrophe event within a given annual probability of occurrence (i.e. a return period or loss exceedance probability). Based uponthe modeling of our Excess and Surplus Lines segment, a $45.0 million gross catastrophe loss would exceed our 1 in 1,000 year PML. In the event of a $45.0million gross property catastrophe loss to the Excess and Surplus Lines segment, we estimate our pre-tax cost at approximately $7.4 million, includingreinstatement premiums and net retentions. In addition to this retention, we would retain any losses in excess of our reinsurance coverage limits.Our Specialty Admitted Insurance segment purchases reinsurance for at least 50% of the exposed limits on specialty admitted property-casualtybusiness. The segment enters into reinsurance contracts for the individual risk workers’ compensation business as well as fronting and program business.While the segment focuses on casualty business, incidental property risk is incurred in the fronting and program business. The segment is covered for $44.0million in excess of $1.0 million per occurrence to manage its property exposure to an approximate 1 in 1,000 year PML.The following is a summary of our Specialty Admitted Insurance segment’s ceded reinsurance in place as of December 31, 2017:Line of BusinessCoverageCasualty Workers’ CompensationQuota share coverage for 50% of the first $600,000.(1)(2) Excess of loss coverage for $29.4 million in excess of $600,000.(1)(2)Workers’ Compensation – ProgramQuota share coverage for 90.0% of the first $1.0 million per occurrence and excess of losscoverage for $49.0 million in excess of $1.0 million.Commercial Auto – 3 ProgramsQuota share coverage that ranges between 75%-90% of $1.0 million per occurrence.Professional Liability – ProgramQuota share coverage for 77.5% of $1.0 million per occurrence.General Liability – ProgramQuota share coverage for 85.0% of the first $1.0 million per occurrence and excess of losscoverage for $1.0 million in excess of $1.0 million per occurrence.PropertyExcess of loss coverage for $44.0 million in excess of $1.0 million.(1)Excluding one program which has quota share coverage for 90% of the first $1.0 million per occurrence and excess of loss coverage for $49.0 millionin excess of $1.0 million.(2)Includes individual risk expansion states and any residual market pools.In our Casualty Reinsurance segment, we also have limited property catastrophe exposure. In the aggregate, we believe our pre-tax group-wide PMLfrom a 1 in 1,000 year property catastrophe event would not exceed $10.0 million, inclusive of reinstatement premiums payable.We also have a clash and contingency reinsurance treaty to cover both the Excess and Surplus Lines and Specialty Admitted Insurance segments in theevent of a claims incident involving more than one of our insureds. The treaty covers $6.0 million in excess of a $2.0 million retention for loss occurrenceswithin the treaty term. This coverage has two reinstatements in the event we exhaust any of the coverage.The Company’s insurance segments remain liable to policyholders if its reinsurers are unable to meet their contractual obligations under applicablereinsurance agreements. We establish allowances for amounts considered uncollectible. At December 31, 2017, there was no allowance for such uncollectiblereinsurance recoverables. To minimize exposure to significant losses from reinsurance insolvencies, the Company evaluates the financial condition of itsreinsurers and monitors concentrations of credit risk. The Company generally seeks to purchase reinsurance from reinsurers with A.M. Best financial strengthratings of “A-” (Excellent) or better. The Company’s reinsurance contracts generally require reinsurers that are not authorized as reinsurers under U.S. stateinsurance regulations or that experience rating downgrades from rating agencies below specified levels to fund their share of the Company’s cededoutstanding losses and loss adjustment expense reserves, typically through the use of irrevocable and unconditional letters of credit. In frontingarrangements, which the Company conducts through its Specialty Admitted Insurance segment, we are subject to credit risk with regard to insurancecompanies who act as reinsurers for us in such arrangements. We customarily require a collateral trust arrangement to secure the obligations of the insuranceentity for whom we are fronting.104TABLE OF CONTENTSAt December 31, 2017, we had reinsurance recoverables on unpaid losses of $302.5 million and reinsurance recoverables on paid losses of $11.3 million,and all material recoverable amounts were from companies with A.M. Best ratings of “A-” or better or collateral had been posted by the reinsurer for ourbenefit.The following table sets forth our most significant reinsurers by amount of reinsurance recoverables and the amount of reinsurance recoverablespertaining to each such reinsurer as well as its A.M. Best rating as of December 31, 2017:Reinsurer ReinsuranceRecoverable as ofDecember 31, 2017 A.M. Best RatingDecember 31, 2017 (in thousands) Swiss Reinsurance America Corporation $88,755 A+Berkley Insurance Company 37,834 A+Safety National Casualty 23,783 A+Mountain States Insurance Company 17,614 ANorth Carolina Reinsurance Facility 16,284 Unrated(1)Cincinnati Insurance Company 14,195 A+Endurance Reinsurance Corporation of America 12,035 A+Munich Reinsurance America 11,621 A+American European Insurance Company 7,695 B(1)Lloyds Syndicate Number 1458 6,654 ATop 10 Total 236,470 Other 66,054 Total $302,524 (1)These reinsurers are unrated or below A-. All material reinsurance recoverable amounts from these reinsurers are collateralized.Credit Risk on Amounts Recoverable from an Indemnifying PartyThe Company is also exposed to credit risk relating to a set of insurance contracts with an insured group of companies under which the Company payslosses and loss adjustment expenses on the contract. The Company has indemnity agreements with this group of insured parties (non-insurance entities) andis contractually entitled to receive reimbursement for a significant portion of the losses and loss adjustment expenses paid on behalf of the insured parties andother expenses incurred by the Company. The insured parties are required to collateralize all amounts currently due to the Company and to provideadditional collateral sufficient to cover the amounts that may be recoverable under the indemnity agreements, including among other things case loss andloss adjustment expense reserves, IBNR loss and loss adjustment expense reserves, extra contractual obligations and excess of policy limits liabilities. Thiscollateral is currently provided through a collateral trust arrangement established in favor of the Company by a captive insurance company affiliate of theinsured group. At December 31, 2017, the cash equivalent collateral held in the collateral trust arrangement was approximately $780.9 million, whichexceeds the amount of claims receivable and unpaid reported losses and loss adjustment expenses outstanding. This is a rapidly growing relationship, and assuch, there is ongoing exposure to estimated losses and expenses on these contracts growing at a faster pace than growth in our collateral balances. Inaddition, we have credit exposure if our estimates of future losses and loss adjustment expenses and other amounts recoverable, which are the basis forestablishing collateral balances, are lower than actual amounts paid or payable. The amount of our credit exposure in any of these instances could bematerial. To mitigate these risks, we closely and frequently monitor our exposure compared to our collateral held, and we request additional collateral whenour analysis indicates that we have uncollateralized exposure.Cash FlowsOur sources of operating funds consist primarily of premiums written, investment income, reinsurance recoveries and proceeds from offerings of debt andequity securities and from sales and redemptions of investments. We use the operating cash flows primarily to pay operating expenses, losses and lossadjustment expenses, and income taxes. Cash flow from operations may differ substantially from net income. The potential for a large claim under aninsurance or reinsurance contract means that substantial and unpredictable payments may need to be made within relatively short periods of time. We havegenerated positive cash flow from operations in each of the three years ended December 31, 2017, 2016, and 2015. The following table summarizes our cashflows:105TABLE OF CONTENTSYear Ended December 31,2017 2016 2015(in thousands)Cash and cash equivalents provided by (used in): Operating activities$207,816 $154,349154,349$119,971Investing activities(104,741) (80,764) (34,163)Financing activities(49,364) (70,207) (52,785)Change in cash and cash equivalents$53,711 $3,378 $33,023Cash used in investing activities for all years presented reflects our efforts to enhance the yield in our investment portfolio by investing available cashand cash equivalents into higher yielding fixed maturity securities and bank loan participations. Cash and cash equivalents comprised 10.1%, 7.6% and7.9% of total cash and invested assets at December 31, 2017, 2016 and 2015, respectively.Cash used in financing activities is primarily due to the dividends to shareholders of $50.8 million in 2017, $66.0 million in 2016, and $47.4 million in2015. In addition, we drew down an additional $10.0 million on an unsecured revolving credit facility in 2017 to fund a portion of the fourth quarter of 2017dividends to shareholders.RatingsThe A.M. Best financial strength rating for our group’s regulated insurance subsidiaries is “A” (Excellent). This rating reflects A.M. Best’s opinion of ourinsurance subsidiaries’ financial strength, operating performance and ability to meet obligations to policyholders and is not an evaluation directed towardsthe protection of investors. The rating for our operating insurance and reinsurance companies of “A” (Excellent) is the third highest rating of the thirteenratings issued by A.M. Best and is assigned to insurers that have, in A.M. Best’s opinion, an excellent ability to meet their ongoing obligations topolicyholders.The financial strength ratings assigned by A.M. Best have an impact on the ability of our regulated subsidiaries to attract and retain agents and brokersand on the risk profiles of the submissions for insurance that our subsidiaries receive. The “A” (Excellent) ratings assigned to our insurance and reinsurancesubsidiaries are consistent with our business plans and we believe allow our subsidiaries to actively pursue relationships with the agents and brokersidentified in their marketing plans.Equity AwardsFor the years ended December 31, 2017, 2016 and 2015, the Company recognized $7.7 million, $5.5 million and $3.7 million, respectively, of share-based compensation expense. The amount of unrecognized share-based compensation expense to be recognized over the remaining weighted-average serviceperiod of 1.9 years at December 31, 2017 is $6.9 million.In 2017, 898,218 options were exercised at a weighted average exercise price of $18.53 per share. In 2016, 496,550 options were exercised at a weightedaverage exercise price of $16.02 per share. In 2015, 1,047,500 options were exercised at a weighted average exercise price of $15.66 per share.The Company granted 205,244, 706,203 and 10,627 non-qualified share options at an exercise price of $42.24, $32.07 and $24.32 per option during2017, 2016 and 2015, respectively. In addition, 62,489 options with a weighted average exercise price of $30.80 per share, 33,039 options with a weightedaverage exercise price of $27.68 per share and 9,810 options with a weighted average exercise price of $21.00 per share were forfeited during 2017, 2016 and2015, respectively.The Company granted 137,034 restricted share units (“RSUs”) in February of 2017 and 60,291 RSUs in February 2016. These RSUs vest over one tothree years.106TABLE OF CONTENTSContractual Obligations and CommitmentsThe following table illustrates our contractual obligations and commercial commitments by due date as of December 31, 2017:Payments Due by PeriodTotal Less than 1 year 1–3 years 3–5 years More than5 years(in thousands)Reserve for losses and loss adjustment expenses$1,292,349 $400,892 $489,598 $188,788 $213,071Long-term debt: Senior debt98,300 — — 73,300 25,000Junior subordinated debt104,055 — — — 104,055Operating lease obligations24,591 4,025 6,986 5,922 7,658Interest on debt obligations125,375 8,836 17,697 14,797 84,045Financing obligations30,310 1,191 2,455 2,554 4,069Total$1,674,980 $414,944 $516,736 $285,361 $437,898The reserve for losses and loss adjustment expenses represent management’s estimate of the ultimate cost of settling losses. As more fully discussed in“—Critical Accounting Policies—Reserves for Losses and Loss Adjustment Expenses” above, the estimation of losses is based on various complex andsubjective judgments. Actual losses paid may differ, perhaps significantly, from the reserve estimates reflected in our consolidated financial statements.Similarly, the timing of payment of our estimated losses is not fixed and there may be significant changes in actual payment activity. The assumptions usedin estimating the likely payments due by period are based on our historical claims payment experience and industry payment patterns, but due to the inherentuncertainty in the process of estimating the timing of such payments, there is a risk that the amounts paid in any such period can be significantly differentfrom the amounts disclosed above.Financing obligations represent obligations for a build-to-suit lease relating to an investment by the Company for a minority interest in a real estatelimited partnership pursuant to which we were deemed to be an owner for accounting purposes. At the termination of the lease, no payment will be requiredfor the Company to settle the obligation. Instead, the Company will surrender the building that is the subject of the lease at lease termination.The amounts in the above table represent our gross estimates of known liabilities as of December 31, 2017 and do not include any allowance for claimsfor future events within the time period specified. Accordingly, it is highly likely that the total amounts paid out in the time periods shown will be greaterthan those indicated in the table.Interest on debt obligations was calculated using the LIBOR rate as of December 31, 2017 with the assumption that interest rates would remain flat overthe remainder of the period that the debt was outstanding.Off-Balance Sheet ArrangementsWe do not have any off-balance sheet arrangements.Reconciliation of Non-GAAP MeasuresReconciliation of Underwriting Profit (Loss)We believe that the disclosure of underwriting profit (loss) by individual segment and of the Company as a whole is useful to investors, analysts, ratingagencies and other users of our financial information in evaluating our performance because our objective is to consistently earn underwriting profits. Weevaluate the performance of our segments and allocate resources based primarily on underwriting profit (loss). Our definition of underwriting profit (loss) maynot be comparable to that of other companies.107TABLE OF CONTENTSThe following table reconciles the underwriting profit (loss) by individual segment and for the entire Company to consolidated income before U.S.federal income taxes for the years ended December 31, 2017, 2016 and 2015.Year Ended December 31,2017 2016 2015(in thousands)Underwriting profit (loss) of the operating segments: Excess and Surplus Lines$29,693 $47,235 $47,607Specialty Admitted Insurance3,166 2,872 1,074Casualty Reinsurance(1,765) (194) (2,558)Total underwriting profit of the operating segments31,094 49,913 46,123Other operating expenses of the Corporate and Other segment(25,330) (20,433) (18,554)Underwriting profit(1)5,764 29,480 27,569Net investment income61,119 52,638 44,835Net realized investment (losses) gains(1,989) 7,565 (4,547)Other income361 295 245Other expenses(539) (1,590) (730)Interest expense(8,974) (8,448) (6,999)Amortization of intangible assets(597) (597) (597)Income before taxes$55,145 $79,343 $59,776(1)Underwriting profit includes fee income of $28.3 million, $14.2 million, and $5.0 million for the years ended December 31, 2017, 2016, and 2015,respectively.Reconciliation of Adjusted Net Operating IncomeWe define adjusted net operating income as net income excluding certain non-operating expenses such as net realized investment gains and losses,expenses related to due diligence costs for various merger and acquisition activities, severance costs associated with terminated employees and interest andother expenses on a leased building that we are deemed to own for accounting purposes. We use adjusted net operating income as an internal performancemeasure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into ourresults of operations and our underlying business performance. Adjusted net operating income should not be viewed as a substitute for net income calculatedin accordance with GAAP, and our definition of adjusted net operating income may not be comparable to that of other companies.Our income before taxes and net income for the years ended December 31, 2017, 2016 and 2015 reconcile to our adjusted net operating income asfollows:Year Ended December 31,2017 2016 2015IncomeBeforeTaxes NetIncome IncomeBeforeTaxes NetIncome IncomeBeforeTaxes NetIncome(in thousands)Income as reported$55,145 $43,566 $79,343 $74,471 $59,776 $53,497Net realized investment losses (gains)1,989 1,375 (7,565) (5,207) 4,547 4,090Other expenses539 575 1,590 1,136 730 574Dividend withholding taxes— 1,053 — — — 2,500Interest expense on leased building theCompany is deemed to own foraccounting purposes1,256 816 1,412 918 661 429Adjusted net operating income$58,929 $47,385 $74,780 $71,318 $65,714 $61,090108TABLE OF CONTENTSTangible Equity and Tangible Equity per ShareOne of our key financial measures that we use to assess our longer term financial performance is our percentage growth in tangible equity per share andreturn on tangible equity. We believe tangible equity is a good measure to evaluate the strength of our balance sheet and to compare returns relative to thismeasure. Tangible equity before dividends increased 11.1% from $472.5 million at December 31, 2016 to $525.1 million at December 31, 2017, largely dueto net income of $43.6 million and $9.2 million of unrealized gains, net of taxes, on available-for-sale securities. Tangible equity after dividends increased0.4% from $472.5 million at December 31, 2016 to $474.5 million at December 31, 2017. Tangible equity per common share was $15.98 at December 31,2017, net of $1.70 of dividends per share paid by the Company during 2017. The 2017 adjusted net operating income return on average tangible equity was9.7%, which compares to 14.6% for the full year 2016.We define tangible equity as the sum of shareholders’ equity less goodwill and intangible assets (net of amortization). Our definition of tangible equitymay 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.The following table reconciles shareholders’ equity to tangible equity as of December 31, 2017, 2016 and 2015 and reconciles tangible equity to predividend tangible equity as of December 31, 2017:As of December 31,2017 20162015Equity Equityper share Equity Equityper shareEquity Equityper share(in thousands, except per share amounts)Shareholders’ equity$694,699 $23.39 $693,221 $23.69 $681,038 $23.53Less: Goodwill181,831 6.12 181,831 6.21 181,831 6.28Intangible assets38,334 1.29 38,931 1.33 39,528 1.37Tangible equity474,534 15.98 $472,459 $16.15 $459,679 $15.88Dividends to shareholders forthe year ended December 31,201750,600 1.70 Pre dividend tangible equity$525,134 $17.68 109TABLE OF CONTENTSItem 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKMarket risk is the risk of economic losses due to adverse changes in the estimated fair value of a financial instrument as the result of changes in equityprices, interest rates, foreign currency exchange rates and commodity prices. Our consolidated balance sheets include assets and liabilities with estimated fairvalues that are subject to market risk. Our primary market risks have been interest rate risk associated with investments in fixed maturities and equity pricerisk associated with investments in equity securities. We do not have material exposure to foreign currency exchange rate risk or commodity risk.Interest Rate RiskOur fixed maturity and preferred stock investments and borrowings are subject to interest rate risk. Increases and decreases in interest rates typicallyresult in decreases and increases, respectively, in the fair value of these financial instruments.The majority of our investable assets come from premiums paid by policyholders. These funds are invested predominantly in high quality corporate,government and municipal bonds with relatively short durations. The investment portfolio has an average duration of approximately 3.5 years atDecember 31, 2017, and fixed maturity securities in the portfolio have an average rating by at least one nationally recognized rating organization of “AA-”.See Note 2 to the Notes to the Audited Consolidated Financial Statements for disclosure of contractual maturity dates of our fixed maturity portfolio. Thechanges in the estimated fair value of the fixed maturity portfolio classified as available-for-sale are presented as a component of shareholders’ equity inaccumulated other comprehensive income, net of taxes.We work to manage the impact of interest rate fluctuations on our fixed maturity and preferred stock portfolio. The effective duration is managed withconsideration given to the estimated duration of our liabilities. We have investment guidelines that set targets for average duration and maturity.Our investment manager employs a model to estimate the effect of interest rate risk on the fair values of our fixed maturity and preferred stock securitiesand our bank loan participations. Our bank loan participations are primarily floating-rate debt, so their fair values are less sensitive to changes in interest ratesthan our fixed maturity and preferred stock securities. The model estimates the impact of interest rate changes on a wide range of factors, including durationand prepayment. Fair values of borrowings are estimated based on the net present value of cash flows, using a representative set of possible future interest ratescenarios. The model requires that numerous assumptions be made about the future. To the extent that any of the assumptions are invalid, incorrect estimatescould result. The usefulness of a single point-in-time model is limited, as it is unable to accurately incorporate the full complexity of market interactions.The following table summarizes our interest rate risk and shows the effect of hypothetical changes in interest rates as of December 31, 2017. The selectedhypothetical changes do not indicate what could be the potential best or worst case scenarios.As of December 31, 2017EstimatedFair Value HypotheticalChange inInterest Rates(bp=basis points) EstimatedFair Value afterHypothetical Changein Interest Rates EstimatedHypothetical PercentageIncrease (Decrease) inFair Value($ in thousands)Total fixed maturity and preferred stock investments$1,086,187 200 bp decrease $1,189,917 9.6 % 100 bp decrease 1,137,237 4.7 % 100 bp increase 1,036,439 (4.6)% 200 bp increase 989,299 (8.9)%Bank Loan Participations$236,532 200 bp decrease $244,196 3.2 % 100 bp decrease 238,093 0.7 % 100 bp increase 235,988 (0.2)% 200 bp increase 235,586 (0.4)%Liabilities$214,453 200 bp decrease $223,222 4.1 % 100 bp decrease 215,458 0.5 % 100 bp increase 213,557 (0.4)% 200 bp increase 212,757 (0.8)%110TABLE OF CONTENTSEquity Price RiskA portion of our portfolio is invested in equity securities, which have historically produced higher long-term returns relative to fixed maturities. We ownpreferred stocks, generally in the financial services industry, and common stocks. The changes in the estimated fair value of the equity securities portfolio arepresented as a component of shareholders’ equity in accumulated other comprehensive income, net of taxes. See Note 2 to the Notes to the AuditedConsolidated Financial Statements for disclosure of gross unrealized gains and losses by investment category.At December 31, 2017, our equity securities portfolio was concentrated in terms of the number of issuers and industries. Such concentrations can lead tohigher levels of price volatility.The following table summarizes our equity price risk and shows the effect of a hypothetical 35% increase or decrease in the fair value of our equitysecurities portfolio as of December 31, 2017. We believe that this range represents a reasonably likely scenario, as the largest annual increases and decreasesin the S&P 500 Index in the past twenty-five years were 34.1% (1995) and (38.5%) (2008), respectively. The selected hypothetical changes do not indicatewhat could be the potential best or worst case scenarios.As of December 31, 2017EstimatedFair Value HypotheticalPrice Change EstimatedFair Value afterHypotheticalChange in Prices($ in thousands)Equity securities$82,522 35% increase $111,405 35% decrease 53,639Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe report of our independent registered public accounting firm and our Consolidated Financial Statements and required Financial Statement Schedulesare filed pursuant to this Item 8 and are included later in this report. See Index to Financial Statements and Schedules on page F-1.Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENot applicable.Item 9A.CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresWe maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file or submitunder the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that suchinformation is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer ("CFO"), asappropriate, to allow timely decisions regarding required disclosure. In connection with the preparation of this Annual Report on Form 10-K, ourmanagement carried out an evaluation, under the supervision and with the participation of our management, including the CEO and CFO, as of December 31,2017, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e)under the Exchange Act. Based upon this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as ofDecember 31, 2017.Management’s Annual Report on Internal Control over Financial ReportingManagement is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is definedin Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles. Internal control over financial reporting includes those policies and procedures that: pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expendituresare being made only in accordance with authorizations of our management and directors; and provide reasonable assurance regarding prevention or timelydetection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Because of its inherentlimitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any111TABLE OF CONTENTSevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate.Management has conducted an assessment, including testing, of the effectiveness of our internal control over financial reporting as of December 31,2017. In making its assessment of internal control over financial reporting, management used the criteria in Internal Control — Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, the Company’s management has concludedthat, as of December 31, 2017, the Company’s internal control over financial reporting was effective.Ernst & Young LLP, the independent registered public accounting firm that audited the Consolidated Financial Statements of the Company included inthis Annual Report, has audited the effectiveness of internal control over financial reporting as of December 31, 2017. Their attestation report, whichexpresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017, is included withour financial statements.Changes in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) thatoccurred during our quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control overfinancial reporting.The effectiveness of any system of controls and procedures is subject to certain limitations, and, as a result, there can be no assurance that our controlsand procedures will detect all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute,assurance that the objectives of the control system will be attained.Item 9B.OTHER INFORMATIONNone.112TABLE OF CONTENTSPART IIIItem 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe information required by Item 10 is incorporated by reference to the definitive James River Group Holdings, Ltd. Proxy Statement to be filed with theSEC not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.Item 11.EXECUTIVE COMPENSATIONThe information required by Item 11 is incorporated by reference to the definitive James River Group Holdings, Ltd. Proxy Statement to be filed with theSEC not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSThe information required by Item 12 is incorporated by reference to the definitive James River Group Holdings, Ltd. Proxy Statement to be filed with theSEC not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe information required by Item 13 is incorporated by reference to the definitive James River Group Holdings, Ltd. Proxy Statement to be filed with theSEC not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.Item 14.PRINCIPAL ACCOUNTANT FEES AND SERVICESThe information required by Item 14 is incorporated by reference to the definitive James River Group Holdings, Ltd. Proxy Statement to be filed with theSEC not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.PART IVItem 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(a) (1) and (2) Financial Statements and Financial Statement Schedules.See “Index to Financial Statements and Schedules” on Page F-1.113TABLE OF CONTENTS(3) ExhibitsExhibitNumberDescription3.1Certificate of Incorporation of James River Group Holdings, Ltd. (incorporated by reference to Exhibit 3.1 of the Registration Statementon Form S-1, Registration No. 333-199958, filed with the Commission on November 7, 2014)3.2Certificate of Incorporation on Change of Name (incorporated by reference to Exhibit 3.2 of the Registration Statement on Form S-1,Registration No. 333-199958, filed with the Commission on November 7, 2014)3.3Memorandum of Association of James River Group Holdings, Ltd. (incorporated by reference to Exhibit 3.3 of the RegistrationStatement on Form S-1, Registration No. 333-199958, filed with the Commission on November 7, 2014)3.4Certificate of Deposit of Memorandum of Increase of Share Capital, dated December 24, 2007 (incorporated by reference to Exhibit 3.4of the Registration Statement on Form S-1, Registration No. 333-199958, filed with the Commission on November 7, 2014)3.5Certificate of Deposit of Memorandum of Increase of Share Capital, dated October 7, 2009 (incorporated by reference to Exhibit 3.5 ofthe Registration Statement on Form S-1, Registration No. 333-199958, filed with the Commission on November 7, 2014)3.6Third Amended and Restated Bye-Laws of James River Group Holdings, Ltd. (incorporated by reference to Exhibit 3.6 to the AnnualReport on Form 10-K filed on March 12, 2015, Commission File No. 001-36777)4.1Form of Certificate of Common Shares (incorporated by reference to Exhibit 4.1 of Amendment No. 3 to the Registration Statement onForm S-1, Registration No. 333-199958, filed with the Commission on December 9, 2014)4.2Indenture, dated as of May 26, 2004, by and between James River Group, Inc. and Wilmington Trust Company, as Trustee, relating toFloating Rate Senior Debentures Due 2034+4.3Indenture, dated as of May 26, 2004, by and between James River Group, Inc. and Wilmington Trust Company, as Trustee, relating toFloating Rate Junior Subordinated Debentures Due 2034+4.4Amended and Restated Declaration of Trust of James River Capital Trust I, dated as of May 26, 2004, by and among James RiverGroup, Inc., as Sponsor, Wilmington Trust Company, as Institutional Trustee and Delaware Trustee, the Regular Trustees (as definedtherein), and the holders, from time to time, of undivided beneficial interests in James River Capital Trust I+4.5Preferred Securities Guarantee Agreement, dated as of May 26, 2004, by James River Group, Inc., as Guarantor, and Wilmington TrustCompany, as Preferred Guarantee Trustee, for the benefit of the holders of James River Capital Trust I+4.6Indenture, dated as of December 15, 2004, by and between James River Group, Inc. and Wilmington Trust Company, as Trustee,relating to Floating Rate Junior Subordinated Deferrable Interest Debentures Due 2034+4.7Amended and Restated Declaration of Trust of James River Capital Trust II, dated as of December 15, 2004, by and among James RiverGroup, Inc., as Sponsor, Wilmington Trust Company, as Institutional Trustee and Delaware Trustee, the Administrators (as definedtherein), and the holders, from time to time, of undivided beneficial interests in the James River Capital Trust II+4.8Guarantee Agreement, dated as of December 15, 2004, by James River Group, Inc., as Guarantor, and Wilmington Trust Company, asGuarantee Trustee, for the benefit of the holders, from time to time, of the capital securities of James River Capital Trust II+4.9Indenture, dated June 15, 2006, by and between James River Group, Inc. and Wilmington Trust Company, as Trustee, relating toFloating Rate Junior Subordinated Deferrable Interest Debentures Due 2036+4.10Amended and Restated Declaration of Trust of James River Capital Trust III, dated as of June 15, 2006, by and among James RiverGroup, Inc., as Sponsor, Wilmington Trust Company, as Institutional Trustee and Delaware Trustee, the Administrators (as definedtherein) and the holders, from time to time, of undivided beneficial interests in the James River Capital Trust III+4.11Guarantee Agreement, dated as of June 15, 2006, by James River Group, Inc., as Guarantor, and Wilmington Trust Company, asGuarantee Trustee, for the benefit of the holders, from time to time, of the capital securities of James River Capital Trust III+4.12Indenture, dated December 11, 2007, by and between James River Group, Inc. and Wilmington Trust Company, as Trustee, relating toFixed/Floating Rate Junior Subordinated Deferrable Interest Debentures Due 2037+114TABLE OF CONTENTSExhibitNumberDescription4.13Amended and Restated Declaration of Trust, dated December 11, 2007, by and among James River Group, Inc., as Sponsor,Wilmington Trust Company, as Institutional Trustee and Delaware Trustee and the Administrators (as defined therein) and the holders,from time to time, of undivided beneficial interests in James River Capital Trust IV+4.14Guarantee Agreement, dated as of December 11, 2007, by James River Group, Inc., as Guarantor, and Wilmington Trust Company, asGuarantee Trustee, for the benefit of the holders, from time to time, of the capital securities of James River Capital Trust IV+4.15Indenture, dated as of January 10, 2008, among James River Group Holdings, Ltd. and Wilmington Trust Company, as Trustee relatingto Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures Due 2038+4.16Amended and Restated Declaration of Trust, dated as of January 10, 2008, by and among James River Group Holdings, Ltd., asSponsor, Wilmington Trust Company, as Institutional Trustee and Delaware Trustee and the Administrators (as defined therein) for thebenefit of the holders, from time to time, of undivided beneficial interest in Franklin Holdings II (Bermuda) Capital Trust I+4.17Guarantee Agreement, dated as of January 10, 2008, by and among James River Group Holdings, Ltd., as Guarantor, and WilmingtonTrust Company, as Guarantee Trustee, for the benefit of the holders, from time to time, of the capital securities of Franklin Holdings II(Bermuda) Capital Trust I+10.1Amended and Restated Credit Agreement, dated as of December 7, 2016, by and among James River Group Holdings, Ltd., JRGReinsurance Company, Ltd., KeyBank National Association, as Administrative Agent and Letter of Credit Issuer, and the financialinstitutions that are parties thereto (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on December 9,2016, Commission File No. 001-36777)10.2 First Amendment to Amended and Restated Credit Agreement, dated June 8, 2017, among James River Group Holdings, Ltd., JRGReinsurance Company Ltd., KeyBank National Association, as Administrative Agent, and the financial institutions that are partiesthereto (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on June 13, 2017, Commission File No. 001-36777)10.3Continuing Guaranty of Payment, dated as of June 5, 2013, by James River Group, Inc., as Guarantor, pursuant to Credit Agreement,dated as of June 5, 2013, among James River Group Holdings, Ltd. and JRG Reinsurance Company Ltd., KeyBank NationalAssociation, as Administrative Agent and as Letter of Credit Issuer, and certain Lender parties (incorporated by reference to Exhibit10.2 of the Registration Statement on Form S-1, Registration No. 333-199958, filed with the Commission on November 7, 2014)10.4Continuing Guaranty of Payment, dated as of December 15, 2015, by James River Group Holdings UK Limited, pursuant to CreditAgreement, dated as of June 5, 2013, among James River Group Holdings, Ltd. and JRG Reinsurance Company Ltd., KeyBankNational Association, as Administrative Agent and as Letter of Credit Issuer, and certain Lender parties (incorporated by reference toExhibit 10.5 to the Annual Report on Form 10-K filed on March 10, 2016, Commission File No. 001-36777)10.5Credit Agreement, dated as of August 2, 2017, among James River Group Holdings, Ltd., JRG Reinsurance Company Ltd. and BMOHarris Bank N.A. (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on August 3, 2017, CommissionFile No. 001-3677)10.6Pledge and Security Agreement, dated as of August 2, 2017, by and between JRG Reinsurance Company Ltd., and BMO Harris BankN.A. (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed on August 3, 2017, Commission File No. 001-3677)10.7Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.7 of Amendment No. 1 to theRegistration Statement on Form S-1, Registration No. 333-199958, filed with the Commission on November 24, 2014)10.8Amended and Restated James River Group Holdings, Ltd. Equity Incentive Plan (incorporated by reference to Exhibit 10.8 of theRegistration Statement on Form S-1, Registration No. 333-199958, filed with the Commission on November 7, 2014)*10.9Form of Stock Option Agreement (Amended and Restated James River Group Holdings, Ltd. Equity Incentive Plan) (incorporated byreference to Exhibit 10.9 of the Registration Statement on Form S-1, Registration No. 333-199958, filed with the Commission onNovember 7, 2014)*10.10First Amendment to the Amended and Restated James River Group Holdings, Ltd. Equity Incentive Plan (incorporated by reference toExhibit 10.10 of Amendment No. 1 to the Registration Statement on Form S-1, Registration No. 333-199958, filed with theCommission on November 24, 2014)*115TABLE OF CONTENTSExhibitNumberDescription10.11James River Group Holdings, Ltd. 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.11 of Amendment No. 1 tothe Registration Statement on Form S-1, Registration No. 333-199958, filed with the Commission on November 24, 2014)*10.12Amendment to the James River Group Holdings, Ltd. 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of theCurrent Report on Form 8-K filed on May 3, 2017, Commission File No. 001-36777)*10.13Form of Nonqualified Share Option Agreement (James River Group Holdings, Ltd. 2014 Long-Term Incentive Plan) (incorporated byreference to Exhibit 10.12 of Amendment No. 1 to the Registration Statement on Form S-1, Registration No. 333-199958, filed with theCommission on November 24, 2014)*10.14Form of Restricted Share Award Agreement (James River Group Holdings, Ltd. 2014 Long-Term Incentive Plan) (incorporated byreference to Exhibit 10.13 of Amendment No. 1 to the Registration Statement on Form S-1, Registration No. 333-199958, filed with theCommission on November 24, 2014)*10.15Form of Restricted Share Unit Award Agreement (James River Group Holdings, Ltd. 2014 Long-Term Incentive Plan) (incorporated byreference to Exhibit 10.14 of Amendment No. 3 to the Registration Statement on Form S-1, Registration No. 333-199958, filed with theCommission on December 9, 2014)*10.16James River Group Holdings, Ltd. 2014 Non-Employee Director Incentive Plan (incorporated by reference to Exhibit 10.15 ofAmendment No. 1 to the Registration Statement on Form S-1, Registration No. 333-199958, filed with the Commission onNovember 24, 2014)*10.17Form of Restricted Share Award Agreement (James River Group Holdings, Ltd. 2014 Non-Employee Director Incentive Plan)(incorporated by reference to Exhibit 10.16 of Amendment No. 1 to the Registration Statement on Form S-1, Registration No. 333-199958, filed with the Commission on November 24, 2014)*10.18Form of Restricted Share Unit Award Agreement (James River Group Holdings, Ltd., 2014 Non-Employee Director Incentive Plan)(incorporated by reference to Exhibit 10.17 of Amendment No. 3 to the Registration Statement on Form S-1, Registration No. 333-199958, filed with the Commission on December 9, 2014)*10.19James River Management Company, Inc. Leadership Recognition Program (incorporated by reference to Exhibit 10.18 of AmendmentNo. 1 to the Registration Statement on Form S-1, Registration No. 333-199958, filed with the Commission on November 24, 2014)*10.20Amended and Restated Employment Agreement, dated December 12, 2017, by and between James River Group Holdings, Ltd. andRobert P. Myron*10.21Employment Agreement, dated December 19, 2016, by and among James River Group Holdings, Ltd., James River Group, Inc., andSarah C. Doran (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on December 22, 2016, CommissionFile No. 001-36777)*10.22Amended and Restated Employment Agreement, dated January 15, 2018, by and among James River Group, Inc., James River InsuranceCompany, James River Management Company, Inc. and Richard Schmitzer *10.23James River Management Company, Inc. Leadership Recognition Program Award Letter, dated September 30, 2011 to RichardSchmitzer (incorporated by reference to Exhibit 10.22 of Amendment No. 1 to the Registration Statement on Form S-1, Registration No.333-199958, filed with the Commission on November 24, 2014)*10.24Employment Agreement, dated April 3, 2012, by and among Steven Hartman and James River Group, Inc., Stonewood InsuranceCompany and Falls Lake Insurance Management Company, Inc.*10.25Amended and Restated Employment Agreement, dated January 17, 2018, by and among JRG Reinsurance, Ltd. and Dennis R. Johnson*10.26Registration Rights Agreement, dated as of December 17, 2014, by and among (1) James River Group Holdings, Ltd.; (2) (a) D. E. ShawCH-SP Franklin, L.L.C., a Delaware limited liability company, D. E. Shaw CF-SP Franklin, L.L.C., a Delaware limited liability company,and D. E. Shaw Oculus Portfolios, L.L.C., a Delaware limited liability company; and (b) The Goldman Sachs Group, Inc., a Delawarecorporation, and Goldman Sachs JRVR Investors Offshore, L.P., a Cayman Islands exempted limited partnership and (3) the personsidentified as “Management Investors” on the signature pages thereto (incorporated by reference to Exhibit 10.25 to the Annual Reporton Form 10-K filed on March 12, 2015, Commission File No. 001-36777)10.27Separation and Release Agreement, dated November 14, 2016, by and among James River Group Holdings, Ltd., James River Group,Inc., and Gregg Davis (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on November 18, 2016,Commission File No. 001-36777)*10.28Separation and Release Agreement, dated December 12, 2017, by and among James River Group Holdings, Ltd., James River Group,Inc., and J. Adam Abram*116TABLE OF CONTENTSExhibitNumberDescription21.1List of subsidiaries of James River Group Holdings, Ltd.23.1Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm31.1Principal Executive Officer Certification pursuant to Rule 13a-14(a)/15d-14(a)31.2Principal Financial Officer Certification pursuant to Rule 13a-14(a)/15d-14(a)32.1Principal Executive Officer and Principal Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002.101.INSXBRL Instance Document101.SCHXBRL Taxonomy Extension Schema Document101.CALXBRL Taxonomy Extension Calculation Linkbase Document101.DEFXBRL Taxonomy Extension Definition Linkbase Document101.LABXBRL Taxonomy Extension Label Linkbase Document101.PREXBRL Taxonomy Extension Presentation Linkbase Document *Denotes a management contract or compensatory plan or arrangement.+Exhibit not filed with the Securities and Exchange Commission pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Company will furnish a copy tothe SEC upon request.Item 16.FORM 10-K SUMMARYNot applicable.117TABLE OF CONTENTSSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned thereunto duly authorized.JAMES RIVER GROUP HOLDINGS, LTD.By: /s/ Robert P. Myron March 1, 2018 Robert P. MyronChief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated.NAMETITLEDATE/s/ Robert P. MyronChief Executive Officer and DirectorMarch 1, 2018Robert P. Myron (Principal Executive Officer) /s/ Sarah C. DoranChief Financial OfficerMarch 1, 2018Sarah C. Doran (Principal Financial Officer) /s/ Michael E. CrowPrincipal Accounting OfficerMarch 1, 2018Michael E. Crow /s/ J. Adam AbramDirector, Non-Executive Chairman of the BoardMarch 1, 2018J.Adam Abram /s/ Janet CowellDirectorMarch 1, 2018Janet Cowell /s/ Bryan MartinDirectorMarch 1, 2018Bryan Martin /s/ Jerry R. MastersDirectorMarch 1, 2018Jerry R. Masters /s/ Michael T. OakesDirectorMarch 1, 2018Michael T. Oakes /s/ Ollie L. Sherman, Jr.DirectorMarch 1, 2018Ollie L. Sherman, Jr. /s/ David ZwillingerDirectorMarch 1, 2018David Zwillinger 118TABLE OF CONTENTSJAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIESINDEX TO FINANCIAL STATEMENTS AND SCHEDULES PageReport of Independent Registered Public Accounting FirmF-2Consolidated Balance Sheets as of December 31, 2017 and 2016F-4Consolidated Statements of Income and Comprehensive Income for the Years EndedDecember 31, 2017, 2016 and 2015F-6Consolidated Statements of Changes in Shareholders’ Equity for the Years EndedDecember 31, 2017, 2016 and 2015F-7Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015F-8Notes to Consolidated Financial Statements for the Years Ended December 31, 2017, 2016 and 2015F-9Schedule ISummary of InvestmentsF-56Schedule IICondensed Financial Information of RegistrantF-57Schedule IIISupplementary Insurance InformationF-61Schedule IVReinsuranceF-62Schedule VValuation and Qualifying AccountsF-63Schedule VISupplementary Information Concerning Property Casualty Insurance OperationsF-64F-1TABLE OF CONTENTSJAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIESReport of Independent Registered Public Accounting FirmTo the Shareholders and the Board of Directors of James River Group Holdings, Ltd.Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of James River Group Holdings, Ltd. and subsidiaries (the Company) as of December31, 2017 and 2016, the related consolidated statements of income and comprehensive income, changes in shareholders' equity and cash flows for each of thethree years in the period ended December 31, 2017, and the related notes and the financial statement schedules listed in the Index at Item 15(a) (collectivelyreferred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, thefinancial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the periodended December 31, 2017, in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'sinternal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 1, 2018, expressed an unqualifiedopinion thereon.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financialstatements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Companyin accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performingprocedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond tothose risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits alsoincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of thefinancial statements. We believe that our audits provide a reasonable basis for our opinion./s/ Ernst & Young LLPWe have served as the Company’s auditor since 2003.Pittsburgh, PennsylvaniaMarch 1, 2018F-2TABLE OF CONTENTSJAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIESReport of Independent Registered Public Accounting FirmTo the Shareholders and the Board of Directors of James River Group Holdings, Ltd.Opinion on Internal Control over Financial ReportingWe have audited James River Group Holdings, Ltd. and subsidiaries’ internal control over financial reporting as of December 31, 2017, based on criteriaestablished in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework),(the COSO criteria). In our opinion, James River Group Holdings, Ltd. and subsidiaries (the Company) maintained, in all material respects, effective internalcontrol over financial reporting as of December 31, 2017, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidatedbalance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements of income and comprehensive income, changes inshareholders' equity and cash flows for each of the three years in the period ended December 31, 2017 and related notes and financial statement scheduleslisted in the Index at Item 15(a) and our report dated March 1, 2018 expressed an unqualified opinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectivenessof internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting was maintained in all material respects.Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing andevaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of thecompany are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on thefinancial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate./s/ Ernst & Young LLPPittsburgh, PennsylvaniaMarch 1, 2018F-3TABLE OF CONTENTSJAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIESConsolidated Balance SheetsDecember 31,2017 2016(in thousands)Assets Invested assets: Fixed maturity securities: Available-for-sale, at fair value (amortized cost: 2017 – $1,008,662; 2016 – $940,212)$1,016,098 $941,077Trading, at fair value (amortized cost: 2017 – $3,801; 2016 – $5,052)3,808 5,063Equity securities available-for-sale, at fair value (cost: 2017 – $75,318; 2016 – $74,553)82,522 76,401Bank loan participations held-for-investment, at amortized cost, net of allowance238,214 203,526Short-term investments36,804 50,844Other invested assets70,208 55,419Total invested assets1,447,654 1,332,330Cash and cash equivalents163,495 109,784Accrued investment income8,381 7,246Premiums receivable and agents’ balances, net352,436 265,315Reinsurance recoverable on unpaid losses302,524 182,737Reinsurance recoverable on paid losses11,292 2,877Prepaid reinsurance premiums91,979 90,147Deferred policy acquisition costs72,365 64,789Intangible assets, net38,334 38,931Goodwill181,831 181,831Income tax receivable2,806 5,566Other assets83,598 64,980Total assets$2,756,695 $2,346,533See accompanying notes.F-4TABLE OF CONTENTSJAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIESConsolidated Balance Sheets December 31, 2017 2016(in thousands, except share amounts)Liabilities and shareholders’ equity Liabilities: Reserve for losses and loss adjustment expenses$1,292,349 $943,865Unearned premiums418,114 390,563Payables to reinsurers56,268 39,899Senior debt98,300 88,300Junior subordinated debt104,055 104,055Accrued expenses39,295 36,884Deferred tax liabilities, net5,247 2,902Other liabilities48,368 46,844Total liabilities2,061,996 1,653,312Commitments and contingent liabilities— —Shareholders’ equity: Common Shares – $0.0002 par value; 200,000,000 shares authorized. 2017 and 2016: 29,696,682 and29,257,566 shares issued and outstanding, respectively6 6Preferred Shares – 2017 and 2016: $0.00125 par value; 20,000,000 shares authorized; no shares issued andoutstanding— —Additional paid-in capital636,149 636,856Retained earnings48,198 55,232Accumulated other comprehensive income10,346 1,127Total shareholders’ equity694,699 693,221Total liabilities and shareholders’ equity$2,756,695 $2,346,533See accompanying notes.F-5TABLE OF CONTENTSJAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIESConsolidated Statements of Income and Comprehensive IncomeYear Ended December 31,2017 2016 2015(in thousands, except share amounts)Revenues: Gross written premiums$1,081,905 $737,398 $572,194Ceded written premiums(315,279) (179,690) (101,162)Net written premiums766,626 557,708 471,032Change in net unearned premiums(25,517) (42,045) (9,827)Net earned premiums741,109 515,663 461,205Net investment income61,119 52,638 44,835Net realized investment (losses) gains(1,989) 7,565 (4,547)Other income17,386 10,361 3,428Total revenues817,625 586,227 504,921Expenses: Losses and loss adjustment expenses555,377 325,421 279,016Other operating expenses196,993 170,828 157,803Other expenses539 1,590 730Interest expense8,974 8,448 6,999Amortization of intangible assets597 597 597Total expenses762,480 506,884 445,145Income before income taxes55,145 79,343 59,776Income tax expense (benefit): Current11,943 (221) 5,357Deferred(364) 5,093 92211,579 4,872 6,279Net income$43,566 $74,471 $53,497Other comprehensive income: Net unrealized gains (losses), net of taxes of $2,707 in 2017, $(1,723) in 2016 and $(939) in20159,219 (2,059) (15,170)Total comprehensive income$52,785 $72,412 $38,327Per share data: Basic earnings per share$1.48 $2.56 $1.87Diluted earnings per share$1.44 $2.49 $1.82Dividend declared per share$1.70 $2.25 $1.64Weighted-average common shares outstanding: Basic29,461,717 29,063,075 28,662,051Diluted30,273,149 29,894,378 29,334,918See accompanying notes.F-6TABLE OF CONTENTSJAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIESConsolidated Statements of Changes in Shareholders’ EquityNumber ofCommonSharesOutstanding CommonShares(Par) PreferredShares AdditionalPaid-inCapital RetainedEarnings AccumulatedOtherComprehensiveIncome TotalShareholders’Equity(in thousands, except share amounts)Balances at December 31, 201428,540,350 $6 $— $628,236 $41,323 $18,356 $687,921Net income— — — — 53,497 — 53,497Other comprehensive loss— — — — — (15,170) (15,170)Dividends— — — — (47,794) — (47,794)Exercise of stock options and related excesstax benefits341,264 — — (15) — — (15)Vesting of RSUs and related excess taxbenefits59,933 — — (1,136) — — (1,136)Compensation expense under shareincentive plans— — — 3,735 — — 3,735Balances at December 31, 201528,941,547 $6 $— $630,820 $47,026 $3,186 $681,038Net income— — — — 74,471 — 74,471Other comprehensive loss— — — — — (2,059) (2,059)Dividends— — — — (66,265) — (66,265)Exercise of stock options and related excesstax benefits260,672 — — 1,536 — — 1,536Vesting of RSUs and related excess taxbenefits55,347 — — (992) — — (992)Compensation expense under shareincentive plans— — — 5,492 — — 5,492Balances at December 31, 201629,257,566 $6 $— $636,856 $55,232 $1,127 $693,221Net income— — — — 43,566 — 43,566Other comprehensive income— — — — — 9,219 9,219Dividends— — — — (50,600) — (50,600)Exercise of stock options358,967 — — (6,213) — — (6,213)Vesting of RSUs80,149 — — (2,182) — — (2,182)Compensation expense under shareincentive plans— — — 7,688 — — 7,688Balances at December 31, 201729,696,682 $6 $— $636,149 $48,198 $10,346 $694,699See accompanying notes.F-7TABLE OF CONTENTSJAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIESConsolidated Statements of Cash FlowsYear Ended December 31,2017 2016 2015(in thousands)Operating activities Net income$43,566 $74,471 $53,497Adjustments to reconcile net income to net cash provided by operating activities: Deferred policy acquisition costs(123,577) (105,659) (98,302)Amortization of policy acquisition costs116,001 101,624 97,750Net realized investment losses (gains)1,989 (7,565) 4,547Distributions from equity method investments7,333 3,467 2,885Income from equity method investments(13,209) (8,743) (2,468)Trading securities purchases, sales, and maturities, net1,250 — 2,319Deferred U.S. federal income tax (benefit) expense(364) 5,093 922Provision for depreciation and amortization2,123 2,414 2,004Share based compensation expense7,688 5,492 3,735Excess tax benefits from equity incentive plan transactions(2,115) 3,191 3,580Change in operating assets and liabilities: Reserve for losses and loss adjustment expenses348,484 158,543 69,026Unearned premiums27,551 89,459 23,525Premiums receivable and agents’ balances(87,121) (88,630) (14,158)Reinsurance balances(113,665) (68,497) (28,213)Payable to insurance companies445 (950) 4,170Other(8,563) (9,361) (4,848)Net cash provided by operating activities207,816 154,349 119,971Investing activities Securities available-for-sale: Purchases – fixed maturity securities(270,014) (300,135) (393,168)Sales – fixed maturity securities77,781 110,124 110,122Maturities and calls – fixed maturity securities121,890 135,472 122,791Purchases – equity securities(5,540) (3,680) (18,519)Sales – equity securities3,522 14,850 14,068Bank loan participations: Purchases(240,799) (156,638) (109,107)Sales138,214 51,077 113,391Maturities69,740 97,097 37,388Other invested assets: Purchases(8,913) (2,365) (52,663)Return of capital— 226 237Disposals— — 1,374Maturities and repayments— 6,500 30,753Securities receivable or payable, net(2,525) 1,018 (2,104)Short-term investments, net14,040 (31,574) 112,586Other(2,137) (2,736) (1,312)Net cash used in investing activities(104,741) (80,764) (34,163)Financing activities Senior debt issuances10,000 — 10,000Senior debt repayments— — (10,000)Dividends paid(50,832) (65,988) (47,405)Issuances of common shares under equity incentive plans1,708 2,260 1,730Common share repurchases(9,448) (4,907) (6,461)Other financing activities(792) (1,572) (649)Net cash used in financing activities(49,364) (70,207) (52,785)Change in cash and cash equivalents53,711 3,378 33,023Cash and cash equivalents at beginning of year109,784 106,406 73,383Cash and cash equivalents at end of year$163,495 $109,784 $106,406Supplemental information Income taxes paid (refunded), net$9,848 $(59) $(2,827)Interest paid$8,909 $8,121 $7,342See accompanying notes.F-8TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20151.Accounting PoliciesOrganizationJames River Group Holdings, Ltd. (referred to as “JRG Holdings” or, with its subsidiaries, the “Company”) is an exempted holding company registeredin Bermuda, organized for the purpose of acquiring and managing insurance and reinsurance entities.The Company owns six insurance companies based in the United States (“U.S.”) focused on specialty insurance niches and a Bermuda-based reinsurancecompany as described below:•James River Group Holdings UK Limited (“James River UK”) is an insurance holding company formed in 2015 in the United Kingdom (“U.K.”). TheCompany contributed James River Group, Inc. (“James River Group”), a U.S. insurance holding company, to James River UK in 2015.•James River Group is a Delaware domiciled insurance holding company formed in 2002, which owns all of the Company’s U.S.-based subsidiaries,either directly or indirectly through one of its wholly-owned U.S. subsidiaries. James River Group oversees the Company’s U.S. insurance operationsand maintains all of the outstanding debt in the U.S.•James River Insurance Company (“James River Insurance”) is an Ohio domiciled excess and surplus lines insurance company that, with its wholly-owned insurance subsidiary, James River Casualty Company, is authorized to write business in every state and the District of Columbia.•Falls Lake National Insurance Company (“Falls Lake National”) is an Ohio domiciled insurance company which wholly owns Stonewood InsuranceCompany (“Stonewood Insurance”), a North Carolina domiciled company, Falls Lake General Insurance Company, an Ohio domiciled company,and Falls Lake Fire and Casualty Company, a California domiciled company. Falls Lake National began writing specialty admitted fronting andprogram business in late 2013. Falls Lake Fire and Casualty Company began operations in 2016.•JRG Reinsurance Company, Ltd. (“JRG Re”) was formed in 2007 and commenced operations in 2008. JRG Re, a Bermuda domiciled reinsurer,provides non-catastrophe casualty reinsurance to U.S. third parties and to the Company’s U.S.-based insurance subsidiaries.Basis of Presentation and Principles of ConsolidationThe consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), which vary in somerespects from statutory accounting practices (“SAP”) which are prescribed or permitted by the various state insurance departments in the U.S. or by insuranceregulators in Bermuda. The accompanying consolidated financial statements include the accounts and operations of the Company and its subsidiaries.Intercompany transactions and balances have been eliminated.Estimates and AssumptionsPreparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect theamounts reported in the consolidated financial statements and accompanying disclosures. Those estimates are inherently subject to change, and actual resultsmay ultimately differ from those estimates.Fixed Maturity and Equity SecuritiesFixed maturity and equity securities classified as “available-for-sale” are carried at fair value, and unrealized gains and losses on such securities, net ofany deferred taxes, are reported as a separate component of accumulated other comprehensive income. Fixed maturity securities purchased for short-termresale are classified as “trading” and are carried at fair value with unrealized gains and losses included in earnings as a component of net investment income.The Company does not have any securities classified as “held-to-maturity”.Fair value generally represents quoted market value prices for securities traded in the public marketplace or prices analytically determined using bid orclosing prices for securities not traded in the public marketplace.F-9TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20151.Accounting Policies (continued)Premiums and discounts on mortgage-backed securities and asset-backed securities are amortized or accrued using the constant yield method whichconsiders anticipated prepayments at the date of purchase. To the extent that the estimated lives of such securities change as a result of changes in estimatedprepayment rates, the adjustments are included in net investment income using the retrospective method.Realized investment gains or losses are determined on a specific identification basis. Interest income is recognized as earned, and dividend income isrecognized on the ex-dividend date.The Company evaluates its available-for-sale investments regularly to determine whether there are declines in value that are other-than-temporary. TheCompany’s outside investment managers assist the Company in this evaluation. When the Company determines that a security has experienced an other-than-temporary impairment, the impairment loss is recognized as a realized investment loss. The factors that the Company considers in evaluating whethersuch an other-than-temporary impairment has occurred include the amount and percentage that fair value is below amortized cost or cost and the length oftime that fair value has been below amortized cost or cost. For fixed maturity securities, the Company considers the credit quality rating of the security, with aspecial emphasis on securities downgraded below investment grade. Management does not intend to sell available-for-sale fixed maturity securities in anunrealized loss position, and it is not “more likely than not” that the Company will be required to sell these securities before a recovery in fair value to theiramortized cost basis occurs. For equity securities, management evaluates the near-term prospects of these investments in relation to the severity and durationof the impairment, and the Company’s ability and intent to hold these investments until a recovery of fair value occurs.Bank Loan Participations Held-for-Investment and Allowance for Credit LossesBank loan participations held-for-investment are managed by a specialized outside investment manager and are generally stated at their outstandingunpaid principal balances net of unamortized premiums or discounts and net of any allowance for credit losses. Interest income is accrued on the unpaidprincipal balance. Discounts and premiums are amortized to income using the interest method.Generally, the accrual of interest on a bank loan participation is discontinued when the contractual payment of principal or interest has become 90 dayspast due or management has serious doubts about further collectability of principal or interest. A bank loan participation may remain on accrual status if it isin the process of collection and is either guaranteed or well secured. Interest received on nonaccrual loans generally is reported as investment income. Therewere no bank loans on nonaccrual status at December 31, 2017 or 2016.Generally, bank loan participations are restored to accrual status when the obligation is brought current, has performed in accordance with thecontractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt.The allowance for credit losses is maintained at a level believed adequate by management to absorb estimated probable credit losses. Management’speriodic evaluation of the adequacy of the allowance is based on consultations and advice of the Company’s specialized investment manager, known andinherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, currenteconomic conditions, and other relevant factors. When an observable market price for a loan is available, the Company has recorded an allowance equal tothe difference between the fair value and the amortized cost of bank loans that it has determined to be impaired as a practical expedient for an estimate ofprobable future cash flows to be collected on those bank loans. If an observable market price for a loan is not available, the Company records an allowanceequal to the difference between the present value of expected future cash flows discounted at the loan’s effective interest rate and the amortized cost of theloan. Bank loans are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.Other Invested AssetsOther invested assets at December 31, 2017 and 2016 include the Company’s interests in private debt and equity investments. The investments areprimarily focused in renewable energy, limited partnerships, and bank holding companies. Equity interests in various limited liability companies (“LLCs”)and limited partnerships are accounted for under the equity method, as the Company has determined that the equity method best reflects its economic interestin the underlying equity investment. For certain note agreements, original discounts and commitment fees received are recognized over the terms of the notesunder the effective interest method.F-10TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20151.Accounting Policies (continued)Short-Term InvestmentsShort-term investments are carried at cost, which approximates fair value. Short-term investments have maturities greater than three months but less thanone year at the date of purchase.Cash EquivalentsThe Company considers highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents.Direct Written PremiumsDirect written premiums are earned on a pro rata basis over the terms of the policies, generally 12 months. The portion of premiums written applicable tothe unexpired terms of the policies in force is recorded as unearned premiums. Policies are accounted for on an individual basis, with no aggregation bycounterparty.Assumed Reinsurance PremiumsAssumed reinsurance written premiums include amounts reported by brokers and ceding companies, supplemented by the Company’s own estimates ofpremiums when reports have not been received. Premiums on the Company’s excess of loss and pro rata reinsurance contracts are estimated when the businessis underwritten. For excess of loss contracts, the deposit premium, as defined in the contract, is generally recorded as an estimate of premiums written at theinception date of the treaty. Estimates of premiums written under pro rata contracts are recorded in the period in which the underlying risks are expected tobegin and are based on information provided by the brokers and the ceding companies.Reinsurance premium estimates are reviewed by management periodically. Any adjustment to these estimates is recorded in the period in which itbecomes known.Reinsurance premiums assumed are earned over the terms of the underlying policies or reinsurance contracts. Contracts and policies written on a “lossesoccurring” basis cover claims that may occur during the term of the contract or policy, which is typically 12 months. Accordingly, the premium is earnedevenly over the term. Contracts which are written on a “risks attaching” basis cover claims which attach to the underlying insurance policies written duringthe terms of such contracts. Premiums earned on such contracts usually extend beyond the original term of the reinsurance contract, typically resulting inrecognition of premiums earned over a 24-month period in proportion to the level of underlying exposure. Contracts are accounted for on an individual basis,with no aggregation by counterparty.Premiums Receivable and Agents’ Balances, NetPremiums receivable and agents’ balances are carried at face value net of any allowance for doubtful accounts. The allowance for doubtful accountsrepresents an estimate of amounts considered uncollectible based on the Company’s assessment of the collectability of receivables that are past due.Receivables greater than 90 days past due were $2.6 million and $2.0 million at December 31, 2017 and 2016, respectively. The allowance for doubtfulaccounts was $2.8 million and $2.1 million at December 31, 2017 and 2016, respectively. Bad debt expense was $1.0 million for the year endedDecember 31, 2017, $813,000 for the year ended December 31, 2016, and $1.1 million for the year ended December 31, 2015. Receivables written off againstthe allowance for doubtful accounts totaled $408,000 for the year ended December 31, 2017, $1.5 million for the year ended December 31, 2016, and$268,000 for the year ended December 31, 2015. Account balances are charged off against the allowance after all means of collection have been exhaustedand the potential for recovery is considered remote.Deferred Policy Acquisition CostsCosts which are incrementally or directly related to the successful acquisition of new or renewal insurance business are deferred. These deferred costs areprimarily commissions to agents, ceding commissions paid on reinsurance assumed, premium taxes, and the portion of underwriting fixed compensation andpayroll related fringe benefits directly related to an insurance contract that has been acquired, net of ceding commissions related to reinsurance ceded.Amortization of such policy acquisition costs is charged to expense in proportion to premium earned over the estimated policy life. To the extent thatunearned premiums on existing policies are not adequate to cover projected related costs and expenses, deferred policy acquisition costs are charged toearnings. The Company considers anticipated investment income in determining whether a premium deficiency exists.F-11TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20151.Accounting Policies (continued)Reinsurance and Adjustable Features of Insurance and Reinsurance ContractsCertain premiums and losses are ceded to other insurance companies or assumed from other insurance companies under various excess of loss and quota-share reinsurance contracts. The Company enters into ceded reinsurance contracts to limit its exposure to large losses, to limit exposure on new lines ofinsurance written by the Company, and to provide additional capacity for growth.Premiums, commissions, and losses and loss adjustment expenses on reinsured business are accounted for on a basis consistent with that used inaccounting for the original policies issued and the terms of the reinsurance contracts. Reinsurance recoverables and prepaid reinsurance premiums arereported as assets. Other amounts payable to insurance companies and reinsurers or receivable from insurance companies and reinsurers are netted where theright of offset exists. The Company receives ceding commissions in connection with certain ceded reinsurance. The ceding commissions are recorded as areduction of other operating expenses.Certain reinsurance contracts of the Casualty Reinsurance segment include provisions that adjust premiums or acquisition expenses based upon theexperience under the contracts. Premiums written and earned, as well as related acquisition expenses are recorded based upon the projected experience underthe contracts.The Company’s Specialty Admitted Insurance segment writes insurance under specialty admitted fronting and program arrangements. The fronting andprogram arrangements may contain contractual provisions that adjust acquisition expenses based upon loss experience under the contracts. The specialtyadmitted fronting and program arrangements are significantly reinsured. These reinsurance contracts may also contain provisions that adjust premiums oracquisition expenses based upon the loss experience under the contracts. Premiums written and earned, as well as related acquisition expenses, are recordedbased upon the projected experience under the contracts.Other IncomeOther income is principally comprised of fee income earned on policies for which the Company has no exposure to underwriting risk. Fee income of$17.0 million, $10.1 million, and $3.2 million is included in other income for the years ended December 31, 2017, 2016, and 2015, respectively. Fees areearned on a pro rata basis over the service period of the underlying business. Policies are accounted for on an individual basis, with no aggregation bycounterparty.Income TaxesDeferred tax assets and deferred tax liabilities are provided for the future tax consequences attributable to temporary differences between the financialstatement carrying amounts of assets and liabilities and their respective U.S. tax bases. Deferred tax assets and liabilities are measured using enacted U.S.corporate tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred taxassets are reduced by a valuation allowance only when management believes it is more likely than not that some, or all, of the deferred tax assets will not berealized.GoodwillGoodwill is tested annually for impairment in the fourth quarter of each calendar year, or more frequently if events or changes in circumstances indicatethat the carrying amount of the Company’s reporting units, including goodwill, may exceed their fair values. The Company first assesses qualitative factorsin determining whether it is necessary to perform the quantitative goodwill impairment test. If management determines that it is more likely than not that thefair value of a reporting unit is less than the carrying value based on qualitative factors then they will perform the quantitative goodwill impairment test. Forthe quantitative goodwill impairment testing, the fair value of the reporting units is determined using a combination of a market approach and an incomeapproach which projects the future cash flows produced by the reporting units and discounts those cash flows to their present value. The projection of futurecash flows is necessarily dependent upon assumptions on the future levels of income as well as business trends, prospects, market, and economic conditions.The results of the two approaches are weighted to determine the fair value of each reporting unit. When the fair value is less than the carrying value of the netassets of the reporting unit, including goodwill, an impairment loss is charged to operations. To determine the amount of any goodwill impairment, theimplied fair value of reporting unit goodwill is compared to the carrying amount of that goodwill. The implied fair value of goodwill is determined in thesame manner as the amount of goodwill recognized in a business combination is determined. That is, the fair value of a reporting unit is assigned to all of theassets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. Theexcess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill.F-12TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20151.Accounting Policies (continued)Intangible Assets, NetIntangible assets are initially recognized and measured at fair value. Specifically identified intangible assets with indefinite lives include trademarks andstate insurance licenses and authorities. Other specifically identified intangible assets with lives ranging from 7.0 to 27.5 years represent relationships withbrokers. These intangible assets are amortized on a straight-line basis over their estimated useful lives.Intangible assets with indefinite useful lives are reviewed for impairment at least annually. In evaluating whether there has been impairment to theintangible asset, management determines the fair value of the intangible asset and compares the resulting fair value to the carrying value of the intangibleasset. If the carrying value exceeds the fair value, the intangible asset is written down to fair value, and the impairment is reported through earnings. TheCompany evaluates intangible assets with definite lives for impairment when impairment indicators are noted.Impairment of Long-Lived AssetsLong-lived assets with finite lives are tested for impairment whenever recognized events or changes in circumstances indicate the carrying value of theseassets may not be recoverable. If indicators of impairment are present, fair value is calculated using estimated future cash flows expected to be generated fromthe use of those assets. An impairment loss is recognized only if the carrying amount of a long-lived asset or asset group is not recoverable and exceeds its fairvalue. The carrying amount of a long-lived asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result fromthe use and eventual disposition of the asset or asset group. That assessment is based on the carrying amount of the asset or asset group at the date it is testedfor recoverability. An impairment loss is measured as the amount by which the carrying amount of a long-lived asset or asset group exceeds its fair value.Property and Equipment, NetProperty and equipment, which is included in “other assets” in the accompanying consolidated balance sheets, is reported at cost less accumulateddepreciation and is depreciated principally on a straight-line basis over the estimated useful lives of the depreciable assets, generally three to ten years.In the event the Company has been deemed the owner for accounting purposes of construction projects in lease arrangements, the estimated constructioncosts incurred to date are recorded as assets in property and equipment, net and included in “other assets” in the accompanying consolidated balance sheets.Upon occupancy of facilities under lease, the Company assesses whether arrangements qualify for sales recognition under the sale-leaseback accountingguidance. If the Company continues to be the deemed owner for accounting purposes, the cost of the building is depreciated over its estimated useful life.Reserve for Losses and Loss Adjustment ExpensesThe reserve for losses and loss adjustment expenses represents the estimated ultimate cost of all reported and unreported losses and loss adjustmentexpenses incurred and unpaid at the balance sheet date. The Company does not discount this reserve. The process of estimating the reserve for losses and lossadjustment expenses requires a high degree of judgment and is subject to a number of variables. The reserve for losses and loss adjustment expenses isestimated using individual case-basis valuations and statistical analyses. Those estimates are subject to the effects of trends in loss severity and frequency.The Company utilizes various actuarially-accepted reserving methodologies in determining the continuum of expected outcomes for its reserves. Thesemethodologies utilize various inputs, including management’s initial expected loss ratio (the ratio of losses and loss adjustment expenses incurred to netearned premiums), expected reporting patterns and payment patterns for losses and loss adjustment expenses (based on insurance industry data and theCompany’s own experience), and the Company’s actual paid and reported losses and loss adjustment expenses. An internal actuary reviews these results and(after applying appropriate professional judgment and other actuarial techniques that are considered necessary) presents recommendations to the Company’smanagement. Management uses this information and its judgment to make decisions on the final recorded reserve for losses and loss adjustment expenses.Management believes that the use of judgment is necessary to arrive at a best estimate for the reserve for losses and loss adjustment expenses given the long-tailed nature of the business generally written by the Company and the limited operating experience of the Casualty Reinsurance segment, the fronting andprogram business in the Specialty Admitted Insurance segment, and the commercial auto business in the Excess and Surplus Lines segment.F-13TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20151.Accounting Policies (continued)Catastrophes of significant magnitude, including hurricanes and earthquakes, involve complex coverage issues. In estimating the reserve for losses andloss adjustment expenses for these catastrophes, management uses case reserve estimates based on information obtained from site inspections by theCompany’s adjustors and the terms of coverage provided in the policies. Management estimates reserves for incurred but not reported claims for thesecatastrophes using judgment based on an assessment of the Company’s property insurance exposures where the catastrophes occur and the Company’sprogress in settling claims.Although management believes that the reserve for losses and loss adjustment expenses is reasonable, it is possible that the Company’s actual incurredlosses and loss adjustment expenses will not develop in a manner consistent with the assumptions inherent in the determination of these reserves.Specifically, the Company’s actual ultimate loss ratio could differ from management’s initial expected loss ratio and/or the Company’s actual reportingpatterns for losses could differ from the expected reporting patterns. Accordingly, the ultimate settlement of losses and the related loss adjustment expensesmay vary significantly from the estimates included in the Company’s consolidated financial statements. These estimates are reviewed continually bymanagement and are adjusted as necessary as experience develops or new information becomes known; such adjustments are included in current operations.Share Based CompensationThe Company expenses the fair value of share equity awards over the vesting period of the award on a straight-line basis. The Black-Scholes-Mertonoption pricing model is used to value the options granted (see Note 11). As the share based compensation expense is incurred, a corresponding increase toadditional paid-in capital in shareholders’ equity is recognized. Share based compensation expense is reflected in “other operating expenses” in theaccompanying consolidated statements of income and comprehensive income.Financing ObligationsIn a lease arrangement where the Company made a minority investment in a partnership that was involved in the construction of a building, theCompany was deemed the owner for accounting purposes during the construction period. The Company recorded an asset for the amount of the total projectcosts and the related financing obligation is included in “other liabilities” in the accompanying consolidated balance sheets. Once construction wascompleted, the Company determined the arrangement did not qualify for sale-lease back treatment. Accordingly, the Company continues to reduce theobligation over the lease term as payments are made and depreciates the asset over its useful life. The Company does not report rent expense for the portion ofthe rent payment determined to be related to the assets which are owned for accounting purposes. Rather, this portion of the rent payment under the lease isrecognized as a reduction of the financing obligation and as interest expense.Variable Interest EntitiesEntities that do not have sufficient equity at risk to allow the entity to finance its activities without additional financial support or in which the equityinvestors, as a group, do not have the characteristic of a controlling financial interest are referred to as variable interest entities (“VIE”). A VIE is consolidatedby the variable interest holder that is determined to have the controlling financial interest (primary beneficiary) as a result of having both the power to directthe activities of a VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or right to receive benefits from theVIE that could potentially be significant to the VIE. The Company determines whether it is the primary beneficiary of an entity subject to consolidationbased on a qualitative assessment of the VIE’s capital structure, contractual terms, nature of the VIE’s operations and purpose, and the Company’s relativeexposure to the related risks of the VIE on the date it becomes initially involved in the VIE. The Company reassesses its VIE determination with respect to anentity on an ongoing basis.The Company holds interests in VIEs through certain equity method investments included in “other invested assets” in the accompanying consolidatedbalance sheets. The Company has determined that it should not consolidate any of the VIEs as it is not the primary beneficiary in any of the relationships.Although the investments resulted in the Company holding variable interests in the entities, they did not empower the Company to direct the activities thatmost significantly impact the economic performance of the entities. The Company’s investments related to these VIEs totaled $32.1 million and $27.1million as of December 31, 2017 and 2016, respectively, representing the Company’s maximum exposure to loss.Earnings Per ShareBasic earnings per share excludes dilution and is computed by dividing net income by the weighted-average number of common shares outstanding forthe period. Diluted earnings per share reflects the dilution that could occur if securities or other contracts to issue common shares or common shareequivalents were exercised or converted into common shares as calculatedF-14TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20151.Accounting Policies (continued)using the treasury stock method. When inclusion of common share equivalents increases the earnings per share or reduces the loss per share, the effect onearnings is anti-dilutive, and the diluted net earnings or net loss per share is computed excluding these common share equivalents.The following represents a reconciliation of the numerator and denominator of the basic and diluted earnings per share computations contained in theconsolidated financial statements.Net Income(Numerator) Weighted-AverageCommon Shares(Denominator) EarningsPer Share(in thousands, except per share data)Year ended December 31, 2017 Basic$43,566 29,461,717 $1.48Common share equivalents— 811,432 (0.04)Diluted$43,566 30,273,149 $1.44Year ended December 31, 2016 Basic$74,471 29,063,075 $2.56Common share equivalents— 831,303 (0.07)Diluted$74,471 29,894,378 $2.49Year ended December 31, 2015 Basic$53,497 28,662,051 $1.87Common share equivalents— 672,867 (0.05)Diluted$53,497 29,334,918 $1.82Common share equivalents relate to our stock options and restricted stock units (“RSUs”).For the year ended December 31, 2017, common share equivalents of 174,380 shares are excluded from the calculations of diluted earnings per share astheir effects are anti-dilutive. For the years ended December 31, 2016 and 2015, all common share equivalents are dilutive.Adopted Accounting StandardsEffective January 1, 2017, the Company adopted Accounting Standards Update (“ASU”) 2016-09, Compensation – Stock Compensation (Topic 718):Improvements to Employee Share-Based Payment Accounting using the prospective method. The guidance requires that all tax effects related to share-basedpayments be made through the income statement at the time of settlement as opposed to excess tax benefits being recognized in additional paid-in capitalunder the previous guidance. The ASU also removes the requirement to delay recognition of a tax benefit until it reduces current taxes payable. Additionally,all tax related cash flows resulting from share-based payments are now reported as operating activities on the statement of cash flows, a change from theprevious requirement to present tax benefits as an inflow from financing activities and an outflow from operating activities. For the years ended December 31,2016 and 2015, net cash provided by operating activities increased by $3.2 million and $3.6 million, respectively, and net cash used in financing activitiesincreased by $3.2 million and $3.6 million, respectively, for the adoption of ASU 2016-09. The Company has elected to recognize forfeitures as they occur inaccordance with ASU 2016-09. The adoption of ASU 2016-09 did not materially impact the Company’s consolidated income statements.Prospective Accounting StandardsIn May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Theguidance applies to all companies that either enter into contracts with customers to transfer goods or services or enter into contracts for the transfer ofnonfinancial assets, unless those contracts are within the scope of other standards, such as insurance contracts. Under this guidance, a company will recognizerevenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled inexchange for those goods or services. Judgments required in adopting this update may include identifying performance obligations in the contract,estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separateF-15TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20151.Accounting Policies (continued)performance obligation. ASU 2014-09 becomes effective for the Company during the first quarter of 2018 and must be applied retrospectively. The Companyhas completed its evaluation of ASU 2014-09 and determined that adopting this standard will have no impact on reported fee income. As part of thisevaluation, the Company completed a review of its contracts and assessed the impact the new standard will have on its disclosures and internal controls. TheCompany will adopt this ASU in the first quarter of 2018, with no cumulative effect of initially applying the update.In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assetsand Financial Liabilities. Among other things, this ASU will require equity investments (except those accounted for under the equity method of accountingor those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. This ASU is effective forinterim and annual reporting periods beginning after December 15, 2017. Upon adoption on January 1, 2018, the Company expects to make a $4.7 millioncumulative-effect adjustment to increase retained earnings and reduce accumulated other comprehensive income. Adoption of this ASU is not expected tohave a material impact on the Company's financial position, cash flows, or total comprehensive income, but will have an impact on the Company's results ofoperations, as changes in fair value of equity instruments will be presented in net income rather than other comprehensive income.In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under current guidance for lessees, leases are only included on the balance sheet ifcertain criteria, classifying the agreement as a capital lease, are met. This update will require the recognition of a right-of-use asset and a corresponding leaseliability, discounted to the present value, for all leases that extend beyond 12 months. This ASU is effective for annual and interim reporting periodsbeginning after December 15, 2018. Upon adoption, leases will be recognized and measured at the beginning of the earliest period presented using amodified retrospective approach. The Company is currently evaluating ASU 2016-02 to determine the potential impact that adopting this standard will haveon its consolidated financial statements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on FinancialInstruments. Current GAAP delays the recognition of credit losses until it is probable a loss has been incurred. The update will require financial assetsmeasured at amortized cost, such as bank loan participations held for investment, to be presented at the net amount expected to be collected by means of anallowance for credit losses that runs through net income. Credit losses relating to available-for-sale debt securities will also be recorded through an allowancefor credit losses, with the amount of the allowance limited to the amount by which fair value is below amortized cost. This ASU is effective for annual andinterim reporting periods beginning after December 15, 2019. Upon adoption, this ASU will be applied using the modified-retrospective approach, by whicha cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period presented. The Company has not yetcompleted the analysis of how adopting this ASU will affect the Company’s financial statements.In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments toaddress the diversity in practice of how certain cash receipts and payments are classified in the statement of cash flows. The update addresses specific issues,including distributions received from equity method investees and the classification of cash receipts and payments that have aspects of more than one classof cash flows. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017. Upon adoption, the update will be appliedusing the retrospective transition method. The Company does not expect that the adoption of this ASU will have a material impact on its statement of cashflows.In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain TaxEffects from Accumulated Other Comprehensive Income as a result of the enactment of the Tax Cuts and Jobs Act of 2017 (TCJA) on December 22, 2017.Current guidance requires the effect of a change in tax laws or rates on deferred tax balances to be reported in income from continuing operations in theaccounting period that includes the period of enactment, even if the related income tax effects were originally charged or credited to accumulated othercomprehensive income. This ASU allows for the option to reclassify the stranded tax effects resulting from the implementation of the TCJA out ofaccumulated other comprehensive income and into retained earnings. This ASU is effective for annual and interim reporting periods beginning afterDecember 15, 2018. Early adoption is permitted. As the adoption of ASU 2016-01 in 2018 will result in the reclassification of the entire unrealized balanceon equity securities from accumulated other comprehensive income into retained earnings, only the stranded tax effects on the unrealized balances of ourfixed income securities will be impacted by the adoption of ASU 2018-02. The reclassification will result in a $710,000 decrease to the Company's retainedearnings with a corresponding increase to accumulated other comprehensive income in the first quarter of 2018.F-16TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20152.InvestmentsThe Company's available-for-sale investments are summarized as follows:Cost orAmortizedCost GrossUnrealizedGains GrossUnrealizedLosses FairValue(in thousands)December 31, 2017 Fixed maturity securities: State and municipal$139,382 $5,587 $(603) $144,366Residential mortgage-backed160,379 723 (2,441) 158,661Corporate408,857 7,503 (2,639) 413,721Commercial mortgage and asset-backed182,595 714 (698) 182,611Obligations of U.S. government corporations and agencies35,948 — (101) 35,847U.S. Treasury securities and obligations guaranteed by the U.S.government79,476 37 (639) 78,874Redeemable preferred stock2,025 — (7) 2,018Total fixed maturity securities1,008,662 14,564 (7,128) 1,016,098Equity securities75,318 7,830 (626) 82,522Total investments available-for-sale$1,083,980 $22,394 $(7,754) $1,098,620December 31, 2016 Fixed maturity securities: State and municipal$101,793 $5,032 $(984) $105,841Residential mortgage-backed152,703 1,070 (2,975) 150,798Corporate379,727 4,382 (5,661) 378,448Commercial mortgage and asset-backed167,967 906 (826) 168,047Obligations of U.S. government corporations and agencies64,823 276 (85) 65,014U.S. Treasury securities and obligations guaranteed by the U.S.government71,174 131 (185) 71,120Redeemable preferred stock2,025 — (216) 1,809Total fixed maturity securities940,212 11,797 (10,932) 941,077Equity securities74,553 4,503 (2,655) 76,401Total investments available-for-sale$1,014,765 $16,300 $(13,587) $1,017,478The amortized cost and fair value of available-for-sale investments in fixed maturity securities at December 31, 2017 are summarized, by contractualmaturity, as follows:AmortizedCost FairValue(in thousands)One year or less$66,852 $66,770After one year through five years274,095 274,421After five years through ten years195,333 195,995After ten years127,383 135,622Residential mortgage-backed160,379 158,661Commercial mortgage and asset-backed182,595 182,611Redeemable preferred stock2,025 2,018Total$1,008,662 $1,016,098F-17TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20152.Investments (continued)Actual maturities may differ for some securities because borrowers have the right to call or prepay obligations with or without penalties.The following table shows the Company’s gross unrealized losses and fair value for available-for-sale securities aggregated by investment category andthe length of time that individual securities have been in a continuous unrealized loss position:Less Than 12 Months 12 Months or More TotalFairValue GrossUnrealizedLosses FairValue GrossUnrealizedLosses FairValue GrossUnrealizedLosses(in thousands)December 31, 2017 Fixed maturity securities: State and municipal$40,117 $(318) $10,662 $(285) $50,779 $(603)Residential mortgage-backed50,447 (261) 84,193 (2,180) 134,640 (2,441)Corporate113,464 (846) 66,954 (1,793) 180,418 (2,639)Commercial mortgage and asset-backed53,965 (244) 25,299 (454) 79,264 (698)Obligations of U.S. government corporations andagencies3,024 (1) 32,154 (100) 35,178 (101)U.S. Treasury securities and obligations guaranteedby the U.S. government50,760 (430) 26,707 (209) 77,467 (639)Redeemable preferred stock2,018 (7) — — 2,018 (7)Total fixed maturity securities313,795 (2,107) 245,969 (5,021) 559,764 (7,128)Equity securities5,859 (65) 5,665 (561) 11,524 (626)Total investments available-for-sale$319,654 $(2,172) $251,634 $(5,582) $571,288 $(7,754)December 31, 2016 Fixed maturity securities: State and municipal$28,398 $(984) $— $— $28,398 $(984)Residential mortgage-backed93,242 (1,548) 32,330 (1,427) 125,572 (2,975)Corporate199,841 (4,212) 8,477 (1,449) 208,318 (5,661)Commercial mortgage and asset-backed47,990 (799) 7,195 (27) 55,185 (826)Obligations of U.S. government corporations andagencies50,573 (85) — — 50,573 (85)U.S. Treasury securities and obligations guaranteedby the U.S. government48,989 (185) — — 48,989 (185)Redeemable preferred stock1,809 (216) — — 1,809 (216)Total fixed maturity securities470,842 (8,029) 48,002 (2,903) 518,844 (10,932)Equity securities21,345 (1,071) 6,558 (1,584) 27,903 (2,655)Total investments available-for-sale$492,187 $(9,100) $54,560 $(4,487) $546,747 $(13,587)The Company held securities of 166 issuers that were in an unrealized loss position at December 31, 2017 with a total fair value of $571.3 million andgross unrealized losses of $7.8 million. None of the fixed maturity securities with unrealized losses has ever missed, or been delinquent on, a scheduledprincipal or interest payment.F-18TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20152.Investments (continued)At December 31, 2017, 99.4% of the Company’s fixed maturity security portfolio was rated “BBB-” or better (“investment grade”) by Standard & Poor’sor received an equivalent rating from another nationally recognized rating agency. Fixed maturity securities with ratings below investment grade by Standard& Poor’s or another nationally recognized rating agency at December 31, 2017 had an aggregate fair value of $6.5 million and an aggregate net unrealizedgain of $305,000.The Company previously held two municipal bonds issued by the Commonwealth of Puerto Rico. Puerto Rico’s weak economic conditions and heavydebt burden heightened the risk of default on the bonds and management concluded that the bonds, which had been downgraded to below investment grade,were other-than-temporarily impaired. The Company recognized impairment losses of $660,000 on these bonds for the year ended December 31, 2015. Thebonds were sold during the second quarter of 2015 and a net realized gain of $22,000 was recognized on the sales. Management concluded that none of theother fixed maturity securities with an unrealized loss at December 31, 2017, 2016, and 2015 experienced an other-than-temporary impairment. Managementdoes not intend to sell available-for-sale securities in an unrealized loss position, and it is not “more likely than not” that the Company will be required tosell these securities before a recovery in their value to their amortized cost basis occurs.Management concluded that based on the severity and duration of the impairment associated with an equity security, the security had experienced another-than-temporary impairment at December 31, 2017. Accordingly, the Company recorded an impairment loss of $1.5 million in 2017. Managementconcluded that none of the other equity securities with an unrealized loss at December 31, 2017, 2016, and 2015 experienced an other-than-temporaryimpairment. Management has evaluated the near-term prospects of these other equity securities in relation to the severity and duration of the impairment, andmanagement has the ability and intent to hold these securities until a recovery of their fair value.Bank loan participations generally have a credit rating that is below investment grade (i.e. below “BBB-” for Standard & Poor’s) at the date of purchase.These bank loans are primarily senior, secured floating-rate debt rated “BB”, “B”, or “CCC” by Standard & Poor’s or an equivalent rating from anothernationally recognized rating agency. These bank loans include assignments of, and participations in, performing and non-performing senior corporate debtgenerally acquired through primary bank syndications and in secondary markets. Bank loans consist of, but are not limited to, term loans, the funded andunfunded portions of revolving credit loans, and other similar loans and investments. Management believed that it was probable at the time that these loanswere acquired that the Company would be able to collect all contractually required payments receivable.At December 31, 2015, the Company held participations in two loans issued by companies that produce and supply power to Puerto Rico through powerpurchase agreements with Puerto Rico Electric Power Authority (“PREPA”), a public corporation and governmental agency of the Commonwealth of PuertoRico. PREPA’s credit strength and ability to make timely payments was impacted by the economic conditions in Puerto Rico, thus raising doubt about thecompanies’ ability to meet the debt obligations held by the Company. Management concluded that the loans were impaired at December 31, 2015 andestablished an allowance for credit losses on the loans of $414,000. After recording this impairment, the loans had a carrying value of $3.9 million atDecember 31, 2015 and unpaid principal of $4.6 million. In June 2016, one of the loans was repaid in full at its scheduled maturity. Management concludedthat the remaining loan was still impaired at December 31, 2016. The loan had a carrying value of $1.7 million, unpaid principal of $2.0 million, and anallowance for credit losses of $177,000 at December 31, 2016. In July 2017, PREPA filed a petition for relief in U.S. District Court under Title III of the PuertoRico Oversight, Management, and Economic Stability Act. Also in 2017, the devastation caused by Hurricane Maria on the island of Puerto Rico raisedadditional doubt about PREPA's ability to make payments to the issuer. The maturity of the remaining loan, originally scheduled for November 2017, wasdeferred until March 2018. Management established an allowance for credit losses of $759,000 to reduce the loan's carrying value to zero at both September30, 2017 and December 31, 2017. The unpaid principal on the loan was $807,000 at December 31, 2017.The Company’s bank loan portfolio includes loans to oil and gas companies in the energy sector. The market values of these loans have been impactedby declining energy prices. At December 31, 2017, the Company’s oil and gas exposure in the bank loan portfolio was in four loans with a carrying value of$7.9 million and unrealized losses of $180,000. Management concluded that three of these loans were impaired as of December 31, 2017, and accordingly, anallowance for credit losses of $2.3 million was established on the loans. After recording this impairment, the loans had a carrying value of $4.6 million atDecember 31, 2017 and unpaid principal of $6.9 million. All of the other loans are current at December 31, 2017. At December 31, 2016, one loan in theenergy sector was impaired with a carrying value of $1.6 million, unpaid principal of $2.2 million and an allowance for credit losses of $545,000. AtDecember 31, 2015, two loans in the energy sector were impaired with a carrying value of $1.7 million, unpaid principal of $5.8 million and an allowance forcredit losses of $3.9 million.F-19TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20152.Investments (continued)Management also concluded that one non-energy sector loan was impaired at December 31, 2017. At December 31, 2017, the impaired loan had acarrying value of $561,000, unpaid principal of $706,000, and an allowance for credit losses of $145,000. At December 31, 2016, three non-energy sectorloans were impaired with a total carrying value of $3.2 million, unpaid principal of $3.5 million, and an allowance for credit losses of $221,000. AtDecember 31, 2015, one non-energy sector loan was impaired with a carrying value of $689,000, unpaid principal of $722,000, and an allowance for creditlosses of $34,000.The aggregate allowance for credit losses was $3.2 million at December 31, 2017 on five impaired loans with a total carrying value of $5.1 million andunpaid principal of $8.4 million. At December 31, 2016, the aggregate allowance for credit losses was $943,000 on five impaired loans with a total carryingvalue of $6.5 million and unpaid principal of $7.6 million. At December 31, 2015, the aggregate allowance for credit losses was $4.3 million on five impairedloans with a total carrying value of $6.3 million and unpaid principal of $11.1 million.The average recorded investment in impaired bank loans was $5.8 million, $6.4 million, and $6.7 million, during the years ended December 31, 2017,2016, and 2015, respectively, and investment income of $300,000, $297,000, and $229,000, was recognized during the time that the loans were impaired.The Company recorded realized losses of $2.4 million, realized gains of $415,000, and realized losses of $3.4 million during the years ended December 31,2017, 2016, and 2015, respectively, for changes in the fair value of impaired bank loans.At December 31, 2017, unamortized discounts on bank loan participations were $1.1 million, and unamortized premiums were $3,000. At December 31,2016, unamortized discounts on bank loan participations were $2.9 million, and unamortized premiums were $14,000.Major categories of the Company’s net investment income are summarized as follows:Year Ended December 31,2017 2016 2015(in thousands)Fixed maturity securities$26,833 $25,917 $24,178Bank loan participations17,388 14,486 13,432Equity securities5,045 5,617 4,444Other invested assets14,079 9,536 5,947Cash, cash equivalents, short-term investments, and other1,708 824 672Trading gains (losses)(4) 18 (9)Gross investment income65,049 56,398 48,664Investment expense(3,930) (3,760) (3,829)Net investment income$61,119 $52,638 $44,835 Changes in unrealized gains or losses on securities held for trading are recorded as trading gains or losses within net investment income. Net investmentincome for the year ended December 31, 2017 included $4,000 of net trading losses, all of which related to securities still held at December 31, 2017. Netinvestment income for the year ended December 31, 2016 included $18,000 of net trading gains, all of which related to securities still held at December 31,2016. Net investment income for the year ended December 31, 2015 included $9,000 of net trading losses of which $7,000 of net trading losses related tosecurities still held at December 31, 2015.F-20TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20152.Investments (continued)The Company’s realized gains and losses on investments are summarized as follows:Year Ended December 31,2017 2016 2015(in thousands)Fixed maturity securities: Gross realized gains$840 $1,916 $2,197Gross realized losses(512) (106) (826)328 1,810 1,371Equity securities: Gross realized gains429 4,761 1,041Gross realized losses(1,591) — (10)(1,162) 4,761 1,031Bank loan participations: Gross realized gains2,407 2,827 1,269Gross realized losses(3,557) (1,832) (8,258)(1,150) 995 (6,989)Short-term investments and other: Gross realized gains1 3 54Gross realized losses(6) (4) (14)(5) (1) 40Total$(1,989) $7,565 $(4,547)The following table summarizes the change in the Company’s available-for-sale gross unrealized gains or losses by investment type:Year Ended December 31,2017 2016 2015(in thousands)Change in gross unrealized gains (losses): Fixed maturity securities$6,571 $(1,350) $(16,832)Equity securities5,356 (2,433) 724Total$11,927 $(3,783) $(16,108) F-21TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20152.Investments (continued)The Company invests selectively in private debt and equity opportunities. These investments, which together comprise the Company’s other investedassets, are primarily focused in renewable energy, limited partnerships, and bank holding companies.Carrying Value Investment Income Year EndedDecember 31,December 31, 2017 2016 2017 2016 2015(in thousands) (in thousands)Category: Renewable energy LLCs(a)$32,063 $27,067 $10,578 $3,480 $3,936Renewable energy notes receivable(b)7,278 — 526 450 3,136Limited partnerships(c)26,367 23,852 2,632 5,263 (1,468)Bank holding companies(d)4,500 4,500 343 343 343Total other invested assets$70,208 $55,419 $14,079 $9,536 $5,947(a)The Company’s Corporate and Other segment owns equity interests ranging from 2.6% to 32.8% in various LLCs whose principal objective is capitalappreciation and income generation from owning and operating renewable energy production facilities (wind and solar). The LLCs are managed by anaffiliate of the Company’s largest shareholder and the Company’s Chairman and Chief Executive Officer has invested in certain of these LLCs. Theequity method is used to account for the Company’s LLC investments. Income for the LLCs primarily reflects adjustments to the carrying values ofinvestments in renewable energy projects to their determined fair values. The fair value adjustments are included in revenues for the LLCs. Expenses forthe LLCs are not significant and are comprised of administrative and interest expenses. The Company received cash distributions from these investmentstotaling $5.6 million and $2.4 million for the years ended December 31, 2017 and 2016, respectively.(b)The Company has invested in notes receivable for renewable energy projects. In 2017, the Company invested $7.3 million in a note with an affiliate ofthe Company's largest shareholder. Interest on the note, which matures in 2021, is fixed at 15%. The Company is committed to investing another $1.5million in the note and commitment fees of 2.5% are earned on the unfunded commitment. Interest income on the note was $526,000 for the year endedDecember 31, 2017. In 2016, the outstanding balance of a $6.5 million note was fully repaid. Income prior to repayment of the note was $450,000 for theyear ended December 31, 2016. During the year ended December 31, 2015, the Company invested a total of $36.3 million in these notes and receivedmaturities and repayments totaling $30.8 million.(c)The Company owns investments in limited partnerships that invest in concentrated portfolios including publicly-traded small cap equities, loans ofmiddle market private equity sponsored companies, equity tranches of collateralized loan obligations (CLOs), and tranches of distressed home loans.Income from the partnerships is recognized under the equity method of accounting. The Company’s Corporate and Other segment held investments inlimited partnerships of $3.0 million and $2.6 million at December 31, 2017 and 2016, and recognized investment income of $394,000 and $455,000 andinvestment losses of $510,000 for the years ended December 31, 2017, 2016 and 2015, respectively. The Chairman and Chief Executive Officer of theCompany is an investor in one limited partnership held by the Corporate and Other segment. The Company’s Excess and Surplus Lines segment holdsinvestments in limited partnerships of $23.4 million and $21.2 million at December 31, 2017 and 2016, respectively. Investment income of $2.2 millionand $4.8 million and investment losses of $958,000 were recognized on the investments for the years ended December 31, 2017, 2016, and 2015,respectively. At December 31, 2017, the Company’s Excess and Surplus Lines segment has outstanding commitments to invest another $625,000 in alimited partnership that invests in loans of middle market private equity sponsored companies and another $5.0 million in a limited partnership thatinvests in tranches of distressed home loans. The Chairman and former Chief Executive Officer of the Company and one of the Company's directors areinvestors in one limited partnership held by the Excess and Surplus Lines segment.F-22TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20152.Investments (continued)(d)The Company holds $4.5 million of subordinated notes issued by a bank holding company. Interest on the notes, which mature in 2023, is fixed at 7.6%per annum. Interest income on the notes was $343,000 in each of the years ended December 31, 2017, 2016 and 2015. The Company's Chairman andformer Chief Executive Officer was previously the Lead Independent Director of the bank holding company and an investor in the bank holdingcompany. Additionally, one of the Company’s directors is a former investor in the bank holding company and is currently a lender to the bank holdingcompany.The Company previously held common shares issued by the bank holding company. The shares were carried as available for-sale equity securities.Dividend income of $299,000 and $66,000 was recorded on the shares for the years ended December 31, 2016 and 2015, respectively. Realized investmentgains of $409,000 and $3.6 million were recognized on the sale of the common shares for the years ended December 31, 2017 and 2016, respectively.At December 31, 2017 and 2016, the Company held an investment in a collateralized loan obligation (CLO) where one of the underlying loans wasissued by the bank holding company. The investment, with a carrying value of $4.7 million at December 31, 2017, is classified as an available-for-sale fixedmaturity.The Company holds a $1.0 million certificate of deposit issued by the bank holding company. The certificate of deposit, which matures on December19, 2018, is carried as a short-term investment. Interest income of $3,000, $4,000 and $5,000 was recognized on this investment for the years endedDecember 31, 2017, 2016, 2015, respectively.Two of the Company’s directors were previously directors of First Wind Holdings, LLC (“First Wind”), which is an affiliate of the Company’s largestshareholder. At December 31, 2014, the Company held fixed maturity securities with a fair value of $12.6 million issued by a subsidiary of First Wind. Thesesecurities were called in March 2015, resulting in a realized gain of $845,000. Also at December 31, 2014, the Company held a bank loan participation with acarrying value of $4.6 million from another subsidiary of First Wind. The loan was repaid in full in January 2015.The Company maintains fixed maturity securities, short-term investments, and cash and cash equivalents amounting to $472.0 million at December 31,2017 in trust accounts or on deposit as collateral for outstanding letters of credit issued as security to third-party reinsureds on reinsurance assumed by JRGRe.At December 31, 2017 and 2016, investments with a fair value of $16.5 million and $16.4 million, respectively, were on deposit with state insurancedepartments to satisfy regulatory requirements.At December 31, 2017, the Company held no investments in securitizations of alternative-A mortgages or sub-prime mortgages.F-23TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20153.Deferred Policy Acquisition CostsAn analysis of deferred policy acquisition costs is as follows:Year Ended December 31,2017 2016 2015(in thousands)Balance at beginning of period$64,789 $60,754 $60,202Policy acquisition costs deferred: Commissions107,387 92,736 90,342Underwriting and other issue expenses16,190 12,923 7,960123,577 105,659 98,302Amortization of policy acquisition costs(116,001) (101,624) (97,750)Net change7,576 4,035 552Balance at end of period$72,365 $64,789 $60,7544.Goodwill and Intangible AssetsOn December 11, 2007, the Company completed an acquisition of James River Group by acquiring 100% of the outstanding shares of James RiverGroup common stock, referred to herein as the “Merger”. The transaction was accounted for under the purchase method of accounting, and goodwill andintangible assets were recognized by the Company as a result of the transaction.All of the Company’s goodwill is an asset of the Excess and Surplus Lines segment. The Company’s annual testing performed in the fourth quarter of2017, 2016 and 2015 indicated that no impairment of goodwill had occurred. The carrying amount of goodwill at December 31, 2017 and 2016 was $181.8million. Accumulated goodwill impairment losses were $99.6 million at December 31, 2017 and 2016. The most recent goodwill impairment losses occurredin 2010.Specifically identifiable intangible assets were acquired in the Merger. During the fourth quarters of 2017, 2016 and 2015, the indefinite-livedintangible assets for trademarks and insurance licenses and authorities were tested for impairment. Intangible assets for customer and broker relationships thathave specific lives and are subject to amortization were also reviewed for impairment. There were no impairments recognized in 2017, 2016, or 2015.The gross carrying amounts and accumulated amortization for each major specifically identifiable intangible asset class were as follows: December 31, 2017 2016 Weighted-AverageLife(Years) GrossCarryingAmount AccumulatedAmortization GrossCarryingAmount AccumulatedAmortization (in thousands)TrademarksIndefinite $22,200 $— $22,200 $—Insurance licenses and authoritiesIndefinite 9,164 — 9,164 —Identifiable intangibles not subject to amortization 31,364 — 31,364 —Broker relationships24.6 11,611 4,641 11,611 4,044Identifiable intangible assets subject to amortization 11,611 4,641 11,611 4,044 $42,975 $4,641 $42,975 $4,044F-24TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20154.Goodwill and Intangible Assets (continued)Future estimated amortization of specifically identifiable intangible assets as of December 31, 2017 is as follows (in thousands):2018$5972019597202053820213632022363Thereafter4,512Total$6,970The table below summarizes the changes in the net carrying values of intangible assets by segment for 2017: December 31, 2016 December 31, 2017Net CarryingValue Amortization ImpairmentLosses Net CarryingValue(in thousands)Excess and Surplus Lines Trademarks$19,700 $— $— $19,700Insurance licenses and authorities4,900 — — 4,900Broker relationships6,689 (362) — 6,32731,289 (362) — 30,927Specialty Admitted Insurance Trademarks2,500 — — 2,500Insurance licenses and authorities4,265 — — 4,265Broker relationships877 (235) — 6427,642 (235) — 7,407Total identifiable intangible assets$38,931 $(597) $— $38,334 The table below summarizes the changes in the net carrying values of intangible assets by segment for 2016: December 31,2015 December 31,2016Net CarryingValue Amortization ImpairmentLosses Net CarryingValue(in thousands)Excess and Surplus Lines Trademarks$19,700 $— $— $19,700Insurance licenses and authorities4,900 — — 4,900Broker relationships7,051 (362) — 6,68931,651 (362) — 31,289Specialty Admitted Insurance Trademarks2,500 — — 2,500Insurance licenses and authorities4,265 — — 4,265Broker relationships1,112 (235) — 8777,877 (235) — 7,642Total identifiable intangible assets$39,528 $(597) $— $38,931F-25TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20154.Goodwill and Intangible Assets (continued)Amortization of intangible assets was $362,000 for the Excess and Surplus Lines segment and $235,000 for the Specialty Admitted Insurance segmentfor the year ended December 31, 2015.5.Property and Equipment, NetProperty and equipment, net of accumulated depreciation, consists of the following:December 31,2017 2016(in thousands)Building, leased for which the Company has been deemed the owner for accounting purposes (Note 21)$30,902 $30,902Electronic data processing hardware and software6,156 4,460Furniture and equipment2,659 2,706Property and equipment, cost basis39,717 38,068Accumulated depreciation(14,716) (13,388)Property and equipment, net$25,001 $24,6806.Reserve for Losses and Loss Adjustment ExpensesIn establishing the reserve for losses and loss adjustment expenses, the Company’s internal actuaries estimate an initial expected ultimate loss ratio foreach of our lines of business by accident year (or for our Casualty Reinsurance segment, on a contract by contract basis). Input from the Company’sunderwriting and claims departments, including premium pricing assumptions and historical experience, are considered by the Company’s internal actuariesin estimating the initial expected loss ratios. The Company’s internal actuaries generally utilize five actuarial methods in their estimation process for thereserve for losses and loss adjustment expenses. These five methods utilize, to varying degrees, the initial expected loss ratio, detailed statistical analysis ofpast claims reporting and payment patterns, claims frequency and severity, paid loss experience, industry loss experience, and changes in market conditions,policy forms, exclusions, and exposures.In applying these methods to develop an estimate of the reserve for losses and loss adjustment expenses, our internal actuaries use judgment todetermine three key parameters for each accident year and line of business: the initial expected loss ratios, the incurred and paid loss development factors andthe weighting of the five actuarial methods to be used for each accident year and line of business. For the Excess and Surplus Lines and Specialty AdmittedInsurance segments, the internal actuary performs a study on each of these parameters annually in the third quarter and makes recommendations for the initialexpected loss ratios, the incurred and paid loss development factors and the weighting of the five actuarial methods by accident year and line of business.Members of management’s Reserve Committee review and approve the parameter review actuarial recommendations, and these approved parameters are usedin the reserve estimation process for the next four quarters at which time a new parameter study is performed. For the Casualty Reinsurance segment, periodicassessments are made on a contract by contract basis with the goal of keeping the initial expected loss ratios and the incurred and paid loss developmentfactors as constant as possible until sufficient evidence presents itself to support adjustments. Method weights are generally less rigid for the CasualtyReinsurance segment given the heterogeneous nature of the various contracts, and the potential for significant changes in mix of business within individualtreaties.Different reserving methods are appropriate in different situations, and the Company’s internal actuaries use their judgment and experience to determinethe weighting of the methods to use for each accident year and each line of business and, for our Casualty Reinsurance segment, on a contract by contractbasis. For example, the current accident year has very little incurred and paid loss development data on which to base reserve projections. As a result, theCompany relies heavily on the initial expected loss ratio in estimating reserves for the current accident year. The Company generally sets the initial expectedloss ratio for the current accident year consistent with the internal actuaries’ pricing assumptions. We believe that this is a reasonable and appropriatereserving assumption for the current accident year since our pricing assumptions are actuarially driven and since the Company expects to make an acceptablereturn on the new business written. If actual loss emergence is better than our initial expected loss ratio assumptions, we will experience favorabledevelopment and if it is worse than our initial expected loss ratio assumptions, we will experience adverse development. Conversely, sufficient incurred andpaid lossF-26TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20156.Reserve for Losses and Loss Adjustment Expenses (continued)development is available for the oldest accident years, so more weight is given to this development data and less weight is given to the initial expected lossratio.Historically, the Company’s reserve selections for the Excess and Surplus Lines segment gave more weight to industry indications due to the Company’slimited operating history. When reviewing the Excess and Surplus Lines segment’s reserve parameters in 2013, our internal actuaries’ felt that there wasenough Company history to give more weight to the Company’s own experience. Accordingly, the initial expected loss ratios, the paid loss developmentfactors and the incurred loss development factors were adjusted to more closely resemble the Company’s own internal indications. Method weights were alsochanged as management, in consultation with our actuaries, deemed appropriate. These changes had the cumulative effect of reducing our then best estimatefor the reserve for losses and loss adjustment expenses. The following table provides a reconciliation of the beginning and ending reserve balances for losses and loss adjustment expenses, net of reinsurance,to the gross amounts reported in the consolidated balance sheets:Year Ended December 31,2017 2016 2015(in thousands)Reserve for losses and loss adjustment expenses net of reinsurance recoverables at beginning ofperiod$761,128 $653,534 $589,042Add: Incurred losses and loss adjustment expenses net of reinsurance: Current year533,905 349,137 295,334Prior years21,472 (23,716) (16,318)Total incurred losses and loss and adjustment expenses555,377 325,421 279,016Deduct: Loss and loss adjustment expense payments net of reinsurance: Current year103,205 39,473 31,957Prior years223,475 178,354 182,567Total loss and loss adjustment expense payments326,680 217,827 214,524Reserve for losses and loss adjustment expenses net of reinsurance recoverables at end of period989,825 761,128 653,534Add: Reinsurance recoverables on unpaid losses and loss adjustment expenses at end of period302,524 182,737 131,788Reserve for losses and loss adjustment expenses gross of reinsurance recoverables on unpaidlosses and loss adjustment expenses at end of period$1,292,349 $943,865 $785,322The foregoing reconciliation shows that $21.5 million of adverse development was experienced in 2017 on the reserve for losses and loss adjustmentexpenses held at December 31, 2016. This adverse reserve development included $20.0 million of adverse development in the Excess and Surplus Linessegment, including $38.7 million of adverse development in the commercial auto line of business that was primarily related to the 2016 contract year withone insured. The adverse development for commercial auto was partially offset by favorable development of $18.6 million in other Excess and Surplus Linesunderwriting divisions primarily from the 2014 through 2016 accident years. This favorable development occurred because our actuarial studies atDecember 31, 2017 for the Excess and Surplus Lines segment indicated that our loss experience on our casualty business excluding commercial autocontinues to be below our initial expected ultimate loss ratios. The Company also experienced $2.7 million of favorable development on prior accident yearsin the Specialty Admitted Insurance segment primarily from accident years 2010 through 2015, as losses on our workers’ compensation business written priorto 2016 continued to develop more favorably than we had anticipated. The Casualty Reinsurance segment experienced $4.2 million of adverse developmenton prior accident years primarily from two contracts from 2010 through 2013 that had higher than expected reported losses in 2017.The foregoing reconciliation shows that a $23.7 million redundancy developed in 2016 on the reserve for losses and loss adjustment expenses held atDecember 31, 2015. This favorable reserve development included $24.1 million of favorable development in the Excess and Surplus Lines segment primarilyfrom the 2013, 2014 and 2015 accident years with favorable development of $4.5 million, $10.7 million and $10.0 million, respectively. This favorabledevelopment occurred because our actuarial studies at December 31, 2016 for the Excess and Surplus Lines segment indicated that our loss experience on ourF-27TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20156.Reserve for Losses and Loss Adjustment Expenses (continued)casualty business continues to be below our initial expected ultimate loss ratios. The Company also experienced $3.8 million of favorable development onprior accident years in the Specialty Admitted Insurance segment primarily from accident years 2010 through 2014, as losses on our workers’ compensationbusiness written prior to 2015 continued to develop more favorably than we had anticipated. The Casualty Reinsurance segment experienced $4.2 million ofadverse development on prior accident years primarily from two contracts from 2012 and 2013 that had higher than expected reported losses in 2016.The foregoing reconciliation shows that a $16.3 million redundancy developed in 2015 on the reserve for losses and loss adjustment expenses held atDecember 31, 2014. This favorable reserve development included $25.4 million of favorable development in the Excess and Surplus Lines segment. TheExcess and Surplus Lines segment favorable development included $17.3 million of favorable development from the 2014 accident year and $10.5 millionof favorable development from the 2013 accident year. This favorable development occurred because our actuarial studies at December 31, 2015 for theExcess and Surplus Lines segment indicated that our loss experience for our our shorter-tailed general casualty division book for the 2014 accident year isbelow our initial expected ultimate loss ratios. The actuarial studies at December 31, 2015 also showed that the experience on our other casualty businesscontinues to be below our initial expected ultimate loss ratios. Favorable reserve development written in the Specialty Admitted Insurance segment was $3.5million and primarily came from accident years 2011 through 2013, as losses on our workers’ compensation business written prior to 2014 continued todevelop more favorably than we had anticipated. In addition, $12.6 million of adverse development occurred in the Casualty Reinsurance segment, with amajority of this adverse development coming from three reinsurers principally in the 2011, 2012, and 2013 underwriting years that experienced higher lossdevelopment in 2015 than expected.The following tables present incurred and paid losses and loss adjustment expenses, net of reinsurance as of December 31, 2017 for: (1) the Excess andSurplus Lines segment split between all excess and surplus lines business excluding commercial auto and commercial auto, (2) the Specialty AdmittedInsurance segment split between individual risk workers’ compensation and fronting and programs, and (3) the Casualty Reinsurance segment. Theinformation provided herein about incurred and paid accident year claims development for the years ended December 31, 2016 and prior is presented asunaudited supplementary information.Excess and Surplus Lines — Excluding Commercial AutoIncurred losses and loss adjustment expenses, net of reinsurance (in thousands)Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 20172008 $120,760 $119,736 $116,817 $112,227 $107,927 $102,122 $99,169 $98,765 $96,687 $95,9302009 114,834 110,783 106,480 98,502 86,691 81,764 83,431 83,846 85,4702010 78,424 80,569 78,117 73,035 69,080 69,964 70,294 70,9132011 111,190 119,927 114,473 106,564 106,381 106,130 106,6432012 97,908 98,672 97,829 96,497 97,306 99,6192013 96,729 96,064 85,433 81,009 82,8302014 114,942 104,092 90,267 82,2322015 126,443 113,417 104,8472016 138,507 125,0932017 144,349Total $997,926 F-28TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20156.Reserve for Losses and Loss Adjustment Expenses (continued)Cumulative paid losses and loss adjustment expenses, net of reinsurance (in thousands)Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 $16,922 $35,228 $53,566 $69,585 $80,385 $83,937 $87,630 $91,750 $91,768 $92,3322009 29,860 41,687 51,731 61,548 67,293 71,245 76,091 79,014 81,4962010 13,673 26,418 35,812 45,641 52,071 57,371 61,307 64,2142011 27,684 53,109 72,732 81,696 90,884 94,998 98,6842012 6,944 33,757 49,604 63,216 74,869 82,5452013 3,867 14,509 30,382 44,421 59,6412014 3,412 16,969 28,212 43,8912015 4,048 17,164 34,8012016 5,180 22,8522017 5,290Total $585,746All outstanding losses and loss adjustment expenses prior to 2008, net of reinsurance $9,033Total outstanding losses and loss adjustment expenses, net of reinsurance $421,213Excess and Surplus Lines — Commercial AutoIncurred losses and adjustment expenses, net of reinsurance (in thousands)Accident Year 2013 2014 2015 2016 20172013 $1,255 $1,300 $1,451 $1,351 $1,3012014 20,487 14,071 17,233 18,9532015 30,109 33,113 35,1492016 74,340 109,2862017 207,355Total $372,044Cumulative paid losses and loss adjustment expenses, net of reinsurance (in thousands)Accident Year 2013 2014 2015 2016 20172013 $60 $1,182 $1,285 $1,291 $1,2752014 6,166 8,645 12,679 16,3592015 8,356 15,234 24,2822016 18,295 54,0542017 41,467Total $137,437Total outstanding losses and loss adjustment expenses, net of reinsurance $234,607F-29TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20156.Reserve for Losses and Loss Adjustment Expenses (continued)Specialty Admitted — Individual Risk Workers’ CompensationIncurred losses and loss adjustment expenses, net of reinsurance (in thousands)Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 20172008 $37,602 $36,641 $38,654 $38,807 $40,330 $40,552 $39,321 $39,320 $39,131 $39,0012009 28,691 28,526 27,535 28,116 27,795 26,171 26,169 26,232 26,1942010 27,209 28,736 30,464 30,373 28,963 28,938 27,590 27,0982011 37,834 41,421 40,154 38,999 38,311 37,455 36,5942012 32,116 32,420 31,490 29,689 28,255 28,1742013 12,525 13,668 12,786 11,578 10,9072014 16,638 16,652 14,620 13,8902015 20,938 21,274 19,7412016 21,678 20,2992017 24,869Total $246,767Cumulative paid losses and loss adjustment expenses, net of reinsurance (in thousands)Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 20172008 $10,479 $22,664 $28,436 $31,432 $33,885 $36,778 $37,905 $37,933 $37,965 $37,9762009 7,277 16,945 21,095 22,646 24,231 24,192 24,350 24,418 25,6602010 7,157 16,245 21,805 23,898 25,210 25,477 26,345 26,3522011 10,123 23,127 29,021 33,204 34,240 34,287 34,3342012 9,222 20,308 24,755 26,435 26,897 26,9322013 4,487 8,723 9,846 10,246 10,2632014 4,633 10,648 12,041 12,2362015 6,604 13,285 15,1182016 4,664 10,2272017 6,546Total $205,644All outstanding losses and loss adjustment expenses prior to 2008, net of reinsurance $357Outstanding losses and loss adjustment expenses assumed from involuntary workers’ compensation pools $4,830Total outstanding losses and loss adjustment expenses, net of reinsurance $46,310Specialty Admitted — Fronting and ProgramsIncurred losses and loss adjustment expenses, net of reinsurance (in thousands)Accident Year 2013 2014 2015 2016 20172013 $104 $80 $52 $52 $522014 3,460 3,468 3,818 3,4252015 7,136 9,632 9,3582016 11,542 15,6702017 21,229Total $49,734F-30TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20156.Reserve for Losses and Loss Adjustment Expenses (continued)Cumulative paid losses and loss adjustment expenses, net of reinsurance (in thousands)Accident Year 2013 2014 2015 2016 20172013 $28 $52 $52 $52 $522014 883 1,687 2,369 2,7282015 2,058 4,666 6,1652016 1,894 5,1232017 1,223Total $15,291Total outstanding losses and loss adjustment expenses, net of reinsurance $34,443Casualty ReinsuranceIncurred losses and loss adjustment expenses, net of reinsurance (in thousands)Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 20172008 $1,418 $3,215 $2,897 $2,859 $3,199 $3,473 $3,462 $3,467 $3,470 $3,4882009 34,587 28,244 24,125 26,458 27,078 27,116 26,989 26,931 26,9802010 64,413 60,476 61,068 62,714 61,344 60,949 60,978 61,6192011 114,908 103,123 97,366 97,812 98,993 99,282 101,2762012 148,251 132,388 131,281 135,594 136,813 139,9782013 133,230 130,361 131,352 134,446 137,8012014 118,881 115,927 114,636 116,9812015 119,157 108,870 108,6992016 112,759 105,5332017 134,628Total $936,983Cumulative paid losses and loss adjustment expenses, net of reinsurance (in thousands)Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 20172008 $320 $616 $999 $1,595 $2,087 $2,478 $2,706 $2,929 $3,029 $3,0742009 6,487 9,926 12,956 16,466 19,672 21,646 23,024 23,796 24,6492010 21,918 31,500 38,430 44,921 49,263 52,761 54,659 57,0132011 48,688 61,922 68,616 78,164 87,267 90,287 94,6272012 73,124 81,859 97,215 113,943 121,026 128,5672013 59,756 75,094 93,902 108,396 119,2562014 41,421 58,601 76,302 89,8992015 40,021 53,986 68,0022016 36,268 50,9052017 47,739Total $683,731Total outstanding losses and loss adjustment expenses, net of reinsurance $253,252F-31TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20156.Reserve for Losses and Loss Adjustment Expenses (continued)The reconciliation of the net incurred and paid claims development tables to the reserve for losses and loss adjustment expenses in the consolidatedbalance sheet at December 31, 2017 is as follows (in thousands):E&S – excluding commercial auto$421,213E&S – commercial auto234,607Specialty Admitted – individual risk workers’ compensation46,310Specialty Admitted – fronting and programs34,443Casualty Reinsurance253,252Net reserve for losses and loss adjustment expenses989,825Reinsurance recoverables on unpaid losses302,524Gross reserve for losses and loss adjustment expenses$1,292,349The following is unaudited supplementary information about average annual percentage payouts of incurred claims by age, net of reinsurance, for theExcess and Surplus Lines segment and the Specialty Admitted Insurance segments as of December 31, 2017. The Specialty Admitted Insurance segment’sfirst full year of writing fronting and programs business was 2014, so the average annual percentage payouts for fronting and programs only shows four yearsof payout information.Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10E&S – excluding commercial auto10.3% 16.6% 17.1% 17.5% 14.4% 7.7% 5.5% 3.3% 2.5% 1.1%E&S – commercial auto21.6% 40.4% 15.1% 13.9% 7.1% Specialty Admitted – individual risk workers’compensation28.0% 32.7% 13.6% 6.1% 3.4% 1.4% 1.0% 0.1% 0.5% 0.0%Specialty Admitted – fronting and programs12.2% 13.4% 4.4% 0.7% Casualty Reinsurance28.8% 21.1% 14.8% 10.3% 7.3% 5.0% 3.5% 2.4% 1.7% 1.3%In determining the cumulative number of reported claims, the Company measures claim counts by individual claimant for individual risk workers’compensation policies in the Specialty Admitted Insurance segment. In the Excess and Surplus Lines insurance segment and for fronting and programs in theSpecialty Admitted Insurance segment, the Company measures claim counts by claim event. The claim counts include all claims reported, even if theCompany does not establish a liability for the claim (i.e. reserve for loss and loss adjustment expenses).The Casualty Reinsurance segment typically assumes written premium under quota share arrangements. The Company typically does not have directaccess to claim frequency information underlying its assumed quota arrangements given the nature of that business. In addition, multiple claims are oftenaggregated by the ceding company before being reported to the Company. We do not use claim frequency information in the Casualty Reinsurance segmentin the determination of loss reserves or for other internal purposes. Based on these considerations, the Company does not believe providing claims frequencyinformation is practicable as it relates to the Casualty Reinsurance segment.The table below provides information on IBNR liabilities and claims frequency for: (1) the Excess and Surplus Lines segment split between commercialauto and all non commercial auto, and (2) the Specialty Admitted Insurance segment split between individual risk workers’ compensation and fronting andprograms:F-32TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20156.Reserve for Losses and Loss Adjustment Expenses (continued)Excess and Surplus Lines — Excluding Commercial AutoAccident Year Incurred Lossesand Loss AdjExpenses IBNR Cumulative # ofReported Claims ($ in thousands)2008 $87,112 $3,169 2,2832009 58,371 2,831 1,6772010 60,883 3,563 1,3672011 55,514 5,834 1,4432012 82,142 8,692 1,7252013 82,830 14,382 2,2232014 82,232 23,241 2,0242015 104,847 46,275 2,2922016 125,093 77,940 2,4682017 144,349 123,432 2,052Excess and Surplus Lines — Commercial AutoAccident Year Incurred Lossesand Loss AdjExpenses IBNR Cumulative # ofReported Claims ($ in thousands)2013 $1,301 $26 542014 18,953 791 7,7482015 35,149 5,098 41,6402016 109,286 20,321 87,9202017 207,355 105,097 125,863Specialty Admitted - Individual Risk Workers’ CompensationAccident Year Incurred Lossesand Loss AdjExpenses IBNR Cumulative # ofReported Claims ($ in thousands)2008 $39,001 $663 2,0122009 26,194 534 1,4902010 27,098 700 1,6042011 36,594 1,632 1,8142012 28,174 809 1,3232013 10,907 502 5402014 13,890 1,506 8502015 19,741 3,431 9752016 20,299 6,409 8312017 24,803 4,617 1,036 F-33TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20156.Reserve for Losses and Loss Adjustment Expenses (continued)Specialty Admitted — Fronting and ProgramsAccident Year Incurred Lossesand Loss AdjExpenses IBNR Cumulative # ofReported Claims ($ in thousands)2013 $52 $— 222014 3,041 384 8572015 8,081 1,277 1,3472016 12,050 3,620 2,7302017 8,523 12,706 5,421The Company has not provided insurance coverage that could reasonably be expected to produce material levels of asbestos claims activity. In addition,management does not believe that the Company is exposed to environmental liability claims other than those which it has specifically underwritten andpriced as an environmental exposure.7.ReinsuranceThe Company remains liable to policyholders if its reinsurers are unable to meet their contractual obligations under applicable reinsurance agreements.To minimize exposure to significant losses from reinsurance insolvencies, the Company evaluates the financial condition of its reinsurers and monitorsconcentrations of credit risk. The Company’s reinsurance contracts generally require reinsurers that are not authorized as reinsurers under U.S. state insuranceregulations or that experience rating downgrades from rating agencies below specified levels to fund their share of the Company’s ceded outstanding lossesand loss adjustment expense reserves, typically through the use of irrevocable and unconditional letters of credit. In fronting arrangements, which theCompany conducts through its Specialty Admitted Insurance segment, the Company is subject to credit risk with regard to insurance companies who act asreinsurers for the Company in such arrangements. The Company customarily requires a collateral trust arrangement to secure the obligations of the insuranceentity for whom we are fronting.At December 31, 2017, the Company had reinsurance recoverables on unpaid losses of $302.5 million and reinsurance recoverables on paid losses of$11.3 million. All material reinsurance recoverables are from companies with A.M. Best Company ratings of “A-” (Excellent) or better, or are collateralizedwith letters of credit or by a trust agreement.At December 31, 2017, reinsurance recoverables on unpaid losses from the Company’s three largest reinsurers were $88.8 million, $37.8 million, and$23.8 million, representing 49.7% of the total balance.At December 31, 2017, prepaid reinsurance premiums ceded to three reinsurers totaled $27.9 million, $11.2 million, and $10.9 million, representing54.3% of the total balance.F-34TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20157.Reinsurance (continued)Premiums written, premiums earned, and losses and loss adjustment expenses incurred are summarized as follows:Year Ended December 31,2017 2016 2015(in thousands)Written premiums: Direct$843,719 $549,700 $395,816Assumed238,186 187,698 176,378Ceded(315,279) (179,690) (101,162)Net$766,626 $557,708 $471,032Earned premiums: Direct$842,182 $483,166 $367,340Assumed173,472 164,771 181,326Ceded(274,545) (132,274) (87,461)Net$741,109 $515,663 $461,205Losses and loss adjustment expenses: Direct$626,318 $314,920 $201,755Assumed142,818 108,029 127,276Ceded(213,759) (97,528) (50,015)Net$555,377 $325,421 $279,0168.Senior DebtThe Company’s $215.0 million senior revolving credit facility (the “Facility”) is comprised of the following:•A $102.5 million secured revolving facility utilized by JRG Re to issue letters of credit for the benefit of third-party reinsureds. At December 31,2017, the Company had $98.5 million of letters of credit issued under the secured facility.•A $112.5 million unsecured revolving facility to meet the working capital needs of the Company. All unpaid principal on the revolver is due atmaturity. Interest accrues quarterly and is payable in arrears at LIBOR plus a margin of 1.5%, which is subject to change according to terms in thecredit agreement. At December 31, 2017 and 2016, the Company had a drawn balance of $73.3 million outstanding on the unsecured revolver.James River Group Holdings, Ltd. and JRG Re are borrowers on the Facility. On December 7, 2016, the Company entered into an Amended and RestatedCredit Agreement for the Facility which, among other things, extended the maturity date of the Facility until December 7, 2021 and modified other termsincluding reducing the rate of interest and reducing the number of financial covenants. On June 8, 2017, the Company amended the credit agreement to,among other things, increase the amount of additional debt which the Company may incur under new financings, adjust the amount of capital that theCompany may invest in merger and acquisition activity, and exclude hybrid securities from inclusion of consolidated debt up to a specified maximum.A subsidiary of a bank holding company is one of the lenders for the Facility, with a $25.0 million commitment allocation on the total $215.0 millionFacility. The Company's Chairman and Chief Executive Officer was previously the Lead Independent Director of the bank holding company and an investorin the bank holding company. Additionally, one of the Company’s directors is a former investor in the bank holding company and is currently a lender to thebank holding company.The Company is in compliance with all financial and other covenants of the Facility, as contained in the Amended and Restated Credit Agreement, asamended, at December 31, 2017.On August 2, 2017, the Company and its wholly-owned subsidiary, JRG Re (together with the Company, the “Borrowers”), entered into a new creditagreement. The credit agreement provides the Borrowers with a revolving line of credit of up to $100.0 million, which may be used for loans and letters ofcredit made or issued, at Borrowers’ option, on a secured orF-35TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20158.Senior Debt (continued)unsecured basis. The loans and letters of credit made or issued under the revolving line of credit may be used to finance the Borrowers’ general corporatepurposes. The Borrowers’ obligations under the credit agreement will mature on the date which is 30 days after notice from the lender terminating theavailability period. Interest accrues quarterly and is payable in arrears at variable rates which are subject to change according to terms in the credit agreement.At December 31, 2017, unsecured loans of $10.0 million and secured letters of credit totaling $6.9 million were outstanding under the facility. The creditagreement contains certain financial and other covenants which the Company is in compliance with at December 31, 2017.In order to secure borrowings and letters of credit made or issued under the secured portion of the revolving line of credit, JRG Re entered into a pledgeand security agreement on August 2, 2017 with the lender, pursuant to which JRG Re will pledge certain investment securities. In the event the Companyelects to pledge investment securities as collateral for the secured portion of the revolving credit facility, the Company will enter into a similar pledge andsecurity agreement.The lender under the credit agreement and its affiliate is a joint lead arranger under the Company’s Amended and Restated Credit Agreement dated as ofDecember 7, 2016, as amended, and its affiliate was also an underwriter in the December 2014 initial public offering of the Company’s common shares.On May 26, 2004, James River Group issued $15.0 million of unsecured, floating rate senior debentures (the “Senior Debt”), due April 29, 2034 unlessaccelerated earlier, through an indenture. The Senior Debt is not redeemable by the holder and is not subject to sinking fund requirements. Interest accruesquarterly and is payable in arrears at a per annum rate of the three-month LIBOR on the Determination Date (as defined in the indenture) plus 3.85%. TheSenior Debt is redeemable prior to its stated maturity in whole or in part, at the option of James River Group.The terms of the indenture generally provide that so long as the Senior Debt is outstanding, neither James River Group nor any of its subsidiaries may:•assume or permit to exist any indebtedness that is secured by any encumbrance on the capital stock of James River Group or any of its subsidiarieswhich is senior to the Senior Debt; or•issue, sell, transfer or otherwise dispose of any shares of, securities convertible into, or warrants, rights or options to subscribe for or purchase sharesof, capital stock of any subsidiary.James River Group is in compliance with all covenants of the indenture at December 31, 2017.Interest payable is included in “accrued expenses” in the accompanying consolidated balance sheets.9.Junior Subordinated DebtThe Company issued trust preferred securities (“Trust Preferred Securities”) through James River Capital Trust I, James River Capital Trust II, JamesRiver Capital Trust III, James River Capital Trust IV, and Franklin Holdings II (Bermuda) Capital Trust I, (each, a “Trust”; collectively, the “Trusts”). TheseDelaware statutory trusts are sponsored and wholly-owned by the Company. Each Trust was created solely for the purpose of issuing the Trust PreferredSecurities.Each Trust used proceeds from the sale of its Trust Preferred Securities to purchase the Company’s floating rate junior subordinated debentures (the“Junior Subordinated Debt”) issued to the Trust under an indenture (each, an “Indenture”; collectively, the “Indentures”). The Junior Subordinated Debt isthe sole asset of each Trust, and the Trust Preferred Securities are the sole liabilities of each Trust. The Company purchased all of the outstanding commonstock of the Trusts, and the investment in the Trusts is included in “other assets” in the accompanying consolidated balance sheets. F-36TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 20159.Junior Subordinated Debt (continued)The following table summarizes the nature and terms of the Junior Subordinated Debt and Trust Preferred Securities:James RiverCapitalTrust I James RiverCapitalTrust II James RiverCapitalTrust III James RiverCapitalTrust IV FranklinHoldings II(Bermuda)CapitalTrust I($ in thousands)Issue dateMay 26, 2004 December 15, 2004 June 15, 2006 December 11, 2007 January 10, 2008Principal amount of Trust Preferred Securities$7,000 $15,000 $20,000 $54,000 $30,000Principal amount of Junior Subordinated Debt$7,217 $15,464 $20,619 $55,670 $30,928Carrying amount of Junior Subordinated Debt net ofrepurchases$7,217 $15,464 $20,619 $44,827 $15,928Maturity date of Junior Subordinated Debt, unless acceleratedearlierMay 24, 2034 December 15, 2034 June 15, 2036 December 15, 2037 March 15, 2038Trust common stock$217 $464 $619 $1,670 $928Interest rate, per annumThree-MonthLIBOR plus 4.0% Three-MonthLIBOR plus 3.4% Three-MonthLIBOR plus 3.0% Three-MonthLIBOR plus 3.1% Three-MonthLIBOR plus 4.0%All of the Junior Subordinated Debt is currently redeemable at 100.0% of the unpaid principal amount at the Company’s option. Interest on the TrustPreferred Securities and interest paid to the Trusts on the Junior Subordinated Debt is payable quarterly in arrears at a per annum rate as described in the tableabove. The Company has the right to defer interest payments on the Junior Subordinated Debt for up to five years without triggering an event of default.The Trust Preferred Securities are subject to mandatory redemption in a like amount (a) upon repayment of all of the Junior Subordinated Debt on thestated maturity date, (b) contemporaneously with the optional prepayment of all of the Junior Subordinated Debt in conjunction with a special event (asdefined), and (c) five years or more after the issue date, contemporaneously with the optional prepayment, in whole or in part, of the Junior SubordinatedDebt. The Indentures contain certain covenants which the Company is in compliance with as of December 31, 2017.Interest payable is included in “accrued expenses” on the accompanying consolidated balance sheets.10.Capital StockThe Company’s authorized share capital consists of 200,000,000 common shares, par value $0.0002 per share (29,696,682 shares issued and outstandingat December 31, 2017) and 20,000,000 undesignated preferred shares, par value $0.00125 per share (no shares issued or outstanding).Share activity in 2016 and 2017 includes issuances from stock option exercises and RSU vesting, increasing the number of common shares outstandingfrom 28,941,547 at December 31, 2015 to 29,257,566 at December 31, 2016 and 29,696,682 at December 31, 2017.The Company has 4,385,213 common shares reserved for future issuance upon exercise or vesting of equity awards, as applicable.F-37TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 201510.Capital Stock (continued)The Board of Directors declared the following cash dividends in 2017, 2016, and 2015:Date ofDeclaration Dividend perCommon Share Payable to Shareholdersof Record on Payment Date Total Amount2017 February 14, 2017 $0.30 March 13, 2017 March 31, 2017 $8.9May 2, 2017 $0.30 June 12, 2017 June 30, 2017 $8.9August 1, 2017 $0.30 September 11, 2017 September 29, 2017 $8.9November 1, 2017 $0.30 December 15, 2017 December 28, 2017 $9.0November 1, 2017 $0.50 December 15, 2017 December 28, 2017 $15.0Total $1.70 $50.72016 February 16, 2016 $0.20 March 14, 2016 March 28, 2016 $5.8May 3, 2016 $0.20 June 13, 2016 June 30, 2016 $5.9August 3, 2016 $0.20 September 12, 2016 September 30, 2016 $5.9November 1, 2016 $0.30 December 16, 2016 December 29, 2016 $8.9November 1, 2016 $1.35 December 16, 2016 December 29, 2016 $39.8Total $2.25 $66.32015 February 17, 2015 $0.16 March 16, 2015 March 31, 2015 $4.6May 5, 2015 $0.16 June 15, 2015 June 30, 2015 $4.6August 5, 2015 $0.16 September 14, 2015 September 30, 2015 $4.7November 3, 2015 $0.16 December 14, 2015 December 28, 2015 $4.7November 3, 2015 $1.00 December 14, 2015 December 28, 2015 $29.2Total $1.64 $47.8Included in the dividends are $450,000, $664,000 and $558,000 of dividend equivalents on RSUs, of which $434,000, $666,000 and $385,000 werepayable as of December 31, 2017, 2016, and 2015, respectively.11.Equity AwardsEquity Incentive PlansThe Company’s shareholders have approved various equity incentive plans, including the Amended and Restated 2009 Equity Incentive Plan (the“Legacy Plan”), the 2014 Long Term Incentive Plan (“2014 LTIP”), and the 2014 Non-Employee Director Incentive Plan (“2014 Director Plan”)(collectively, the “Plans”). All awards issued under the Plans are issued at the discretion of the Board of Directors. Under the Legacy Plan, employees receivednon-qualified stock options. Options are outstanding under the Legacy Plan; however, no additional awards may be granted.Employees are eligible to receive non-qualified stock options, incentive stock options, share appreciation rights, performance shares, restricted shares,restricted share units, and other awards under the 2014 LTIP. The maximum number of shares available for issuance under the 2014 LTIP is 4,171,150, and atDecember 31, 2017, 1,862,291 shares are available for grant.Non-employee directors of the Company are eligible to receive non-qualified stock options, share appreciation rights, performance shares, restrictedshares, restricted share units, and other awards under the 2014 Director Plan. The maximum number of shares available for issuance under the 2014 DirectorPlan is 50,000, and at December 31, 2017, 32,994 shares are available for grant.Generally, awards issued under the 2014 LTIP and 2014 Director Plan vest immediately in the event that an award recipient is terminated without Cause(as defined), and in the case of the 2014 LTIP for Good Reason (as defined), at any time following a Change in Control (as defined in the applicable plans).F-38TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 201511.Equity Awards (continued)OptionsThe following table summarizes the option activity for the periods ended December 31, 2017, 2016, and 2015:Year Ended December 31,2017 2016 2015Shares Weighted-AverageExercisePrice Shares Weighted-AverageExercisePrice Shares Weighted-AverageExercisePriceOutstanding: Beginning of year2,234,699 $22.84 2,058,085 $18.11 3,104,768 $17.27Granted205,244 $42.24 706,203 $32.07 10,627 $24.32Exercised(898,218) $18.53 (496,550) $16.02 (1,047,500) $15.66Forfeited(62,489) $30.80 (33,039) $27.68 (9,810) $21.00End of year1,479,236 $27.81 2,234,699 $22.84 2,058,085 $18.11Exercisable, end of year846,371 $22.35 1,207,479 $18.14 1,217,903 $16.85All of the outstanding options vest over three or four years and have a contractual life of seven years from the original date of grant. All of theoutstanding options have an exercise price greater than or equal to the fair value of the underlying shares at the date of grant. For 2017, 2016 and 2015, thefair value of the underlying share was equal to the market price.The intrinsic value of each option is determined based on the difference between the fair value of the underlying share and the exercise price of theunderlying option. The total intrinsic value of options exercised during 2017, 2016 and 2015 was $20.4 million, $10.2 million and $12.8 million,respectively. The aggregate intrinsic value of options outstanding at December 31, 2017, 2016 and 2015 was $18.5 million, $41.8 million and $31.8 million,respectively. The aggregate intrinsic value of options exercisable at December 31, 2017, 2016 and 2015 was $14.9 million, $28.3 million and $20.3 million,respectively. The fair value used for calculating intrinsic values was $40.01, $41.55 and $33.54 at December 31, 2017, 2016 and 2015, respectively.The weighted-average remaining contractual life of the options outstanding and options exercisable at December 31, 2017 is 4.5 years and 3.8 years,respectively. The weighted-average fair value of options granted during 2017, 2016 and 2015 was $8.21, $5.55 and $4.31, respectively. The value of theoptions granted was estimated at the date of grant using the Black-Scholes-Merton option pricing model using the following assumptions:Year Ended December 31,2017 2016 2015Range of risk-free interest rates1.97% 1.23% 1.54%Dividend yield2.85% 2.50% 4.00%Expected share price volatility27.39% 25.00% 25.00%Expected life5.0 years 5.0 years 5.0 yearsThe risk-free interest rate assumption is based on the five-year U.S. Treasury rate at the date of the grant. The dividend yield assumption is based upondividends expected to be declared over the life of the options at the date of grant. The share price volatility assumption is based upon the Company's 100-dayrealized volatility. In prior years, as a relatively new public company, the share price volatility assumption was based upon historical data forproperty/casualty companies which the Company deemed to be its peers. The expected life is determined using the simplified method, which factors in theaverage of the midpoint and the contractual term of each tranche in determining a single expected life. The simplified method is used as the Company doesnot have sufficient historical exercise data to estimate an expected term.The Black-Scholes-Merton option pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictionsand are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including expected share price volatility.Because the Company’s share options have characteristics significantly different from those of traded options and because changes in the subjective inputassumptions can materiallyF-39TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 201511.Equity Awards (continued)affect the fair value estimate, the existing models do not necessarily provide a reliable single measure of the fair value of such share options.RSUsThe following table summarizes the RSU activity for the years ended December 31, 2017, 2016, and 2015:Year Ended December 31,2017 2016 2015Shares Weighted-AverageGrant DateFair Value Shares Weighted-AverageGrant DateFair Value Shares Weighted-AverageGrant DateFair ValueUnvested, beginning of year196,800 $24.38 234,922 $21.00 340,474 $21.00Granted137,034 $42.20 60,291 $32.03 — $—Vested(132,764) $24.24 (98,413) $21.00 (105,552) $21.00Forfeited(22,188) $26.06 — $— — $—Unvested, end of year178,882 $37.93 196,800 $24.38 234,922 $21.00The vesting period of RSUs granted to employees range from one to five years and vest ratably over the respective vesting period, and the majority vestin three years. All RSUs granted to date to non-employee directors had a one year vesting period. The total fair value of shares vested in 2017, 2016 and 2015was $5.5 million, $3.8 million and $3.5 million, respectively. The holders of RSUs are entitled to dividend equivalents. The dividend equivalents are settledin cash at the same time that the underlying RSUs vest and are subject to the same risk of forfeiture as the underlying shares. The fair value of the RSUsgranted is based on the market price of the underlying shares.Compensation ExpenseShare based compensation expense is recognized on a straight line basis over the vesting period. The amount of expense and related tax benefit issummarized below:Year Ended December 31,2017 2016 2015(in thousands)Share based compensation expense$7,688 $5,492 $3,735U.S. tax benefit on share based compensation expense$2,093 $1,532 $1,025As of December 31, 2017, the Company had $6.9 million of unrecognized share based compensation expense expected to be charged to earnings over aweighted-average period of 1.9 years.12.Income TaxesUnder current Bermuda law, James River Group Holdings, Ltd. and its Bermuda based subsidiary are not required to pay any Bermuda taxes on theirincome or capital gains. The Company has received an undertaking from the Minister of Finance in Bermuda that, in the event of any taxes being imposed,the Company will be exempt from taxation in Bermuda until March 2035.Distributions from the Company’s U.S. subsidiaries to its U.K. intermediate holding company, James River UK, are generally subject to a 5% dividendwithholding tax. James River Group paid a $21.1 million dividend to James River UK during 2017 and remitted $1.1 million of dividend withholding taxesto the U.S. tax authorities for the year ending December 31, 2017. No similar distributions occurred in 2016. James River Group paid a $50.0 milliondividend to James River UK during 2015 and remitted $2.5 million of dividend withholding taxes to the U.S. tax authorities for the year ending December31, 2015.The Company’s U.S. subsidiaries are subject to federal, state and local corporate income taxes, and other taxes applicable to U.S. corporations. TheCompany’s U.S.-domiciled subsidiaries file a consolidated U.S. federal income tax return. TheF-40TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 201512.Income Taxes (continued)Company’s U.S.-based subsidiaries are generally no longer subject to income tax examination by U.S. income tax authorities for the tax years ending beforeJanuary 1, 2014.Financial results for 2017 reflect provisional amounts related to the December 2017 enactment of the TCJA. These provisional estimates are based on theCompany’s initial analysis and current interpretation of the legislation. Given the complexity of the legislation, anticipated guidance from the U.S. Treasury,and the potential for additional guidance from the Securities and Exchange Commission (SEC) or the Financial Accounting Standards Board, these estimatesmay be adjusted during 2018.The expected income tax provision computed from pre-tax income at the weighted-average tax rate has been calculated as the sum of the pre-tax incomein each jurisdiction multiplied by that jurisdiction’s applicable Federal statutory tax rate. Federal statutory tax rates of 0% and 35% have been used forBermuda and the U.S., respectively. U.S. deferred taxes have been remeasured at 21%, down from 35% in prior periods. U.S. income before Federal incometaxes was $50.1 million, $18.3 million, and $15.2 million for the years ending December 31, 2017, 2016, and 2015, respectively. A reconciliation of thedifference between the Company’s Federal income tax provision on U.S. income and the expected Federal tax provision on U.S. income using the weighted-average tax rate as well as a reconciliation to total tax expense is as follows:Year Ended December 31,2017 2016 2015(in thousands)Federal income tax expense at applicable statutory rates$17,541 $6,401 $5,317Tax-exempt investment income(586) (643) (858)Dividends received deduction(792) (880) (867)Excess tax benefits on share based compensation(2,114) — —Effect of tax rate reduction on deferred tax liability(3,498) — —Other(90) (6) 379Federal income tax expense$10,461 $4,872 $3,971U.S. state income tax expense (benefit)65 — (192)U.S. dividend withholding tax1,053 — 2,500Total income tax expense$11,579 $4,872 $6,279F-41TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 201512.Income Taxes (continued)The significant components of the net deferred tax liability at the corporate income tax rate of 21% for the year ended December 31, 2017 and 35% forDecember 31, 2016 are summarized as follows:December 31,2017 2016(in thousands)Deferred tax assets: Accrued compensation expenses$1,712 $1,604Reserve for losses and loss adjustment expenses3,036 4,810Unearned premiums1,709 2,859Share based compensation1,143 2,281Allowance for doubtful accounts579 748Deferred policy acquisition costs1,509 1,983Property and equipment1,601 2,649AMT credit— 464Invested asset impairments791 291Other1,564 2,946Total deferred tax assets13,644 20,635Deferred tax liabilities: Intangible assets7,521 12,554Net unrealized gains2,578 1,586Deferred gain on extinguishment of debt63 212Equity method investments8,348 8,668Other381 517Total deferred tax liabilities18,891 23,537Net deferred tax liabilities$(5,247) $(2,902)Deferred income taxes have not been accrued with respect to certain undistributed earnings of foreign subsidiaries. If the earnings were to be distributed,as dividends or otherwise, such amounts may be subject to withholding taxation in the jurisdiction of the paying entity. The Company asserts that U.S.unremitted earnings as of December 31, 2017 will be permanently reinvested in the U.S. and, accordingly, no provision for withholding taxes arising inrespect to U.S. unremitted earnings has been made.The Company had no reserve for future tax contingencies or liabilities (“unrecognized tax benefits”) at December 31, 2017 or 2016.The U.S. imposes a 1% excise tax on reinsurance premiums paid to non-U.S. reinsurers with respect to risks located in the U.S. The rates of tax areestablished based on the nature of the risk, unless reduced by an applicable U.S. tax treaty. For the years ended December 31, 2017, 2016, and 2015, theCompany paid $3.4 million, $2.6 million, and $1.9 million, respectively, of federal excise taxes on its intercompany reinsurance transactions. The Companyalso paid excise taxes of $2.2 million, $1.6 million, and $1.7 million for the years ended December 31, 2017, 2016, and 2015, respectively, on writtenpremiums assumed from third-party insurers with respect to risks located in the U.S. These excise taxes are reflected as “other operating expenses” in theCompany’s consolidated income statements.F-42TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 201513.Other Operating Expenses and Other ExpensesOther operating expenses consist of the following:Year Ended December 31,2017 2016 2015(in thousands)Amortization of policy acquisition costs$116,001 $101,624 $97,750Other underwriting expenses of the insurance segments55,662 48,771 41,499Other operating expenses of the Corporate and Other segment 25,330 20,433 18,554Total$196,993 $170,828 $157,803Other expenses in the accompanying financial statements for the year ended December 31, 2017 were $539,000 and included $535,000 of legal andother professional services related to secondary share offerings in 2017. For the year ended December 31, 2016, other expenses of $1.6 million included $1.5million of employee severance expenses. For the year ended December 31, 2015, other expenses of $730,000 included $276,000 of expenses associated witha related party leasing agreement (Note 21), $170,000 of employee severance expenses, and $284,000 of legal, tax, and other professional services related tothe formation of James River UK, the December 2015 intercompany dividend, and a securities registration statement.14.Employee BenefitsThe Company and its subsidiaries offer savings plans (the “Savings Plans”) which qualify under Section 401(k) of the U.S. Internal Revenue Code.Participants may contribute certain percentages of their pre-tax salary to the Savings Plans subject to statutory limitations. The Company and its subsidiariesmatch employee contributions at various rates up to a maximum contribution of 6.0% of the participant’s earnings subject to certain statutory limits. For theyears ended December 31, 2017, 2016, and 2015, the expense associated with the Savings Plans totaled $2.5 million, $1.9 million, and $1.6 million,respectively.15.Commitments and Contingent LiabilitiesThe Company is a party to various lawsuits arising in the ordinary course of its operations. The Company believes that the ultimate resolution of thesematters will not materially impact its financial position, cash flows, or results of operations.The Company leases certain office space under operating leases that expire at various times and are subject to renewal options at market rates prevailingat the time of renewal. Rental expense for such leases was $4.2 million, $3.7 million, and $2.6 million for the years ended December 31, 2017, 2016, and2015, respectively.As of December 31, 2017, future minimum payments under non-cancelable operating leases for office space are as follows (in thousands):2018$4,02520193,64420203,34220213,15420222,768Thereafter7,658$24,591Included in the future minimum lease payments is $19.3 million related to the building constructed and owned by a partnership in which the Companyhas a minority investment (see Note 21).The Company’s Specialty Admitted Insurance segment entered into an agreement to lease certain policy management software. The five year leasebegan January 1, 2015. Lease expense for the year ended December 31, 2017 was $440,000 and total remaining payments of $880,000 are to be spreadevenly at $440,000 per year in 2018 and 2019.F-43TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 201515.Commitments and Contingent Liabilities (continued)The Company’s reinsurance subsidiary, JRG Re, entered into three letter of credit facilities with banks as security to third-party reinsureds on reinsuranceassumed by JRG Re. JRG Re has established custodial accounts to secure these letters of credit. Under a $100.0 million facility, $47.4 million of letters ofcredit were issued through December 31, 2017 which were secured by deposits of $93.9 million. Under a $102.5 million facility, $98.5 million of letters ofcredit were issued through December 31, 2017 which were secured by deposits of $102.9 million. Under a $100.0 million facility, $6.9 million of letters ofcredit were issued through December 31, 2017 which were secured by deposits of $10.2 million. JRG Re has also established trust accounts to secure itsobligations to selected reinsureds. The total amount deposited in the trust accounts for the benefit of third-party reinsureds was $265.0 million atDecember 31, 2017 (see Note 2).The Company is also exposed to credit risk relating to a set of insurance contracts with an insured group of companies under which the Company payslosses and loss adjustment expenses on the contract. The Company has indemnity agreements with this group of insured parties (non-insurance entities) andis contractually entitled to receive reimbursement for a significant portion of the losses and loss adjustment expenses paid on behalf of the insured parties andother expenses incurred by the Company. The insured parties are required to collateralize all amounts currently due to the Company and to provideadditional collateral sufficient to cover the amounts that may be recoverable under the indemnity agreement, including among other things case loss and lossadjustment expense reserves, IBNR loss and loss adjustment expense reserves, extra contractual obligations and excess of policy limits liabilities. Thiscollateral is currently provided through a collateral trust arrangement established in favor of the Company by a captive insurance company affiliate of theinsured group. At December 31, 2017, the cash equivalent collateral held in the collateral trust arrangement was approximately $780.9 million, whichexceeds the amount of claims receivable and unpaid reported losses and loss adjustment expenses outstanding. This is a rapidly growing relationship, and assuch, there is ongoing exposure to estimated losses and expenses on these contracts growing at a faster pace than growth in our collateral balances. Inaddition, we have credit exposure if our estimates of future losses and loss adjustment expenses and other amounts recoverable, which are the basis forestablishing collateral balances, are lower than actual amounts paid or payable. The amount of our credit exposure in any of these instances could bematerial. To mitigate these risks, we closely and frequently monitor our exposure compared to our collateral held, and we request additional collateral whenour analysis indicates that we have uncollateralized exposure.16.Other Comprehensive Income (Loss)The following table summarizes the components of other comprehensive (loss) income:Year Ended December 31,2017 2016 2015(in thousands)Unrealized gains (losses) arising during the period, before U.S. income taxes$11,091 $2,790 $(13,707)U.S. income taxes(2,374) (414) 517Unrealized gains (losses) arising during the period, net of U.S. income taxes8,717 2,376 (13,190)Less reclassification adjustment: Net realized investment (losses) gains(835) 6,572 2,402U.S. income taxes333 (2,137) (422)Reclassification adjustment for investment (losses) gains realized in net income(502) 4,435 1,980Other comprehensive income (loss)$9,219 $(2,059) $(15,170)In addition to the $835,000 of realized investment losses, and $6.6 million and $2.4 million of realized investment gains on available-for-sale securitiesfor the years ended December 31, 2017, 2016, and 2015, the Company recognized $1.2 million of realized investment losses, $995,000 of realizedinvestment gains, and $7.0 million of realized investment losses in the respective years on its investments in bank loan participations.17.Segment InformationThe Company has four reportable segments, three of which are separately managed business units and the fourth (“Corporate and Other”) includes theCompany’s remaining operations. The Excess and Surplus Lines segment primarily offers commercial excess and surplus lines liability and excess propertyinsurance products. The Specialty Admitted Insurance segment offers workers’ compensation insurance coverage as well as specialty admitted fronting andprogram business. The Casualty Reinsurance segment offers commercial liability and non-catastrophe property reinsurance to U.S. insuranceF-44TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 201517.Segment Information (continued)companies and to the Company’s U.S.-based insurance subsidiaries. The Corporate and Other segment consists of certain management and treasury activitiesof James River Group, James River UK, and JRG Holdings as well as interest expense associated with senior debt and Junior Subordinated Debt, andinvestment income from investments classified as trading or other invested assets. The accounting policies of the reportable segments are the same as thosedescribed in the summary of significant accounting policies.Segment revenues for each reportable segment consist of net earned premiums, net investment income, and realized investment gains (losses). Segmentprofit (loss) for each reportable segment is measured by underwriting profit (loss), which is generally defined as net earned premiums less losses and lossadjustment expenses and other operating expenses of the operating segments. Fee income and expenses of the Excess and Surplus Lines segment are includedin that segment’s underwriting profit (loss). Fee income of $17.0 million, $10.1 million and $3.2 million was included in underwriting profit for the yearsended December 31, 2017, 2016 and 2015, respectively. Segment results are reported prior to the effects of the intercompany reinsurance agreements betweenthe Company’s insurance subsidiaries. All gross written premiums and net earned premiums for all periods presented were generated from policies issued toU.S. based insureds.Excess andSurplus Lines SpecialtyAdmittedInsurance CasualtyReinsurance CorporateandOther Total(in thousands)As of and for the Year EndedDecember 31, 2017 Gross written premiums$530,120 $316,430 $235,355 $—$1,081,905Net earned premiums463,521 68,110 209,478 —741,109Segment revenues493,853 70,366 240,751 12,655817,625Net investment income15,014 2,532 31,507 12,06661,119Interest expense— — — 8,9748,974Underwriting profit (loss) of operating segments29,693 3,166 (1,765) —31,094Segment goodwill181,831 — — —181,831Segment assets843,486 439,416 1,379,866 93,9272,756,695F-45TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 201517.Segment Information (continued)Excess andSurplus Lines SpecialtyAdmittedInsurance CasualtyReinsurance CorporateandOther Total As of and for the Year EndedDecember 31, 2016 Gross written premiums$370,844 $182,221 $184,333 $— $737,398Net earned premiums301,404 52,281 161,978 — 515,663Segment revenues331,090 55,412 190,064 9,661 586,227Net investment income18,051 2,542 27,257 4,788 52,638Interest expense— — — 8,448 8,448Underwriting profit (loss) of operating segments47,235 2,872 (194) — 49,913Segment goodwill181,831 — — — 181,831Segment assets740,144 300,519 1,195,230 110,640 2,346,533As of and for the Year EndedDecember 31, 2015 Gross written premiums$308,717 $90,978 $172,499 $— $572,194Net earned premiums240,878 42,206 178,121 — 461,205Segment revenues255,529 44,791 197,586 7,015 504,921Net investment income13,427 2,316 22,706 6,386 44,835Interest expense— — — 6,999 6,999Underwriting profit (loss) of operating segments47,607 1,074 (2,558) — 46,123Segment goodwill181,831 — — — 181,831Segment assets671,143 173,094 1,108,278 102,982 2,055,497F-46TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 201517.Segment Information (continued)The following table reconciles the underwriting profit (loss) of insurance segments by individual segment to income before taxes:Year Ended December 31,2017 2016 2015(in thousands)Underwriting profit (loss) of the operating segments:Excess and Surplus Lines$29,693 $47,235 $47,607Specialty Admitted Insurance3,166 2,872 1,074Casualty Reinsurance(1,765) (194) (2,558)Total underwriting profit of operating segments31,094 49,913 46,123Other operating expenses of the Corporate and Other segment(25,330) (20,433) (18,554)Underwriting profit5,764 29,480 27,569Net investment income61,119 52,638 44,835Net realized investment (losses) gains(1,989) 7,565 (4,547)Other income361 295 245Other expenses(539) (1,590) (730)Interest expense(8,974) (8,448) (6,999)Amortization of intangible assets(597) (597) (597)Income before income taxes$55,145 $79,343 $59,776The Company currently has 15 underwriting divisions, including 13 in the Excess and Surplus Lines segment, one in the Specialty Admitted Insurancesegment, and one in the Casualty Reinsurance segment. Each underwriting division focuses on a specific industry group or coverage.Gross written premiums by segment and underwriting division are presented below:Year Ended December 31,2017 2016 2015(in thousands)Commercial Auto$247,960$110,050$73,770Manufacturers and Contractors85,71983,27978,315Excess Casualty51,16043,57432,458General Casualty38,09736,85830,972Energy29,70429,70930,623Allied Health19,18114,41313,513Excess Property14,44714,08312,498Life Sciences12,98111,1328,917Small Business11,3079,1046,916Professional Liability6,3268,36110,046Environmental7,9205,3214,437Medical Professionals2,2972,7393,585Sports and Entertainment3,0212,2212,667Total Excess and Surplus Lines segment530,120370,844308,717Specialty Admitted Insurance segment316,430182,22190,978Casualty Reinsurance segment235,355184,333172,499Total$1,081,905$737,398$572,194F-47TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 201517.Segment Information (continued)The Company does business with two brokers that generated $253.7 million and $70.3 million of gross written premiums for the Excess and SurplusLines segment for the year ended December 31, 2017, representing 23.5% (BB&T Insurance Services) and 6.5% of consolidated gross written premiums and47.9% and 13.3% of the Excess and Surplus Lines segment’s gross written premiums, respectively. The Company has agency contracts with various brancheswithin the aforementioned brokers. No other broker generated 10.0% or more of the gross written premiums for the Excess and Surplus Lines segment for theyear ended December 31, 2017. The Company does business with one insured that generated $216.1 million of gross written premiums and $16.9 million offee income for the Excess and Surplus Lines segment for the year ended December 31, 2017, representing 20.0% (Rasier LLC) of consolidated gross writtenpremiums and 40.8% of the Excess and Surplus Lines segment’s gross written premiums. No other insured generated 10.0% or more of the gross writtenpremiums for the Excess and Surplus Lines segment.The Specialty Admitted Insurance segment accepts applications for insurance from a variety of sources, including independent retail agents, programadministrators and managing general agents (“MGAs”). The Company does business with one agency that generated $183.0 million of gross writtenpremiums for the Specialty Admitted Insurance segment for the year ended December 31, 2017, representing 16.9% (Atlas General Insurance Services) of theconsolidated gross written premiums and 57.8% of the Specialty Admitted Insurance segment’s gross written premiums. No other agency generated 10.0% ormore of the gross written premiums for the Specialty Admitted Insurance segment for the year ended December 31, 2017.The Company does business with four brokers that generated $56.1 million, $55.0 million, $38.1 million, and $33.4 million of gross written premiumsfor the Casualty Reinsurance segment for the year ended December 31, 2017, representing 5.2%, 5.1%, 3.5%, and 3.1% of consolidated gross writtenpremiums and 23.8%, 23.4%, 16.2%, and 14.2% of the Casualty Reinsurance segment’s gross written premiums, respectively. No other broker generated10.0% or more of the gross written premiums for the Casualty Reinsurance segment for the year ended December 31, 2017. The Casualty Reinsurancesegment assumed business from two unaffiliated ceding companies that generated $120.3 million and $48.4 million of gross written premiums for the yearended December 31, 2017, representing 11.1% (State National Insurance Company) and 4.5% of consolidated gross written premiums and 51.1% and 20.6%of the Casualty Reinsurance segment’s gross written premiums, respectively.18.Fair Value MeasurementsThree levels of inputs are used to measure fair value of financial instruments: (1) Level 1: quoted price (unadjusted) in active markets for identical assets,(2) Level 2: inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable forthe asset or liability, either directly or indirectly, for substantially the full term of the instrument, and (3) Level 3: inputs to the valuation methodology areunobservable for the asset or liability.Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous marketin an orderly transaction between market participants on the measurement date.To measure fair value, the Company obtains quoted market prices for its investment securities from its outside investment managers. If a quoted marketprice is not available, the Company uses prices of similar securities. Values for U.S. Treasury and publicly-traded equity securities are generally based onLevel 1 inputs which use the market approach valuation technique. The values for all other fixed maturity securities (including state and municipal securitiesand obligations of U.S. government corporations and agencies) generally incorporate significant Level 2 inputs, and in some cases, Level 3 inputs, using themarket approach and income approach valuation techniques. There have been no changes in the Company’s use of valuation techniques since December 31,2015.The Company reviews fair value prices provided by its outside investment managers for reasonableness by comparing the fair values provided by themanagers to those provided by our investment custodian. The Company also reviews and monitors changes in unrealized gains and losses. The Company hasnot historically adjusted security prices. The Company obtains an understanding of the methods, models and inputs used by the investment managers andindependent pricing services, and controls are in place to validate that prices provided represent fair values. The Company’s control process includes, but isnot limited to, initial and ongoing evaluation of the methodologies used, a review of specific securities and an assessment for proper classification within thefair value hierarchy, and obtaining and reviewing internal control reports for our investment manager that obtains fair values from independent pricingservices.F-48TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 201518.Fair Value Measurements (continued)Assets measured at fair value on a recurring basis as of December 31, 2017 are summarized below: Fair Value Measurements UsingQuoted Pricesin ActiveMarkets forIdentical AssetsLevel 1 SignificantOtherObservableInputsLevel 2SignificantUnobservableInputsLevel 3 Total (in thousands)Available-for-sale securities Fixed maturity securities: State and municipal$— $144,366 $— $144,366Residential mortgage-backed— 158,661 — 158,661Corporate— 413,721 — 413,721Commercial mortgage and asset-backed— 177,931 4,680 182,611Obligations of U.S. government corporations and agencies— 35,847 — 35,847U.S. Treasury securities and obligations guaranteed by the U.S.government78,265 609 — 78,874Redeemable preferred stock— 2,018 — 2,018Total fixed maturity securities78,265 933,153 4,680 1,016,098Equity securities: Preferred stock— 66,281 — 66,281Common stock15,507 734 — 16,241Total equity securities15,507 67,015 — 82,522Total available-for-sale securities$93,772 $1,000,168 $4,680 $1,098,620Trading securities: Fixed maturity securities$— $3,808 $— $3,808Short-term investments$1,000 $35,804 $— $36,804F-49TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 201518.Fair Value Measurements (continued)Assets measured at fair value on a recurring basis as of December 31, 2016 are summarized below:Fair Value Measurements UsingQuoted Pricesin ActiveMarkets forIdentical AssetsLevel 1 SignificantOtherObservableInputsLevel 2SignificantUnobservableInputsLevel 3 Total(in thousands) Available-for-sale securities Fixed maturity securities: State and municipal$—$105,841$— $105,841Residential mortgage-backed—150,798— 150,798Corporate—378,448— 378,448Commercial mortgage and asset-backed—163,0475,000 168,047Obligations of U.S. government corporations and agencies—65,014— 65,014U.S. Treasury securities and obligations guaranteed by the U.S.government70,465655— 71,120Redeemable preferred stock—1,809— 1,809Total fixed maturity securities70,465865,6125,000 941,077Equity securities: Preferred stock—64,827— 64,827Common stock10,840734— 11,574Total equity securities10,84065,561— 76,401Total available-for-sale securities$81,305$931,173$5,000 $1,017,478Trading securities: Fixed maturity securities$1,250$3,813$— $5,063Short-term investments$1,100$49,744$— $50,844A reconciliation of the beginning and ending balances of available-for-sale fixed maturity securities measured at fair value on a recurring basis usingsignificant unobservable inputs (Level 3) is shown below:Year Ended December 31,2017 2016 2015(in thousands)Beginning balance$5,000 $5,000$—Transfers out of Level 3— ——Transfers in to Level 3— ——Purchases— —5,000Sales— ——Maturities and calls(320) — —Amortization of discount— ——Total gains or losses (realized/unrealized):— ——Included in earnings— ——Included in other comprehensive income— ——Ending balance$4,680 $5,000$5,000F-50TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 201518.Fair Value Measurements (continued)The Company held one available-for-sale fixed maturity security at December 31, 2017 and 2016 for which the fair value was determined usingsignificant unobservable inputs (Level 3). A market approach using prices in trades of comparable securities was utilized to determine a fair value of $4.7million for the security at December 31, 2017 and $5.0 million at December 31, 2016.Transfers out of Level 3 occur when the Company is able to obtain reliable prices from pricing vendors for which the Company was previously unable toobtain reliable prices. Transfers in to Level 3 occur when the Company is unable to obtain reliable prices for securities from pricing vendors and instead mustuse broker price quotes.There were no transfers between Level 1 and Level 2 during 2017, 2016 or 2015. The Company recognizes transfers between levels at the beginning ofthe reporting period.There were no realized gains or losses included in earnings for the year ended December 31, 2017 attributable to the change in unrealized gains or lossesrelating to Level 3 assets valued at fair value on a recurring basis that are still held at December 31, 2017.The Company measures certain bank loan participations at fair value on a non-recurring basis during the year as part of the Company’s impairmentevaluation when loans are determined by management to be impaired.Assets measured at fair value on a nonrecurring basis are summarized below:Fair Value Measurements UsingQuoted Pricesin ActiveMarkets forIdentical AssetsLevel 1 SignificantOtherObservableInputsLevel 2 SignificantUnobservableInputsLevel 3Total(in thousands)December 31, 2017Bank loan participations held-for-investment$— $—$5,111$5,111December 31, 2016 Bank loan participations held-for-investment$— $—$4,849$4,849At December 31, 2017 and 2016, bank loan participations held for investment that were determined to be impaired were written down to their fair valueof $5.1 million and $4.8 million, respectively.In the determination of the fair value for bank loan participations and certain high yield bonds, the Company’s investment manager endeavors to obtaindata from multiple external pricing sources. External pricing sources may include brokers, dealers and price data vendors that provide a composite pricebased on prices from multiple dealers. Such external pricing sources typically provide valuations for normal institutional size trading units of such securitiesusing methods based on market transactions for comparable securities, and various relationships between securities, as generally recognized by institutionaldealers. For investments in which the investment manager determines that only one external pricing source is appropriate or if only one external price isavailable, the relevant investment is generally recorded at fair value based on such price.Investments for which external sources are not available or are determined by the investment manager not to be representative of fair value are recordedat fair value as determined by the Company, with input from its investment managers and valuation specialists as considered necessary. In determining thefair value of such investments, the Company considers one or more of the following factors: type of security held, convertibility or exchangeability of thesecurity, redeemability of the security (including the timing of redemptions), application of industry accepted valuation models, recent trading activity,liquidity, estimates of liquidation value, purchase cost, and prices received for securities with similar terms of the same issuer or similar issuers. AtDecember 31, 2017, there was one bank loan participation with an unpaid principal balance of $807,000 and a carrying value of zero for which externalsources were unavailable to determine fair value. At December 31, 2016, there were two bank loan participations with an unpaid principal balance of $2.3million and a carrying value of $2.0 million for which external sources were unavailable to determine fair value.F-51TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 201518.Fair Value Measurements (continued)The carrying values and fair values of financial instruments are summarized below:December 31,2017 2016CarryingValue FairValue CarryingValue FairValue(in thousands)Assets Available-for-sale: Fixed maturity securities$1,016,098$1,016,098 $941,077 $941,077Equity securities82,52282,522 76,401 76,401Trading: Fixed maturity securities3,8083,808 5,063 5,063Bank loan participations held-for-investment238,214236,532 203,526 203,123Cash and cash equivalents163,495163,495 109,784 109,784Short-term investments36,80436,804 50,844 50,844Other invested assets – notes receivable11,77817,104 4,500 6,008Liabilities Senior debt98,30097,884 88,300 85,404Junior subordinated debt104,055116,569 104,055 99,397The fair values of fixed maturity securities and equity securities have been determined using quoted market prices for securities traded in the publicmarket or prices using bid or closing prices for securities not traded in the public marketplace. The fair values of cash and cash equivalents and short-terminvestments approximate their carrying values due to their short-term maturity.The fair values of other invested assets-notes receivable, senior debt, and Junior Subordinated Debt at December 31, 2017 and 2016 were determined bycalculating the present value of expected future cash flows under the terms of the note agreements or debt agreements, as applicable, discounted at anestimated market rate of interest at December 31, 2017 and 2016, respectively.The fair values of bank loan participations held-for-investment, senior debt, and Junior Subordinated Debt at December 31, 2017 and 2016 weredetermined using inputs to the valuation methodology that are unobservable (Level 3).19.Statutory MattersU.S.U.S. state insurance laws and regulations prescribe accounting practices for determining statutory net income and capital and surplus for insurancecompanies. In addition, state regulators may permit statutory accounting practices that differ from prescribed practices. Statutory accounting practicesprescribed or permitted by regulatory authorities for the Company’s insurance subsidiaries differ from U.S. GAAP. The principal differences between SAP andGAAP as they relate to the financial statements of the Company’s insurance subsidiaries are (a) policy acquisition costs are expensed as incurred under SAP,whereas they are deferred and amortized under GAAP, (b) certain assets are not admitted for purposes of determining surplus under SAP, (c) the classificationand carrying amounts of investments in certain securities are different under SAP and GAAP, and (d) the criteria for providing asset valuation allowances andthe methodologies used to determine the amount thereof are different under SAP and GAAP. Combined net income, statutory capital and surplus andminimum required statutory capital and surplus, as determined in accordance with statutory accounting practices, for the U.S. insurance subsidiaries as ofDecember 31, 2017, 2016, and 2015 and for the years then ended are summarized as follows:F-52TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 201519.Statutory Matters (continued)2017 2016 2015(in thousands)Statutory net income$31,881 $13,468 $14,747Statutory capital and surplus219,132 184,859 176,884Minimum required statutory capital and surplus25,000 25,000 25,000Risk-Based Capital (“RBC”) requirements promulgated by the National Association of Insurance Commissioners require property/casualty insurers tomaintain minimum capitalization levels determined based on formulas incorporating various business risks of the insurance subsidiaries. As of December 31,2017, the insurance subsidiaries’ adjusted capital and surplus exceeds their authorized control level RBC.BermudaUnder the Bermuda Insurance Act, 1978 and related regulations, JRG Re is required to maintain certain solvency and liquidity levels. The minimumstatutory solvency margin required at December 31, 2017 was approximately $109.9 million. Actual statutory capital and surplus at December 31, 2017 was$409.2 million. JRG Re had statutory net income of $20.1 million for 2017, $74.7 million for 2016, and $54.3 million for 2015. JRG Re had shareholders’equity of $409.7 million on a GAAP basis at December 31, 2017.JRG Re maintains a Class 3B license and thus must maintain a minimum liquidity ratio in which the value of its relevant assets is not less than 75.0% ofthe amount of its relevant liabilities for general business. Relevant assets include cash and cash equivalents, fixed maturities, alternative investments, accruedinterest income, premiums receivable, losses recoverable from reinsurers, and funds withheld. The relevant liabilities include total general business insurancereserves and total other liabilities, less sundry liabilities. As of December 31, 2017, the Company met the minimum liquidity ratio requirement.20.Dividend RestrictionsU.S.The insurance statutes of the U.S.-based insurance subsidiaries’ states of domicile limit the amount of dividends that they may pay annually without firstobtaining regulatory approval. Generally, the limitations are based on the greater of statutory net income for the preceding year or 10.0% of statutory surplusat the end of the preceding year. The maximum amount of dividends available to James River Group from its U.S. insurance subsidiaries during 2018 withoutregulatory approval is $37.0 million. However, U.S. insurance regulators have broad powers to prevent the reduction of statutory surplus to inadequate levelsand could refuse to permit the payment of dividends.Distributions from the Company’s U.S.-based subsidiaries to its U.K. intermediate holding company, James River UK, are generally subject to a 5%dividend withholding tax. The payment of any dividends by the Company’s U.S.-based subsidiaries directly to a Bermuda-based entity is subject to U.S.taxes at a 30.0% tax rate. JRG Holdings has determined that earnings of its U.S. subsidiaries have been and will be indefinitely reinvested in U.S. operations.BermudaBermuda regulations limit the amount of dividends and return of capital paid by a regulated entity. A class 3B insurer is prohibited from declaring orpaying a dividend if it is in breach of its minimum solvency margin, its enhanced capital requirement, or its minimum liquidity ratio, or if the declaration orpayment of such dividend would cause such a breach. Pursuant to Bermuda regulations, the maximum amount of dividends and return of capital available tobe paid by a reinsurer is determined pursuant to a formula. Under this formula, the maximum amount of dividends and return of capital available to theCompany from JRG Re during 2018 is calculated to be approximately $102.3 million. However, this dividend amount is subject to annual enhancedsolvency requirement calculations.As of December 31, 2017, JRG Holdings had consolidated retained earnings of $48.2 million, all of which was available for the payment of dividends toshareholders.F-53TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 201521.Other Related Party TransactionsThe Company leases a commercial office building which houses the Company’s Richmond, Virginia operations under the terms of a non-cancelablelease from an entity with which it is affiliated. As a result of being deemed the owner for accounting purposes, the building is recorded as an asset and therelated financing obligation is recorded as a liability on the accompanying consolidated balance sheets. Since the arrangement did not qualify for sale-leaseback treatment upon completion of the asset’s construction, the Company continues to reduce the obligation over the lease term as payments are made anddepreciates the asset over its useful life. Both the financing obligation and the lease had initial 10-year terms which started in 2007. In 2015, the term of thelease and financing obligation were extended until 2026. The arrangements provide for 2% fixed annual rent increases.The Chairman of the Board and Chief Executive Officer of the Company owns a plane that the Company periodically leases. Total fees paid by theCompany for the use of this plane were $314,000, $246,000, and $211,000 for 2017, 2016, and 2015, respectively.Upon the Company’s initial public offering in 2014, the Company entered into a consulting agreement (the “Consulting Agreement”) with one of theCompany's Independent Directors. Under the terms of the Consulting Agreement, the director received $150,000 in each of 2015 and 2016 and $37,500 in2017, prior to the termination of the Consulting Agreement effective March 31, 2017, for investment and other business consulting services.22.Subsequent EventsOn February 22, 2018, the Board of Directors declared a cash dividend of $0.30 per share. The dividend is payable on March 30, 2018 to shareholders ofrecord on March 12, 2018.On February 21, 2018, the Board of Directors granted awards under the 2014 LTIP and the 2014 Director Plan to the Company’s employees anddirectors. RSUs for 145,141 shares were awarded with a fair value on the date of grant of $39.71 per share. The RSUs vest over one to three year periods,depending on the award.In response to the Tax Act, we plan to make changes to the Company’s structure in 2018 to minimize the impact of BEAT that include the formation ofCarolina Re, Ltd. (“Carolina Re”), a Bermuda-domiciled, wholly owned subsidiary of James River Group, Inc. We expect Carolina Re to be a Class 3Areinsurer and make an irrevocable election to be taxed as a U.S. domestic corporation under Section 953(d) of the Code. Effective January 1, 2018, we willdiscontinue ceding 70% of our U.S.-written premiums to JRG Re and will instead cede 70% of our U.S.-written premiums to Carolina Re. We also expectCarolina Re will enter into a stop loss reinsurance agreement with JRG Re. While Carolina Re will be subject to U.S. corporate income tax, we do not expectthat it will be subject to BEAT in fiscal year 2018 as the Company is expected to have sufficient regular U.S. income tax liability compared to the BEATliability. The applicability of BEAT depends on a number of factors, and it is unclear whether we will be subject to BEAT in future periods.23.Unaudited Selected Quarterly Financial DataThe following is a summary of the unaudited quarterly results of operations:2017 Quarter 2017First Second Third Fourth Year(in thousands, except per share data)Gross written premiums$224,179 $281,475 $338,351 $237,900$1,081,905Total revenues176,402 202,394 220,866 217,963817,625Net income18,450 14,541 10,351 22443,566Comprehensive income (loss)22,484 21,249 11,067 (2,015)52,785Earnings per share: Basic$0.63 $0.49 $0.35 $0.01$1.48Diluted$0.61 $0.48 $0.34 $0.01$1.44For the second quarter of 2017, the Casualty Reinsurance segment was impacted by a correction of the accrual for a contingent commission liability andrelated commission expense. As a result of this correction, net income for the second quarter of 2017 was reduced by $2.0 million.F-54TABLE OF CONTENTSJames River Group Holdings, LTD. and SubsidiariesNotes to Consolidated Financial StatementsYears ended December 2017, 2016, and 201523.Unaudited Selected Quarterly Financial Data (continued) 2016 Quarter 2016First Second Third Fourth Year(in thousands, except per share data)Gross written premiums$133,071 $170,671 $260,166 $173,490 $737,398Total revenues131,329 134,511 151,365 169,022 586,227Net income12,837 14,596 21,366 25,672 74,471Comprehensive income (loss)28,457 27,388 19,694 (3,127) 72,412Earnings per share: Basic$0.44 $0.50 $0.73 $0.88 $2.56Diluted$0.43 $0.49 $0.71 $0.85 $2.49F-55TABLE OF CONTENTSSCHEDULE IJAMES RIVER GROUP HOLDINGS, LTD.Summary of Investments—Other than Investments in Related PartiesType of Investment Cost orAmortized Cost FairValue Amount atwhich shownon BalanceSheet(1) (in thousands) Fixed maturity securities, available-for-sale: State and municipal $139,382 $144,366 $144,366Residential mortgage-backed 160,379 158,661 158,661Corporate 408,857 413,721 413,721Commercial mortgage and asset-backed 182,595 182,611 182,611Obligations of U.S. government corporations and agencies 35,948 35,847 35,847U.S. Treasury securities and obligations guaranteed by the U.S. government 79,476 78,874 78,874Redeemable preferred stock 2,025 2,018 2,018Total fixed maturity securities, available-for-sale 1,008,662 1,016,098 1,016,098Fixed maturity securities, trading 3,801 3,808 3,808Equity securities, available-for-sale Preferred Stock 59,102 66,281 66,281Common Stock 16,216 16,241 16,241Total equity securities, available-for-sale 75,318 82,522 82,522Bank loan participations, held-for-investment, net of allowance 238,214 236,532 238,214Short-term investments 35,804 35,804 35,804Other invested assets 26,367Total invested assets $1,402,813 (1)Differences between the amounts in this column and the amounts in the consolidated balance sheet are due to this schedule excluding investments inrelated parties.F-56TABLE OF CONTENTSSCHEDULE IIJAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIESCondensed Financial Information of RegistrantBalance Sheets (Parent Company)December 31,2017 2016(in thousands)Assets Cash and cash equivalents$2,849 $2,969Investment in subsidiaries910,610 897,729Other assets2,351 2,415Total assets$915,810 $903,113Liabilities and shareholders’ equity Liabilities: Accrued expenses$1,406 $1,428Senior debt83,300 73,300Junior subordinated debt15,928 15,928Notes payable to subsidiary100,000 100,000Due to subsidiaries20,043 18,549Other liabilities434 687Total liabilities221,111 209,892Commitments and contingent liabilities——Shareholders’ equity: Class A common shares6 6Additional paid-in capital636,149 636,856Retained earnings48,198 55,232Accumulated other comprehensive income10,346 1,127Total shareholders’ equity694,699 693,221Total liabilities and shareholders’ equity$915,810 $903,113See accompanying notes.F-57TABLE OF CONTENTSSCHEDULE IIJAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIESCondensed Financial Information of RegistrantStatements of Income and Comprehensive Income (Parent Company)Year Ended December 31,2017 2016 2015(in thousands)Revenues: Other income$49 $44 $40Total revenues49 44 40Expenses: Other operating expenses10,375 9,467 8,254Other expenses640 293 284Interest expense4,130 3,974 3,687Total expenses15,145 13,734 12,225Loss before equity in net income of subsidiaries(15,096) (13,690) (12,185)Equity in net income of subsidiaries58,662 88,161 65,682Net income$43,566 $74,471 $53,497Other comprehensive income (loss): Equity in other comprehensive earnings (losses) of subsidiaries9,219 (2,059) (15,170)Total comprehensive income$52,785 $72,412 $38,327See accompanying notes.F-58TABLE OF CONTENTSSCHEDULE IIJAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIESCondensed Financial Information of RegistrantStatements of Cash Flows (Parent Company)Year Ended December 31,2017 2016 2015Operating activities Net income$43,566 $74,471 $53,497Adjustments to reconcile net income to net cash (used in) provided by operating activities: Provision for depreciation and amortization176 157 157Share based compensation expense7,688 5,492 3,735Equity in undistributed earnings of subsidiaries(23,662) (88,161) (65,682)Changes in operating assets and liabilities:684 (1,889) 9,532Net cash (used in) provided by operating activities28,452 (9,930) 1,239Investing activities Dividends from subsidiaries20,000 80,000 52,250Net cash provided by investing activities20,000 80,000 52,250Financing activities Dividends paid(50,832) (65,988) (47,405)Senior debt issuance10,000 — 10,000Senior debt repayments— — (10,000)Debt issue costs paid— (442) —Issuances of common shares under equity incentive plans1,708 2,260 1,730Common share repurchases(9,448) (4,907) (6,461)Net cash used in financing activities(48,572) (69,077) (52,136)Change in cash and cash equivalents(120) 993 1,353Cash and cash equivalents at beginning of period2,969 1,976 623Cash and cash equivalents at end of period$2,849 $2,969 $1,976Supplemental information Interest paid$4,612 $4,676 $4,337See accompanying notes.F-59TABLE OF CONTENTSSCHEDULE IIJAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIESCondensed Financial Information of RegistrantNotes to Condensed Financial Statements1.Accounting PoliciesOrganizationJames River Group Holdings, Ltd. (the “Company”) is an exempted holding company registered in Bermuda, organized for the purpose of acquiring andmanaging insurance and reinsurance entities.Basis of PresentationThe accompanying condensed financial statements have been prepared using the equity method. Under the equity method, the investment inconsolidated subsidiaries is stated at cost plus equity in undistributed earnings of consolidated subsidiaries since the date of acquisition. These condensedfinancial statements should be read in conjunction with the Company’s consolidated financial statements.Estimates and AssumptionsPreparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amountsreported in the financial statements and accompanying disclosures. Those estimates are inherently subject to change, and actual results may ultimately differfrom those estimates.Adopted Accounting StandardsEffective January 1, 2017, the Company adopted Accounting Standards Update (“ASU”) 2016-09, Compensation – Stock Compensation (Topic 718):Improvements to Employee Share-Based Payment Accounting using the prospective method. The guidance requires that all tax effects related to share-basedpayments be made through the income statement at the time of settlement as opposed to excess tax benefits being recognized in additional paid-in capitalunder the previous guidance. The ASU also removes the requirement to delay recognition of a tax benefit until it reduces current taxes payable. Additionally,all tax related cash flows resulting from share-based payments are now reported as operating activities on the statement of cash flows, a change from theprevious requirement to present tax benefits as an inflow from financing activities and an outflow from operating activities. For the years ended December 31,2016 and 2015, net cash provided by operating activities increased by $3.2 million and $3.6 million, respectively, and net cash used in financing activitiesincreased by $3.2 million and $3.6 million, respectively, for the adoption of ASU 2016-09. The Company has elected to recognize forfeitures as they occur inaccordance with ASU 2016-09. The adoption of ASU 2016-09 did not materially impact the Company’s income statements.F-60TABLE OF CONTENTSSCHEDULE IIIJAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIESSupplementary Insurance Information(in thousands)DeferredPolicyAcquisitionCosts Reservefor Lossesand LossAdjustmentExpenses UnearnedPremiums NetEarnedPremiums NetInvestmentIncome Lossesand LossAdjustmentExpenses Amortizationof PolicyAcquisitionCosts OtherOperatingExpenses NetWrittenPremiumsDecember 31, 2017 Excess and Surplus Lines$17,050 $759,043 $149,047 $463,521 $15,014 $371,717 $45,158 $79,136 $469,891Specialty Admitted(725) 271,446 73,649 68,110 2,532 44,863 5,605 20,081 60,957Casualty Reinsurance56,040 261,860 195,418 209,478 31,507 138,797 65,238 72,446 235,778Corporate and Other— — — — 12,066 — — 25,330 —Total$72,365 $1,292,349 $418,114 $741,109 $61,119 $555,377 $116,001 $196,993 $766,626December 31, 2016 Excess and Surplus Lines$14,808 $575,280 $137,290 $301,404 $18,051 $188,768 $46,669 $75,467 $316,922Specialty Admitted1,767 128,795 84,156 52,281 2,542 30,897 5,968 18,512 55,803Casualty Reinsurance48,214 239,790 169,117 161,978 27,257 105,756 48,987 56,416 184,983Corporate and Other— — — — 4,788 — — 20,433 —Total$64,789 $943,865 $390,563 $515,663 $52,638 $325,421 $101,624 $170,828 $557,708December 31, 2015 Excess and Surplus Lines$15,266 $468,438 $114,369 $240,878 $13,427 $131,221 $42,069 $65,233 $253,285Specialty Admitted2,184 76,179 40,622 42,206 2,316 25,623 4,455 15,509 44,917Casualty Reinsurance43,304 240,705 146,113 178,121 22,706 122,172 51,226 58,507 172,830Corporate and Other— — — — 6,386 — — 18,554 —Total$60,754 $785,322 $301,104 $461,205 $44,835 $279,016 $97,750 $157,803 $471,032F-61TABLE OF CONTENTSSCHEDULE IVJAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIESReinsuranceDirectAmount Cededto OtherCompanies Assumedfrom OtherCompanies NetAmount Percentageof AmountAssumedto Net(in thousands)Year Ended December 31, 2017 Excess and Surplus Lines Written Premiums$530,077 $60,229 $43 $469,891 —Specialty Admitted Written Premiums313,642 255,473 2,788 60,957 4.6%Casualty Reinsurance Written Premiums— (423) 235,355 235,778 99.8%Total Written Premiums$843,719 $315,279 $238,186 $766,626 31.1%Year Ended December 31, 2016 Excess and Surplus Lines Written Premiums$370,802 $53,922 $42 $316,922 —Specialty Admitted Written Premiums178,898 126,418 3,323 55,803 6.0%Casualty Reinsurance Written Premiums— (650) 184,333 184,983 99.6%Total Written Premiums$549,700 $179,690 $187,698 $557,708 33.7%Year Ended December 31, 2015 Excess and Surplus Lines Written Premiums$308,713 $55,432 $4 $253,285 —Specialty Admitted Written Premiums87,103 46,061 3,875 44,917 8.6%Casualty Reinsurance Written Premiums— (331) 172,499 172,830 99.8%Total Written Premiums$395,816 $101,162 $176,378 $471,032 37.4%F-62TABLE OF CONTENTSSCHEDULE VJAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIESValuation and Qualifying AccountsBalanceat Beginningof Period AdditionsAmountsCharged toExpense DeductionsAmountsWritten Offor Disposals Balanceat Endof Period(in thousands)Year Ended December 31, 2017 Allowance for Doubtful Accounts$2,136 $1,029 $(408) $2,757Allowance for Credit Losses on Bank Loans943 2,424 (148) 3,219Total$3,079 $3,453 $(556) $5,976Year Ended December 31, 2016 Allowance for Doubtful Accounts$2,778 $814 $(1,456) $2,136Allowance for Credit Losses on Bank Loans4,310 (791) (2,576) 943Total$7,088 $23 $(4,032) $3,079Year Ended December 31, 2015 Allowance for Doubtful Accounts$1,985 $1,061 $(268) $2,778Allowance for Credit Losses on Bank Loans752 3,896 (338) 4,310Total$2,737 $4,957 $(606) $7,088F-63TABLE OF CONTENTSSCHEDULE VIJAMES RIVER GROUP HOLDINGS, LTD. AND SUBSIDIARIESSupplementary Information Concerning Property Casualty Insurance OperationsYear Ended December 31,2017 2016 2015(in thousands)Deferred policy acquisition costs$72,365 $64,789 $60,754Reserve for losses and loss adjustment expenses1,292,349 943,865 785,322Unearned premiums418,114 390,563 301,104Net earned premiums741,109 515,663 461,205Net investment income61,119 52,638 44,835Losses and loss adjustment expenses incurred: Current year533,905 349,137 295,334Prior year21,472 (23,716) (16,318)Total losses and loss adjustment expenses incurred555,377 325,421 279,016Amortization of policy acquisition costs116,001 101,624 97,750Paid losses and loss adjustment expenses, net of reinsurance326,680 217,827 214,524Net written premiums766,626 557,708 471,032F-64Exhibit 10.20 JAMES RIVER GROUP HOLDINGS, LTD.Wellesley House, 2nd Floor90 Pitts Bay RoadPembroke HM 08 BermudaMr. Robert P. MyronDear Robert:The purpose of this letter (this “Agreement”) is to confirm that we have agreed to amend and restate as of January 1, 2018 (the “Effective Date”) our prioragreement (the “Prior Agreement”) with respect to the terms of your continued employment by James River Group Holdings, Ltd., a Bermuda company (the“Company”).In consideration of the mutual promises contained in this Agreement, the parties to this Agreement hereby agree as follows:1.EMPLOYMENT AND TERM. Effective as of the Effective Date, the Company agrees to continue to employ you (the “Executive”) as theChief Executive Officer, and Executive hereby accepts such continued employment on the terms hereinafter set forth. The term of this Agreement shall be oneyear commencing as of the Effective Date and ending on the date immediately preceding the first anniversary of the Effective Date, subject to the terminationprovisions of Section 6. The term of this Agreement shall thereafter be automatically renewed for additional one year periods unless written notice to thecontrary shall be given by either party to the other not less than 60 days prior to the end of the initial or any renewal term that the term shall not thereafter berenewed (“Non-Renewal Notice”), subject to the termination provisions of Section 6. The initial term plus any renewals thereof shall hereafter be referred toas the “Term.”2.COMPENSATION.(a)Salary. Commencing as of the Effective Date, Executive shall be paid a base salary at a rate of not less than $750,000 per year,payable in periodic installments in accordance with the Company’s normal payroll practices.(b)Bonus and Long-Term Incentive Plan. For each fiscal year of the Company during the Term in which Executive is employed bythe Company as of the last day of such fiscal year, Executive shall be eligible to receive such discretionary bonuses as the Board of Directors of theCompany (the “Board”) (other than Executive, if Executive is a member of the Board), in its discretion, may determine based on Executive’sperformance during such fiscal year, which shall be paid on or before March 15 of the subsequent fiscal year. In addition, Executive shall be eligibleto participate in any long-term incentive plan of the Company in effect from time to time.(c)Vacation, Benefits. Executive shall also be entitled, during the Term to participate in all employee benefit plans and otherfringe benefits or plans (including certain services and utilities) of the Company generally available to executive employees of the Company Groupor generally available to the Company’s Bermuda-based executive employees, at the Company’s expense, including:(i)a total of six weeks of paid vacation per annum (not subject to carry over to subsequent years);(ii)tax equalization payments pursuant to the Company’s tax equalization policies (“Tax Equalization Policies”),provided that such tax equalization payments shall be made no later than the end of the second calendar year after the year in which the Executive’sincome tax return is required to be filed (including any extensions) for the year to which the compensation subject to the tax equalization paymentrelates, or, if later, the second calendar year beginning after the latest year in which the Executive’s foreign tax return or payment is required to befiled or made for the year to which the compensation subject to the tax equalization payment relates, and further provided that if the right to such taxequalization proceeds arises as a result of audit, litigation, or similar proceeding, such tax equalization payments are scheduled and made inaccordance with the tax gross-up payment provisions of Treas. Reg. §1.409A-3(j)(i)(v); and(iii)business expense reimbursement for all reasonable business expenses upon the presentation of reasonably itemizedstatements of such expenses in accordance with the Company’s policies and procedures.(d)Housing Expense. Company shall reimburse Executive for up to $12,500 per month for Executive’s “Housing Expense.” Forpurposes of this provision, “Housing Expense” means either (a) if Executive purchases asingle family residence (or condominium unit) in Bermuda and lives there during the Term (a “Residence”), the scheduled monthly mortgageprinciple, interest payment, and property tax payments paid by Executive for such Residence for each month during the Term in which Executiveresides in the Residence for the entire month, provided that the term of the mortgage is at least 15 years at prevailing interest rates and thatExecutive provides a copy of the mortgage and any other documentation relating to such purchase or mortgage payments as requested by theCompany, or (b) the rent paid by Executive for a residence in Bermuda for each month during the Term in which Executive resides in such residencefor the entire month, provided that Executive provides a copy of the lease and any other documentation relating to such rent payments as requestedby the Company. Such Housing Expense reimbursement payments will be made by the end of the month following the month in whichdocumentation of the mortgage or rent payment is provided to the Company.(e)Reimbursements. The amount of expenses eligible for reimbursement pursuant to this Agreement (including under Sections 2(c)(iii) and 2(d)) during any tax year of Executive shall not affect the expenses eligible for reimbursement in any other tax year. The right toreimbursement provided in this Agreement is not subject to liquidation or exchange for another benefit. In no event shall the reimbursement of aneligible expense under this Agreement occur later than the earlier of (i) six months from the date of incurrence and (ii) the end of the calendar yearfollowing the calendar year in which such expense was incurred.(f)Chartered Aircraft. The Company hereby agrees that at his election, Executive may travel on chartered aircraft in connectionwith the performance of his duties hereunder. The Company further agrees that the Executive may continue to charter planes for business travel as isreasonably necessary to efficiently carry out his duties.(g)Claw-Back. Executive acknowledges that to the extent required by applicable law or written company policy adopted by theBoard to implement the requirements of such law (including without limitation Section 304 of the Sarbanes Oxley Act and Section 954 of the DoddFrank Act), any bonus and other incentive compensation (if any) shall be subject to any clawback, forfeiture, recoupment or similar requirement asthe Board may determine in its sole discretion is necessary or desirable to implement such law or policy.3.DUTIES. Executive shall perform all duties normally associated with the position of Chief Executive Officer and such other reasonableduties as may be assigned to him by the Board. Executive shall report directly to the Board. Executive will devote his entire working time, attention, andenergies to carrying out and fulfilling his duties and responsibilities under this Agreement. Executive agrees to abide by all policies applicable to employeesof the Company Group adopted by the Board. Executive’s duties will primarily be performed at the Company’s offices in Bermuda, and Executive representsthat he is able and willing to engage in international travel as is necessary to perform his duties as Chief Executive Officer and to further the Company’sbusiness interests.4.CONFIDENTIAL INFORMATION AND PRIVILEGED INFORMATION.(a)Executive will not at any time during the Term or thereafter:(i)reveal, divulge, or make known to any person, firm, or corporation or use for his personal benefit or the benefit of others(except the Company and any of its direct or indirect subsidiaries (hereinafter referred to as “Affiliates,” and the Company, together with suchAffiliates, the “Company Group”)), directly or indirectly, any confidential or proprietary information received or developed by him during thecourse of his employment. For the purposes of this Section 4(a)(i) confidential and proprietary information (“Confidential Information”) shall bedefined to mean (1) all historical and pro forma projections of loss ratios incurred by the Company Group; (2) all historical and pro forma actuarialdata relating to the Company Group; (3) historical and pro forma financial results, revenue statements, and projections for the Company Group; (4)all information relating to the Company Group’s systems and software (other than the portion thereof provided by the vendor to all purchasers ofsuch systems and software); (5) all information relating to the Company’s unique underwriting approach; (6) all information relating to plans for, orinternal or external discussions regarding, acquisitions of or mergers with any business or line of business; (7) non-public business plans; (8) allother information relating to the financial, business, or other affairs of the Company Group including their customers; and (9) any information aboutany shareholder of the Company or any of its Affiliates, or any of their officers or employees, that has been furnished or made available to Executiveas a result of his position with the Company. Section 4(a)(i) shall not apply to Executive following the termination of his employment with theCompany with respect to any Confidential Information known or made generally available to the general public or within the industry by personsother than Executive or a person acting with or at the request of Executive; or(ii)reveal, divulge, or make known to any person, firm, or corporation, or use for his personal benefit or the benefit ofothers (except the Company Group), directly or indirectly, the name or names of any Customers (as defined in Section 5 below) of the CompanyGroup, nor will he reveal, divulge, or make known to anyperson, firm, or corporation or use for his personal benefit or the benefit of others (except the Company Group), directly or indirectly, any tradesecrets or any knowledge or information concerning any business methods or operational procedures engaged in by the Company Group(collectively, “Privileged Information”); provided, however, the restrictions set forth in this Section 4(a)(ii) shall not apply to Executive followingthe termination of his employment with the Company with respect to any Privileged Information known or made generally available to the generalpublic or within the industry by persons other than Executive or a person acting with or at the request of Executive.5.NON-COMPETITION.(a)Executive acknowledges and agrees that as the Company’s Chief Executive Officer (i) he will be responsible for and directlyinvolved in developing customer goodwill and relationships for the benefit of the Company Group, including personal contact with customers andsupervising others who contact customers and develop customer goodwill and relationships; (ii) he will be provided and have access to theCompany Group’s Confidential Information and Privileged Information, and will be compensated for the development, and supervising thedevelopment, of the same and (iii) he will have unique insight into and knowledge of the skills, talents and capabilities of the Company Group’s keyemployees. Executive also acknowledges and agrees that at the inception of his employment with the Company it was agreed that he would bebound by noncompetition restrictions that are similar to the restrictions in this Agreement.(b)Executive agrees that during his employment by the Company he will not compete against the Company Group in any manner,including without limitation by engaging in, or by assisting any other person or entity to engage in, or by having an ownership interest in, anyCompetitive Business (as defined below) in the Territory (as defined below), or by engaging in any conduct described in clauses (c)(i), (ii) or (iii)below.(c)Executive further agrees that after his employment by the Company ends for any reason, he will not during the Restricted Period(as defined below):(i)compete against the Company Group by engaging in, or by assisting any other person or entity to engage in, or byhaving an ownership interest in, any Competitive Business in the Territory (as defined below);(ii)compete against the Company Group by soliciting any Customer (as defined below) in order to provide any goods orservices to such Customer in competition against the Company Group, or by soliciting any Agent (as defined below) in order to obtain referrals fromsuch Agent in competition against the Company Group;(iii)induce or persuade any Customer or Agent not to do business with, or to switch business from, or reduce businesswith, the Company Group;(iv)solicit, or assist others in soliciting, Key Employees (as defined below) to either leave the Company Group or toengage in a Competitive Business.(d)For purposes of this Agreement, the following capitalized terms shall have the meanings set forth below:(i)“Agent” shall mean any insurance agent, insurance broker, wholesale agent, general agent, or other person (A) thatacted on behalf of any customer of the Company Group to obtain insurance from any Company Group entity or who referred any insurance businessto any Company Group entity during the Final Year (as defined below) and (B) with respect to which either Executive had either (I) ConfidentialInformation or Privileged Information or (II) account responsibility either directly or through managing employees with such account responsibility.(ii)“Competitive Business” shall mean the business of acquiring, holding, and/or operating excess and surplus lineinsurance companies, and any other material business that the Company Group is engaged in as of the date of this Agreement and as the business ofthe Company Group evolves during Executive’s employment with the Company. For informational purposes only and not for the purpose ofconstruing or restricting the scope of the term “Competitive Business,” the parties agree that the following activities in which the Company Group iscurrently engaged are within the scope of Competitive Business: providing workers' compensation insurance in North Carolina, South Carolina andVirginia, providing excess and surplus lines insurance in the United States and writing working layer casualty reinsurance through a reinsurancecompany from Bermuda.(iii)“Customer” shall mean any customer of the Company Group that (A) purchased products or services from theCompany during the twelve month period immediately preceding Executive’s last day of employment with the Company (the “Final Year”), and (B)about which Executive either had Confidential Information or Privileged Information or personal or management responsibility for customer contactor service.(iv)“Key Employees” shall mean any executive, managerial, sales, marketing, or supervisory level employees of theCompany Group under Executive’s direct or indirect management authority during the Final Year.(v)“Restricted Period” shall mean 18 months.(vi)“Territory” shall mean Bermuda and each and every state or other United States jurisdiction where the CompanyGroup is licensed or admitted at the end of the Term and/or is then in the process of seeking to be licensed.(e)The restrictions contained in this Section 5 shall not prevent the purchase of ownership by Executive of not more than 3% of thesecurities of any class of any corporation, whether or not such corporation is engaged in any Competitive Business, which are publicly traded on anysecurities exchange or any “over the counter” market.6.TERMINATION. Executive’s employment hereunder shall terminate under the following circumstances:(a)Termination for Cause. The Company may terminate the employment of Executive for Cause at any time by providing writtennotice to Executive specifying the cause of the termination. For the purposes of this Agreement, “Cause” means that: (i) Executive willfully violatedSections 4 or 5 of this Agreement; (ii) Executive grossly neglected his duties hereunder; (iii) Executive was convicted of a felony, or a crimeinvolving moral turpitude (meaning a crime that includes the commission of an act of depravity, dishonesty, or bad morals); (iv) Executive hascommitted an act of dishonesty, fraud, or embezzlement against any Company Group entity; (v) Executive willfully and/or knowingly breached anyprovision of this Agreement other than Section 4 or Section 5 in any material respect, or willfully and/or knowingly violated the Company’s writtenpolicies; or (vi) Executive willfully failed or refused to follow the lawful instructions of the Board that are consistent with this Agreement(“Insubordination”). In the event that the Company provides written notice of termination for Cause pursuant to Section 6(a)(ii) or (vi), Executiveshall be entitled to cure any alleged neglect of his duties or Insubordination, to the extent curable, within 30 days of receiving written notice fromthe Company specifying the factual basis for its belief that Executive grossly neglected his duties hereunder or engaged in Insubordination. IfExecutive is terminated for Cause, Executive’s compensation shall terminate on the date of such termination, and all Company stock options,whether vested or unvested at that time, shall be immediately forfeited and canceled effective as of the date of such termination.(b)Company Termination Without Cause; Company Non-Renewal Termination. The Company may terminate the employment ofExecutive at any time without Cause, with or without prior notice. If (i) the Company delivers a timely Non-Renewal Notice and Executive has nottimely delivered a timely Non-Renewal Notice, (ii) Executive continues in employment with the Company through the last day of the Term, and (iii)the parties have not executed a written agreement applicable to Executive’s employment after the expiration of the Term, then Executive’semployment shall terminate on the last day of the Term (a “Company Non-Renewal Termination”).(c)Termination by Executive for Good Reason. Executive may, at his option, terminate this Agreement for Good Reason inaccordance with the terms of this Section 6(c). “Good Reason” shall mean the occurrence of any one or more of the following events without theprior consent of Executive:(i)A material diminution in Executive’s authority, duties or responsibilities, or requiring Executive to report directly to aperson or persons other than the Board;(ii)A material diminution in Executive’s base salary;(iii)The Company’s requiring Executive to be based at any office or location more than 35 miles from either Sudbury,Massachusetts, Hamilton, Bermuda, Raleigh, North Carolina, or Richmond, Virginia; or(iv)Any action or inaction by the Company which constitutes a material breach of the terms of this Agreement;and, in each case, the failure by the Company to cure such condition within the 30-day period after receipt of written notice from Executivespecifying in detail the factual basis for his belief that he has Good Reason to resign (“Good Reason Notice”). Executive must deliver a GoodReason Notice within 30 calendar days after the initial existence of a Good Reason condition, and, if the Company fails to timely cure such GoodReason condition, Executive must terminate his employment within one year after the initial existence of such Good Reason condition, and anyfailure by Executive to timely comply with either of these requirements shall constitute a waiver of Executive’s right to resign for Good Reason forsuch condition.(d)Termination due to Death or Disability. Executive’s employment hereunder shall terminate upon his death. The Company mayterminate Executive’s employment if he is prevented from performing his responsibilities under this Agreement because of “Disability.” A“Disability” means that Executive is unable to engage in anysubstantial gainful activity by reason of a medically determinable physical or mental impairment that can be expected to result in death or can beexpected to last for a continuous period of not less than 12 months, or is, by reason of any medically determinable physical or mental impairmentthat can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacementbenefits for a period of not less than three months under an accident or disability insurance benefit plan covering Company employees (“DisabilityPlan”). If Executive is unable to perform his responsibilities, by reason of any accident, illness, or mental, or physical impairment, for a period that isreasonably anticipated by the Company to be longer than the waiting period in the Disability Plan, then, at the Company’s request, Executive shallpromptly apply for such income replacement benefits.(e)Expiration of Term. If (i) Executive delivers a timely Non-Renewal Notice pursuant to Section 1 (whether or not the Companyhas timely delivered a timely Non-Renewal Notice), (ii) Executive continues in employment with the Company through the last day of the Term,and (iii) the parties have not executed a written agreement applicable to Executive’s employment after the expiration of the Term, then Executive’semployment shall terminate on the last day of the Term.7.COMPENSATION AND BENEFITS UPON TERMINATION.(a)If, during the Term, the Company terminates Executive’s employment without Cause, there is a Company Non-RenewalTermination, or Executive terminates his employment for Good Reason, then:(i)as soon as practicable following such termination but no later than ten days after the Termination Date (as definedbelow), the Company shall pay to Executive his accrued but yet unpaid base salary earned through the Termination Date and any accrued, butunused vacation pay through the Termination Date (the “Accrued Obligations”);(ii)within 45 days following the Termination Date, the Company shall reimburse Executive for reasonable expensesincurred, but not paid prior to the Termination Date;(iii)any accrued but unpaid Tax Equalization Policy obligations of the Company shall be paid in accordance with suchpolicy; and(iv)subject to the execution and delivery of a general release (which release shall not alter or result in the waiver ofExecutive’s right to exercise the portion of any Company stock option that vested through the Termination Date, or any rights under this Section7(a)) in a form acceptable to the Company within thirty (30) days after the Termination Date (the “Release Expiration Date”), which release has notbeen revoked, Executive is entitled to receive:(1)a gross amount equal to (x) Executive’s base salary in effect on the Termination Date divided by (y) 12, per month,subject to any applicable deductions and withholdings, for a period of 36 months after the Termination Date, which shall be paid in periodicinstallments in accordance with the Company’s normal payroll practices in effect as of the Termination Date commencing on the first payroll cyclewhich is at least 45 days after the Termination Date, unless such payments are required to be delayed pursuant to Section 8 below;(2)the continuation of coverage under all employee benefit insurance plans in which Executive was a participant as of theTermination Date, to the extent such post-employment coverage is authorized by such plans, at the Company’s expense for a period of 12 monthsafter the Termination Date, provided, however if post-employment coverage is not authorized under the Company’s health insurance plan, then theCompany will pay Executive the premium cost for health insurance coverage that the Company would have paid if Executive had continued being aparticipant in the Company’s health insurance plan during such twelve month period, and such amount shall be paid at the time such premiumswould have been paid if Executive had continued being a participant in the Company’s health insurance plan during such twelve month period; and(3)any unpaid discretionary bonus awarded to Executive for the year prior to the year in which the Termination Dateoccurs, which shall be paid in a lump sum on the normal bonus payment date.(v)In the event that Executive fails to execute the Release on or prior to the Release Expiration Date, Executive shall notbe entitled to any payments or benefits pursuant to Section 7(a)(iv). Notwithstanding the foregoing, if the Release could become effective during thecalendar year following the calendar year of the Termination Date, then no such payments that constitute “deferred compensation” under InternalRevenue Code Section 409A shall be made earlier than the first day of the calendar year following the calendar year of the Termination Date.(b)If Executive’s employment is terminated as a result of death or by the Company for Cause or because of Disability, or if atermination of employment occurs as a result of Executive’s delivering a timely Non-Renewal Notice:(i)within ten days following the Termination Date, the Company shall pay to Executive the Accrued Obligations;(ii)within 45 days following the Termination Date, the Company shall reimburse Executive for reasonable expensesincurred, but not paid prior to the Termination Date; and(iii)any accrued but unpaid Tax Equalization Policy obligations of the Company shall be paid in accordance with suchpolicy.(c)Except for payments provided under Sections 7(a)(i), 7(a)(ii), 7(a)(iii) and 7(b), all compensation and benefits paid pursuant tothis Section 7 shall cease and Executive shall promptly return any amount paid under Section 7(a)(iv) to the Company if Executive violates any ofthe terms of Sections 4 or 5 above during the Restricted Period. In addition to these remedies, the Company shall have all other remedies providedby this Agreement and by law for the breach of Sections 4 or 5 above.(d)For purposes of this Agreement, “Termination Date” means the date of Executive’s “separation from service” within themeaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations promulgated thereunder (“Section409A”).”(e)Executive’s rights with respect to the vesting and exercise of Company stock options after the Termination Date for anytermination of employment other than a termination for Cause shall be governed by option agreements between Executive and the Company and theIncentive Plan.8.409A COMPLIANCE. This Agreement shall be interpreted and administered in a manner so that any amount or benefit payable hereundershall be paid or provided in a manner that is either exempt from or compliant with the requirements Section 409A and applicable Internal Revenue Serviceguidance and Treasury Regulations issued thereunder (and any applicable transition relief under Section 409A). Notwithstanding anything else contained inthis Agreement to the contrary, if Executive is a “specified employee” under the Company’s specified employee policy as in effect on the Termination Date,or if no such policy is then in effect, within the meaning of Section 409A, any payment required to be made to Executive hereunder upon or following theTermination Date shall be delayed until after the six-month anniversary of Executive’s “separation from service” (as such term is defined in Section 409A) tothe extent necessary to comply with, and avoid imposition on Executive of any additional tax, interest, or penalty imposed under, Section 409A. Shouldpayments be delayed in accordance with the preceding sentence, the accumulated payment that would have been made but for the period of the delay shallbe paid in a single lump sum during the ten-day period following the six-month anniversary of the Termination Date. Each payroll period payment describedin Section 7(a)(iv)(1) shall be treated as a separate payment for purposes of Section 409A.9.UNIQUENESS OF SERVICES; ACKNOWLEDGEMENTS. Executive acknowledges that the services to be rendered under the provisionsof this Agreement are of a special, unique, and extraordinary character; involve access to and development of Confidential Information and PrivilegedInformation; involve developing and protecting customer relationships and goodwill; and that it would be difficult or impossible to replace such servicesand that, by reason thereof, Executive agrees and consents that if he violates any of the provisions of Sections 4 and 5 of this Agreement, the Company, inaddition to any other rights and remedies available under this Agreement or otherwise, shall be entitled to an injunction to be issued by a court of competentjurisdiction restricting Executive from committing or continuing any violation of Sections 4 and 5 of this Agreement.10.FURTHER ACKNOWLEDGEMENTS. Executive further acknowledges and agrees that the restrictions contained in Sections 4 and 5above are reasonable and necessary to protect the legitimate interest of the Company Group, in view of, among other things, the short duration of therestrictions; the narrow scope of the restrictions; the Company Group’s interests in protecting its trade secrets, Confidential Information, and PrivilegedInformation (which Executive agrees would be useful to competitors for more than 18 months) and its customer relationships and goodwill; Executive’sbackground and capabilities which will allow him to seek and accept employment without violation of the restrictions; Executive’s opportunity to acquire asubstantial equity interest in the Company through the award of restricted stock and stock options and other equity based awards; and Executive’sentitlements under this Agreement. If any provision contained in Sections 4 or 5 above is adjudged unreasonable by a court of competent jurisdiction orarbitrator in any proceeding, then such provision shall be deemed modified as provided in Sections 4 or 5 above or by reducing the scope of such provision,the period of time during which such provision is applicable and/or the geographic area to which such provision applies, to the extent necessary for suchprovision to be adjudged reasonable and enforceable.11.NOTICES. Any notices provided for or permitted by this Agreement shall be in writing and shall be deemed to have been duly givenwhen delivered in person or three days after it is mailed if delivered by registered or certified mail, return receipt requested, postage prepaid, addressed to theparty for whom intended at such party’s address set forth above (forthe Company) or to the most recent address for Executive set forth in the Company’s records, or to such other address as such party may designate by noticein writing given in the manner provided herein.12.SECTION HEADINGS. The section headings in this Agreement are for convenience of reference only, and they form no part of thisAgreement and shall not affect its interpretation.13.ENTIRE AGREEMENT; AMENDMENTS; COUNTERPARTS. This Agreement constitutes the entire agreement and understandingbetween Executive and the Company with respect to the subject matter hereof and shall supersede any and all other prior agreements and understandings,whether oral or written, relating thereto or the employment of Executive by the Company, including without limitation the Prior Agreement. This Agreementmay not be rescinded, modified, or amended, unless an amendment is agreed to in a writing signed by Executive and by the Chairman of the Board or anofficer of the Company specifically authorized by the Board (other than Executive), and any waiver shall be set forth in writing and signed by the party to becharged. This Agreement may be executed in any number of counterparts, including by facsimile, each of which shall be an original, but all of which togethershall constitute one and the same instrument.14.PARTIAL INVALIDITY. The invalidity or unenforceability, by statute, court decision, or otherwise, of any term or condition of thisAgreement shall not affect the validity or enforceability of any other term or condition hereof.15.GOVERNING LAW. This Agreement shall be construed and administered in accordance with the laws of Bermuda, without regard to theprinciples of conflicts of law which might otherwise apply.16.ASSIGNABILITY. This Agreement may not be assigned by Executive, and any purported assignment by Executive shall be null andvoid. All of the terms and conditions of this Agreement shall be binding upon and inure to the benefit of the Company and its successors (including withoutlimitation any successor to the Company’s business as the result of a merger or consolidation of the Company, whether or not the Company survives suchmerger or consolidation) and assigns. Successors to the Company shall include, without limitation, any corporation or corporations acquiring, directly orindirectly, all or substantially all of the assets of the Company whether by merger, consolidation, purchase, or otherwise and such successor shall thereafter bedeemed the “Company” for purposes hereof.17.DISPUTE RESOLUTION.(a)Arbitration. In the event of disputes between the parties with respect to the terms and conditions of this Agreement, suchdisputes shall be resolved by and through an arbitration proceeding to be conducted under the auspices of the American Arbitration Association (orany like organization successor thereto) in either Bermuda or the city of Raleigh, North Carolina; provided, however, that either party may seektemporary or preliminary relief with respect to appropriate matters (including, without limitation, enforcement of Sections 4 and 5 above) from acourt in aid of arbitration. Such arbitration proceeding shall be conducted pursuant to the commercial arbitration rules (formal or informal) of theAmerican Arbitration Association in as expedited a manner as is then permitted by such rules (the “Arbitration”). Both the foregoing agreement ofthe parties to arbitrate any and all such claims, and the results, determination, finding, judgment, and/or award rendered through such Arbitration,shall be final and binding on the parties to this Agreement and may be specifically enforced by legal proceedings. This Section 17(a) is withoutprejudice to the Executive’s statutory right to complain to an employment inspector and/or employment tribunal under Bermuda’s Employment Act2.(b)Procedure. Such Arbitration may be initiated by written notice from either party to the other which shall be a compulsory andbinding proceeding on each party. The Arbitration shall be conducted by an arbitrator selected in accordance with the procedures of the AmericanArbitration Association. Time is of the essence of this arbitration procedure, and the arbitrator shall be instructed and required to render his or herdecision within 30 days following completion of the Arbitration.(c)Venue and Jurisdiction. Any action to compel arbitration hereunder or otherwise relating to this Agreement shall be broughtexclusively in either a Bermuda court or a state court or federal court located in Raleigh, North Carolina, provided that, with respect to an actionbrought in North Carolina, if a federal court has jurisdiction over the subject matter thereof, then such action shall be brought in federal court, andthe Company and Executive hereby irrevocably submit with regard to any such action or proceeding for itself and in respect to its property,generally and unconditionally, to the jurisdiction of the aforesaid courts.(d)Waiver of Jury Trial. IN THE EVENT OF ANY LITIGATION WITH RESPECT TO ANY MATTER CONNECTED WITH THISAGREEMENT OR THE AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREUNDER ALL OF THE PARTIES HERETO WAIVE ALLRIGHTS TO A TRIAL BY JURY.18.COOPERATION. Executive agrees that, upon reasonable notice and without the necessity of the Company obtaining a subpoena orcourt order, Executive shall provide reasonable cooperation in connection with any suit, action orproceeding (or any appeal from any suit, action or proceeding), or the decision to commence on behalf of the Company any suit, action or proceeding, andany investigation and/or defense of any claims asserted against any of the Company’s or its Affiliates’ current or former directors, officers, employees,shareholders, partners, members, agents or representatives of any of the foregoing, which relates to events occurring during Executive’s employmenthereunder by the Company as to which Executive may have relevant information (including but not limited to furnishing relevant information and materialsto the Company or its designee and/or providing testimony at depositions and at trial), provided that with respect to such cooperation occurring followingtermination of Executive’s employment, the Company shall reimburse Executive for expenses reasonably incurred in connection therewith and shallschedule such cooperation to the extent reasonably practicable so as not to unreasonably interfere with Executive’s business or personal affairs.Notwithstanding anything to the contrary, in the event the Company requests cooperation from Executive after his employment with the Company hasterminated and at a time when Executive is not receiving any severance pay from the Company, Executive shall not be required to devote more than 40 hoursof his time per year with respect to this Section 18, except that such 40 hour cap shall not include or apply to any time spent testifying at a deposition or attrial, or spent testifying before or being interviewed by any administrative or regulatory agency.[remainder of page intentionally left blank]Kindly indicate your acceptance of this Agreement by signing and returning a copy of this letter to the Company.Very truly yours,JAMES RIVER GROUP HOLDINGS, LTD.By: /s/ J. Adam Abram ___________________Name: J. Adam AbramTitle: Chairman of the Board of DirectorsACCEPTED AND AGREED TO AS OFTHIS 12TH DAY OF DECEMBER, 2017/s/ Robert P. Myron__________________Robert P. MyronExhibit 10.22 James River Group, Inc.1414 Raleigh Road, Suite 405,Chapel Hill, NC 27517January 15, 2018Mr. Richard SchmitzerDear Richard:The purpose of this letter (the “Agreement”) is to confirm that we have agreed to amend and restate as of the Effective Date (as hereinafter defined) our prioragreement with respect to the terms of your employment by James River Group, Inc. (the “Parent Company”) to serve as President and Chief Executive Officerof two subsidiaries of the Parent Company: James River Insurance Company (“JRI”) and James River Management Company, Inc. (“JRMC”) (together, the“Companies”). In consideration of the mutual promises contained in this Agreement, the parties to this Agreement hereby agree as follows:1.EMPLOYMENT AND TERM. Effective as of January 1, 2018 (the “Effective Date”), JRI and JRMC each agrees to continue to employyou (the “Executive”) as its President and Chief Executive Officer, and Executive hereby accepts such continued employment on the terms hereinafter setforth. The term of this Agreement shall commence as of the Effective Date and end on December 31, 2018, subject to the termination provisions of Section 6.The term of this Agreement shall thereafter be automatically renewed for additional one year periods unless written notice to the contrary shall be given byeither the Parent Company or Executive to the other party not less than sixty (60) days prior to the end of the initial or any renewal term that the term shallnot thereafter be renewed (“Non-Renewal Notice”), subject to the termination provisions of Section 6. The initial term plus any renewals thereof shallhereafter be referred to as the “Term.”2.COMPENSATION.(a)Salary. Executive shall be paid a base salary of not less than five hundred eleven thousand three hundred ninety six dollars($511,396) per year, payable in periodic installments by JRMC in accordance with its normal payroll practices.(b)Bonus. Executive shall be eligible to receive such discretionary bonuses (each, a “Bonus”) as the Board of Directors of theParent Company (the “Board”) (other than Executive, if Executive is a member of the Board), in its discretion, may determine based on Executive’sperformance during each fiscal year. Any Bonus shall be paid by JRMC within 75 days following the end of the fiscal year for which it is awarded.(c)Vacation, Benefits. During the Term Executive shall also be entitled to participate in all JRMC employee benefit plans, and toother fringe benefits generally available to executive employees of the Parent Company and its subsidiaries at the employer’s expense, including:(i)a total of four (4) weeks of paid vacation per annum (not subject to carry over to subsequent years), which will be pro-rated for the last year of the Term; and(ii)business expense reimbursement for all reasonable business expenses upon the presentation of reasonably itemizedstatements of such expenses in accordance with the Companies’ policies and procedures. The amount of expenses eligible for reimbursement duringany tax year of Executive shall not affect the expenses eligible for reimbursement in any other tax year. The right to reimbursement provided in thisAgreement is not subject to liquidation or exchange for another benefit. In no event shall the reimbursement of an eligible expense occur later thanthe earlier of (i) six (6) months from the date of incurrence and (ii) the end of the calendar year following the calendar year in which such expensewas incurred.(d)Equity Awards. Executive will be considered for inclusion in all equity incentive plans made available to other executiveemployees of James River Group Holdings, Ltd. (“Holdings”) and its subsidiaries.(e)Withholdings and Deductions. All payments and compensation under this Agreement shall be subject to all required federal,state and local withholdings and deductions, and such deductions as Executive may instruct JRMC to take that are authorized by applicable law.(f)Claw-Back. Executive acknowledges that to the extent required by applicable law or written company policy adopted by theBoard to implement the requirements of such law (including without limitationSection 304 of the Sarbanes Oxley Act and Section 954 of the Dodd Frank Act), any bonus and other incentive compensation (if any) shall besubject to any clawback, forfeiture, recoupment or similar requirement as the Board may determine in its sole discretion is necessary or desirable toimplement such law or policy.3.DUTIES. Executive shall report exclusively and directly to the Chief Executive Officer of the Parent Company (“CEO”), to the Board ofDirectors of JRI (“JRI Board”) and to the Board of Directors of JRMC (“JRMC Board”). Executive shall perform all duties normally associated with theposition of President and Chief Executive Officer and such other reasonable duties as may be assigned to him by the CEO. Executive will devote his entireworking time, attention, and energies to carrying out and fulfilling his duties and responsibilities under this Agreement. Executive agrees to abide by allpolicies applicable to employees of the Parent Company and the Companies adopted by their respective boards of directors. Executive’s duties will primarilybe performed at the Companies’ offices in Richmond, VA. Executive represents that he is able and willing to engage routine business travel as is necessary toperform his duties as President and CEO of the Companies and to further the Companies’ business interests.4.CONFIDENTIAL INFORMATION AND PRIVILEGED INFORMATION.(a)Executive will not at any time during the Term or thereafter:(i)reveal, divulge, or make known to any person, firm, or corporation or use for his personal benefit or the benefit of others(except the Companies, the Parent Company, Holdings, and any of Holdings’ other direct or indirect subsidiaries (hereinafter referred to as“Affiliates,” and all of the foregoing, the “Company Group”)), directly or indirectly, any confidential or proprietary information received ordeveloped by him during the course of his employment. For the purposes of this Section 4(a)(i) confidential and proprietary information(“Confidential Information”) shall be defined to mean (1) all historical and pro forma projections of loss ratios incurred by the Company Group; (2)all historical and pro forma actuarial data relating to the Company Group; (3) historical and pro forma financial results, revenue statements, andprojections for the Company Group; (4) all information relating to the Company Group’s systems and software (other than the portion thereofprovided by the vendor to all purchasers of such systems and software); (5) all information relating to JRI’s unique underwriting approach; (6) allinformation relating to plans for, or internal or external discussions regarding, acquisitions of or mergers with any business or line of business; (7)non-public business plans; (8) all other information relating to the financial, business, or other affairs of the Company Group including theircustomers; and (9) any information about any shareholder of Holdings or any of its Affiliates, or any of their officers or employees, that has beenfurnished or made available to Executive as a result of his position with the Companies. Section 4(a)(i) shall not apply to Executive following thetermination of his employment with the Parent Company and the Companies with respect to any Confidential Information known or made generallyavailable to the general public or within the industry by persons other than Executive or a person acting with or at the request of Executive; or(ii)reveal, divulge, or make known to any person, firm, or corporation, or use for his personal benefit or the benefit ofothers (except the Company Group), directly or indirectly, the name or names of any Customers (as defined in Section 5 below) of the CompanyGroup, nor will he reveal, divulge, or make known to any person, firm, or corporation or use for his personal benefit or the benefit of others (exceptthe Company Group), directly or indirectly, any trade secrets or any knowledge or information concerning any business methods or operationalprocedures engaged in by the Company Group (collectively, “Privileged Information”); provided, however, the restrictions set forth in this Section4(a)(ii) shall not apply to Executive following the termination of his employment with the Parent Company and the Companies with respect to anyPrivileged Information known or made generally available to the general public or within the industry by persons other than Executive or a personacting with or at the request of Executive.(b)Notwithstanding any provision of this Agreement to the contrary, under 18 U.S.C. §1833(b), “An individual shall not be heldcriminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that (A) is made (i) in confidence to aFederal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigatinga suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made underseal.” Nothing in this Agreement or any other policy of the Companies is intended to conflict with this statutory protection, and no director, officer,or member of management has the authority to impose any rule to the contrary.5.NON-COMPETITION.(a)Executive acknowledges and agrees that as the Companies’ President and CEO (i) he will be responsible for and directlyinvolved in developing customer goodwill and relationships for the benefit of the Company Group, including personal contact with customers andsupervising others who contact customers and develop customer goodwill and relationships; (ii) he will be provided and have access to theCompany Group’s Confidential Information and Privileged Information, and will be compensated for the development, and supervisingthe development, of the same and (iii) he will have unique insight into and knowledge of the skills, talents and capabilities of the Company Group’skey employees.(b)Executive agrees that during his employment by the Parent Company and the Companies, and for the restricted period(“Restricted Period”) after his employment with the Company ceases, he will not:(i)compete against the Company Group by engaging in, or by assisting any other person or entity to engage in, or byhaving an ownership interest in, any Competitive Business in the Territory (as defined below);(ii)compete against the Company Group by soliciting any Customer of the Company Group to provide any goods orservices in competition against the Company Group;(iii)induce or persuade any Customer of the Company Group not to do business with, or to switch business from, or reducebusiness with, the Company Group;(iv)solicit, or assist others in soliciting, Key Employees (as defined below) to either leave the Company Group or toengage in a Competitive Business.(c)For purposes of this Agreement, the following capitalized terms shall have the meanings set forth below:(i)“Restricted Period” shall mean eighteen(18) months, except that in the event of “Company Non-Renewal Termination”(as defined herein), “Restricted Period” shall mean twelve (12) months.(ii)“Competitive Business” shall mean the business of acquiring, holding, and/or operating excess and surplus lineinsurance companies, and any other material business that the Company Group is engaged in as of the date of this Agreement and as the business ofthe Company Group evolves during Executive’s employment with the Parent Company and the Companies. For informational purposes only andnot for the purpose of construing or restricting the scope of the term “Competitive Business,” the parties agree that the following activities in whichthe Company Group is currently engaged are within the scope of Competitive Business: writing excess and surplus lines business by wholesalebrokers.(iii)“Territory” shall mean each and every state or other United States jurisdiction (“State(s)”) where JRI is authorized tounderwrite insurance.(iv)“Customer” shall mean any customer of the Company Group that (A) purchased products or services from theCompany Group during the twelve month period immediately preceding Executive’s last day of employment with the Company (the “Final Year”),and (B) about which Executive either had Confidential Information or Privileged Information or personal or management responsibility for customercontact or service.(v)“Key Employees” shall mean any executive, managerial, sales, marketing, or supervisory level employees of theCompany Group under Executive’s direct or indirect management authority during the Final Year.(d)The restrictions contained in this Section 5 shall not prevent the purchase of ownership by Executive of not more than threepercent (3%) of the securities of any class of any corporation, whether or not such corporation is engaged in any Competitive Business, which arepublicly traded on any securities exchange or any “over the counter” market.6.TERMINATION. Executive’s employment hereunder shall terminate under the following circumstances:(a)Termination for Cause. The Parent Company may terminate the employment of Executive for Cause at any time by providingwritten notice to Executive specifying the cause of the termination. For the purposes of this Agreement, “Cause” means that: (i) Executive willfullyviolated Sections 4 or 5 of this Agreement; (ii) Executive grossly neglected his duties hereunder; (iii) Executive was convicted of a felony or a crimeinvolving moral turpitude (meaning a crime that includes the commission of an act of depravity, dishonesty, or bad morals); (iv) Executive hascommitted an act of dishonesty, fraud, or embezzlement against any entity in the Company Group; or (v) Executive otherwise willfully and/orknowingly breached this Agreement in any material respect or willfully and/or knowingly violated the Parent Company’s or Companies’ operatingguidelines or policies. In the event that the Company provides written notice of termination for Cause pursuant to Section 6(a)(ii), Executive shallbe entitled to cure any alleged neglect of his duties, to the extent curable, within thirty (30) days of receiving written notice from the ParentCompany specifying the factual basis for its belief that Executive grossly neglected his duties hereunder. If Executive is terminated for Cause,Executive’s compensation shall terminate on the date of such termination, and all equity awards, whether vested or unvested at that time, shall beimmediately forfeited and canceled effective as of the date of such termination.(b)Termination Without Cause/Non-Renewal. The Parent Company may terminate Executive at any time without Cause, with orwithout prior notice. If (i) the Parent Company delivers a timely Non-Renewal Notice and Executive has not timely delivered a Non-Renewal Notice,(ii) Executive continues in employment with the Parent Company through the last day of the Term and (iii) the parties have not executed a writtenagreement applicable to Executive’s employment after the expiration of the Term, the Executive’s employment shall terminate on the last day of theTerm (a “Company Non-Renewal Termination”).(c)Termination by Executive for Good Reason. Executive may, at his option, terminate this Agreement for Good Reason inaccordance with the terms of this Section 6(c). “Good Reason” shall mean the occurrence of any one or more of the following events without theprior consent of Executive:(i)A material diminution in Executive’s authority, duties or responsibilities, or requiring Executive to report directly to aperson or persons other than the Parent Company’s CEO or the Companies’ Boards;(ii)A material diminution in Executive’s Base Salary; or(iii)Any action or inaction by the Parent Company or the Companies which constitutes a material breach of the terms ofthis Agreement;and, in each case, the failure by the Parent Company or the Companies, as applicable, to cure such condition within the thirty (30) day period afterreceipt of written notice from Executive specifying in detail the factual basis for his belief that he has Good Reason to resign (“Good ReasonNotice”). Executive must deliver a Good Reason Notice to the Parent Company and the Companies within thirty (30) calendar days after the initialexistence of a Good Reason condition, and, if the Parent Company and/or the Companies, as applicable, fail to timely cure such Good Reasoncondition, Executive must terminate his employment within one year after the initial existence of such Good Reason condition, and any failure byExecutive to timely comply with either of these requirements shall constitute a waiver of Executive’s right to resign for Good Reason for suchcondition.(d)Termination due to Death or Disability. Executive’s employment hereunder shall terminate upon his death. The ParentCompany may terminate Executive’s employment if he is prevented from performing his responsibilities under this Agreement because of“Disability.” A “Disability” means that Executive is unable to engage in any substantial gainful activity by reason of a medically determinablephysical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months,or is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for acontinuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident ordisability insurance benefit plan covering JRMC employees (“Disability Plan”). If Executive is unable to perform his responsibilities, by reason ofany accident, illness, or mental, or physical impairment, for a period that is reasonably anticipated by the Parent Company to be longer than thewaiting period in the Disability Plan, then, at JRMC’s request, Executive shall promptly apply for such income replacement benefits.(e)Expiration of Term. If (i) Executive delivers a timely Non-Renewal Notice pursuant to Section 1 (whether or not the ParentCompany has timely delivered a timely Non-Renewal Notice), (ii) Executive continues in employment with the Parent Company through the lastday of the Term, and (iii) the parties have not executed a written agreement applicable to Executive’s employment after the expiration of the Term,the Executive’s employment shall terminate on the last day of the Term (“Executive Non-Renewal Termination”).7.COMPENSATION AND BENEFITS UPON TERMINATION.(a)If, during the Term, the Parent Company terminates Executive’s employment without Cause, there is a Company Non-RenewalTermination, or Executive terminates his employment for Good Reason, then:(i)as soon as practicable following such termination but no later than ten (10) days after the Termination Date (as definedbelow), JRMC shall pay to Executive his accrued but yet unpaid base salary earned through the Termination Date and any accrued, but unusedvacation pay through the Termination Date (the “Accrued Obligations”);(ii)within forty-five (45) days following the Termination Date, JRMC shall reimburse Executive for reasonable expensesincurred, but not paid prior to the Termination Date; and(iii)subject to the execution and delivery of a general release (which release shall not alter or result in the waiver ofExecutive’s right to exercise the portion of any stock option that vested through the Termination Date, or any rights under this Section 7(a)) in aform acceptable to the Parent Company within forty five (45) days after the Termination Date, which release has not been revoked, Executive isentitled to receive:(A)In the event of (I) a termination without Cause or for Good Reason (x) before a Change in Control (as defined inSection 7(d) or more than twelve (12) months after a Change in Control, an amount equal to Executive’s then current base salary for a period ofeighteen (18) months after the Termination Date, or (y) within twelve (12) months after a Change in Control, an amount equal to Executive’s thencurrent base salary for a period of thirty six (36) months after the Termination Date, or (II) a Company Non-Renewal Termination (x) before a Changein Control or more than twelve (12) months after a Change in Control, an amount equal to Executive’s then current base salary for a period of twelve(12) months after the Termination Date, or (y) within twelve (12) months after a Change in Control, an amount equal to Executive’s then current basesalary for a period of twenty four (24) months after the Termination Date, which, in any case shall be paid in periodic installments in accordance withJRMC’s normal payroll practices commencing on the first payroll cycle which is at least ten (10) business days after the 45th day after theTermination Date unless (a) such payment is required to be delayed pursuant to Section 8 below, or (b) the first payroll date which is at least ten (10)business days after the 45th day after the Termination Date occurs in the calendar year following the calendar year of the Termination Date, in whichcase payments pursuant to this section shall be made no earlier than the first business day of the calendar year following the calendar year of theTermination Date;(B)the continuation of coverage under all employee benefit insurance plans in which Executive was a participant as of theTermination Date, to the extent such post-employment coverage is authorized by such plans, at JRMC’s expense for a period of twelve (12) monthsafter the Termination Date, provided, however if post-employment coverage is not authorized under JRMC’s health insurance plan, then JRMC willpay Executive the premium cost for health insurance coverage that JRMC would have paid if Executive had continued being a participant inJRMC’s health insurance plan during such twelve month period; and(C)any unpaid discretionary bonus awarded to Executive for the year prior to the year in which the Termination Dateoccurs, which shall be paid in a lump sum on the normal bonus payment date.(b)If Executive is terminated by the Parent Company for Cause or due to death or Disability, or if a termination of employmentoccurs pursuant to Section 6(e) as a result of Executive’s delivering a timely Non-Renewal Notice:(i)within ten (10) days following the Termination Date, JRMC shall pay to Executive the Accrued Obligations; and(ii)within forty-five (45) days following the Termination Date, JRMC shall reimburse Executive for reasonable expensesincurred, but not paid prior to the Termination Date.(c)Except for payments provided under Sections 7(a)(i), 7(a)(ii), and 7(b), all compensation and benefits paid pursuant to thisSection 7 shall cease and Executive shall promptly return any amount paid under Section 7(a)(iii) to JRMC if Executive violates any of the terms ofSections 4 or 5 above during the Restricted Period. In addition to these remedies, the Parent Company, the Companies and the Company Group shallhave all other remedies provided by this Agreement and by law for the breach of Sections 4 or 5 above.(d)For purposes of this Agreement, “Termination Date” means the date of Executive’s “separation from service” within themeaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations promulgated thereunder (“Section409A”). For purposes of this Agreement, “Change in Control” means (and, for purposes of this definition only, capitalized terms have the meaningdefined in the James River Group Holdings, Ltd. 2014 Long-Term Incentive Plan, as amended, the first to occur of the following events:i.the purchase or other acquisition (other than from the Company), in a single transaction or series of related transactions, by anyperson, entity or group of persons, within the meaning of Section 13(d) or 14(d) of the Exchange Act (excluding, for this purpose,the Company or its subsidiaries or any employee benefit plan of the Company or its subsidiaries), of beneficial ownership (withinthe meaning of Rule 13d-3 promulgated under the Act) of 50% or more of either the then-outstanding Shares or the combinedvoting power of the Company’s then-outstanding voting securities entitled to vote generally in the election of directors;ii.consummation of a reorganization, merger, amalgamation or consolidation involving the Company, in each case with respect towhich persons who were the shareholders of the Company immediately prior to such reorganization, merger, amalgamation orconsolidation do not, immediately thereafter, own more than 50% of, respectively, the Shares and the combined voting powerentitled to vote generally in the election of directors of the reorganized, merged, amalgamated or consolidated corporation’s then-outstanding voting securities; oriii.a liquidation or dissolution of the Company, or the sale of all or substantially all of the assets of the Company; provided, however,an event described above shall be considered a Change in Controlhereunder only if it also constitutes a “change in control event” under Section 409A of the Code, to the extent necessary to avoidthe adverse tax consequences thereunder with respect to any payment subject to Section 409A of the Code.(e)Executive’s rights with respect to the vesting and exercise of any stock options or vesting of any other equity award after theTermination Date shall be governed by the applicable award agreement and James River Group Holdings, Ltd. 2014 Long-Term Incentive Plan, asamended.8.409A COMPLIANCE. This Agreement shall be interpreted and administered in a manner so that any amount or benefit payable hereundershall be paid or provided in a manner that is either exempt from or compliant with the requirements Section 409A of the Code and applicable InternalRevenue Service guidance and Treasury Regulations issued thereunder (and any applicable transition relief under Section 409A of the Code).Notwithstanding anything else contained in this Agreement to the contrary, if Executive is a “specified employee” under Holdings’ specified employeepolicy as in effect on the Termination Date, or if no such policy is then in effect, within the meaning of Section 409A, any payment required to be made toExecutive hereunder upon or following the Termination Date shall be delayed until after the six-month anniversary of Executive’s “separation from service”(as such term is defined in Section 409A) to the extent necessary to comply with, and avoid imposition on Executive of any additional tax, interest, orpenalty imposed under, Section 409A. Should payments be delayed in accordance with the preceding sentence, the accumulated payment that would havebeen made but for the period of the delay shall be paid in a single lump sum during the ten (10) day period following the six-month anniversary of theTermination Date. Each payroll period payment described in Section 7(a)(iii)(A) shall be treated as a separate payment for purposes of Section 409A.9.UNIQUENESS OF SERVICES; ACKNOWLEDGEMENTS. Executive acknowledges that the services to be rendered under the provisionsof this Agreement are of a special, unique, and extraordinary character; involve access to and development of Confidential Information and PrivilegedInformation; involve developing and protecting customer relationships and goodwill; and that it would be difficult or impossible to replace such servicesand that, by reason thereof, Executive agrees and consents that if he violates any of the provisions of Sections 4 and 5 of this Agreement, the ParentCompany, the Companies, and/or the Company Group, in addition to any other rights and remedies available under this Agreement or otherwise, shall beentitled to an injunction to be issued by a court of competent jurisdiction restricting Executive from committing or continuing any violation of Sections 4and 5 of this Agreement.10.FURTHER ACKNOWLEDGEMENTS. Executive further acknowledges and agrees that the restrictions contained in Sections 4 and 5above are reasonable and necessary to protect the legitimate interest of the Company Group, in view of, among other things, the short duration of therestrictions; the narrow scope of the restrictions; the Company Group’s interests in protecting its trade secrets, Confidential Information, and PrivilegedInformation (which Executive agrees has a useful life to competitors of more than eighteen (18) months) and its customer relationships and goodwill;Executive’s background and capabilities which will allow him to seek and accept employment without violation of the restrictions; and Executive’sentitlements under this Agreement. If any provision contained in Sections 4 or 5 above is adjudged unreasonable by a court of competent jurisdiction orarbitrator in any proceeding, then such provision shall be deemed modified as provided in Sections 4 or 5 above or by reducing the scope of such provision,the period of time during which such provision is applicable and/or the geographic area to which such provision applies, to the extent necessary for suchprovision to be adjudged reasonable and enforceable.11.NOTICES. Any notices provided for or permitted by this Agreement shall be in writing and shall be deemed to have been duly givenwhen delivered in person or three (3) days after it is mailed if delivered by registered or certified mail, return receipt requested, postage prepaid, addressed tothe party for whom intended at such party’s address set forth above (for the Parent Company) or to the address listed in the Parent Company’s records (forExecutive), or to such other address as such party may designate by notice in writing given in the manner provided herein.12.SECTION HEADINGS. The section heading in this Agreement are for convenience of reference only, and they form no part of thisAgreement and shall not affect its interpretation.13.ENTIRE AGREEMENT; AMENDMENTS; COUNTERPARTS. This Agreement constitutes the entire agreement and understandingamong Executive, the Parent Company and the Companies with respect to the subject matter hereof and shall supersede any and all other prior agreementsand understandings, whether oral or written, relating thereto or the employment of Executive by the Parent Company and the Companies. This Agreementmay not be rescinded, modified, or amended, unless an amendment is agreed to in a writing signed by Executive and by an officer of the Parent Companyspecifically authorized by the Board (other than Executive), and any waiver shall be set forth in writing and signed by the party to be charged. ThisAgreement may be executed in any number of counterparts, including by facsimile, each of which shall be an original, but all of which together shallconstitute one and the same instrument.14.PARTIAL INVALIDITY. The invalidity or unenforceability, by statute, court decision, or otherwise, of any term or condition of thisAgreement shall not affect the validity or enforceability of any other term or condition hereof.15.GOVERNING LAW. This Agreement shall be construed and administered in accordance with the laws of the Commonwealth of Virginia,without regard to the principles of conflicts of law which might otherwise apply.16.ASSIGNABILITY. This Agreement may not be assigned by Executive, and any such purported assignment shall be null and void. All ofthe terms and conditions of this Agreement shall be binding upon and inure to the benefit of the Parent Company and its successors (including withoutlimitation any successor to the Parent Company’s business as the result of a merger or consolidation of the Parent Company, whether or not the ParentCompany survives such merger or consolidation) and assigns. Successors to the Company shall include, without limitation, any corporation or corporationsacquiring, directly or indirectly, all or substantially all of the assets of the Parent Company whether by merger, consolidation, purchase, or otherwise and suchsuccessor shall thereafter be deemed the “Parent Company” for purposes hereof.17.DISPUTE RESOLUTION.(a)Arbitration. In the event of disputes between the parties with respect to the terms and conditions of this Agreement, suchdisputes shall be resolved by and through an arbitration proceeding to be conducted under the auspices of the American Arbitration Association (orany like organization successor thereto) in Raleigh, North Carolina; provided, however, that either party may seek temporary or preliminaryinjunctive relief with respect to appropriate matters (including, without limitation, enforcement of Sections 4 and 5 above) from a court in aid ofarbitration. Such arbitration proceeding shall be conducted pursuant to the commercial arbitration rules (formal or informal) of the AmericanArbitration Association in as expedited a manner as is then permitted by such rules (the “Arbitration”). Both the foregoing agreement of the partiesto arbitrate any and all such claims, and the results, determination, finding, judgment, and/or award rendered through such Arbitration, shall be finaland binding on the parties to this Agreement and may be specifically enforced by legal proceedings.(b)Procedure. Such Arbitration may be initiated by written notice from either the Parent Company or Executive to the other whichshall be a compulsory and binding proceeding on each party. The Arbitration shall be conducted by an arbitrator selected in accordance with theprocedures of the American Arbitration Association. Time is of the essence of this arbitration procedure, and the arbitrator shall be instructed andrequired to render his or her decision within thirty (30) days following completion of the Arbitration.(c)Venue and Jurisdiction. Any action to compel arbitration hereunder or otherwise relating to this Agreement shall be broughtexclusively in either a state court or federal court located in Raleigh, North Carolina, provided that, with respect to an action brought in NorthCarolina, if a federal court has jurisdiction over the subject matter thereof, then such action shall be brought in federal court, and the ParentCompany, the Companies and Executive hereby irrevocably submit with regard to any such action or proceeding for itself and in respect to itsproperty, generally and unconditionally, to the jurisdiction of the aforesaid courts.(d)Waiver of Jury Trial. IN THE EVENT OF ANY LITIGATION WITH RESPECT TO ANY MATTER CONNECTED WITH THISAGREEMENT OR THE AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREUNDER ALL OF THE PARTIES HERETO WAIVE ALLRIGHTS TO A TRIAL BY JURY.Kindly indicate your acceptance of this Agreement by signing and returning a copy of this letter to me.Very truly yours,James River Group, Inc.By: /s/ Robert P. Myron________________Name: Robert P. Myron Title: Chief Executive OfficerACCEPTED AND AGREED TO THIS 15th DAY OF JANUARY, 2018James River Insurance CompanyBy: /s/ Sarah Doran_____________________Name: Sarah Doran Title: Chairman of the BoardJames River Management Company, Inc.By: /s/ Sarah Doran_____________________Name: Sarah Doran Title: Chairman of the Board/s/ Richard Schmitzer_____________________Richard SchmitzerExhibit 10.24 James River Group, Inc.April 3, 2012Mr. Steven HartmanDear Steve:The purpose of this letter (the “Agreement”) is to confirm our agreement with respect to the terms of your employment by James River Group, Inc. (the “ParentCompany”) to serve as President and Chief Executive Officer of two subsidiaries of JRG: Stonewood Insurance Company (“SIC”) and Stonewood InsuranceManagement Company, Inc. (“SIMC”) (together, the “Companies”). In consideration of the mutual promises contained in this Agreement, the parties to thisAgreement hereby agree as follows:1.EMPLOYMENT AND TERM. Effective as of May 15, 2012, or any earlier date mutually agreed by the parties (the “Effective Date”), SICand SIMC each agrees to employ you (the “Executive”) as its President and Chief Executive Officer, and Executive hereby accepts such employment on theterms hereinafter set forth. The term of this Agreement shall be three years commencing as of the Effective Date and ending on the date immediatelypreceding the third anniversary of the Effective Date, subject to the termination provisions of Section 6. The term of this Agreement shall thereafter beautomatically renewed for additional one year periods unless written notice to the contrary shall be given by the Parent Company or Executive to the otherparty not less than ninety (90) days prior to the end of the initial or any renewal term that the term shall not thereafter be renewed (“Non-Renewal Notice”),subject to the termination provisions of Section 6. The initial term plus any renewals thereof shall hereafter be referred to as the “Term.”2.COMPENSATION.(a)Salary. Executive shall be paid a base salary of not less than four hundred twenty five thousand dollars ($425,000) per year,payable in periodic installments by SIC in accordance with its normal payroll practices.(b)Bonus. For each fiscal year during the Term after 2012 in which Executive is employed by the Company as of the last day ofsuch fiscal year, Executive shall be eligible to receive a discretionary bonus (each, a “Bonus”) in an amount as the Board of Directors of the ParentCompany (the “Board”) (other than Executive, if Executive is a member of the Board), in its discretion, may determine based on Executive’sperformance during such fiscal year. For 2012, if Executive is employed by the Company through December 31, 2012, then Executive shall receivea Bonus in the amount of three hundred eighteen thousand seven hundred fifty dollars ($318,750). Any Bonus awarded for a fiscal year shall be paidby SIC at the time or times provided by the Parent Company bonus plan in effect for such fiscal year.(c)Vacation, Benefits. During the Term Executive shall also be entitled to participate in all employee benefit plans, to other fringebenefits generally available to executive employees of the Parent Company and its subsidiaries at the employer’s expense. Executive will beentitled to a total of four (4) weeks of paid vacation per annum (not subject to carry over to subsequent years), which will be pro-rated for the firstand last year of the Term;(d)Expense Reimbursements. Executive will be entitled to business expense reimbursement for all reasonable business expensesupon the presentation of reasonably itemized statements of such expenses in accordance with the Companies’ policies and procedures, includingwithout limitation expenses incurred by Executive in traveling between his base of operations in New Jersey and North Carolina. If the ParentCompany requires Executive to relocate to North Carolina pursuant to Section 3 of this Agreement, then SIC will reimburse Executive fordocumented reasonable moving expenses incurred in connection with such relocation. If reimbursements for travel expenses between New Jerseyand North Carolina, or for moving expenses, are subject to federal, state, or local income or employment taxes, then SIC will make a lump-sum cashpayment to Executive (“Travel Gross-Up”) in an amount such that after payment of employment and income taxes with respect to reimbursement ofsuch travel expenses (including taxes due with respect to the Travel Gross-Up), the Executive is in the same position with respect to such incomeand employment taxes as he would have been had such travel expenses not been subject to such income and employment taxes. Such Travel Gross-Up shall be paid as soon as practicable following the date the Executive provides notice to SIC that he has remitted the taxes that give rise to thepayment of the Travel Gross-Up to the appropriate taxing authority, but in no event later than the end of the calendar year following the year inwhich the Executive remits such taxes. The amount of expenses eligible for reimbursement during any tax year of Executive shall not affect theexpenses eligible for reimbursement in any other tax year. The right to reimbursement provided inthis Agreement is not subject to liquidation or exchange for another benefit. In no event shall the reimbursement of an eligible expense occur laterthan the earlier of (i) six (6) months from the date of incurrence and (ii) the end of the calendar year following the calendar year in which suchexpense was incurred.(e)Stock Options. The Parent Company shall recommend to the Board of Directors of Franklin Holdings (Bermuda), Ltd (“FranklinHoldings”) that Executive be awarded an option to purchase 2,750 shares of Franklin Holdings (the “Option”). The award and terms of the Optionwill be subject to the Amended and Restated Franklin Holdings (Bermuda), Ltd Equity Incentive Plan (the “Incentive Plan”) and an OptionAgreement between Franklin Holdings and Executive. The exercise price per Share of the Option will be the Fair Market Value on the Grant Date (asthose capitalized terms are defined in the Incentive Plan).(f)Withholdings and Deductions. All payments and compensation under this Agreement shall be subject to all required federal,state and local withholdings and deductions, and such deductions as Executive may instruct SIC to take that are authorized by applicable law.3.DUTIES. Executive shall report exclusively and directly to the Chief Executive Officer of the Parent Company (“CEO”), to the Board ofDirectors of SIC (“SIC Board”) and to the Board of Directors of SIMC (“SIMC Board”). Executive shall perform all duties normally associated with theposition of President and Chief Executive Officer, and such other reasonable duties as may be assigned to him by the CEO, including without limitationoverseeing the subsidiaries of the Companies. Executive will devote his entire working time, attention, and energies to carrying out and fulfilling his dutiesand responsibilities under this Agreement. Executive agrees to abide by all policies applicable to employees of the Parent Company and the Companiesadopted by their respective boards of directors. Executive represents that he is able and willing to engage routine business travel as is necessary to performhis duties as President and CEO and to further the Company’s business interests. The Executive’s base of operations shall initially be in New Jersey,provided, however, the Parent Company may require the Executive to relocate to the Raleigh, North Carolina area by September 1, 2013 as a condition ofcontinued employment.4.CONFIDENTIAL INFORMATION AND PRIVILEGED INFORMATION.(a)Executive will not at any time during the Term or thereafter:(i)reveal, divulge, or make known to any person, firm, or corporation or use for his personal benefit or the benefit of others(except the Companies, the Parent Company, Franklin Holdings, and any of Franklin Holding’s other direct or indirect subsidiaries (hereinafterreferred to as “Affiliates,” and all of the foregoing, the “Company Group”)), directly or indirectly, any confidential or proprietary informationreceived or developed by him during the course of his employment. For the purposes of this Section 4(a)(i) confidential and proprietary information(“Confidential Information”) shall be defined to mean (1) all historical and pro forma projections of loss ratios incurred by the Company Group; (2)all historical and pro forma actuarial data relating to the Company Group; (3) historical and pro forma financial results, revenue statements, andprojections for the Company Group; (4) all information relating to the Company Group’s systems and software (other than the portion thereofprovided by the vendor to all purchasers of such systems and software); (5) all information relating to SIC’s unique underwriting approach; (6) allinformation relating to plans for, or internal or external discussions regarding, acquisitions of or mergers with any business or line of business; (7)non-public business plans; (8) all other information relating to the financial, business, or other affairs of the Company Group including theircustomers; and (9) any information about any shareholder of Franklin Holdings or any of its Affiliates, or any of their officers or employees, that hasbeen furnished or made available to Executive as a result of his position with the Companies. Section 4(a)(i) shall not apply to Executive followingthe termination of his employment with the Parent Company and the Companies with respect to any Confidential Information known or madegenerally available to the general public or within the industry by persons other than Executive or a person acting with or at the request ofExecutive; or(ii)reveal, divulge, or make known to any person, firm, or corporation, or use for his personal benefit or the benefit ofothers (except the Company Group), directly or indirectly, the name or names of any Customers (as defined in Section 5 below) of the CompanyGroup, nor will he reveal, divulge, or make known to any person, firm, or corporation or use for his personal benefit or the benefit of others (exceptthe Company Group), directly or indirectly, any trade secrets or any knowledge or information concerning any business methods or operationalprocedures engaged in by the Company Group (collectively, “Privileged Information”); provided, however, the restrictions set forth in this Section4(a)(ii) shall not apply to Executive following the termination of his employment with the Parent Company and the Companies with respect to anyPrivileged Information known or made generally available to the general public or within the industry by persons other than Executive or a personacting with or at the request of Executive.5.NON-COMPETITION.(a)Executive acknowledges and agrees that as the Companies’ President and CEO (i) he will be responsible for and directlyinvolved in developing customer goodwill and relationships for the benefit of the Company Group, including personal contact with customers andsupervising others who contact customers and develop customer goodwill and relationships; (ii) he will be provided and have access to theCompany Group’s Confidential Information and Privileged Information, and will be compensated for the development, and supervising thedevelopment, of the same and (iii) he will have unique insight into and knowledge of the skills, talents and capabilities of the Company Group’s keyemployees. Executive also acknowledges and agrees that at the inception of his employment with the Company it was agreed that he would bebound by noncompetition restrictions.(b)Executive agrees that during his employment by the Parent Company and the Companies he will not compete against theCompany Group in any manner, including without limitation by engaging in, or by assisting any other person or entity to engage in, or by havingan ownership interest in, any Competitive Business (as defined below) in the Territory (as defined below), or by engaging in any conduct describedin clauses (b)(ii), (iii) or (iv) below. Executive further agrees that after his employment by the Parent Company and the Companies ends, he will notduring the Restricted Period (as defined below):(i)compete against the Companies by becoming employed by any property/casualty insurance company that engages inCompetitive Business (as defined below) in the Territory (as defined below);(ii)compete against the Companies by soliciting any Customer (as defined below) or Agent (as defined below) of theCompanies to provide any goods, services or referrals in competition against the Companies;(iii)induce or persuade any Customer or Agent of the Companies not to do business with, or to switch business from, orreduce business with, the Companies;(iv)solicit, or assist others in soliciting, Key Employees (as defined below) to either leave the Company Group or toengage in a Competitive Business.(c)For purposes of this Agreement, the following capitalized terms shall have the meanings set forth below:(i)“Restricted Period” shall mean eighteen (18) months, except that in the event of “Company Non-Renewal Termination”(as defined herein), “Restricted Period shall mean twelve (12) months.(ii)“Competitive Business” shall mean the insurance business of acquiring, holding, and/or underwriting (A) workers’compensation insurance, (B) other specialty admitted insurance business, or (C) any Material Insurance Business other than workers’ compensationinsurance or other specialty admitted insurance business that either of the Companies or their subsidiaries is engaged in as of the date Executive’semployment with the Company ends.(iii)“Territory” shall mean each and every state or other United States jurisdiction (“State(s)”) where SIC or any of itsaffiliates, including Stonewood National Insurance Company and Stonewood General Insurance Company, is authorized to underwrite and engagedin underwriting insurance.(iv)“Customer” shall mean any of the customers of the Companies that purchased products or services from theCompanies during the twelve month period immediately preceding Executive’s last day of employment with the Parent Company and theCompanies (the “Final Year”), and both (A) were among SIC’s 100 largest clients (in terms of premium payments to SIC) during the Final Year, and(B) with respect to which Executive had access to Confidential Information or Privileged Information.(v)“Key Employees” shall mean any executive, managerial, sales, marketing, or supervisory level employees of theCompany Group under Executive’s direct or indirect management authority during the Final Year.(vi)“Agent” shall mean any insurance agent, insurance broker, wholesale agent, general agent, or other person (A) thatacted on behalf of any customer of the Companies to obtain insurance from the Companies or who referred any insurance business to the Companiesduring the Final Year and (B) with respect to which either Executive had (I) Confidential Information or Privileged Information or (II) accountresponsibility either directly or through managing employees with such account responsibility.(vii)“Material Insurance Business” shall mean any insurance business (other than workers’ compensation insurance orother specialty admitted insurance business) that accounts for 10% or more of the Companies’ total gross written premiums during the Final Year.(d)The restrictions contained in this Section 5 shall not prevent: (i) the purchase of ownership by Executive of not more than threepercent (3%) of the securities of any class of any corporation, whether or not such corporation is engaged in any Competitive Business, which arepublicly traded on any securities exchange or any “over the counter” market; or (ii) after Executive’s employment by the Parent Company and theCompanies ends, Executive’s being employed by a subsidiary or division of an insurance company that engages in Competitive Business as long asboth (A) such subsidiary or division does not engage in Competitive Business in the Territory, and (B) Executive does not provide services to orassist the subsidiaries or divisions of such company that engage in Competitive Business in the Territory.6.TERMINATION. Executive’s employment hereunder shall terminate under the following circumstances:(a)Termination for Cause. The Parent Company may terminate the employment of Executive for Cause at any time by providingwritten notice to Executive specifying the cause of the termination. For the purposes of this Agreement, “Cause” means that: (i) Executive willfullyviolated Sections 4 or 5 of this Agreement; (ii) Executive grossly neglected his duties hereunder; (iii) Executive was convicted of a felony or a crimeinvolving moral turpitude (meaning a crime that includes the commission of an act of depravity, dishonesty, or bad morals); (iv) Executive hascommitted an act of dishonesty, fraud, or embezzlement against any entity in the Company Group; (v) Executive willfully and/or knowinglybreached this Agreement in any material respect or willfully violated the Parent Company’s or the Companies’ written policies which have beenprovided to him; (vi) Executive willfully failed or refused to follow the lawful instructions of the CEO, the SIC Board or the SIMC Board that areconsistent with this Agreement (“Insubordination”); or (vii) after the Parent Company provides written notice to Executive to relocate to theRaleigh, North Carolina area effective at any time on or after September 1, 2013, Executive fails to comply with such notice within the later of 90days after receipt of such notice or _________, 2013. In the event that the Parent Company provides written notice of termination for Causepursuant to Section 6(a)(ii) or (vi), Executive shall be entitled to cure any alleged neglect of his duties or Insubordination, to the extent curable,within thirty (30) days of receiving written notice from the Company specifying the factual basis for its belief that Executive grossly neglected hisduties hereunder or engaged in Insubordination. If Executive is terminated for Cause, Executive’s compensation shall terminate on the date of suchtermination, and all Options, whether vested or unvested at that time, shall be immediately forfeited and canceled effective as of the date of suchtermination.(b)Company Termination Without Cause. The Parent Company may terminate Executive at any time without Cause, with orwithout prior notice. If (i) the Parent Company delivers a timely Non-Renewal Notice and Executive has not timely delivered a timely Non-RenewalNotice, (ii) Executive continues in employment with the Parent Company through the last day of the Term and (iii) the parties have not executed awritten agreement applicable to Executive’s employment after the expiration of the Term, the Executive’s employment shall terminate on the lastday of the Term (a “Company Non-Renewal Termination”).(c)Termination by Executive for Good Reason. Executive may, at his option, terminate this Agreement for Good Reason inaccordance with the terms of this Section 6(c). “Good Reason” shall mean the occurrence of any one or more of the following events without theprior consent of Executive:(i)A material diminution in Executive’s authority, duties or responsibilities, or requiring Executive to report directly to aperson or persons other than (x) the Parent Company’s CEO or the Board, or (y) the Companies’ Boards;(ii)A diminution in Executive’s Base Salary; or(iii)Any action or inaction by the Parent Company or the Companies which constitutes a material breach of the terms ofthis Agreement;and, in each case, the failure by the Parent Company or the Companies, as applicable, to cure such condition within the thirty (30) day period afterreceipt of written notice from Executive specifying in detail the factual basis for his belief that he has Good Reason to resign (“Good ReasonNotice”). Executive must deliver a Good Reason Notice to the Parent Company and the Companies within thirty (30) calendar days after the initialexistence of a Good Reason condition, and, if the Parent Company or the Companies, as applicable, fails to timely cure such Good Reasoncondition, Executive must terminate his employment within one year after the initial existence of such Good Reason condition, and any failure byExecutive to timely comply with either of these requirements shall constitute a waiver of Executive’s right to resign for Good Reason for suchcondition.(d)Termination due to Death or Disability. Executive’s employment hereunder shall terminate upon his death. The ParentCompany may terminate Executive’s employment if he is prevented from performing his responsibilities under this Agreement because of“Disability.” A “Disability” means that Executive is unable to engage in any substantial gainful activity by reason of a medically determinablephysical or mental impairment thatcan be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or is, by reason of any medicallydeterminable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than12 months, receiving income replacement benefits for a period of not less than three months under an accident or disability insurance benefit plancovering Executive (“Disability Plan”). If Executive is unable to perform his responsibilities, by reason of any accident, illness, or mental, orphysical impairment, for a period that is reasonably anticipated by the Parent Company to be longer than the waiting period in the Disability Plan,then, at the Parent Company’s request, Executive shall promptly apply for such income replacement benefits.(e)Expiration of Term. If (i) Executive delivers a timely Non-Renewal Notice pursuant to Section 1 (whether or not the Companyhas timely delivered a timely Non-Renewal Notice), (ii) Executive continues in employment with the Company through the last day of the Term,and (iii) the parties have not executed a written agreement applicable to Executive’s employment after the expiration of the Term, the Executive’semployment shall terminate on the last day of the Term (“Executive Non-Renewal Termination).7.COMPENSATION AND BENEFITS UPON TERMINATION.(a)If, during the Term, the Parent Company terminates Executive’s employment without Cause, there is a Company Non-RenewalTermination, or Executive terminates his employment for Good Reason, then:(i)as soon as practicable following such termination but no later than ten (10) days after the Termination Date (as definedbelow), SIC shall pay to Executive his accrued but yet unpaid base salary earned through the Termination Date and any accrued, but unusedvacation pay through the Termination Date (the “Accrued Obligations”);(ii)within forty-five (45) days following the Termination Date, SIC shall reimburse Executive for reasonable expensesincurred, but not paid prior to the Termination Date;(iii)subject to the execution and delivery of a general release (which release shall not alter or result in the waiver ofExecutive’s right to exercise the portion of the Option that vested through the Termination Date, or any rights under this Section 7(a)) in a formacceptable to the Parent Company within thirty (30) days after the Termination Date, which release has not been revoked, Executive is entitled toreceive:(A)In the event of a termination without Cause or for Good Reason (I) before or 12 months or more after a Change inControl (as defined in Section 7(d)), an amount equal to Executive’s base salary for a period of eighteen (18) months after the Termination Date, or(II) within twelve (12) months after a Change in Control, an amount equal to Executive’s base salary for a period of thirty (30) months after theTermination Date, or (B) in the event of a Company Non-Renewal Termination, an amount equal to Executive’s base salary for a period of twelve(12) months after the Termination Date, which, in any case shall be paid in periodic installments in accordance with SIC’s normal payroll practicesin effect as of the Termination Date commencing on the first payroll cycle which is at least ten (10) business days after the 45th day after theTermination Date;(B)the continuation of coverage under all employee benefit insurance plans in which Executive was a participant as of theTermination Date, to the extent such post-employment coverage is authorized by such plans, at SIC’s expense for the period of eighteen (18) afterthe Termination Date (for a termination without Cause or for Good Reason) or the period of twelve (12) months after the Termination Date (for aCompany Non-Renewal Termination), provided, however if post-employment coverage is not authorized under such health insurance plan, then SICwill pay Executive the premium cost for health insurance coverage that SIC would have paid if Executive had continued being a participant in suchhealth insurance plan during the applicable 12 month or 18 month period;(C)any unpaid discretionary bonus awarded to Executive for the year prior to the year in which the Termination Dateoccurs, which shall be paid in a lump sum on the normal bonus payment date for Parent Company bonuses for such preceding fiscal year; and(D)solely for a termination without Cause or for Good Reason before January 1, 2013, the Bonus for 2012, which shall bepaid at the time or times provided in the Parent Company bonus plan in effect for 2012.(b)If Executive’s employment is terminated as a result of death or by the Parent Company for Cause or because of Disability, or if atermination of employment occurs pursuant to Section 6(e) as a result of Executive’s delivering a timely Non-Renewal Notice:(i)within ten (10) days following the Termination Date, SIC shall pay to Executive the Accrued Obligations;(ii)within forty-five (45) days following the Termination Date, SIC shall reimburse Executive for reasonable expensesincurred, but not paid prior to the Termination Date; and(iii)solely in connection with a termination as a result of death before the Bonus for 2012 is fully paid to Executive, SICshall pay any unpaid portion of such unpaid Bonus to Executive’s estate at the time or times provided in the Parent Company bonus plan in effectfor 2012.(c)Except for payments provided under Sections 7(a)(i), 7(a)(ii), and 7(b), all compensation and benefits paid pursuant to thisSection 7 shall cease and Executive shall promptly return any amount paid under Section 7(a)(iii) to SIC if Executive violates any of the terms ofSections 4 or 5 above during the Restricted Period. In addition to these remedies, the Parent Company, the Companies and the Company Group shallhave all other remedies provided by this Agreement and by law for the breach of Sections 4 or 5 above.(d)For purposes of this Agreement, “Termination Date” means the date of Executive’s “separation from service” within themeaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations promulgated thereunder (“Section409A”). For purposes of this Agreement, “Change in Control” means (and, for purposes of this definition only, capitalized terms have the meaningdefined in the Incentive Plan) the first to occur of the following events:i.The acquisition, directly or indirectly, by any person, entity or “group” (as defined in Section 13(d) of the Securities Exchange Actof 1934, as amended) (other than the Company, any Subsidiary, any D.E. Shaw Investor or any affiliate thereof, an employeebenefit plan maintained by the Company Group, or a Person that, prior to such transaction, directly or indirectly controls, iscontrolled by, or is under common control with, the Company) of 40 percent or more of the total combined voting power of theCompany Group’s then-outstanding voting securities;ii.the merger, consolidation, recapitalization, stock purchase or other similar transaction involving the Company, as a result of whichperson who were shareholders of the Company Group immediately prior to such transaction and the Investors do not, immediatelythereafter, own, directly or indirectly, more than 40 percent of the combined voting power entitled to vote generally in the electionof directors of the Company (or any merged, consolidated, or surviving company);iii.the liquidation or dissolution of the Company, other than a liquidation or dissolution (i) of the Company into a Subsidiary, (ii) forthe purposes of effective a corporate restructuring or reorganization, or (iii) as a result of which persons who were shareholders ofthe Company Group immediately prior to such liquidation or dissolution, own, directly or indirectly, more than 40 percent of thecombined voting power entitled to vote generally in the election of directors of the entity that owns, directly or indirectly,substantially all of the assets of the Company Group following such liquidation or dissolution; oriv.the sale, transfer or other disposition of all or substantially all of the assets of the Company Group to one or more persons orentities that are not, immediately prior to such sale, transfer or other disposition of all or substantially all of the assets, affiliates ofthe Company, or any employee benefit plan of the Company Group (other than by way of a transaction that would not be deemed aChange in Control pursuant to clauses (i) or (ii) above); in each case, provided that such event constitutes a “change in control”within the meaning of Section 409A.(e)Executive’s rights with respect to the vesting and exercise of the Option after the Termination Date shall be governed by theOption Agreement and Incentive Plan.8.409A COMPLIANCE. This Agreement shall be interpreted and administered in a manner so that any amount or benefit payable hereundershall be paid or provided in a manner that is either exempt from or compliant with the requirements Section 409A and applicable Internal Revenue Serviceguidance and Treasury Regulations issued thereunder (and any applicable transition relief under Section 409A). Notwithstanding anything else contained inthis Agreement to the contrary, if Executive is a “specified employee” under Franklin Holding’s specified employee policy as in effect on the TerminationDate, or if no such policy is then in effect, within the meaning of Section 409A, any payment required to be made to Executive hereunder upon or followingthe Termination Date shall be delayed until after the six-month anniversary of Executive’s “separation from service” (as such term is defined in Section409A) to the extent necessary to comply with, and avoid imposition on Executive of any additional tax, interest, or penalty imposed under, Section 409A.Should payments be delayed in accordance with the preceding sentence, the accumulated payment that would have been made but for the period of the delayshall be paid in a single lump sum during the ten (10) day period following the six-month anniversary of the Termination Date. Each payroll period paymentdescribed in Section 7(a)(iii)(A) shall be treated as a separate payment for purposes of Section 409A.9.UNIQUENESS OF SERVICES; ACKNOWLEDGEMENTS. Executive acknowledges that the services to be rendered under the provisionsof this Agreement are of a special, unique, and extraordinary character; involve access to and development of Confidential Information and PrivilegedInformation; involve developing and protecting customer relationships and goodwill; and that it would be difficult or impossible to replace such servicesand that, by reason thereof, Executive agrees and consents that if he violates any of the provisions of Sections 4 and 5 of this Agreement, the ParentCompany, the Companies and/or any entity in the Company Group, in addition to any other rights and remedies available under this Agreement or otherwise,shall be entitled to an injunction to be issued by a court of competent jurisdiction restricting Executive from committing or continuing any violation ofSections 4 and 5 of this Agreement.10.FURTHER ACKNOWLEDGEMENTS. Executive further acknowledges and agrees that the restrictions contained in Sections 4 and 5above are reasonable and necessary to protect the legitimate interest of the Company Group, in view of, among other things, the short duration of therestrictions; the narrow scope of the restrictions; the Company Group’s interests in protecting its trade secrets, Confidential Information, and PrivilegedInformation (which Executive agrees would be useful to competitors for more than eighteen (18) months) and its customer relationships and goodwill;Executive’s background and capabilities which will allow him to seek and accept employment without violation of the restrictions; Executive’s opportunityto acquire a substantial equity interest in Franklin Holdings through the award of the Option; and Executive’s entitlements under this Agreement. If anyprovision contained in Sections 4 or 5 above is adjudged unreasonable by a court of competent jurisdiction or arbitrator in any proceeding, then suchprovision shall be deemed modified as provided in Sections 4 or 5 above or by reducing the scope of such provision, the period of time during which suchprovision is applicable and/or the geographic area to which such provision applies, to the extent necessary for such provision to be adjudged reasonable andenforceable.11.NOTICES. Any notices provided for or permitted by this Agreement shall be in writing and shall be deemed to have been duly givenwhen delivered in person or three (3) days after it is mailed if delivered by registered or certified mail, return receipt requested, postage prepaid, addressed tothe party for whom intended at such party’s address set forth above or to such other address as such party may designate by notice in writing given in themanner provided herein.12.SECTION HEADINGS. The section heading in this Agreement are for convenience of reference only, and they form no part of thisAgreement and shall not affect its interpretation.13.ENTIRE AGREEMENT; AMENDMENTS; COUNTERPARTS. This Agreement constitutes the entire agreement and understandingamong Executive, the Parent Company and the Companies with respect to the subject matter hereof and shall supersede any and all other prior agreementsand understandings, whether oral or written, relating thereto or the employment of Executive by the Parent Company and the Companies. This Agreementmay not be rescinded, modified, or amended, unless an amendment is agreed to in a writing signed by Executive and by an officer of the Parent Companyspecifically authorized by the Board (other than Executive), and any waiver shall be set forth in writing and signed by the party to be charged. ThisAgreement may be executed in any number of counterparts, including by facsimile, each of which shall be an original, but all of which together shallconstitute one and the same instrument.14.PARTIAL INVALIDITY. The invalidity or unenforceability, by statute, court decision, or otherwise, of any term or condition of thisAgreement shall not affect the validity or enforceability of any other term or condition hereof.15.GOVERNING LAW. This Agreement shall be construed and administered in accordance with the laws of North Carolina, without regardto the principles of conflicts of law which might otherwise apply.16.ASSIGNABILITY. This Agreement may not be assigned by Executive, and any purported assignment by Executive shall be null andvoid. All of the terms and conditions of this Agreement shall be binding upon and inure to the benefit of the Parent Company and its successors (includingwithout limitation any successor to the Parent Company’s business as the result of a merger or consolidation of the Parent Company, whether or not theParent Company survives such merger or consolidation) and assigns. Successors to the Company shall include, without limitation, any corporation orcorporations acquiring, directly or indirectly, all or substantially all of the assets of the Parent Company whether by merger, consolidation, purchase, orotherwise and such successor shall thereafter be deemed the “Parent Company” for purposes hereof. .17.DISPUTE RESOLUTION.(a)Arbitration. In the event of disputes between the parties with respect to the terms and conditions of this Agreement, suchdisputes shall be resolved by and through an arbitration proceeding to be conducted under the auspices of the American Arbitration Association (orany like organization successor thereto) in Raleigh, North Carolina; provided, however, that either party may seek temporary or preliminaryinjunctive relief with respect to appropriate matters (including, without limitation, enforcement of Sections 4 and 5 above) from a court in aid ofarbitration. Such arbitration proceeding shall be conducted pursuant to the commercial arbitration rules (formal or informal) of the AmericanArbitration Association in as expedited a manner as is then permitted by such rules (the “Arbitration”). Both the foregoing agreement of the partiesto arbitrate any and all such claims, and the results,determination, finding, judgment, and/or award rendered through such Arbitration, shall be final and binding on the parties to this Agreement andmay be specifically enforced by legal proceedings.(b)Procedure. Such Arbitration may be initiated by written notice from either the Parent Company or Executive to the other whichshall be a compulsory and binding proceeding on each party. The Arbitration shall be conducted by an arbitrator selected in accordance with theprocedures of the American Arbitration Association. Time is of the essence of this arbitration procedure, and the arbitrator shall be instructed andrequired to render his or her decision within thirty (30) days following completion of the Arbitration.(c)Venue and Jurisdiction. Any action to compel arbitration hereunder or otherwise relating to this Agreement shall be broughtexclusively in either a state court or federal court located in Raleigh, North Carolina, provided that, with respect to an action brought in NorthCarolina, if a federal court has jurisdiction over the subject matter thereof, then such action shall be brought in federal court, and the ParentCompany, the Companies and Executive hereby irrevocably submit with regard to any such action or proceeding for itself and in respect to itsproperty, generally and unconditionally, to the jurisdiction of the aforesaid courts.(d)Waiver of Jury Trial. IN THE EVENT OF ANY LITIGATION WITH RESPECT TO ANY MATTER CONNECTED WITH THISAGREEMENT OR THE AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREUNDER ALL OF THE PARTIES HERETO WAIVE ALLRIGHTS TO A TRIAL BY JURY.[Remainder of page intentionally left blank]Kindly indicate your acceptance of this Agreement by signing and returning a copy of this letter to me.Very truly yours,James River Group, Inc.By: /s/ J. Adam Abram Name: J. Adam AbramTitle: ChairmanACCEPTED AND AGREED TO THIS ___ DAY OF _____, 2012Stonewood Insurance CompanyBy: /s/ Gregg Davis_________________Name: Gregg Davis Title: ChairmanStonewood Insurance Management Company, Inc.By: /s/ Gregg Davis_________________Name: Gregg Davis Title: Chairman/s/ Steven J. Hartman______________Steven HartmanExhibit 10.25 JRG Reinsurance, Ltd.Wellesley House, 2nd Floor90 Pitts Bay RoadPembroke HM 08 BermudaJanuary 17, 2018Mr. Dennis R. JohnsonDear Dennis:The purpose of this letter (the “Agreement”) is to confirm that we have agreed to amend and restate as of the Effective Date (as hereinafter defined) our prioragreement with respect to the terms of your employment by JRG Reinsurance, Ltd. (the “Company”). In consideration of the mutual promises contained inthis Agreement, the parties to this Agreement hereby agree as follows:1.EMPLOYMENT AND TERM. Effective as of January 1, 2018 (the “Effective Date”), the Company agrees to employ you (the“Executive”) as Chief Executive Officer and Chief Underwriting Officer, and Executive hereby accepts such employment on the terms hereinafter set forth.The term of this Agreement shall be one year commencing as of the Effective Date and ending on the date immediately preceding the first anniversary of theEffective Date, subject to the termination provisions of Section 6. The term of this Agreement shall thereafter be automatically renewed for additional oneyear periods unless written notice to the contrary shall be given by either party to the other not less than sixty (60) days prior to the end of the initial or anyrenewal term that the term shall not thereafter be renewed (“Non-Renewal Notice”), subject to the termination provisions of Section 6. The initial term plusany renewals thereof shall hereafter be referred to as the “Term.”2.COMPENSATION.(a)Salary. During the Term Executive shall be paid a base salary of not less than four hundred twenty six thousand one hundredsixty four dollars ($426,164) per year, payable in periodic installments in accordance with the Company’s normal payroll practices.(b)Bonus. Executive shall be eligible to receive such discretionary bonuses as the Board of Directors (“Board”) of James RiverGroup Holdings, Ltd. (“Holdings”) (other than Executive, if Executive is a member of the Board), in its discretion, may determine based onExecutive’s performance during each fiscal year during the Term, which shall be paid on or before March 15 of the subsequent fiscal year.(c)Vacation, Benefits. Executive shall also be entitled, during the Term, to participate in all employee benefit plans and otherfringe benefits or plans of the Company generally available to executive employees of the Holdings Group (as defined below) or generally availableto the Company’s Bermuda-based executive employees, at the Company’s expense, including:(i)a total of five (5) weeks of paid vacation per annum (subject to the Company’s carry over policies), which will be pro-rated for the first and last year of the Term.(ii)business expense reimbursement for all reasonable business expenses upon the presentation of reasonably itemizedstatements of such expenses in accordance with the Company’s policies and procedures. The amount of expenses eligible for reimbursement duringany tax year of Executive shall not affect the expenses eligible for reimbursement in any other tax year. The right to reimbursement provided in thisAgreement is not subject to liquidation or exchange for another benefit. In no event shall the reimbursement of an eligible expense occur later thanthe earlier of (i) six (6) months from the date of incurrence and (ii) the end of the calendar year following the calendar year in which such expensewas incurred.(iii)tax equalization payments pursuant to the Company’s tax equalization policies (“Tax Equalization Policies”),provided that such tax equalization payments shall be made no later than the end of the second calendar year after the year in which the Executive’sincome tax return is required to be filed (including any extensions) for the year to which the compensation subject to the tax equalization paymentrelates, or, if later, the second calendar year beginning after the latest year in which the Executive’s foreign tax return or payment is required to befiled or made for the year to which the compensation subject to the tax equalization payment relates, and further provided that if the right to such taxequalization proceeds arises as a result of audit, litigation, or similar proceeding,such tax equalization payments are scheduled and made in accordance with the tax gross-up payment provisions of Treas. Reg. §1.409A-3(i)(1)(v).(d)Housing Expense. The Company shall reimburse Executive for up to $12,000 per month for Executive’s “Housing Expense.”For purposes of this provision, “Housing Expense” means the rent, all utility expenses and renters insurance paid by Executive for a residence inBermuda for each month during the Term in which Executive resides in such residence for the entire month, provided that Executive provides acopy of the lease and any other documentation relating to such rent payments as requested by the Company. Such Housing Expense reimbursementpayments will be made by the end of the month following the month in which documentation of rent and other payments are provided to theCompany.(e)Withholdings and Deductions. All payments and compensation under this Agreement shall be subject to all required federal,state and local withholdings and deductions, and such deductions as Executive may instruct the Company to take that are authorized by applicablelaw.(f)Clawback. Executive acknowledges that to the extent required by applicable law or written company policy adopted by theBoard to implement the requirements of such law (including without limitation Section 304 of the Sarbanes Oxley Act and Section 954 of the DoddFrank Act), any bonus and other incentive compensation (if any) shall be subject to any clawback, forfeiture, recoupment or similar requirement asthe Board may determine in its sole discretion is necessary or desirable to implement such law or policy.3.DUTIES. Executive shall perform all duties normally associated with the positions of Chief Executive Officer and Chief UnderwritingOfficer and such other reasonable duties as may be assigned to him by the Chief Executive Officer of Holdings (“CEO”). Executive shall report solely anddirectly to the CEO and to the Board of Directors of the Company (“Company Board”). Executive will devote his entire working time, attention, and energiesto carrying out and fulfilling his duties and responsibilities under this Agreement. Executive agrees to abide by all policies applicable to employees of theHoldings Group (as defined below) adopted by the Board. Executive’s duties will be performed at the Company’s offices in Bermuda in accordance with theCompany’s operating guidelines, and Executive represents that he is able and willing to engage in international travel as is necessary to perform his duties asChief Executive Officer and Chief Underwriting Officer and to further the Company’s business interests.4.CONFIDENTIAL INFORMATION AND PRIVILEGED INFORMATION.(a)Executive will not at any time during the Term or thereafter:(i)reveal, divulge, or make known to any person, firm, or corporation or use for his personal benefit or the benefit of others(except the Company, Holdings and each of Holdings’ direct and indirect subsidiaries (hereinafter referred to collectively as “Affiliates,” and theCompany, Holdings and such Affiliates collectively, the “Holdings Group”)), directly or indirectly, any confidential or proprietary informationreceived or developed by him during the course of his employment. For the purposes of this Section 4(a)(i) confidential and proprietary information(“Confidential Information”) shall be defined to mean (1) all historical and pro forma projections of loss ratios incurred by the Holdings Group; (2)all historical and pro forma actuarial data relating to the Holdings Group; (3) historical and pro forma financial results, revenue statements, andprojections for the Holdings Group; (4) all information relating to the Holdings Group’s systems and software (other than the portion thereofprovided by the vendor to all purchasers of such systems and software); (5) all information relating to the Company’s unique underwriting approach;(6) all information relating to plans for, or internal or external discussions regarding, acquisitions of or mergers with any business or line of business;(7) non-public business plans; (8) all other information relating to the financial, business, or other affairs of the Holdings Group including theircustomers; and (9) any information about any shareholder of Holdings or any of its Affiliates, or any of the officers or employees of any member ofthe Holdings Group, that has been furnished or made available to Executive as a result of his position with the Company. Section 4(a)(i) shall notapply to Executive following the termination of his employment with the Company with respect to any Confidential Information known or madegenerally available to the general public or within the industry by persons other than Executive or a person acting with or at the request ofExecutive; or(ii)reveal, divulge, or make known to any person, firm, or corporation, or use for his personal benefit or the benefit ofothers (except the Holdings Group), directly or indirectly, the name or names of any Customers (as defined in Section 5 below) of the HoldingsGroup, nor will he reveal, divulge, or make known to any person, firm, or corporation or use for his personal benefit or the benefit of others (exceptthe Holdings Group), directly or indirectly, any trade secrets or any knowledge or information concerning any business methods or operationalprocedures engaged in by the Holdings Group (collectively, “Privileged Information”); provided, however, the restrictions set forth in this Section4(a)(ii) shall not apply to Executive following the termination of his employment with the Company with respect to any Privileged Informationknown or made generally available to thegeneral public or within the industry by persons other than Executive or a person acting with or at the request of Executive.5.NON-COMPETITION.(a)Executive acknowledges and agrees that as the Company’s Chief Executive Officer and Chief Underwriting Officer (i) he will beresponsible for and directly involved in developing customer goodwill and relationships for the benefit of the Holdings Group, including personalcontact with customers and supervising others who contact customers and develop customer goodwill and relationships; (ii) he will be provided andhave access to the Holdings Group’s Confidential Information and Privileged Information, and will be compensated for the development, andsupervising the development, of the same and (iii) he will have unique insight into and knowledge of the skills, talents and capabilities of theHoldings Group’s key employees. Executive also acknowledges and agrees that at the inception of his employment with the Company it was agreedthat he would be bound by noncompetition restrictions.(b)Executive agrees that during his employment by the Company, and for the restricted period (“Restricted Period”) after hisemployment with the Company ceases, he will not:(i)compete against the Holdings Group by engaging in, or by assisting any other person or entity to engage in, or byhaving an ownership interest in, any Competitive Business in the Territory (as defined below);(ii)compete against the Holdings Group by soliciting any Customer of the Holdings Group to provide any goods orservices in competition against the Holdings Group;(iii)induce or persuade any Customer of the Holdings Group not to do business with, or to switch business from, or reducebusiness with, the Holdings Group;(iv)solicit, or assist others in soliciting, Key Employees (as defined below) to either leave the Holdings Group or toengage in a Competitive Business.(c)For purposes of this Agreement, the following capitalized terms shall have the meanings set forth below:(i)“Restricted Period” shall mean eighteen (18) months, except that in the event of “Company Non-Renewal Termination”(as defined below), “Restricted Period” shall mean twelve (12) months.(ii)“Competitive Business” shall mean the business of acquiring, holding, and/or operating property and casualtyinsurance and reinsurance companies, and any other material business that the Holdings Group is engaged in as of the date of this Agreement and asthe business of the Holdings Group evolves during Executive’s employment with the Company. For informational purposes only and not for thepurpose of construing or restricting the scope of the term “Competitive Business,” the parties agree that the following activities in which theHoldings Group is currently engaged are within the scope of Competitive Business: providing workers' compensation insurance in North Carolina,South Carolina and Virginia, providing excess and surplus lines insurance in the United States and writing proportional and working layer propertyand casualty reinsurance through a reinsurance company from Bermuda.(iii)“Territory” shall mean Bermuda and each and every state or other United States jurisdiction (“State(s)”) where theHoldings Group is licensed or admitted at the end of the Term and/or is then in the process of seeking to be licensed.(iv)“Customer” shall mean any customer of the Holdings Group that (A) purchased products or services from theCompany during the twelve month period immediately preceding Executive’s last day of employment with the Company (the “Final Year”), and (B)about which Executive either had Confidential Information or Privileged Information or personal or management responsibility for customer contactor service.(v)“Key Employees” shall mean any executive, managerial, sales, marketing, or supervisory level employees of theHoldings Group under Executive’s direct or indirect management authority during the Final Year.(d)The restrictions contained in this Section 5 shall not prevent the purchase of ownership by Executive of not more than threepercent (3%) of the securities of any class of any corporation, whether or not such corporation is engaged in any Competitive Business, which arepublicly traded on any securities exchange or any “over the counter” market.6.TERMINATION. Executive’s employment hereunder shall terminate under the following circumstances:(a)Termination for Cause. The Company may terminate the employment of Executive for Cause at any time by providing writtennotice to Executive specifying the cause of the termination. For the purposes of this Agreement, “Cause” means that: (i) Executive willfully violatedSections 4 or 5 of this Agreement; (ii) Executive grossly neglected his duties hereunder; (iii) Executive was convicted of a felony or a crimeinvolving moral turpitude (meaning a crime that includes the commission of an act of depravity, dishonesty, or bad morals); (iv) Executive hascommitted an act of dishonesty, fraud, or embezzlement against the Holdings Group; or (v) Executive willfully and/or knowingly breached thisAgreement in any material respect or willfully and/or knowingly violated the Company’s operating guidelines. In the event that the Companyprovides written notice of termination for Cause pursuant to Section 6(a)(ii), Executive shall be entitled to cure any alleged neglect of his duties, tothe extent curable, within thirty (30) days of receiving written notice from the Company specifying the factual basis for its belief that Executivegrossly neglected his duties hereunder. If Executive is terminated for Cause, Executive’s compensation shall terminate on the date of suchtermination, and all equity awards, whether vested or unvested at that time, shall be immediately forfeited and canceled effective as of the date ofsuch termination.(b)Company Termination Without Cause; Company Non-Renewal Termination. The Company may terminate Executive at anytime without Cause, with or without prior notice. If (i) the Company delivers a timely Non-Renewal Notice and Executive has not timely delivered atimely Non-Renewal Notice, (ii) Executive continues in employment with the Company through the last day of the Term, and (iii) the parties havenot executed a written agreement applicable to Executive’s employment after the expiration of the Term, then Executive’s employment shallterminate on the last day of the Term (a “Company Non-Renewal Termination”).(c)Termination by Executive for Good Reason. Executive may, at his option, terminate this Agreement for Good Reason. “GoodReason” shall mean the occurrence of any one or more of the following events without the prior consent of Executive:(i)A material diminution in Executive’s authority, duties or responsibilities, or requiring Executive to report directly to aperson or persons other than the Chief Executive Officer of Holdings or the Company Board;(ii)A material diminution in Executive’s Base Salary; or(iii)Any action or inaction by the Company which constitutes a material breach of the terms of this Agreement;and, in each case, the failure by the Company to cure such condition within the thirty (30) day period after receipt of written notice from Executivespecifying in detail the factual basis for his belief that he has Good Reason to resign (“Good Reason Notice”). Executive must deliver a GoodReason Notice within thirty (30) calendar days after the initial existence of a Good Reason condition, and, if the Company fails to timely cure suchGood Reason condition, Executive must terminate his employment within one year after the initial existence of such Good Reason condition, andany failure by Executive to timely comply with either of these requirements shall constitute a waiver of Executive’s right to resign for Good Reasonfor such condition.(d)Termination due to Death or Disability. Executive’s employment hereunder shall terminate upon his death. The Company mayterminate Executive’s employment if he is prevented from performing his responsibilities under this Agreement because of “Disability.” A“Disability” means that Executive is unable to engage in any substantial gainful activity by reason of a medically determinable physical or mentalimpairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or is, by reason ofany medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous periodof not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident or disabilityinsurance benefit plan covering Company employees (“Disability Plan”). If Executive is unable to perform his responsibilities, by reason of anyaccident, illness, or mental, or physical impairment, for a period that is reasonably anticipated by the Company to be longer than the waiting periodin the Disability Plan, then, at the Company’s request, Executive shall promptly apply for such income replacement benefits.(e)Expiration of Term. If (i) Executive delivers a timely Non-Renewal Notice pursuant to Section 1 (whether or not the Companyhas timely delivered a timely Non-Renewal Notice), (ii) Executive continues in employment with the Company through the last day of the Term,and (iii) the parties have not executed a written agreement applicable to Executive’s employment after the expiration of the Term, then Executive’semployment shall terminate on the last day of the Term (“Executive Non-Renewal Termination”).7.COMPENSATION AND BENEFITS UPON TERMINATION.(a)If the Company terminates Executive’s employment without Cause during the Term, or there is a Company Non-RenewalTermination, or Executive terminates his employment for Good Reason during the Term, then:(i)as soon as practicable following such termination but no later than ten (10) days after the Termination Date (as definedbelow), the Company shall pay to Executive his accrued but yet unpaid base salary earned through the Termination Date and any accrued, butunused vacation pay through the Termination Date (the “Accrued Obligations”);(ii)within forty-five (45) days following the Termination Date, the Company shall reimburse Executive for reasonableexpenses incurred, but not paid prior to the Termination Date;(iii)any accrued but unpaid Tax Equalization Policy obligations of the Company shall be paid in accordance with suchpolicy; and(iv)subject to the execution and delivery of a general release (which Release shall not alter or result in the waiver ofExecutive’s right to exercise the portion of any stock option or other equity award that vested through the Termination Date, or any rights under thisSection 7(a)) in a form acceptable to the Company (“Release”) within forty five (45) days after the Termination Date (the “Release Expiration Date”),which Release has not been revoked, Executive is entitled to receive:(1)(A) in the event of a termination without Cause or for Good Reason (I) before a Change in Control (as defined inSection 7(d)), an amount equal to Executive’s base salary for a period of eighteen (18) months after the Termination Date, or (II) within twelve (12)months after a Change in Control, an amount equal to Executive’s base salary for a period of twenty-four (24) months after the Termination Date, or(B) in the event of a Company Non-Renewal Termination, an amount equal to Executive’s base salary for a period of twelve (12) months after theTermination Date, which, in any case, shall be paid in periodic installments in accordance with the Company’s normal payroll practicescommencing on the first payroll cycle on or after the 45th day after the Termination Date, unless such amount is required to be delayed pursuant toSection 8 below;(2)the continuation of coverage under all employee benefit insurance plans in which Executive was a participant as of theTermination Date, to the extent such post-employment coverage is authorized by such plans, at the Company’s expense for a period of twelve (12)months after the Termination Date, provided, however if post-employment coverage is not authorized under the Company’s health insurance plan,then the Company will pay Executive the premium cost for health insurance coverage that the Company would have paid if Executive hadcontinued being a participant in the Company’s health insurance plan during such twelve month period; and(3)any unpaid discretionary bonus awarded to Executive for the year prior to the year in which the Termination Dateoccurs, which shall be paid in a lump sum on the normal bonus payment date.(v)In the event that Executive fails to execute the Release on or prior to the Release Expiration Date, Executive shall notbe entitled to any payments or benefits pursuant to Section 7(a)(iii). Notwithstanding the foregoing, if the Release could become effective during thecalendar year following the calendar year of the Termination Date, then no such payments that constitute “deferred compensation” under InternalRevenue Code Section 409A shall be made earlier than the first day of the calendar year following the calendar year of the Termination Date.(b)If Executive is terminated by the Company for Cause or due to death or Disability, or if an Executive Non-Renewal Terminationoccurs pursuant to Section 6(e):(i)within ten (10) days following the Termination Date, the Company shall pay to Executive the Accrued Obligations;(ii)within forty-five (45) days following the Termination Date, the Company shall reimburse Executive for reasonableexpenses incurred, but not paid prior to the Termination Date; and(iii)any accrued but unpaid Tax Equalization Policy obligations of the Company shall be paid in accordance with suchpolicy.(c)If Executive violates any of the terms of Sections 4 or 5 above during the Restricted Period, then, except for payments providedunder Sections 7(a)(i), 7(a)(ii), 7(a)(iii) and 7(b), all compensation and benefits paid pursuant to this Section 7 shall cease and Executive shallpromptly return any amount paid under Section 7(a)(iv) to the Company. In addition to these remedies, the Company shall have all other remediesprovided by this Agreement and by law for the breach of Sections 4 or 5 above.(d)For purposes of this Agreement, “Termination Date” means the date of Executive’s “separation from service” within themeaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations promulgated thereunder (“Section409A”).” For purposes of this Agreement, “Change in Control” means (and, for purposes of this definition only, capitalized terms have the meaningdefined in the James River Group Holdings, Ltd. Long-Term Incentive Plan, as amended the “Plan”) the first to occur of the following events:i.the purchase or other acquisition (other than from the Company), in a single transaction or series of related transactions, by anyperson, entity or group of persons, within the meaning of Section 13(d) or 14(d) of the Exchange Act (excluding, for this purpose,the Company or its subsidiaries or any employee benefit plan of the Company or its subsidiaries), of beneficial ownership (withinthe meaning of Rule 13d-3 promulgated under the Act) of 50% or more of either the then-outstanding Shares or the combinedvoting power of the Company’s then-outstanding voting securities entitled to vote generally in the election of directors;ii.consummation of a reorganization, merger, amalgamation or consolidation involving the Company, in each case with respect towhich persons who were the shareholders of the Company immediately prior to such reorganization, merger, amalgamation orconsolidation do not, immediately thereafter, own more than 50% of, respectively, the Shares and the combined voting powerentitled to vote generally in the election of directors of the reorganized, merged, amalgamated or consolidated corporation’s then-outstanding voting securities; oriii.a liquidation or dissolution of the Company, or the sale of all or substantially all of the assets of the Company; provided, however,an event described above shall be considered a Change in Control hereunder only if it also constitutes a “change in control event”under Section 409A of the Code, to the extent necessary to avoid the adverse tax consequences thereunder with respect to anypayment subject to Section 409A of the Code.(e)Executive’s rights after the Termination Date with respect to the vesting and exercise of any equity awarded to Executive shallbe governed by the Plan and any applicable equity award agreement.8.409A COMPLIANCE. This Agreement shall be interpreted and administered in a manner so that any amount or benefit payable hereundershall be paid or provided in a manner that is either exempt from or compliant with the requirements Section 409A and applicable Internal Revenue Serviceguidance and Treasury Regulations issued thereunder (and any applicable transition relief under Section 409A). Notwithstanding anything else contained inthis Agreement to the contrary, if Executive is a “specified employee” under Holdings’ specified employee policy as in effect on the Termination Date, or ifno such policy is then in effect, within the meaning of Section 409A, any payment required to be made to Executive hereunder upon or following theTermination Date shall be delayed until after the six-month anniversary of Executive’s “separation from service” (as such term is defined in Section 409A) tothe extent necessary to comply with, and avoid imposition on Executive of any additional tax, interest, or penalty imposed under, Section 409A. Shouldpayments be delayed in accordance with the preceding sentence, the accumulated payment that would have been made but for the period of the delay shallbe paid in a single lump sum during the ten (10) day period following the six-month anniversary of the Termination Date. Each payroll period paymentdescribed in Section 7(a)(iv)(1) shall be treated as a separate payment for purposes of Section 409A.9.UNIQUENESS OF SERVICES; ACKNOWLEDGEMENTS. Executive acknowledges that the services to be rendered under the provisionsof this Agreement are of a special, unique, and extraordinary character; involve access to and development of Confidential Information and PrivilegedInformation; involve developing and protecting customer relationships and goodwill; and that it would be difficult or impossible to replace such servicesand that, by reason thereof, Executive agrees and consents that if he violates any of the provisions of Sections 4 and 5 of this Agreement, the Company, inaddition to any other rights and remedies available under this Agreement or otherwise, shall be entitled to an injunction to be issued by a court of competentjurisdiction restricting Executive from committing or continuing any violation of Sections 4 and 5 of this Agreement.10.FURTHER ACKNOWLEDGEMENTS. Executive further acknowledges and agrees that the restrictions contained in Sections 4 and 5above are reasonable and necessary to protect the legitimate interest of the Holdings Group, in view of, among other things, the short duration of therestrictions; the narrow scope of the restrictions; the Holdings Group’s interests in protecting its trade secrets, Confidential Information, and PrivilegedInformation (which Executive agrees has value to competitors for more than eighteen (18) months) and its customer relationships and goodwill; Executive’sbackground and capabilities which will allow him to seek and accept employment without violation of the restrictions; and Executive’s entitlements underthis Agreement. If any provision contained in Sections 4 or 5 above is adjudged unreasonable by a court of competent jurisdiction in any proceeding, thensuch provision shall be deemed modified as provided in Sections 4 or 5 above orby reducing the period of time during which such provision is applicable and/or, if applicable, the geographic area to which such provision applies, to theextent necessary for such provision to be adjudged reasonable and enforceable.11.NOTICES. Any notices provided for or permitted by this Agreement shall be in writing and shall be deemed to have been duly givenwhen delivered in person or three (3) days after it is mailed if delivered by registered or certified mail, return receipt requested, postage prepaid, addressed tothe party for whom intended at such party’s address set forth above (for the Company) or to the address listed in the Company’s records (for Executive), or tosuch other address as such party may designate by notice in writing given in the manner provided herein.12.SECTION HEADINGS. The section heading in this Agreement are for convenience of reference only, and they form no part of thisAgreement and shall not affect its interpretation.13.ENTIRE AGREEMENT; AMENDMENTS; COUNTERPARTS. This Agreement constitutes the entire agreement and understandingbetween Executive and the Company with respect to the subject matter hereof and shall supersede any and all other prior agreements and understandings,whether oral or written, relating thereto or the employment of Executive by the Company. This Agreement may not be rescinded, modified, or amended,unless an amendment is agreed to in a writing signed by Executive and by an officer of the Company specifically authorized by the Board (other thanExecutive), and any waiver shall be set forth in writing and signed by the party to be charged. This Agreement may be executed in any number ofcounterparts, including by facsimile, each of which shall be an original, but all of which together shall constitute one and the same instrument.14.PARTIAL INVALIDITY. The invalidity or unenforceability, by statute, court decision, or otherwise, of any term or condition of thisAgreement shall not affect the validity or enforceability of any other term or condition hereof.15.GOVERNING LAW. This Agreement shall be construed and administered in accordance with the laws of Bermuda, without regard to theprinciples of conflicts of law which might otherwise apply.16.ASSIGNABILITY. This Agreement may not be assigned by Executive. All of the terms and conditions of this Agreement shall bebinding upon and inure to the benefit of the Company and its successors and assigns. Successors to the Company shall include, without limitation, anycorporation or corporations acquiring, directly or indirectly, all or substantially all of the assets of the Company whether by merger, consolidation, purchase,or otherwise and such successor shall thereafter be deemed the “Company” for purposes hereof.17.DISPUTE RESOLUTION.(a)Arbitration. In the event of disputes between the parties with respect to the terms and conditions of this Agreement, suchdisputes shall be resolved by and through an arbitration proceeding to be conducted under the auspices of the American Arbitration Association (orany like organization successor thereto) in either Bermuda or the city of Raleigh, North Carolina; provided, however, that either party may seektemporary, preliminary, and or permanent injunctive relief with respect to appropriate matters (including, without limitation, enforcement ofSections 4 and 5 above) without resort to arbitration. Such arbitration proceeding shall be conducted pursuant to the commercial arbitration rules(formal or informal) of the American Arbitration Association in as expedited a manner as is then permitted by such rules (the “Arbitration”). Both theforegoing agreement of the parties to arbitrate any and all such claims, and the results, determination, finding, judgment, and/or award renderedthrough such Arbitration, shall be final and binding on the parties to this Agreement and may be specifically enforced by legal proceedings. ThisSection 17(a) is without prejudice to the Executive’s statutory right to complain to an employment inspector and/or employment tribunal underBermuda’s Employment Act 2.(b)Procedure. Such Arbitration may be initiated by written notice from either party to the other which shall be a compulsory andbinding proceeding on each party. The Arbitration shall be conducted by an arbitrator selected in accordance with the procedures of the AmericanArbitration Association. Time is of the essence of this arbitration procedure, and the arbitrator shall be instructed and required to render his or herdecision within thirty (30) days following completion of the Arbitration.(c)Venue and Jurisdiction. Any action to compel arbitration hereunder or otherwise relating to this Agreement shall be broughtexclusively in either a Bermuda court or a state court or federal court located in Raleigh, North Carolina, provided that, with respect to an actionbrought in North Carolina, if a federal court has jurisdiction over the subject matter thereof, then such action shall be brought in federal court, andthe Company and Executive hereby irrevocably submit with regard to any such action or proceeding for itself and in respect to its property,generally and unconditionally, to the jurisdiction of the aforesaid courts.(d)Waiver of Jury Trial. IN THE EVENT OF ANY LITIGATION WITH RESPECT TO ANY MATTER CONNECTED WITH THISAGREEMENT OR THE AGREEMENTS OR TRANSACTIONSCONTEMPLATED HEREUNDER ALL OF THE PARTIES HERETO WAIVE ALL RIGHTS TO A TRIAL BY JURY.Kindly indicate your acceptance of this Agreement by signing and returning a copy of this letter to me.Very truly yours,JRG REINSURANCE, LTD.By: /s/ Helen Gillis Name: Helen Gillis Title: Chief Financial OfficerACCEPTED AND AGREED TO THIS 17 DAY OF JANUARY, 2018/s/ Dennis R. Johnson______________Dennis R. JohnsonExhibit 10.28 SEPARATION AND RELEASE AGREEMENTThis Separation and Release Agreement (the “Agreement”) is entered into among James River Group Holdings, Ltd. (the “Parent Company”), its subsidiaryJames River Group, Inc. (“JRGI”) and J. Adam Abram (“Employee”) (JRGI, the Parent Company and Employee will be collectively referred to hereinafter asthe “Parties”).WHEREAS, Employee is employed by each of the Parent Company and JRGI (together, the “Company”) as its Chairman of the Board of Directors and ChiefExecutive Officer pursuant to an employment agreement dated as of November 18, 2014 (the “Employment Agreement”);WHEREAS, the Company and Employee have mutually agreed that the employment of Employee will end on January 1, 2018, as a result of Employee’sdecision to resign as Chief Executive Officer of the Company on that date (the “Separation Date”) and the decision of the Board of Directors of the Parent andof JRGI to accept that resignation effective on that date, and that Employee will continue to serve as Chairman of the Board of Directors of both the ParentCompany and JRGI, but will not be an employee or officer of either company after the Separation Date;WHEREAS, the Board of Directors of the Parent Company (“Parent Board”) has approved the accelerated vesting of 19,540 Restricted Share Units (“RSUs”)that were granted to Employee on February 14, 2017, and will be unvested as of the Separation Date (“Unvested RSUs”), subject to Employee’s entering intothis Agreement;WHEREAS, the Parties seek to fully and finally settle all existing claims, whether or not now known, arising out of Employee’s employment and terminationof employment on the terms set forth herein;NOW THEREFORE, the Parties mutually understand and agree as follows:1.Termination of Employment. Employee’s resignation will be effective, the employment of Employee will end, and Employee shall ceaseto an officer of either Company, on the Separation Date. This Agreement does not affect or apply to Employee’s continuing to serve as Chairman of the Boardof Directors of the Parent Company after the Separation Date.2.Vesting of Unvested RSUs. Subject to the Company’s timely receipt of this Agreement executed by Employee and Employee’s notexercising his right of revocation (as described below) of this Agreement, 19,000 Unvested RSUs shall vest on the Separation Date. In addition, subject toEmployee’s satisfying all of the following conditions: (a) the Company’s timely receipt of this Agreement executed by Employee and Employee’s notexercising his right of revocation (as described below) of this Agreement; (b) the Company’s receipt of the Release attached to this Agreement as Appendix A(“Employee Release”) that has been executed by Employee after the Separation Date and delivered to the Company within ten (10) business days after theSeparation Date; and (c) the expiration of the seven (7)-day period within which Employee may revoke the Employee Release (the “Revocation Period”) andEmployee’s not timely revoking the Employee Release, 540 Unvested RSUs shall vest on the Effective Date of the Employee Release (as defined in theEmployee Release). The vesting of Unvested RSUs will be subject to all applicable tax and other required withholdings. As of the date of this Agreement,Executive has an option to acquire 87,199 common shares of the Company, with an exercise price of $21.00 and an expiration date of December 11, 2021(the “Option”). The Option vests in full on December 12, 2017, and in accordance with its terms, will remain exercisable, if not earlier exercised, until thedate that is 90 days after the Separation Date.3.Consideration. Employee acknowledge that (a) the release of claims by the Company set forth in Section 7 of this Agreement and inAppendix B to this Agreement (the “Company Release”), and the vesting of Unvested RSUs, exceeds that to which Employee would otherwise be entitledupon termination of employment under any contract between Employee and the Company or the normal operation of the Company’s benefit plans, policies,and/or practices; (b) the release of claims by the Company set forth in Section 7 of this Agreement and the vesting of 19,000 Unvested RSUs is adequateconsideration for Employee’s promises set forth in this Agreement, including the release set forth in Section 4 of this Agreement; and (c) the release of claimsby the Company set forth in Appendix B to this Agreement and the vesting of 540 Unvested RSUs is adequate consideration for Employee’s release set forthin Appendix A of this Agreement. The Company acknowledges that the release of claims by Employee set forth in Appendix A to this Agreement is adequateconsideration for the Company’s release set forth in Appendix B of this Agreement. Irrespective of whether Employee signs this Agreement, Employee willretain any rights Employee may otherwise have to medical, dental, and vision benefits continuation coverage pursuant to the Consolidated Omnibus BudgetReconciliation Act of 1986, as amended, or other applicable law (which rights will be explained in greater detail in a separate notice provided to Employee),and will be paid all compensation and benefits earned through the Separation Date, as follows:(a)accrued but yet unpaid base salary earned through the Separation Date will be paid on the first payroll date following theSeparation Date;(b)any unused vacation accrued through the Separation Date;(c)reasonable business expenses incurred, but not paid prior to, the Separation Date will be reimbursed within forty-five (45) daysafter the Separation Date; and(d)any accrued but unpaid Tax Equalization Policy obligations of the Company will be paid in accordance with such policy.4.Waiver and Release of the Company. For valuable consideration from the Company, receipt of which is hereby acknowledged, Employeewaives, releases, and forever discharges the Company and its current and former parents, subsidiaries, divisions, affiliates, shareholders, officers, directors,attorneys, agents, employees, successors, and assigns (collectively referred to as the “Company Releasees”) from any and all rights, causes of action, claims ordemands, whether express or implied, known or unknown, that arise on or before the date that Employee executes this Agreement, which Employee has ormay have against the Company and/or the Company Releasees, including, but not limited to, any rights, causes of action, claims, or demands relating to orarising out of the following:(a)anti-discrimination, anti-harassment, and anti-retaliation laws, such as the Age Discrimination in Employment Act, the OlderWorkers Benefit Protection Act, and Executive Order 11141, which prohibit employment discrimination based on age; Title VII of the Civil RightsAct of 1964, the Civil Rights Act of 1866 (42 U.S.C. § 1981), the Equal Pay Act, and Executive Order 11246, which prohibit discrimination basedon race, color, national origin, religion, or sex; the Genetic Information Nondiscrimination Act, which prohibits discrimination on the basis ofgenetic information; the Americans With Disabilities Act and Sections 503 and 504 of the Rehabilitation Act of 1973, which prohibit discriminationbased on disability; and the laws of North Carolina and Bermuda that prohibit employment discrimination or wage discrimination;(b)other employment laws, such as the United Sates Worker Adjustment and Retraining Notification Acts, which requires thatadvance notice be given of certain workforce reductions; the Employee Retirement Income Security Act of 1974, which, among other things,protects employee benefits; the Family and Medical Leave Act, which requires employers to provide leaves of absence under certain circumstances;the laws of North Carolina and Bermuda which regulate wage and hour matters, including all forms of compensation, vacation pay, sick pay,compensatory time, overtime, commissions, bonuses, and meal and break periods; state family, medical, and military leave laws, which requireemployers to provide leaves of absence under certain circumstances; the Sarbanes Oxley Act; and any other federal, state, or local laws relating toemployment;(c)tort, contract, and quasi-contract claims, such as claims with respect to unvested equity awards or claims for breach of theEmployment Agreement, wrongful discharge, physical or personal injury, intentional or negligent infliction of emotional distress, fraud, fraud in theinducement, negligent misrepresentation, defamation, invasion of privacy, interference with contract or with prospective economic advantage,breach of implied contract, unjust enrichment, promissory estoppel, breach of covenants of good faith and fair dealing, negligent hiring, negligentsupervision, negligent retention, and similar or related claims; and(d)all remedies of any type, including, but not limited to, damages and injunctive relief, in any action that may be brought onEmployee’s behalf against the Company and/or the Company Releasees by any government agency or other entity or person.Employee understands that Employee is releasing claims about which Employee may not know anything at the time Employee executes this Agreement.Employee acknowledges that it is Employee’s intent to release such unknown claims, even though Employee recognizes that someday Employee might learnnew facts relating to Employee’s employment or learn that some or all of the facts Employee currently believes to be true are untrue, and even thoughEmployee might then regret having signed this Agreement. Nevertheless, Employee acknowledges Employee’s awareness of that risk and agrees that thisAgreement shall remain effective in all respects in any such case. Employee expressly waives all rights Employee might have under any laws intended toprotect Employee from waiving unknown claims.5.Excluded Claims. Notwithstanding anything to the contrary in this Agreement, the waiver and release contained in Section 4 of thisAgreement shall exclude any rights or claims (a) that may arise after the date on which Employee executes this Agreement; (b) that cannot be released underapplicable law (such as worker’s compensation and unemployment compensation claims); (c) for indemnification or for coverage under director’s andofficer’s insurance; and (d) with respect to the Option. In addition, the Parties agree that this Agreement shall not adversely affect, alter, or extinguish anyvested right that Employee may have with respect to any pension or other retirement benefits to which Employee is or will be entitled by virtue ofEmployee’s employment with the Company, and nothing in this Agreement shall prohibit Employee from enforcing such rights. Moreover,nothing in this Agreement shall prevent or preclude Employee from challenging in good faith the validity of this Agreement, nor does it impose anyconditions precedent, penalties, or costs for doing so, unless specifically authorized by applicable law.6.No Other Claims. Except to the extent previously disclosed by Employee in writing to the Company, Employee represents and warrantsthat Employee has (a) filed no claims, lawsuits, charges, grievances, or causes of action of any kind against the Company and/or the Company Releasees and,to the best of Employee’s knowledge, Employee possesses no claims (including Fair Labor Standards Act (“FLSA”) and worker’s compensation claims);(b) received any and all compensation (including overtime compensation), meal periods, and rest periods to which Employee may have been entitled, andEmployee is not currently aware of any facts or circumstances constituting a violation by the Company and/or the Company Releasees of the FLSA or otherapplicable wage, hour, meal period, and/or rest period laws; and (c) not suffered any work-related injury or illness within the twelve (12) months precedingEmployee’s execution of this Agreement, and Employee is not currently aware of any facts or circumstances that would give rise to a worker’s compensationclaim against the Company and/or the Company Releasees.7.Waiver and Release by the Company. For valuable consideration from Employee receipt of which is hereby acknowledged, the ParentCompany waives, releases, and forever discharges Employee from any and all rights, causes of action, claims or demands, whether express or implied, thatarise from any act or omission of Employee that was known to the Board of Directors (other than Employee) or any corporate officer (other than Employee) ofthe Parent Company on or before the date that the Parent Company executes this Agreement, which the Parent Company has or may have against Employee.For valuable consideration from Employee receipt of which is hereby acknowledged, JRGI waives, releases, and forever discharges Employee from any andall rights, causes of action, claims or demands, whether express or implied, that arise from any act or omission of Employee that was known to the Board ofDirectors (other than Employee) or any corporate officer (other than Employee) of JRGI on or before the date that JRGI executes this Agreement, which JRGIhas or may have against Employee.8.Wage Deduction Orders. Employee represents and warrants that Employee is not subject to any wage garnishment or deduction ordersthat would require payment to a third party of any portion of the Unvested RSUs. Any exceptions to the representation and warranty contained in this Sectionmust be described in writing and attached to the executed copy of this Agreement that Employee submits to the Company. Such disclosure shall notdisqualify Employee from vesting of the Unvested RSUs under this Agreement; provided, however, that the amount of Unvested RSUs that vest as describedin Section 1 of this Agreement may be reduced in accordance with any such wage garnishment or deduction order as required by applicable law.9.Duty to Cooperate. Employee agrees that for one year after the Separation Date Employee will remain reasonably available to theCompany as needed to assist in the smooth transition of Employee’s duties to one or more other employees of the Company, without additionalcompensation to Employee, provided, however, Employee’s obligations with respect to transition duties under this Section shall not exceed 15 hours in anycalendar month. Employee acknowledges and agrees that Employee’s obligations to assist the Company in pending or threatened litigation and any otheradministrative and regulatory proceedings, which currently exist or which may arise in the future, are governed by Section 10 of the Employment Agreement,which remains in full force and effect after the Separation Date.10.Non-Disparagement. Employee will refrain from making negative or disparaging remarks about the Company or the CompanyReleasees. Employee will not provide information or issue statements regarding the Company or the Company Releasees, or take any other action, that wouldcause the Company or the Company Releasees embarrassment or humiliation or otherwise cause or contribute to them being held in disrepute. Likewise, theCompany and Parent Company will not cause their directors, officers, managers, employees, or agents to provide information or issue statements regardingEmployee, or take any other action, that would cause Employee embarrassment or humiliation or otherwise cause or contribute to Employee being held indisrepute, and upon notice in the event of any such disparagement by any agent of the Company or Parent Company, the Company or Parent Company, asapplicable, shall direct such agent to cease any such disparagement. Nothing in this Agreement shall be deemed to preclude Employee, or the Company, theParent Company or their directors, officers, managers, employees, or agents, from providing truthful testimony or statements in a legal or arbitrationproceeding or pursuant to subpoena, court order, or similar legal process, or from providing truthful information to government or regulatory agencies.11.Non-Admission of Liability. The Parties agree that nothing contained in this Agreement is to be construed as an admission of liability,fault, or improper action on the part of either of the Parties.12.Return of Company Property. Employee represents and warrants that, by the Separation Date, Employee has returned all propertybelonging to the Company, including, but not limited to, all keys, access cards, office equipment, computers, cellular telephones, notebooks, documents,records, files, written materials, electronically stored information, credit cards bearing the Company’s name, and other Company property (originals or copiesin whatever form) in Employee’s possession or under Employee’s control, with the exception of this Agreement, the Employment Agreement, compensationand benefits-related documents concerning Employee, and documents Employee has received in his capacity as a shareholder of the Parent Company.13.Consultation With Legal Counsel. The Company hereby advises Employee to consult with an attorney prior to signing this Agreement.14.Review and Revocation Periods. Employee acknowledges that Employee has been given at least twenty-one (21) days to consider thisAgreement from the date that it was first given to Employee. Employee agrees that changes in the terms of this Agreement, whether material or immaterial, donot restart the running of the twenty-one (21)-day consideration period. Employee shall have seven (7) days from the date that Employee executes theAgreement to revoke Employee’s acceptance of the Agreement by delivering written notice of revocation within the seven (7)-day period to the followingCompany contact:James River Group, Inc.Raleigh, North CarolinaAttn: Sarah C. Doran, Chief Financial OfficerIf Employee does not revoke acceptance, this Agreement will become effective and irrevocable by Employee on the eighth day after Employee has executedit.15.Choice of Law. This Agreement shall be construed and administered in accordance with the laws of North Carolina, without regard to theprinciples of conflicts of law which might otherwise apply, except that Section 17 of the Employment Agreement, as incorporated herein, shall be governedby the Federal Arbitration Act, to the extent applicable, and North Carolina law to the extent that the Federal Arbitration Act does not apply.16.Severability. Should any provision of this Agreement or the provisions of the Employment Agreement incorporated in this Agreementbe held to be illegal, void or unenforceable, such provision shall be of no force and effect. However, the illegality or unenforceability of any such provisionshall have no effect upon, and shall not impair the enforceability of, any other provision of this Agreement.17.Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which shallconstitute one and the same instrument. A copy of an executed counterpart that is delivered electronically as a PDF attachment to an email or by facsimileshall be deemed to be an original signed counterpart.18.Binding Effect. This Agreement shall be binding upon and inure to the benefit of Employee, the Company, and the Company Releasees,and their respective representatives, predecessors, heirs, successors, and assigns, provided, however, this Agreement may not be assigned by Employee, andany assignment by Employee shall be null and void.19.Entire Agreement. This Agreement contains the complete understanding between the Parties as to the subject matter contained herein,and no other promises or agreements shall be binding unless signed by both an authorized representative of the Company and Employee. In signing thisAgreement, the Parties are not relying on any fact, statement, or assumption not set forth in this Agreement. The obligations of the Company set forth inSection 1 through Section 5 and Section 8 of the Employment Agreement shall cease on the Separation Date, except for the obligations set forth in Sections3(a) - 3(d) of this Agreement. Notwithstanding the foregoing, Employee understands and agrees that Section 6 (Confidential Information and PrivilegedInformation), Section 7 (Non-Competition), Section 10 (Cooperation), as modified by this Agreement, Section 11 (409A Compliance), Section 12(Uniqueness of Services; Acknowledgments), Section 13 (Further Acknowledgments), Section 14 (Notices), Section 17 (partial Invalidity), Section 18(Governing Law), Section 19 (Assignability), and Section 20 (Dispute Resolution) of the Employment Agreement remain in full force and effect after theSeparation Date, are not superseded by this Agreement, and are incorporated herein by reference. Notwithstanding the foregoing, the Company understandsand agrees that the Director and Officer Indemnification Agreement between the Parent Company and Employee dated as of November 18, 2014, remains infull force and effect after the Separation Date, and is not superseded by this Agreement.20.Arbitration. Any dispute arising under, enforcing, or challenging the validity of this Agreement is subject to the Dispute Resolutionprovisions (Section 20) of the Employment Agreement, as incorporated herein.21.Representation and Warranty of Understanding. By signing below, Employee represents and warrants that Employee: (a) has carefullyread and understands the terms of this Agreement; (b) is entering into the Agreement knowingly, voluntarily and of Employee’s own free will; (c) understandsits terms and significance and intends to abide by its provisions without exception; (d) has not made any false statements or representations in connectionwith this Agreement; and (e) has not transferred or assigned to any person or entity not a party to this Agreement any claim or right released hereunder, andEmployee agrees to indemnify the Company and hold it harmless against any claim (including claims for attorney’s fees or costs actually incurred, regardlessof whether litigation has commenced) based on or arising out of any alleged assignment or transfer of a claim by Employee. /s/ J. Adam Abram J. Adam Abram Dated: December 12, 2017JAMES RIVER GROUP HOLDINGS, LTD.By: /s/ Robert P. Myron___________________Name: Robert P. MyronTitle: President and Chief Operating OfficerDated: December 12, 2017JAMES RIVER GROUP, INC.By: /s/ Sarah C. Doran_______________________Name: Sarah C. DoranTitle: Chief Financial OfficerDated: December 12, 2017APPENDIX ARELEASE BY EMPLOYEEThis Release (“Release”) is being executed pursuant to a Separation and Release Agreement (the “Agreement”) among James River Group Holdings,Ltd. (the “Parent Company”), its subsidiary James River Group, Inc. (“JRGI”) and J. Adam Abram (“Employee”) (JRGI and the Parent Company will becollectively referred to hereinafter as the “Company”) dated as of December __, 2017. Any capitalized word not defined in this Release (other than a propernoun) has the meaning defined in the Agreement.1.Waiver and Release. For valuable consideration from the Company, as described in the Agreement, receipt of which is herebyacknowledged, Employee waives, releases, and forever discharges the Company and its current and former parents, subsidiaries, divisions, affiliates,shareholders, officers, directors, attorneys, agents, employees, successors, and assigns (collectively referred to as the “Company Releasees”) from any and allrights, causes of action, claims or demands, whether express or implied, known or unknown, that arise on or before the date that Employee executes thisRelease, which Employee has or may have against the Company and/or the Company Releasees, including, but not limited to, any rights, causes of action,claims, or demands relating to or arising out of the following:a.anti-discrimination, anti-harassment, and anti-retaliation laws, such as the Age Discrimination in Employment Act, the Older WorkersBenefit Protection Act, and Executive Order 11141, which prohibit employment discrimination based on age; Title VII of the Civil Rights Act of 1964, theCivil Rights Act of 1866 (42 U.S.C. § 1981), the Equal Pay Act, and Executive Order 11246, which prohibit discrimination based on race, color, nationalorigin, religion, or sex; the Genetic Information Nondiscrimination Act, which prohibits discrimination on the basis of genetic information; the AmericansWith Disabilities Act and Sections 503 and 504 of the Rehabilitation Act of 1973, which prohibit discrimination based on disability; and the laws of NorthCarolina and Bermuda that prohibit employment discrimination or wage discrimination;b.other employment laws, such as the United Sates Worker Adjustment and Retraining Notification Acts, which requires that advancenotice be given of certain workforce reductions; the Employee Retirement Income Security Act of 1974, which, among other things, protects employeebenefits; the Family and Medical Leave Act, which requires employers to provide leaves of absence under certain circumstances; the laws of North Carolinaand Bermuda which regulate wage and hour matters, including all forms of compensation, vacation pay, sick pay, compensatory time, overtime, commissions,bonuses, and meal and break periods; state family, medical, and military leave laws, which require employers to provide leaves of absence under certaincircumstances; the Sarbanes Oxley Act; and any other federal, state, or local laws relating to employment;c.tort, contract, and quasi-contract claims, such as claims for wrongful discharge, physical or personal injury, intentional or negligentinfliction of emotional distress, fraud, fraud in the inducement, negligent misrepresentation, defamation, invasion of privacy, interference with contract orwith prospective economic advantage, breach of express or implied contract, unjust enrichment, promissory estoppel, breach of covenants of good faith andfair dealing, negligent hiring, negligent supervision, negligent retention, and similar or related claims; andd.all remedies of any type, including, but not limited to, damages and injunctive relief, in any action that may be brought on Employee’sbehalf against the Company and/or the Company Releasees by any government agency or other entity or person.Employee understands that Employee is releasing claims about which Employee may not know anything at the time Employee executes this Release.Employee acknowledges that it is Employee’s intent to release such unknown claims, even though Employee recognizes that someday Employee might learnnew facts relating to Employee’s employment or learn that some or all of the facts Employee currently believes to be true are untrue, and even thoughEmployee might then regret having signed this Release. Nevertheless, Employee acknowledges Employee’s awareness of that risk and agrees that thisRelease shall remain effective in all respects in any such case. Employee expressly waives all rights Employee might have under any laws intended to protectEmployee from waiving unknown claims.2.Excluded Claims. Notwithstanding anything to the contrary in this Release, the waiver and release contained in this Release shallexclude any rights or claims (a) that may arise after the date on which Employee executes this Release; (b) that cannot be released under applicable law (suchas worker’s compensation and unemployment compensation claims); (c) for indemnification or for coverage under director’s and officer’s insurance; and (d)with respect to the Option. In addition, the Parties agree that this Release shall not adversely affect, alter, or extinguish any vested right that Employee mayhave with respect to any pension or other retirement benefits to which Employee is or will be entitled by virtue of Employee’s employment with theCompany, and nothing in this Release shall prohibit Employee from enforcing such rights. Moreover, nothing in this Release shall prevent or precludeEmployee from challenging in good faith the validity of this Release, nor does it impose any conditions precedent, penalties, or costs for doing so, unlessspecifically authorized by applicable law.3.No Other Claims. Except to the extent previously disclosed by Employee in writing to the Company, Employee represents and warrantsthat Employee has (a) filed no claims, lawsuits, charges, grievances, or causes of action of any kind against the Company and/or the Company Releasees and,to the best of Employee’s knowledge, Employee possesses no claims (including Fair Labor Standards Act (“FLSA”) and worker’s compensation claims);(b) received any and all compensation (including overtime compensation), meal periods, and rest periods to which Employee may have been entitled, andEmployee is not currently aware of any facts or circumstances constituting a violation by the Company and/or the Company Releasees of the FLSA or otherapplicable wage, hour, meal period, and/or rest period laws; and (c) not suffered any work-related injury or illness within the twelve (12) months precedingEmployee’s execution of this Release, and Employee is not currently aware of any facts or circumstances that would give rise to a worker’s compensationclaim against the Company and/or the Company Releasees.4.Wage Deduction Orders. Employee represents and warrants that Employee is not subject to any wage garnishment or deduction ordersthat would require payment to a third party of any portion of the Unvested RSUs. Any exceptions to the representation and warranty contained in this Sectionmust be described in writing and attached to the executed copy of this Agreement that Employee submits to the Company. Such disclosure shall notdisqualify Employee from vesting of the Unvested RSUs under this Agreement; provided, however, that the amount of Unvested RSUs that vest as describedin Section 1 of the Agreement may be reduced in accordance with any such wage garnishment or deduction order as required by applicable law.5.Consultation With Legal Counsel. The Company hereby advises Employee to consult with an attorney prior to signing this Release.6.Review and Revocation Periods. Employee acknowledges that Employee has been given at least twenty-one (21) days to consider thisRelease from the date that it was first given to Employee. Employee agrees that changes in the terms of this Release, whether material or immaterial, do notrestart the running of the twenty-one (21)-day consideration period. Employee may accept the Release by executing this Release no sooner than the first dayafter the Separation Date and no later than ten (10) business days after the Separation Date. Employee shall have seven (7) days from the date that Employeeexecutes the Release to revoke it by delivering written notice of revocation within the seven (7)-day period to the following Company contact:James River Group, Inc.Raleigh, North CarolinaAttn: Robert P. Myron, Chief Executive OfficerIf Employee does not revoke acceptance, this Release will become effective and irrevocable by Employee on the eighth day after Employee has executed it(the “Effective Date”).7.Choice of Law. This Release is made and entered into in North Carolina and, to the extent the interpretation of this Release is notgoverned by applicable federal law, shall be interpreted and enforced under and shall be governed by the laws of that state.8.Severability. Should any provision of this Release be held to be illegal, void or unenforceable, such provision shall be of no force andeffect. However, the illegality or unenforceability of any such provision shall have no effect upon, and shall not impair the enforceability of, any otherprovision of this Release.9.Execution. A copy of this executed Release that is delivered electronically as a PDF attachment to an email or by facsimile shall bedeemed to be an original signed Release.10.Binding Effect. This Release shall be binding upon Employee and his heirs and representatives, and shall inure to the benefit of, theCompany and the Company Releasees, and their respective representatives, successors, and assigns.11.Arbitration. Any dispute arising under, enforcing, or challenging the validity of this Release is subject to the Dispute Resolutionprovisions (Section 20) of the Employment Agreement, as incorporated herein.12.Representation and Warranty of Understanding. By signing below, Employee represents and warrants that Employee: (a) has carefullyread and understands the terms of this Release; (b) is entering into the Release knowingly, voluntarily and of Employee’s own free will; (c) understands itsterms and significance and intends to abide by its provisions without exception; (d) has not made any false statements or representations in connection withthis Release; and (e) has not transferred or assigned to any person or entity not a party to this Release any claim or right released hereunder, and Employeeagrees to indemnify the Company and hold it harmless against any claim (including claims for attorney’s fees or costs actually incurred, regardless of whetherlitigation has commenced) based on or arising out of any alleged assignment or transfer of a claim by Employee.____________________________________ ____________________________________J. Adam Abram DATEAPPENDIX B - COMPANY RELEASEThis Release (“Release”) is being executed pursuant to a Separation and Release Agreement (the “Agreement”) among James River Group Holdings,Ltd. (the “Parent Company”), its subsidiary James River Group, Inc. (“JRGI”) and J. Adam Abram (“Employee”) (JRGI and the Parent Company will becollectively referred to hereinafter as the “Company”) dated as of December __, 2017. Any capitalized word not defined in this Release (other than a propernoun) has the meaning defined in the Agreement. This Release is being executed by the Company and delivered to Employee within five (5) business daysafter the Separation Date.1.Waiver and Release. In consideration of Employee’s signing, delivery and not revoking the Release attached as Appendix A to theAgreement, the Parent Company waives, releases, and forever discharges Employee from any and all rights, causes of action, claims or demands, whetherexpress or implied, that arise from any act or omission of Employee that was known to the Board of Directors (other than Employee) or any corporate officer(other than Employee) of the Parent Company on or before the date that the Parent Company executes this Release, which the Parent Company has or mayhave against Employee. In consideration of Employee’s signing, delivery and not revoking the Release attached as Appendix A to the Agreement, JRGIwaives, releases, and forever discharges Employee from any and all rights, causes of action, claims or demands, whether express or implied, that arise from anyact or omission of Employee that was known to the Board of Directors (other than Employee) or any corporate officer (other than Employee) of JRGI on orbefore the date that JRGI executes this Release, which JRGI has or may have against Employee2.Choice of Law. This Release is made and entered into in North Carolina and, to the extent the interpretation of this Release is notgoverned by applicable federal law, shall be interpreted and enforced under and shall be governed by the laws of that state.3.Severability. Should any provision of this Release be held to be illegal, void or unenforceable, such provision shall be of no force andeffect. However, the illegality or unenforceability of any such provision shall have no effect upon, and shall not impair the enforceability of, any otherprovision of this Release.4.Execution. A copy of this executed Release that is delivered electronically as a PDF attachment to an email or by facsimile shall bedeemed to be an original signed Release.5.Binding Effect. This Release shall be binding upon the Company and its successors, and assigns, and shall inure to the benefit ofEmployee and his heirs and representatives.6.Arbitration. Any dispute arising under, enforcing, or challenging the validity of this Release is subject to the Dispute Resolutionprovisions (Section 20) of the Employment Agreement, as incorporated herein.JAMES RIVER GROUP HOLDINGS, LTD.By: _________________________________Name: Robert P. MyronTitle: Chief Executive OfficerDated: January , 2018JAMES RIVER GROUP, INC.By: _________________________________Name: Robert P. MyronTitle: Chief Executive OfficerDated: January , 2018Exhibit 21.1 SUBSIDIARIES OF JAMES RIVER GROUP HOLDINGS, LTD. Subsidiary Jurisdiction of Incorporation or FormationCarolina Re, Ltd. BermudaFalls Lake Fire and Casualty Company CaliforniaFalls Lake General Insurance Company OhioFalls Lake Insurance Management Company, Inc. DelawareFalls Lake National Insurance Company OhioFranklin Holdings II (Bermuda) Capital Trust I DelawareJames River Capital Trust I DelawareJames River Capital Trust II DelawareJames River Capital Trust III DelawareJames River Capital Trust IV DelawareJames River Casualty Company VirginiaJames River Group Holdings UK Limited United KingdomJames River Group, Inc. DelawareJames River Insurance Company OhioJames River Management Company, Inc. DelawareJames River Richmond Real Estate, LLC VirginiaJRG Reinsurance Company, Ltd. BermudaPotomac Risk Services, Inc. VirginiaStonewood Insurance Company North Carolina Exhibit 23.1 Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the following Registration Statements: (1) Registration Statement (Form S-8 Nos. 333-200995 and 333-217743) of James River Group Holdings, Ltd. and (2) Registration Statement (Form S-3 No. 333-208903) of James River Group Holdings, Ltd.; of our reports dated March 1, 2018, with respect to the consolidated financial statements and schedules of James River Group Holdings, Ltd. and theeffectiveness of internal control over financial reporting of James River Group Holdings, Ltd. included in this Annual Report (Form 10-K) of James RiverGroup Holdings, Ltd. for the year ended December 31, 2017. /s/ Ernst & Young LLP Pittsburgh, PennsylvaniaMarch 1, 2018 Exhibit 31.1 CERTIFICATION I, Robert P. Myron, certify that:1.I have reviewed this annual report on Form 10-K of James River Group Holdings, Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Date: March 1, 2018 /s/ Robert P. Myron Robert P. Myron Chief Executive Officer (Principal Executive Officer) Exhibit 31.2 CERTIFICATION I, Sarah C. Doran, certify that:1.I have reviewed this annual report on Form 10-K of James River Group Holdings, Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: March 1, 2018/s/ Sarah C. Doran Sarah C. Doran Chief Financial Officer (Principal Financial Officer) Exhibit 32.1 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the annual report of James River Group Holdings, Ltd. (the “Company”) on Form 10-K for the period ended December 31, 2017as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Robert P. Myron, Chief Executive Officer of the Company, andSarah C. Doran, Chief Financial Officer of the Company, certify, to the best of our knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 ofthe Sarbanes-Oxley Act of 2002, that:(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Robert P. Myron Robert P. Myron Chief Executive Officer (Principal Executive Officer) March 1, 2018 /s/ Sarah C. Doran Sarah C. Doran Chief Financial Officer (Principal Financial Officer) March 1, 2018

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