BMO Capital Upgrades James River Group Holdings (JRVR) to Outperform

BMO Capital upgraded James River Group Holdings (NASDAQ: JRVR) from Market Perform to Outperform with a price target of $36.00 (from $30.00) following Q3 results and meeting with management, which altered their view on the company.

Analyst Charles Sebaski commented, "Our recent meetings with James River management, coupled with the company’s recently announced 3Q15 earnings/special dividend, lead us to recognize that James River is much more an earnings story than we previously recognized. We believe this earnings-focused operating model will do three things: (1) Lead to increasing capital returns, including a sustained special dividend; we estimate dividends of $2.30 in 2017; (2) Allow for increasing operating leverage; and (3) Generate ROtE expansion of 250 bps over the next two years. Consequently, we will be moving to a forward earnings multiple valuation; this compared to the tangible book value multiple that is more typical of commercial insurers and that we have been using for James River prior. While James River’s focus on smaller niche products and minimal appetite for property risk was known, our recent meetings with management highlighted how they truly seem to run the business from an earnings perspective. This means management is incredibly focused on keeping the company’s balance sheet sheltered from loss. This lack of risk appetite is perhaps best shown in the company’s 1-1000 year PML that stands at $10 million, or approximately 2% of capital compared to commercial insurers that often expose upwards of 20% at the more frequent 1-250 year level. The meaningfully low $1 million policy limits create more of a frequency (earnings) exposure as compared to a severity (capital) exposure; which also supports an earnings valuation."

For an analyst ratings summary and ratings history on James River Group Holdings click here. For more ratings news on James River Group Holdings click here.

Shares of James River Group Holdings closed at $31.09 yesterday.

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