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James River Announces Second Quarter 2021 Results

  • Second Quarter 2021 Net Income of $20.8 million - ($0.60 per diluted share) and Adjusted Net Operating Income1 of $18.8 million - ($0.54 per diluted share)

  • Combined ratio of 89.7% for the Group and 77.2% in the E&S segment, an improvement of 5.3 and 6.8 points, respectively, over the prior year quarter. Record quarterly underwriting profit1 of $25.7 million for the combined operating segments

  • Adjusted Net Operating Return on Average Tangible Equity1 of 14.2% for the second quarter

  • 15.1% growth in Core (excluding Commercial Auto) Excess and Surplus Lines ("E&S") Gross Written Premium and 18.1% increase in E&S renewal pricing, each versus the prior year quarter

  • Fronting business gross premiums written grew 59.0% within the Specialty Admitted segment as recently added programs continue to mature and expand. Segment Gross Written Premium grew 46.1% versus the prior year quarter

  • Tangible Book Value per Share1 of $17.18, an increase of 25.4% from March 31, 2021, reflecting second quarter results and $192.1 million of net proceeds (6.5 million new shares issued) from the common share offering which closed on May 10, 2021

PEMBROKE, Bermuda, Aug. 04, 2021 (GLOBE NEWSWIRE) -- James River Group Holdings, Ltd. ("James River" or the "Company") (NASDAQ: JRVR) today reported second quarter 2021 net income of $20.8 million ($0.60 per diluted share), compared to net income of $35.6 million ($1.16 per diluted share) for the second quarter of 2020. Adjusted net operating income1 for the second quarter of 2021 was $18.8 million ($0.54 per diluted share), compared to adjusted net operating income1 of $17.4 million ($0.56 per diluted share) for the same period in 2020.

Earnings Per Diluted Share

Three Months Ended
June 30,

2021

2020

Net Income

$

0.60

$

1.16

Adjusted Net Operating Income 1

$

0.54

$

0.56

1 See "Reconciliation of Non-GAAP Measures" below.

Frank D'Orazio, the Company’s Chief Executive Officer, commented, “The Company has delivered excellent second quarter results, reflecting the resilience of our business model and singular focus of responding to our trading partners during very robust market conditions. Our growth in Core E&S gross written premiums exceeded expectations while our 18.1% increase in E&S renewal rates marked the eighteenth consecutive quarter of rate growth, compounding to 42.5% over the same period. The fronting business and fee income in our Specialty Admitted Insurance segment also continues to scale meaningfully, as segment premium increased by 46.1% in the quarter. Overall, the Group produced a record underwriting profit in the quarter as commercial auto loss emergence was in line with our indications while our claims closure rate remained strong.”

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Second Quarter 2021 Operating Results

  • Gross written premium of $380.1 million, consisting of the following:

Three Months Ended
June 30,

($ in thousands)

2021

2020

% Change

Excess and Surplus Lines

$

214,014

$

186,994

14

%

Specialty Admitted Insurance

129,189

88,440

46

%

Casualty Reinsurance

36,943

26,205

41

%

$

380,146

$

301,639

26

%

  • Net written premium of $193.6 million, consisting of the following:

Three Months Ended
June 30,

($ in thousands)

2021

2020

% Change

Excess and Surplus Lines

$

135,163

$

126,814

7

%

Specialty Admitted Insurance

21,498

12,739

69

%

Casualty Reinsurance

36,943

26,204

41

%

$

193,604

$

165,757

17

%

  • Net earned premium of $172.7 million, consisting of the following:

Three Months Ended
June 30,

($ in thousands)

2021

2020

% Change

Excess and Surplus Lines

$

117,945

$

100,849

17

%

Specialty Admitted Insurance

18,595

14,392

29

%

Casualty Reinsurance

36,165

33,574

8

%

$

172,705

$

148,815

16

%

  • Core E&S gross written premium increased 15.1% (ten out of twelve core underwriting divisions grew). Due to continued stronger relative growth in our Excess Casualty underwriting division, where we cede a larger portion of risk as compared to other lines, retention in this segment declined and net written premium increased at a lower rate than gross written premium;

  • Gross written premium for the Specialty Admitted Insurance segment increased from the prior year quarter due to a 59.0% increase in premiums written in our fronting business. While we continue to generally retain less than 20% of the risk in our fronting book, net written premium increased at a greater rate than gross written premium due to a higher premium retention on some fronted business;

  • Gross and net written premium in the Casualty Reinsurance segment increased from the prior year quarter primarily driven by higher renewal premiums on a few treaties;

  • There was overall favorable reserve development of $3.5 million (representing a 2.0 percentage point decrease to the Company’s loss ratio). Pre-tax favorable (unfavorable) reserve development by segment was as follows:

Three Months Ended
June 30,

($ in thousands)

2021

2020

Excess and Surplus Lines

$

7,459

$

2,849

Specialty Admitted Insurance

1,000

1,000

Casualty Reinsurance

(5,009

)

(4,975

)

$

3,450

$

(1,126

)

  • The prior year reserve development in the quarter included $7.5 million of favorable development in Core E&S lines. Commercial auto loss emergence was in line with expectations following the adjustments made in the first quarter;

  • Gross fee income by segment was as follows:

Three Months Ended
June 30,

($ in thousands)

2021

2020

% Change

Excess and Surplus Lines

$

$

296

(100

)%

Specialty Admitted Insurance

5,434

5,377

1

%

$

5,434

$

5,673

(4

)%

  • Fee income in the E&S segment decreased from its level in the prior year quarter due to the 2019 cancellation of a large commercial auto account.

  • Net investment income was $14.3 million, a decrease of 6.5% from the prior year quarter. Further details can be found in the "Investment Results" section below.

Investment Results

Net investment income for the second quarter of 2021 was $14.3 million, which compares to $15.4 million for the same period in 2020. The decrease was principally caused by lower investment income from restricted cash and lower investment income from our bank loan portfolio resulting from the sale of a substantial part of that portfolio during the second quarter of 2020.

The Company’s net investment income consisted of the following:

Three Months Ended
June 30,

($ in thousands)

2021

2020

% Change

Renewable Energy Investments

$

399

$

113

253

%

Other Private Investments

435

331

31

%

All Other Net Investment Income

13,514

14,906

(9

)%

Total Net Investment Income

$

14,348

$

15,350

(7

)%

The Company’s annualized gross investment yield on average fixed maturity, bank loan and equity securities for the three months ended June 30, 2021 was 2.8% (versus 3.2% for the three months ended June 30, 2020). The yield decreased primarily as a result of the sale of floating rate bank loan investments during the second quarter of 2020.

Taxes

Generally the Company's effective tax rate fluctuates from period to period based on the relative mix of income reported by country and the respective tax rates imposed by each tax jurisdiction. The tax rate for the three months ended June 30, 2021 and 2020 was 35.8% and 10.4%, respectively (23.7% and 17.6% for the six months ended June 30, 2021 and 2020, respectively). The full year 2021 tax rate is expected to approximate the 23.7% reported for the first six months of 2021.

Tangible Equity

Pre-dividend tangible book value2 of $661.1 million at June 30, 2021 was an increase of 14.5% from tangible book value of $577.4 million after dividends at December 31, 2020 largely due to the common share offering completed in May 2021 (net proceeds of $192.1 million).

June 30, 2021 tangible book value of $640.4 million after dividends increased 10.9% from $577.4 million at December 31, 2020.

Capital Management

The Company announced that its Board of Directors declared a cash dividend of $0.30 per common share. This dividend is payable on Thursday, September 30, 2021 to all shareholders of record on Monday, September 13, 2021.

Conference Call

James River will hold a conference call to discuss its second quarter results tomorrow, August 5, 2021 at 8:00 a.m. Eastern Time. Investors may access the conference call by dialing (877) 930-8055, Conference ID# 6974487, or via the internet by visiting www.jrgh.net and clicking on the “Investor Relations” link. Please access the website at least 15 minutes early to register and download any necessary audio software. A replay of the call will be available until 11:00 a.m. (Eastern Time) on September 4, 2021 and can be accessed by dialing (855) 859-2056 or by visiting the company website.

Forward-Looking Statements

This press release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. In some cases, such forward-looking statements may be identified by terms such as believe, expect, seek, may, will, intend, project, anticipate, plan, estimate, guidance or similar words. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Although it is not possible to identify all of these risks and factors, they include, among others, the following: the inherent uncertainty of estimating reserves and the possibility that incurred losses may be greater than our loss and loss adjustment expense reserves; inaccurate estimates and judgments in our risk management may expose us to greater risks than intended; the downgrade in the financial strength rating of our regulated insurance subsidiaries announced on May 7, 2021, or further downgrades, impacting our ability to attract and retain insurance and reinsurance business that our subsidiaries write, our competitive position, and our financial condition; 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; 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 such relationships; reliance on a select group of customers for a significant portion of our business and the impact of our potential failure to maintain, or decision to terminate, such relationships; our ability to obtain reinsurance coverage at prices and on terms that allow us to transfer risk and adequately protect our company against financial loss; losses resulting from reinsurance counterparties failing to pay us on reinsurance claims, insurance companies with whom we have a fronting arrangement failing to pay us for claims, or a former customer with whom we have an indemnification arrangement failing to perform their reimbursement obligations; inadequacy of premiums we charge to compensate us for our losses incurred; changes in laws or government regulation, including tax or insurance law and regulations; the ongoing effect of Public Law No. 115-97, informally titled the Tax Cuts and Jobs Act, which may have a significant effect on us including, among other things, by potentially increasing our tax rate, as well as on our shareholders; in the event we do not qualify for the insurance company exception to the passive foreign investment company (“PFIC”) rules and are therefore considered 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; a failure of any of the loss limitations or exclusions we utilize to shield us from unanticipated financial losses or legal exposures, or other liabilities; losses from catastrophic events, such as natural disasters and terrorist acts, which substantially exceed our expectations and/or exceed the amount of reinsurance we have purchased to protect us from such events; the effects of the COVID-19 pandemic and associated government actions on our operations and financial performance; 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; the potential impact of internal or external fraud, operational errors, systems malfunctions or cyber security incidents; our ability to manage our growth effectively; failure to maintain effective internal controls in accordance with Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley”); and changes in our financial condition, regulations or other factors that may restrict our subsidiaries’ ability to pay us dividends. Additional information about these risks and uncertainties, as well as others that may cause actual results to differ materially from those in the forward-looking statements, is contained in our filings with the U.S. Securities and Exchange Commission ("SEC"), including our Annual Report on Form 10-K filed with the SEC on February 26, 2021 and our Quarterly Report on Form 10-Q filed with the SEC on May 5, 2021. These forward-looking statements speak only as of the date of this release and the Company does not undertake any obligation to update or revise any forward-looking information to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.

Non-GAAP Financial Measures

In presenting James River Group Holdings, Ltd.’s results, management has included financial measures that are not calculated under standards or rules that comprise accounting principles generally accepted in the United States (“GAAP”). Such measures, including underwriting profit (loss), adjusted net operating income (loss), tangible book value, adjusted net operating return on average tangible book value (which is calculated as annualized adjusted net operating income (loss) divided by average tangible book value), and pre-dividend tangible book value per share, are referred to as non-GAAP measures. These non-GAAP measures may be defined or calculated differently by other companies. These measures should not be viewed as a substitute for those measures determined in accordance with GAAP. Reconciliations of such measures to the most comparable GAAP figures are included at the end of this press release.

About James River Group Holdings, Ltd.

James River Group Holdings, Ltd. is a Bermuda-based insurance holding company that owns and operates a group of specialty insurance and reinsurance companies. The Company operates in three specialty property-casualty insurance and reinsurance segments: Excess and Surplus Lines, Specialty Admitted Insurance and Casualty Reinsurance. Each of the Company’s regulated insurance subsidiaries are rated “A-” (Excellent) by A.M. Best Company.

Visit James River Group Holdings, Ltd. on the web at www.jrgh.net

For more information contact:

Sarah Casey Doran

Chief Financial Officer
InvestorRelations@jrgh.net

James River Group Holdings, Ltd. and Subsidiaries
Condensed Consolidated Balance Sheet Data
(Unaudited)

June 30, 2021

December 31, 2020

($ in thousands, except for share data)

ASSETS

Invested assets:

Fixed maturity securities, available-for-sale, at fair value

$

1,845,054

$

1,783,642

Equity securities, at fair value

95,346

88,975

Bank loan participations, at fair value

165,217

147,604

Short-term investments

39,663

130,289

Other invested assets

57,003

46,548

Total invested assets

2,202,283

2,197,058

Cash and cash equivalents

360,931

162,260

Restricted cash equivalents (a)

723,525

859,920

Accrued investment income

11,399

10,980

Premiums receivable and agents’ balances, net

413,647

369,577

Reinsurance recoverable on unpaid losses, net

935,561

805,684

Reinsurance recoverable on paid losses

52,932

46,118

Deferred policy acquisition costs

67,286

62,953

Goodwill and intangible assets

218,051

218,233

Other assets

406,201

330,289

Total assets

$

5,391,816

$

5,063,072

LIABILITIES AND SHAREHOLDERS’ EQUITY

Reserve for losses and loss adjustment expenses

$

2,447,002

$

2,192,080

Unearned premiums

709,479

630,371

Funds held (a)

723,525

859,920

Senior debt

262,300

262,300

Junior subordinated debt

104,055

104,055

Accrued expenses

55,317

55,989

Other liabilities

231,639

162,749

Total liabilities

4,533,317

4,267,464

Total shareholders’ equity

858,499

795,608

Total liabilities and shareholders’ equity

$

5,391,816

$

5,063,072

Tangible equity (b)

$

640,448

$

577,375

Tangible equity per common share outstanding (b)

$

17.18

$

18.84

Total shareholders’ equity per common share outstanding

$

23.03

$

25.96

Common shares outstanding

37,275,562

30,649,261

(a) As of June 30, 2021, the cash equivalent collateral held in the Rasier collateral trust arrangement was approximately $820.8 million, a portion of which is held in a collateral trust account established in favor of the Company, and a portion of which was withdrawn from the collateral trust account in October of 2019 and is currently held on balance sheet. At June 30, 2021, the cash equivalent collateral held in the collateral trust account was approximately $97.3 million while the Company held collateral funds of $723.5 million on balance sheet.

(b) See “Reconciliation of Non-GAAP Measures”


James River Group Holdings, Ltd. and Subsidiaries
Condensed Consolidated Income (Loss) Statement Data
(Unaudited)

Three Months Ended
June 30,

Six Months Ended
June 30,

2021

2020

2021

2020

($ in thousands, except for share data)

REVENUES

Gross written premiums

$

380,146

$

301,639

$

753,401

$

585,480

Net written premiums

193,604

165,757

368,203

300,411

Net earned premiums

172,705

148,815

333,298

294,733

Net investment income

14,348

15,350

29,437

36,186

Net realized and unrealized gains (losses) on investments (a)

3,483

21,593

9,755

(36,814

)

Other income

1,031

991

2,057

2,928

Total revenues

191,567

186,749

374,547

297,033

EXPENSES

Losses and loss adjustment expenses

110,000

98,746

383,500

195,602

Other operating expenses

45,840

43,397

93,221

95,018

Other expenses

904

1,732

1,525

1,732

Interest expense

2,249

2,965

4,465

5,841

Amortization of intangible assets

91

149

182

298

Total expenses

159,084

146,989

482,893

298,491

Income (loss) before taxes

32,483

39,760

(108,346

)

(1,458

)

Income tax expense (benefit)

11,640

4,146

(25,729

)

(257

)

NET INCOME (LOSS)

$

20,843

$

35,614

$

(82,617

)

$

(1,201

)

ADJUSTED NET OPERATING INCOME (LOSS) (b)

$

18,829

$

17,379

$

(89,966

)

$

32,797

INCOME (LOSS) PER SHARE

Basic

$

0.61

$

1.17

$

(2.54

)

$

(0.04

)

Diluted

$

0.60

$

1.16

$

(2.54

)

$

(0.04

)

ADJUSTED NET OPERATING INCOME (LOSS) PER SHARE

Basic

$

0.55

$

0.57

$

(2.76

)

$

1.08

Diluted (c)

$

0.54

$

0.56

$

(2.76

)

$

1.07

Weighted-average common shares outstanding:

Basic

34,418,472

30,529,241

32,576,463

30,502,774

Diluted

34,586,997

30,782,609

32,576,463

30,502,774

Cash dividends declared per common share

$

0.30

$

0.30

$

0.60

$

0.60

Ratios:

Loss ratio

63.7

%

66.4

%

115.1

%

66.4

%

Expense ratio (d)

26.0

%

28.6

%

27.4

%

31.4

%

Combined ratio

89.7

%

95.0

%

142.5

%

97.8

%

Accident year loss ratio

65.7

%

65.6

%

65.1

%

65.7

%

(a) Includes gains (losses) of $1.4 million and $3.2 million for the change in net unrealized gains/losses on equity securities in the three and six months ended June 30, 2021, respectively ($4.0 million and $(9.3) million in the respective prior year periods), and $2.3 million and $6.3 million for the change in net unrealized gains/losses on bank loan participations ($26.6 million and $(17.4) million in the respective prior year periods).

(b) See "Reconciliation of Non-GAAP Measures".

(c) Common share equivalents of 281,405 were dilutive for the calculation of diluted adjusted net operating income per share for the six months ended June 30, 2020.

(d) Calculated with a numerator comprising other operating expenses less gross fee income (in specific instances when the Company is not retaining insurance risk) included in “Other income” in our Condensed Consolidated Income Statements of $954,000 and $1.9 million for the three and six months ended June 30, 2021, respectively ($744,000 and $2.4 million in the respective prior year periods), and a denominator of net earned premiums.


James River Group Holdings, Ltd. and Subsidiaries
Segment Results

EXCESS AND SURPLUS LINES

Three Months Ended
June 30,

Six Months Ended
June 30,

2021

2020

%
Change

2021

2020

%
Change

($ in thousands)

Gross written premiums

$

214,014

$

186,994

14.4

%

$

395,372

$

323,191

22.3

%

Net written premiums

$

135,163

$

126,814

6.6

%

$

243,596

$

219,020

11.2

%

Net earned premiums

$

117,945

$

100,849

17.0

%

$

231,653

$

200,588

15.5

%

Losses and loss adjustment expenses

(69,594

)

(63,410

)

9.8

%

(311,336

)

(128,939

)

141.5

%

Underwriting expenses

(21,434

)

(21,344

)

0.4

%

(44,346

)

(47,442

)

(6.5

)%

Underwriting profit (loss) (a), (b)

$

26,917

$

16,095

67.2

%

$

(124,029

)

$

24,207

Ratios:

Loss ratio

59.0

%

62.9

%

134.4

%

64.3

%

Expense ratio

18.2

%

21.1

%

19.1

%

23.6

%

Combined ratio

77.2

%

84.0

%

153.5

%

87.9

%

Accident year loss ratio

65.3

%

65.7

%

64.8

%

65.7

%

(a) See "Reconciliation of Non-GAAP Measures".

(b) Underwriting results for the three and six months ended June 30, 2020 include gross fee income of $296,000 and $1.6 million, respectively, related to a former commercial auto account (none for the three and six months ended June 30, 2021). These amounts are included in “Other income” in our Condensed Consolidated Income Statements.

SPECIALTY ADMITTED INSURANCE

Three Months Ended
June 30,

Six Months Ended
June 30,

2021

2020

%
Change

2021

2020

%
Change

($ in thousands)

Gross written premiums

$

129,189

$

88,440

46.1

%

$

256,225

$

191,242

34.0

%

Net written premiums

$

21,498

$

12,739

68.8

%

$

43,503

$

26,095

66.7

%

Net earned premiums

$

18,595

$

14,392

29.2

%

$

34,952

$

27,675

26.3

%

Losses and loss adjustment expenses

(13,366

)

(10,559

)

26.6

%

(24,108

)

(20,464

)

17.8

%

Underwriting expenses

(3,091

)

(2,403

)

28.6

%

(7,440

)

(6,769

)

9.9

%

Underwriting profit (a), (b)

$

2,138

$

1,430

49.5

%

$

3,404

$

442

Ratios:

Loss ratio

71.9

%

73.4

%

69.0

%

73.9

%

Expense ratio

16.6

%

16.7

%

21.3

%

24.5

%

Combined ratio

88.5

%

90.1

%

90.3

%

98.4

%

Accident year loss ratio

77.3

%

80.3

%

74.7

%

81.2

%

(a) See "Reconciliation of Non-GAAP Measures".

(b) Underwriting results include gross fee income of $5.4 million and $10.6 million for the three and six months ended June 30, 2021, respectively ($5.4 million and $9.6 million for the same periods in the prior year).

CASUALTY REINSURANCE

Three Months Ended
June 30,

Six Months Ended
June 30,

2021

2020

% Change

2021

2020

% Change

($ in thousands)

Gross written premiums

$

36,943

$

26,205

41.0

%

$

101,804

$

71,047

43.3

%

Net written premiums

$

36,943

$

26,204

41.0

%

$

81,104

$

55,296

46.7

%

Net earned premiums

$

36,165

$

33,574

7.7

%

$

66,693

$

66,470

0.3

%

Losses and loss adjustment expenses

(27,040

)

(24,777

)

9.1

%

(48,056

)

(46,199

)

4.0

%

Underwriting expenses

(12,446

)

(11,434

)

8.9

%

(23,583

)

(22,701

)

3.9

%

Underwriting loss (a)

$

(3,321

)

$

(2,637

)

25.9

%

$

(4,946

)

$

(2,430

)

103.5

%

Ratios:

Loss ratio

74.8

%

73.8

%

72.1

%

69.5

%

Expense ratio

34.4

%

34.1

%

35.3

%

34.2

%

Combined ratio

109.2

%

107.9

%

107.4

%

103.7

%

Accident year loss ratio

60.9

%

59.0

%

60.8

%

59.2

%

(a) See "Reconciliation of Non-GAAP Measures".

RECONCILIATION OF NON-GAAP MEASURES

Underwriting Profit (Loss)

The following table reconciles the underwriting profit (loss) by individual operating segment and for the entire Company to consolidated income (loss) before taxes. We believe that these measures are useful to investors in evaluating the performance of our Company and its operating segments because our objective is to consistently earn underwriting profits. We evaluate the performance of our operating segments and allocate resources based primarily on underwriting profit (loss) of operating segments. Our definition of underwriting profit (loss) of operating segments and underwriting profit (loss) may not be comparable to that of other companies.

Three Months Ended
June 30,

Six Months Ended
June 30,

2021

2020

2021

2020

(in thousands)

Underwriting profit (loss) of the operating segments:

Excess and Surplus Lines

$

26,917

$

16,095

$

(124,029

)

$

24,207

Specialty Admitted Insurance

2,138

1,430

3,404

442

Casualty Reinsurance

(3,321

)

(2,637

)

(4,946

)

(2,430

)

Total underwriting profit (loss) of operating segments

25,734

14,888

(125,571

)

22,219

Other operating expenses of the Corporate and Other segment

(7,915

)

(7,472

)

(15,971

)

(15,751

)

Underwriting profit (loss) (a)

17,819

7,416

(141,542

)

6,468

Net investment income

14,348

15,350

29,437

36,186

Net realized and unrealized gains (losses) on investments (b)

3,483

21,593

9,755

(36,814

)

Other expense

(827

)

(1,485

)

(1,349

)

(1,159

)

Interest expense

(2,249

)

(2,965

)

(4,465

)

(5,841

)

Amortization of intangible assets

(91

)

(149

)

(182

)

(298

)

Consolidated income (loss) before taxes

$

32,483

$

39,760

$

(108,346

)

$

(1,458

)

(a) Included in underwriting results for the three and six months ended June 30, 2021 is gross fee income of $5.4 million and $10.6 million, respectively ($5.7 million and $11.2 million in the respective prior year periods).

(b) Includes gains (losses) of $1.4 million and $3.2 million for the change in net unrealized gains/losses on equity securities in the three and six months ended June 30, 2021, respectively ($4.0 million and $(9.3) million in the respective prior year periods), and $2.3 million and $6.3 million for the change in net unrealized gains/losses on bank loan participations ($26.6 million and $(17.4) million in the respective prior year periods).

Adjusted Net Operating Income (Loss)

We define adjusted net operating income (loss) as net income (loss) excluding net realized and unrealized gains (losses) on investments, and certain non-operating expenses such as professional service fees related to various strategic initiatives and the filing of registration statements for the offering of securities, and severance costs associated with terminated employees. We use adjusted net operating income (loss) as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance. Adjusted net operating income (loss) should not be viewed as a substitute for net income (loss) calculated in accordance with GAAP, and our definition of adjusted net operating income (loss) may not be comparable to that of other companies.

Our income (loss) before taxes and net income (loss) reconciles to our adjusted net operating income (loss) as follows:

Three Months Ended June 30,

2021

2020

Income Before
Taxes

Net Income

Income Before
Taxes

Net Income

(in thousands)

Income as reported

$

32,483

$

20,843

$

39,760

$

35,614

Net realized and unrealized (gains) losses on investments (a)

(3,483

)

(2,741

)

(21,593

)

(19,763

)

Other expenses

811

727

1,732

1,528

Adjusted net operating income

$

29,811

$

18,829

$

19,899

$

17,379

Six Months Ended June 30,

2021

2020

Loss Before
Taxes

Net Loss

(Loss) Income
Before Taxes

Net (Loss)
Income

(in thousands)

Loss as reported

$

(108,346

)

$

(82,617

)

$

(1,458

)

$

(1,201

)

Net realized and unrealized (gains) losses on investments (a)

(9,755

)

(8,492

)

36,814

32,470

Other expenses

1,338

1,143

1,732

1,528

Adjusted net operating (loss) income

$

(116,763

)

$

(89,966

)

$

37,088

$

32,797

(a) Includes gains (losses) of $1.4 million and $3.2 million for the change in net unrealized gains/losses on equity securities in the three and six months ended June 30, 2021, respectively ($4.0 million and $(9.3) million in the respective prior year periods), and $2.3 million and $6.3 million for the change in net unrealized gains/losses on bank loan participations ($26.6 million and $(17.4) million in the respective prior year periods).

Tangible Equity (per Share) and Pre-Dividend Tangible Equity (per Share)

We define tangible equity as shareholders’ equity less goodwill and intangible assets (net of amortization). Our definition of tangible equity may 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. We use tangible equity internally to evaluate the strength of our balance sheet and to compare returns relative to this measure. The following table reconciles shareholders’ equity to tangible equity for June 30, 2021, December 31, 2020, and June 30, 2020 and reconciles tangible equity to tangible equity before dividends for June 30, 2021.

June 30, 2021

December 31, 2020

June 30, 2020

($ in thousands, except for share data)

Equity

Equity per
share

Equity

Equity per
share

Equity

Equity per
share

Shareholders' equity

$

858,499

$

23.03

$

795,608

$

25.96

$

795,711

$

26.04

Goodwill and intangible assets

218,051

5.85

218,233

7.12

218,473

7.15

Tangible equity

$

640,448

$

17.18

$

577,375

$

18.84

$

577,238

$

18.89

Dividends to shareholders for the six months ended June 30, 2021

20,603

0.60

Pre-dividend tangible equity

$

661,051

$

17.78

_________________

1 Adjusted Net Operating Income, Underwriting Profit, Adjusted Net Operating Return on Average Tangible Equity, and Tangible Book Value per Share are non-GAAP financial measures. See “Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” at the end of this press release.

2 Pre-dividend tangible book value and tangible book value are non-GAAP financial measures. See “Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” at the end of this press release.