James River Group to be acquired by D.E. Shaw Group

Insurance holding company James River Group, Inc. (Nasdaq: JRVR) will be acquired by a member of the D.E. Shaw Group, based in Bermuda. The acquisition should be finalized by the end of December 2007. James River Group is not seeking a buyer because it is in financial trouble. Far from it. The company posted good numbers in its recent 3Q 2007 earnings release. Underwriting profit for the quarter increased 10% to $11 million, not including $1 million spent in acquisition costs. Net income increased to just over $10 million, with diluted earnings per share (EPS) up 9% to $0.63. Excluding year-to-date (YTD) acquisition costs of $3 million, YTD EPS of $1.82 represents a 20% increase.

James River's Workers' Compensation unit posted significantly higher profit margins, due both to lower losses and better management of expenses. Net investment income increased $1 million to $6.3 million, a 20% gain. Buried in the earnings release, however, is the fact that the company holds $4.3 million worth of sub-prime mortgages in its investment portfolio. This may be a problem down to road for the new owners. James River Group is currently rated A- by A.M. Best Company.

Given the company's impending acquisition, CEO J. Adam Abram offered no guidance for 4Q 2007, nor held a conference call to discuss 3Q 2007 numbers.