Shares of the insurance company James River Group Holdings (JRVR 0.11%) traded more than 31% lower approaching noon EDT today, after the company announced earnings results and commenced a public offering.
James River reported a net loss in the first quarter of more than $103 million, a drop of 178% from the first quarter of 2020. Total revenue of nearly $183 million jumped significantly from the first quarter of last year, but missed on analysts' estimates for revenue.
"During the quarter, we continued to experience higher than expected reported losses in our large commercial auto account in runoff," CEO Frank D'Orazio said in a statement. "In response, we meaningfully changed our actuarial methodology, resulting in a material strengthening of reserves. We believe this overhang has been eliminated, and that we are now fully able to focus on our prospective business and what continues to be a historically strong E&S [excess and surplus lines] marketplace."
The company also announced yesterday that it is planning to raise $175 million through a proposed offering of common shares. Proposed offerings often send stocks downward because printing new shares dilutes existing shareholders, splitting the same pot of earnings short term over a larger investor base.
The combination of poor earnings and a new offering of shares is a recipe for a sell-off. Even though D'Orazio said the problems are in the past, investors probably don't have a ton of confidence in the company right now.
This may also mean that they don't have confidence in management taking new capital from the raise and putting it to good use to increase profits down the line.