SecProbe.io

CORRESP
1
filename1.htm

DOCUMENT>
<TEXT>

                         [Letterhead of Bryan Cave LLP]

                                                          Heather R. Badami
                                                          Direct: (202) 508-6082
                                                          hrbadami@bryancave.com
August 3, 2005

Mr. Oscar Young
Ms. Keira Ino
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549

         RE: JAMES RIVER GROUP, INC.
             FORM S-1 REGISTRATION STATEMENT
             FILE NO. 333-124605

Dear Mr. Young and Ms. Ino:

This letter sets forth the draft responses of James River Group, Inc. (the
"Company") to comments provided during our telephone conversation with you
on August 2, 2005 with respect to the above-referenced Registration Statement on
Form S-1 (the "Form S-1"). Draft responses to each comment are set forth below.
Page references are to Pre-effective Amendment No. 3 to the Form S-1.

     1.  Reserve for losses and loss adjustment expenses - sensitivity, page 32

         The Company proposes the revisions to pages 32 and 33 attached to this
         letter.

     2.  Reserve for losses and loss adjustment expenses - best estimate, page
         31

         The Company proposes the revisions to pages 31 and 32 attached to this
         letter.

     3.  Application of FASB Statement 123(R), page 60

         As outlined in the Company's response dated August 1, 2005, the
         Company became a public company for purposes of Statement 123 and
         123(R) on May 3, 2005, and prior to that date, the Company was a
         nonpublic entity that used the minimum value method. Paragraph 83 of
         Statement 123(R) states that nonpublic entities that used the minimum
         value method of measuring equity share options and similar instruments
         for either recognition or pro forma disclosure purposes under
         Statement 123 shall apply Statement 123(R) prospectively. Accordingly,
         upon adoption of Statement 123(R), the Company will not recognize any
         expense in the income statement related to awards issued prior to May
         3, 2005. Instead, those awards will continue to be accounted for using
         the provisions of APB Opinion No. 25 and its related interpretive
         guidance.

         Footnote 34 of Statement 123(R) states that a nonpublic entity shall
         apply the method (in this footnote, the "method" is referring to the
         modified retrospective method) to all prior years for which Statement
         123's fair value based method was adopted for recognition, or pro
         forma disclosure if that date is later than when Statement 123 was
         effective. The Company believes that Footnote 34 also applies to the
         modified prospective method by analogy because the intent of Statement
         123(R) is that stock option compensation expense subsequent to the
         date of adoption of Statement 123(R) should be the same under either
         the modified retrospective method or the modified prospective method.
         The Company adopted the fair value method for pro forma disclosures
         under Statement 123 on May 3, 2005, which is later than the date that
         Statement 123 was effective for the Company. Further, paragraph 74 of
         Statement 123(R) states that, in applying the modified prospective
         method, "compensation cost for the portion of awards for which the
         requisite service has not been rendered that are outstanding as of the
         required effective date shall be recognized as the requisite service
         is rendered on or after the required effective date".

         Based on the interpretation section 74-6 of Deloitte & Touche LLP's
         "Roadmap to Applying Statement 123(R)", the Company understands that
         the FASB staff has confirmed that the modified prospective application
         method is only applied to awards issued while a company was a public
         company. In addition the Company consulted with their independent
         registered accounting firm, Ernst & Young LLP, and they concur with
         this interpretation. Accordingly, the Company will apply the modified
         prospective application to awards modified, repurchased or canceled on
         or after May 3, 2005.

         In further response to this comment, the Company has inserted the word
         "remaining" prior to "vesting period" on the fifth line of the fourth
         paragraph of the Statement 123(R) discussion on pages F-11, F-37 and
         60.

     4.  Fair value of stock options, pages F-23 and F-24

         This response reflects changes to the footnotes following the table in
         reponse to your comment.

         The table below summarizes the Company's history of option grants by
         date and by quarter from inception. These amounts do not give effect to
         the ten-for-one stock split the Company intends to effect prior to
         completion of the offering.

         The Company's estimation of the fair value of its common stock from
         inception has been driven principally by (1) equity offerings in which
         independent parties have

Mr. Oscar Young
Ms. Keira Ino
August 3, 2005
Page 2

         participated and (2) the Company's operating results. The Company
         consistently estimated the fair value of its common stock at $100 per
         share for the period from inception through April 19, 2004 based on
         private equity offerings during the same period, as described on pages
         F-20 and F-21. These offerings involved the participation of the
         persons described under "Certain Relationships and Related
         Transactions", as well as independent third parties.

         The Company increased the estimated fair value of its common stock to
         $125 per share in November 2004. The $125 per share price was estimated
         based on the application of valuation metrics for publicly traded
         commercial lines insurers published in the October 2004 edition of
         Monthly Deductible by Keefe, Bruyette & Woods, Inc. in which the $125
         per share estimated fair value was approximately equal to the median of
         the implied fair values per share. This increase was further supported
         by discussions with third party investors regarding a potential equity
         transaction. From those discussions, the Company believes the
         transaction could have been completed at a $125 per share price on
         terms similar to prior equity offerings by the Company. Though the
         transaction was not completed because circumstances changed the
         Company's need for the capital, the $125 per share estimated fair value
         was deemed the appropriate fair value for option grants during that
         quarter.

         Based on the above, the Company believes that the estimated fair values
         used at each option grant date represent the best estimate of the
         Company's value as of each respective grant date. The estimated fair
         value of the common stock used for all option grants other than the
         fourth quarter 2004 option grants corresponds to an actual offering
         price of shares issued near the grant date. Though the Company believes
         that the estimated fair value used for the fourth quarter 2004 option
         grants is appropriate, the application of the initial public offering
         price of its common stock (expected to be between $160 and $180 per
         share on a pre-split basis) to the fourth quarter 2004 option grants
         would be immaterial to earnings and stockholders' equity.

         The Company attributes the increase in the value of its common stock
         during 2005 to the increase in profitable operations during 2005,
         specifically, the Company's reported $9.2 million of net income for the
         six months ended June 30, 2005 which is a significant improvement over
         the $8.8 million of net income for the year ended December 31, 2004 and
         the $5.2 million loss for 2003.

Mr. Oscar Young
Ms. Keira Ino
August 3, 2005
Page 3

----------- -------------- ------------- -------------- ------------ -----------

                                                                     Per Share
                             Option                     Net Income/  Price of
Quarter        Option       Exercise        Options     (Loss) (in     Equity
Ended          Grant          Price         Granted        000's)      Raised
----------- -------------- ------------- -------------- ------------ -----------
12/31/02        None           None               None       $(278)     None
----------- -------------- ------------- -------------- ------------ -----------
3/31/03         None           None               None     $(1,158)   $100 (1)
----------- -------------- ------------- -------------- ------------ -----------
6/30/03        5/15/03         $100            110,443     $(1,246)   $100 (2)
----------- -------------- ------------- -------------- ------------ -----------
9/30/03        9/4/03          $100             17,302     $(1,541)     None
----------- -------------- ------------- -------------- ------------ -----------
12/31/03        None           None               None     $(1,243)   $100 (3)
----------- -------------- ------------- -------------- ------------ -----------
3/31/04        3/25/04         $100             29,685         $581     None
----------- -------------- ------------- -------------- ------------ -----------
6/30/04        4/19/04         $100              8,850       $1,947   $100 (4)
----------- -------------- ------------- -------------- ------------ -----------
9/30/04         None           None               None       $2,968     None
----------- -------------- ------------- -------------- ------------ -----------
12/31/04      11/15/04         $125              3,936       $3,259     None
              12/17/04         $125                711
----------- -------------- ------------- -------------- ------------ -----------
3/31/05         None           None               None       $4,606     None
----------- -------------- ------------- -------------- ------------ -----------
6/30/05         None           None               None       $4,587     None
----------- -------------- ------------- -------------- ------------ -----------

     (1) The $8.5 million January 2003 offering of Series A Convertible
     Preferred Stock was distributed as follows: $4.6 million, or 54%, to 28
     independent third parties (including $1.7 million, or 20%, to three
     independent third parties who were collectively granted a Board position
     concurrently with the investment along with the right to maintain their
     collective proportionate ownership percentage in future private equity
     offerings (collectively, the "Funds")); $3.6 million, or 43%, to eight
     Board members and their affiliates; $100,000, or 1%, to one executive
     officer; and $203,000, or 2%, to seven other employees.

     (2) The $50.0 million June 2003 offering of Series B Convertible Preferred
     Stock was distributed primarily to existing investors as follows: $22.2
     million, or 44%, to independent third parties and the Funds (including
     $16.1 million, or 32%, to the Funds); $26.6 million, or 53% to 13 other
     Board members and their affiliates; $370,000, or 1%, to one executive
     officer; and $780,000, or 2%, to five other employees.

     (3) The $20.0 million October 2003 offering Series B Convertible Preferred
     Stock was distributed primarily to existing investors as follows: $9.0
     million, or 45% to independent third parties and the Funds (including $6.0
     million, or 30%, to the Funds ); $10.4 million, or 52%, to nine Board
     members and their affiliates; $270,000, or 1%, to two executive officers;
     and $350,000, or 2%, to nine other employees.

Mr. Oscar Young
Ms. Keira Ino
August 3, 2005
Page 4

     (4) The $1.350 million May 2004 offering of Series B Convertible Preferred
     Stock was distributed to new investors as follows: $500,000, or 37%, to one
     independent third party; and $850,000, or 63%, to one executive officer.

                                  *  *  *  *  *

If you have any questions or comments concerning the above, or if you require
additional information, please do not hesitate to contact me at (202) 508-6082.

                                                     Sincerely,

                                                     /s/ Heather R. Badami

                                                     Heather R. Badami
cc: Mary K. Fraser, Esq.
    James Atkinson
    J. Adam Abram
    Michael T. Oakes
    Kenneth L. Henderson, Esq.
    John M. Schwolsky, Esq.

     We issued 200,000 shares of Series B convertible preferred stock during
the fourth quarter of 2003, with proceeds, net of notes receivable from
employees and directors, of $19.7 million. This transaction was the primary
reason for the increase in stockholders' equity from September 30, 2003 to
December 31, 2003.

CRITICAL ACCOUNTING POLICIES

     We have identified the accounting policies below as critical to the
understanding of our results of operations and financial position. We use
significant judgments and estimates concerning future results and developments
in applying these accounting policies and in preparing our financial
statements. Actual results may differ from these estimates. We evaluate our
estimates on a continual basis using information that we believe to be
relevant. For a detailed discussion of our significant accounting policies, see
Note 1 to the 2004 audited consolidated financial statements included in this
prospectus.

     Reserve for Losses and Loss Adjustment Expenses

     The reserve for losses and loss adjustment expenses represents our
estimated ultimate cost of all reported and unreported losses and loss
adjustment expenses incurred and unpaid at the balance sheet date. We do not
discount the reserve for losses and loss adjustment expenses. We estimate the
reserve for losses and loss adjustment expenses using individual case-basis
valuations of reported claims. We also use statistical analyses to estimate the
cost of losses that have been incurred but not reported to us. Those estimates
are based on historical information and on estimates of future trends that may
affect the frequency of claims and changes in the average cost of claims that
may arise in the future. As a relatively new company, our historical loss
experience is limited.

     We utilize two primary actuarial methods to arrive at our loss reserve
estimates for each line of business. One of the primary methods, the incurred
Bornhuetter-Ferguson method, utilizes our initial expected loss ratio (the
ratio of losses and loss adjustment expenses incurred to net earned premiums),
expected reporting patterns for losses based on industry data and our actual
reported losses and loss adjustment expenses to estimate the reserve. The other
primary method, the loss ratio method, estimates the reserve by applying an
expected loss ratio to net earned premiums by line of business. For both
methods, the expected loss ratio is established using judgment, and is based
primarily on industry data and the experience of our management team in writing
similar insurance coverages. The expected loss ratio used in the loss ratio
method is judgmentally adjusted up or down when the level of reported losses
for a specific accident year for a line of business leads us to conclude that
the ultimate loss ratio will differ from our initial expected loss ratio. The
expected loss ratio used in the incurred Bornhuetter-Ferguson method is
typically not adjusted after it is initially set, becau