Specialty lines insurer James River Group Inc. today reportedmore than $12 million profit for the fourth quarter of2005--despite $12.1 million after-tax costs for HurricaneKatrina--and said it is changing its coastal risk appetite.

The Chapel Hill, N.C.-based insurer reported fourth-quarter netincome in 2005 increased 276 percent, or $9 million, going from$3.3 million, or 33 cents a share, to $12.3 million, or 78 cents ashare. Revenues increased 42 percent, or $12.3 million, going from$29.5 million to $42 million.

During an analyst's conference call, J. Adam Abram, presidentand chief executive officer, credited the company's strongperformance with record premium growth and strong underwritingdiscipline.

The company reported a combined ratio of 59.5 percent in thequarter, compared with 85.3 percent for the same period in2004.

For the year, net income was up 38 percent, or $3.3 million,from $9 million, or 93 cents a share, to $12 million, or 94 cents ashare. Revenues grew 61 percent, or $48 million, from $80 millionto $128 million.

The company's combined ratio for the year stood at 91.6 percent,compared with 90.1 percent in 2004.

Direct written premium in the fourth quarter grew 40 percent, or$20 million, going from $50 million to $70 million.

The company's net income for the quarter was positively affectedby $4.8 million in positive reserve developments related to Katrinaand prior accident years.

The company also reported after-tax costs for Hurricanes Ritaand Wilma of $1.4 million for 2005.

During the conference call, Mr. Abram said the company learnedlessons from Katrina and, as a result, is moving its primaryproperty exposure further back from the coast and reducing itsaggregate exposure in certain geographic areas in its excessproperty book of business. He gave no further details on thecarrier's plans.

Mr. Abram said the pull-back is not affecting other lines ofbusiness, but he realized the change in the company's appetitewould be an unpleasant development.

"We are very aware, as we reorient our book, that it would notbe sensitive to our agents and our insured to say this is notdisruptive in certain cases," said Mr. Abram. "We are working veryhard with our agents and our insureds to keep that transition asgentle and as undisruptive as possible. We hate that, but that'sthe reality of the situation. We have an obligation to get our bookin line with the right appetite for us."

He noted that the realignment has not affected the company'scasualty or other lines of business.

Overall, he said that except for excess property, which isseeing substantial rate increases, other lines are flat or down,but "remain attractively rated."