Argo: ‘Progress Made Over Last Year’
Argo Group International Holdings, Ltd., a Bermuda-headquartered international underwriter of specialty insurance and reinsurance products, today [Feb. 17] announced financial results for the three months and year ended December 31, 2010.
Highlights for the year ended December 31, 2010 include:
•Total revenue was $1.38 billion compared to $1.54 billion last year;
•Net income was $82.6 million or $2.76 per diluted share versus $117.5 million or $3.81 per diluted share in 2009;
•Net pre-tax operating income, or pre-tax income before net realized investment and other gains and losses, foreign currency exchange gains and losses and an intangible asset impairment charge, was $74.7 million versus $164.8 million in the prior year;
•Net after-tax operating income per diluted share was $2.00 versus $4.28 per diluted share in 2009;
•Book value per share (BVPS) increased to an all-time high of $58.41 at Dec. 31, 2010, up 12.5 percent from Dec. 31, 2009, inclusive of common dividends paid. BVPS grew at a compound average growth rate (CAGR) of 12.1 percent for the past eight years.
Highlights for the three months ended Dec. 31, 2010:
•Total revenue was $316.5 million versus $391.0 million in the fourth quarter of 2009;
•Net income was $12.8 million or $0.44 per diluted share, compared to $41.0 million or $1.33 per diluted share for the three months ended Dec. 31, 2009;
•Net pre-tax operating income, or pre-tax income before net realized investment and other gains and losses and foreign currency exchange gains and losses, was $18.2 million versus $39.4 million in the fourth quarter of 2009;
•Net after-tax operating income per diluted share was $0.51 versus $1.02 per diluted share in the year-ago quarter.
Argo Group’s CEO Mark E. Watson III said, “As a market-leading company in an industry in a deep cyclical trough, impacted by a series of major events over the past year, Argo Group reached an all-time high in book value per share, produced profitable operating results, and returned $121 million in capital through share repurchases and common dividends. Also significant was the progress we made during 2010 in areas not yet fully reflected in our financial results. These included the addition of experienced underwriting teams and continuing improvements to the efficiency of our systems and processes. Looking ahead, we believe the progress made over the last year positions our specialty platform to take better advantage of improving economic and industry market conditions.”
FINANCIAL RESULTS
For the year ended Dec. 31, 2010
For 2010, net income was $82.6 million or $2.76 per diluted share. Net operating income after tax in 2010 was $59.8 million or $2.00 per diluted share. By comparison, 2009 produced net income of $117.5 million or $3.81 per diluted share. Net operating income after tax for 2009 was $131.8 million or $4.28 per diluted share. The differences between net income and net operating income in 2010 include net realized gains of $36.8 million, primarily associated with the Company’s investment portfolio, and foreign currency exchange gains of $3.8 million. Included in the results for 2010 and 2009 are favorable prior year reserve development (net of premium and loss) of $35.4 million and $30.4 million, respectively.
Total revenue for 2010 was $1.38 billion versus $1.54 billion in 2009. Earned premiums for 2010 were $1.21 billion compared to $1.41 billion in 2009. Net investment income for the year ended Dec. 31, 2010 and 2009, was $133.6 million and $145.5 million, respectively. Net investment income in 2009 included an interest payment of $4.5million related to a favorable settlement of a state income tax dispute. Net realized investment and other gains were $36.8 million for 2010 versus net realized investment and other losses of $16.7 million for the 12 months ended Dec. 31, 2009.
The Group combined ratio for 2010 was 103.2 percent versus 96.9 percent in 2009. Argo Group’s combined ratios for each business segment in 2010 were as follows: Excess & Surplus Lines at 97.8 percent; Commercial Specialty at 99.0 percent; Reinsurance at 72.8 percent; and International Specialty at 115.3 percent.
At Dec. 31, 2010, the investment portfolio totaled $4.2 billion with a net pre-tax unrealized gain of approximately $227.5 million.
During 2010, the Company repurchased $106.5 million or 3.2 million shares of its outstanding common stock, which represented 10.4 percent of its shares outstanding at Dec. 31, 2009. Since Sept. 30, 2010, Argo Group repurchased approximately $50 million or 1.4 million shares of its common stock, including $14.0 million or 0.4 million shares repurchased in 2011.
For the three months ended Dec. 31, 2010
For the fourth quarter of 2010, net income was $12.8 million or $0.44 per diluted share. Net operating income after tax was $14.6 million or $0.51 per diluted share. Fourth quarter 2010 results were impacted by additional estimated loss provisions related to new information on the New Zealand earthquake of September 2010. By comparison, the fourth quarter of 2009 produced net income of $41.0 million or $1.33 per diluted share, with no material catastrophic losses impacting results. The three months ended Dec. 31, 2009, produced net operating income after tax of $31.5 million or $1.02per diluted share. The differences between net income and net operating income for the three months ended Dec. 31, 2010, include realized gains of $8.2 million, primarily associated with the Company’s investment portfolio, and foreign currency exchange losses of $8.1 million. Included in the results for the three months ended Dec. 31, 2010 and 2009, are favorable prior year reserve development (net of premium and loss) of $9.1 million and $17.6 million, respectively.
Total revenue in the fourth quarter of 2010 was $316.5 million versus $391.0 million in the same period in 2009. Earned premiums for the fourth quarter of 2010 were $274.7 million compared to $352.1 million for the fourth quarter of 2009. Net investment income for the three months ended Dec. 31, 2010 and 2009, was $33.1 million and $32.4 million, respectively. Net realized investment and other gains were $8.2 million for the three months ended Dec. 31, 2010, versus net realized investment and other gains of $3.6 million for the three months ended Dec. 31, 2009.
The Group combined ratio for the fourth quarter of 2010 was 103.6 percent versus 97.2 percent for the same period in 2009. Argo Group’s 2010 fourth quarter combined ratios for each business segment were as follows: Excess & Surplus Lines at 94.9 percent; Commercial Specialty at 93.4 percent; Reinsurance at 69.1 percent; and International Specialty at 138.7 percent.
SEGMENT RESULTS
Excess & Surplus Lines (E&S) – For 2010, gross written premiums for E&S totaled $522.6 million, resulting in pre-tax operating income of $62.7 million. This compares to gross written premiums of $642.3 million and pre-tax operating income of $64.7 million in 2009. The combined ratios for 2010 and 2009, respectively, were 97.8 percent and 99.6 percent. The underwriting results for 2010 include favorable prior year loss development of $19.0 million, compared to favorable prior year loss development of $15.4 million for 2009. Results for 2010 for E&S reflect highly competitive market conditions.
For the fourth quarter of 2010, gross written premiums for E&S totaled $119.0 million, resulting in pre-tax operating income of $19.2 million. This compares to gross written premiums of $155.7 million and pre-tax operating income of $1.1 million in the fourth quarter of 2009. The combined ratios for the fourth quarter periods of 2010 and 2009, respectively, were 94.9 percent and 109.3 percent. The underwriting results for the fourth quarters of 2010 and 2009 include favorable prior year loss development of $9.7 million and $5.7 million, respectively.
Commercial Specialty – During 2010, gross written premiums for Commercial Specialty were $428.1 million, generating pre-tax operating income of $29.0 million. This compares to gross written premiums of $475.7 million and pre-tax operating income of $45.8 million for 2009. The combined ratios for 2010 and 2009, respectively, were 99.0 percent and 95.6 percent. The underwriting results for 2010 include favorable prior year loss development of $9.8 million versus favorable prior year loss development of $3.7 million in 2009. Commercial Specialty’s results in 2010 reflect a highly competitive market and an exit from certain business classes.
For the fourth quarter of 2010, gross written premiums for Commercial Specialty were $89.9 million, generating pre-tax operating income of $11.3 million. This compares to gross written premiums of $95.8 million and pre-tax operating income of $11.3 million for the fourth quarter of 2009. The combined ratios for the fourth quarters of 2010 and 2009, respectively, were 93.4 percent and 95.2 percent. The underwriting results for the fourth quarter of 2010 include favorable prior year loss development of $4.4 million versus favorable prior year loss development of $5.9 million in the final quarter of 2009.
Reinsurance – For 2010, gross written premiums for Reinsurance were $188.9 million, generating pre-tax operating income of $32.0 million and a combined ratio of 72.8 percent. This compares to gross written premiums of $162.9 million, generating pre-tax operating income of $50.3 million and a combined ratio of 52.3 percent in 2009. The underwriting results for 2010 include favorable prior year loss development of $16.8 million, compared to favorable prior year loss development of $9.1 million in 2009. The loss ratio for Reinsurance was negatively impacted in 2010 by 30.0 percentage points from $30.1 million of catastrophe losses, net of reinstatement premiums.
For the 2010 fourth quarter, gross written premiums for Reinsurance were $20.9 million, generating pre-tax operating income of $9.0 million and a combined ratio of 69.1 percent. This compares to gross written premiums of $19.9 million, generating pre-tax operating income of $16.3 million and a combined ratio of 44.0 percent in the fourth quarter of 2009. The underwriting results for the fourth quarter of 2010 include favorable prior year loss development of $2.3 million, compared to favorable prior year loss development of $2.4 million in the fourth quarter of 2009. The loss ratio for Reinsurance was negatively impacted in the fourth quarter of 2010 by 39.8 percentage points due to $10.2 million of catastrophe losses, net of reinstatement premiums.
International Specialty – During 2010, gross written premiums for International Specialty were $389.9 million, generating a pre-tax operating loss of $31.2 million. This compares to gross written premiums of $706.0 million and pre-tax operating income of $24.1 million for 2009. The decline in gross written premiums in 2010 versus 2009 was due to planned reductions in certain classes of business as well as the impact of increased competition in the classes of business written. The decline in gross written premium was also impacted during the year by downward changes in our estimates for business written in prior years. The combined ratios for 2010 and 2009, respectively, were 115.3 percent and 95.8 percent. The underwriting results for 2010 include unfavorable prior year reserve development, net of premium and loss, of $12.1 million, versus favorable prior year reserve development, net of premium and loss, of $0.6 million in 2009. International Specialty’s loss ratio for 2010 was negatively impacted by 8.5 percentage points from $24.8 million of catastrophe losses.
For the three months ended Dec. 31, 2010, International Specialty reported gross written premiums of $60.3 million, generating a pre-tax operating loss of $18.4 million and a combined ratio of 138.7 percent. This compares to gross written premiums of $143.4 million, generating pre-tax operating income of $16.0 million and a combined ratio of 90.3 percent in the fourth quarter of 2009. The decline in gross written premiums was due to a reduction in premium estimates for programs written in prior periods, planned reductions in certain classes of business as well as the impact of increased competition in the classes of business written. Underwriting results for the fourth quarters of 2010 and 2009, respectively, include unfavorable prior year reserve development, net of premium and loss, of $8.9 million, versus favorable prior year reserve development, net of premium and loss, of $2.2 million.
Run-off Segment – Argo Group’s Run-off segment includes financial results for (a) asbestos and environmental liabilities; (b) the former Risk Management segment; and (c) all legacy operations for PXRE Group.
For 2010, the Run-off segment produced pre-tax operating income of $4.4 million versus $6.4 million for 2009. Run-off results for 2010 include favorable prior year loss development of $1.9 million, compared to favorable prior year loss development of $1.6 million in 2009.
For the quarter ended Dec. 31, 2010, the Run-off segment produced pre-tax operating income of $2.5 million versus pre-tax operating income of $2.3 million for the fourth quarter of 2009. Run-off results for the fourth quarter of 2010 include favorable prior year loss development of $1.6 million compared to favorable prior year loss development of $1.4 million in the fourth quarter of 2009.
FIRST QUARTER 2011 UPDATE
Catastrophe loss events that have occurred to date in the first quarter of 2011, in particular the Queensland floods and Cyclone Yasi in Australia, will impact Argo Group results for the three months ended March 31, 2011. The pre-tax loss for these events is estimated to be in the range of $15 million to $25 million, net of reinsurance and reinstatement premium. In reaching this estimate, the Company has relied on information currently available from portfolio modeling, assessments of the exposures insured under individual policies and industry-wide estimates. Due to the preliminary nature of the information used to determine this estimate, the ultimate cost to the Company from these events may differ materially from the foregoing estimate.
