Argo Reports 2020 Second Quarter Results
Argo Group International Holdings announced financial results for the three and six months ended June 30, 2020.
“We are pleased to report the strongest quarterly underwriting income for the U.S. in Argo’s history,” said Argo Chief Executive Officer Kevin J. Rehnberg. “This demonstrates our shift to more positive underlying performance, particularly in our core U.S. specialty business that delivered an excellent quarter despite the broader economic challenges related to COVID-19. The company’s operating results were, however, still negatively impacted by market volatility in our investment portfolio and the pandemic’s effects on premium growth and catastrophe losses, particularly in our International Operations.
“We continue to experience strong improvement in pricing across the business,” added Rehnberg. “We remain optimistic that current market conditions will provide opportunity for continued growth and margin improvement. In addition, our recent preferred stock offering provides Argo with additional capital, enhancing our financial strength, and enables us to more aggressively pursue our strategic growth objectives in this attractive underwriting environment.”
- On a consolidated basis, gross written premium grew 3.5% to $799.6 million driven by pricing increases, compared to $772.9 million for the 2019 second quarter. Premium growth in U.S. Operations was 5.9%, while premiums in International Operations were flat compared to the prior year quarter.
- The combined ratio was 100.3% compared to 103.4% for the 2019 second quarter. The lower combined ratio was primarily driven by a better CAY ex-CAT loss ratio and a lower level of net unfavorable reserve development, which for the second consecutive quarter, was modest during the period at $1.8 million. Partially offsetting these improvements was a higher level of catastrophe losses of $27.9 million, including $17.4 million related to the COVID-19 pandemic, primarily resulting from contingency and property exposures in Argo’s International Operations. Additionally, net reserve development of $1.8 million added 0.4 points to the loss ratio in the second quarter of 2020, compared to $22.3 million or 5.2 points in the prior year quarter.
- The CAY ex-CAT combined ratio was 93.0% compared to 96.7% in the prior year quarter. The improvement in the CAY ex-CAT combined ratio was due to a lower CAY ex-CAT loss ratio that was driven by stronger pricing and lower loss activity, while the expense ratio was stable.
- Net investment income of $1.5 million decreased 96.5% compared to $48.2 million the 2019 second quarter. Net investment income excluding alternatives decreased 25.2% to $24.9 million, while alternative investments, which are reported on a lag, contributed a loss of $23.4 million in the second quarter of 2020. The decline in the portfolio excluding alternatives was primarily due to lower interest rates and portfolio de-risking actions that have been executed since the fourth quarter of 2019.
- Net loss was $6.4 million or $(0.18) per diluted share, compared to net income of $28.8 million or $0.83 per diluted share for the 2019 second quarter. The 2020 second quarter result included lower investment income and foreign currency exchange losses compared to foreign currency exchange gains in the prior year period.
- Operating loss was $4.7 million or $(0.14) per diluted share, compared to operating income of $16.8 million or $0.48 per diluted share for the 2019 second quarter. The primary driver of the decline in operating income was lower investment income in the second quarter of 2020, partially offset by improved underwriting results.
