Argo Group International Holdings, Ltd. (NASDAQ: AGII) today
announced financial results for the three months ended March 31,
2016.
2016 First Quarter Recap
Gross WrittenPremium$519.8
M↑ 9.0%from 1Q 2015
CombinedRatio94.0%vs.
93.6%in 1Q 2015
Pre-taxUnderwritingIncome$20.7 M↓ 2.8%from 1Q
2015
After-taxOperatingIncome$29.9 M↓ 10.5%from 1Q
2015
Book ValuePer Share$61.71↑
3.3%from 4Q 2015
"Argo’s first quarter 2016 results represent a solid start to
2016 following a record year of underwriting profits in 2015,” said
CEO Mark E. Watson III. "We remain focused on improving
margins in our niche markets through disciplined underwriting,
product innovation, and streamlining our business
processes."
HIGHLIGHTS FOR THE FIRST QUARTER ENDED MARCH 31, 2016
- Gross written premiums were up
9.0% to $519.8 million from $476.7 million in the first quarter of
2015.
- After-tax operating income was
$29.9 million or $1.06 per diluted share, compared to $33.4 million
or $1.16 per diluted share for the first quarter of 2015.
- Net income was $27.7 million or
$0.98 per diluted share, compared to $58.8 million or $2.05 per
diluted share for the first quarter of 2015.
- Pre-tax underwriting income of
$20.7 million in the first quarter of 2016 compared to $21.3
million in the first quarter of 2015.
- Combined ratio was 94.0%
compared to 93.6% for the first quarter of 2015. The loss and
expense ratios for the quarter were 55.5% and 38.5%, respectively,
compared to 54.9% and 38.7% for the first quarter of 2015.
- Net favorable prior-year reserve
development was $3.2 million (benefiting the combined ratio by
0.9 points), compared with $3.7 million (benefiting the combined
ratio by 1.1 points) for the first quarter of 2015.
- Estimated pre-tax catastrophe
losses were $3.3 million or 0.9 points on the combined ratio,
compared to $3.0 million or 0.9 points on the combined ratio for
the first quarter of 2015.
- Loss ratio excluding
catastrophes and reserve development for the first quarter of 2016
was 55.5%, compared to 55.1% for the first quarter of 2015.
- During the quarter, the Company
repurchased $19.0 million or 343,652 shares of its common stock
at an average share price of $55.32, which represents 1.2% of net
shares outstanding at Dec. 31, 2015.
- Book value per share increased
to $61.71, up 3.3% from $59.74 at Dec. 31, 2015.
- Cash and investments at March
31, 2016 totaled $4.3 billion with a net pre-tax unrealized gain of
approximately $92.6 million.
Notes
- During the quarter the following
changes were made to the reporting structure effective January 1,
2016: (1) reclassification of Argo Pro results and identifiable
assets from Excess and Surplus lines to the Commercial Specialty
segment which more appropriately matches segment distribution
strategy; and (2) alternative investment income was moved from
realized gains and losses to net investment income.
- All references to catastrophe losses
are pre-tax and net of reinsurance and estimated reinstatement
premiums. Point impacts on the combined ratio are calculated as the
difference between the reported combined ratio and the combined
ratio excluding incurred catastrophe losses and associated
reinstatement premiums.
- After-tax operating income is defined
as net income before taxes excluding net realized investment
gains/losses and foreign currency exchange gains/losses at an
assumed 20% effective tax rate.
FINANCIAL HIGHLIGHTS BY SEGMENT
Excess and Surplus Lines
- Gross written premiums were up 5.4%
primarily driven by casualty lines.
- The current year loss ratio excluding
cats benefited from lower non-cat property losses in the
quarter.
The Excess and Surplus Lines segment reported gross written
premiums of $146.2 million, up $7.5 million or 5.4%, compared to
$138.7 million in the first quarter of 2015. Net written premiums
were up 1.5% to $114.5 million, and earned premiums were up 7.1% to
$119.8 million, when compared to the first quarter of 2015.
Underwriting income was $13.9 million for the quarter, compared to
$14.9 million for the first quarter of 2015. The first quarter 2016
combined ratio of 88.5% compares to 86.7% for the prior-year
quarter. Net favorable prior-year reserve development was $2.9
million for the first quarter of 2016, benefiting the combined
ratio by 2.4 points, compared to net favorable prior-year reserve
development of $5.7 million or 5.1 points for the first quarter of
2015. Catastrophe losses for the quarter were $2.2 million or 1.9
points on the combined ratio, compared to $0.5 million or 0.4
points on the combined ratio for the first quarter of 2015. The
first quarter 2016 loss ratio, excluding catastrophe losses and
reserve development, was 57.9% compared to 59.7% for the first
quarter of 2015.
Commercial Specialty
- Gross written premiums were up 8.0%
driven by program, surety, and public entity businesses.
- The combined ratio improved to 88.0%
from 95.6% in the first quarter of 2015.
The Commercial Specialty segment reported gross written premiums
of $141.4 million, up $10.5 million or 8.0%, compared to $130.9
million in the first quarter of 2015. Net written premiums were
down 2.9% to $74.9 million, and earned premiums were up 3.6% to
$86.8 million, when compared to the first quarter of 2015.
Underwriting income was $10.3 million for the quarter, compared to
$3.7 million for the first quarter of 2015. The first quarter 2016
combined ratio of 88.0% compares to 95.6% for the prior-year
quarter. For the first quarter of 2016, on a net basis there was no
movement in prior-year reserves compared to net unfavorable
prior-year reserve development of $4.7 million or 5.6 points on the
combined ratio for the first quarter of 2015. Catastrophe losses
for the quarter were $0.1 million or 0.1 points on the combined
ratio, compared to $0.5 million or 0.6 points for the first quarter
of 2015. The first quarter 2016 loss ratio, excluding catastrophe
losses and reserve development, was 53.8% compared to 56.7% for the
first quarter of 2015.
Syndicate 1200
- Gross premiums written were up 14.2%
driven by new business and higher renewals in both our property and
liability businesses.
- The loss ratio includes the impact of a
large onshore energy loss.
Syndicate 1200 reported gross written premiums of $162.0
million, up $20.1 million or 14.2% from $141.9 million for first
quarter of 2015. Net written premiums were $80.1 million versus
$80.5 million in the first quarter of 2015. Earned premiums were
$100.5 million versus $103.0 million for the first quarter of 2015.
Underwriting income was $4.1 million for the quarter, compared to
$9.3 million for the first quarter of 2015, reflecting a combined
ratio of 95.8%, compared with 91.0% in the prior-year quarter. For
the first quarter of 2016, net favorable prior-year reserve
development was $0.8 million or 0.8 points on the combined ratio,
compared to net favorable prior-year reserve development of $0.3
million or 0.3 points for the first quarter of 2015. There were no
catastrophe losses in the first quarter of 2016, compared to $1.0
million or 1.0 points on the combined ratio for the first quarter
of 2015. The first quarter 2016 loss ratio, excluding catastrophe
losses and reserve development, was 55.8%, compared to 50.7% in the
first quarter of 2015.
International Specialty
- Gross written premiums rose 7.2% driven
by new business opportunities and strong renewal retention in our
insurance lines at Argo Re. Premium growth in Brazil was down
modestly reflecting the slowdown in the current economic
environment.
- The combined ratio improved to 79.7%
from 81.2% in the same period of 2015.
The International Specialty segment includes our property
reinsurance business as well as our insurance business in Bermuda
and Brazil. In the first quarter of 2016, gross written premiums
were $70.2 million, up $4.7 million or 7.2% from $65.5 million for
the first quarter of 2015. Net written premiums were $33.9 million
versus $25.9 million in the first quarter of 2015. Earned premiums
were $37.8 million versus $36.2 million for the first quarter of
2015. Underwriting income was $7.7 million for the quarter,
compared to $6.8 million for the first quarter of 2015, reflecting
a first quarter 2016 combined ratio of 79.7%, compared with 81.2%
in the prior-year quarter. Net favorable prior-year reserve
development was $0.9 million or 2.4 points on the combined ratio
for the first quarter of 2016, compared to net favorable reserve
development of $2.5 million or 6.9 points for the first quarter of
2015. Catastrophe losses for the quarter were $1.0 million or 2.6
points on the combined ratio, compared to $1.0 million or 2.9
points for the first quarter of 2015. The first quarter 2016 loss
ratio, excluding catastrophe losses and reserve development, was
51.1%, compared to 49.4% in the first quarter of 2015.
CONFERENCE CALL
Argo Group management will conduct an investor conference call
tomorrow, May 3, 2016, starting at 9 a.m. EDT (10 a.m. ADT). A live
webcast of the conference call can be accessed by visiting
http://services.choruscall.com/links/agii160503. Participants
inside the U.S. can access the call by phone by dialing (877)
291-5203. Callers dialing from outside the U.S. can access the call
by dialing (412) 902-6610. Please ask the operator to be connected
to the Argo Group earnings call.
A webcast replay will be available shortly after the conference
call and can be accessed at
http://services.choruscall.com/links/agii160503. In addition, a
telephone replay of the call will be available through May 10,
2016, to callers from inside the U.S. by dialing (877) 344-7529
(conference # 10085112). Callers dialing from outside the U.S. can
access the telephone replay by dialing (412) 317-0088 (conference #
10085112).
ABOUT ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
Argo Group International Holdings, Ltd. (NASDAQ: AGII) is an
international underwriter of specialty insurance and reinsurance
products in the property and casualty market. Argo Group offers a
full line of products and services designed to meet the unique
coverage and claims handling needs of businesses in four primary
segments: Excess & Surplus Lines, Commercial Specialty,
Syndicate 1200 and International Specialty. Argo Group's insurance
subsidiaries are A. M. Best-rated 'A' (Excellent) (highest rating
out of 16 rating classifications) with a stable outlook, and Argo's
U.S. insurance subsidiaries are Standard and Poor's-rated 'A-'
(Strong) with a stable outlook. More information on Argo Group and
its subsidiaries is available at www.argolimited.com.
FORWARD-LOOKING STATEMENTS
This press release contains certain statements that are
“forward-looking statements” within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, as amended. Such statements are qualified by
the inherent risks and uncertainties surrounding future
expectations generally and also may differ materially from actual
future experience involving any one or more of such statements. For
a more detailed discussion of such risks and uncertainties, see
Argo Group's filings with the SEC. The inclusion of a
forward-looking statement herein should not be regarded as a
representation by Argo Group that Argo Group's objectives will be
achieved. Argo Group undertakes no obligation to publicly update
forward-looking statements, whether as a result of new information,
future events or otherwise.
NON-GAAP FINANCIAL MEASURES
In presenting the Company's results, management has included and
discussed in this press release certain non-generally accepted
accounting principles ("non-GAAP") financial measures within the
meaning of Regulation G as promulgated by the U.S. Securities and
Exchange Commission. Management believes that these non-GAAP
measures, which may be defined differently by other companies,
better explain the Company's results of operations in a manner that
allows for a more complete understanding of the underlying trends
in the Company's business. However, these measures should not be
viewed as a substitute for those determined in accordance with
generally accepted accounting principles ("U.S. GAAP").
“Underwriting income” is an internal performance measure used in
the management of the Company’s operations and represents net
amount earned from underwriting activities (net premiums earned
less underwriting expenses and claims incurred). Although this
measure of profit (loss) does not replace net income (loss)
computed in accordance with U.S. GAAP as a measure of
profitability, management uses this measure of profit (loss) to
focus our reporting segments on generating underwriting income.
"Operating income" is an internal performance measure used in
the management of the Company's operations and represents after-tax
operational results excluding, as applicable, net realized
investment gains or losses, net foreign exchange gain or loss, and
other non-recurring items. The Company excludes net realized
investment gains or losses, net foreign exchange gain or loss, and
other non-recurring items from the calculation of operating income
because these amounts are influenced by and fluctuate in part
according to the availability of market opportunities and other
factors. In addition to presenting net income determined in
accordance with U.S. GAAP, the Company believes that showing
operating income enables investors, analysts, rating agencies and
other users of the Company's financial information to more easily
analyze our results of operations and underlying business
performance. Operating income should not be viewed as a substitute
for U.S. GAAP net income.
"Annualized return on average shareholders’ equity" ("ROAE") is
calculated using average shareholders' equity. In calculating ROAE,
the net income available to shareholders for the period is
multiplied by the number of periods in a calendar year to arrive at
annualized net income available to shareholders. The Company
presents ROAE as a measure that is commonly recognized as a
standard of performance by investors, analysts, rating agencies and
other users of its financial information.
"Annualized operating return on average shareholders' equity" is
calculated using operating income (as defined above and annualized
in the manner described for net income (loss) available to
shareholders under ROAE above) and average shareholders' equity.
The assumed tax rate is 20%.
Reconciliations of these financial measures to their most
directly comparable U.S. GAAP measures are included in the attached
tables.
ARGO GROUP INTERNATIONAL
HOLDINGS, LTD. CONSOLIDATED BALANCE SHEETS (in millions, except per
share amounts)
March 31,
December 31, 2016 2015 (unaudited) Assets Total investments $
4,127.1 $ 4,115.7 Cash 122.9 121.7 Accrued investment income 21.3
21.6 Receivables 1,599.5 1,525.6 Goodwill and intangible assets
224.1 225.5 Deferred acquisition costs, net 136.4 132.4 Ceded
unearned premiums 308.0 250.8 Other assets 280.4
232.3 Total assets $ 6,819.7 $ 6,625.6 Liabilities and
Shareholders' Equity Reserves for losses and loss adjustment
expenses $ 3,141.5 $ 3,123.6 Unearned premiums 907.8 886.7 Ceded
reinsurance payable, net 410.1 312.4 Senior unsecured fixed rate
notes 139.4 139.3 Other indebtedness 56.4 55.2 Junior subordinated
debentures 172.7 172.7 Other liabilities 286.4 267.6
Total liabilities 5,114.3 4,957.5 Total shareholders' equity
1,705.4 1,668.1 Total liabilities and shareholders'
equity $ 6,819.7 $ 6,625.6 Book value per common share $
61.71 $ 59.74 ARGO GROUP
INTERNATIONAL HOLDINGS, LTD. FINANCIAL HIGHLIGHTS ALL SEGMENTS (in
millions, except per share amounts) Three Months Ended
March 31,
2016 2015 (unaudited) Gross written premiums $ 519.8 $ 476.7
Net written premiums 303.4 296.0 Earned premiums 344.9 334.6
Net investment income 21.2 25.7 Net realized investment and other
(losses) gains (2.8 ) 11.1 Fee and other income 6.8
4.6 Total revenue 370.1 376.0 Losses and loss
adjustment expenses 191.6 183.7 Underwriting, acquisition and
insurance expenses 132.6 129.6 Interest expense 4.8 4.9 Fee and
other expense, net 6.5 5.0 Foreign currency exchange loss (gain)
1.5 (9.6 ) Total expenses 337.0 313.6
Income before taxes 33.1 62.4 Income tax provision 5.4
3.6 Net income $ 27.7 $ 58.8
Net income per common share (basic) $ 1.00 $
2.09 Net income per common share (diluted) $
0.98 $ 2.05 Weighted average common shares:
Basic 27.7 28.1 Diluted 28.3
28.7 ARGO GROUP INTERNATIONAL
HOLDINGS, LTD. SEGMENT DATA (in millions) Three
Months Ended
March 31,
2016 2015 (unaudited)
Excess & Surplus
Lines
Gross written premiums $ 146.2 $ 138.7 Net written premiums 114.5
112.8 Earned premiums 119.8 111.9 Underwriting income $ 13.9 $ 14.9
Net investment income 8.7 8.0 Interest expense (1.4 )
(1.5 ) Operating income before taxes $ 21.2 $ 21.4
Loss ratio 57.4 % 55.0 % Expense ratio 31.1
31.7 GAAP combined ratio 88.5 % 86.7 %
Commercial
Specialty
Gross written premiums $ 141.4 $ 130.9 Net written premiums 74.9
77.1 Earned premiums 86.8 83.8 Underwriting income $ 10.3 $ 3.7 Net
investment income 5.1 5.0 Interest expense (0.8 ) (0.8 ) Fee
expense, net (0.9 ) (0.8 ) Operating income before
taxes $ 13.7 $ 7.1 Loss ratio 53.9 % 62.9 % Expense
ratio 34.1 32.7 GAAP combined ratio
88.0 % 95.6 %
Syndicate
1200
Gross written premiums $ 162.0 $ 141.9 Net written premiums 80.1
80.5 Earned premiums 100.5 103.0 Underwriting income $ 4.1 $ 9.3
Net investment income 2.8 2.2 Interest expense (0.6 ) (0.7 ) Fee
income, net 1.1 0.4 Operating income
before taxes $ 7.4 $ 11.2 Loss ratio 55.0 % 51.4 %
Expense ratio 40.8 39.6 GAAP combined
ratio 95.8 % 91.0 %
International
Specialty
Gross written premiums $ 70.2 $ 65.5 Net written premiums 33.9 25.9
Earned premiums 37.8 36.2 Underwriting income $ 7.7 $ 6.8 Net
investment income 3.3 2.9 Interest expense (0.7 )
(0.8 ) Operating income before taxes $ 10.3 $ 8.9
Loss ratio 51.3 % 45.3 % Expense ratio 28.4
35.9 GAAP combined ratio 79.7 % 81.2 %
ARGO GROUP INTERNATIONAL HOLDINGS,
LTD.
(in millions) (unaudited) For the Three Months Ended
March 31, Net Prior Year Development 2016 2015
(Favorable)/Unfavorable
E&S $ (2.9 ) $ (5.7 ) Commercial Specialty - 4.7 Syndicate 1200
(0.8 ) (0.3 ) International Specialty (0.9 ) (2.5 ) Run-off
1.4 0.1 Total $ (3.2 ) $ (3.7 )
ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
RECONCILIATION OF OPERATING INCOME (LOSS) TO NET INCOME (LOSS) (in
millions, except per share amounts) Three Months Ended March
31, 2016 2015 (unaudited) Income Before Taxes: From
operations $ 37.4 $ 41.7 Foreign currency exchange (loss) gain (1.5
) 9.6 Net realized investment (losses) gains (2.8 )
11.1 Income before taxes 33.1 62.4 Income tax provision
5.4 3.6 Net income $ 27.7 $ 58.8
Net income per common share (diluted) $ 0.98
$ 2.05 Operating income per common share
(diluted) At assumed tax rate: Income (a) $ 0.94 $ 1.74 Foreign
currency exchange loss (gains) (a) 0.04 (0.27 ) Net realized
investment losses (gains) (a) 0.08 (0.31 )
Operating income per common share (diluted) $ 1.06 $
1.16 (a) Per diluted share at assumed tax rate of
20%. ARGO GROUP INTERNATIONAL
HOLDINGS, LTD. RECONCILIATION OF UNDERWRITING INCOME TO NET INCOME
(in millions) Three Months Ended March 31, 2016 2015
(unaudited) Earned Premiums $ 344.9 $ 334.6 Losses and Loss
Adjustment Expenses 191.6 183.7 Underwriting, Acquisition and
Insurance Expenses 132.6 129.6
Underwriting Income 20.7 21.3 Net investment income 21.2 25.7 Net
realized investment and other (losses) gains (2.8 ) 11.1 Fee and
other income 6.8 4.6 Interest expense (4.8 ) (4.9 ) Fee and other
expense (6.5 ) (5.0 ) Foreign currency exchange (loss) gain
(1.5 ) 9.6 Income Before Taxes 33.1 62.4 Income Tax
Provision 5.4 3.6 Net Income $ 27.7
$ 58.8
ARGO GROUP INTERNATIONAL HOLDINGS, LTD. SHAREHOLDER RETURN
ANALYSIS (in millions)
Three Months Ended March 31,
2016 2015 % Change Net income $ 27.7 $ 58.8 (52.9 %)
Operating income (a) 29.9 33.4 (10.5 %) Shareholders' Equity
- Beginning of the period $ 1,668.1 $ 1,646.7 1.3 % Shareholders'
Equity - End of current period 1,705.4 1,662.8
2.6 % Average Shareholders' Equity $ 1,686.8 $ 1,654.8 1.9 %
Annualized return on average shareholders' equity 6.6 % 14.2
% Annualized operating return on average shareholders' equity
7.1 % 8.1 %
(a) at assumed 20% tax rate
ARGO GROUP INTERNATIONAL
HOLDINGS, LTD. COMPONENTS OF INVESTMENT INCOME ALL SEGMENTS (in
millions) Three Months Ended
March 31,
June 30,
September 30,
December 31,
March 31,
2015 2015 2015 2015 2016 Net Investment Income $ 20.8 $ 21.8
$ 21.3 $ 21.7 $ 22.7 Alternative Investments 4.9 2.6
(2.9 ) (1.6 ) (1.6 ) Total $ 25.7 $ 24.4 $
18.4 $ 20.1 $ 21.2
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160502006179/en/
Argo Group International Holdings, Ltd.Susan Spivak Bernstein,
212-607-8835Senior Vice President, Investor Relations
Argo (NYSE:ARGO)
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