Global financial services ratings agency A.M. Best has removed from under review with negative implications and downgraded the credit ratings of Argo Group International Holdings, Ltd. and its subsidiaries.
Specifically, the ratings agency has removed from under review with negative implications and downgraded the Financial Strength Rating (FSR) to A- (Excellent) from A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to “a-” from “a” of Argo Re and its subsidiaries.
At the same time, the ratings agency has removed from under review with negative implications and downgraded the Long-Term ICR to “bbb-” from “bbb” and downgraded the Long-Term IR of the reinsurer’s parent, Argo Group International Holdings, Ltd. And, has removed from under review with negative implications and downgraded the Long-Term ICR to “bbb-” from “bbb” and downgraded the Long-Term IR of Argo Group US, Inc.
The outlook A.M. Best has assigned to all of these ratings is negative, while the ratings themselves reflect the firm’s balance sheet strength, which the ratings agency sees as very strong, as well as adequate operating performance, neutral business profile and marginal ERM.
A.M. Best notes that the downgrade is a follow up to actions taken in November of last year in response to a subpoena issued by the Securities and Exchange Commission (SEC), which relates to the actions and departure of previous CEO Mark Watson.
Argo announced earlier this month that following the messy departure of Watson, which came after the SEC announced an internal review of Argo over compensation practices for its executives, Kevin Rehnberg would take over as CEO of the global re/insurer.
The downgrade also reflects the company’s recently announced fourth-quarter results, which included an operating loss and a combined ratio of almost 127% after the firm pre-warned of an unacceptable performance during the period.
In light of the back-and-forth between Argo and shareholder Voce, the re/insurer recently announced a number of new additions to its Board of Directors, all of which were jointly agreed upon by both Argo and Voce.
A.M. Best expands on this, “During the fourth quarter, Argo management undertook significant changes as part of the new leadership’s ongoing efforts to correct past practices, culture and governance as it relates to the SEC inquiry. While the organization is still working through the SEC inquiry, Argo recently appointed a new board chairman and a new CEO. Both are continuing a board refreshment process after Argo reached a settlement agreement with the activist shareholder Voce Capital.
“This process is intended to bring on a variety of new complementary individuals, including those with corporate governance experience, as was the case with the most recent nomination of Dr. Bernard Baily.”