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Argo reports operating loss, unfavourable reserve development

25th February 2020 - Author: Luke Gallin

Bermuda domiciled insurer and reinsurer Argo Group International Holdings, Ltd. has reported a net loss of more than $103 million for the fourth-quarter of 2019, and a combined ratio of almost 127%.

argo globalThe company announced earlier this month that its fourth-quarter results were likely to include an underwriting loss, with Chief Executive Officer (CEO), Kevin Rehnberg warning of “clearly unacceptable” results.

The re/insurer has now released its financials for the fourth-quarter and full year 2019, and has reported an underwriting loss of $113.6 million for Q4 and $157 million for the full year. This compares with an underwriting gain of $2.1 million in Q4 2018 and $36.2 million for the full year.

During the quarter, Argo’s loss ratio increased to 84.4% from 62% in the prior year quarter, while the firm’s expense ratio jumped to 42.3% versus 37.5% in 2018.

The increases contributed to a weakening of the combined ratio for both periods and most significantly in the fourth-quarter. At 126.7%, Argo’s combined ratio deteriorated from the 99.5% recorded for the same period in 2018, and, for the full year, Argo’s combined ratio weakened from 97.9% to 109.1% in 2019.

The re/insurer’s catastrophe loss bill, inclusive of cat-related reinstatement premium adjustments, declined substantially in the quarter, from $31.7 million in 2018 to $3.2 million. For the full year, the catastrophe loss total declined from $61.9 million in 2018 to $34.4 million.

While the catastrophe experience was more favourable for Argo in Q4 and the full year, the company has reported unfavourable prior-year reserve development of $76.5 million for Q4 2019 against favourable development of almost $14 million in the prior year quarter. For the full year, Argo has reported over $138 million of unfavourable prior-year reserve development, compared with $18 million of favourable development a year earlier.

Overall, Argo has recorded a net loss of $103 million for the fourth-quarter and a net loss of $8.4 million for the full year, this compares with a net loss of $43.6 million for Q4 2018, and net income of $63.6 million for the full year 2018.

For the fourth-quarter, Argo has announced an adjusted operating loss of $73.9 million versus a gain of almost $19 million in Q4 2018. And, for the full year 2019, the Bermuda-based re/insurer has recorded an adjusted operating loss of almost $40 million, against a gain of nearly $112 million in 2018.

Commenting on the company’s performance in 2019, Rehnberg said: “We believe our organization has great potential, but our results for 2019 are not indicative of our future direction. Immediately upon my appointment as Interim CEO in November, we started a review process of all of Argo’s operations. That review process is ongoing. The company has a strong foundation of specialty insurance and reinsurance businesses, focused largely on the most attractive specialty market – U.S. domiciled risks. The core of this foundation is not going to change, but it can certainly be enhanced.

“Some of our businesses are performing very well today, while others are not meeting return expectations. We are acting swiftly to address areas where the available return prospects are not achievable in the near term and do not fit our focused strategic direction.

“Going forward, we are insisting upon a culture of results and accountability, as well as a set of operating principles that will help us to be a more focused and efficient organization.

“We are eliminating unnecessary spending and will deploy capital more strategically going forward. We believe Argo has an excellent specialty platform and world-class talent. We intend to work together to aggressively pursue our financial targets and deliver an improving return on equity over the near and long term. We look forward to sharing more about this strategy on our earnings call tomorrow and throughout the rest of the year.”

Overall, Argo experienced premium growth in the year, with a slight rise in gross written premiums in Q4 and more meaningful expansion for the full year, to $3.1 billion. Net written premiums actually declined in the quarter but remained in line with the previous full year, at $1.8 billion.

Net investment income did improve for Argo in Q4 and the full year, reaching $34.2 million and $151.1 million, respectively.

“The Board is fully supportive of Kevin’s vision for the Company and impressed by all that has been achieved over the past few months, and we welcome him as Argo’s permanent CEO.

“He and the team have a strong track record of operational excellence and noteworthy results in the U.S. We are confident in Kevin’s ability to execute those strategies companywide. We believe the Argo management team has been strengthened by recent hires, and we are confident in their ability to deliver on the Company’s commitments to customers, employees and shareholders,” said Thomas Bradley, Chairman-elect of the Argo Board of Directors.

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