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Argo syndicate sale could boost earnings, says S&P

9th September 2022 - Author: Matt Sheehan

Analysts at S&P have assured that no immediate impact to ratings will be felt following Argo Group International Holdings’ sale of its Lloyd’s Syndicate 1200 and Argo Underwriting Agency Ltd. to Westfield Specialty.

argo globalHowever, the rating agency added that the transaction could improve Argo’s prospective earnings.

Back in April, Argo confirmed it was exploring strategic alternatives, including a potential sale, and this recently confirmed deal has been seen as an execution of this strategy and a major step toward the company’s objective of becoming a US-focused specialty insurer.

The sale of the syndicate, announced yesterday, is expected to close in the first half of next year for a purchase price of approximately $125 million.

Syndicate 1200 has a book of business sized at an estimated $650 million and is focused on numerous lines of specialty insurance.

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S&P notes that Argo’s underwriting performance has been weak over the past year, particularly in its international operations, with the company generating a five-year average combined ratio including corporate expenses of 106.2%, and 111.8% in its Lloyd’s Syndicate 1200.

According to S&P analysts, this performance owes mainly to elevated natural catastrophe losses, pandemic losses in 2020, and adverse reserve developments.

However, in the first six months of 2022, the underwriting performance improved with a combined ratio including corporate expenses of 98.0% compared with 101.0% in the prior year period.

Argo has taken several underwriting and strategic actions over the past 18 months, including the sale of its international operations of Ariel Re, Malta, and Brazilian businesses, and renewal rights on the contract binding and specialty property business.

The company also exited several lines of business in its syndicate 1200, in its London directors and officers business, and in its U.S. operations, and has sought loss portfolio transfer and reinsurance to close (RITC) on its US and syndicate loss reserves.

S&P says that these remediation actions, along with the sale of its syndicate 1200, could improve Argo’s prospective performance, but it warns that there is still execution risk and it could take some time for the company to realize all the benefits in its underwriting performance.

As a result, the agency’s ratings on Argo remain unchanged with a negative outlook.

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