Ratings agency AM Best has revised down its assessment of Argo Group’s balance sheet strength from the strongest level to very strong, which reflects a lower Best Capital Adequacy Ratio (BCAR) score on the back of adverse reserve development.
On February 9th, 2022, Argo pre-announced that up to $140 million of net adverse prior year reserve development, as well as some non-operating charges, would be included in its fourth-quarter 2021 results.
The reserve development had a negative impact on the group’s risk-adjusted capitalisation, as measured by AM Best’s BCAR, resulting in a lower BCAR score, which no longer supports an assessment level of strongest.
“Albeit weaker than expected earnings for the year, Argo Group’s results over the past five years are still considered adequate,” says AM Best. “Operating losses in 2021 were primarily related to material adverse loss reserve development in its general liability business, specifically related to construction defect claims from prior accident years. Excluding this charge, accident year results were more in line with AM Best’s expectations.”
While the BCAR score has fallen, AM Best has affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” (Excellent) of Argo Re and its subsidiaries. Additionally, the ratings agency has affirmed the Long-Term ICR of “bbb-” (Good) and the Long-Term Issue Credit Ratings (Long-Term IR) of its parent, Argo Group International Holdings.
At the same time, AM Best has affirmed the Long-Term ICR of “bbb-” (Good) and the Long-Term IR of Argo Group U.S.
For all of these credit ratings, AM Best says the outlook is stable.
“The ratings reflect Argo Group’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and marginal enterprise risk management (ERM),” says AM Best.
Looking forwards, the ratings agency expects improved underwriting margins and reduced volatility at the carrier as management continues to pursue a corporate strategy with a focus on core specialty niche businesses.
The re/insurer’s exposure to property catastrophe risks are also significantly lower, which, as noted by AM best, continues to improve the firm’s current accident year loss ratio while expense ratio reduction targets are also being met.
“AM Best expects the group to take action to improve its risk-adjusted capitalization in the near term while benefiting from increased earnings fundamentals.”
