While catastrophe activity in the third-quarter of 2018 was higher than management at Argo Group International Holdings would have liked, it did highlight the effectiveness of the firm’s reinsurance and retrocession programmes, according to the company’s Chief Executive Officer (CEO), Mark Watson.
Catastrophe losses in the third-quarter of 2018 for Argo totalled $24.2 million, net of reinstatement and other cat-related premium adjustments, a figure that jumps to $30.2 million for the first nine months of the year.
While the cat losses are higher than the $104.5 million and $110.9 million recorded in the same periods in 2017, respectively, management at Argo noted that while the third-quarter is typically fairly active with regards to catastrophe activity, how the firm manages its volatility now, when compared with a year ago, is different.
“A year ago, we discussed the financial output of multiple reinsurance and retro retentions, and how things would look differently in 2018 versus 2017. And, fortunately, as we suspected last year, there’s an obvious difference, and that is reduced volatility in an active catastrophe loss quarter with the important commonality of continued strong underlying performance, as evidenced by the core non-cat loss ratios.
“Following the integration of Ariel Re, moving into the 2018 underwriting year, we’re now using more capacity from the capital markets as well as restructuring our reinsurance programme to reduce earnings volatility.
“And while this isn’t necessarily something that you want to test, results in the third-quarter of 2018 demonstrated that the changes we made are doing just what we set up to do: Protect our income statement and balance sheet from losses in a period of similar frequency to the third-quarter of 2017, where industry results were impacted by several natural catastrophe loss events on a global basis,” said Watson, speaking during the company’s Q3 2018 earnings call.
Argo’s net income in the third-quarter reached $40.6 million, compared with a net loss of $61.3 million a year earlier. The combined ratio strengthened year-on-year to 99.7%, compared with 126.5% in 2017. For the third-quarter, the loss and expense ratios were 62.1% and 37.6% respectively, compared with 83.8% and 42.7% a year earlier, respectively.
“So, in summary, while we prefer not to have had that level of cat activity that we saw in the third-quarter, it did show that we have the right reinsurance and retro programmes in place, protecting our income stream and balance sheet.
“Our underlying underwriting results continued to improve and we’re growing in the areas where we planned. I believe, our expense ratio is headed in the right direction, and we expect the combination of the above to generate higher returns for our shareholders,” said Watson.
