S&P Global Ratings has dropped its outlook for Argo Group US and its subsidiaries from positive to stable, after the specialty re/insurer was issued with a subpoena by The US Securities and Exchange Commission.
After news of the subpoena broke, Argo released a statement explaining that it was conducting an internal review while working with the assistance of outside counsel in order to fully cooperating with the SEC.
The SEC subpoena is concerned with documents primarily related to the company’s “disclosure of certain compensation-related perquisites.”
S&P notes that the subpoena’s scope seems to be narrow and the company’s assessment of related financial impact is modest, although the ratings agency will continue to closely monitor future developments.
In addition, Argo’s operating performance in the first half of 2019 suggests that anticipated improvements in profitability measures could be on a slower trajectory than previously thought.
S&P has affirmed its ‘BBB-‘ long-term issuer credit rating on Argo Group US and its ‘A-‘ long-term financial strength and issuer credit ratings on the firm’s core operating subsidiaries.
The stable outlook reflects an expectation that the company will continue to make progress on its strategic initiatives, which will sustain its strong competitive position and very strong capitalisation. However, potential governance issues will remain an overhang on our view of Argo’s creditworthiness.
S&P says it could lower the ratings over the next two years if there is a material adverse development rising from the current governance and disclosure reviews, or if operating results are significantly weaker than our expectations, or are substantially worse than peers’.