|
Date of Report (Date of earliest event reported):
May 3, 2017
|
Bermuda
|
1-15259
|
98-0214719
|
||
(State or other jurisdiction
of incorporation) |
(Commission
File Number) |
(I.R.S. Employer
Identification No.) |
110 Pitts Bay Road
Pembroke HM 08 Bermuda |
P.O. Box HM 1282
Hamilton HM FX Bermuda |
(Address, Including Zip Code,
of Principal Executive Offices) |
(Mailing Address)
|
ITEM 2.02.
|
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
|
ITEM 9.01.
|
FINANCIAL STATEMENTS AND EXHIBITS.
|
99.1
|
Press Release issued by Argo Group International Holdings, Ltd. dated May 3, 2017.
|
ARGO GROUP INTERNATIONAL HOLDINGS, LTD. | ||||
|
By:
|
/s/ Jay S. Bullock | ||
Dated: May 3, 2017
|
Name: | Jay S. Bullock | ||
Title: | Executive Vice President and Chief Financial Officer |
Gross Written
Premiums
$598.6M
↑ 15.2%
from 1Q 2016
|
Combined
Ratio
99.1%
vs. 94.0%
in 1Q 2016
|
Net Investment
Income
$30.5M
↑ 43.9%
from 1Q 2016
|
Net Income Per
Diluted Share
$1.19
↑ 33.7%
from 1Q 2016
|
Book Value
Per Share
$60.84
↑ 1.9%
from 4Q 2016
|
“First quarter 2017 net income per share grew 33.7% to $1.19 per share benefiting from strong results in our investment portfolio, our U.S. Operations, and within our International Segment, the inclusion of Ariel Re,” said Argo Group CEO Mark E. Watson III. “Despite challenges in the Lloyd’s market and pre-announced charges related to claims for Hurricane Matthew and the Ogden rate change, our book value per share grew 8.4% from March 31, 2016.”
|
·
|
Gross written premiums
were up 15.2% to $598.6 million from $519.8 million in the first quarter of 2016. In the U.S. Operations, gross written premiums were up 16.5% to $335.0 million from $287.6 million. In the International Operations gross written premiums grew 13.5% to $263.6 million from $232.2 million. Excluding Ariel Re, which closed in February 2017, overall gross written premiums were up 9.3% in the first quarter comparison.
|
·
|
Net income
was $36.7 million or $1.19 per diluted share, compared to $27.7 million or $0.89 per diluted share for the first quarter of 2016.
|
·
|
Adjusted operating income
(1)
was $21.9 million or $0.71 per diluted share, compared to $29.9 million or $0.96 per diluted share for the first quarter of 2016. The current quarter included $16.5 million or $0.43 per diluted share in pre-announced non-recurring charges and claims from fourth quarter 2016 catastrophe events.
|
·
|
Pre-tax underwriting income
(1)
was $3.3 million, compared to $20.7 million in the first quarter of 2016.
|
·
|
The loss ratio for the first quarter of 2017 was 58.6% compared to 55.5% for the first quarter of 2016. The loss ratio
excluding catastrophes and reserve development for the first quarter of 2017 was 56.4%, compared to 55.5% for the first quarter of 2016.
|
·
|
Estimated pre-tax catastrophe losses
for the first quarter of 2017 were $1.8 million or 0.4 points on the combined ratio, compared to $3.3 million or 0.9 points on the combined ratio for the first quarter of 2016.
|
·
|
As previously reported, the quarter was impacted by approximately $10.0 million from the combination of the Ogden rate change, and claims from Hurricane Matthew.
As a result net unfavorable prior-year reserve development in the quarter was $6.8 million or 1.8 points on the combined ratio, compared to net favorable prior-year reserve development of $3.2 million or 0.9 points on the combined ratio for the first quarter of 2016.
|
·
|
Excluding previously announced non-recurring charges
related to the Ariel Re transaction and information technology transition costs, the expense ratio was 38.8% for the first quarter of 2017, compared to 38.5% for the first quarter of 2016.
|
·
|
Net Investment Income
was $30.5 million, compared to $21.2 million for the 2016 first quarter.
|
·
|
Book value per share
increased to $60.84, up 1.9% from $59.73 at Dec. 31, 2016.
|
·
|
Cash and investments
at March 31, 2017 totaled approximately $4.8 billion with a net pre-tax unrealized gain of approximately $130.9 million.
|
·
|
All per share amounts are adjusted for the 10% stock dividend paid on June 15, 2016, to stockholders of record on June 1, 2016.
|
·
|
All references to catastrophe losses are pre-tax and net of reinsurance and estimated reinstatement premiums. Point impacts on the combined ratio are calculated as the difference between the reported combined ratio and the combined ratio excluding incurred catastrophe losses and associated reinstatement premiums.
|
·
|
First quarter 2017 gross written premiums growth of 16.5% was driven by all four of our major businesses which include Property, Liability, Professional, and Specialty lines.
|
·
|
The loss ratio for the 2017 quarter was 55.6% compared to 55.9% for the 2016 quarter.
|
·
|
The loss ratio excluding catastrophe losses and reserve development was 57.6%, compared to 56.2% in the 2016 first quarter.
|
·
|
First quarter 2017 gross written premiums growth was driven primarily by Ariel Re. Excluding Ariel Re gross written premiums was up approximately 0.5%.
|
·
|
The current quarter loss ratio was 61.3% compared to 54.0% in the 2016 quarter primarily driven by pre-announced losses from the Ogden rate change and claims from Hurricane Matthew.
|
·
|
The loss ratio for the 2017 first quarter, excluding catastrophe losses and reserve development, was 54.7%, compared to 54.5% in the 2016 first quarter.
|
ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
|
||||||||
CONSOLIDATED BALANCE SHEET
|
||||||||
(in millions, except per share amounts)
|
||||||||
March 31,
|
December 31,
|
|||||||
2017
|
2016
|
|||||||
(unaudited)
|
||||||||
Assets
|
||||||||
Total investments
|
$
|
4,565.6
|
$
|
4,324.3
|
||||
Cash
|
190.7
|
86.0
|
||||||
Accrued investment income
|
21.8
|
20.7
|
||||||
Receivables
|
2,084.7
|
1,849.4
|
||||||
Goodwill and intangible assets
|
259.3
|
219.9
|
||||||
Deferred acquisition costs, net
|
155.1
|
139.1
|
||||||
Ceded unearned premiums
|
438.6
|
302.8
|
||||||
Other assets
|
303.7
|
262.8
|
||||||
Total assets
|
$
|
8,019.5
|
$
|
7,205.0
|
||||
Liabilities and Shareholders' Equity
|
||||||||
Reserves for losses and loss adjustment expenses
|
$
|
3,580.3
|
$
|
3,350.8
|
||||
Unearned premiums
|
1,130.4
|
970.0
|
||||||
Ceded reinsurance payable, net
|
611.6
|
466.6
|
||||||
Senior unsecured fixed rate notes
|
139.5
|
139.5
|
||||||
Other indebtedness
|
180.3
|
55.4
|
||||||
Junior subordinated debentures
|
256.3
|
172.7
|
||||||
Other liabilities
|
286.5
|
257.3
|
||||||
Total liabilities
|
6,184.9
|
5,412.3
|
||||||
Total shareholders' equity
|
1,834.6
|
1,792.7
|
||||||
Total liabilities and shareholders' equity
|
$
|
8,019.5
|
$
|
7,205.0
|
||||
Book value per common share
|
$
|
60.84
|
$
|
59.73
|
ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
|
||||||||
FINANCIAL HIGHLIGHTS
|
||||||||
ALL SEGMENTS
|
||||||||
(in millions, except per share amounts)
|
||||||||
Three Months Ended
|
||||||||
March 31,
|
||||||||
2017
|
2016
|
|||||||
(unaudited)
|
||||||||
Gross written premiums
|
$
|
598.6
|
$
|
519.8
|
||||
Net written premiums
|
343.4
|
303.4
|
||||||
Earned premiums
|
379.4
|
344.9
|
||||||
Net investment income
|
30.5
|
21.2
|
||||||
Fee and other income
|
3.6
|
6.8
|
||||||
Net realized investment and other gains (losses)
|
14.6
|
(2.8
|
)
|
|||||
Total revenue
|
428.1
|
370.1
|
||||||
Losses and loss adjustment expenses
|
222.5
|
191.6
|
||||||
Underwriting, acquisition and insurance expenses
|
153.6
|
132.6
|
||||||
Interest expense
|
5.9
|
4.8
|
||||||
Fee and other expense, net
|
4.1
|
6.5
|
||||||
Foreign currency exchange (gains) losses
|
(0.7
|
)
|
1.5
|
|||||
Total expenses
|
385.4
|
337.0
|
||||||
Income before taxes
|
42.7
|
33.1
|
||||||
Income tax provision
|
6.0
|
5.4
|
||||||
Net income
|
$
|
36.7
|
$
|
27.7
|
||||
Net income per common share (basic)
|
$
|
1.22
|
$
|
0.91
|
||||
Net income per common share (diluted)
|
$
|
1.19
|
$
|
0.89
|
||||
Weighted average common shares:
|
||||||||
Basic
|
30.0
|
30.5
|
||||||
Diluted
|
30.9
|
31.1
|
ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
|
||||||||
SEGMENT DATA
|
||||||||
(in millions)
|
||||||||
(unaudited)
|
||||||||
For Three Months Ended
|
||||||||
March 31,
|
March 31,
|
|||||||
2017
|
2016
|
|||||||
U.S. OPERATIONS
|
||||||||
Gross written premiums
|
$
|
335.0
|
$
|
287.6
|
||||
Net written premiums
|
217.0
|
189.4
|
||||||
Earned premiums
|
221.2
|
206.6
|
||||||
Underwriting income
|
20.8
|
24.2
|
||||||
Net investment income
|
19.9
|
13.8
|
||||||
Interest expense
|
(2.7
|
)
|
(2.2
|
)
|
||||
Fee expense, net
|
(0.8
|
)
|
(0.9
|
)
|
||||
Net income before taxes
|
$
|
37.2
|
$
|
34.9
|
||||
Loss ratio
|
55.6
|
%
|
55.9
|
%
|
||||
Expense ratio
|
35.0
|
%
|
32.4
|
%
|
||||
GAAP combined ratio
|
90.6
|
%
|
88.3
|
%
|
||||
INTERNATIONAL OPERATIONS
|
||||||||
Gross written premiums
|
$
|
263.6
|
$
|
232.2
|
||||
Net written premiums
|
126.4
|
114.0
|
||||||
Earned premiums
|
158.2
|
138.3
|
||||||
Underwriting income
|
3.6
|
11.8
|
||||||
Net investment income
|
6.6
|
6.1
|
||||||
Interest expense
|
(2.0
|
)
|
(1.3
|
)
|
||||
Fee income, net
|
0.1
|
1.1
|
||||||
Net income before taxes
|
$
|
8.3
|
$
|
17.7
|
||||
Loss ratio
|
61.3
|
%
|
54.0
|
%
|
||||
Expense ratio
|
36.4
|
%
|
37.5
|
%
|
||||
GAAP combined ratio
|
97.7
|
%
|
91.5
|
%
|
ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
|
|||||||||
(in millions)
|
|||||||||
(unaudited)
|
|||||||||
Net Prior Year Development
|
For the Three Months Ended
|
||||||||
(Favorable)/Unfavorable
|
March 31,
|
||||||||
2017
|
2016
|
||||||||
(unaudited) | |||||||||
U.S. Operations
|
$
|
(5.2
|
)
|
(a) |
$
|
(2.9
|
)
|
||
International Operations
|
9.6
|
(1.7
|
)
|
||||||
Run-off Lines
|
2.4
|
1.4
|
|||||||
Total
|
$
|
6.8
|
$
|
(3.2
|
)
|
ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
|
||||||||
RECONCILIATION OF UNDERWRITING INCOME TO NET INCOME
|
||||||||
(in millions)
|
||||||||
(unaudited)
|
||||||||
Three Months Ended
|
||||||||
March 31,
|
||||||||
2017
|
2016
|
|||||||
Net Income
|
$
|
36.7
|
$
|
27.7
|
||||
Add (deduct):
|
||||||||
Income tax provision
|
6.0
|
5.4
|
||||||
Net investment income
|
(30.5
|
)
|
(21.2
|
)
|
||||
Net realized investment and other (gains) losses
|
(14.6
|
)
|
2.8
|
|||||
Fee and other income
|
(3.6
|
)
|
(6.8
|
)
|
||||
Interest expense
|
5.9
|
4.8
|
||||||
Fee and other expense
|
4.1
|
6.5
|
||||||
Foreign currency exchange (gains) losses
|
(0.7
|
)
|
1.5
|
|||||
Underwriting income
|
$
|
3.3
|
$
|
20.7
|
ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
|
||||||||
RECONCILIATION OF ADJUSTED OPERATING INCOME TO NET INCOME
|
||||||||
(in millions, except per share amounts)
|
||||||||
(unaudited)
|
||||||||
Three Months Ended
|
||||||||
March 31,
|
||||||||
2017
|
2016
|
|||||||
Net income, as reported
|
$
|
36.7
|
$
|
27.7
|
||||
Provision for income taxes
|
6.0
|
5.4
|
||||||
Net income, before taxes
|
42.7
|
33.1
|
||||||
Add (deduct):
|
||||||||
Net realized investment and other (gains) losses
|
(14.6
|
)
|
2.8
|
|||||
Foreign currency exchange (gains) losses
|
(0.7
|
)
|
1.5
|
|||||
Adjusted operating income before taxes
|
27.4
|
37.4
|
||||||
Provision for income taxes, at assumed rate (a)
|
5.5
|
7.5
|
||||||
Adjusted operating income
|
$
|
21.9
|
$
|
29.9
|
||||
Adjusted operating income per common share (diluted)
|
$
|
0.71
|
$
|
0.96
|
||||
Weighted average common shares, diluted
|
30.9
|
31.1
|
ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
|
||||||||
RECONCILIATION OF SEGMENT INCOME TO NET INCOME
|
||||||||
(in millions)
|
||||||||
(unaudited)
|
||||||||
For the Three Months Ended
|
||||||||
March 31,
|
||||||||
2017
|
2016
|
|||||||
Segment income (loss) before income taxes
|
||||||||
U.S. Operations
|
37.2
|
34.9
|
||||||
International Operations
|
8.3
|
17.7
|
||||||
Run-off Lines
|
(2.5
|
)
|
(1.4
|
)
|
||||
Corporate and Other
|
(15.6
|
)
|
(13.8
|
)
|
||||
Realized investment and other gains (losses)
|
14.6
|
(2.8
|
)
|
|||||
Foreign currency exchange gains (losses)
|
0.7
|
(1.5
|
)
|
|||||
Net income before income taxes
|
42.7
|
33.1
|
||||||
Provision for taxes
|
6.0
|
5.4
|
||||||
Net income
|
$
|
36.7
|
$
|
27.7
|
ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
|
||||||||
RECONCILIATION OF LOSS RATIOS
|
||||||||
(unaudited)
|
||||||||
Three Months Ended
|
||||||||
March 31,
|
||||||||
2017
|
2016
|
|||||||
U.S. Operations
|
||||||||
Loss ratio
|
55.6
|
%
|
55.9
|
%
|
||||
Prior accident year loss development
|
2.4
|
%
|
1.4
|
%
|
||||
Catastrophe losses
|
-0.4
|
%
|
-1.1
|
%
|
||||
Current accident year ex-cats loss ratio
|
57.6
|
%
|
56.2
|
%
|
||||
International Operations
|
||||||||
Loss ratio
|
61.3
|
%
|
54.0
|
%
|
||||
Prior accident year loss development
|
-6.0
|
%
|
1.3
|
%
|
||||
Catastrophe losses
|
-0.6
|
%
|
-0.8
|
%
|
||||
Current accident year ex-cats loss ratio
|
54.7
|
%
|
54.5
|
%
|
||||
Consolidated
|
||||||||
Loss ratio
|
58.6
|
%
|
55.5
|
%
|
||||
Prior accident year loss development
|
-1.8
|
%
|
0.9
|
%
|
||||
Catastrophe losses
|
-0.4
|
%
|
-0.9
|
%
|
||||
Current accident year ex-cats loss ratio
|
56.4
|
%
|
55.5
|
%
|
ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
|
|||||||||||||
RECONCILIATION OF EXPENSE RATIO
|
|||||||||||||
(in millions)
|
|||||||||||||
(unaudited)
|
|||||||||||||
For the three months ended March 31, 2017
|
|||||||||||||
As reported
|
Adjustments
|
As adjusted
|
|||||||||||
Earned premiums
|
$
|
379.4
|
$
|
-
|
$
|
379.4
|
|||||||
Underwriting, insurance and acquisition expenses
|
153.6
|
6.5
|
(a) |
147.1
|
|||||||||
Expense ratio
|
40.5
|
%
|
38.8
|
%
|
ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
|
||||||||||||||||||||||||
GROSS WRITTEN PREMIUMS BY SEGMENT AND LINE OF BUSINESS
|
||||||||||||||||||||||||
(in millions)
|
||||||||||||||||||||||||
(unaudited)
|
||||||||||||||||||||||||
U.S. Operations
|
Three months ended
|
Three months ended
|
||||||||||||||||||||||
March 31, 2017
|
March 31, 2016
|
|||||||||||||||||||||||
Gross Written
|
Net Written
|
Net Earned
|
Gross Written
|
Net Written
|
Net Earned
|
|||||||||||||||||||
Property
|
$
|
55.9
|
$
|
15.0
|
$
|
29.0
|
$
|
43.7
|
$
|
19.1
|
$
|
33.5
|
||||||||||||
Liability
|
218.0
|
154.7
|
145.8
|
193.9
|
135.7
|
140.8
|
||||||||||||||||||
Professional
|
33.1
|
26.2
|
26.2
|
29.5
|
17.3
|
17.6
|
||||||||||||||||||
Specialty
|
28.0
|
21.1
|
20.2
|
20.5
|
17.3
|
14.7
|
||||||||||||||||||
Total
|
$
|
335.0
|
$
|
217.0
|
$
|
221.2
|
$
|
287.6
|
$
|
189.4
|
$
|
206.6
|
||||||||||||
International Operations
|
Three months ended
|
Three months ended
|
||||||||||||||||||||||
March 31, 2017
|
March 31, 2016
|
|||||||||||||||||||||||
Gross Written
|
Net Written
|
Net Earned
|
Gross Written
|
Net Written
|
Net Earned
|
|||||||||||||||||||
Property
|
$
|
92.8
|
$
|
34.0
|
$
|
60.6
|
$
|
97.0
|
$
|
42.1
|
$
|
51.7
|
||||||||||||
Liability
|
32.0
|
17.2
|
18.6
|
36.3
|
20.5
|
21.3
|
||||||||||||||||||
Professional
|
36.2
|
20.5
|
23.9
|
31.7
|
17.6
|
23.5
|
||||||||||||||||||
Specialty
|
102.6
|
54.7
|
55.1
|
67.2
|
33.8
|
41.8
|
||||||||||||||||||
Total
|
$
|
263.6
|
$
|
126.4
|
$
|
158.2
|
$
|
232.2
|
$
|
114.0
|
$
|
138.3
|
||||||||||||
Consolidated
|
Three months ended
|
Three months ended
|
||||||||||||||||||||||
March 31, 2017
|
March 31, 2016
|
|||||||||||||||||||||||
Gross Written
|
Net Written
|
Net Earned
|
Gross Written
|
Net Written
|
Net Earned
|
|||||||||||||||||||
Property
|
$
|
148.7
|
$
|
49.0
|
$
|
89.6
|
$
|
140.7
|
$
|
61.2
|
$
|
85.2
|
||||||||||||
Liability
|
250.0
|
171.9
|
164.4
|
230.2
|
156.2
|
162.1
|
||||||||||||||||||
Professional
|
69.3
|
46.7
|
50.1
|
61.2
|
34.9
|
41.1
|
||||||||||||||||||
Specialty
|
130.6
|
75.8
|
75.3
|
87.7
|
51.1
|
56.5
|
||||||||||||||||||
Total
|
$
|
598.6
|
$
|
343.4
|
$
|
379.4
|
$
|
519.8
|
$
|
303.4
|
$
|
344.9
|
ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
|
||||||||
COMPONENTS OF NET INVESTMENT INCOME
|
||||||||
ALL SEGMENTS
|
||||||||
(in millions)
|
||||||||
(unaudited)
|
||||||||
Three Months Ended
|
||||||||
March 31
|
March 31
|
|||||||
2017
|
2016
|
|||||||
Net investment income, excluding alternatives
|
$
|
22.2
|
$
|
22.7
|
||||
Alternative investments
|
8.3
|
(1.5
|
)
|
|||||
Total net investment income
|
$
|
30.5
|
$
|
21.2
|
ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
|
||||||||||||
SHAREHOLDER RETURN ANALYSIS
|
||||||||||||
(in millions)
|
||||||||||||
(unaudited)
|
||||||||||||
For the Three Months Ended March 31,
|
||||||||||||
2017
|
2016
|
% Change
|
||||||||||
Net income
|
$
|
36.7
|
$
|
27.7
|
32.5
|
%
|
||||||
Adjusted operating income
(a)
|
21.9
|
29.9
|
(26.8
|
%)
|
||||||||
Shareholders' Equity - Beginning of the period
|
$
|
1,792.7
|
$
|
1,668.1
|
7.5
|
%
|
||||||
Shareholders' Equity - End of current period
|
1,834.6
|
1,705.4
|
7.6
|
%
|
||||||||
Average Shareholders' Equity
|
$
|
1,813.7
|
$
|
1,686.8
|
7.5
|
%
|
||||||
Annualized return on average shareholders' equity
|
8.1
|
%
|
6.6
|
%
|
||||||||
Annualized adjusted operating return on average shareholders' equity
|
4.8
|
%
|
7.1
|
%
|