Argo Group International Holdings, Ltd. (NYSE: ARGO) ("Argo" or the "company") today announced financial results for the three and six months ended June 30, 2023.
($ in millions, except per share data) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||
Net loss attributable to common shareholders | $ | (0.5 | ) | $ | (18.9 | ) | $ | (36.9 | ) | $ | (22.5 | ) | |||||
Per diluted common share | $ | (0.01 | ) | $ | (0.54 | ) | $ | (1.05 | ) | $ | (0.64 | ) | |||||
Operating (loss) income earnings | $ | (0.8 | ) | $ | 31.0 | $ | (11.6 | ) | $ | 74.4 | |||||||
Per diluted common share | $ | (0.02 | ) | $ | 0.89 | $ | (0.33 | ) | $ | 2.13 | |||||||
Annualized return on average common shareholders' equity | (0.2 | )% | (5.4 | )% | (6.8 | )% | (3.1 | )% | |||||||||
Annualized operating return on average common shareholders' equity | (0.3 | )% | 8.9 | % | (2.1 | )% | 10.2 | % | |||||||||
"Our second quarter performance further reflects the proactive steps we are taking to prioritize improving profitability," said Argo Executive Chairman and Chief Executive Officer, Thomas A. Bradley. "Our top line results reflect our deliberate and disciplined actions in certain lines of business. However, we continue to achieve growth across the rest of the portfolio, notably in our environmental, inland marine and casualty segments. This is a testament to the importance of a diversified book of specialty businesses. We have remained focused on lowering expenses and reducing earnings volatility. The success of these efforts was demonstrated in the second quarter by further improvement in the expense ratio, and a low level of catastrophe losses, despite elevated industry catastrophe losses during the period.
"We also continue to collaborate closely with Brookfield Reinsurance on integration planning as we wait for the required regulatory approvals on the pending merger, and anticipate an orderly transition for our customers and business partners once the transaction is completed."
Consolidated Highlights
($ in millions) | Three Months Ended June 30, | Q/Q | Six Months Ended June 30, | Y/Y | ||||||||||||||||||
2023 | 2022 | Change | 2023 | 2022 | Change | |||||||||||||||||
Gross written premiums | $ | 561.9 | $ | 732.1 | -23.2 | % | $ | 1,158.6 | $ | 1,452.7 | -20.2 | % | ||||||||||
Net written premiums | 348.9 | 469.1 | -25.6 | % | 684.8 | 909.6 | -24.7 | % | ||||||||||||||
Earned premiums | $ | 329.9 | $ | 454.3 | -27.4 | % | $ | 719.8 | $ | 934.9 | -23.0 | % | ||||||||||
Loss and loss adjustment expenses | 241.4 | 276.0 | -12.5 | % | 526.0 | 559.6 | -6.0 | % | ||||||||||||||
Acquisition expenses | 51.2 | 77.8 | -34.2 | % | 112.9 | 160.4 | -29.6 | % | ||||||||||||||
General and administrative expenses | 59.7 | 83.2 | -28.2 | % | 135.0 | 173.5 | -22.2 | % | ||||||||||||||
Underwriting income (loss) | $ | (22.4 | ) | $ | 17.3 | NM | $ | (54.1 | ) | $ | 41.4 | NM | ||||||||||
Net investment income | $ | 32.8 | $ | 29.3 | 11.9 | % | $ | 62.5 | $ | 67.0 | -6.7 | % | ||||||||||
Loss ratio | 73.2 | % | 60.8 | % | 12.4 pts | 73.1 | % | 59.9 | % | 13.2 pts | ||||||||||||
Acquisition expense ratio | 15.5 | % | 17.1 | % | -1.6 pts | 15.7 | % | 17.2 | % | -1.5 pts | ||||||||||||
General and administrative expense ratio | 18.1 | % | 18.3 | % | -0.2 pts | 18.7 | % | 18.5 | % | 0.2 pts | ||||||||||||
Expense ratio | 33.6 | % | 35.4 | % | -1.8 pts | 34.4 | % | 35.7 | % | -1.3 pts | ||||||||||||
Combined ratio | 106.8 | % | 96.2 | % | 10.6 pts | 107.5 | % | 95.6 | % | 11.9 pts | ||||||||||||
CAY ex-CAT loss ratio | 64.3 | % | 56.6 | % | 7.7 pts | 61.8 | % | 56.6 | % | 5.2 pts | ||||||||||||
Second Quarter 2023 Results - Consolidated
(All comparisons vs. second quarter 2022, unless noted otherwise)
On February 3, 2023, the company completed the previously announced sale of Argo Underwriting Agency Limited and its Lloyd's Syndicate 1200 to Westfield. The financial highlights in this release include results for Argo Underwriting Agency Limited and its Lloyd’s Syndicate 1200 up to the closing date.
Premiums
Gross written premiums of $561.9 million decreased $170.2 million, or 23.2%, primarily due to businesses the company has sold and exited.
- Gross written premiums within the company’s ongoing business1 decreased approximately 0.8% from the prior year second quarter.
Earned premiums of $329.9 million decreased $124.4 million, or 27.4%.
- Earned premiums increased approximately 0.9% within the company’s ongoing business reflecting business mix shift towards lines of business where the company retains more risk.
| _______________ | |
| 1 | Ongoing business excludes the following businesses the company is exiting, plans to exit, or have sold, including Contract Binding P&C which was sold in October 2021, U.S. Specialty Property which the company exited in December 2021, Argo Seguros Brasil which was sold in February 2022, ArgoGlobal Holdings (Malta) which was sold in June 2022, Lloyd's Syndicate 1200 which was sold in February 2023, Italy, and the U.S. grocery and retail business, and certain program business. |
Underwriting
The combined ratio of 106.8% increased 10.6 percentage points, driven by a higher loss ratio.
The loss ratio of 73.2% increased 12.4 percentage points, compared to 60.8% for the prior year second quarter.
- The current accident year, excluding catastrophes ("CAY ex-CAT") loss ratio of 64.3% increased 7.7 percentage points.
- Total catastrophe losses were $3.1 million or 0.9 percentage points on the loss ratio. In comparison, catastrophe losses in the prior year second quarter were $2.5 million or 0.6 percentage points on the loss ratio.
- Net adverse prior year reserve development was $26.4 million, or 8.0 percentage points on the loss ratio. In comparison, net adverse prior year reserve development in the second quarter 2022 was $16.3 million, or 3.6 percentage points on the loss ratio.
The CAY ex-CAT combined ratio of 97.9% increased 5.9 percentage points from the prior year second quarter.
Expenses
The expense ratio of 33.6% improved 1.8 percentage points. This improvement was driven by the change in business mix resulting from the sale of Argo Underwriting Agency Limited and its Lloyd's Syndicate 1200.
Investment Income
Net investment income of $32.8 million increased by $3.5 million or 11.9% from the prior year second quarter. The increase was driven by higher interest rates, partially offset by lower returns from alternative investments. The company continues to hold a high quality, relatively short duration portfolio with an average credit quality of AA- and an average duration of 2.5 years, when including cash and cash equivalents.
Earnings
Net loss attributable to common shareholders was $0.5 million, or $0.01 per diluted share, for the second quarter 2023, compared to a net loss attributable to common shareholders of $18.9 million, or $0.54 per diluted share for the second quarter 2022. Annualized return on average common shareholders' equity was (0.2%), compared to (5.4%) in the prior year second quarter.
- The net loss attributable to common shareholders in the second quarter 2023 included pre-tax net realized investment and other gains of $1.6 million. In comparison, the prior year second quarter included pre-tax net realized investment and other losses of $40.4 million, of which $21.3 million was attributable to a loss on sale of the company's Malta operations.
- In addition, the net loss attributable to common shareholders in the second quarter 2023 included $6.8 million of non-operating expenses, which were mainly attributable to non-operating legal fees for the company's pending merger with Brookfield Reinsurance. In comparison, the prior year second quarter reported $15.6 million in non-operating expenses which were mainly driven by non-operating advisory fees and severance.
Operating loss for the second quarter 2023 was $0.8 million or $0.02 per diluted common share, compared to operating earnings of $31.0 million or $0.89 per diluted common share. Annualized operating return on average common shareholders' equity was (0.3%), compared to 8.9% in the second quarter 2022.
Shareholders' Equity
Total Shareholders’ Equity increased from $1,232.9 million at year-end 2022 to $1,234.8 million at June 30, 2023. Book value per common share was $31.00 as of June 30, 2023, a small decrease from $31.06 at year-end 2022.
U.S. Operations Highlights | ||||||||||||||||||||||
($ in millions) | Three Months Ended June 30, | Q/Q | Six Months Ended June 30, | |||||||||||||||||||
