Argo Group International Holdings, Ltd. (NYSE: ARGO) today announced financial results for the three months and year ended December 31, 2018.
2018 Annual Recap
|Gross Written||Combined||Net Income per||Adjusted Operating||Book Value|
|Premiums||Ratio||Diluted Share||Income Per Diluted||Per Share|
|↑ 9.6%||↓ 9.3 pts||↑ 28.9%||↑ $3.06 per share||
|from 2017||from 2017||from 2017||from 2017||from Dec. 31, 2017|
"Our results in 2018 demonstrate the continued execution of our strategy to optimize the efficiency of the platform, grow in lines with the most profit potential and scale the business globally," said Mark E. Watson III, President and CEO. “Our business has been performing well against a difficult market environment. We posted 9.6% growth in annual gross written premiums including a 12.1 % rise in the U.S., improvements in current year margins, and a 260 basis point improvement in the annual expense ratio. While late year volatility in the investment markets masked the full impact of our solid results, we believe we are well positioned to continue to deliver strong shareholder value.”
|HIGHLIGHTS FOR THE THREE MONTHS||HIGHLIGHTS FOR THE YEAR|
|ENDED DECEMBER 31, 2018||ENDED DECEMBER 31, 2018|
Gross written premiums grew 15.8% to $702.0 million, compared
to $606.3 million for the 2017 fourth quarter.
U.S. Operations grew 12.1% to $426.8 million, compared to $380.9 million in the 2017 fourth quarter. The International Operations grew 22.1% to $275.2 million, compared to $225.3 million for the 2017 fourth quarter.
Gross written premiums grew 9.6% to $3.0 billion, compared to
$2.7 billion in 2017.
U.S. Operations grew 12.1% to $1.7 billion, compared to $1.5 billion in 2017. The International Operations grew 6.4% to $1.3 billion, compared to $1.2 billion in 2017.
Net loss of $43.6 million or $1.29 per diluted share, compared to net income of $28.9 million or $0.83 per diluted share for the 2017 fourth quarter.
As noted in prior quarters of 2018, comparisons to 2017 are impacted by the Company adopting a new accounting standard (refer to the Notes below). As a result, the 2018 fourth quarter net income was adversely impacted by an after-tax(2) loss of $66.4 million (or a loss per diluted share of $1.96) related to the change in fair value of equity securities. This loss was included as a component of Net Realized Investment Gains and Losses on the income statement.
In addition, the 2017 fourth quarter reflected a tax (and net income) benefit of approximately $20.2 million related to the revaluation of net deferred tax liabilities due to the reduction of the U.S. Corporate tax rate from 35% to 21%.
Net income was $63.6 million or $1.83 per diluted share,
compared to net income of $50.3 million or $1.42 per diluted share
As noted in prior quarters of 2018, comparisons to 2017 are impacted by the Company adopting a new accounting standard (refer to the Notes below). As a result, 2018 was adversely impacted by an after-tax(2) loss of $84.1 million (or a loss per diluted share of $2.42) related to the change in fair value of equity securities. This loss was included as a component of Net Realized Investment Gains and Losses on the income statement.
|●||Adjusted operating income(1)(2) was $18.8 million or $0.55 per diluted share, compared to adjusted operating income of $0.3 million or $0.01 per diluted share for the 2017 fourth quarter.||●||Adjusted operating income(1)(2) was $111.7 million or $3.22 per diluted share, compared to adjusted operating income of $5.5 million or $0.16 per diluted share for 2017.|
The combined ratio was 99.5% compared to 106.7% for the 2017
fourth quarter. The loss and expense ratios for the 2018 quarter
were 62.0% and 37.5%, respectively, compared to 66.9% and 39.8%,
respectively, for the 2017 fourth quarter.
The 2018 fourth quarter expense ratio, excluding the effects of net reinstatement and other CAT-related premium adjustments, was 36.7%, an improvement of 2.8 points compared to 39.5% for the 2017 fourth quarter. This improvement reflected lower acquisition costs and the benefits of scale associated with an overall increase in net earned premiums.
The current accident year, ex-CAT combined ratio was 95.6% compared to 101.3% for the 2017 fourth quarter.
The combined ratio was 97.9% compared to 107.2% for 2017. The
loss and expense ratios for 2018 were 60.1% and 37.8%, respectively,
compared to 66.8% and 40.4%, respectively for 2017.
The 2018 expense ratio, excluding the effects of net reinstatement and other CAT-related premium adjustments, was 37.6%, an improvement of 2.4 points, compared to 40.0% for 2017. This improvement reflected lower acquisition costs and the benefits of scale associated with an overall increase in net earned premiums.
The current accident year, ex-CAT combined ratio was 95.4% compared to 98.6% for 2017.
|●||Catastrophe losses were $31.7 million, inclusive of net reinstatement premium adjustments. The 2017 fourth quarter catastrophe losses were $34.3 million, inclusive of net reinstatement and other CAT-related premium adjustments.||●||Catastrophe losses were $61.9 million, inclusive of net reinstatement premium adjustments. The 2017 catastrophe losses were $145.1 million, inclusive of net reinstatement and other CAT-related premium adjustments.|
|●||Net favorable prior-year reserve development was $13.9 million compared to favorable prior-year development of $12.6 million in the 2017 fourth quarter.||●||Net favorable prior-year reserve development was $18.0 million compared to net favorable prior-year development of $8.2 million in 2017.|
Net investment income decreased 16.0% to $29.4 million
compared to $35.0 million in the 2017 fourth quarter.
Net investment income on the core portfolio increased 25.7% to $30.3 million compared to $24.1 million in the 2017 fourth quarter. This increase was primarily due to an increase in the invested asset base and higher investment yields.
Alternative investments, which are reported on a lag, reported losses of $0.9 million in the 2018 fourth quarter compared to income of $10.9 million in the 2017 fourth quarter. This decline was due to the volatility experienced in the securities markets during the 2018 fourth quarter.
Net investment income decreased 4.9% to $133.1
million, compared to $140.0 million in 2017.
Net investment income on the core portfolio increased 25.2% to $113.3 million compared to $90.5 million in 2017. This increase was primarily due to an increase in the invested asset base and higher investment yields.
Alternative investments, which are reported on a lag, contributed $19.8 million in 2018 compared to $49.5 million in 2017, a decrease of 60.0%. This decline was due primarily to the volatility experienced in the securities markets during the 2018 fourth quarter. In addition, the 2017 year included a net pre-tax investment gain on Alternative investments of $12.2 million relating to net asset sales initiated by an equity investee in the second quarter of 2017.
|●||Common stock repurchased by the Company during the 2018 fourth quarter totaled 29,893 shares for $1.7 million.||●||Common stock repurchased by the Company during 2018 totaled 530,882 shares for $31.7 million.|
|●||Book value per share was $51.43 at December 31, 2018 compared to $53.46 at December 31, 2017.|
Effective January 1, 2018, the Company adopted ASU No. 2016-01,
Financial Instruments: Recognition and Measurement of Financial
Assets and Liabilities, using a cumulative effect adjustment. This
adjustment transferred the unrealized gains and losses as of
December 31, 2017, net of tax, on equity securities from accumulated
other comprehensive income to retained earnings, resulting in no
overall impact to shareholders’ equity.
In accordance with this accounting standard, in the 2018 fourth quarter, the Company recognized the change in the fair value of its equity securities as a pre-tax loss of $83.0 million ($66.4 million net of taxes(2) or a loss of $1.96 per diluted share). Since January 1, 2018, the Company recognized a pre-tax loss of $105.1 million ($84.1 million after taxes(2) or a loss of $2.42 per diluted share). These amounts are included as a component of net realized investment gains and losses on the income statement. Amounts for the comparable 2017 periods are not presented as a component of net income, as ASU 2016-01 was required to be adopted on a prospective basis.
|●||Excluding repurchased shares, all references to common shares associated with the recalculation of per share amounts for all periods presented have been adjusted for the 15% stock dividend paid on March 21, 2018, to shareholders of record at the close of business on March 7, 2018.|
|●||All references to catastrophe losses are pre-tax.|
|●||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 and other catastrophe-related premium adjustments.|
|(1)||Refer to Non-GAAP Financial Measures below.|
|(2)||At assumed tax rate of 20%.|
Argo Group management will conduct an investor conference call starting at 10:00 a.m. EST (11:00 a.m. AST) tomorrow, Tuesday, February 12, 2019. A live webcast of the conference call can be accessed by visiting https://services.choruscall.com/links/argo190212.html. Participants in the U.S. can access the call by dialing (877) 291-5203. Callers dialing from outside the U.S. can access the call by dialing (412) 902-6610. Please ask the operator to be connected to the Argo Group earnings call.
A webcast replay will be available shortly after the live conference call and can be accessed at https://services.choruscall.com/ccforms/replay.html. A telephone replay of the conference call will be available through February 19, 2019, to callers in the U.S. by dialing (877) 344-7529 (conference # 10128196). Callers dialing from outside the U.S. can access the telephone replay by dialing (412) 317-0088 (conference # 10128196).
ABOUT ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
Argo Group International Holdings, Ltd. (NYSE: ARGO) is an international underwriter of specialty insurance and reinsurance products in the property and casualty market. Argo Group offers a full line of products and services designed to meet the unique coverage and claims handling needs of businesses in two primary segments: U.S. Operations and International Operations. Argo Group's insurance subsidiaries are A.M. Best-rated 'A' (Excellent) (third highest rating out of 16 rating classifications) with a stable outlook, and Argo Group's U.S. insurance subsidiaries are Standard and Poor's-rated 'A-' (Strong) with a positive outlook. More information on Argo Group and its subsidiaries is available at www.argolimited.com.
This press release may include forward-looking statements, both with respect to Argo Group and its industry, that reflect our current views with respect to future events and financial performance. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that do not relate solely to historical or current facts, and can be identified by the use of words such as "expect," "intend," "plan," "believe," “do not believe,” “aim,” "project," "anticipate," “seek,” "will," “likely,” “assume,” “estimate,” "may," “continue,” “guidance,” “objective,” “outlook,” “trends,” “future,” “could,” “would,” “should,” “target,” “on track” and similar expressions of a future or forward-looking nature. All forward-looking statements address matters that involve risks and uncertainties, many of which are beyond Argo Group's control. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in such statements and, therefore, you should not place undue reliance on any such statements. We believe that these factors include, but are not limited to, the following: 1) unpredictability and severity of catastrophic events; 2) rating agency actions; 3) adequacy of our risk management and loss limitation methods; 4) cyclicality of demand and pricing in the insurance and reinsurance markets; 5) statutory or regulatory developments including tax policy, reinsurance and other regulatory matters; 6) our ability to implement our business strategy; 7) adequacy of our loss reserves; 8) continued availability of capital and financing; 9) retention of key personnel; 10) competition; 11) potential loss of business from one or more major insurance or reinsurance brokers; 12) our ability to implement, successfully and on a timely basis, complex infrastructure, distribution capabilities, systems, procedures and internal controls, and to develop accurate actuarial data to support the business and regulatory and reporting requirements; 13) general economic and market conditions (including inflation, volatility in the credit and capital markets, interest rates and foreign currency exchange rates); 14) the integration of Ariel Re and other businesses we may acquire or new business ventures we may start; 15) the effect on our investment portfolios of changing financial market conditions including inflation, interest rates, liquidity and other factors; 16) acts of terrorism or outbreak of war; and 17) availability of reinsurance and retrocessional coverage, as well as management's response to any of the aforementioned factors.
In addition, any estimates relating to loss events involve the exercise of considerable judgment and reflect a combination of ground-up evaluations, information available to date from brokers and cedents, market intelligence, initial tentative loss reports and other sources. The actuarial range of reserves and management’s best estimate is based on our then current state of knowledge including explicit and implicit assumptions relating to the pattern of claim development, the expected ultimate settlement amount, inflation and dependencies between lines of business. Our internal capital model is used to consider the distribution for reserving risk around this best estimate and predict the potential range of outcomes. However, due to the complexity of factors contributing to the losses and the preliminary nature of the information used to prepare these estimates, there can be no assurance that Argo Group’s ultimate losses will remain within the stated amount.
The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included herein and elsewhere, including the risk factors included in our most recent reports on Form 10-K and Form 10-Q and other documents of Argo Group on file with or furnished to the U.S. Securities and Exchange Commission (“SEC”). Any forward-looking statements made in this press release are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by Argo Group will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, Argo Group or its business or operations. Except as required by law, Argo Group undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.
NON-GAAP FINANCIAL MEASURES
In presenting the Company's results, management has included and discussed in this press release certain non-generally accepted accounting principles ("non-GAAP") financial measures within the meaning of Regulation G as promulgated by the U.S. Securities and Exchange Commission. Management believes that these non-GAAP measures, which may be defined differently by other companies, better explain the Company's results of operations in a manner that allows for a more complete understanding of the underlying trends in the Company's business. However, these measures should not be viewed as a substitute for those determined in accordance with generally accepted accounting principles ("U.S. GAAP").
“Underwriting income” is an internal performance measure used in the management of the Company’s operations and represents net amount earned from underwriting activities (net premiums earned less underwriting expenses and claims incurred). Although this measure of profit (loss) does not replace net income (loss) computed in accordance with U.S. GAAP as a measure of profitability, management uses this measure of profit (loss) to focus our reporting segments on generating underwriting income. The Company presents Underwriting income as a measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information.
“Current accident year ex-CAT combined ratio” and the “Current accident year ex-CAT loss ratio" are internal measures used by the management of the Company to evaluate the performance of its' underwriting activity and represents the net amount of underwriting income excluding catastrophe related charges (impacts to both premiums and losses), the impact of changes to prior year loss reserves and other one-time items that would impact expenses or net earned premiums. Although this measure does not replace the combined ratio it provides management with a view of the quality of earnings generated by underwriting activity for the current accident year.
“Adjusted operating income" is an internal performance measure used in the management of the Company's operations and represents after-tax (at an assumed effective tax rate of 20%) operational results excluding, as applicable, net realized investment gains or losses, net foreign exchange gain or loss, and other similar non-recurring items. The Company excludes net realized investment gains or losses, net foreign exchange gain or loss, and other similar non-recurring items from the calculation of adjusted operating income because these amounts are influenced by and fluctuate in part, by market conditions that are outside of management’s control. In addition to presenting net income determined in accordance with U.S. GAAP, the Company believes that showing adjusted operating income enables investors, analysts, rating agencies and other users of the Company's financial information to more easily analyze our results of operations and underlying business performance. Adjusted operating income should not be viewed as a substitute for U.S. GAAP net income.
"Annualized return on average shareholders’ equity" ("ROAE") is calculated using average shareholders' equity. In calculating ROAE, the net income available to shareholders for the period is multiplied by the number of periods in a calendar year to arrive at annualized net income available to shareholders. The Company presents ROAE as a measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information.
"Annualized adjusted operating return on average shareholders' equity" is calculated using adjusted operating income (as defined above and annualized in the manner described for net income (loss) available to shareholders under ROAE above) and average shareholders' equity. The assumed tax rate is 20%.
The “percentage change in book value per share” included in the Annual Recap includes (by adding) the effects of cash dividends paid per share (which for 2018 was $1.08) to the calculated book value per share for the current year. This adjusted amount is then compared to the 2017 book value per share to determine the year over year change. The Company believes that including the dividends paid per share allows users of its financial statements to more easily identify the impact of the changes in book value per share from the perspective of investors.
Reconciliations of these financial measures to their most directly comparable U.S. GAAP measures are included in the attached tables.
|ARGO GROUP INTERNATIONAL HOLDINGS, LTD.|
|CONSOLIDATED BALANCE SHEETS|
(in millions, except per share amounts)
|December 31,||December 31,|
|Accrued investment income||27.2||23.5|
|Goodwill and intangible assets||270.5||258.2|
|Deferred acquisition costs, net||167.3||160.4|
|Ceded unearned premiums||457.7||399.5|
|Liabilities and Shareholders' Equity|
|Reserves for losses and loss adjustment expenses||$||4,654.6||$||4,201.0|
|Ceded reinsurance payable, net||970.5||734.0|
Senior unsecured fi|
Quelle: Business Wire
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HAMILTON, Bermuda – Argo Group International Holdings, Ltd. (NYSE: ARGO) (“Argo” or the “Company”), an international underwriter of specialty insurance and reinsurance ...weiterlesen
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