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Argo Group Reports 2021 Fourth Quarter and Full Year Results

·23 min read

Results Reflect Continued Progression of Strategic Plan

  • Continued Strategic Growth: Net earned premium increased 4.2% in the fourth quarter of 2021; Strong net earned premium growth in our ongoing business1 of approximately 19.6%, supported by favorable market conditions

  • Expense Ratio Improvement: Expense ratio of 35.3% for the fourth quarter of 2021 improved 2.9 points from the fourth quarter of 2020 and full year 2021 expense ratio of 36.8% improved 0.7 points compared to the same period in 2020

  • Reduced Catastrophe Losses: Total catastrophe losses of $6.8 million for the fourth quarter of 2021, down from $51.0 million in the fourth quarter of 2020 and full year 2021 catastrophe losses of $92.7 million, down from $179.2 million in 2020

  • Improved Results in International Operations: Combined ratio improved 40.9 points to 76.5% for the fourth quarter of 2021 from the fourth quarter of 2020 and full year 2021 combined ratio of 97.2% improved 19.9 points compared to the same period in 2020

HAMILTON, Bermuda, February 22, 2022--(BUSINESS WIRE)--Argo Group International Holdings, Ltd. (NYSE: ARGO) ("Argo" or the "Company") today announced financial results for the three months and year ended December 31, 2021. On February 8, 2022, the Company reported that its results for the quarter ended December 31, 2021, would be negatively affected by adverse prior year reserve development and non-operating charges.

Argo reported a fourth quarter 2021 net loss attributable to common shareholders of $118.8 million or $3.41 per diluted common share, compared to a net loss attributable to common shareholders of $3.5 million or $0.10 per diluted common share for the 2020 fourth quarter. For the year ended 2021, Argo reported a net loss attributable to common shareholders of $4.7 million or $0.13 per diluted common share, compared to a net loss attributable to common shareholders of $58.7 million or $1.70 per diluted common share in 2020.

The operating loss in the fourth quarter of 2021 was $61.8 million or $1.77 per diluted common share, compared to an operating loss of $8.9 million or $0.26 per diluted common share for the 2020 fourth quarter. Operating income in 2021 was $41.5 million or $1.19 per diluted common share, compared to an operating loss of $10.0 million or $0.29 per diluted common share in 2020.

"Our strategic priorities of pursuing profitable growth, reducing volatility, and disciplined expense management are evident in our 2021 current accident year underwriting results," said Argo Group Chief Executive Officer Kevin Rehnberg. "We remain encouraged by the continued growth and underlying strength of our ongoing business."

______________________________

1 Ongoing business does not include the businesses the Company is exiting, plan to exit or have sold, including sales of Ariel Re in November 2020, Contract Binding P&C in October 2021, U.S. Specialty Property in December 2021, Argo Seguros Brasil in February 2022 and businesses in Italy, Malta, London Property D&F and North American Binders business in Syndicate 1200, and the U.S. grocery business.

Fourth Quarter Consolidated Operating Highlights

$ in millions

Three Months Ended
December 31,

Q/Q

Year Ended
December 31,

Y/Y

Consolidated

2021

2020

Change

2021

2020

Change

Gross written premiums

$

733.8

$

717.6

2.3

%

$

3,181.2

$

3,233.3

-1.6

%

Net written premiums

479.0

439.6

9.0

%

1,977.3

1,810.1

9.2

%

Earned premiums

486.2

466.6

4.2

%

1,910.1

1,780.5

7.3

%

Underwriting income (loss)

$

(109.0

)

$

(37.1

)

NM

$

(106.8

)

$

(96.0

)

NM

Net investment income

44.4

33.7

31.8

%

187.6

112.7

66.5

%

Net income (loss) attributable to common shareholders

$

(118.8

)

$

(3.5

)

NM

$

(4.7

)

$

(58.7

)

NM

Operating income (loss)

$

(61.8

)

$

(8.9

)

NM

$

41.5

$

(10.0

)

NM

Loss ratio

87.1

%

69.8

%

17.3 pts

68.8

%

67.9

%

0.9 pts

Acquisition expense ratio

15.1

%

17.4

%

-2.3 pts

16.6

%

16.8

%

-0.2 pts

General and administrative expense ratio*

20.2

%

20.8

%

-0.6 pts

20.2

%

20.7

%

-0.5 pts

Expense ratio*

35.3

%

38.2

%

-2.9 pts

36.8

%

37.5

%

-0.7 pts

Combined ratio

122.4

%

108.0

%

14.4 pts

105.6

%

105.4

%

0.2 pts

CAY ex-CAT loss ratio**

58.5

%

58.6

%

-0.1 pts

56.8

%

57.4

%

-0.6 pts

*See footnote 1 in the Consolidated Financial Highlights below.

**See footnote 2 in the Consolidated Financial Highlights below.

  • Gross written premium increased 2.3% to $733.8 million during the fourth quarter of 2021, compared to the fourth quarter of 2020. Gross written premium in our ongoing business grew approximately 11.3% during the fourth quarter of 2021 compared to the fourth quarter of 2020.

  • The combined ratio was 122.4% during the fourth quarter of 2021, compared to 108.0% in the fourth quarter of 2020. The increased combined ratio was driven by adverse prior year reserve development, partially offset by lower catastrophe ("CAT") losses and an improved expense ratio.

  • Total catastrophe losses in the fourth quarter of 2021 were $6.8 million or 1.4 points on the loss ratio. Catastrophe losses in the fourth quarter of 2020 were $51.0 million or 10.9 points on the loss ratio.

  • Net adverse prior year reserve development for the 2021 fourth quarter was $132.3 million, or 27.2 points on the loss ratio. Net adverse prior year reserve development was $1.6 million in the fourth quarter of 2020. Net adverse prior year reserve development in both the U.S. Operations and Run-off Lines was partially offset by favorable prior year reserve releases in International Operations.

  • The Current Accident Year ("CAY") ex-CAT loss ratio was 58.5% in the fourth quarter of 2021 compared to 58.6% in the prior year fourth quarter.

  • The expense ratio in the fourth quarter of 2021 was 35.3% and improved 2.9 points from the 2020 fourth quarter. The acquisition expense ratio of 15.1% and general and administrative expense ratio of 20.2% both improved compared to the prior year fourth quarter.

  • The CAY ex-CAT combined ratio was 93.8% in the fourth quarter of 2021, compared to 96.8% in the prior year fourth quarter.

  • Net investment income was $44.4 million in the 2021 fourth quarter compared to $33.7 million in the prior year fourth quarter. Investment income from alternative investments was $20.7 million in the fourth quarter of 2021. Results for the prior year fourth quarter included gains from alternative investments of $10.1 million.

  • The 2021 fourth quarter included $0.7 million of pre-tax net realized investment gains, while the prior year fourth quarter included $20.4 million of pre-tax net realized investment gains. The fourth quarter of 2021 included $22.8 million of non-operating expenses compared to $11.3 million in the prior year quarter with the increase due to costs associated with the reduction in the Company's real estate footprint in the UK and the impairment of certain information technology assets. The 2021 fourth quarter included an impairment of goodwill and intangible assets of $43.2 million related to Argo's Syndicate 1200 business unit.

  • Net loss attributable to common shareholders was $118.8 million or $3.41 per diluted share for the fourth quarter of 2021 compared to a net loss attributable to common shareholders of $3.5 million or $0.10 per diluted share for the 2020 fourth quarter. Annualized return on average common shareholders' equity was (28.5%) in the fourth quarter of 2021 compared to (0.8%) in the prior year fourth quarter.

  • Operating loss was $61.8 million or $1.77 per diluted share in the fourth quarter of 2021, compared to an operating loss of $8.9 million or $0.26 per diluted share in the prior year fourth quarter. Annualized operating return on average common shareholders' equity was (14.8%) in the fourth quarter of 2021 compared to (2.1%) in the prior year fourth quarter.

Full Year Consolidated Operating Highlights

  • Gross written premium decreased 1.6% to $3.2 billion in 2021, when compared to 2020. The decrease in gross written premium is primarily attributable to businesses the Company has exited, plans to exit or has sold. In the ongoing business, premiums grew approximately 15.4% during 2021 when compared to 2020.

  • Total catastrophe losses in 2021 were $92.7 million or 4.8 points on the loss ratio. Natural catastrophes accounted for $80.3 million of losses with $12.4 million of losses relating to the COVID-19 pandemic. Catastrophe losses in 2020 were $179.2 million or 10.1 points on the loss ratio and included $73.2 million related to the COVID-19 pandemic.

  • The CAY ex-CAT combined ratio was 93.6% in 2021, an improvement of 1.3 points when compared to the prior year. The improvement in the CAY ex-CAT combined ratio was driven by both an improved expense ratio as well as an improved CAY ex-CAT loss ratio.

  • Results for the full year 2021 included $33.2 million of pre-tax net realized investment gains, while the prior year included $3.6 million of pre-tax net realized investment losses. The 2021 full year results included $43.7 million of non-operating expenses compared to $21.1 million in the prior year with the increase due to costs associated with the reduction in the Company's real estate footprint and the impairment of certain information technology assets. The 2021 full year also included an impairment of goodwill and intangible assets of $43.2 million related to Argo's Syndicate 1200 business unit.

  • Net loss attributable to common shareholders in 2021 was $4.7 million, or $0.13 per diluted share, compared to a net loss attributable to common shareholders of $58.7 million, or $1.70 per diluted share, in the prior year. Annualized return on average common shareholders' equity was (0.3%) in 2021 compared to (3.4%) in 2020.

  • Operating income was $41.5 million or $1.19 per diluted share in 2021, compared to an operating loss of $10.0 million or $0.29 per diluted share in the prior year. Annualized operating return on average common shareholders' equity was 2.5% in 2021 compared to (0.6%) in the prior year.

U.S. Operations:

$ in millions

Three Months Ended
December 31,

Q/Q

Year Ended
December 31,

Y/Y

U.S. Operations

2021

2020

Change

2021

2020

Change

Gross written premiums

$

504.5

$

495.7

1.8

%

$

2,069.4

$

1,994.8

3.7

%

Net written premiums

319.6

300.8

6.3

%

1,304.8

1,223.0

6.7

%

Earned premiums

331.3

304.8

8.7

%

1,283.7

1,207.6

6.3

%

Losses and loss adjustment expenses

325.1

202.4

60.6

%

908.2

768.7

18.1

%

Acquisition expenses

48.1

45.2

6.4

%

197.7

176.0

12.3

%

General and administrative expenses

53.0

54.9

-3.5

%

221.6

213.7

3.7

%

Underwriting income (loss)

$

(94.9

)

$

2.3

NM

$

(43.8

)

$

49.2

NM

Loss ratio

98.1

%

66.4

%

31.7 pts

70.7

%

63.7

%

7 pts

Acquisition expense ratio

14.5

%

14.8

%

-0.3 pts

15.4

%

14.6

%

0.8 pts

General and administrative expense ratio*

16.0

%

18.0

%

-2.0 pts

17.3

%

17.6

%

-0.3 pts

Expense ratio*

30.5

%

32.8

%

-2.3 pts

32.7

%

32.2

%

0.5 pts

Combined ratio

128.6

%

99.2

%

29.4 pts

103.4

%

95.9

%

7.5 pts

CAY ex-CAT loss ratio**

60.4

%

60.8

%

-0.4 pts

58.5

%

58.9

%

-0.4 pts

*See footnote 1 in the Segment Data below.

**See footnote 2 in the Segment Data below.

  • In the U.S. Operations, gross written premium increased 1.8% compared to the fourth quarter of 2020. Gross written premium in the U.S. ongoing business2 grew approximately 12.0% during the fourth quarter of 2021 compared to the fourth quarter of 2020. Rates on average were up in the mid-single digits in the fourth quarter of 2021.

  • The loss ratio for the fourth quarter of 2021 was 98.1% compared to 66.4% in the prior year fourth quarter. The increase in the loss ratio was primarily driven by adverse prior year development.

  • Net unfavorable prior-year reserve development in the fourth quarter of 2021 was $121.6 million or 36.7 points on the loss ratio compared to $2.9 million of unfavorable development or 1.0 point on the loss ratio in the prior year fourth quarter.

  • Catastrophe losses were $3.2 million, or 1.0 point on the loss ratio, in the fourth quarter of 2021 compared to $13.9 million or 4.6 points on the loss ratio in the prior year fourth quarter.

  • The CAY ex-CAT loss ratio was 60.4% in the fourth quarter of 2021 compared to 60.8% in the prior year fourth quarter.

  • The acquisition expense ratio for the fourth quarter of 2021 was 14.5%, an improvement of 0.3 points compared to the 2020 fourth quarter.

  • The general and administrative expense ratio was 16.0% in the fourth quarter of 2021, an improvement of 2.0 points from the prior year fourth quarter.

______________________________

2 U.S. ongoing business does not include the businesses the Company has sold, including sales of Contract Binding P&C in October 2021 and U.S. Specialty Property in December 2021, and the exit our grocery and restaurant business.

International Operations:

$ in millions

Three Months Ended
December 31,

Q/Q

Year Ended
December 31,

Y/Y

International Operations

2021

2020

Change

2021

2020

Change

Gross written premiums

$

229.1

$

221.8

3.3

%

$

1,111.0

$

1,238.0

-10.3

%

Net written premiums

159.2

138.7

14.8

%

671.7

586.6

14.5

%

Earned premiums

154.7

161.7

-4.3

%

625.8

572.5

9.3

%

Losses and loss adjustment expenses

60.9

123.0

-50.5

%

362.1

428.6

-15.5

%

Acquisition expenses

25.1

35.3

-28.9

%

119.6

121.7

-1.7

%

General and administrative expenses

32.4

31.5

2.9

%

126.7

119.9

5.7

%

Underwriting income (loss)

$

36.3

$

(28.1

)

NM

$

17.4

$

(97.7

)

NM

Loss ratio

39.4

%

76.1

%

-36.7 pts

57.9

%

74.9

%

-17 pts

Acquisition expense ratio

16.2

%

21.8

%

-5.6 pts

19.1

%

21.3

%

-2.2 pts

General and administrative expense ratio*

20.9

%

19.5

%

1.4 pts

20.2

%

20.9

%

-0.7 pts

Expense Ratio*

37.1

%

41.3

%

-4.2 pts

39.3

%

42.2

%

-2.9 pts

Combined ratio

76.5

%

117.4

%

-40.9 pts

97.2

%

117.1

%

-19.9 pts

CAY ex-CAT loss ratio**

54.5

%

54.2

%

0.3 pts

53.1

%

54.5

%

-1.4 pts

*See footnote 3 in the Segment Data below.

**See footnote 4 in the Segment Data below.

  • International Operations gross written premium increased 3.3% in the fourth quarter of 2021 compared to the fourth quarter of 2020. Gross written premium in the International ongoing business3 increased approximately 9.6% in the fourth quarter of 2021 compared to the fourth quarter of 2020, primarily due to the increased share of Syndicate 1200's capacity. Rates on average were up in the high-single digits in the fourth quarter of 2021.

  • Net written premium increased in the fourth quarter of 2021 by 14.8%, compared to the fourth quarter of 2020 with the increase attributable to Syndicate 1200.

  • The loss ratio for the fourth quarter of 2021 was 39.4% compared to 76.1% in the prior year fourth quarter. The improvement in the loss ratio is primarily the result of favorable prior year reserve releases and a reduction in catastrophe losses compared to the fourth quarter of 2020.

  • Net favorable prior year reserve releases in the fourth quarter of 2021 was $27.0 million or 17.5 points on the loss ratio, compared to $1.7 million, or 1.1 points on the loss ratio, in prior year fourth quarter.

  • Catastrophe losses were $3.6 million, or 2.4 points on the loss ratio in the fourth quarter of 2021, primarily attributed to natural catastrophes, and to a lesser extent, losses related to COVID-19. The fourth quarter of 2020 included $37.1 million, or 23.0 points on the loss ratio.

  • The CAY ex-CAT loss ratio was 54.5% in the fourth quarter of 2021 compared to 54.2% in the prior year fourth quarter.

  • The acquisition ratio decreased 5.6 points to 16.2% during the fourth quarter of 2021 and is attributable largely to changes in business mix, actions to remove certain high-cost coverholders, and an increase in ceding commissions.

  • The general and administrative expense ratio of 20.9% increased 1.4 points in the fourth quarter of 2021 when compared to the prior year fourth quarter.

______________________________

3 International ongoing business does not include the businesses the Company is exiting, plan to exit or have sold, including sales of Ariel Re in November 2020 and Argo Seguros Brasil in February 2022, the planned exits of businesses in Italy and Malta, and London Property D&F and North American Binders business in Syndicate 1200.

Balance Sheet:

  • Book value per common share was $45.60 as of December 31, 2021, compared to $50.01 on September 30, 2021. Including dividends paid, book value per common share decreased $4.10 from September 30, 2021 due mainly to the net loss in the 2021 fourth quarter and net unrealized losses on fixed maturity securities. Book value per common share as of December 31, 2020 was $49.40. Including dividends paid, book value per common share decreased $2.56 from December 31, 2020 primarily driven by movements in other comprehensive income associated with unrealized losses on available-for-sale investment securities due to rising interest rates.

CONFERENCE CALL
Argo management will conduct an investor conference call starting at 10 a.m. EST on Wednesday, February 23, 2022. Participants in the U.S. can access the call by dialing (844) 200-6205 (access code 097416). Callers dialing from outside the U.S. can access the call by dialing (929) 526-1599 (access code 097416). Please ask the operator for the Argo earnings call. A live webcast of the conference call can be accessed at https://events.q4inc.com/attendee/348613512.

A webcast replay will be available shortly after the live conference call and can be accessed at https://events.q4inc.com/attendee/348613512. A telephone replay of the conference call will be available through March 2, 2022, to callers in the U.S. by dialing (866) 813-9403 (access code 314212) and to callers outside the U.S. by dialing +44-204-525-0658 (access code 314212).

ABOUT ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
Argo Group International Holdings, Ltd. (NYSE: ARGO) is an underwriter of specialty insurance products in the property and casualty market. Argo 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 and its insurance subsidiaries are rated ‛A-’ by Standard and Poor’s. Argo’s insurance subsidiaries are rated ‛A-’ by A.M. Best. More information on Argo and its subsidiaries is available at www.argogroup.com.

FORWARD-LOOKING STATEMENTS
This press release includes forward-looking statements that reflect our current views with respect to future events and financial performance. 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," "remain optimistic," "improve," "progress," "path toward," "outlook," "trends," "future," "could," "would," "should," "target," "on track" and similar expressions of a future or forward-looking nature.

Such statements are subject to certain risks and uncertainties that could cause actual events or results to differ materially. For a more detailed discussion of such risks and uncertainties, see Item 1A, "Risk Factors" in Argo’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and in other filings with the Securities and Exchange Commission ("SEC"). The inclusion of a forward-looking statement herein should not be regarded as a representation by Argo that Argo’s objectives will be achieved. Any forward-looking statements speak only as of the date of this press release. Argo undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You should not place undue reliance on any such statements.

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 SEC. 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").

"CAY ex-CAT combined ratio" and the "CAY 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 and the impact of changes to prior year loss reserves. Although this measure does not replace the GAAP combined ratio, it provides management with a view of the quality of earnings generated by underwriting activity for the current accident year.

"Operating income (loss)" is an internal performance measure used in the management of the Company's operations and represents operating results after-tax (at an assumed effective tax rate of 15%) and preferred share dividends excluding, as applicable, net realized investment gains or losses, net foreign exchange gain or loss, non- operating expenses, and other similar non-recurring items. The Company excludes net realized investment gains or losses, net foreign exchange gain or loss, non-operating expenses, and other similar non-recurring items from the calculation of 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 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.

"Annualized operating return on average common shareholders' equity" is calculated using operating income (loss) (as defined above and annualized in the manner described for net income (loss) attributable to common shareholders ("ROACE")) and average common shareholders' equity. In calculating ROACE, the net income attributable to common shareholders for the period is multiplied by the number of periods in a calendar year to arrive at annualized net income available to common shareholders. In addition to presenting ROACE determined in accordance with U.S. GAAP, the Company believes that showing annualized operating return on average common shareholders' equity 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.

"Operating income (loss) per common share (diluted)" is calculated using operating income (as defined above) and the weighted average common shares (diluted) for the current period. In addition to presenting net income (loss) per common share (diluted) in accordance with U.S. GAAP, the Company believes that showing the operating income (loss) per common share (diluted) 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.

"Underwriting income (loss)" is an internal performance measure used in the management of the Company’s operations and represents net amount earned from underwriting activities (net premium earned less underwriting expenses and claims incurred). Underwriting income is a financial measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information. 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 "percentage change in book value per common share" includes (by adding) the effects of cash dividends paid per common share to the calculated book value per common share for the current period. This adjusted amount is then compared to the prior period’s book value per common share to determine the period over period change. The Company believes that including the dividends paid per common share allows users of its financial statements to more easily identify the impact of the changes in book value per common share from the perspective of investors.

Reconciliations of non-GAAP financial measures to their most directly comparable U.S. GAAP measures are included in the attached tables and footnotes.

(financial tables follow)

ARGO GROUP INTERNATIONAL HOLDINGS, LTD.

CONSOLIDATED BALANCE SHEETS

(in millions, except per share amounts)

December 31,

December 31,

2021

2020

(unaudited)

Assets

Total investments

$

5,322.6

$

5,255.8

Cash

146.1

148.8

Accrued investment income

20.9

21.8

Receivables

3,615.0

3,688.8

Goodwill and intangible assets

164.5

207.8

Deferred acquisition costs, net

168.0

163.6

Ceded unearned premiums

506.7

575.1

Other assets

372.6

404.1

Total assets

$

10,316.4

$

10,465.8

Liabilities and Shareholders' Equity

Reserves for losses and loss adjustment expenses

$

5,595.0

$

5,406.0

Unearned premiums

1,466.8

1,464.8

Ceded reinsurance payable, net

724.4

950.4

Senior unsecured fixed rate notes

140.3

140.2

Other indebtedness

57.0

60.7

Junior subordinated debentures

258.2

257.8

Other liabilities

340.3

328.1

Total liabilities

8,582.0

8,608.0

Preferred shares

144.0

144.0

Common shareholders’ equity

1,590.4

1,713.8

Total shareholders' equity

1,734.4

1,857.8

Total liabilities and shareholders' equity

$

$

10,465.8

Book value per common share

$

45.60

$

49.40

ARGO GROUP INTERNATIONAL HOLDINGS, LTD.

CONSOLIDATED FINANCIAL HIGHLIGHTS

(in millions, except per share amounts)

(unaudited)

Three Months Ended

Year Ended