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Rating Action on Argo Group

Zacks Equity Research

A.M. Best Co. reiterated the Issuer Credit Ratings (:ICR) and debt ratings of “bbb” of Argo Group International Holdings, Ltd. (AGII). Concurrently, the rating agency reiterated the Financial Strength Rating (:FSR) of A (Excellent) and ICR of “a” for Argo Re Ltd. and its subsidiaries. Argo Re is a subsidiary of Argo Group International Holdings.

Additionally, A.M. Best reiterated the ICR of “bbb” and the debt rating of “bbb” of 6.5% on $143.75 million senior unsecured notes due 2042 of Argo Group US, Inc., the wholly owned subsidiary of Argo Group International Holdings.

All ratings carry a stable outlook.

The rating affirmations account for Argo Group’s continued solid profitability, low debt-capital ratio and financial flexibility it provides to Argo Re. The affirmation also reflects Argo Re’s sustained solid operating performances, product expertise in niche areas, sturdy capitalization and favorable reserve development.

However, execution risks related with the company expanding globally, competitive pressures, low new money investment yields, increasing expenses, and soft macro conditions dwarf the positives.

A.M. Best stated that management’s efficiency to integrate acquisitions despite affecting the existing operations will be taken into considerations in future rating reviews.

A.M. Best anticipates that efforts to lower property exposure and improve operational results will favorably reflect in Argo Re’s performance in the near term.

The rating agency stated that though the ratings are well positioned at the current level, they are subject to downgrades if underwriting and operating results deteriorate considerably, or if there is unfavorable loss reserve development or the risk-adjusted capital erodes.

Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence on the stock as well as maintaining credit worthiness in the market. Rating downgrades, therefore, adversely affect the business, apart from increasing the costs of future debt issuances. We believe that strong ratings will help Argo Group retain investor confidence and help it write more businesses going forward, thereby boosting results.

Argo Group carries a Zacks Rank #3 (Hold). Property and casualty insurers Everest Re Group Ltd. (RE), Global Indemnity plc (GBLI), HCI Group, Inc. (HCI) all carry favorable Zacks Rank #1 (Strong Buy) and are worth considering.

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Read the Full Research Report on AGII

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Read the Full Research Report on GBLI

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