 Investor Presentation
May 2011
Exhibit 99.1 |
 2.
Forward-Looking Statements
This
presentation
contains
“forward-looking
statements”
which
are
made
pursuant
to
the
safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
The forward-looking statements are based on the Company's current
expectations and beliefs concerning future developments and their potential
effects on the Company. There can be no assurance that actual developments
will be those anticipated by the Company. Actual results may differ materially from
those projected as a result of significant risks and uncertainties, including
non-receipt of the expected payments, changes in interest rates, effect
of the performance of financial markets on investment
income
and
fair
values
of
investments,
development
of
claims
and
the
effect
on
loss
reserves, accuracy in projecting loss reserves, the impact of competition and
pricing environments, changes in the demand for the Company's products, the
effect of general economic conditions, adverse state and federal
legislation, regulations and regulatory investigations into industry
practices, developments relating to existing agreements, heightened
competition, changes in pricing environments, and changes in asset
valuations. The Company undertakes no obligation to publicly update
any forward-looking statements as a result of events or developments
subsequent to the presentation. |
 3.
The Argo Group Story
The Company
Argo Group is an international specialty underwriter of
property/casualty insurance and reinsurance focused in niche
markets.
The Objective
To maintain our profitable growth record while maximizing on the
opportunities afforded us through our international platform.
The Strategy
Apply our proven business model to deploy capital in attractive
niche markets that offer opportunities for maximum return.
|
 4.
Argo Group Today
Major business segment locations
Bermuda Headquarters
Multinational specialty P&C underwriter of insurance and reinsurance
Headquarters: Bermuda
–
Operate internationally in all 50 states
–
1,300+ employees across six countries
Total capitalization of $2.0 billion
Operations conducted through four business segments
A.M. Best Rating of A XII (excellent)
Brussels
London
Paris
Zurich |
 5.
Our Strategy
Deploy capital in the international specialty market for maximum
return
Provide our clients with insurance solutions by continuously
focusing on new business development and organic growth
Strategically grow our platform and gain access to new markets
through acquisitions
Dedicated to attracting top tier talent to leverage our platform
Manage balance sheet risk by maintaining relatively low financial
leverage and a prudent investment portfolio
Maximize shareholder value through growth in book value per share
|
 6.
A Recap of Our Successful Strategic Business Plan
1.
Target attractive
niche markets
2.
Develop leading,
differentiated
positions
3.
Expand position
–
organically
–
geographically
–
selective acquisitions
4.
Results: growth
in
premiums, earnings
and book value |
 7.
ATTRACTIVE NICHE MARKETS
A Different Type of Approach
Key Criteria In Selecting Niche Markets
Higher margin and return
Market leadership in a reasonable time frame
Disciplined underwriting
Sustained, profitable organic growth |
 2004
LTM 2011
NEP Split
2000
2001 –
Acquires Colony and Rockwood.
Founds Trident
2007 –
Completes merger with PXRE;
Forms Argo Re
2008 –
Rebranded Argo Group; Acquired
Heritage and its Lloyd’s syndicate
2009 –
Introduces Casualty and
Professional Risks Division
Timeline
8.
Financial Highlights ($mm, except per share data)
2000
2004
(1)
Q1 2011
(2)
Book Value per Share
23.03
30.36
55.59
Total Capital
501.1
716.8
1,522.9
Excess and
Surplus Lines
48.1%
Specialty
Commercial
23.8%
Public Entity
9.7%
Risk
Management
18.3%
We have successfully diversified our portfolio and become a
global specialty insurance underwriter
Notes:
1 Book value
per
share
includes
impact
of
the
Series
A
Mandatory
Convertible
Preferred
Stock
on
an
as
if
converted
basis.
2 Book value per share includes $113 million in catastrophe losses in Q1
2011. Specialty
Commercial
23.9%
Specialty
Workers'
Compensation
75.9%
Public Entity
0.2%
Excess and
Surplus Lines
40.4%
Commercial
Specialty
28.3%
International
Specialty
9.1%
Syndicate
1200
22.2% |
 9.
Earned Premiums
Gross Written Premiums
RESULTS: GROWTH
An Impressive Growth Record…
$622M
2002
2010
$1.5B
11.9%
CAGR
2002
2010
15.7%
CAGR
$1.4B
$378M |
 10.
Net Income
Net Investment Income
RESULTS: GROWTH
Improved Bottom Line Results… |
 Growth of Book Value
BVPS Growth Since 2002
11.1%
CAGR
*2011-Q1 impacted by catastrophe losses in Japan, New Zealand and Australia
totaling $113.1M (net of reinstatement premiums). **Book value per common
share - outstanding, includes the impact of the Series A Mandatory
Convertible Preferred Stock on an as if converted basis. Preferred
stock had fully converted into common shares as of Dec. 31, 2007. 11.
|
 12.
Excess & Surplus
Lines
Syndicate 1200
•
2010 GWP $390M
•
Lloyd’s Wholesale
•
Worldwide Property
•
Non-U.S. Liability
•
2010 GWP $523M
•
Non-Admitted Market
•
U.S. Wholesale
Excess & Surplus
Lines
International
Specialty
•
2010 GWP $189M
•
Reinsurance
•
Excess Casualty
•
Non-U.S. Retail
Commercial
Specialty
•
2010 GWP $428M
•
Admitted Market
•
U.S. Retail
Four Growth Platforms |
 13.
EXCESS & SURPLUS LINES:
Largest and Most Profitable Segment
Status
Standard market expanding risk appetite
New entrants building market share
Argo maintaining underwriting discipline
Competitive advantages
Colony Specialty & Argo Pro
Excellent infrastructure –
broad
geography
Underwriting expertise
Broad product portfolio for small acct
U/Ws (restaurants, day care, contractors)
Controlled distribution
–
Wholesale agents
Benefits from a category XII ‘A’
(Excellent) rating by A.M. Best
Pre-Tax Operating Income
($M)
Combined ratio
* Includes $12.7M of losses from 2008 hurricanes.
88.9%
89.3%
93.3%
$102
$113
$98
$65
99.6%
$63
97.8%
2006
2007
2008*
2009
2010
2011 Three Months OI: $11.4M
2010 Three Months OI: $12.7M |
 14.
COMMERCIAL SPECIALITY:
Specialty Niche Segment
Status
Historical combined ratio in low 90%
range
Performing well given competition
Primarily admitted, retail-driven
Competitive advantages
Expertise in niche markets
–
grocery stores
–
mining operations
–
laundry & dry cleaners
–
small/medium-size public entities
Benefits from a category XII ‘A’
(Excellent) rating by A.M. Best
Pre-Tax Operating Income
($M)
Combined ratio
* Includes $2.8M of losses from 2008 hurricanes.
89.4%
88.7%
96.5%
$50
$61
$43
$46
95.6%
$29
99.0%
2006
2007
2008*
2009
2010
2011 Three Months OI: $5.9M
2010 Three Months OI: $7.9M |
 15.
Status
Underwriting on $1.2
billion of capital
Has achieved desired diversification
Event-driven businesses
Added Casualty and Professional Risks
business in 2009
Competitive advantages
Utilizes established infrastructure
Built diversified book of business
Proven record of leadership
Benefits from a category XII ‘A’
(Excellent) rating by A.M. Best
INTERNATIONAL SPECIALTY:
Argo Re –
Well Established
$24
$50
Pre-Tax Operating Income
($M)
2008
2009
* 2010 includes $30.1M of catastrophe losses
(net of reinstatement premium).
** 2011-Q1 includes $68.1M of catastrophe losses (net of reinstatement
premium). 2010*
$32
77.9%
52.3%
Combined ratio
72.8%
2011 Three Months OI: ($52.9M)**
2010 Three Months OI: $7.6M |
 16.
Status
Acquired Heritage in 2008;
rebranded to Argo International
Carrier named head of U/W Jan 2011
Worldwide property
–
Direct and Facultative
–
North American and International
Binding Authority
Non-U.S. liability
–
Professional indemnity
–
General liability
Competitive advantages
Specialist knowledge
Carries the Lloyd’s market ratings of
‘A’
(Excellent) rating by A.M. Best, and
‘A+’
by S&P
SYNDICATE 1200:
Argo International (Lloyd’s)
Gross Written Premiums
($M)
$424
$706
$390
2008
2009
2010
2011 Three Months OI ($46.6M)*
2010 Three Months ($10.7M)
*
2011-Q1 includes $44.4M of catastrophe losses. |
 Combined Business Mix –
Established platform to write business worldwide and penetrate niche markets
Int’l Specialty (Bermuda)
?
Quota share reinsurance
of business partners
?
Property reinsurance
Excess casualty and
professional liability insurance
Non-U.S. retail
62%
9%
26%
Based on 2010 gross written premiums
Specialty Insurance Platform
Excess & Surplus Lines
(non-admitted
market
-
wholesale)
Commercial Specialty
(admitted
market
-
retail)
U.S. Operations (New York / San Antonio)
Lloyd’s wholesale
Worldwide property insurance
Non-U.S. liability insurance
Syndicate 1200 (London)
3%
17. |
 18.
Diversified Business Model
Reinsurance
Insurance
91%
14%
Casualty
~70%
~30%
Property
9%
Based on 2010 gross written premiums |
 19.
Argo Group 2010 Results
2009
2010
Change
Gross Written Premium
23%
Net Earned Premium
14%
Total Revenue
11%
Net Operating Income Per Share
53%
Net Income Per Share
28%
*
Impacted by $54.9M of losses (net of reinstatement premiums) from catastrophes in
2010. Net Investment Income
8%
LTM Growth in Book Value Per Share
$ 2.0B
$ 1.4B
$ 1.5B
$
4.28
$
3.81
$ 146M
18.5%
$ 1.5B
$ 1.2B
$ 1.4B
$
2.00*
$
2.76
$ 134M
12.5% |
 20.
2010
Three
Months
2011
Three
Months
Change
Gross Written Premium
$
405M
14%
Net Earned Premium
$
324M
19%
Total Revenue
$
372M
20%
Net Operating Income Per Share
$
0.32
--
%
Argo Group 2011 First Quarter Results
$
348M
$
261M
$
297M
($
2.82)
LTM Growth in Book Value Per Share
19.2%
3.3%
Net Investment Income
$ 34M
3%
$ 33M
*
Net Income Per Share
$ 0.67
--
%
($
3.34)
*
*
Impacted by $113.1M of losses (net of
reinstatement premiums) from catastrophes in the 2011 first quarter. |
 21.
Dec 31, 2010
3,152
18.8%
2,003
1,626
6,482
$4,215
377
$58.41
Dec 31, 2009
3,203
19.1%
1,996
1,615
6,897
$4,334
381
$52.36
Strong Balance Sheet and Capital Base
Reserves
Total Leverage*
Total Capital
Shareholders’
Equity
Total Assets
Investment Portfolio
Indebtedness*
Book Value Per Share
*
Includes $311mm of Junior Subordinated Debentures
Mar 31, 2011
3,347
1,523
6,338
$4,184
$55.59
379
1,902
19.9%
In millions except for book value and leverage data |
 Conservative Investment Portfolio
Fixed income (92%)
Equities (8%)
Total: $3.7bn
Total: $0.3bn
•
Internally and externally managed
•
Conservative focus on large cap
•
Average Rating of AA
•
Duration of 2.9 years
26%
17%
17%
30%
11%
Governments
State / Muni
Corporate
Structured
Short Term
Financials
Industrial & Other
6%
94%
Invested Assets
($mm)
22.
$1,181
$1,553
$1,784
$2,173
$2,514
$3,556
$3,995
$4,334
$4,215
$4,184
2002
2003
2004
2005
2006
2007
2008
2009
2010
Q1 2011
As of March 31, 2011 |
 23.
Capital Deployment Strategy
Support balance sheet, mainly loss reserves
Growth of core business
–
Deploy capital opportunistically across all four segments
–
Reduce reliance on third-party reinsurance
Pursue attractive market opportunities
–
Selective acquisitions that complement existing business lines
–
Books of business and companies
Repatriate capital depending on capital position and stock price
–
New $150M authorized stock repurchase program announced Feb. 2011
–
Repurchased
$123.8M
or
approx
3.7M
shares
of
common
stock
Jan.
1
2010
through March 31, 2011
–
Paid cash dividend of 12 cents per share the last six quarters
|
 24.
Key Areas of Focus Today
Improve expense structure
–
Implementing shared services model for our back office, non-core functions
–
Evaluating outsourcing opportunities
Capital management
–
Constantly evaluating capital structure
–
Ensure we are adequately and efficiently capitalized
Investment portfolio
–
Analyzing risk-return threshold
–
Allocating investments accordingly to increase yield
New business development
–
Prudently evaluating new specialty products and new geographies that will be
accretive to ROE over time |
 25.
I
N S
U
M
M
A
R
Y
Argo Group:
A Strong and Well-Positioned Specialty Underwriter
Powerful competitive force in specialty lines market
–
International platform with U.S., Bermuda and London advantages
–
Broadly diversified insurance and reinsurance businesses
–
Deep expertise in small-
to mid-size niche markets
–
Growth though geographic and product diversification
Proven and successful strategic business plan
–
Track record of growth and profitability through insurance cycle
–
Prudent risk management and controls
–
Strong, expanded and proven leadership team
Focus on profitable growth
–
Effective capital deployment + high-margin emphasis = ROE-driven focus
–
Achieved 11.1% CAGR since 2002 in book value per share |
 Thank you |