 1Q
2014 Investor Presentation May 2014
Exhibit 99.1 |
 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. 2.
|
 3.
Argo Group at a Glance
Exchange / Ticker:
NASDAQ / “AGII”
Share Price:
$45.21
Market Capitalization:
$1.2 billion
Annual Dividend / Yield:
$0.60 per share / 1.3%
Gross Written Premium:
$1.9 billion
Capital:
$2.0 billion
Analyst Coverage:
Raymond James (Outperform) -
Greg Peters
Sterne Agee (Buy) -
Dan Farrell
William Blair (Outperform) -
Adam Klauber
Compass Point (Neutral) -
Ken Billingsley
Dowling & Partners (Neutral) -
Kyle LaBarre
Guggenheim (Neutral) -
Bijan Moazami
KBW (Market Perform) -
Brett Shirreffs
Macquarie (Neutral) -
Amit Kumar
Note: Market information as of May 5, 2014 and annual performance figures as of
TTM March 31, 2014. |
 4.
Global underwriter of specialty insurance &
reinsurance
Strategically located in major insurance centers
•
U.S., Bermuda and London
Established presence in attractive markets
•
Leader in U.S. Excess & Surplus Lines
•
Top Quartile Lloyd’s Syndicate by stamp
•
Strong core Commercial Specialty franchise
•
Flexible reinsurance & excess casualty platform
•
Primary presence in Brazil
Diversified by geography, product & distribution
Broad and strong producer relationships
•
Retailers, wholesalers and brokers (Lloyd’s, Re)
“A”
(excellent) A.M. Best rating
Primary
Insurance
Reinsurance
Property
Casualty
GWP by Business Type
GWP by Business Mix
Argo Franchise Overview
Leading Specialty Franchise |
 5.
Sustainable competitive advantage
•
Niche markets
•
Underwriting expertise
•
Superior customer service
•
Product innovation
Profitable organic & strategic growth
•
Profitable through cycles
•
Key underwriters/teams
•
Deals that meet stringent criteria
Deep, tenured management team
Active capital management
5.
Maximize
Shareholder
value through
growth in
Book Value
per Share
Strategy Aligned Toward Shareholder Value |
 6.
Evolution of Growth and Diversification
2001
•
Acquired Colony
and Rockwood
•
Founded Trident
(Public Entity)
2005
•
Sold Risk
Management
business
2007
•
•
•
Formed Argo Re
2008
•
2011
•
Established local
presence in Brazil
6.
*Excludes GWP recorded in runoff and corporate & other.
Acquired Lloyd’s
Syndicate 1200
Rebranded Argo Group
Completed acquisition
in Bermuda |
 7.
Argo Group Business Mix ($1.9B in GWP)
7.
GWP by Segment
Excess &
Surplus Lines
Commercial
Specialty
Syndicate
1200
International
Specialty
31%
15%
32%
GWP by Product
GWP by Geography
United
States
London
Bermuda
*Data is based on TTM as of March 31, 2013. Excludes GWP recorded in runoff and
corporate & other. 22%
16%
Excess &
Surplus Lines
32%
Other
Commercial
Specialty
Property
Public Entity
21%
5%
6%
Marine &
Aerospace
Surety 2%
Alteris
Mining 4%
Emerging Mkts 8%
6%
Emerging Markets 4%
54%
11%
31%
GWP by Business Type
Primary
Insurance
Reinsurance |
 8.
Multi-Channel Distribution Strategy |
 9.
Maximizing Shareholder Value –
BVPS Growth
1
Price / book calculated at 52-week high and most recent book value per share.
Stock price adjusted for PXRE merger for 2006 and prior years. 2
Book
value
per
common
share
–
outstanding:
-
Adjusted for June 2013 stock dividend
-
2008-2011
restated
to
reflect
adoption
of
ASU
2010-26
(related
to
accounting
for
costs
associated
with
acquiring
or
renewing
insurance
contracts);
2007
and
prior
not
restated
-
2006 and prior years adjusted for PXRE merger
-
2003-2006
includes
impact
of
Series
A
Mandatory
Convertible
Preferred
on
an
as-if
converted
basis.
Preferred
stock
fully
converted
into
common
shares
as
of
Dec.
31,
2007
9.
2002
Reported Book Value
Cumulative Dividends
Price/Book¹
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
1Q ‘14 |
 10.
Scale
2002
2006
TTM 1Q '14
'02-1Q'14 Factor
Gross Written Premiums
$622.1
$1,155.6
$1,913.3
3.1x
Net Written Premiums
484.0
847.0
1,349.1
2.8x
Net Earned Premiums
378.4
813.0
1,325.3
3.5x
Financial Strength
2002
2006
TTM 1Q '14
'02-1Q'14 Factor
Total Assets
$2,208.9
$3,721.5
$6,431.4
2.9x
Total Investments
1,181.3
2,514.1
4,118.5
3.5x
Shareholder's Equity
327.7
847.7
1,594.9
4.9x
Total Capital
327.7
992.0
1,998.5
6.1x
Debt / Total Capital
0.0%
14.5%
20.2%
A.M. Best Rating
A
A
A
Substantial Growth and Financial Strength |
 11.
Combined Ratio
93.3%
-6.6%
86.7%
Combined Ratio
89.6%
-5.5%
84.1%
Combined Ratio
98.6%
2.9%
101.5%
Combined Ratio
95.6%
-6.2%
89.4%
1Q YoY Gross Written Premium & Combined Ratio
11.
Consolidated GWP up 5.7% and Combined Ratio down 3.9% in 1Q 2014
vs. 1Q 2013
Excess & Surplus Lines
Commercial Specialty
International Specialty
Syndicate 1200 |
    12.
88.9%
89.3%
99.6%
97.4%
95.5%
91.9%
93.3%
89.4%
88.1%
About Us
•
Leader in U.S. Excess & Surplus Lines
•
Strong relationships with national,
local and regional wholesale brokers
•
Seasoned U/W expertise is a competitive
advantage
•
Target all sizes of non-standard (hard-to-place)
risks, with focus on small/medium accounts
•
Underwrites on both admitted & non-admitted
basis and across all business enterprises via
two brands:
GWP by Business Unit (TTM 3/31/14)
Casualty 33%
Transportation 11%
Environmental 5%
Allied Medical 6%
Management Liability 5%
Property 11%
Contract 23%
Errors & Omissions 5%
Excess & Surplus Lines Segment (32% of TTM GWP)
12.
Combined Ratio
PTOI
Gross Written Premium
Pre-Tax Operating Income & Combined Ratio
‘13
‘11
‘10
‘09
‘08
‘06
‘12
‘07
‘14/1Q*
*Data is based on YTD as of March 31, 2014.
’13
‘11
‘10
‘09
‘08
‘06
‘12
‘07
‘14/1Q*
*Data is based on TTM as of March 31, 2014.
•
Colony Specialty
•
Argo Pro |
 13.
97.4%
95.5%
91.9%
88.1%
80.0%
82.0%
84.0%
86.0%
88.0%
90.0%
92.0%
94.0%
96.0%
98.0%
100.0%
2010
2011
2012
2013
E&S Operating Platform Enhancement
New segment
management team
is formed
Year of
restructuring and
strategy
enhancement
Year of execution
on the newly
restructured
platform
Continued
execution and
combined ratio
improvement
Through restructuring initiatives and strategy enhancement,
Argo enters 2014 as an industry-leading E&S underwriter
|
    14.
Commercial Specialty (22% of GWP)
About Us
•
Business primarily placed through
retail
distribution partners
•
Argo Insurance –
Designs customized
commercial insurance programs for grocers, dry
cleaners, restaurants and other specialty retail
clients
•
Trident –
2
nd
largest provider of insurance to
small and midsize U.S. public entities
•
Rockwood –
2
nd
largest provider of commercial
insurance to coal mining industry
•
Alteris
–
fee based business where Argo or
others accept the risk
Combined Ratio
PTOI
GWP by Business Unit (TTM 3/31/14)
U.S. Retail (Argo Insurance) 18%
Restaurants 6%
Grocery 8%
Dry Cleaners 2%
Other Industries 2%
Public Entity
(Trident) 22%
Surety 11%
Mining
(Rockwood) 19%
Other 3%
Alteris Managed Premium 26%
Other <1%
Transportation 3%
State Workers’
Comp Funds 7%
Self Insured Public Entity 6%
89.4%
88.7%
95.6%
98.1%
108.3%115.1%
96.5%
101.5%
97.8%
Gross Written Premium
Pre-Tax Operating Income & Combined Ratio
‘13
‘11
‘10
‘09
‘08
‘06
‘12
‘07
‘14/1Q*
*Data is based on YTD as of March 31, 2014.
’13
‘11
‘10
‘09
‘08
‘06
‘12
‘07
‘14/1Q*
*Data is based on TTM as of March 31, 2014. |
    15.
General Liability 16%
Prof. Indemnity 12%
Int’l Casualty Treaty 3%
Directors & Officers 2%
Other 2%
Syndicate 1200 (31% of GWP)
About Us
•
Well-established multi-class
platform at Lloyd’s of London
•
Ranks among the largest
Syndicates at Lloyd’s by Stamp
Capacity
•
Lloyd’s market ratings:
•
‘A’
(Excellent) by A.M. Best
•
‘A+’
(Strong) by S&P
GWP by Business Unit (TTM 3/31/14)
Property 47%
Liability 34%
Specialty 14%
Aerospace 4%
Property Fac 17%
Personal Accident 12%
N. Am. & Int’l Binders 12%
Other 5%
15.
115.2%
131.7%
95.8%
112.3%
‘12
‘10
‘09
‘08
‘11
96.2%
Combined Ratio
PTOI
92.4%
‘14/1Q*
Offshore Energy 6%
Onshore Energy 4%
Cargo 2%
Yachts & Hulls 2%
86.7%
’13
*Data is based on YTD as of March 31, 2014.
*Data is based on TTM as of March 31, 2014.
Gross Written Premium
Pre-Tax Operating Income & Combined Ratio
’13
‘10
‘09
‘08
‘12
‘14/1Q*
‘11 |
    16.
International Specialty (15% of GWP)
About Us
•
Bermuda team underwrites
16.
GWP by Business Unit (TTM 3/31/14)
Excess Casualty 20%
Professional Liability 11%
Brazil 23%
Marine Cargo 9%
Motor 5%
Financial Lines 6%
Combined Ratio
PTOI
Reinsurance 45%
Other Assumed Re 3%
Property Risk XS 3%
Property Pro Rata 7%
Property Cat 32%
71.7%
177.5%
52.3%
77.9%
‘12
‘10
‘09
‘08
‘11
97.1%
95.5%
‘14/1Q*
84.1%
’13
*Data is based on YTD as of March 31, 2014.
*Data is based on TTM as of March 31, 2014.
Gross Written Premium
Pre-Tax Operating Income & Combined Ratio
’13
‘10
‘09
‘08
‘12
‘14/1Q*
‘11
•
Property cat, short tail per risk and
proportional treaty reinsurance worldwide
•
Excess casualty and professional liability for
Fortune 1000 accounts
•
Building diversity through international
expansion:
•
Distributes through brokers
•
Established primary operations in Brazil
•
Established operations in Euro zone
•
Established regional office in Dubai |
 17.
1Q 2014 Operating Results
17.
1Q 2014
1Q 2013
Gross Written Premiums
$463.1
$438.2
Net Written Premiums
276.8
279.0
Earned Premiums
325.7
304.2
Losses and LAE
182.5
170.5
Other Reinsurance-Related Expenses
0.0
5.1
Underwriting, Acquisition and Insurance Expenses
128.7
126.7
Underwriting Income / (Loss)
$14.5
$1.9
Net Investment Income
23.3
27.9
Fee Expense, net
1.4
0.0
Interest Expense
5.0
4.9
Operating Income / (Loss)
$31.4
$24.9
Foreign Currency Exchange Gain / (Loss)
0.2
3.1
Net Realized Investment Gains
11.1
9.5
Pre-Tax Income / (Loss)
$42.7
$37.5
Income Tax Provision
2.5
4.8
Net Income / (Loss)
$40.2
$32.7
Operating Income (Loss) per Common Share (Diluted)
1
$0.93
$0.71
Net Income (Loss) per Common Share (Diluted)
$1.49
$1.16
Loss Ratio
2
56.0%
57.0%
Expense Ratio
3
39.5%
42.4%
Combined Ratio
95.5%
99.4%
All data in millions except for per share data and ratio calculations.
(1) Calculated using an assumed tax rate of 20%.
(2) Defined as Losses & LAE / (Earned Premiums less Other
Reinsurance-Related Expenses). (3) Defined as Underwriting, Acquisition
and Insurance Expenses / (Earned Premiums less Other Reinsurance-Related Expenses). |
 18.
17%
18.
As of March 31, 2014
•
Duration of 2.7 years
•
Average rating of ‘A+’
•
Book yield of 2.7%*
•
Very liquid
•
Conservatively managed
Portfolio Characteristics
Total:
$0.5b
Total:
$3.2b*
*$2.8 billion in fixed maturities, $0.4 billion in short term
2% Utilities & Telecom
*Book yield is pre-tax & includes all fixed maturities
Conservative Investment Strategy |
 19.
Active Capital Management
Through share repurchases and dividends, we have returned over $315 million of
capital and repurchased 25% of shares outstanding from 2010 through 1Q 2014
Note: Not adjusted for June 2013 stock dividend.
2010-1Q '14
($millions)
2010
2011
2012
2013
1Q 2014
Total
Total Shares O/S
31,206,796
31,285,469
31,384,271
34,066,889
34,180,904
Less: Treasury Shares
3,363,560
4,971,305
6,459,613
7,558,345
7,723,529
Net Shares
27,843,236
26,314,164
24,924,658
26,508,544
26,457,375
Shares Repurchased
3,217,561
1,607,745
1,488,308
1,098,732
165,184
7,577,530
As % of Beg. Net Shares
10%
6%
6%
4%
1%
25%
Avg. Repurchase Price/sh
$33.05
$30.69
$29.89
$41.02
$45.34
$33.35
Total Repurchased ($mm)
$106.3
$49.3
$44.5
$45.1
$7.5
$252.7
Dividends/sh
$0.48
$0.48
$0.48
$0.60
$0.15
$2.19
Dividend Payments ($mm)
$15.3
$14.2
$13.4
$16.1
$4.0
$63.0
Repurchases + Dividends ($mm)
$121.7
$63.6
$57.9
$61.1
$11.5
$315.7 |
 20.
Stock Price Performance –
Last 2 Years
Source: SNL Financial (as of 5/5/14).
Note:
Peer
Group
consists
of:
Allied
World,
American
Financial,
Arch
Capital,
Aspen,
AXIS
Capital,
Endurance,
Global
Indemnity,
HCC,
Markel,
Navigators,
OneBeacon, RLI Corp, Selective Group, W.R. Berkley. |
 21.
Price/Book
Jan-00
May-14
Argo
0.70x
0.77x
Peer Avg.
1.17x
1.18x
Difference
0.47x
0.41x
-
0.2x
0.4x
0.6x
0.8x
1.0x
1.2x
1.4x
1.6x
1.8x
2.0x
Jan-00
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Jan-12
Jan-14
Argo
Peer Group
Compelling Valuation vs. Peer Group
0.77x
1.18x
0.41x
Difference
Source: SNL Financial (as of 5/5/14).
Note: Price to book is average price/book across all peer companies based on
latest reported book value as of 2/26/14. Peer Group consists of: Allied World, American
Financial, Arch Capital, Aspen, AXIS Capital, Endurance, Global Indemnity, HCC,
Markel, Navigators, OneBeacon, RLI Corp, Selective Group, W.R. Berkley. |
 22.
Well Positioned for Value Creation in 2014 and Beyond
•
Compelling investment case
•
Stock trading at a discount to book value and below peers
•
Upside potential as past and ongoing efforts continue
We
believe
that
Argo
Group
has
potential
to
generate
substantial
value
for
new
and
existing
investors.
•
Significant changes to premium composition completed
•
Results of re-underwriting and efficiency efforts are emerging in
financials •
Modest
pricing
increases
expected
to
favorably
impact
growth
and
loss
ratios
•
Continue to employ and attract some of the best talent in the industry
•
Brazil has traction and is beginning to scale
•
Building more revenue from non-risk bearing MGA strategy
•
Incremental yield improvements can have a favorable impact on ROE
•
Moderate financial leverage
•
Strong balance sheet with adequate reserves and excellent asset quality
|