2Q 2012 Investor Presentation August 2012 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 – Niche Specialist With International Platform • Underwriter of specialty P&C insurance and reinsurance worldwide through four distinct business segments • Global footprint with operations strategically located in major insurance centers – U.S., Bermuda, London, Brazil, Dubai and Continental Europe • A leader in the U.S. Excess & Surplus lines market • Among the largest Syndicates at Lloyds by stamp capacity • One of only a few international insurance groups authorized to operate locally in Brazil • Broad and deep relationships with retailers, wholesalers and Lloyds brokers • Focused on underwriting excellence and well positioned for growth • Conservatively capitalized by any measure • Financial strength is excellent as indicated by A.M. Best rating 1 of ‘A’ 1 Argo P/C insurance & reinsurance operations (Class Size XII) |
4. Evolution to an International & Diversified Specialty U/W $1,544 $23.03 $501.1M 400 800 1,200 1,600 2,000 2001 • Acquired Colony and Rockwood • Founded Trident (Public Entity) 2005 • Sold Risk Management business 2007 • Rebranded Argo Group • Completed merger with PXRE • Formed Argo Re 2008 • Acquired Lloyds Syndicate 1200 2011 • Established local presence in Europe, Brazil & Dubai (part of Int’l Specialty) $1,530 $1,987 $1,605 $1,180 $1,153 $1,056 $788 $622 $272 $186 13% 31% 27% 29% 4. 1 Excludes GWP recorded in runoff and corporate & other. Risk Management (sold in 2005) Commercial Specialty (includes Trident) Excess & Surplus Lines International Specialty Syndicate 1200 $903 $1,660 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 12/2Q TTM BVPS $23.39 $27.22 $30.36 $33.50 $39.08 $45.15 $44.18 $52.36 $57.82 $55.60 $58.74 Total Capital (Millions) $328 $567 $717 $860 $992 $1,754 $1,782 $1,996 $1,986 $1,840 $1,868 |
5. Argo Group International Footprint UNITED STATES BRAZIL EUROPE MENA Dubai Rio de Janeiro Sao Paulo Bermuda Barcelona Brussels London Malta Paris Zurich Key offices: Atlanta Boston Chicago Denver Houston Los Angeles New York Portland Richmond Rockwood San Antonio Scottsdale |
6. Argo Group Business Mix 6. GWP by Segment Excess & Surplus Lines Commercial Specialty Syndicate 1200 International Specialty 31% 13% 27% 29% GWP by Product Property Casualty 67% 33% GWP by Business Type Primary Insurance Reinsurance 15% 85% GWP by Geography North America Europe Rest of World 7% 12% 81% *Data is based on TTM as of June 30, 2012. |
Maximize shareholder value through growth in book value per share Our Strategy • Become a recognized worldwide leader of custom insurance and reinsurance solutions for our clients • Create a competitive advantage through superior customer service, product innovation and underwriting knowledge • Achieve profitable growth organically and/or through opportunistic acquisitions throughout the underwriting cycle • Manage capital and risk appropriately / maintain strong ratings • Hire top tier talent to support our strategy 7. |
Maximizing Shareholder Value – BVPS Growth $45.15 $44.18 $52.36 $57.82 $58.74 $39.08 2008 2009 2010 2011 2006 2007 2005 2004 2003 2002 $23.39 $27.22 $30.36 $33.50 1.1x 1.1x 1.2x 1.6x 1.7x 1.2x 0.9x 0.8x 0.7x 0.5x = Price/Book 1 8. 2Q 12 0.7x $55.60 - 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 * Book value per common share - outstanding, includes the impact of the Series A Mandatory Convertible Preferred Stock as if on a converted basis. Preferred stock had fully converted into common shares as of Dec. 31, 2007. 1 Price / book calculated at 52-week high and most recent book value per share. Stock price and book value adjusted for PXRE merger for 2006 and prior years. Note the book value amounts for 2011 and 2010 reflect the effect of the Company’s adoption of new guidance related to accounting for costs associated with acquiring or renewing insurance contracts. 2009 and prior periods have not been restated. |
9. Consolidated GWP up 16.6% in 2Q12 vs. 2Q11 2Q GWP Trending Favorably Across All Segments Reflects impact of strategic initiatives taken, rate increases and improved retention $131.8 $143.9 $62.9 $84.3 $88.2 $92.7 $123.8 $153.2 9. $115 $120 $125 $130 $135 $140 $145 $150 2Q11 2Q12 Excess & Surplus Lines $80 $85 $90 $95 $100 2Q11 2Q12 Commercial Specialty $50 $60 $70 $80 $90 $100 2Q11 2Q12 International Specialty $110 $120 $130 $140 $150 $160 2Q11 2Q12 Syndicate 1200 |
10. Commercial Specialty Pre-Tax Operating Income and Combined Ratio About Us Designs customized commercial insurance programs for grocers, dry cleaners restaurants and other specialty retail clients 2 nd largest provider of commercial insurance to small and midsize U.S. public entities 2 nd largest provider of commercial insurance to the coal mining industry Distributes products directly through wholesalers and independent agents Argo Insurance U.S. Retail 24% Restaurants 6% Grocery 11% Dry Cleaners 4% Other Industries 3% Mining 18% Other 1% Public Entity 35% Commercial 3% Programs...… Argo Surety 7% Alteris 36% Commercial Programs 12% *YTD as of June 30, 2012. Combined Ratio Total PTOI NII AY U/W Results PYD CATS FEE GWP by Business Unit – TTM 6/30/12 |
Pre-Tax Operating Income and Combined Ratio About Us A leader in the U.S. Excess & Surplus lines market Strong relationships with national, local and regional wholesale brokers Seasoned U/W expertise is a competitive advantage Target market is small, medium and large non-standard (hard-to-place) risks underwritten on both an admitted and non-admitted basis GWP by Business Unit – TTM 6/30/12 Casualty 31% Transportation 19% Environmental 4% Allied Medical 5% Management Liability <1% Property 9% Contract 24% Errors & Omissions 8% Excess & Surplus Lines Segment *YTD as of June 30, 2012. Combined Ratio Total PTOI NII AY U/W Results PYD CATS |
12. Syndicate 1200 Pre-Tax Operating Income and Combined Ratio About Us • Established multi-class platform at Lloyds of London • Ranked among the largest Syndicates at Lloyds by Stamp Capacity • Lloyd’s market ratings: • ‘A’ (Excellent) by A.M. Best • ‘A+’ (Strong) by S&P GWP by Business Unit – TTM 6/30/12 Property 49% Liability 31% $30.0 Specialty 16% Aerospace 4% 140% 90% 60% 130% Run Off <1% ‘11 ‘10 ‘09 ‘08 Prof. Indemnity 11% General Liability 12% Directors & Officers 2% Other 6% Int’l Property Treaty 4% NA & Int’l Binders 9% Personal Accident 11% Property FAC 20% Other 5% Gross Written Premium ‘11 ‘10 ‘09 ‘08 $282.9 $706.0 $389.9 $438.5 12. 120% 110% 100% 80% 70% 112.3% 95.8% 115.3% 131.4% ($63.0) ($28.1) ($5.2) ’12/2Q* $514.3 ’12/2Q* 101.0% $7.9 *Data is based on TTM as of June 30, 2012. *YTD as of June 30, 2012. (100.0) (80.0) (60.0) (40.0) (20.0) - 20.0 40.0 60.0 Total PTOI NII AY U/W Results PYD CATS FEE Combined Ratio 0 100 200 300 400 500 600 700 800 |
13. International Specialty About Us • Bermuda team underwrites property CAT, short tail per risk and proportional treaty reinsurance worldwide, excess casualty & professional liability • Building diversity through international expansion: • Established primary operations in Brazil • Established operations in Euro zone • Established regional office in Dubai • Distributes through brokers GWP by Business Unit – TTM 6/30/12 Property CAT 46% Casualty 22% Professional 8% Other Assumed 3% Property Pro Rata 6% Gross Written Premium $11.1 $34.3 $126.4 $162.9 $188.9 $200.8 Pre-Tax Operating Income and Combined Ratio $0.8 $8.1 $23.6 $50.3 $35.6 200% ($68.4) ’12/2Q* ‘10 ‘09 ‘08 ‘07 ‘06 13. 160% 80% 0% 120% 40% Combined Ratio Total PTOI NII AY U/W Results PYD CATS 77.9% 52.3% 72.8% 178.5% 86.1% 82.1% ‘11 80.1% $17.4 ’12/2Q* ‘10 ‘09 ‘08 ‘07 ‘06 ‘11 $212.6 *Data is based on TTM as of June 30, 2012. *YTD as of June 30, 2012. Risk XS 3% U.S. Management Liability 1% Emerging Markets 11% (140.0) (120.0) (100.0) (80.0) (60.0) (40.0) (20.0) - 20.0 40.0 60.0 80.0 0 50 100 150 200 250 |
14. 2Q 12 vs. 2Q 11 YTD 2Q12 vs. YTD 2Q 11 Gross Written Premiums $474.2. $406.7. $870.5. $754.5. Net Written Premiums 361.5. 283.3. 602.7. 527.7. Earned Premiums 290.2. 271.7. 567.5. 533.1. Losses & LAE 175.8. 191.0. 341.6. 464.8. Other Reinsurance-Related Expenses 6.9. 0.4. 13.8. 0.4. Underwriting, Acquisition and Insurance Expenses 114.6. 105.4. 228.3. 210.5. Underwriting Income / (Loss) ($7.1) ($25.1) ($16.2) ($142.6) Net Investment Income 30.0. 32.9. 61.4. 66.3. Fee Income, net 0.5. 0.3. 1.8. 0.4. Interest Expense 5.5. 5.5. 11.2. 10.9. Operating Income / (Loss) $17.9. $2.6. $35.8. ($86.8) Foreign Currency Exchange Gain / (Loss) 9.8. (3.4) 6.9. (13.0) Net Realized Investment Gains / (Losses) (2.7) 31.5. 10.4. 33.8. Pre-Tax Income / (Loss) $25.0. $30.7. $53.1. ($66.0) Income Tax Provision (Benefit) 1.0. 9.1. 9.5. 6.5. Net Income / (Loss) $24.0. $21.6. $43.6. ($72.5) Operating Income (Loss) per Common Share (Diluted) 1 $0.55. $0.08. $1.09. ($2.69) Net Income (Loss) per Common Share (Diluted) $0.92. $0.78. $1.66. ($2.64) Loss Ratio 2 62.1% 70.4% 61.7% 87.3% Expense Ratio 3 40.4% 38.9% 41.2% 39.5% Combined Ratio 102.5% 109.3% 102.9% 126.8% 1 Per diluted share at assumed tax rate of 20% in 2012 and 15% in 2011. Tax rate adjusted in the current quarter to reflect the distribution of results. 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). All data in millions except for per share data and ratio calculations. 2Q & YTD Operating Results - 2012 vs. 2011 14. |
15. ROE (Major Drivers) Higher U/W margins required to offset low investment yields ROE Sensitivity Table 1.0% 0.8% 3.2% 5.5% 7.8% 10.1% 0.0% 1.6% 3.9% 6.2% 8.6% 10.9% -1.0% 2.4% 4.7% 7.0% 9.3% 11.7% -2.0% 3.1% 5.4% 7.8% 10.1% 12.4% -3.0% 3.9% 6.2% 8.5% 10.8% 13.2% -4.0% 4.6% 6.9% 9.3% 11.6% 13.9% -5.0% 5.4% 7.7% 10.0% 12.4% 14.7% -6.0% 6.1% 8.5% 10.8% 13.1% 15.4% -7.0% 6.9% 9.2% 11.5% 13.9% 16.2% -8.0% 7.6% 10.0% 12.3% 14.6% 16.9% -1.0% 0.0% 1.0% 2.0% 3.0% Change in Investment Yield 15. ** Based on the latest 2012 consensus estimate and June 30, 2012 shareholders equity. |
16. 17% 16. Conservative Investment Strategy As of June 30, 2012 • Duration of 3.2 years • Average rating of ‘AA-’ • Average yield of 3.6% • Very liquid • Conservatively managed Portfolio Characteristics Equity Investments by Sector 10% Healthcare Energy 23% 3% Industrials 11% Funds 5% Financials 9% Info Tech 4% Materials 6% Consumer Discretionary Consumer Staples Asset Allocation 7% Other Long Term Invest. Fixed 74% Maturities. 7% Short Term Invest. 12% Equities Total: $4.1B Total: $0.5B Fixed Maturities by Type 9% Short Term Corporate 33%. 21% Gov. 19% Structured State/Muni 18%. Total: $3.4B 29% |
Argo Group - Recap of Major Highlights Argo is an established carrier in the international specialty insurance and reinsurance markets • U.S. and international platforms well-positioned to take advantage of improving market • International platform supports diversification and future growth strategy • Recent strategic initiatives are beginning to yield results • Underwriting focus and talent are key competitive advantages Management is committed to maximizing shareholder value • Achieved double digit book value per share growth since 2002 • Quality of capital and balance sheet is excellent • Will continue to return capital as appropriate 17. |
Argo Group - A Compelling Valuation Current stock price doesn’t reflect strength of balance sheet or underwriting platform • AGII’s stock price trading at approximately half of book value Balance sheet characteristics: • Adequately reserved • Excellent asset quality • Average rating of fixed maturity portfolio is ‘AA-’ • Exposure to questionable sovereigns is immaterial • Average rating of reinsurance recoverable balances is ‘A’ • Intangibles and goodwill less than 4% of total assets • Use of financial leverage is modest at 20%(6/30/12) 18. Management is an active buyer of the stock |