2Q 2013 Investor Presentation August 2013 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: $45.11 Market Capitalization: $1.2 billion Annual Dividend / Yield: $0.60 per share / 1.3% Gross Written Premium: $1.9 billion Capital: $1.9 billion Analyst Coverage: Los Angeles Malta New York Paris Portland Richmond Rio de Janeiro Rockwood San Antonio San Francisco Sao Paulo Scottsdale Seattle Zurich Note: Market information as of August 01, 2013 and annual performance figures as of TTM June 30, 2013. Atlanta Barcelona Bermuda Boston Brussels Chicago Dallas Denver Dubai Houston London Macquarie (Outperform) - Amit Kumar Raymond James (Outperform) - Greg Peters William Blair (Outperform) - Adam Klauber Dowling & Partners (Neutral) - Kyle LaBarre Compass Point (Neutral) - Ken Billingsley |
4. Strong & Focused Specialty Franchise Global underwriter of specialty P&C insurance and reinsurance through four segments Broad footprint strategically located in major insurance centers U.S., Bermuda, London and Brazil Focused on specialty insurance & casualty lines Leader in U.S. Excess & Surplus Lines Top quartile Lloyd’s Syndicate by stamp Deep relationships with retailers, wholesalers and Lloyd’s brokers A.M. Best rating of “A” (excellent financial strength) Proven track record of active capital management 2Q 2013 TTM GWP Reinsurance ~10% Insurance ~90% Property ~40% Casualty ~60% |
Strategy Aligned Toward Shareholder Value Sustain competitive advantage through superior customer service, product innovation and underwriting knowledge Opportunistically grow organically and/or through strategic acquisitions throughout the underwriting cycle Manage capital and risk appropriately / maintain strong ratings Proven ability to attract talent 5. Maximize shareholder value through growth in book value per share |
6. $272 $622 $788 $903 $1,056 $1,153 $1,182 $1,605 $1,987 $1,530 $1,544 $1,744 $1,855 Total Risk Management (sold renewal rights in 2005) International Specialty Syndicate 1200 Commercial Specialty Excess & Surplus Lines 16% 31% 30% 23% Evolution of Growth and Diversification 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 ’13/2Q TTM BVPS $24.75 $27.60 $30.45 $35.53 $41.05 $39.62 $47.00 $52.56 $50.55 $55.22 $55.73 Total Capital (Millions) $567 $717 $860 $992 $1,754 $1,763 $1,975 $1,986 $1,840 $1,915 $1,892 2001 • Acquired Colony and Rockwood • Founded Trident (Public Entity) 2005 • Sold Risk Management business 2007 • Rebranded Argo Group • Completed acquisition in Bermuda • Formed Argo Re 2008 • Acquired Lloyd’s Syndicate 1200 2011 • Established local presence in Brazil 6. *Excludes GWP recorded in runoff and corporate & other. 400 800 1,200 1,600 2,000 |
7. Argo Group Business Mix ($1.9B in GWP) 7. GWP by Segment Excess & Surplus Lines Commercial Specialty Syndicate 1200 International Specialty 31% 16% 30% GWP by Product GWP by Geography United States London Bermuda *Data is based on TTM as of June 30, 2013. Excludes GWP recorded in runoff and corporate & other. 23% 18% Excess & Surplus Lines 31% Other Commercial Specialty Property Public Entity 22% 6% 6% Marine & Aerospace Surety 2% Alteris 3% Mining 4% Emerging Mkts 8% Emerging Markets 4% 54% 12% 31% GWP by Business Type Primary Insurance Reinsurance ~10% ~90% |
8. Multi-Channel Distribution Strategy General Agency Retail Broker / Agent Wholesale Broker Lloyd’s Market Reinsurance Broker X X X X X X X X X X X X X X X X X X X X X X X X X X X X X Rockwood Argo Insurance Trident Surety Commercial Programs Alteris Contract Transportation Casualty E&O D&O Environmental Allied Medical Specialty Property Liability Property Aviation Marine Excess Casualty Professional Liability Emerging Markets Reinsurance |
Maximizing Shareholder Value – BVPS Growth * 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 in. Preferred stock 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 adjusted for PXRE merger for 2006 and prior years. 1.1x 1.1x 1.2x 1.6x 1.7x 1.2x 0.9x 0.8x 0.7x 0.6x = Price/Book 1 9. 0.7x 0.8x 2008 2009 2010 2011 2006 2007 2005 2004 2003 2002 2Q ‘13 2012 70.00 60.00 50.00 40.00 30.00 20.00 10.00 - $21.26 $24.75 $27.60 $30.45 $35.53 $41.05 $39.62 $47.00 $52.56 $50.55 $55.22 $55.73 |
10. Substantial Growth and Financial Strength Scale 2000 2006 TTM 2Q'13 '00-1Q'13 Factor Gross Written Premiums $186.1 $1,155.6 $1,855.6 10.0x Net Written Premiums 163.9 847.0 1,311.0 8.0x Net Earned Premiums 124.6 813.0 1,250.7 10.0x Financial Strength 2000 2006 TTM 2Q'13 '00-1Q'13 Factor Total Assets $1,565.8 $3,721.5 $6,575.3 4.2x Total Investments 1,085.6 2,514.1 3,985.4 3.7x Shareholder's Equity 501.1 847.7 1,491.1 3.0x Total Capital 501.1 992.0 1,892.2 3.8x Debt / Total Capital 0.0% 14.5% 21.2% A.M. Best Rating A A A |
11. Consolidated GWP up 14.3% in 2Q 2013 vs. 2Q 2012 2Q YoY Premium Growth in 3 out of 4 Segments Reflects impact of strategic initiatives taken, rate increases and improved retention 11. $143.9 $175.8 $50 $75 $100 $125 $150 $175 $200 2012 2013 Excess & Surplus Lines $92.7 $85.6 $50 $60 $70 $80 $90 $100 2012 2013 Commercial Specialty $84.3 $96.1 $50 $60 $70 $80 $90 $100 2012 2013 International Specialty $153.2 $184.9 $50 $75 $100 $125 $150 $175 $200 2012 2013 Syndicate 1200 |
12. 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: • Colony Specialty • Argo Pro GWP by Business Unit (TTM 6/30/13) Casualty 32% Transportation 15% Environmental 4% Allied Medical 5% Management Liability 3% Property 11% Contract 23% Errors & Omissions 6% Excess & Surplus Lines Segment (30% of TTM GWP) Combined Ratio PTOI 99.6% 97.8% 95.5% 91.9% 93.3% 89.3% ’13/2Q* ‘11 ‘10 ‘09 ‘08 ‘07 ‘12 94.4% Gross Written Premium Pre-Tax Operating Income & Combined Ratio ’13/2Q* ‘11 ‘10 ‘09 ‘08 ‘07 ‘12 *Data is based on TTM as of June 30, 2013. *Data is based on YTD as of June 30, 2013. $726.5 $684.3 $642.3 $522.6 $478.9 $513.5 $565.7 - 100.0 200.0 300.0 400.0 500.0 600.0 700.0 800.0 900.0 $112.7 $98.3 $64.7 $69.1 $74.4 $83.2 $34.0 - $20.0 $40.0 $60.0 $80.0 $100.0 $120.0 $140.0 |
13. 97.8% 95.7% 91.9% 92.7% 98.6% 103.9% 84.4% 87.2% 92.5% 75.0% 80.0% 85.0% 90.0% 95.0% 100.0% 105.0% 2010 2011 2012 Argo E&S Peer Average Top Quartile Peer Average Outperformed E&S Peers in 2012 Peers include: WR Berkley Specialty Segment, Alterra US Segment, American Safety E&S Segment, Aspen Insurance Segment, Axis Insurance Segment, Endurance Insurance Segment, HCC US P&C Segment, Markel E&S Segment, Navigators Insurance Segment, RLI P&C Segments, Arch Insurance Segment, United National Insurance Segment. Top quartile peers include the above mentioned segments from WR Berkley, RLI, and HCC. New segment management team is formed. Year of execution on the newly restructured platform. Year of restructure and implementation of new strategy. |
Commercial Specialty 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 largest provider of insurance to small and midsize U.S. public entities • Rockwood – 2 largest provider of commercial insurance to coal mining industry • Alteris – fee based business where Argo or others accept the risk 96.5% 99.0% 108.3% 115.1% 96.5% 88.7% 101.2% Gross Written Premium Pre-Tax Operating Income & Combined Ratio *Data is based on TTM as of June 30, 2013. *Data is based on YTD as of June 30, 2013. GWP by Business Unit (TTM 6/30/13) U.S. Retail (Argo Insurance) 20% Restaurants 5% Grocery 8% Dry Cleaners 4% Other Industries 2% Public Entity (Trident) 27% Surety 10% Mining (Rockwood) 18% Other 3% Alteris Managed Premium 23% Other 1% Transportation 3% State Workers’ Comp Funds 14% Self Insured Public Entity 4% $50.0 ($30.0) ($20.0) ($10.0) - $10.0 $20.0 $30.0 $40.0 $60.0 $70.0 $61.3 $43.0 $45.8 $33.1 $1.4 ($18.9) $9.0 ’13/2Q* ‘11 ‘10 ‘09 ‘08 ‘07 ‘12 ’13/2Q* ‘11 ‘10 ‘09 ‘08 ‘07 ‘12 - 100.0 200.0 300.0 400.0 500.0 600.0 $420.7 $510.9 $475.7 $428.1 $428.8 $437.0 $428.3 Combined Ratio PTOI 14. nd nd (23% of GWP) |
15. General Liability 15% Prof. Indemnity 13% Directors & Officers 2% Int’l Casualty Treaty 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 6/30/13) Property 47% Liability 34% Specialty 14% Aerospace 5% Property Fac 17% N. Am. & Int’l Binders 11% Personal Accident 10% Int’l Property Treaty 1% Other 8% 15. 115.3% 131.7% 95.8% 112.3% ‘12 ‘10 ‘09 ‘08 ‘11 96.2% Gross Written Premium Pre-Tax Operating Income & Combined Ratio ‘12 ‘10 ‘09 ‘08 ‘11 Combined Ratio PTOI 93.4% ’13/2Q* ’13/2Q* *Data is based on TTM as of June 30, 2013. *Data is based on YTD as of June 30, 2013. Cargo 2% Offshore Energy 6% Onshore Energy 4% Yachts & Hulls 2% $40.0 $20.0 ($20.0) ($40.0) - ($60.0) ($80.0) ($5.2) $30.0 ($28.1) ($63.8) $31.8 $19.9 800.0 700.0 600.0 500.0 400.0 300.0 200.0 100.0 $282.9 $706.0 $389.9 $438.5 $533.4 $568.1 |
16. International Specialty (16% of GWP) About Us • Bermuda team underwrites • Building diversity through international expansion: • Established primary operations in Brazil • Established operations in Euro zone • Established regional office in Dubai • Distributes through brokers 16. Gross Written Premium Pre-Tax Operating Income & Combined Ratio GWP by Business Unit (TTM 6/30/13) Excess Casualty 19% Professional Liability 10% Brazil 22% Marine Cargo 7% Property & Engineering 6% Motor 5% Financial Lines 4% ‘12 ‘10 ‘09 ‘08 ‘11 ’13/2Q* ‘12 ‘10 ‘09 ‘08 ‘11 ’13/2Q* 72.8% 177.5% 52.3% 77.9% 97.1% 92.1% Combined Ratio PTOI *Data is based on TTM as of June 30, 2013. *Data is based on YTD as of June 30, 2013. Reinsurance 49% Other Assumed Re 5% Property Risk XS 3% Property Pro Rata 8% Property Cat 33% $60.0 $40.0 $20.0 ($20.0) - ($40.0) ($60.0) ($80.0) $23.6 $50.3 $35.7 $15.7 $9.2 ($67.7) 300.0 250.0 200.0 150.0 100.0 50.0 - $126.4 $162.9 $188.9 $198.2 $260.2 $292.6 • Excess casualty and professional liability for Fortune 1000 accounts • Property cat, short tail per risk and proportional treaty reinsurance worldwide |
17. 2Q Operating Results 17. 2Q 2013 2Q 2012 Gross Written Premiums $542.2 $474.2 Net Written Premiums 390.2 361.5 Earned Premiums 327.5 290.2 Losses and LAE 192.7 175.8 Other Reinsurance-Related Expenses 4.7 6.9 Underwriting, Acquisition and Insurance Expenses 124.6 114.6 Underwriting Income / (Loss) $5.5 ($7.1) Net Investment Income 25.3 30.0 Fee Income, net 0.2 0.5 Interest Expense 5.1 5.5 Operating Income / (Loss) $25.9 $17.9 Foreign Currency Exchange Gain / (Loss) 5.9 9.8 Net Realized Investment Gains 11.0 (2.7) Pre-Tax Income / (Loss) $42.8 $25.0 Income Tax Provision 11.1 1.0 Net Income / (Loss) $31.7 $24.0 Operating Income (Loss) per Common Share (Diluted) 1 $0.74 $0.50 Net Income (Loss) per Common Share (Diluted) $1.13 $0.84 Loss Ratio 2 59.7% 62.1% Expense Ratio 3 38.6% 40.4% Combined Ratio 98.3% 102.5% 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. 18. As of June 30, 2013 Conservative Investment Strategy 17% 18. • Duration of 3.5 years • Average rating of ‘AA-’ • Book yield of 3.2% • Very liquid • Conservatively managed Portfolio Characteristics Equity Investments by Sector 9% Healthcare Energy 20% 4% Industrials 15% Funds 6% Financials 13% Info Tech 3% Materials 7% Consumer Discretionary Consumer Staples 20% Asset Allocation 7% Other Fixed 70% Maturities. 8% Short Term 15% Equities Total: $4.0B Total: $0.6B Fixed Maturities by Type 9% Short Term Corporate 35%. 18% Gov. 17% Structured State/Muni 21%. Total: $3.1B* *$2.79b in fixed maturities, $0.28b in short term 2% Utilities 1% Teleco |
19. Active Capital Management Through share repurchases and dividends, we have returned >$280 million of capital and repurchased 23% of shares outstanding from 2009 through Q2 2013 Note: Not adjusted for June 2013 stock dividend. 2009 2010 2011 2012 Q1 13 Q2 13 2009-Q2 13 Total Shares O/S 30,982,839 31,206,796 31,285,469 31,384,271 31,463,460 33,970,108 Less: Treasury Shares 145,999 3,363,560 4,971,305 6,459,613 6,785,438 7,213,189 Net Shares 30,836,840 27,843,236 26,314,164 24,924,658 24,678,022 26,756,919 Shares Repurchased 145,999 3,217,561 1,607,745 1,488,308 325,825 427,751 7,213,189 As % of Beg. Net Shares 0% 10% 6% 6% 1% 2% 23% Avg. Repurchase Price/sh $35.23 $33.08 $30.72 $29.92 $37.71 $41.58 $32.63 Total Repurchased ($mm) $5.1 $106.4 $49.4 $44.5 $12.3 $17.8 $235.56 Dividends/sh $0.48 $0.48 $0.48 $0.15 $0.15 Dividend Payments ($mm) $14.3 $13.1 $12.3 $3.7 $4.0 $47.38 Repurchases + Dividends ($mm) $5.1 $120.7 $62.5 $56.8 $16.0 $21.8 $282.9 |
20. Stock Price Performance – Last 12 Months Source: SNL Financial (as of 8/1/13). 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, Tower Group, W.R. Berkley. +80.0% +70.0% +60.0% +50.0% +40.0% +30.0% +20.0% +10.0% +0.0% (10.0%) Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 +73% +33% +24% Argo Group Peer Group S&P 500 |
21. Compelling Valuation vs. Peer Group 0.79x 1.19x 0.39x Difference Source: SNL Financial (as of 8/1/13). Note: Price to book is average price/book across all peer companies. Peer Group consists of: Allied World, American Financial, Arch Capital, Aspen, AXIS Capital, Endurance, Global Indemnity, HCC, Markel, Navigators, OneBeacon, RLI Corp, Selective Group, Tower Group, W.R. Berkley. - 0.2x 0.4x 0.6x 0.8x 1.0x 1.2x 1.4x 1.6x 1.8x 2.0x Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Argo Peer Group Price/Book Jan-00 Aug-13 Argo 0.70x 0.79x Peer Avg. 1.17x 1.19x Difference 0.47x 0.39x |
22. Well Positioned for Value Creation in 2013 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 |