4Q 2013 Investor Presentation February 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. |
Argo Group at a Glance Exchange / Ticker: NASDAQ / “AGII” Share Price: $44.25 Market Capitalization: $1.2 billion Annual Dividend / Yield: $0.60 per share / 1.4% Gross Written Premium: $1.9 billion Capital: $2.0 billion Analyst Coverage: Raymond James (Outperform) - Greg Peters William Blair (Outperform) - Adam Klauber Sterne Agee (Buy) - Dan Farrell Macquarie (Neutral) - Amit Kumar Dowling & Partners (Neutral) - Kyle LaBarre Compass Point (Neutral) - Ken Billingsley Guggenheim (Neutral) - Bijan Moazami Note: Market information as of February 7, 2014 and annual performance figures as of TTM December 31, 2013. 3. |
4. Global underwriter of specialty insurance & reinsurance Strategically located in major insurance centers • U.S., Bermuda, London and Brazil 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 Diversified by geography, product & distribution Deep 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 ~62% ~38% ~10% ~90% 4. |
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 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 BVPS $24.75 $27.60 $30.45 $35.53 $41.05 $39.62 $47.00 $52.56 $50.55 $55.22 $58.96 Total Capital (Millions) $567 $717 $860 $992 $1,754 $1,763 $1,975 $1,986 $1,840 $1,915 $1,966 2001 • Acquired Colony and Rockwood • Founded Trident (Public Entity) 2005 • Sold Risk Management business 2011 • Established local presence in Brazil 6. *Excludes GWP recorded in runoff and corporate & other. $272 $622 $788 $903 $1,056 $1,153 $1,182 $1,605 $1,987 $1,530 $1,544 400 800 1,200 1,600 2,000 $1,744 $1,888 Risk Management (sold renewal rights in 2005) International Specialty Syndicate 1200 Commercial Specialty Excess & Surplus Lines 31% 31% 22% • Completed acquisition in Bermuda • Formed Argo Re 2008 • Acquired Lloyd’s Syndicate 1200 2007 • Rebranded Argo Group 15% |
7. Argo Group Business Mix ($1.9B in GWP) GWP by Segment Excess & Surplus Lines Commercial Specialty Syndicate 1200 International Specialty 31% 15% 31% GWP by Product GWP by Geography United States London Bermuda *Data is based on full year 2013. Excludes GWP recorded in runoff and corporate & other. 22% 16% Excess & Surplus Lines 31% 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 ~9% ~91% |
Multi-Channel Distribution Strategy Rockwood Argo Insurance Trident 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 Surety 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 General Agency Broker Wholesale Market Lloyd’s Broker Reinsurance / Retail Broker Agent 8. |
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 in. Preferred stock fully converted into common shares as of Dec. 31, 2007 1.1x 1.1x 1.2x 1.6x 1.7x 1.2x 0.9x 0.8x 0.7x 0.6x 9. 0.7x 0.8x 2008 2009 2010 2011 2006 2007 2005 2004 2003 2002 2013 2012 $21.27 $24.75 $27.60 $30.46 $35.52 $41.05 $39.62 $47.00 $52.55 $50.54 $55.22 $58.96 $21.27 $24.75 $27.60 $30.46 $35.52 $42.86 $41.43 $48.82 $54.90 $53.41 $58.62 $62.97 $0 $10 $20 $30 $40 $50 $60 $70 Reported Book Value Cumulative Dividends Price/Book 1 |
Substantial Growth and Financial Strength Scale 2000 2006 2013 '00-'13 Factor Gross Written Premiums $186.1 $1,155.6 $1,888.4 10.1x Net Written Premiums 163.9 847.0 1,351.3 8.2x Net Earned Premiums 124.6 813.0 1,303.8 10.5x Financial Strength 2000 2006 2013 '00-'13 Factor Total Assets $1,565.8 $3,721.5 $6,591.0 4.2x Total Investments 1,085.6 2,514.1 4,079.2 3.8x Shareholder's Equity 501.1 847.7 1,563.0 3.1x Total Capital 501.1 992.0 1,966.4 3.9x Debt / Total Capital 0.0% 14.5% 20.5% A.M. Best Rating A A A 10. |
11. Consolidated GWP up 6.0% in 4Q 2013 vs. 4Q 2012 Overall 4Q YoY Premium Growth Reflects impact of strategic initiatives taken, rate increases and improved retention 11. $91.8 $88.8 $50 $75 $100 $125 2012 2013 $58.1 $47.5 $0 $20 $40 $60 $80 $100 2012 2013 $108.9 $125.2 $50 $75 $100 $125 $150 $175 2012 2013 $50 $75 $100 $125 $150 $175 $200 2012 2013 $130.6 $151.4 International Specialty Syndicate 1200 Excess & Surplus Lines Commercial Specialty |
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 (2013) Casualty 34% Transportation 12% Environmental 5% Allied Medical 5% Management Liability 5% Property 11% Contract 23% Errors & Omissions 5% Excess & Surplus Lines Segment (31% of TTM GWP) 12. Combined Ratio PTOI 99.6% 97.4% 95.5% 91.9% 93.3% 89.3% 88.1% Gross Written Premium Pre-Tax Operating Income & Combined Ratio $726.5 $684.3 $642.3 $522.6 $478.9 $513.5 $594.2 - 100.0 200.0 300.0 400.0 500.0 600.0 700.0 800.0 900.0 ‘09 ‘08 ‘07 ‘11 ‘10 ’13 ‘12 ‘13 ‘11 ‘10 ‘09 ‘08 ‘07 ‘12 - $20.0 $40.0 $60.0 $80.0 $100.0 $120.0 $140.0 • 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 restructure and implementation of new strategy Year of execution on the newly restructured platform Continued execution and combined ratio improvement Through restructuring initiatives and new strategy implementation, 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 largest provider of insurance to small and midsize U.S. public entities • Rockwood – 2nd largest provider of commercial insurance to coal mining industry • Alteris – fee based business where Argo or others accept the risk 95.6% 98.1% 108.3%115.1% 96.5% 88.7% 97.8% Gross Written Premium Pre-Tax Operating Income & Combined Ratio ’13 ‘11 ‘10 ‘09 ‘08 ‘07 ‘12 GWP by Business Unit (2013) U.S. Retail (Argo Insurance) 18% Restaurants 5% Grocery 8% Dry Cleaners 3% Other Industries 2% Public Entity (Trident) 24% Surety 11% Mining (Rockwood) 18% Other 3% Alteris Managed Premium 25% Other 1% Transportation 3% State Workers’ Comp Funds 16% Self Insured Public Entity 5% nd $61.3 $43.0 $45.8 $36.3 $1.4 ($18.9) $25.2 ($30.0) ($20.0) ($10.0) - $10.0 $20.0 $30.0 $40.0 $50.0 $60.0 $70.0 $420.7 $510.9 $475.7 $428.1 $428.8 $437.0 $419.1 - 100.0 200.0 300.0 400.0 500.0 600.0 ’13 ‘11 ‘10 ‘09 ‘08 ‘07 ‘12 PTOI Combined Ratio nd |
15. General Liability 17% Prof. Indemnity 13% Int’l Casualty Treaty 3% Directors & Officers 2% Other 1% 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 (2013) Property 45% Liability 36% Specialty 14% Aerospace 5% Property Fac 17% Personal Accident 12% N. Am. & Int’l Binders 11% Other 5% 15. 115.2% 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 92.4% ’13 ’13 Offshore Energy 6% Onshore Energy 4% Cargo 2% Yachts & Hulls 2% $282.9 $706.0 $389.9 $438.5 $533.4 $583.9 - 100.0 200.0 300.0 400.0 500.0 600.0 700.0 800.0 ($5.2) $30.0 ($27.7) ($63.8) $31.8 $40.6 ($80.0) ($60.0) ($40.0) ($20.0) - $20.0 $40.0 $60.0 Combined Ratio PTOI |
16. International Specialty (15% of GWP) About Us 16. Gross Written Premium Pre-Tax Operating Income & Combined Ratio GWP by Business Unit (2013) Excess Casualty 20% Professional Liability 11% Brazil 23% Marine Cargo 8% Property & Engineering 5% Motor 5% Financial Lines 5% ‘12 ‘10 ‘09 ‘08 ‘11 ’13 ‘12 ‘10 ‘09 ‘08 ‘11 ’13 71.7% 177.5% 52.3% 77.9% 97.1% 95.5% Reinsurance 46% Other Assumed Re 5% Property Risk XS 3% Property Pro Rata 6% Property Cat 33% $23.6 $50.3 $36.7 ($67.7) $15.7 $14.6 ($80.0) ($60.0) ($40.0) ($20.0) - $20.0 $40.0 $60.0 $126.4 $162.9 $188.9 $198.2 $260.2 $290.6 - 50.0 100.0 150.0 200.0 250.0 300.0 350.0 Combined Ratio PTOI • Bermuda team underwrites • 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: • Established primary operations in Brazil • Established operations in Euro zone • Established regional office in Dubai • Distributes through brokers |
17. 4Q and Full Year 2013 Operating Results 17. 4Q 2013 4Q 2012 FY 2013 FY 2013 Gross Written Premiums $412.9 $389.7 $1,888.4 $1,745.7 Net Written Premiums 307.6 277.5 1,351.3 1,244.5 Earned Premiums 341.6 314.7 1,303.8 1,186.5 Losses and LAE 187.9 219.7 742.0 747.6 Other Reinsurance-Related Expenses 4.8 6.5 19.2 27.3 Underwriting, Acquisition and Insurance Expenses 132.8 118.2 510.8 464.5 Underwriting Income / (Loss) $16.1 ($29.7) $31.8 ($52.9) Net Investment Income 22.7 28.5 100.0 118.8 Fee (Expense) Income, net (5.4) 0.5 (4.9) 5.3 Interest Expense 5.1 6.7 20.2 23.7 Operating Income / (Loss) $28.3 ($7.4) $106.7 $47.5 Foreign Currency Exchange Gain / (Loss) (3.5) (1.5) 1.7 (4.3) Net Realized Investment Gains 41.7 7.0 71.3 25.7 Debt Extinguishment Costs 0.0 2.2 0.0 2.2 Pre-Tax Income / (Loss) $66.5 ($4.1) $179.7 $66.7 Income Tax Provision 18.7 0.6 36.5 14.4 Net Income / (Loss) $47.8 ($4.7) $143.2 $52.3 Operating Income (Loss) per Common Share (Diluted) $0.82 ($0.21) $3.06 $1.33 Net Income (Loss) per Common Share (Diluted) $1.74 ($0.17) $5.14 $1.83 Loss Ratio 2 55.8% 71.2% 57.8% 64.5% Expense Ratio 3 39.4% 38.4% 39.7% 40.1% Combined Ratio 95.2% 109.6% 97.5% 104.6% 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). 1 |
17% 18. As of December 31, 2013 • Duration of 2.8 years • Average rating of ‘AA-’ • Book yield of 3.0%* • Very liquid • Conservatively managed Portfolio Characteristics Equity Investments by Sector 10% Health Care Energy 21% 6% Financials 5% Industrials 9% Technology 13% Funds 4% Materials 7% Discretionary Consumer Staples 23% Asset Allocation 9% Other Fixed 69% Maturities. 9% Short Term 13% Equities 69%. Total: $4.1b Total: $0.5b Fixed Maturities by Type 11% Short Term Corporate 37%. 17% Gov. 17% Structured State/Muni 18%. 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 18. |
Active Capital Management Through share repurchases and dividends, we have returned over $300 million of capital and repurchased 24% of shares outstanding from 2010 through 2013 Note: Not adjusted for June 2013 stock dividend. ($millions) 2010 2011 2012 2013 2010-13 Total Shares O/S 31,206,796 31,285,469 31,384,271 34,066,889 Less: Treasury Shares 3,363,560 4,971,305 6,459,613 7,558,345 Net Shares 27,843,236 26,314,164 24,924,658 26,508,544 Shares Repurchased 3,265,992 1,607,681 1,488,308 1,098,732 7,460,713 As % of Beg. Net Shares 11% 6% 6% 4% 24% Avg. Repurchase Price/sh $32.46 $30.67 $29.97 $41.01 $32.83 Total Repurchased ($mm) $106.0 $49.3 $44.6 $45.1 $245.0 Dividends/sh $0.48 $0.48 $0.48 $0.60 $2.04 Dividend Payments ($mm) $15.3 $14.2 $13.4 $16.1 $59.0 Repurchases + Dividends ($mm) $121.3 $63.5 $58.0 $61.1 $304.0 19. |
Stock Price Performance – Last 12 Months Source: SNL Financial (as of 2/7/14). 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. (5.0%) +0.0% +5.0% +10.0% +15.0% +20.0% +25.0% +30.0% +35.0% +40.0% +45.0% Feb-13 Mar -13 Apr-13 May-13 Jun -13 Jul -13 Aug -13 Sep-13 Oct-13 Nov -13 Dec-13 Jan -14 Feb -14 Argo Group Peer Group S&P 500 +19% +27% +11% 20. |
21. Price/Book Jan-00 Feb-14 Argo 0.70x 0.77x Peer Avg. 1.17x 1.12x Difference 0.47x 0.35x Compelling Valuation vs. Peer Group 0.77x 1.12x 0.35x Difference Source: SNL Financial (as of 2/7/14). Note: Price to book is average price/book across all peer companies based on latest reported book value as of 2/7/14. 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. - 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 |
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 |