Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - Argo Group International Holdings, Ltd. | d676872d8k.htm |
 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
|