Argo pointed to underlying margin improvement as it reported an earnings miss for the fourth quarter with an operating loss of $18.2mn that narrowed from the deficit of $73.9mn in the same period of 2019.

Kevin Rehnberg – Argo Group

  • Operating EPS of $0.52 worse than analysts consensus of $0.29 a share
  • Argo had already preannounced $51mn of Q4 losses from cats and Covid
  • Combined ratio improved by 16.7 points to 110.0% on lower adverse development
  • Underlying combined ratio improved from 107.9% to 98.5%
  • Premium growth of 7% in US partially offset by 10% decline in international as Argo repositions

At $0.52 a share, the operating loss was worse than Wall Street forecasts, based on the $0.29 a share mean of analyst estimates compiled by SNL.

Analysts had already adjusted forecasts for the Bermudian’s preannouncement earlier this month that its Q4 results would include an estimated $38mn hit from natural catastrophe losses and an additional $13mn charge largely related to contingency exposures.

The reported calendar year combined ratio improved by 16.7 points to 110.0 percent for the quarter, however, largely because there was relatively modest unfavourable reserve development of $1.6mn or 0.3 points, compared to $76.5mn or 17.9 points in the fourth quarter of 2019.

Stripping out cat losses and prior-year development, the underlying combined ratio improved from 107.9 percent in Q4 2019 to 98.5 percent.

Argo said the improved underlying combined ratio was due to stronger pricing and lower loss activity in its international operations, while the expense ratio also improved.

The expense ratio came in 2.2 points lower, despite the inclusion of 3 points of costs related to strategic initiatives generating non-recurring expenses related to personnel costs, legal and professional fees associated with transactions and exiting offices and severance costs in its international operations.

The carrier said that it saw rate increases above 10 percent on average across its portfolio in the fourth quarter.

And it pointed to strategic growth as it continues to reposition its portfolio, including a 7 percent increase in premium written by its US operations in Q4.

Commenting on the results, Argo CEO Kevin Rehnberg said: “We are encouraged by the improved underlying margins of our business during the quarter, as well as the actions taken to create a more focused and efficient company.”

He said that against a backdrop of heightened 2020 cat and Covid-19 losses that had led to “a disappointing financial outcome”, the company had made significant progress on its strategic objectives and achieved meaningful growth in most of its top-performing businesses.

Those businesses included Argo Pro, construction and inland marine.

“We expect a sustained positive growth trajectory and continued benefits from market conditions throughout 2021, with the capital to meet those opportunities,” he said.

The growth in US operations in Q4 was partially offset by a 10.4 percent decline in international, as Argo’s recent underwriting actions led to a fall in specialty and property lines.

Net investment income for the quarter was down 1.5 percent to $33.7mn.

For the full year Argo reported an operating loss that narrowed from $30.8mn to $22.3mn.

Its calendar year combined ratio was 2.9 points lower at 106.2 percent, and its underlying combined ratio improved 3.6 points to 95.5 percent.