Argo has sought to focus on the growth and “underlying strength” of its ongoing business as it reported an operating loss of $61.8mn for the fourth quarter, with the reserve strengthening announced earlier this month pushing its combined ratio up 14.4 points to 122.4 percent.
- 122.4% Q4 2021 combined ratio compares to 108.0% in prior period
- $132.3mn adverse PYD adds 27.2pts but at low end of preannounced range
- GWP up 2.3% to $733.8mn in Q4; ongoing business GWP up 11.3%
- Argo’s US rates up in mid-single digits in Q4; international rates up high-single digits
- CEO Rehnberg encouraged by growth and “underlying strength” of ongoing business
The $61.8mn operating loss compared with an operating loss of $8.9mn for the prior period.
The operating loss of $1.77 per diluted common share beat the $2.02 operating loss per share consensus estimate of five analysts as compiled by S&P Capital IQ, which would have taken into account the pre-announced charges.
Argo on 8 February revealed its results would be negatively affected by adverse prior year reserve development and non-operating charges, with the largest reserve increases related to construction defect claims within the US operations in addition to increases in the run-off segment.
Argo’s share price closed at $37.50 today (before the results were released), down 32.7 percent from the day before it revealed the reserve strengthening and other charges.
In its results released today, Argo said its Q4 2021 combined ratio was 122.4 percent compared to 108.0 percent in the prior period. The increase was driven by the reserve development, partially offset by lower catastrophe losses and an improved expense ratio.
The net adverse prior year reserve development for Q4 2021 was $132.3mn, or 27.2 points on the loss ratio, which was the low end of the range of $130mn to $140mn that Argo provided earlier this month.
Net adverse prior year reserve development in both the US operations and run-off lines was partially offset by favourable prior year reserve releases in international operations.
Argo in Q4 2020 had reported adverse prior year reserve development of $1.6mn.
“Our strategic priorities of pursuing profitable growth, reducing volatility, and disciplined expense management are evident in our 2021 current accident year underwriting results”
Argo CEO Kevin Rehnberg
Total cat losses in the fourth quarter of 2021 were $6.8mn or 1.4 points on the loss ratio, compared to prior period figures of $51.0mn or 10.9 points.
The current accident year ex-cat combined ratio was 93.8 percent in the fourth quarter of 2021, compared to 96.8 percent in the prior year fourth quarter.
Gross written premium increased 2.3 percent to $733.8mn during the fourth quarter of 2021, compared to $717.6mn in the prior period.
Argo said gross written premium in ongoing business grew approximately 11.3 percent during the fourth quarter of 2021 compared to the fourth quarter of 2020.
Ongoing business does not include the businesses Argo is exiting, plans to exit or has sold, such as Ariel Re, contract binding P&C, US specialty property, Argo Seguros Brasil, businesses in Italy and Malta, London property D&F and North American binders business in Syndicate 1200, and US grocery business.
Net investment income was $44.4mn in Q4 2021 compared to $33.7mn in the prior period.
The fourth quarter included $22.8mn of non-operating expenses compared to $11.3mn in the prior year quarter, with the increase due to costs associated with the reduction in the real estate footprint in the UK and the impairment of certain information technology assets.
Argo had preannounced the non-operating expense charges would be in the $20mn to $25mn range.
The 2021 fourth quarter also included an impairment of goodwill and intangible assets of $43.2mn related to Argo’s Syndicate 1200 business unit, which was in the preannounced range of $40mn to $45mn.
“Our strategic priorities of pursuing profitable growth, reducing volatility, and disciplined expense management are evident in our 2021 current accident year underwriting results,” said Argo CEO Kevin Rehnberg. “We remain encouraged by the continued growth and underlying strength of our ongoing business.”
US GWP up 1.5% in Q4; international down 3.3%
In the US operations, gross written premium increased 1.8 percent in the fourth quarter to $504.5mn. Gross written premium in the US ongoing business grew 12.0 percent in Q4 2021 over the prior period.
Argo said that US rates on average were up in the mid-single digits in the fourth quarter of 2021.
The US operations’ Q4 combined ratio rose 29.4 points to 128.6 percent in Q4 2021, from 99.2 percent in the prior period.
Unfavourable prior-year reserve development in the fourth quarter of 2021 for the US operations was $121.6mn or 36.7 points on the loss ratio, compared to $2.9mn of unfavourable development or 1.0 point on the loss ratio in the prior year fourth quarter.
In the international operations, gross written premium increased 3.3 percent in the fourth quarter of 2021 to $229.1mn.
Argo said gross written premium in the international ongoing business increased approximately 9.6 percent, primarily due to the increased share of Syndicate 1200’s capacity.
The international operations’ rates on average were up in the high-single digits in the fourth quarter of 2021.
The international combined ratio was 76.5 percent, a 40.9 point improvement on the 117.4 percent in Q4 2020. This improvement was primarily the result of favourable prior year reserve releases and a reduction in cat losses compared to Q4 2020
Net favourable prior year reserve releases in the fourth quarter of 2021 totalled $27.0mn or 17.5 points on the loss ratio, compared to $1.7 million, or 1.1 points on the loss ratio, in the prior year fourth quarter.
Full year GWP down 1.6%
For the full year, Argo’s operating income was $41.5mn in 2021, compared to an operating loss of $10.0mn in 2020.
Gross written premium decreased 1.6 percent to $3.2bn in 2021, which was primarily attributable to businesses the company has exited, plans to exit or has sold.
In the ongoing business, premiums grew approximately 15.4 percent during 2021 when compared to 2020.
The combined ratio for the year worsened 0.2 points to 105.6 percent, from 105.4 percent in 2020.
Total cat losses in 2021 were $92.7mn or 4.8 points on the loss ratio. Natural cat accounted for $80.3mn of losses with $12.4mn of losses relating to the Covid-19 pandemic.
Cat losses in 2020 were $179.2mn or 10.1 points on the loss ratio and included $73.2mn related to the Covid-19 pandemic.
The current accident year ex-cat combined ratio was 93.6 percent in 2021, an improvement of 1.3 points when compared to the prior year.