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Section 1: 8-K (FORM 8-K)

Form 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 8-K

 

 

Current Report

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 12, 2015

 

 

Argo Group International Holdings, Ltd.

(Exact name of registrant as specified in its charter)

 

 

 

Bermuda   1-15259   98-0214719
(State or other jurisdiction
of incorporation)
  (Commission
File Number)
  (I.R.S. Employer
Identification No.)

 

110 Pitts Bay Road

Pembroke HM 08

Bermuda

 

P.O. Box HM 1282

Hamilton HM FX

Bermuda

(Address, Including Zip Code,

of Principal Executive Offices)

  (Mailing Address)

Registrant’s telephone number, including area code: (441) 296-5858

Not Applicable

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


ITEM 7.01. REGULATION FD DISCLOSURE.

Argo Group International Holdings, Ltd. (“Argo Group”) may make presentations to members of the investment community from time to time using the presentation materials attached hereto as Exhibit 99.1 to this Current Report on Form 8-K.

Note: The information in this report and Exhibit 99.1 attached hereto are furnished pursuant to Item 7.01 and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section. This report will not be deemed an admission as to the materiality of any information in the report that is required to be disclosed solely by Regulation FD.

FORWARD-LOOKING STATEMENTS

This press release contains certain statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are qualified by the inherent risks and uncertainties surrounding future expectations generally and also may materially differ from actual future experience involving any one or more of such statements. For a more detailed discussion of such risks and uncertainties, see Argo Group’s filings with the SEC. The inclusion of a forward-looking statement herein should not be regarded as a representation by Argo Group that Argo Group’s objectives will be achieved. Argo Group undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.

 

ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.

(d) Exhibits:

 

99.1    Argo Group International Holdings, Ltd. Presentation


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

    ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
    By:  

/s/ Jay S. Bullock

Dated: August 12, 2015     Name:   Jay S. Bullock
    Title:   Executive Vice President and Chief Financial Officer

 

2

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Section 2: EX-99.1 (EX-99.1)

EX-99.1
2Q 2015 Investor Presentation
August 2015
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:
$57.15
Market Capitalization:
$1.6 billion
Annual Dividend / Yield:
$0.80 per share / 1.4%
Gross Written Premium:
$2.0 billion
Capital:
$2.0 billion
Analyst Coverage:
Raymond James (Strong Buy)
Greg
Peters
KBW (Outperform)
Meyer
Shields
Compass Point (Neutral)
Ken
Billingsley
Dowling & Partners (Neutral)
Aaron
Woomer
William Blair (Market Perform)
Adam
Klauber
Macquarie (Neutral)
Amit
Kumar
Note: Market information as of August 11, 2015 and annual performance figures as of TTM June 30, 2015.


4.
Leading Specialty Franchise
Global underwriter of specialty insurance &
reinsurance
Strategically located in major insurance centers
U.S., Bermuda and London
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
Primary presence in Brazil
Diversified by geography, product & distribution
Broad and strong 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
~35%
~90%
~10%
~65%


5.
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
Strategy Aligned Toward Shareholder Value
Maximize
Shareholder
Value
through
growth in
Book Value
per Share
5.


6.
*Excludes GWP recorded in runoff and corporate & other.
Note: BVPS (book value per common share) adjusted for June 2013 and March 2015 stock dividend.
Evolution of Growth and Diversification


7.
Argo Group Business Mix ($2.0b in GWP)
GWP by
Segment
Excess &
Surplus Lines
Commercial
Specialty
Syndicate
1200
International
Specialty
29%
14%
33%
GWP by
Product
GWP by
Geography
United
States
London
Bermuda
23%
14%
Excess &
Surplus Lines
33%
Other
Commercial
Specialty
Property
Public Entity
18%
6%
6%
Marine &
Aerospace
Surety 3%
Programs
Mining 4%
Emerging Mkts &
Bermuda Long Tail 8%
6%
Emerging Markets 4%
56%
10%
29%
GWP by
Business Type
Primary
Insurance
Reinsurance
*Data is based on TTM as of June 30, 2015. Excludes GWP recorded in runoff and corporate & other.
~10%
~90%


8.
Multi-Channel Distribution Strategy
Retail Broker
/
Agent
General
Agency
Wholesale
Broker
Lloyd’s
Market
Reinsurance
Broker
Rockwood
X
Argo Insurance
X
Trident
X
Surety
X
X
Commercial Programs
X
Alteris
X
Contract
X
Transportation
X
Casualty
X
E&O
X
X
D&O
X
X
Environmental
X
Allied Medical
X
X
Specialty Property
X
Liability
X
Property
X
Aviation
X
Marine
X
Excess Casualty
X
X
Professional Liability
X
X
Emerging Markets
X
X
Reinsurance
X


(1) Book value per common share:
-
Adjusted for June 2013 and March 2015 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.  Preferred stock fully converted into common shares as of Dec. 31, 2007
(2) 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.
Maximizing Shareholder Value –
BVPS Growth
2002
Reported Book Value
1
Cumulative Dividends
Price/Book
2
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2Q ‘15
2014
$19.34
$22.50
$25.09
$27.69
$32.29
$37.32
$36.02
$42.73
$47.78
$45.95
$50.20
$53.60
$58.22
$59.76
$19.34
$22.50
$25.09
$27.69
$32.29
$38.68
$37.38
$44.09
$49.54
$48.11
$52.76
$56.69
$61.94
$63.88
1.1x
1.1x
1.2x
1.6x
1.7x
1.2x
0.9x
0.8x
0.7x
0.7x
0.6x
0.8x
0.9x
0.9x
9.


10.
Substantial Growth and Financial Strength
Scale ($m)
2002
2006
TTM 2Q '15
'02-2Q'15 Factor
Gross Written Premiums
$622.1
$1,155.6
$1,956.7
3.1x
Net Written Premiums
484.0
847.0
1,400.4
2.9x
Net Earned Premiums
378.4
813.0
1,356.9
3.6x
Financial Strength ($m)
2002
2006
TTM 2Q '15
'02-2Q'15 Factor
Total Assets
$2,208.9
$3,721.5
$6,544.0
3.0x
Total Investments
1,181.3
2,514.1
4,082.2
3.5x
Shareholder's Equity
327.7
847.7
1,668.9
5.1x
Total Capital
$327.7
$992.0
$2,042.1
6.2x
Debt+TRUPs / Total Capital
0.0%
14.5%
18.3%
A.M. Best Rating
A
A
A


11.
2Q YTD YoY Gross Written Premium & Combined Ratio
Consolidated GWP up 5.2% and Combined Ratio improved 1.2% in Q2 YTD 2015 vs. Q2 YTD 2014
Excess & Surplus Lines
Commercial Specialty
International Specialty
Syndicate 1200
Combined Ratio
86.3%
0.2%
86.5%
Combined Ratio
102.5%
-4.8%
97.7%
Combined Ratio
86.5%
-4.5%
82.0%
Combined Ratio
90.0%
2.0%
92.0%
$315.8
$358.8
$100
$200
$300
$400
2Q 2014 YTD
2Q 2015 YTD
$189.5
$199.5
$50
$90
$130
$170
$210
$250
2Q 2014 YTD
2Q 2015 YTD
$180.6
$170.3
$25
$75
$125
$175
$225
2Q 2014 YTD
2Q 2015 YTD
$297.1
$305.8
$100
$150
$200
$250
$300
$350
2Q 2014 YTD
2Q 2015 YTD


12.
Excess & Surplus Lines Segment (33% of TTM GWP)
88.9%
89.3%
99.6%
97.4%
95.5%
91.9%
93.3%
84.4%
88.1%
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
6/30/15)
PTOI
PTOI
(1)
& Combined Ratio
2006
2014
2011
2010
2009
2008
2012
2007
2013
2Q’15
(2)
All
data
in
millions
except
for
ratio
calculations.
(1)
PTOI = Pre-Tax Operating Income. Excludes interest expense.
(2)
Data is based on year-to-date as of June 30, 2015.
(3)
Data is based on trailing twelve months as of June 30, 2015.
86.5%
2013
2011
2010
2009
2008
2006
2012
2007
2Q’15
(3)
2014
Gross Written Premium
Management Liability 8%
Errors & Omissions 7%
Allied Medical 6%
Environmental 6%
Casualty 37%
Transportation 5%
Combined Ratio
$753.2
$726.5
$684.3
$642.3
$522.6
$478.9
$513.5
$594.2
$607.2
$650.2
TTM = trailing
twelve months.
Contract  22%
Property 9%


13.
New segment
management team
is formed
Year of
restructuring and
strategy
enhancement
Year of execution
on the newly
restructured
platform
Continued
execution and
Combined Ratio
improvement
Restructuring initiatives and strategy enhancement has enabled
Argo to become an industry-leading E&S underwriter
E&S Operating Platform Enhancement
TTM = trailing twelve months.


14.
Commercial Specialty Segment (23% of TTM GWP)
About Us
Business primarily placed through
retail
distribution partners
Argo Insurance –
designs customized
commercial insurance programs for retail
grocery stores
Trident –
One of the largest specialty
commercial insurance providers for small to
middle market public-sector entities in the U.S.
Rockwood –
2
nd
largest provider of workers
compensation for the Pennsylvania coal
mining industry
Programs
provides fronting options for
carriers to write business on Argo paper
GWP by Business Unit (TTM 6/30/15)
U.S. Retail (Argo Insurance) 14%
Restaurants 4%
Grocery 5%
Dry Cleaners 1%
Other Industries 4%
Public Entity
(Trident) 25%
Surety 13%
Mining
(Rockwood) 18%
Other 1%
Programs 28%
Transportation 2%
State Workers’ Comp Funds 23%
Combined Ratio
PTOI
Gross Written Premium
PTOI
(1)
& Combined Ratio
All data in millions except for ratio calculations. TTM = trailing twelve months.
(1)
PTOI = Pre-Tax Operating Income. Excludes interest expense.
(2)
Data is based on year-to-date as of June 30, 2015.
(3)
Data is based on trailing twelve months as of June 30, 2015.
2006
2014
2011
2010
2009
2008
2012
2007
2013
2Q’15
(2)
2013
2011
2010
2009
2008
2006
2012
2007
2Q’15
(3)
2014
89.4%
88.7%
95.6%
98.1%
108.3%
115.1%
96.5%
100.2%
97.8%
97.7%
Other 3%


15.
131.7%
115.2%
Syndicate 1200 Segment (29% of TTM GWP)
General Liability 10%
Prof. Indemnity 13%
Int’l Casualty Treaty 3%
Directors & Officers 4%
Other 3%
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 6/30/15)
Property 42%
Liability 34%
Specialty 17%
Asia 1%
Property Fac 17%
Personal Accident 10%
N. Am. & Int’l Binders 8%
Other 8%
95.8%
112.3%
96.2%
92.4%
Offshore Energy 7%
Onshore Energy 4%
Cargo 4%
Yachts & Hulls 3%
91.4%
Combined Ratio
PTOI
Gross Written Premium
PTOI
(1)
& Combined Ratio
2013
2011
2010
2009
2008
2012
2014
2Q’15
(2)
2013
2011
2010
2009
2008
2012
2014
2Q’15
(3)
All data in millions except for ratio calculations. TTM = trailing twelve months.
(1)
PTOI = Pre-Tax Operating Income. Excludes interest expense.
(2)
Data is based on year-to-date as of June 30, 2015.
(3)
Data is based on trailing twelve months as of June 30, 2015.
92.0%
Aerospace 5%


16.
International Specialty Segment (14% of TTMGWP)
About Us
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 Eurozone
Established regional office in Dubai
Distributes through brokers
GWP by Business Unit (TTM 6/30/15)
Excess Casualty 24%
Professional Liability 12%
Brazil 22%
Marine Cargo 9%
Property & Engineering 3%
Motor 4%
Financial Lines 6%
Reinsurance 42%
Other Assumed Re 5%
Property Risk XS 4%
Property Pro Rata 5%
Property Cat 28%
Combined Ratio
PTOI
Gross Written Premium
PTOI
(1)
& Combined Ratio
All data in millions except for ratio calculations. TTM = trailing twelve months.
(1)
PTOI = Pre-Tax Operating Income. Excludes interest expense.
(2)
Data is based on year-to-date as of June 30, 2015.
(3)
Data is based on trailing twelve months as of June 30, 2015.
2013
2011
2010
2009
2008
2012
2014
2Q’15
(2)
2013
2011
2010
2009
2008
2012
2014
2Q’15
(3)
177.5%
71.7%
52.3%
77.9%
96.2%
95.4%
89.2%
82.0%


17.
2Q 2015
2Q 2014
2Q 2015
YTD
2Q 2014
YTD
Gross Written Premiums
$557.8
$520.1
$1,034.5
$983.2
Net Written Premiums
411.6
398.3
707.6
675.1
Earned Premiums
346.0
336.1
680.6
661.8
Losses and Loss Adjustment Expenses
190.6
185.1
374.3
367.6
Underwriting, Acquisition and Insurance Expenses
139.5
136.8
269.1
265.5
Underwriting Income
$15.9
$14.2
$37.2
$28.7
Net Investment Income
21.8
20.6
42.6
43.9
Fee expense, net
0.7
0.1
1.1
1.5
Interest Expense
4.6
5.1
9.5
10.1
Operating Income
$32.4
$29.6
$69.2
$61.0
Net Realized Investment and Other Gains
5.3
18.5
21.3
29.6
Foreign Currency Exchange Gain (Loss)
(3.0)
(3.4)
6.6
(3.2)
Income Before Taxes
$34.7
$44.7
$97.1
$87.4
Income Tax Provision
6.8
6.1
10.4
8.6
Net Income
$27.9
$38.6
$86.7
$78.8
Operating Income per Common Share (Diluted)¹
$0.91
$0.81
$1.94
$1.65
Net Income per Common Share (Diluted)
$0.98
$1.32
$3.03
$2.67
Loss Ratio²
55.1%
55.1%
55.0%
55.6%
Expense Ratio³
40.3%
40.7%
39.5%
40.1%
Combined Ratio
95.4%
95.8%
94.5%
95.7%
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 and Loss Adjustment Expenses / Earned Premiums.
(3)
Defined as Underwriting, Acquisition and Insurance Expenses / Earned Premiums.
2Q 2015 Operating Results


18.
As of June 30, 2015
Conservative Investment Strategy
17%
18.
17%
Duration of 2.4 years
Average rating of ‘A1/A+’
Book yield of 2.7%*
Very liquid
Conservatively managed
Portfolio Characteristics
*Book yield is pre-tax & includes all fixed maturities
18.
Equity Investments by Sector
12% Health Care
Energy 23%
8% Financials
6% Industrials
10% Technology
2% Funds
3% Materials
8% Discretionary
Consumer
Staples 26%
Total:
$0.5b
Fixed Maturities by Type
13% Short Term & Cash
Corporate 40%.
14% Gov.
18% Structured
State/Muni 15%.
Total:
$3.2b*
*$2.8 billion in fixed maturities, $0.4 billion in short term & cash
2% Utilities & Telecom
Asset Allocation
12% Other
Fixed 66%
Maturities.
8% Short Term
12% Equities
Total:
$4.2b
*Duration includes cash & equivalents
3% Cash


19.
Q2 YTD
2010-Q2 '15
($millions)
2010
2011
2012
2013
2014
2015
Total
Total Shares Outstanding
31,206,796
31,285,469
31,384,271
34,066,889
34,318,224
37,021,341
Less: Treasury Shares
3,363,560
4,971,305
6,459,613
7,558,345
  
8,606,489
  
9,095,585
  
  Net Shares
27,843,236
26,314,164
24,924,658
26,508,544
25,711,735
27,925,756
Shares Repurchased
3,217,561
  
1,607,745
  
1,488,308
  
1,098,732
  
1,048,144
  
489,096
     
8,949,586
  
  As % of Beg. Net Shares
10%
6%
6%
4%
4%
2%
29%
Avg. Repurchase Price per Share
$33.05
$30.69
$29.89
$41.02
$48.45
$50.90
$35.86
Total Repurchased ($m)
$106.3
$49.3
$44.5
$45.1
$50.8
$24.9
$320.9
Dividends per Share
$0.48
$0.48
$0.48
$0.60
$0.69
$0.40
$3.13
Dividend Payments ($m)
$15.3
$14.2
$13.4
$16.1
$17.9
$11.2
$88.1
Repurchases + Dividends ($m)
$121.7
$63.6
$57.9
$61.1
$68.7
$36.1
$409.0
Note: Not adjusted for June 2013 or March 2015 stock dividend.
Active Capital Management
Through share repurchases and dividends, we have returned $409 million of capital
and repurchased 29% of shares outstanding from 2010 through 2Q 2015


20.
(10.0%)
+0.0%
+10.0%
+20.0%
+30.0%
+40.0%
+50.0%
Aug-13
Oct-13
Dec-13
Feb-14
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Argo Group
Peer Group
S&P 500
+23%
+46%
+33%
Source:
SNL
Financial
(as
of
8/11/15).
Note:
Peer
Group
consists
of:
Allied
World,
American
Financial,
Arch
Capital,
Aspen,
AXIS
Capital,
Endurance,
Global
Indemnity,
Markel,
Navigators,
OneBeacon,
RLI
Corp,
Selective
Group,
W.R.
Berkley.
Stock Price Performance –
Last 2 Years


21.
-
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
Price/Book
Jan-00
Aug-15
Argo
0.70x
0.96x
Peer Avg.
1.17x
1.36x
Difference
0.47x
0.40x
Source:  SNL Financial (as of 8/11/15).
Note:  Price to book is average price/book across all peer companies based on latest reported book value.  Peer Group consists of: Allied World,
American Financial, Arch Capital, Aspen, AXIS Capital, Endurance, Global Indemnity, Markel, Navigators, OneBeacon, RLI Corp, Selective Group,
W.R. Berkley.
Compelling Valuation vs. Peer Group
0.96x
1.36x
0.40x
Difference


22.
We believe that Argo Group has potential to generate substantial value
for new and existing investors
Well Positioned for Value Creation in 2016 and Beyond
Compelling investment case
Stock trading at a discount to book value and below peers
Upside potential as past and ongoing efforts continue
Moderate financial leverage
Strong balance sheet with adequate reserves and excellent asset quality
Significant changes to premium composition completed
Results of re-underwriting efforts emerging in financials
Continue to employ and attract some of the best talent in the industry
Incremental yield improvements can have a favorable impact on ROE
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