3Q 2014 Investor Presentation November 2014 Exhibit 99.1 |
Forward-Looking Statements 2. 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. |
3. Argo Group at a Glance Exchange / Ticker: NASDAQ / “AGII” Share Price: $55.29 Market Capitalization: $1.4 billion Annual Dividend / Yield: $0.72 per share / 1.3% Gross Written Premium: $1.9 billion Capital: $2.0 billion Analyst Coverage: Raymond James (Outperform) – Greg Peters Sterne Agee (Buy) – Dan Farrell William Blair (Outperform) – Adam Klauber Compass Point (Neutral) – Ken Billingsley Dowling & Partners (Neutral) – Aaron Woomer KBW (Market Perform) – Brett Shirreffs Macquarie (Neutral) – Amit Kumar Atlanta Bermuda Boston Brussels Chicago Dallas Denver Dubai Houston Irvine London Los Angeles Malta New York Paris Peoria Portland Richmond Rio de Janeiro Rockwood San Antonio San Francisco Sao Paulo Scottsdale Seattle Singapore Zurich Note: Market information as of November 5, 2014 and annual performance figures as of TTM September 30, 2014. |
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 ~40% ~60% ~90% ~10% |
5. Maximize Shareholder value through growth in Book Value per Share 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 |
6. *Excludes GWP recorded in runoff and corporate & other. Evolution of Growth and Diversification 2001 • Acquired Colony and Rockwood • Founded Trident (Public Entity) 2005 • Sold Risk Management business 2007 • Rebranded Argo Group • Completed acquisition • Formed Argo Re Syndicate 1200 2011 • Established local presence in Brazil 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 ’14/3Q TTM BVPS $27.60 $30.46 $35.52 $41.05 $39.62 $47.00 $52.55 $50.54 $55.22 $58.96 $62.99 Total Capital (Millions) $717 $860 $992 $1,754 $1,763 $1,975 $1,986 $1,840 $1,915 $1,966 $2,008 $622 $788 $903 $1,056 $1,153 $1,182 $1,605 $1,987 $1,530 $1,544 $1,744 $1,888 $1,892 400 800 1,200 1,600 2,000 Total Risk Management (sold renewal rights in 2005) International Specialty Syndicate 1200 Commercial Specialty Excess & Surplus Lines 15% 30% 32% 22% 2008 • Acquired Lloyd’s in Bermuda |
7. Argo Group Business Mix ($1.9B in GWP) GWP by Segment Excess & Surplus Lines Commercial Specialty Syndicate 1200 International Specialty 30% 15% 32% GWP by Product GWP by Geography United States London Bermuda 22% 15% Excess & Surplus Lines 32% Other Commercial Specialty Property Public Entity 20% 5% 6% Marine & Aerospace Surety 3% Alteris Mining 4% Emerging Mkts 9% 6% Emerging Markets 5% 54% 11% 30% GWP by Business Type Primary Insurance Reinsurance *Data is based on TTM as of September 30, 2014. Excludes GWP recorded in runoff and corporate & other. ~90% ~10% |
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 |
9. 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 3Q ‘14 $21.27 $24.75 $27.60 $30.46 $35.52 $41.05 $39.62 $47.00 $52.55 $50.54 $55.22 $58.96 $62.99 $21.27 $24.75 $27.60 $30.46 $35.52 $42.55 $41.12 $48.50 $54.49 $52.92 $58.03 $62.36 $66.89 1.1x 1.1x 1.2x 1.6x 1.7x 1.2x 0.9x 0.8x 0.7x 0.7x 0.6x 0.8x 0.8x (1) Book value per common share: (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. - 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. Preferred stock fully converted into common shares as of Dec. 31, 2007 |
10. Substantial Growth and Financial Strength Scale 2002 2006 TTM 3Q '14 '02-3Q'14 Factor Gross Written Premiums $622.1 $1,155.6 $1,893.3 3.0x Net Written Premiums 484.0 847.0 1,363.2 2.8x Net Earned Premiums 378.4 813.0 1,341.0 3.5x Financial Strength 2002 2006 TTM 3Q '14 '02-3Q'14 Factor Total Assets $2,208.9 $3,721.5 $6,388.6 2.9x Total Investments 1,181.3 2,514.1 4,111.7 3.5x Shareholder's Equity 327.7 847.7 1,626.9 5.0x Total Capital 327.7 992.0 2,007.8 6.1x Debt / Total Capital 0.0% 14.5% 19.0% A.M. Best Rating A A A |
11. Combined Ratio 93.7% -2.6% 91.1% Combined Ratio 95.9% -7.1% 88.8% Combined Ratio 98.0% 2.3% 100.3% Combined Ratio 90.0% -4.7% 85.3% 3Q YTD YoY Net Earned Premium & Combined Ratio Consolidated NEP up 3.9% and Combined Ratio down 2.3% in 3Q YTD 2014 vs. 3Q YTD 2013 Excess & Surplus Lines Commercial Specialty International Specialty Syndicate 1200 $334.4 $363.9 $100 $200 $300 $400 3Q '13 YTD 3Q '14 YTD $225.1 $215.5 $50 $100 $150 $200 $250 3Q '13 YTD 3Q '14 YTD $106.6 $112.6 $25 $50 $75 $100 $125 $150 3Q '13 YTD 3Q '14 YTD $295.6 $305.9 $100 $150 $200 $250 $300 $350 3Q '13 YTD 3Q '14 YTD |
$101.4 $112.7 $98.3 $64.7 $71.0 $74.4 $83.2 $96.3 $80.7 All data in millions except for ratio calculations. TTM = trailing twelve months. Excess & Surplus Lines Segment (32% of TTM GWP) 88.9% 89.3% 99.6% 97.4% 95.5% 91.9% 93.3% 85.3% 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: GWP by Business Unit (TTM 9/30/14) Casualty 35% Transportation 7% Environmental 5% Allied Medical 6% Management Liability 7% Property 11% Contract 24% Errors & Omissions 5% Combined Ratio PTOI Gross Written Premium PTOI (1) & Combined Ratio 2006 2013 2011 2010 2009 2008 2012 2007 3Q’14 (2) 2013 2011 2010 2009 2008 2006 2012 2007 3Q‘14 (3) (1) PTOI = Pre-Tax Operating Income. Excludes interest expense. (2) Data is based on year-to-date as of September 30, 2014. (3) Data is based on trailing twelve months as of September 30, 2014. $753.2 $726.5 $684.3 $642.3 $522.6 $478.9 $513.5 $594.2 $613.7 • Colony Specialty • Argo Pro 12. |
13. 97.4% 95.5% 91.9% 88.1% 85.3% 2010 2011 2012 2013 3Q 2014 YTD 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 |
14. Commercial Specialty Segment (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 – 2 largest provider of commercial insurance to coal mining industry • Alteris – fee based business where Argo or others accept the risk GWP by Business Unit (TTM 9/30/14) U.S. Retail (Argo Insurance) 17% Restaurants 6% Grocery 7% Dry Cleaners 2% Other Industries 3% Public Entity (Trident) 21% Surety 12% Mining (Rockwood) 19% Other 4% Alteris Managed Premium 27% Transportation 3% State Workers’ Comp Funds 19% Self Insured Public Entity 5% 89.4% 88.7% 95.6% 98.1% 108.3% 115.1% 96.5% 100.3% 97.8% Gross Written Premium PTOI (1) & Combined Ratio (1) PTOI = Pre-Tax Operating Income. Excludes interest expense. (2) Data is based on year-to-date as of September 30, 2014. (3) Data is based on trailing twelve months as of September 30, 2014. $389.1 $420.7 $510.9 $475.7 $428.1 $428.8 $437.0 $419.1 $417.0 $50.4 $61.3 $43.0 $45.8 $36.3 $1.4 ($18.9) $25.2 $11.6 2013 2011 2010 2009 2008 2006 2012 2007 3Q‘14 (3) 2006 2013 2011 2010 2009 2008 2012 2007 3Q’14 (2) Combined Ratio PTOI All data in millions except for ratio calculations. TTM = trailing twelve months. nd nd |
15. 131.7% 115.2% Syndicate 1200 Segment (30% of GWP) General Liability 13% Prof. Indemnity 13% Int’l Casualty Treaty 3% Directors & Officers 3% Other 2% 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 9/30/14) Property 46% Liability 35% Specialty 15% Aerospace 4% Property Fac 18% Personal Accident 12% N. Am. & Int’l Binders 10% Other 7% 95.8% 112.3% 96.2% 92.4% Offshore Energy 7% Onshore Energy 3% Cargo 3% Yachts & Hulls 2% 91.1% Gross Written Premium PTOI (1) & Combined Ratio (1) PTOI = Pre-Tax Operating Income. Excludes interest expense. (2) Data is based on year-to-date as of September 30, 2014. (3) Data is based on trailing twelve months as of September 30, 2014. $282.9 $706.0 $389.9 $438.5 $533.4 $583.9 $569.0 ($5.2) $30.0 ($27.7) ($63.8) $31.8 $40.6 $37.1 2013 2011 2010 2009 2008 2012 3Q‘14 (3) 2013 2011 2010 2009 2008 2012 3Q’14 (2) Combined Ratio PTOI All data in millions except for ratio calculations. TTM = trailing twelve months. |
16. International Specialty Segment (15% of GWP) About Us • Established primary operations in Brazil • Established operations in Euro zone • Established regional office in Dubai GWP by Business Unit (TTM 9/30/14) Excess Casualty 22% Professional Liability 12% Brazil 24% Marine Cargo 10% Property & Engineering 3% Motor 5% Financial Lines 6% Reinsurance 42% Other Assumed Re 4% Property Risk XS 3% Property Pro Rata 6% Property Cat 30% 177.5% 71.7% 52.3% 77.9% 97.1% 95.5% 88.8% Gross Written Premium PTOI (1) & Combined Ratio (1) PTOI = Pre-Tax Operating Income. Excludes interest expense. (2) Data is based on year-to-date as of September 30, 2014. (3) Data is based on trailing twelve months as of September 30, 2014. $126.4 $162.9 $188.9 $198.2 $260.2 $290.6 $292.1 $23.6 $50.3 $36.7 ($67.7) $15.7 $14.6 $18.7 2013 2011 2010 2009 2008 2012 3Q’14 (2) 2013 2011 2010 2009 2008 2012 3Q‘14 (3) Combined Ratio PTOI • Bermuda team underwrites: • Distributes through brokers • 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: All data in millions except for ratio calculations. TTM = trailing twelve months. |
17. (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). 3Q 2014 Operating Results 3Q 2014 3Q 2013 Year to Date 3Q 2014 Year to Date 3Q 2013 Gross Written Premiums $497.2 $495.1 $1,480.4 $1,475.5 Net Written Premiums 380.5 374.5 1,055.6 1,043.7 Earned Premiums 337.6 330.5 999.4 962.2 Losses and Loss Adjustment Expenses 191.9 190.9 559.5 554.1 Other Reinsurance-Related Expenses 0.0 4.6 0.0 14.4 Underwriting, Acquisition and Insurance Expenses 133.8 126.7 399.3 378.0 Underwriting Income $11.9 $8.3 $40.6 $15.7 Net Investment Income 20.8 24.1 64.7 77.3 Fee Income, net 1.6 0.3 0.1 0.5 Interest Expense 4.9 5.1 15.0 15.1 Operating Income $29.4 $27.6 $90.4 $78.4 Net Realized Investment Gains and Other 12.9 9.1 42.5 29.6 Foreign Currency Exchange (Gain) Loss (6.0) 3.8 (2.8) (5.2) Income Before Taxes $48.3 $32.9 $135.7 $113.2 Provision for Income Taxes 3.6 1.9 12.2 17.8 Net Income $44.7 $31.0 $123.5 $95.4 Operating Income per Common Share (Diluted) 1 $0.89 $0.80 $2.72 $2.24 Net Income per Common Share (Diluted) $1.69 $1.12 $4.63 $3.41 Loss Ratio 2 56.8% 58.6% 56.0% 58.4% Expense Ratio 3 39.6% 38.9% 40.0% 39.9% Combined Ratio 96.4% 97.5% 96.0% 98.3% All data in millions except for per share data and ratio calculations. |
18. *Duration includes cash & equivalents As of September 30, 2014 Conservative Investment Strategy 17% • Duration of 2.5 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 9% Health Care Energy 25% 7% Financials 5% Industrials 9% Technology 7% Funds 4% Materials 7% Discretionary Consumer Staples 25% Total: $0.5b Fixed Maturities by Type 11% Short Term Corporate 42%. 13% Gov. 18% Structured State/Muni 16%. Total: $3.2b* *$2.8 billion in fixed maturities, $0.4 billion in short term 2% Utilities & Telecom Asset Allocation 10% Other Fixed 69% Maturities. 9% Short Term 12% Equities Total: $4.1b $77m of cash & cash equivalents not included above $77m of cash & cash equivalents not included above |
19. YTD 2010-3Q '14 2010 2011 2012 2013 3Q 2014 YTD Total Total Shares Outstanding 31,206,796 31,285,469 31,384,271 34,066,889 34,268,995 Less: Treasury Shares 3,363,560 4,971,305 6,459,613 7,558,345 8,440,355 Net Shares 27,843,236 26,314,164 24,924,658 26,508,544 25,828,640 Shares Repurchased 3,217,561 1,607,745 1,488,308 1,098,732 882,010 8,294,356 As % of Beg. Net Shares 10% 6% 6% 4% 3% 27% Avg. Repurchase Price per Share $33.05 $30.69 $29.89 $41.02 $47.78 $34.65 Total Repurchased ($m) $106.3 $49.3 $44.5 $45.1 $42.1 $287.4 Dividends per Share $0.48 $0.48 $0.48 $0.60 $0.51 $2.55 Dividend Payments ($m) $15.3 $14.2 $13.4 $16.1 $13.3 $72.3 Repurchases + Dividends ($m) $121.7 $63.6 $57.9 $61.1 $55.4 $359.7 Note: Not adjusted for June 2013 stock dividend. Active Capital Management Through share repurchases and dividends, we have returned $360 million of capital and repurchased 27% of shares outstanding from 2010 through 3Q 2014 |
20. Source: SNL Financial (as of 11/5/14). 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. Stock Price Performance – Last 2 Years (10.0%) +0.0% +10.0% +20.0% +30.0% +40.0% +50.0% +60.0% +70.0% +80.0% +90.0% Nov -12 Jan -13 Mar-13 May-13 Jul -13 Sep-13 Nov -13 Jan -14 Mar-14 May-14 Jul -14 Sep-14 Nov -14 Argo Group Peer Group S&P 500 +43% +82% +40% |
21. 0.88x 1.21x 0.33x Difference Source: SNL Financial (as of 11/5/14). 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, HCC, Markel, Navigators, OneBeacon, RLI Corp, Selective Group, W.R. Berkley. Compelling Valuation vs. Peer Group Price/Book Jan-00 Nov-14 Argo 0.70x 0.88x Peer Avg. 1.17x 1.21x Difference 0.47x 0.33x - 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 • Significant changes to premium composition completed • Results of re-underwriting and efficiency efforts are emerging in financials • Continue to employ and attract some of the best talent in the industry • Brazil has traction and is beginning to scale • Incremental yield improvements can have a favorable impact on ROE • Moderate financial leverage • Strong balance sheet with adequate reserves and excellent asset quality We believe that Argo Group has potential to generate substantial value for new and existing investors |