A.M. Best Co. has affirmed the financial strength ratings (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a” of Argo Re Ltd. (Argo Re) (Hamilton, Bermuda) and its subsidiaries. A.M. Best also has affirmed the ICR of “bbb” and debt ratings of the parent holding company, Argo Group International Holdings, Ltd. (Argo Group) (Hamilton, Bermuda) (NASDAQ: AGII). The outlook for all ratings is stable. (See below for a detailed listing of the companies and ratings.)
The rating affirmations reflect Argo Re management’s product expertise in niche focus areas, historically strong operating performance and solid reserving practices. Argo Re also remains very well capitalized despite incurring over $200 million in catastrophe losses in 2011. The ratings also consider Argo Group's first quarter 2012 earnings, its conservative financial leverage (total debt-to-total capital) and the financial flexibility that Argo Re derives from Argo Group. Over the near term, A.M. Best expects that Argo Re’s underwriting and operating performance will be positively influenced by actions that its management has undertaken to reduce its worldwide property exposure and improve overall operational efficiencies.
Partially offsetting these positive rating factors are the losses generated from its international units and the strategic risk associated with Argo Group’s continued international expansion. While Argo Group’s recent expansion into the Dubai, Brazil and European Union markets further diversifies the organization’s insurance and reinsurance platform, there is considerable execution risk associated with these endeavors. Management’s ability to execute on this strategy without significantly disrupting its current operations will be integral in future rating evaluations.
Additional offsetting rating factors include Argo Re’s participation in a highly competitive environment characterized by significant price competition and the effects from adverse economic conditions.A.M. Best believes that Argo Re and its subsidiaries are well positioned at their current rating levels. Key drivers that could lead to downward rating movement include deterioration in the organization’s underwriting and/or operating performance and a decline in risk-adjusted capital.
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