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Argo Group Announces 2012 Third Quarter And Nine Month Results

Stocks in this article: AGII

Argo Group International Holdings, Ltd. (NasdaqGS: AGII), an international underwriter of specialty insurance and reinsurance products, today announced financial results for the three and nine months ended September 30, 2012.

"The Company posted another quarter of improved results with profitable growth in three of our four business segments,” said Mark E. Watson III, CEO of Argo Group. ”The environment for both underwriting and investing remains challenging but our focus on expanding our business while improving our operating margins continues to yield results.”

HIGHLIGHTS FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 2012:

  • Gross written premiums were $485.5 million, an increase of $37.0 million or 8.2% over the third quarter of 2011.
  • Pre-tax income was $17.7 million compared to a pre-tax loss of $4.0 million in the third quarter of 2011.
  • Pre-tax operating income 1 was $19.1 million compared to a pre-tax operating loss 1 of $9.8 million in the third quarter of 2011.
  • Net income was $13.4 million or $0.52 per diluted share compared to a net loss of $10.8 million or $0.39 per diluted share in the third quarter of 2011.
  • Net operating income 1 per diluted share was $0.59 compared to a net operating loss 1 per diluted share of $0.31 in the third quarter of 2011.
  • Estimated pre-tax catastrophe losses net of reinsurance and estimated reinstatement premiums were $13.9 million. In the third quarter of 2011, pre-tax catastrophe losses net of reinsurance and estimated reinstatement premiums and aggregate reinsurance cover losses were $26.7 million and $9.3 million, respectively.
  • The combined ratio was 102.3% compared to 113.3% in the third quarter of 2011. The combined ratio was negatively impacted by catastrophe losses equal to 4.6 and 10.0 loss ratio points, respectively, in the third quarters of 2012 and 2011.
  • Book value per share (BVPS) was $61.41 at September 30, 2012, an increase of 10.4% from $55.60 at December 31, 2011.

1 – Results are before net realized investment gains and foreign currency exchange (gains) losses.

HIGHLIGHTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012:

  • Gross written premiums were $1.4 billion, an increase of $153.0 million or 12.7% over the first nine months of 2011.
  • Pre-tax income was $70.8 million compared to a pre-tax loss of $70.0 million for the first nine months of 2011.
  • Pre-tax operating income 1 was $54.9 million compared to a pre-tax operating loss 1 of $96.6 million for the first nine months of 2011.
  • Net income was $57.0 million or $2.18 per diluted share compared to a net loss of $83.3 million or $3.04 per diluted share for the first nine months of 2011.
  • Net operating income 1 per diluted share was $1.68 compared to a net operating loss 1 per diluted share of $3.00 for the first nine months of 2011.
  • Estimated pre-tax catastrophe losses net of reinsurance and estimated reinstatement premiums were $21.9 million. For the nine months ended September 30, 2011, pre-tax catastrophe losses net of reinsurance and estimated reinstatement premiums and aggregate reinsurance cover losses were $171.6 million and $9.3 million, respectively.
  • The combined ratio was 102.7% compared to 122.3% for the first nine months of 2011. The combined ratio was negatively impacted by catastrophe losses equal to 2.5 and 21.4 loss ratio points, respectively, for the nine months ended September 30, 2012 and 2011.

1 – Results are before net realized investment gains and foreign currency exchange (gains) losses.

OTHER QUARTER HIGHLIGHTS:

  • During the third quarter, Argo Group repurchased $10.2 million or 335,982 shares of its outstanding common stock at an average share price of $30.34. During the first nine months of 2012, the Company repurchased $37.6 million or 1,276,904 shares of its outstanding common stock, which represents 4.9% of shares outstanding at December 31, 2011.

FINANCIAL RESULTS

For the three months ended September 30, 2012, Argo Group reported net income of $13.4 million or $0.52 per diluted share. In the third quarter of 2012, the Company produced net operating income after tax of $15.3 million or $0.59 per diluted share. These results were impacted by third quarter 2012 pre-tax catastrophe losses, net of reinsurance and estimated reinstatement premiums, of $13.9 million, including $11.8 million from Hurricane Isaac. By comparison, the third quarter of 2011 produced a net loss of $10.8 million or $0.39 per diluted share. In the third quarter of 2011, the Company produced a net operating loss after tax of $8.3 million or $0.31 per diluted share. Third quarter 2011 results were impacted by pre-tax catastrophe losses net of estimated reinstatement premiums of $26.7 million. The difference between net income and net operating income for the three months ended September 30, 2012, reflects $8.3 million of pre-tax realized investment gains associated with the Company’s investment portfolio and a $9.7 million pre-tax foreign currency exchange loss. (See the complete reconciliation in the attached tables.) Included in the results for the three months ended September 30, 2012, was favorable prior year loss development of $10.4 million versus favorable prior year loss development of $2.0 million for the three months ended September 30, 2011.

Gross written premiums for the three months ended September 30, 2012 and 2011, were $485.5 million and $448.5 million, respectively. Total revenue for the three months ended September 30, 2012 and 2011, was $344.5 million and $306.2 million, respectively. Earned premiums for the three months ended September 30, 2012 and 2011, were $304.3 million and $270.9 million, respectively. Net investment income for the three months ended September 30, 2012 and 2011, was $28.9 million and $30.0 million, respectively. For the three months ended September 30, 2012, the Company reported net realized investment gains of $8.3 million versus net realized investment gains of $3.9 million for the same three-month period in 2011.

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