Argo Group International Holdings, Ltd. Q1 2010 Earnings Call Transcript

Argo Group International Holdings, Ltd. Q1 2010 Earnings Call Transcript
Publish date:

Argo Group International Holdings, Ltd. (AGII),

Q1 2010 Earnings Call

May 5, 2010 8:00 am ET


Michael Russell – Director of Investor Relations

Mark Watson - Chief Executive Officer

Jay Bullock – Chief Financial Officer


Scott Heleniak – RBC Capital Markets

Amit Kumar - Macquarie Group, Ltd.

Robert Farnam - Keefe, Bruyette & Woods



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Good day ladies and gentlemen and welcome to the first quarter 2010 Argo Group International earnings conference call. My name is Veronica and I will be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator instructions)

I would now like to turn the conference over to your host for today, Mr. Michael Russell, Director of Investor Relations.

Michael Russell

Thank you Veronica and good morning. Welcome to Argo Group's conference call for the first quarter of 2010.

On the call today is Mark Watson, Chief Executive Officer, and Jay Bullock, Chief Financial Officer. We are pleased to review with you the company's results for the quarter as well as provide management's perspective on the business.

Before we begin I’d like to mention that we will be participating in the Oppenheimer Insurance CEO Summit on June 8 and the Macquarie Small and Mid Cap Conference on June 15. Should you be attending one of these conferences, we invite you to sign up for [101] meetings with Argo Group management.

I would like to remind you that this call is being recorded, and all participants are in listen-only mode. Following management's opening remarks, the operator will provide instructions on how you may queue in to ask questions.

As a result of this conference call, Argo Group management may make comments that reflect their intentions, beliefs, and expectations for the future. Such forward-looking statements are qualified by the inherent risks and uncertainties surrounding future expectations generally and may materially differ from actual future results, involving any one or more of such statements. Argo Group undertakes no obligation to publicly update forward-looking statements as a result of events or developments subsequent to this conference call. For a more detailed discussion of such risks and uncertainties, please see Argo Group's filings with the SEC.

With that, I would like to introduce Mark Watson, CEO of Argo Group.

Mark Watson

Thank you, Mike, and hello to everyone. We appreciate you taking the time to join us today. In a moment our CFO, Jay Bullock, will provide you with some financial details on our first quarter and then we’ll take your questions.

In a three month period with considerable catastrophic loss activity, we remained profitable, reporting earnings per share of $0.67 and operating earnings per share of $0.32. Our book value per share reached another record high, up 2.8% from December 31 and finishing at $53.81 and continuing a trend of sequential growth and quarterly book value per share.

For the 12 months ended March 31, 2010, our book value per share increased by 19.2%. All things considered, first quarters are generally uneventful but as I’m sure you’re aware, this one was quite the opposite. The industry responded to major catastrophic losses in both hemispheres. Our first quarter results were affected by some of these events, primarily in our International Specialty and reinsurance segments and largely from the Chilean earthquake.

From a risk standpoint, total capital exposed to first quarter catastrophes was less than 2% of year end shareholder equity. The estimated pre-tax losses for first quarter cats, net of reinstatement premiums was $29 million. $21.6 million of this amount was attributable to the quake in Chile an I’ll touch on that segment impact in a moment.

Let me talk about capital first. One can conclude that the severity of catastrophes seen in the first quarter of 2010 might have a meaningful impact on the industry’s available resources and underwriting capacity. Yet we continue to be in the position of generating capital at our company, albeit modestly. This position results from risk management or investment portfolio and by a deliberate retrenchment from the market environment that is worse today than a year ago.

Last year at this time things looked a little different. Opportunities appeared attractive due to the impact of financial markets and industry events from late 2008. Unfortunately as we moved into the second half of 2009 and on the back of financial market recovery, favorable trends in rate and terms and conditions began to reverse themselves and in some instances that happened quite rapidly.

Since that reversal we’ve been operating in an industry flush with capital and confronting fierce competition from companies either building or protecting market share. Let’s talk about what’s going on with the top line for a minute. We believe that shrinking our top line is a sound strategy during this stage of the cycle and if you’ll recall from some of our previous quarters, we have said that we will shrink the top line for margin and specifically reduce our property exposure in the Lloyd's syndicate.

This doesn’t mean that we’re standing by idly waiting for the market to turn. Rather, we’re evaluating and developing opportunities in new geographic markets and continuing to recruit top talent to the organization like Lou Levinson who we recently introduced as President of our E&S segment.

Internally we’re streamlining our infrastructure and reducing expenses. While the effects of these efforts may not be immediately visible, we believe their impact will produce benefits for our customers, partners, and shareholders in the near term and position us well for the eventual market improvement.

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