AM Besthas revised the outlooks to stable from negative and affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of "a-" of Argo Re Ltd. (Argo Re) (Pembroke, Bermuda) and its subsidiaries. AM Best also has revised the outlooks to stable from negative and affirmed the Long-Term ICR of "bbb-" and the Long-Term Issue Credit Ratings (Long-Term IR) of the parent, Argo Group International Holdings, Ltd. (Argo Group) (Pembroke, Bermuda) [NYSE: ARGO]. Additionally, AM Best has revised the outlooks to stable from negative and affirmed the Long-Term ICR of "bbb-" and the Long-Term IR of Argo Group US, Inc. (Argo US) (headquartered in San Antonio, TX). Argo US' senior unsecured notes are fully and unconditionally guaranteed by Argo Group. (See below for a detailed listing of the companies and ratings.)
The ratings reflect Argo Re's balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, neutral business profile and marginal enterprise risk management (ERM).
The change in the outlooks reflects all of the positive actions taken by management to address and resolve a U.S. Securities and Exchange Commission (SEC) inquiry in late 2019 related to the company's non-disclosure of certain compensation-related perquisites, which was subsequently resolved in June 2020, and the sweeping changes made to Argo's Board of Directors with an aim toward greater accountability, transparency and better shareholder engagement.
At the same time, Argo also appointed a new chairman of the board and a new CEO to guide Argo and set strategy in the years ahead. This change in leadership has allowed for better collaboration and decision-making between management and the board when assessing directives and setting strategy, including those established in 2020.
The rating actions also consider Argo's improved balance sheet strength and risk-adjusted capital adequacy from replacing short-term loans with more permanent forms of hybrid capital, as well as the alleviating of some concerns around potential reserve development from Syndicate 1200 through its recent reinsurance-to-close (RITC) transaction covering Argo's net technical provisions in 2017 and prior years.
The ratings also acknowledge Argo's fourth-quarter 2020 results, highlighted by its improved underwriting margin compared with the previous year despite incurring higher losses from catastrophe events and COVID-19. AM Best also expects continued improvement over the near term, following Argo's recently completed strategic initiatives to exit some of its non-profitable, non-strategic businesses. Going forward, AM Best expects Argo to maintain its strongest level of balance sheet strength, adequate operating performance and neutral business profile.
These ratings also contemplate the material weakness in internal controls related to financial reporting, which were recently identified by Argo in its most recent 8-K filing for year-end 2020 and the revisions to previously issued financial statements related to years 2018, 2019 and the adjustments made in the fourth quarter and year-end 2020. While the implications of these findings are viewed as insignificant from a financial perspective, they reflect an internal control weakness in the financial reporting framework as it relates to enterprise risk management.
The FSR of A- (Excellent) and the Long-Term ICRs of "a-" have been affirmed with the outlooks revised to stable from negative for Argo Re Ltd. and its following subsidiaries:
- ArgoGlobal SE
- Argonaut Great Central Insurance Company
- Argonaut Insurance Company
- Argonaut-Midwest Insurance Company
- ARIS Title Insurance Corporation
- Colony Insurance Company
- Peleus Insurance Company
- Colony Specialty Insurance Company
- Rockwood Casualty Insurance Company
- Somerset Casualty Insurance Company
The following indicative Long-Term IRs available under various shelf registrations have been affirmed with the outlooks revised to stable from negative:
Argo Group International Holdings. Ltd. --- "bbb-" on senior unsecured debt-- "bb+" on subordinated debt-- "bb" on preferred stock
Argo Group US, Inc. --- "bbb-" on senior unsecured debt-- "bb+" on subordinated debt
Argo Group Statutory Trust --- "bb" on preferred stock
The following Long-Term IR has been affirmed with the outlook revised to stable from negative:
Argo Group US, Inc. --- "bbb-" on $143.75 million 6.5% senior unsecured notes, due 2042
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