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FOR IMMEDIATE RELEASE
OLDWICK - APRIL 13, 2022 10:22 AM (EDT)
AM Best has affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” (Excellent) of Argo Re Ltd. (Argo Re) (Pembroke, Bermuda) and its subsidiaries. AM Best also affirmed the Long-Term ICR of “bbb-” (Good) 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 affirmed the Long-Term ICR of “bbb-” (Good) and the Long-Term IR of Argo Group US, Inc. (Argo US) (headquartered in San Antonio, TX). The outlook of these Credit Ratings (ratings) is stable. (See below for a detailed listing of the companies and ratings.)
The ratings reflect Argo Group’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and marginal enterprise risk management (ERM).
The ratings affirmation takes into consideration Argo Group’s most recent fourth quarter and full year earnings announcement, the adverse reserve development reported in that quarter and its effects on the group’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). The revised balance sheet strength assessment reflects a lower BCAR score, which no longer supports an assessment level of strongest.
Albeit weaker than expected earnings for the year, Argo Group’s results over the past five years are still considered adequate. Operating losses in 2021 were primarily related to material adverse loss reserve development in its general liability business, specifically related to construction defect claims from prior accident years. Excluding this charge, accident year results were more in line with AM Best’s expectations.
Prospectively, AM Best expects improved underwriting margins and reduced volatility as management continues to pursue a corporate strategy that focuses on its core specialty niche businesses while exiting non-core, subscale and/or unprofitable segments. At the same time, Argo’s exposure to property catastrophe risks are significantly lower. As a result, Argo’s current accident year loss ratio continues to improve while expense ratio reduction targets are also being met. AM Best expects the group to take action to improve its risk-adjusted capitalization in the near term while benefiting from increased earnings fundamentals.
Argo Group’s ERM assessment remains at marginal but management has taken great strides in improving its governance, internal controls, communication and transparency over the past two years. Some of the initiatives introduced include significant changes to its board of directors, greater accountability, transparency and better engagement among its stakeholders. Argo also successfully addressed the material weakness in internal controls related to financial reporting, which were identified in its 10-K filing for year-end 2020. Material adverse reserve development in 2021 raises new concerns around emerging risk, risk identification and reserving practices.
The FSR of A- (Excellent) and the Long-Term ICRs of “a-” (Excellent) have been affirmed with stable outlooks for Argo Re Ltd. and the following subsidiaries:
The following indicative Long-Term IRs available under various shelf registrations have been affirmed with stable outlooks:
Argo Group International Holdings, Ltd-
— “bbb-” (Good) on senior unsecured debt
— “bb+” (Fair) on subordinated debt
— “bb” (Fair) on preferred stock
Argo Group US, Inc.-
— “bbb-” (Good) on senior unsecured debt
— “bb+” (Fair) on subordinated debt
Argo Group Statutory Trust-
— “bb” (Fair) on preferred stock
The following Long-Term IR has been affirmed with a stable outlook:
Argo Group US, Inc.
— “bbb-” (Good) on $143.75 million 6.5% senior unsecured notes, due 2042
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.