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Argo Group International Holdings, Inc. (ARGO)·Q3 2023 Earnings Summary

Executive Summary

  • Q3 2023 showed a larger net loss driven by elevated catastrophe losses and significant adverse prior-year reserve development, with total revenue at $378.4M and diluted EPS at $(1.41) . The GAAP combined ratio rose to 115.8% from 106.8% in Q2 and 101.1% in Q3 2022, reflecting loss ratio pressure (82.0%) .
  • Expense ratio improvement continued (33.8%, down 1.6 pts YoY) and net investment income increased 18.8% YoY to $40.4M on higher reinvestment rates and improved alternative returns .
  • Management emphasized disciplined expense management and business optimization; the Brookfield Reinsurance merger outside date was extended to Feb 8, 2024, with both parties still expecting 2023 closing pending regulatory approvals .
  • Catalyst: Merger closing and reserve-trend clarity are key near-term stock drivers; lack of formal financial guidance suggests investor focus on underwriting quality, reserve development normalization, and expense trajectory .

What Went Well and What Went Wrong

What Went Well

  • Continued expense discipline: Expense ratio improved to 33.8% (down 1.6 pts YoY), supported by business mix changes post Lloyd’s Syndicate 1200 sale .
  • Higher investment income: Net investment income rose 18.8% YoY to $40.4M, driven by higher interest rates and improved alternatives, with AA- average credit quality and ~2.2-year duration including cash .
  • Management focus and merger progress: “Argo’s third quarter performance benefited from disciplined expense management and increased investment returns… we believe the company is well positioned to capitalize on its enhanced future growth prospects as part of Brookfield Reinsurance.” – CEO Thomas A. Bradley .

What Went Wrong

  • Elevated loss ratio and combined ratio: Loss ratio at 82.0% (+16.3 pts YoY) and combined ratio at 115.8% (+14.7 pts YoY), driven by CAT losses ($24.7M; +7.2 pts) and net adverse prior-year reserve development ($51.0M; +14.9 pts) .
  • U.S. segment deterioration: U.S. combined ratio rose to 111.9% (from 97.2% YoY), with CAT losses of $14.0M and adverse prior-year reserve development of $46.6M; CAY ex-CAT loss ratio was 59.3% (improved 0.4 pts) but expense ratio increased to 33.3% .
  • International volatility: Loss ratio spiked to 116.1% (+50.8 pts YoY) with $10.7M CAT losses (37.5 pts) and $3.5M adverse development (12.3 pts) amid business mix shifts post disposals; underwriting loss widened to $(7.3)M .

Financial Results

Quarterly Trend: Q1–Q3 2023

MetricQ1 2023Q2 2023Q3 2023
Total Revenue ($USD Millions)$401.7 $364.3 $378.4
Net Earned Premiums ($USD Millions)$389.9 $329.9 $342.7
Net Investment Income ($USD Millions)$29.7 $32.8 $40.4
Net Loss Attributable to Common ($USD Millions)$(36.4) $(0.5) $(49.5)
Diluted EPS ($USD)$(1.04) $(0.01) $(1.41)
Loss Ratio (%)73.0% 73.2% 82.0%
Expense Ratio (%)35.1% 33.6% 33.8%
Combined Ratio (%)108.1% 106.8% 115.8%
Underwriting Income (Loss) ($USD Millions)$(31.7) $(22.4) $(54.3)
Catastrophe Losses ($USD Millions)$3.6 $3.1 $24.7
Net Prior-Year Reserve Development ($USD Millions)$48.6 $26.4 $51.0
Book Value per Common Share ($USD)$31.31 $31.00 $29.18

Year-over-Year Snapshot: Q3 2022 vs Q3 2023

MetricQ3 2022Q3 2023
Total Revenue ($USD Millions)$444.3 $378.4
Net Earned Premiums ($USD Millions)$455.0 $342.7
Net Investment Income ($USD Millions)$34.0 $40.4
Diluted EPS ($USD)$(1.47) $(1.41)
Loss Ratio (%)65.7% 82.0%
Expense Ratio (%)35.4% 33.8%
Combined Ratio (%)101.1% 115.8%
Underwriting Income (Loss) ($USD Millions)$(4.8) $(54.3)

Segment Breakdown: Q3 2023

SegmentEarned Premiums ($M)Loss Ratio (%)CAY ex-CAT Loss Ratio (%)CAT Losses ($M)Net PY Reserve Dev ($M)Expense Ratio (%)Combined Ratio (%)Underwriting Income (Loss) ($M)
U.S. Operations$314.1 78.6% 59.3% $14.0 $46.6 33.3% 111.9% $(37.4)
International Operations$28.5 116.1% 66.3% $10.7 $3.5 9.5% 125.6% $(7.3)
Consolidated$342.7 82.0% 59.9% $24.7 $51.0 33.8% 115.8% $(54.3)

KPIs and Additional Metrics: Q3 2023

KPIValue
Net Investment Income ($USD Millions)$40.4
Book Value per Common Share ($USD)$29.18
Operating (Loss) per Diluted Share ($USD)$(0.60)
Effective Tax Rate (%)(60.1%)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Merger closing timeline (Brookfield Reinsurance)Transaction closing“Expect merger to close second half of 2023, subject to approvals” Outside date automatically extended to Feb 8, 2024; parties still expect closing in 2023 subject to remaining regulatory approvals Maintained timeline expectation; outside date extended

Note: No formal financial guidance (revenue/margins/OpEx/tax) was provided in Q3 materials .

Earnings Call Themes & Trends

TopicQ1 2023 (Previous Mentions)Q2 2023 (Previous Mentions)Q3 2023 (Current Period)Trend
Merger with Brookfield ReinsuranceShareholders approved merger; expect H2 2023 closing pending approvals Continue to expect H2 2023 closing pending approvals Majority of approvals received; outside date extended to Feb 8, 2024; still expect 2023 closing Progressing; timeline adjustment
Expense managementExpense ratio improved 35.1% (−0.9 pts YoY); cost reduction highlighted Expense ratio 33.6% (−1.8 pts YoY); efficiency emphasized Expense ratio 33.8% (−1.6 pts YoY); disciplined expense management continues Consistent improvement
Reserve developmentAdverse PYD $48.6M; professional lines/legacy exited businesses Adverse PYD $26.4M; exited businesses Adverse PYD $51.0M; exited businesses and unfavorable professional lines Persistent headwind
CAT losses$3.6M; volatility reduction via exits highlighted $3.1M; below industry losses $24.7M; Idalia, Ophelia, Hawaii wildfires; elevated vs prior periods Deteriorated in Q3
Rate environment/pricingMid-single digit rate increases ex D&O; D&O low double-digit decreases Similar: D&O decreases; mid-single digit increases elsewhere Continued: low double-digit D&O rate decreases; mid-single digit increases elsewhere Stable narrative
Investment incomeDeclined due to lower alternatives in Q1 Up 11.9% YoY Up 18.8% YoY; AA- quality, ~2.2-year duration Improving

Management Commentary

  • “We continue to work diligently with Brookfield Reinsurance on integration planning and anticipate an orderly transition for our customers and business partners once the transaction is completed.”
  • “Argo’s third quarter performance benefited from disciplined expense management and increased investment returns… we believe the company is well positioned to capitalize on its enhanced future growth prospects as part of Brookfield Reinsurance.”

Q&A Highlights

  • An earnings call transcript was not available in the SEC filings or company investor site for Q3 2023; we searched SEC and Argo’s investor pages and did not find a published transcript .
  • No additional Q&A guidance clarifications were publicly documented beyond the press release. The merger update and current underwriting drivers (CATs, reserve development) were the primary themes .

Estimates Context

  • Wall Street consensus estimates via S&P Global for ARGO Q3 2023 were unavailable due to a CIQ mapping issue in our feed. As a result, we cannot present EPS or revenue vs consensus for this quarter. Please note: Estimates would normally be sourced from S&P Global; values are unavailable at this time.

Key Takeaways for Investors

  • Underwriting normalization is crucial: Persistent adverse prior-year reserve development ($51.0M in Q3) and elevated CATs ($24.7M) materially pressured results; watch reserve reviews in professional lines and exited books for stabilization .
  • Expense discipline remains a positive offset: Expense ratio improvement and higher investment income (AA- portfolio, shorter duration) provide partial cushion amid loss ratio volatility .
  • U.S. book resilience ex volatility: CAY ex-CAT loss ratio improved slightly in U.S. (59.3% vs 59.7% YoY), but overall combined ratio deteriorated on CATs and reserve development; portfolio actions remain key .
  • International volatility should abate as disposals roll off: Elevated loss ratio (116.1%) largely reflects mix changes and CATs; as non-core lines wind down, volatility should reduce over time .
  • Merger timeline is the near-term catalyst: Majority of approvals received; outside date extended; closing expected in 2023—transaction progress likely drives stock reaction more than quarterly noise .
  • Book value per share down to $29.18 (from $31.00 in Q2): Capital preservation and reserve actions are central to medium-term thesis; monitor tangible book metrics and AOCI movements .
  • Without published consensus, set expectations on underwriting drivers: In absence of S&P Global estimates, trading implications hinge on visibility into reserve development trends, CAT exposure capture, and expense trajectory.