Sign in

You're signed outSign in or to get full access.

AG

Argo Group International Holdings, Inc. (ARGO)·Q4 2022 Earnings Summary

Executive Summary

  • Q4 2022 was dominated by the U.S. loss portfolio transfer (LPT) charge: net loss attributable to common shareholders was $111.8m ($-3.19 diluted EPS), operating loss was $94.5m ($-2.69 diluted operating EPS), and the GAAP combined ratio rose to 138.2% as lower net earned premiums and LPT costs flowed through results .
  • Excluding the LPT cost, consolidated combined ratio would have been 100.5% (vs. 122.4% in Q4 2021), with an adjusted expense ratio of 35.1% and CAY ex-CAT loss ratio of 56.4%, signaling underlying improvement despite one-off de-risking actions .
  • Strategic repositioning accelerated: completed sale of Lloyd’s Syndicate 1200 (cash proceeds ~$125m) on Feb 2, 2023; announced definitive merger agreement with Brookfield Reinsurance on Feb 8, 2023 ($30.00 per share) and will suspend common dividends during the interim period pending closing .
  • Ongoing business metrics were stable to improving: earned premiums within ongoing business grew ~11.5% YoY; catastrophe losses in Q4 were $9.4m (winter storm Elliott), with adverse prior-year reserve development of $33.1m concentrated in U.S. liability lines for older accident years .
  • S&P Global Wall Street consensus estimates were unavailable via our data interface for ARGO, so estimate comparisons are not provided (attempted retrieval failed).

What Went Well and What Went Wrong

What Went Well

  • Underlying profitability excluding the LPT improved: adjusted combined ratio 100.5% (down 21.9 pts YoY), adjusted CAY ex-CAT loss ratio 56.4% (down 2.1 pts YoY), and adjusted expense ratio 35.1% (down 0.2 pts YoY) .
  • Strategic simplification executed: completed sale of Argo Underwriting Agency & Lloyd’s Syndicate 1200; CEO Bradley: “transforming Argo into a focused, pure-play U.S. specialty insurer” .
  • Annual catastrophe loss reduction: full-year 2022 catastrophe losses fell to $44.0m, >50% lower YoY, reflecting exposure reduction strategy .

What Went Wrong

  • LPT impact weighed heavily on reported results: the GAAP combined ratio rose to 138.2% and expense ratio to 50.2% primarily due to LPT costs (ceded premiums and acquisition expenses) .
  • Alternative investment income dropped materially vs. a year ago, contributing to lower net investment income in Q4 ($28.9m vs. $44.4m a year ago), pressuring total revenue ($383.7m vs. $530.8m) .
  • U.S. segment adverse prior-year reserve development ($36.6m) and higher CAY ex-CAT loss ratio (96.8%) pre-LPT amplified loss ratio pressure; cat losses ($4.0m) added 1.9 pts to the U.S. loss ratio .

Financial Results

Sequential Performance (oldest → newest)

MetricQ2 2022Q3 2022Q4 2022
Total Revenue ($USD Millions)$443.2 $444.3 $383.7
Earned Premiums ($USD Millions)$454.3 $455.0 $350.5
GAAP Diluted EPS ($)$-0.54 $-1.47 $-3.19
Operating EPS (Diluted, $)$0.89 $0.44 $-2.69
Combined Ratio (%)96.2% 101.1% 138.2%
Loss Ratio (%)60.8% 65.7% 88.0%
Expense Ratio (%)35.4% 35.4% 50.2%
Net Investment Income ($USD Millions)$29.3 $34.0 $28.9
Underwriting Income ($USD Millions)$17.3 $-4.8 $-133.8

YoY Q4 Comparison

MetricQ4 2021Q4 2022
Total Revenue ($USD Millions)$530.8 $383.7
GAAP Diluted EPS ($)$-3.38 $-3.19
Operating EPS (Diluted, $)$-1.77 $-2.69
Combined Ratio (%)122.4% 138.2%
CAY ex-CAT Combined Ratio (%)93.8% 126.1%
Catastrophe Losses ($USD Millions)$6.8 $9.4
Net Prior-Year Reserve Development ($USD Millions)$132.3 $33.1

Segment Breakdown – Q4 2022

MetricU.S. OperationsInternational Operations
Gross Written Premiums ($USD Millions)$463.9 $180.4
Net Written Premiums ($USD Millions)$197.4 $129.2
Earned Premiums ($USD Millions)$210.5 $139.8
Underwriting Income ($USD Millions)$-153.9 $25.7
Combined Ratio (%)173.1% 81.6%
Loss Ratio (%)116.1% 45.9%
Expense Ratio (%)57.0% 35.7%

KPIs (oldest → newest)

KPIQ2 2022Q3 2022Q4 2022
CAY ex-CAT Loss Ratio (%)56.6% 58.0% 75.9%
Catastrophe Losses ($USD Millions)$2.5 $23.4 $9.4
Net Prior-Year Reserve Development ($USD Millions)$16.3 $11.9 $33.1
Net Investment Income ($USD Millions)$29.3 $34.0 $28.9
Book Value per Common Share ($)$37.65 $33.72 $31.06

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Common Share DividendsInterim period under merger agreementNot specified; cash dividends were paid during 2022 ($0.31 in Q4) Company agreed to suspend common dividends from Feb 8, 2023 through closing/termination of merger agreement Suspended
Series A Preferred DividendsInterim period under merger agreementOngoing per certificate of designationsAllowed periodic cash dividends on Series A Preferred Shares up to $437.50 per share during interim Maintained (capped)
Corporate Events (AGM)2023AGM typically held in H1AGM postponed to second half of 2023; special meeting to consider merger first Postponed
Strategic TransactionsQ4/Q1 eventsLloyd’s sale announced Sept 2022 Lloyd’s Syndicate 1200 sale closed Feb 2, 2023; ~$125m proceeds Completed
LPT (U.S. casualty reserves)Q4 2022Charge anticipated (~$100m after tax) Charge recognized in Q4 (~$100m after tax); reflected in underwriting/expense metrics Implemented

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4 2022)Trend
Strategic simplification (exits/sales)Q2: exits (U.S. Specialty Property, Malta); planned Lloyd’s sale Lloyd’s sale completed; U.S.-focused pure-play specialty insurer Continued execution
LPT de-riskingQ2: LPT agreement announced; charge anticipated LPT completed; ~$100m after-tax charge; reduced net earned premiums and higher expense ratio Completed / impacts realized
Catastrophe exposure reductionQ2/Q3: lowered cat losses despite industry events Q4 cat losses $9.4m (winter storm Elliott); full-year cat losses down >50% YoY Sustained annual reduction
Expense controlQ2/Q3: expense ratio improved via cost reductions Adjusted expense ratio 35.1% (ex-LPT), G&A reduced Improving ex-LPT
Ongoing business growth (earned premiums)Q2/Q3: ongoing earned premiums +12–14% Ongoing earned premiums +~11.5% YoY; mix shift to lines with higher retention Continued

Management Commentary

  • CEO Thomas A. Bradley (Q4 2022): “The strategic actions we have taken strengthened Argo and better position it to deliver strong returns… We have streamlined the company to focus on our most profitable business lines, achieved targeted expense reductions, and continued to de-risk the balance sheet… We are excited about our next chapter as part of Brookfield Reinsurance.” .
  • Q3 2022: “We announced the sale of our Lloyd’s operation… enabling greater focus on our diverse portfolio of profitable and scalable U.S. specialty businesses… results benefited from reduced underwriting volatility and lower expenses.” .
  • Q2 2022: “Focused approach to profitable growth… significantly lower expense ratio and reduced volatility in underwriting results; committed to reducing catastrophe exposure.” .

Q&A Highlights

  • The Q4 2022 earnings call transcript was not available in the document set; we searched earnings-call-transcript sources for Feb–Mar 2023 but found none. No Q&A highlights can be provided from primary sources.

Estimates Context

  • S&P Global Wall Street consensus estimates (EPS/revenue) for Q4 2022 were unavailable through our data interface (ticker mapping error). We attempted retrieval; therefore, estimate comparisons and beat/miss determinations are not provided.

Key Takeaways for Investors

  • Reported metrics are temporarily depressed by LPT accounting (ceded earned premiums and costs) but adjusted measures (ex-LPT) show improving combined ratio and expense control, indicating better underlying profitability .
  • Strategic repositioning is largely complete (Lloyd’s sale closed), creating a U.S.-centric specialty platform with higher premium retention and ongoing business earned premiums growth ~11.5% YoY .
  • Adverse reserve development persists in U.S. liability (older accident years), a key watch item for claims trends and pricing adequacy; Q4 net adverse PYD was $33.1m .
  • Investment income headwinds from alternatives vs. a strong prior year reduced total revenue; portfolio remains high-quality, short-duration (avg duration ~2.9 years, A+ credit) .
  • Catastrophe losses in Q4 ($9.4m) were manageable; full-year cat losses down >50% YoY validates volatility reduction strategy .
  • Near-term stock catalyst is the Brookfield Reinsurance transaction ($30.00 per share) and interim suspension of common dividends; focus shifts to regulatory/shareholder approvals and closing timeline .
  • Medium-term: assess underlying combined ratio sustainability post-LPT, PYD trends in U.S. liability, and continued cost discipline as the company operates as a streamlined U.S. specialty insurer .