Delivering our global values
Annual Report 2013
Corporate Profile
A.M. BEST rating | ‘A’ (Excellent)
Argo Group International Holdings, Ltd.
(NASDAQ: AGII) is an international
underwriter of specialty insurance and
reinsurance products in areas of the
property and casualty market. Through
its operating subsidiaries, Argo Group
offers a comprehensive line of products
and services designed to meet the
unique coverage and claims-handling
needs of its clients in four business
segments. Excess & Surplus Lines
focuses on risks that the standard
(admitted) market is unwilling or unable
to underwrite because of the nature
of their businesses, their particular
risk exposures or their loss histories.
Commercial Specialty provides
standard-market property and casualty
insurance and surety coverages to highly
specialized commercial and public
entities. Our International Specialty
segment writes both insurance and
reinsurance business worldwide through
the broker market, with offerings
including specialty property catastrophe
reinsurance along with excess casualty
and professional insurance. Syndicate
1200 operates through a Lloyd’s of
London syndicate offering property,
specialty and liability coverage. Argo
Group International Holdings, Ltd.
is headquartered in Bermuda.
Financial Highlights
(in millions, except per share amounts)
Gross written premiums
Net written premiums
Net earned premiums
Net investment income and realized gains
Total revenue
Net income (loss)
Net income (loss) per common share:
Basic
Diluted
Combined ratio
Total assets
Shareholders’ equity
Weighted average number of shares outstanding(a):
Basic
Diluted
Book value per share(a)
(a) Per share amounts adjusted for the effects of the 10% stock dividend declared in May 2013.
For the Years Ended December 31,
2013
2012
2011
$ 1,888.4
$
1,745.7
$
1,544.8
1,351.3
1,303.8
171.3
1,470.2
143.2
5.33
5.14
97.5 %
$
$
$
1,244.5
1,186.5
144.5
1,336.3
52.3
1.86
1.83
104.6 %
$
$
$
1,071.8
1,082.0
175.0
1,258.4
(81.9 )
(2.74 )
(2.74 )
119.8 %
$
$
$
$ 6,591.0
$
1,563.0
$ 6,688.9
$
1,514.1
$ 6,378.3
$
1,463.0
26.9
27.9
28.1
28.7
29.9
29.9
$
58.96
$
55.22
$
50.54
NOTICE
The financial highlights herein are a summarized version of Argo Group’s audited consolidated financial statements and do not contain
sufficient information to allow as full an understanding of the financial position, results of operations, changes in financial position
or cash flows of Argo Group as would be provided by the complete financial statements of Argo Group. A registered shareholder of
Argo Group receiving these summarized financial statements may notify Argo Group in writing that they elect to receive the complete
financial statements for the period for which the summarized financial statements are prepared, or for subsequent periods, or both.
ARGO GROUP | ANNUAL REPORT 2013
01
Letter to the Shareholders
For Argo, the past year proved
rewarding in many respects.
We added to our talented team.
We made significant progress on our
systems and information infrastructure.
We made strategic enhancements to
our investment portfolio that position
us well to perform in a difficult
investing environment. We engineered
new processes to service the needs
of our customers and, throughout
the year, we pushed hard to become
a locally present, globally active
specialty insurer.
All of our segments made underwriting
profits last year as our focus on
specialty underwriting continued
to produce stable returns for our
shareholders, notwithstanding the
rise in interest rates and the decline
in the bond market. In our active
pursuit of new technologies, we
completed pilot testing and began
to implement portions of our new
end-to-end business delivery platform
(BDP) in 2013. I am pleased with early
results from BDP and look forward to
its broader expansion in 2014 to deliver
greater efficiency and flexibility,
making us more responsive to market
conditions and customer needs.
A year of performance.
In 2013, our strong performance was
reflected in continued year-over-year
improved underwriting profits in every
business. We ended the year with
consolidated gross written premium
of $1.9 billion, an increase of 8.2% over
2012, while our Excess & Surplus Lines,
Syndicate, and International Specialty
businesses all experienced strong
double-digit growth for the year.
For the Group as a whole, we ended
the year with diluted book value just
shy of $59 per share, up 7% from the
end of 2012.
Growth at the core.
OUR EXCESS & SURPLUS LINES
BUSINESS grew its premium by nearly
16% in 2013, with the strongest
increase coming from a core casualty
business we’ve been successfully
underwriting at Colony for 20 years.
These gains are testament to the
diligent work and focused marketing
efforts of our E&S team. Even as we
expanded this business, we continued
to refine our underwriting appetite,
trimming back less profitable lines
such as those in our transportation
business. As we look ahead to continued
growth in areas where we see the best
profit potential, the introduction of
new technology and expansion of our
underwriting teams will enable us to
build on this momentum. Our efforts
over the year resulted in an improved
combined ratio of 88% compared with
almost 92% for 2012.
Achieving balance.
OUR COMMERCIAL SPECIALTY
SEGMENT MADE SIGNIFICANT
PROGRESS in 2013, with a return
to profitability after a difficult year
in 2012. Argo Insurance—our admitted
grocery, restaurant and dry cleaning
business—refocused on leveraging its
core areas of expertise, and we’re
generally pleased with the results.
Trident—our public entity business—
is again producing its historic levels
of underwriting margin, achieving
greater profitability in our public entity
accounts. Rockwood—our mining
business—continued to thrive in
spite of a challenging regulatory
environment impacting the coal mining
industry. Overall premium for the
segment declined for the year by a little
over 4% (reflecting our continued
re-underwriting of the portfolio), yet
we continued to secure rate increases
where needed. The segment’s combined
ratio improved to 98% for the year
compared to 115% for 2012. On the heels
of that significant improvement, we said
good-bye to Mike Arledge as President
of Commercial Specialty. Mike retired
at the end of the year after having spent
the past 13 helping us build this
business. I thank him for all his efforts,
leadership and friendship over the years.
I’m sure he’s proud to have wrapped
up the year on such a strong note, and
we all wish him the best in retirement.
02
As always, the professionalism of our
staff is the reason for our progress and
the greatest assurance of our ongoing
success. In 2013, my colleagues in
every corner of Argo Group proved
their ability to serve with courage,
innovation, commitment and, ultimately,
excellence. I remain grateful for, and
inspired by, our team and our trading
partners in each segment of the
business. I am confident that we will
continue to improve performance
and efficiency throughout our company
in 2014 and beyond. Thank you for
your continued support.
Regards,
Mark E. Watson III
President and Chief Executive Officer
Strict discipline. Good decisions.
OUR INTERNATIONAL BUSINESS
SEGMENTS PERFORMED WELL
THROUGHOUT THE YEAR. We were
particularly pleased with the year’s
results for our Lloyd’s market business,
Syndicate 1200. Gross written premiums
were up 9.5% for the full year. Net
written premiums were up even more
as we retained a greater portion of the
risk we underwrite. Here, our strategy
is to diversify into products that have
historically performed well in the Lloyd’s
market, while maintaining a focused
discipline on risk concentration and
good underwriting decisions. And that
strategy has resulted in a second
consecutive year of strong results after
the challenges we faced in 2010 and 2011.
In May we welcomed David Harris as
the new Managing Director of Syndicate
1200. David took over for Jeff Radke,
who guided the remarkable progress
of our Lloyd’s operations since 2011.
Our other international business
platforms continued to gain traction
in their respective markets. During
the fourth quarter, we opened another
branch of ArgoGlobal SE in Zurich
to serve the market for professional
lines within Continental Europe.
We closed the year with a combined
ratio of 95.4% for our International
Specialty segment.
Navigating the changing
environment.
ON THE CAPITAL AND INVESTMENT
FRONTS, NEW SOURCES OF CAPITAL
ARE CHANGING THE LANDSCAPE.
Competition has increased as the
broader investment community
recognizes insurance as a market
in which to deploy capital effectively.
We now compete side-by-side with
new players including hedge funds
and pension funds eager to bring more
capacity to the market. We welcome
their challenge and the new
environment it creates and we’ll
continue to look for competitive
advantage in an investment market
we know well. We believe our emphasis
on total return over income best serves
our goal of maximizing shareholder
value in the long run—and the long
run as always is our focus.
Capital management has been
a key part of our strategy. We have
returned more than $300 million
of capital to shareholders over the last
six years. We will continue to invest
in our stock and deliver capital back
to shareholders, but weighed carefully
against the risk-adjusted returns of
other capital uses. And we will remain
devoted to our core values, which
distinguish us among competitors
and help drive sustainable growth.
ARGO GROUP | ANNUAL REPORT 2013
03
ARGO GROUP (Consolidated)
.
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12
13
11
12
13
11
12
13
11
12
13
Gross Written
Premiums
(dollar amounts in millions)
Total Assets
(dollar amounts in millions)
Combined Ratio
Book Value per Share
GROSS WRITTEN PREMIUMS BY SEGMENT
(dollar amounts in millions)
.
9
8
7
4
$
5
.
3
1
5
$
2
.
4
9
5
$
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8
8
2
4
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1
4
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1
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3
4
$
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3
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$
9
.
3
8
5
$
11
12
13
Excess & Surplus
Lines
11
12
13
Commercial
Specialty
11
12
13
International
Specialty
11
12
13
Syndicate 1200
Financial Results
2013 at a glance
04
S E G M E N T S
For the Years Ended December 31,
(dollar values in millions)
E X C E S S & S U R P L U S L I N E S
Gross written premiums
Earned premiums
Losses and loss adjustment expenses
Other reinsurance-related expenses
Underwriting, acquisition and insurance expenses
Underwriting income
Net investment income
Interest expense
Income before income taxes
Loss ratio
Expense ratio
Combined ratio
Loss reserves at December 31
C O M M E R C I A L S P E C I A L T Y
Gross written premiums
Earned premiums
Losses and loss adjustment expenses
Other reinsurance-related expenses
Underwriting, acquisition and insurance expenses
Underwriting income (loss)
Net investment income
Interest expense
Fee (expense) income, net
Income (loss) before income taxes
Loss ratio
Expense ratio
Combined ratio
Loss reserves at December 31
I N T E R N A T I O N A L S P E C I A L T Y
Gross written premiums
Earned premiums
Losses and loss adjustment expenses
Other reinsurance-related expenses
Underwriting, acquisition and insurance expenses
Underwriting income (loss)
Net investment income
Interest expense
Income (loss) before income taxes
Loss ratio
Expense ratio
Combined ratio
Loss reserves at December 31
S Y N D I C A T E 1 2 0 0
Gross written premiums
Earned premiums
Losses and loss adjustment expenses
Other reinsurance-related expenses
Underwriting, acquisition and insurance expenses
Underwriting income (loss)
Net investment income
Interest expense
Fee (expense) income, net
Income (loss) before income taxes
Loss ratio
Expense ratio
Combined ratio
Loss reserves at December 31
2013
2012
2011
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
594.2
460.2
244.0
4.9
157.2
54.1
42.2
(6.9 )
89.4
53.6 %
34.5 %
88.1 %
1,171.8
419.1
299.0
194.0
0.9
97.4
6.7
22.8
(3.8 )
(4.3 )
21.4
65.1 %
32.7 %
97.8 %
653.4
290.6
142.4
79.9
6.2
50.1
6.2
8.4
(3.3 )
11.3
58.7 %
36.7 %
95.4 %
295.6
583.9
401.7
208.6
6.7
156.2
30.2
11.0
(3.3 )
(0.6 )
37.3
52.8 %
39.6 %
92.4 %
777.0
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
513.5
399.3
223.3
—
143.9
32.1
51.1
(9.1 )
74.1
55.9 %
36.0 %
91.9 %
1,209.0
437.0
317.5
257.0
—
108.3
(47.8 )
27.6
(5.9 )
1.3
(24.8 )
81.0 %
34.1 %
115.1 %
660.0
260.2
130.1
73.5
9.4
43.8
3.4
12.3
(4.4 )
11.3
60.9 %
36.2 %
97.1 %
257.3
533.4
337.9
184.0
7.5
133.9
12.5
15.3
(3.7 )
4.0
28.1
55.7 %
40.5 %
96.2 %
738.9
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
ARGO GROUP | ANNUAL REPORT 2013
478.9
405.3
247.1
—
139.8
18.4
56.0
(8.5 )
65.9
61.0 %
34.5 %
95.5 %
1,271.8
428.8
316.7
236.4
—
106.7
(26.4 )
27.7
(5.0 )
0.1
(3.6 )
74.6 %
33.7 %
108.3 %
622.8
198.2
101. 3
149.1
—
30.8
(78.6 )
10.9
(3.2 )
(70.9 )
147.1 %
30.4 %
177.5 %
237.9
438.5
259.3
222.6
—
119.0
(82.3 )
17.2
(3.2 )
1.3
(67.0 )
85.8 %
45.9 %
131.7 %
755.3
05
caused us to reduce our risk profile
by shrinking our total book of business,
exiting problematic markets and
increasing rates on accounts we chose
to keep.
We continued to make it easier for
our customers to do business with
us. We hit key milestones in the
implementation of our new business
delivery platform, a multi-year
technology initiative that will enable
us to operate more nimbly and
efficiently through a unified standard
platform Group-wide.
Excess & Surplus Lines
Early in the year, we promoted
Art Davis to the position of President
of Excess & Surplus Lines. Art plans
to build on the success he’s achieved
within the Argo organization since
2001, particularly within our contract
binding business in Colony Specialty.
For 2013, gross written premiums in
our Excess & Surplus (E&S) segment
surpassed $594 million, an increase of
more than 15% over the previous year.
Focused on providing superior
underwriting solutions for risks
typically not underwritten by the
standard market, our E&S segment
operates through two underwriting
platforms: Colony Specialty for
property and casualty risks and
Argo Pro for professional lines risks.
With offices across the US including
Richmond, Atlanta, Chicago, Denver,
and Scottsdale, we strive to provide
our distribution partners with superior
service and responsiveness. Our focus
on building and maintaining long-term
partner relationships helps ensure
that we’re delivering the specialized
solutions that our clients value most.
Colony Specialty underwrites risks
on both an admitted and non-admitted
basis through six business units:
Casualty, Contract, Environmental,
Specialty Property, Transportation
and Allied Medical. Coverage is
provided to a broad range of
commercial enterprises including
contractors, manufacturers,
distributors, environmental contractors
and consultants, retailers, restaurants
and smaller social service and
medical facilities.
Argo Pro, our mid-market professional
lines platform for the US, provides a
broad portfolio of errors and omissions
and management liability products for
our wholesale and retail distribution
partners. Targeting commercial and
select financial institution risks,
Argo Pro offers customized primary
as well as excess coverage for risks
on both an admitted and non-admitted
basis. Our underwriting focus provides
risk management solutions for
accountants, architects and engineers,
directors and officers, providers
of information technology services
and other professional disciplines.
Overall, our E&S segment experienced
strong growth throughout the year,
particularly in our higher margin
businesses. Gross written premiums
in our environmental, allied medical
and core casualty lines all increased
in excess of 25% over the previous year.
We launched an inland marine product
early in the year and were pleased
that it exceeded our expectations for
its first year of premium production.
Our management liability unit
established a presence on the US West
Coast, and saw substantial growth
throughout 2013. Conversely,
our transportation lines encountered
softening market conditions that
06
Courage
WE HAVE THE COURAGE TO
DO THE RIGHT THING.
Underwriting expertise relies on a high degree of specialized knowledge and judgment—
and it’s not unusual for experts to disagree. But it takes courage to be a dissenting voice
among colleagues rather than relent to the shared opinion of others. At Argo, we encourage
our associates to challenge conventional thinking. Greg Roblek demonstrated the courage
we value as he stood his ground and made the case to his colleagues that a previously
accepted underwriting model needed to be reconsidered.
ARGO GROUP | ANNUAL REPORT 2013
07
In the fall we named Ron Vindivich
as President of Trident. Having joined
Argo Group in 2006, Ron spent seven
years in various leadership roles within
our E&S segment, most recently
as Senior Vice President of the Casualty
Division of Colony Specialty. The close
of the year marked the retirement
of Mike Arledge as President of
our Commercial Specialty segment,
a position he had held since 2008.
Mike joined the Argo family as
President of Trident in 2000 and, since
that time, put his heart and soul into
building and growing a leading
specialty underwriting business.
His leadership, compassion, approach
to business, and sense of humor have
left an indelible mark on our company.
We will miss him and wish him the
very best in his retirement.
Commercial Specialty
Under the leadership of Commercial
Specialty President Mike Arledge and
incoming Argo Group US President
Kevin Rehnberg, this segment returned
to profitability in 2013. This was
accomplished through a series of
strategic underwriting initiatives to
reduce underperforming accounts and
focus on core segments. In addition,
we were able to achieve significant
rate increases in our Argo Insurance
and Trident units.
We also grew successfully in key
areas where market conditions created
an opportunity for us to expand or
increase profitability in our existing
lines. An improving labor market and
increased employment in the housing
sector generated increased workers’
compensation payrolls for the State
Funds program within Alteris. Argo
Surety took advantage of favorable
commercial opportunities within
the oil and gas segment to grow
gross written premium by more
than 30% over the previous year.
And underwriting discipline combined
with intimate knowledge of workers’
compensation pricing enabled
Rockwood to generate $23.3 million
of underwriting profit for the year;
this despite reduced payrolls in the
coal mining industry, which Rockwood
has traditionally served.
As planned, gross written premiums
for our Commercial Specialty segment
were down 4.1% from 2012, closing the
year with $419 million. We ended 2013
in a much improved position with
pre-tax operating income of
$21.4 million and a combined ratio
of 97.8%, whereas prior year loss
development and catastrophe losses
contributed to a pre-tax operating
loss of $24.8 million in 2012.
Argo Group’s Commercial Specialty
segment focuses on targeted lines
of business where our specialized
expertise allows us to provide superior
products, tailored solutions, and
enhanced loss control and claims
handling services. The segment
comprises six risk-bearing business
units: Argo Insurance, Rockwood,
Commercial Programs, Argo Surety,
Trident and ARIS. In addition, we
operate a variety of non-risk-bearing
agency and brokerage businesses
that generate fee income under the
Alteris brand.
The core of our Commercial Specialty
business is written through
independent agents and, to a lesser
extent, regional brokers and direct
writers, offering products designed
to meet the needs of small- to medium-
sized commercial risks. Specific target
industry sectors include: grocery
stores, dry cleaners, specialty retail,
restaurants, mining, non-construction
surety products, municipal and county
government entities.
08
Innovation
WE APPLY ORIGINAL THINKING.
Developing new ways to meet the needs of our clients is the core of what we do.
Utilizing the latest digital technology, Eduardo Pitombeira built a cutting-edge suite
of products for Argo Seguros in Brazil, providing brokers and insureds with quick,
easy access to information, account options and service.
ARGO GROUP | ANNUAL REPORT 2013
09
International Specialty
He takes the reins from Andrew Carrier
who will continue to serve as Group
Chief Underwriting Officer for all
of Argo Group.
Our insurance company in Brazil,
Argo Seguros, completed its second
full year of operation and continues
to establish a solid reputation and
brand presence in that market. During
the year, Argo Seguros was recognized
with a prestigious award for product
innovation from one of Brazil’s
leading insurance industry
publications, Revista Cobertura.
Our excess casualty business is written
through our Bermuda platform and our
MENA unit. The business continued
to increase its market share and build
strong business relationships. Our
professional lines business is written
through our operations in Bermuda,
MENA, and our business in
Continental Europe, ArgoGlobal SE.
We established a new location in
Zurich that will house a branch office
for ArgoGlobal SE, a marketing unit
for our reinsurance business and a
coverholder for our Lloyd’s Syndicate.
Our new presence in Zurich enables
us to be closer to market opportunities
and key broker relationships within
the region.
For the year, our International Specialty
segment produced gross written
premiums of $290.6 million, an increase
of 11.7% over 2012. Underwriting
income increased from $3.4 million
in 2012 to $6.2 million for 2013, while
the combined ratio for the segment
improved to 95.4% for the year.
Our International Specialty segment
includes our established Bermuda-
based reinsurance and insurance lines
as well as more recently launched
specialty insurance and reinsurance
operations in key global insurance
markets in Brazil, Dubai and
Continental Europe.
Argo Re underwrites specialty
property catastrophe reinsurance
and other selected risks worldwide
presented through the broker market.
Notwithstanding a highly competitive
environment in terms of rate and
the emergence of new and increasing
sources of capital seeking to
participate in the reinsurance
marketplace, Argo Re had a strong
year in 2013. While natural catastrophe
activity was lower than in recent years,
it was far from loss free. Loss events
included severe flooding in Canada
and across a widespread portion
of Europe, and several significant
hailstorms in Germany. During the
fourth quarter, we announced the
promotion of Matthew Wilken to
President of Argo Re. Matthew joined
Argo Re shortly after its formation
in 2008 and has served as our Chief
Underwriting Officer.
10
Commitment
WE ARE COMMITTED TO OUR CLIENTS
AND TO EACH OTHER.
Successfully resolving complex claims is one of the most challenging assignments for
claims professionals who are responsible for supporting the commitments that are made
to our clients and our company. During the past year, Dave Gleason worked tirelessly with
an insured school district and its agent to handle a complex claim resulting from
a devastating accident that severely damaged several schools. His commitment helped
the district’s students return to classrooms on schedule for the new school year,
an outcome of significant importance to the community and its school system.
ARGO GROUP | ANNUAL REPORT 2013
11
In addition to strong underwriting
results, we posted very solid claims
performance during 2013 and our
commitment to strong, long-term
broker relationships that add value
remains paramount. We also remain
dedicated to continually enhancing
operating efficiencies, as we build
on demonstrable improvements made
in 2012.
We ended 2013 with gross written
premiums of $583.9 million, an increase
of 9.5% from year-end 2012. Pre-tax
operating income increased to
$37.3 million while underwriting
income improved from $12.5 million
in 2012 to $30.2 million for 2013.
We closed the year with a combined
ratio of 92.4%.
Syndicate 1200
Argo Group’s Syndicate 1200 segment
underwrites worldwide property,
specialty and non-US liability
insurance within the Lloyd’s of
London global franchise. Backed
by the resources of a large company,
the Syndicate operates with the
attitude of a small one to provide
superb underwriting solutions and
claim services.
Our underwriters are organized in four
divisions to provide deep, specialized
knowledge to each of the different
markets we serve. Our property
division focuses on underwriting
short-tail risks with an emphasis
on commercial properties that are
exposed to catastrophes and other
man-made or natural disasters.
Our liability division underwrites
professional indemnity, general
liability and directors and officers
insurance. Our new specialty division
underwrites cargo, energy, yachts and
hull insurance, and offers coverage
related to political risks and trade
credit. Lastly our aerospace division
underwrites space and aviation risks.
Together, these four divisions use their
specialist expertise and innovative
thinking to develop market-leading
products and service solutions. Our
development has been consistent with
the strategy to diversify into lines that
historically perform well in the Lloyd’s
market, while maintaining a focused
discipline on risk concentration and
solid underwriting.
This year included a number of
key management appointments.
In February, Bruno Ritchie was named
Director of Underwriting to provide
leadership to our teams in Lloyd’s
and across the Syndicate’s expanding
European platforms. A specialist
in aerospace, Bruno has 17 years
experience in underwriting, business
development and large business risk
strategy. In May, David Harris joined
as Managing Director, taking the helm
from Jeff Radke who moved to a new
role as Head of Global Operations.
David’s reputation, relationships and
experience—including more than
25 years in the London insurance
market—make him ideally suited
to lead the Syndicate.
Throughout the year we continued
to attract and retain exceptional
underwriting talent. The performance
of two team members in particular
drew high industry praise for
themselves and Argo International.
In July, Gracechurch Consulting placed
our head of property Neil Chapman
among London’s top ten underwriters
regarded as leaders in proactively
building new business. At Insurance
Day’s London Market Awards in
December, Samantha Wotton was
named Young Underwriter of the
Year—in clear recognition of her
outstanding skills and commitment
to the highest levels of service.
12
Excellence
WE DESIRE TO EXCEL.
Argo employees are continuously looking for opportunities to enable their businesses
to thrive. In London, Rita Mistry Rodi developed customized D&O/management liability
rate models for the Syndicate’s Canadian coverholder business, creating new distribution
channels for Argo products and a platform for us to grow our business in Canada.
ARGO GROUP | ANNUAL REPORT 2013
13
Executive Leadership
BOARD OF DIRECTORS
SENIOR MANAGEMENT
Gary V. Woods
Chairman of the
Board (1) (3) (4) (5)
F. Sedgwick Browne Director (2) (3) (5)
Mark E. Watson III
H. Berry Cash
Director (3) (4)
Jay S. Bullock
Argo Group International Holdings, Ltd.
Argo Group US
President and Chief
Executive Officer
Executive Vice
President and Chief
Financial Officer
Group Chief
Underwriting Officer
Senior Vice President
and Chief Human
Resources Officer
Senior Vice President
and Chief Actuary
Senior Vice President
and Treasurer
Senior Vice President
and Chief Information
Officer
Andrew Carrier
Kurt G. Elia
Michael Fusco
George Luecke
Farid Nagji
Anastasios Omiridis Senior Vice President
and Chief Accounting
Officer
Jeff Radke
Mark H. Rose
Head of Global
Operations
Senior Vice President
and Chief Investment
Officer
Susan Spivak
Bernstein
Senior Vice President
Investor Relations
Kevin J. Rehnberg
President
Michael Fleischer
Chief Underwriting
Officer
Excess & Surplus Lines
Arthur Davis
President
Commercial Specialty
Joshua C. Betz
President, Argo Surety
William T. Meisen
President, Argo
Insurance – US Retail
Hilbert Schenck II
President, Alteris
Ronald Vindivich
President, Trident
John P. Yediny
President, Rockwood
International Specialty
Nigel Mortimer
Managing Director,
International Specialty
Insurance
Pedro Purm, Jr.
President,
Argo Seguros
Matthew Wilken
President, Argo Re
Syndicate 1200
David Harris
Managing Director
Hector De Leon
Director (1) (2) (3)
Nabil N. El-Hage
Director (4)
Mural R. Josephson
Director (2)
Kathleen A. Nealon Director (2)
John R. Power, Jr.
Director (2) (3) (5)
John H. Tonelli
Director (3) (4)
Mark E. Watson III
Director (1) (4)
(1) Member of the Executive Committee
of the Board of Directors
(2) Member of the Audit Committee
of the Board of Directors
(3) Member of the Human Resources
Committee of the Board of Directors
(4) Member of the Investment Committee
of the Board of Directors
(5) Member of the Nominating Committee
of the Board of Directors
14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The Board of Directors and Shareholders of Argo Group
International Holdings, Ltd.
We have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Argo Group
International Holdings, Ltd. (the Company) at December 31,
2013 and 2012 and the related consolidated statements
of income (loss), comprehensive income (loss), shareholders’
equity, and cash flows for each of the three years in the
period ended December 31, 2013 (not presented separately
herein) and in our report dated February 28, 2014,
we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated
financial statements as of December 31, 2013 and 2012 and
for each of the three years in the period ended December 31,
2013 (presented on pages 16 through 19) is fairly stated,
in all material respects, in relation to the consolidated
financial statements from which it has been derived.
We also have audited, in accordance with the standards
of the Public Company Accounting Oversight Board
(United States), the effectiveness of the Company’s
internal control over financial reporting as of December 31,
2013, based on criteria established in Internal Control—
Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission
(1992 framework) and our report dated February 28, 2014
(not presented separately herein) expressed an unqualified
opinion thereon.
February 28, 2014
ARGO GROUP | ANNUAL REPORT 2013
15
ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
Summary of Significant Accounting Policies
Business. Argo Group International
Holdings, Ltd. and subsidiaries
(collectively, “we” or “Argo Group”) is
an international underwriter of specialty
insurance and reinsurance products
in the property and casualty market.
Basis of Presentation. The condensed
consolidated financial statements of Argo
Group have been prepared in accordance
with accounting principles generally
accepted in the United States (“GAAP”).
The preparation of financial statements
in conformity with GAAP requires
management to make estimates and
assumptions that affect the reported
amounts of assets and liabilities and
disclosure of contingent assets and
liabilities at the date of the financial
statements and the reported amounts
of revenues and expenses during the
reporting period. Actual results could
differ from those estimates.
The information in the Condensed
Consolidated Balance Sheets, the
Condensed Consolidated Statements
of Income and the Condensed
Consolidated Statements of Cash Flows,
shown on pages 17 through 19, is derived
from the information in the Consolidated
Balance Sheets, the Consolidated
Statements of Income and the
Consolidated Statements of Cash Flow
in Argo Group International Holdings,
Ltd. 2013 Form 10-K. For complete
financial statements, including notes,
please refer to the Consolidated Financial
Statements beginning on Page F-1 of
Argo Group International Holdings, Ltd.
2013 Form 10-K. See also Management’s
Discussion and Analysis of Financial
Condition and Results of Operations and
other information in the 2013 Form 10-K.
The financial statements include the
accounts and operations of Argo Group.
All material intercompany accounts and
transactions have been eliminated.
10% Stock Dividend. On May 7, 2013,
our Board of Directors declared a 10%
stock dividend, payable on June 17, 2013,
to shareholders of record at the close of
business on June 3, 2013. As a result of the
stock dividend, 2,447,839 additional
shares were issued. Cash was paid in
lieu of fractional shares of our common
shares. All references to share and
per share amounts in these condensed
consolidated financial statements have
been adjusted to reflect the stock
dividend for all periods presented.
Investments. Investments in fixed
maturities at December 31, 2013 and 2012
include bonds and structured securities.
Equity securities include common stocks.
Other investments consist of private
equity funds and limited partnerships.
Short-term investments consist of money
market funds, funds on deposit with
Lloyd’s as security to support the
corporate member’s capital, United
Kingdom short-term government gilts,
US Treasury bills, sovereign debt and
interest-bearing cash accounts. Short-
term investments, maturing in less than
one year, are classified as investments
in the consolidated financial statements.
Goodwill and Intangible Assets.
Goodwill is the result of the purchase
prices of our business combinations being
in excess of the identified net tangible
and intangible assets. Goodwill is
recorded as an asset and is not amortized.
Intangible assets with a finite life are
amortized over the estimated useful life
of the asset. Intangible assets with an
indefinite useful life are not amortized.
Goodwill and intangible assets are tested
for impairment on an annual basis or
more frequently if events or changes in
circumstances indicate that the carrying
amount may not be recoverable. If the
goodwill or intangible asset is impaired,
it is written down to its fair value with
a corresponding expense reflected in
the Consolidated Statements of Income.
Goodwill and intangible assets are
allocated to the segment in which the
results of operations for the acquired
company are reported.
Amortization expense incurred in 2013
and 2012 associated with assets having
a finite life were $6.1 million and
$5.2 million, respectively.
16
Earned Premiums. Premium revenue is
recognized ratably over the policy period,
with an adjustment, where appropriate,
to reflect the risk profile of certain classes
of business particularly those exposed
to seasonal weather related events.
Premiums that have yet to be earned are
reported as “Unearned premiums” in the
Condensed Consolidated Balance Sheets.
Reserves for Losses and Loss
Adjustment Expenses. Liabilities for
unpaid losses and loss adjustment
expenses include the accumulation
of individual case estimates for claims
reported as well as estimates of incurred
but not reported claims and estimates of
claim settlement expenses. Reinsurance
recoverables on unpaid claims and claim
expenses represent estimates of the
portion of such liabilities that will be
recoverable from reinsurers. Amounts
recoverable from reinsurers are
recognized as assets at the same time
and in a manner consistent with the
unpaid claims liabilities associated with
the reinsurance policy.
Income Taxes. Deferred tax assets and
liabilities are recognized for the estimated
future tax consequences attributable
to differences between the financial
statement carrying amounts of existing
assets and liabilities and their respective
tax bases. Deferred tax assets and
liabilities are measured using enacted tax
rates in effect for the year in which those
temporary differences are expected
to be recovered or settled. The effect
on deferred tax assets and liabilities
of a change in tax rates is recognized
in net income in the period in which
the change is enacted.
(Further information on our accounting
policies can be found in Argo Group’s
2013 Form 10-K: in the Critical Accounting
Policies section of Management’s
Discussion and Analysis and also in Note 1
to the Financial Statements).
ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
Condensed Consolidated Balance Sheets
(in millions, except number of shares and per share amounts)
Assets
Investments:
Fixed maturities, at fair value:
As of December 31,
2013
2012
Available-for-sale (cost: 2013 - $2,760.1; 2012 - $2,993.1)
$ 2,814.4
$ 3,154.0
Equity securities, at fair value (cost: 2013 - $346.9; 2012 - $373.5)
Other investments (cost: 2013 - $377.4; 2012 - $294.8)
Short-term investments, at fair value (cost: 2013 - $351.6; 2012 - $234.3)
Total investments
Cash
Premiums receivable and reinsurance recoverables
Goodwill and other intangibles, net of accumulated amortization
Current income taxes receivable, net
Ceded unearned premiums
Other assets
Total assets
Liabilities and Shareholders’ Equity
Reserves for losses and loss adjustment expenses
Unearned premiums
Ceded reinsurance payable, net
Senior unsecured fixed rate notes
Other indebtedness
Junior subordinated debentures
Current income taxes payable, net
Deferred tax liabilities, net
Other liabilities
Total liabilities
Shareholders’ equity:
Common shares - $1.00 par, 500,000,000 shares authorized, 34,066,889 and 31,384,271
shares issued and outstanding at December 31, 2013 and 2012, respectively
Additional paid-in capital
Treasury shares (7,558,345 and 6,459,613 shares at December 31, 2013 and 2012, respectively)
Retained earnings
Accumulated other comprehensive income, net of taxes
Total shareholders’ equity
Total liabilities and shareholders’ equity
534.3
378.9
351.6
521.4
291.0
234.3
4,079.2
4,200.7
157.4
1,611.9
239.8
—
196.3
306.4
95.8
1,681.9
245.3
12.9
193.6
258.7
$ 6,591.0
$ 6,688.9
$ 3,230.3
$
3,223.5
779.1
354.7
143.8
66.3
193.3
5.2
28.7
226.6
730.2
612.1
143.8
63.8
193.3
—
43.8
164.3
5,028.0
5,174.8
34.1
827.3
(250.6 )
804.4
147.8
1,563.0
$ 6,591.0
31.4
722.7
(205.5 )
776.0
189.5
1,514.1
$ 6,688.9
Please see accompanying “Summary of Significant Accounting Policies” on page 16.
ARGO GROUP | ANNUAL REPORT 2013
17
ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
Condensed Consolidated Statements of Income (loss)
(in millions, except number of shares and per share amounts)
Premiums and other revenue:
Earned premiums
Net investment income
Fee (expense) income, net
Net realized investment and other gains
Total revenue
Expenses:
Losses and loss adjustment expenses
Other reinsurance-related expense
Underwriting, acquisition and insurance expenses
Interest expense
Debt extinguishment costs
Foreign currency exchange (gain) loss
2013
For the Years Ended December 31,
2012
2011
$
1,303.8
$
1,186.5
$ 1,082.0
100.0
(4.9 )
71.3
1,470.2
742.0
19.2
510.8
20.2
—
(1.7 )
118.8
5.3
25.7
1,336.3
747.6
27.3
464.5
23.7
2.2
4.3
125.8
1.4
49.2
1,258.4
863.1
5.9
425.7
22.1
—
3.5
Total expenses
1,290.5
1,269.6
1,320.3
Income (loss) before income taxes
Provision for income taxes
Net income (loss)
Other comprehensive income (loss), net of tax:
179.7
36.5
$
143.2
$
66.7
14.4
52.3
(61.9 )
20.0
$
(81.9 )
Foreign currency translation adjustments
$
(2.8 )
$
(2.3 )
$
(6.4 )
Defined benefit pension plans net gain (loss)
arising during the period
Unrealized gains on securities:
Gains arising during the period
Reclassification adjustment for gains
included in net income (loss)
Other comprehensive (loss) income, net of tax
Comprehensive income (loss)
Net income (loss) per common share:
Basic
Diluted
Cash dividend declared per common share:
Weighted average common shares:
Basic
Diluted
Please see accompanying “Summary of Significant Accounting Policies” on page 16.
18
1.3
0.2
(40.4 )
(41.7 )
(0.6 )
63.0
(10.4 )
49.7
(1.4 )
28.7
(28.7 )
(7.8 )
$
101.5
$
102.0
$
(89.7 )
$
$
$
5.33
5.14
0.59
$
$
$
1.86
1.83
0.44
$
$
$
(2.74 )
(2.74 )
0.44
26,851,341
27,869,533
28,095,210
28,650,448
29,887,249
29,887,249
2013
For the Years Ended December 31,
2012
2011
$
143.2
$
52.3
$
(81.9 )
ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
Condensed Consolidated Statements of Cash Flows
(in millions)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to
net cash (used) provided by operating activities:
Amortization and depreciation
Share-based payments expense
Excess tax (benefit) expense from share-based payments arrangements
Deferred federal income tax provision, net
Net realized investment and other gains
Loss on disposal of fixed assets, net
Debt extinguishment costs
Change in:
Receivables
Reserves for losses and loss adjustment expenses
Unearned premiums
Ceded reinsurance payable and funds held
Other assets and liabilities, net
Cash (used) provided by operating activities
39.6
23.3
(0.2 )
3.8
(71.3 )
0.2
—
86.7
(8.9 )
51.4
(246.4 )
(21.6 )
(0.2 )
Cash flows from investing activities:
Sales, maturities and mandatory calls of investments
Purchases of investments
Change in short-term investments, foreign regulatory
deposits and voluntary pools
Settlements of foreign currency exchange forward contracts
Other, net
Cash provided (used) by investing activities
Cash flows from financing activities:
Proceeds from issuance of senior unsecured fixed rate notes, net
Redemption of trust preferred securities, net
Activity under stock incentive plans
Repurchase of Company’s common shares
Excess tax expense (benefit) from share-based payment arrangements
Payment of cash dividend to common shareholders
Cash used by financing activities
Effect of exchange rate changes on cash
Change in cash
Cash, beginning of period
Cash, end of period
2,248.1
(1,975.8 )
(153.0 )
(3.9 )
5.4
120.8
—
—
2.6
(46.5 )
0.2
(15.8 )
(59.5 )
0.5
61.6
95.8
$
157.4
$
36.6
10.5
—
5.0
(25.7 )
0.3
2.2
24.9
(78.9 )
72.6
(67.5 )
(1.8 )
30.5
1,613.7
(1,621.5 )
37.7
0.4
(34.0 )
(3.7 )
138.7
(117.2 )
1.2
(44.2 )
—
(12.3 )
(33.8 )
0.1
(6.9 )
102.7
95.8
30.8
4.6
0.1
10.2
(49.2 )
1.0
—
53.6
138.9
4.1
(97.4 )
(32.5 )
(17.7 )
1,821.6
(1,778.4 )
70.1
7.7
(18.9 )
102.1
—
—
1.1
(49.5 )
(0.1 )
(13.1 )
(61.6 )
(3.6 )
19.2
83.5
$
102.7
Please see accompanying “Summary of Significant Accounting Policies” on page 16.
ARGO GROUP | ANNUAL REPORT 2013
19
Shareholder Information
Internet
www.argolimited.com
Shareholder Services /
Investor Relations
Mailing address:
Argo Group International
Holdings, Ltd.
Shareholder Services/Investor
Relations
PO Box HM 1282
Hamilton HM FX
Bermuda
T. 441.296.5858
E-mail
IR@argolimited.com
Stock Listing
Argo Group International Holdings,
Ltd. common stock trades on
NASDAQ under the symbol AGII.
Stock Transfer Agent
Questions regarding stock
registration, change of address,
change of name, or transfer should
be directed to:
American Stock Transfer
& Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
www.amstock.com
T. 800.937.5449
e-mail address: info@amstock.com
Corporate Office
Argo Group International
Holdings, Ltd.
110 Pitts Bay Road
Pembroke HM 08
Bermuda
T. 441.296.5858
Forward-Looking Statements
Disclosure
This report contains certain
statements that are “forward-looking
statements” within the meaning
of Section 27A of the Securities
Act of 1933 and Section 21E of the
Securities Exchange Act of 1934,
as amended. Such statements are
qualified by the inherent risks and
uncertainties surrounding future
expectations generally and also may
differ materially from actual future
experience involving any one or
more of such statements. For a more
detailed discussion of such risks
and uncertainties, see Argo Group’s
filings with the SEC. The inclusion
of a forward-looking statement
herein should not be regarded
as a representation by Argo Group
that Argo Group’s objectives will
be achieved. Argo Group undertakes
no obligation to publicly update
forward-looking statements, whether
as a result of new information, future
events or otherwise.
20
ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
110 Pitts Bay Road Pembroke HM 08 Bermuda
T: +1.441.296.5858 F: +1.441.296.6162
www.argolimited.com