Getting There Together
Annual Report 2014
ARGO01-1660_ANN14_COV_DIGITAL.indd 1
Fr / 5/1/15 10:48
Co r p o r at e P r o f i l e
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.
Fi n a n c i a l H i g h l i g h t s
(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
Net income per common share:
Basic
Diluted
Combined ratio
Total assets
Shareholders’ equity
Weighted average number of shares outstanding:
Basic
Diluted
Book value per share
For the Years Ended December 31,
2012
2013
2014
$
1,745.7
$
1,888.4
$ 1,905.4
1,244.5
1,186.5
144.5
1,331.0
52.3
1.86
1.83
104.6 %
$
$
$
1,351.3
1,303.8
171.3
1,475.1
143.2
5.33
5.14
97.5 %
$
$
$
1,367.9
1,338.1
180.6
1,518.7
183.2
7.02
6.90
96.2 %
$
$
$
$ 6,688.9
$
1,514.1
$ 6,591.0
$
1,563.0
$ 6,356.3
$ 1,646.7
28.1
28.7
26.9
27.9
26.1
26.6
$
55.22
$
58.96
$
64.04
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.
01
Annual Report 2014
L e t t e r t o t h e S h a r e h o l d e r s
in its higher margin businesses: Allied
Medical, Environmental, Casualty,
Contract, and Management Liability.
Overall growth in the segment was
essentially flat as we discontinued
writing stand-alone Commercial
Auto. Despite a challenging rate
environment, our E&S segment
produced record underwriting income
of $75.6 million and a combined ratio
of 84.4% for 2014. Our investment
in technology for our new business
delivery platform, Argo Edge,
is making it faster and easier for
distribution partners to do business
with us, enabling us to increase our
premium base by responding more
quickly to business opportunities.
Our Commercial Specialty segment
achieved a 5% increase in gross written
premiums from the previous year.
Our public entity business, Trident,
continued to improve results through
disciplined underwriting, a proactive
approach to producer management,
and a strong focus on rate adequacy.
Our Commercial Programs unit added
an owner-operated taxi program to the
growing portfolio of products during
the fourth quarter and continued
to build a robust pipeline of new
Change is nothing new in our industry,
yet it certainly seems as if the pace of
change is faster than ever before.
A company’s ability to anticipate and
respond to change can make all the
difference in its success. Across Argo
Group, an authentic understanding of
the environment—the set of conditions,
restrictions, opportunities, trends and
expectations—has enabled us to set an
appropriate strategy.
Our industry continues to face
a particularly challenging set of
conditions. Interest rates on
investments have been unusually
low, drawing new investment capital—
and more competition—into our
space. The war for talent is escalating.
The size and number of mergers and
acquisitions in our sector have risen.
New technologies are disrupting the
longstanding insurance value chain.
All these factors shape a challenging
environment. Yet I am confident that
Argo has the right strategy and can
build the right products to navigate
this environment and secure the
future with outstanding success.
Over the past year we have carefully
examined how we deliver our products
and services. We’ve adapted the way
we do things to better serve customers’
evolving needs. We have changed our
organizational structure to leverage
our resources and direct them where
they can make the most difference.
We have simplified management and
decision-making, allowing us to swiftly
identify and act on changes in our
environment. We’re working to better
enable business lines to exploit new
opportunities and meet expectations.
And we continue bringing on new
talent, adding to our solid base of
knowledgeable and experienced
professionals and enhancing our
capacity to think strategically, forecast
accurately, execute smartly and adapt
rapidly in a challenging market.
In fact, I think we now have the best
management team I’ve ever had the
pleasure of working with.
During 2014 we welcomed Axel
Schmidt as our new Group Chief
Underwriting Officer. Axel brings
us more than 20 years of global
underwriting leadership, having served
with companies such as Zurich and
Aviva. To lead our critical talent
management initiatives, Kurt Elia
joined our team as Chief Human
Resources Officer. We also asked
Nigel Mortimer to take on the new
role of Executive Vice President of
Strategy and Business Development as
we heighten our emphasis on growing
lines and developing new products
that address the changing business
environment and customer needs.
Working together, we’ve delivered
another year of strong financial
results. In 2014, Argo Group achieved
record net income of $6.90 per diluted
share, an increase of 34% over 2013,
while operating earnings per share
grew 16% to $3.54. To you, our
shareholders, we delivered an 11.4%
return on average shareholder equity.
Overall, our consolidated gross
written premiums increased slightly
to $1.9 billion while our underwriting
income increased significantly to
$51.5 million from $31.8 million in 2013.
Our diversified platform is serving
us well, enabling us to meet the
challenges posed by an increasingly
complex external environment.
Continued positive prior year
development across most of our
businesses, along with a low frequency
of catastrophe activity, helped to offset
intensifying competition, economic
challenges and political instability
in certain areas of the world. Internally,
particularly as some of our newer
operations grow and mature, we have
continued to find ways to streamline
and improve business processes and
organizational structure. As we do so,
we remain focused on working
together to meet the increasingly
complex customer needs by delivering
expert solutions and making it easier
to do business with us.
Argo’s U.S. businesses, under the
leadership of Kevin Rehnberg,
delivered another strong year. Our
E&S Lines segment saw strong growth
02
ARGO GROUP Our focus and commitment to specialty
underwriting, the diversification of our
platform and the strength, depth,
intelligence and passion of our talent
bode well for 2015 and beyond.
The environment has changed and
presented us with a complex set of
challenges. But we know where we’re
going, we know how to get there, and
we know what to do to take advantage
of the opportunities before us, and
to continue our growth as a leading
specialty-insurance company operating
globally. I look forward to ongoing
success at delivering outstanding
solutions to our customers and
outstanding results to our shareholders.
Thank you for your continued support.
Regards,
Mark E. Watson III
President and Chief Executive Officer
opportunities for future offerings.
Rockwood extended its track record
of excellent results for our specialty
mining business despite a challenging
economic and regulatory environment
in the U.S. coal mining industry.
Rockwood generated $20 million
in underwriting income, once again
demonstrating the value of
commitment and leadership in a niche
market. While the 2014 hurricane
season was uneventful, other storms
across the U.S. resulted in greater than
planned catastrophe losses for this
segment during the season quarter.
The segment ended the year with
a combined ratio of 100.2%.
Underwriting income in our
International Specialty segment
grew substantially to $16 million in
2014, up from $6.2 million in 2013.
A quiet CAT year contributed to better
than expected results at Argo Re.
Driven by solid performance from
our teams in Bermuda and Dubai, our
worldwide casualty lines achieved solid
growth despite increased competition
and a flat rate environment, with our
worldwide professional lines also
achieving a modest underwriting
profit. Efforts to expand our existing
professional lines business in Europe
during 2014 continued to be stymied
by the difficult economic climate,
with few opportunities for profitable
growth being presented. Results for
Argo Seguros, our business in Brazil,
were mixed. Disappointing bottom
line losses were driven by continued
economic instability and higher than
expected losses in our Property and
Engineering, and Financial Lines
businesses. That said, our Cargo
Marine unit at Argo Seguros posted
good results for the year, and we look
forward to seeing the future benefit of
initiatives undertaken in 2014 to grow
the operational capabilities and
sophistication of our platform in Brazil.
Within the Lloyd’s market,
Syndicate 1200 marked its third
consecutive year of improvement in
underwriting income as well as in loss
and combined ratios. In fact, Syndicate
1200 posted its best results since Argo
Group entered the Lloyd’s market in
2008. Given the fact that the current
Lloyd’s market environment has been
particularly challenging, this trend of
positive results is a strong indication
of the talented team and sound
strategy we have in place in London.
Capital management remains a key
component of Argo Group’s strategy.
Our philosophy is threefold: first and
foremost, maintain a strong capital
position; have capital available to
take advantage of opportunities
as they arise; and actively and
effectively return excess capital
to our shareholders. During 2014,
we repurchased 1.1 million shares of
stock at an average price of $48.48
for a total value of $50.8 million.
Over the past seven years, we’ve
returned more than $374 million
of capital to our shareholders.
In closing, I’m proud of the solid
financial results Argo Group posted
for 2014 and the improvement we are
seeing across our business lines.
Working together, we’ve
delivered another year of
strong financial results.
03
Annual Report 2014 Fi n a n c i a l R e s u lt s
2014 at a glance
ARGO GROUP
(Consolidated)
5.7
4
$ 1,7
5 . 4
0
$ 1, 9
8 . 4
8
$ 1, 8
6 . 3
5
6 , 3
$
9 1. 0
6 ,5
$
8 . 9
8
6 , 6
$
7.5 %
9
%
4 . 6
1 0
6 . 2 %
9
4
4 . 0
6
$
6
8 . 9
5
$
2
5. 2
5
$
14
14
14
14
13
12
13
12
13
12
13
12
Gross Written
Premiums
(dollar amounts in millions)
Total Assets
(dollar amounts in millions)
Combined Ratio
Book Value per
Share
GROSS WRITTEN PREMIUMS
BY SEGMENTS
(dollar amounts in millions)
7 . 2
0
6
$
4 . 2
9
5
$
5 1 3.5
$
0 . 2
4
4
$
7. 0
3
4
$
4 1 9 .1
$
14
14
13
12
13
12
0 . 2
9
2
$
14
0 . 6
9
2
$
13
0 . 2
6
2
$
12
Excess & Surplus
Lines
Commercial
Specialty
International
Specialty
6 . 2
6
5
$
3. 9
8
5
$
3. 4
3
5
$
14
13
12
Syndicate 1200
04
ARGO GROUP 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 (loss) income
Net investment income
Interest expense
Fee (expense) income, net
Impairment of intangible assets
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
Net investment income
Interest expense
Income 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
Net investment income
Interest expense
Fee income (expense), net
Income before income taxes
Loss ratio
Expense ratio
Combined ratio
Loss reserves at December 31
2012
2013
2014
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
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
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
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
$
$
$
607.2
485.2
248.0
—
161.6
75.6
36.7
(6.3 )
106.0
51.1 %
33.3 %
84.4 %
$
1,165.4
$
$
$
$
$
$
$
$
$
$
$
440.2
291.9
189.1
—
103.5
(0.7 )
18.7
(3.2 )
(2.5 )
(3.4 )
8.9
64.8 %
35.4 %
100.2 %
652.2
290.2
148.3
77.8
—
54.5
16.0
8.2
(3.1 )
21.1
52.5 %
36.7 %
89.2 %
306.3
566.2
411.1
208.1
—
167.8
35.2
10.2
(3.2 )
1.9
44.1
50.6 %
40.8 %
91.4 %
$
600.0
05
Annual Report 2014
Exce s s & Surplus Lin e s
Argo Group’s Excess and Surplus Lines
(E&S) segment achieved strong results
in all key measures for 2014, including
record underwriting income of
$75.6 million and a combined ratio of
84.4%. Through its Colony Specialty
and Argo Pro platforms, the segment
provides superior underwriting
solutions for risks typically not
underwritten by the standard market.
Colony Specialty underwrites
property and casualty risks on both
an admitted and non-admitted
basis through six divisions: Casualty,
Contract, Environmental, Specialty
Property, Transportation, and Allied
Medical. We provide coverage
to a broad group of commercial
enterprises including contractors,
manufacturers, distributors,
environmental contractors and
consultants, retailers, restaurants
and smaller social service and
medical facilities.
During 2014, premium growth at
Colony Specialty was focused on
our higher margin businesses. A
combination of new product offerings
and great customer service drove 21%
growth in our Environmental division.
Our Allied Medical division grew by
13% in spite of significantly increased
competition for new business. And
our Casualty and Contract divisions
both experienced strong growth.
Premiums declined for the year in
our Special Property division as the
extraordinarily competitive market
saw increased capacity from both
U.S. and London markets throughout
the year. In our Transportation
division, premiums declined as we
successfully exited the majority
of our stand-alone Commercial
Auto book and shifted our focus to
continued growth in a strong book
of Garage business.
Providing responsive, client-focused
service has been a hallmark of
the Colony Specialty business.
Our investment in the Argo Edge
platform has made it faster and easier
for more than 80 of our Contract
business client partners to transact
business with us. We continue to roll
the system out to additional contract
agencies with overwhelmingly
positive feedback.
Argo Pro underwrites small to
medium size professional liability
risks on both an admitted and
non-admitted basis with a focus on
Management Liability and Errors
& Omissions (E&O) coverages.
We target a specialized group of
commercial enterprises including
accountants, architects, engineers,
lawyers and providers of information
technology and services, as well as
select financial institutions in the
middle market and upper middle
market segments.
Argo Pro increased gross written
premiums by 36% in 2014 as the team
continued to develop and strengthen
relationships with key specialty retail
and wholesale brokers and introduced
new commercial crime and not-for-
profit organization product offerings.
Late in the year, Argo Group
reached an agreement to purchase
renewal rights for OneBeacon’s
Lawyers’ Professional Liability book
of business, which joins Argo Pro
beginning in 2015.
For 2014, gross written premiums
in our E&S segment increased to
$607.2 million, with pre-tax operating
income of $106 million. Catastrophe
losses for the year totaled $2.3 million.
Argo Group’s Excess and
Surplus Lines (E&S) segment
achieved a record underwriting
income of $75.6 million and
a combined ratio of 84.4%.
06
06
A R G O G R O U P
ARGO GROUP Building a platform for progress
THE EXCESS & SURPLUS LINES TEAM
RICHMOND
Designing a system solution that
enhances speed and efficiency for
both the insurer and the client is a
winning proposition for everyone.
Although the commitment required
to develop such a solution can
be daunting, it has been clearly
evident throughout Argo Group
and partner organizations as we’ve
worked to launch Argo Edge, a
revolutionary platform for quoting,
underwriting, issuing policies and
handling billing and claims. Focused
initially on our Casualty and
Contract lines of business within
our E&S Segment, the platform
is showing immediate benefits as
it is rolled out to agencies doing
business with Colony Specialty’s
Contract division. The individuals
pictured here represent scores of
employees throughout Argo Group
who have worked diligently with
system developers and our business
partners to deliver a cutting-edge
solution that is beneficial to all.
(L to R)
Tania Williams - VP Underwriting Contract
Ronda L. Shaffer - AVP IT Project Delivery
Marlo M. Edwards - SVP Casualty Practice Leader
US Operations
Eli Khoffie - IT Project Manager
Annual Report 2014
07
07
Annual Report 2014 Comme rcial Spec i alt y
The Commercial Specialty segment
of Argo Group serves niche industries
and business classes that can benefit
from specially designed insurance
programs, tailored loss control
solutions and expert claims handling
services. Six of the segment’s divisions
are risk-bearing businesses, delivering
custom insurance products and
services through a broad distribution
platform. These include Rockwood,
Trident, Argo Surety, Argo Insurance,
Commercial Programs, and ARIS.
In addition, under our Alteris brand,
we operate a variety of non-risk-
bearing agency and brokerages
businesses that generate fee income.
The majority of our product offerings
are distributed through independent
agents. We also work with regional
brokers as well as direct writers for
certain business lines. Our primary
target industry sectors include
grocery stores, mining, specialty
retail, restaurants, non-construction
surety products, and municipal and
county government entities.
Our Rockwood division, a leading
specialty underwriter of workers
compensation for the mining industry,
continued to produce excellent
results. Rockwood generated
underwriting income of $20 million
for 2014 in spite of a challenging
economic and regulatory environment
in the U.S. coal mining industry.
Trident, our public entity business,
continued to build on a number of
improvements that began last year.
The division strengthened its talent
base across all disciplines, enhanced
its analytical tools and achieved
strong rate increases in key lines
while improving its renewal retention
rates. Results for the year were
impacted by spring tornado and
hailstorm losses in the South and
Midwest regions.
Argo Surety posted another strong
year, generating nearly $10 million
in underwriting income and adding
talent to build its Credit and Risk
Management team. Together with
SureTec Financial Corp., Argo Surety
now provides expanded capacity for
the middle market contract surety
segment and has also increased its
commercial surety capacity to $100
million for qualified clients. To better
serve the needs of the marketplace,
the Surety business established an
office in Hamilton, New Jersey. The
office will be fully operational in 2015.
Argo Insurance, which specializes
in grocery and other specialty retail
coverages, experienced better than
expected renewal retention and
strong new business production from
Managed Risk accounts. An unusual
number of unrelated property losses
had a negative impact on results for
the year.
Our Commercial Programs business
continued to build a robust pipeline
of new program opportunities and
launched an owner-operator Taxi
program during the fourth quarter
of the year.
ARIS, our title insurance company
for fine art and collectibles, embarked
on an initiative with the State
University of New York at Albany
to establish industry standards for
authenticating art and collectibles.
This collaborative effort brings
together key stakeholders in the art
industry and the scientific and legal
communities to create an open
architecture solution and standards
similar to those found in industries
such as pharmaceuticals and timber.
Businesses operating under our
Alteris brand offer managing general
agencies and insureds access to
a broad array of exclusive risk
solutions for specialty programs
and alternative risks. During 2014,
the Alteris Public Risk Solution
division launched a new specialty
insurance program for large water-
related entities in the contiguous U.S.
For the year, gross written premiums
for our Commercial Specialty segment
increased to $440.2 million. Moderate
catastrophe losses and net unfavorable
prior year reserve development
contributed to an underwriting loss
of $0.7 million and a combined ratio
of 100.2%.
For the year, gross
written premiums for
our Commercial Specialty
segment increased to
$440.2 million.
08
ARGO GROUP
Crafting programs to support
niche industries
Having established a solid
foundation with its WineryPlus
program, the team at Alteris
leveraged its expertise and
partnerships to address the needs
of brokers serving the burgeoning
craft beer industry by introducing
the BreweryPlus program.
Underwriting Manager Tonya Fuller
forged the non-paid endorsement
with the California Craft Brewers
Association. Courtney Nelson
of Bidwell Insurance Agency
represents 50 craft beer insureds.
Alteris provides the underwriting,
claims, risk control and distribution
for our risk bearing partner.
The resulting partnership builds
connectivity between the trade
group, expert niche brokers and
Alteris to offer a best-in-breed
product to craft brewers.
THE COMMERCIAL SPECIALTY TEAM
SAN FRANCISCO
(L to R)
Tonya Fuller - Underwriting Manager,
WineryPlus/BreweryPlus
Brandon Seymour - Underwriter-Trainee
Courtney Nelson - Specialty Craft Beer Broker,
Bidwell Insurance Agency (Chico/CA)
09
Annual Report 2014 Inte rnatio nal Spec ialt y
Since its inception in 2007 with our
Bermuda-based reinsurance business,
Argo Group’s International Specialty
segment has grown to more than
$290 million in gross written
premiums with businesses in
Bermuda, Brazil, Malta and Dubai.
Argo Re is a specialty underwriter
of property catastrophe reinsurance
and other selected risks worldwide.
The Argo Re team maintains strong,
established relationships within
the broker market. Competition
in the reinsurance market remains
significant as new sources of capital
continue to enter the marketplace.
Nonetheless, the past year was a
quiet one in terms of catastrophes,
which helped Argo Re post its best
underwriting result in the past five
years and a combined ratio of 68.9%.
The Casualty and Professional Lines
units of our Argo Insurance division
underwrite on behalf of Argo Re.
The majority of this business
is underwritten from Bermuda;
additional casualty and professional
lines business is underwritten
through Argo Re (DIFC) in
Dubai while ArgoGlobal SE, based
in Malta, underwrites professional
lines business for clients in
Continental Europe.
As with other lines of business, the
marketplace for worldwide casualty
lines has become increasingly
competitive. Nonetheless, Argo
Group’s gross written premiums
increased to more than $65 million.
Late in the year, our Bermuda-based
casualty business increased its
maximum gross line from $50 million
to $75 million. The professional lines
businesses ended the year with
a total of $35 million in gross written
premiums. The European business
remains slow; however, both
Bermuda and European renewal
retention ratios were strong at
96% and 92% respectively.
Our insurance company in Brazil,
Argo Seguros, which was launched
in 2011, continued year-over-year
growth in premiums. The company
underwrites Cargo and Marine,
Property and Engineering, and
Financial Lines in the Brazil
commercial insurance market.
The company continues to grow and
build its reputation as a recognized
and differentiated player in its target
markets. Its innovative digital
product platform, Protector, continues
to gain traction in the marketplace.
Gross written premiums for the
International Specialty segment were
flat overall at $290.2 million, while
underwriting income at $16 million
and a combined ratio of 89.2% were
the strongest results in the past
four years.
Underwriting income at
$16 million and a combined
ratio of 89.2% were the
strongest results in the
past four years.
10
ARGO GROUP Bringing innovative thinking
to the market
Each of the businesses within Argo
Group’s International Specialty
segment works continuously
to provide innovative thinking,
insights and products to address
current and future client needs.
By maintaining an intimate
knowledge of those needs, studying
evolving technologies and ways of
working, and anticipating the
impact of a wide array of trends
on the risk management needs
of businesses, the International
Specialty businesses of Argo Group
are at the forefront of innovation.
New structured deal products
offered by the Argo Re team are
just one example.
THE INTERNATIONAL SPECIALTY TEAM
BERMUDA
(L to R)
Tariq Ahmed - Catastrophe Risk Analyst,
Group Risk Modeling
Amit Shah - Senior Underwriter, Alternative Risks
Matthew Wilken - President, Argo Re
Mike Cornish - Chief Underwriter, Argo Re
11
Annual Report 2014 Sy ndic ate 1200
Despite an extremely challenging
and competitive environment, our
Syndicate 1200 segment produced
$35.2 million in underwriting income
and achieved a combined ratio
of 91.4%—the best results for
Argo Group since we entered the
Lloyd’s market in 2008.
Operating within the Lloyd’s of
London global franchise, Syndicate
1200 underwrites worldwide property,
specialty and non-U.S. liability
insurance with five divisions providing
deep, specialized knowledge to meet
the needs of our clients. The property
division concentrates on North
American commercial properties, but
is also active in the residential sector.
The segment’s Liability division
underwrites professional indemnity,
general liability, medical malpractice,
casualty and motor treaty, and
directors and officers insurance,
with emphasis on Canada, Australia
and the U.K. The Marine and Energy
division underwrites cargo, upstream
and downstream energy, yachts,
hull and marine liability insurance.
The Aerospace division underwrites
airline, general aviation, products
and operators’ liability and satellite
insurance. The Specialty division
underwrites personal accident,
political risk, trade credit, terrorism
and contingency insurance.
Based in the heart of the London
insurance market, Syndicate 1200
also underwrites through the
Lloyd’s platform in Brazil, Singapore
and Shanghai. To better align the
marketing of Argo Group’s expanding
global businesses, Syndicate
1200—known previously as Argo
International—was rebranded to
ArgoGlobal during 2014. Throughout
the year, we continued to build a
strong reputation for service with
brokers who value our innovation
and expertise. We added senior
underwriting talent to enhance
our teams in each of our divisions.
Our focus on recruiting and retaining
experienced talent, combined with our
graduate recruitment program focused
on attracting promising professionals
to our industry, have enhanced our
reputation as a top employment
choice in the Lloyd’s market.
We continued the task of optimizing
the blend of business written by
the Syndicate with a view towards
managing volatility and improving
capital efficiency, while offering
a comprehensive range of coverage
to our brokers. During the year,
we introduced several new offerings
including an environmental
impairment liability product,
a complimentary legal advice
initiative for D&O policyholders
and a new marine liability account.
Our investment in the claims function
continues to pay dividends as
evidenced by our continued ranking in
the top 10 best performing Managing
Agents in Lloyd’s published Claims
Metrics. In addition, in the most
recent claims survey by Gracechurch
Consulting, we were ranked third
as the insurer brokers are most likely
to recommend to clients.
While 2014 was a benign year in
terms of natural catastrophes, the
Syndicate’s results were impacted
by reserve strengthening in our
General Liability class and some
large loss activity in our Energy
and Aerospace divisions. Market
conditions imposed downward
pressure on pricing in many lines
of our businesses. Despite these
conditions, we reported an improved
combined ratio, reflecting the benefits
of portfolio re-balancing and quality
improvement initiatives carried
out in recent years, as well as
our commitment to achieving
underwriting excellence and
maintaining discipline in difficult
market conditions.
Our investment in the claims
function continues to pay dividends
as evidenced by our continued
ranking in the top 10 best
performing Managing Agents in
Lloyd’s published Claims Metrics.
12
ARGO GROUP Leveraging expertise to meet
untapped needs
THE SYNDICATE 1200 TEAM
LONDON
(L to R)
Kevin Hutcheon - Property Claims Manager
Judith Fumero - Liability Claims Manager
Paul Kneafsey - Head of Liability
A true collaboration between two
of Agro Group’s businesses and
a distribution partner in London
identified and addressed an unmet
need in the marketplace with the
development and launch of Minero,
a unique risk management solution
for the mining industry. The concept
for this new product began to take
shape in the aftermath of rescue
efforts associated with the 2010
Copiapo mining accident in Chile.
The rescue, which cost more than
$20 million and was viewed by a
global audience of 1 billion, exposed a
significant coverage gap in the liability
insurance market. Underwriters at
Argo Group’s Syndicate 1200 and
Howden Insurance Brokers in London
set out to develop a solution.
Tapping into the wealth of mining
industry and underwriting expertise
at Argo Group’s U.S. subsidiary,
Rockwood, the partners developed
a product that could mitigate against
the cost of rescuing trapped miners
and the potential reputational
damage a mining company could face
during a rescue operation. This effort
and the resulting product, Minero,
garnered the 2014 Insider Honours
Underwriting Initiative of the Year
award from the Insurance Insider.
13
Annual Report 2014 Execu ti ve Leaders h ip
BOARD OF DIRECTORS
SENIOR MANAGEMENT
Gary V. Woods
Chairman of the
Board (1) (3) (4) (5) (6)
F. Sedgwick Browne Director (2) (3) (5) (6)
Argo Group International Holdings, Ltd.
Argo Group US
Mark E. Watson III
H. Berry Cash
Director (3) (4) (6)
Jay S. Bullock
Hector De Leon
Director (1) (2) (3) (6)
Nabil N. El-Hage
Director (2) (4) (6)
Mural R. Josephson Director (2) (3) (6)
Kathleen A. Nealon Director (2) (6)
Salvatore V. Abano
John R. Power, Jr.
Director (2) (3) (5) (6)
Kurt G. Elia
President and Chief
Executive Officer
Executive Vice
President and Chief
Financial Officer
Senior Vice
President and Chief
Information Officer
Senior Vice President
and Chief Human
Resources Officer
Senior Vice President
and Chief Actuary
Senior Vice President
and Treasurer
Executive Vice
President, Strategy
and Business
Development
Kevin J. Rehnberg
President
Excess & Surplus Lines
Arthur Davis
President
Commercial Specialty
Joshua C. Betz
President,
Argo Surety
Paul Fuller
President, Alteris
William T. Meisen
President, Argo
Insurance – US Retail
Ronald Vindivich
President, Trident
John P. Yediny
President, Rockwood
International Specialty
Nigel Mortimer
President, Argo
Insurance Bermuda
Pedro Purm, Jr.
President,
Argo Seguros
Matthew Wilken
President, Argo
Reinsurance Bermuda
Syndicate 1200
David Harris
Managing Director
Michael Fusco
George Luecke
Nigel Mortimer
Anastasios Omiridis Senior Vice President
and Chief Accounting
Officer
Jeff Radke
Head of Global
Operations
Mark H. Rose
Axel Schmidt
Senior Vice President
and Chief Investment
Officer
Group Chief
Underwriting Officer
Susan Spivak
Bernstein
Senior Vice President,
Investor Relations
John H. Tonelli
Director (3) (4) (6)
Mark E. Watson III Director (1) (4) (6)
(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
(6) Member of the Risk Committee
14
ARGO GROUP
Report of Independent Registered Public Accounting Firm
on Condensed Consolidated Financial Statements
The Board of Directors and Shareholders of Argo Group
International Holdings, Ltd.
in all material respects, in relation to the consolidated
financial statements from which it has been derived.
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,
2014 and 2013 and the related consolidated statements
of income, comprehensive income, shareholders’ equity,
and cash flows for each of the three years in the period
ended December 31, 2014 (not presented separately herein)
and in our report dated February 27, 2015, 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, 2014 and 2013 and for each
of the three years in the period ended December 31, 2014
(presented on pages 16 through 19) is fairly stated,
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, 2014,
based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013
framework) and our report dated February 27, 2015
(not presented separately herein) expressed an
unqualified opinion thereon.
February 27, 2015
15
Annual Report 2014 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.
ended December 31, 2013 and 2012,
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.
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. 2014 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. 2014
Form 10-K. See also Management’s
Discussion and Analysis of Financial
Condition and Results of Operations
and other information in the 2014
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. For the years
Investments. Investments in fixed
maturities at December 31, 2014 and
2013 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, U.S.
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 2014,
2013 and 2012 associated with intangible
assets having a finite life was $5.6 million,
$6.1 million and $5.2 million, respectively.
Earned Premiums. Premium revenue
is recognized ratably over the policy
period. 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.
Subsequent Event. On February 17,
2015, our Board of Directors declared
a 10% stock dividend payable on March
16, 2015, to shareholders of record at
the close of business on March 2, 2015.
The share numbers and per share
amounts in these condensed
consolidated financial statements
have not been retroactively adjusted
to give effect to the stock dividend.
(Further information on our accounting
policies can be found in Argo Group’s
2014 Form 10-K: in the Critical
Accounting Policies section of
Management’s Discussion and
Analysis and also in Note 1 to
the Financial Statements).
16
ARGO GROUP 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:
Available-for-sale (cost: 2014 - $2,817.2; 2013 - $2,760.1)
$ 2,814.4
$ 2,840.7
As of December 31,
2013
2014
Equity securities, at fair value (cost: 2014 - $307.3; 2013 - $346.9)
Other investments (cost: 2014 - $488.9; 2013 - $377.4)
Short-term investments, at fair value (cost: 2014 - $275.8; 2013 - $351.6)
Total investments
Cash
Premiums receivable and reinsurance recoverable
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:
534.3
378.9
351.6
486.3
495.1
275.8
4,079.2
4,097.9
157.4
1,611.9
239.8
—
196.3
306.4
81.0
1,350.8
230.8
14.9
207.6
373.3
$ 6,591.0
$ 6,356.3
$
3,230.3
$ 3,042.4
779.1
354.7
143.8
66.3
193.3
5.2
28.7
226.6
817.2
178.8
143.8
62.0
172.7
—
53.0
239.7
5,028.0
4,709.6
Common shares - $1.00 par, 34,318,224 and 34,066,889 shares
issued and outstanding at December 31, 2014 and 2013, respectively
Additional paid-in capital
34.1
827.3
Treasury shares (8,606,489 and 7,558,345 shares at December 31, 2014 and 2013, respectively)
(250.6 )
Retained earnings
Accumulated other comprehensive income, net of taxes
Total shareholders’ equity
804.4
147.8
1,563.0
34.3
836.3
(301.4 )
969.4
108.1
1,646.7
Total liabilities and shareholders’ equity
$
6,591.0
$ 6,356.3
Please see accompanying “Summary of Significant Accounting Policies” on page 16.
17
Annual Report 2014
ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
Condensed Consolidated Statements of Income
and Comprehensive Income
(in millions, except number of shares and per share amounts)
Premiums and other revenue:
Earned premiums
Net investment income
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 and other
Fee expense (income), net
Debt extinguishment costs
Foreign currency exchange (gain) loss
Impairment of intangible assets
For the Years Ended December 31,
2012
2013
2014
$
1,186.5
$
1,303.8
$
1,338.1
118.8
25.7
1,331.0
747.6
27.3
464.5
23.7
(5.3 )
2.2
4.3
—
100.0
71.3
1,475.1
742.0
19.2
510.8
20.2
4.9
—
(1.7 )
—
86.6
94.0
1,518.7
747.4
—
539.2
19.9
0.6
—
(7.8 )
3.4
Total expenses
1,264.3
1,295.4
1,302.7
Income before income taxes
Provision for income taxes
Net income
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
Defined benefit pension plans net (loss) gain
arising during the period
Unrealized gains on securities:
(Losses) gains arising during the period
Reclassification adjustment for gains
included in net income
Other comprehensive (loss) income, net of tax
Comprehensive income
Net income 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
66.7
14.4
52.3
179.7
36.5
216.0
32.8
$
143.2
$
183.2
(2.3 )
$
(2.8 )
$
(4.1 )
$
$
(0.6 )
63.0
(10.4 )
49.7
$
102.0
1.86
1.83
$
$
$
1.3
0.2
(40.4 )
(41.7 )
101.5
5.33
5.14
$
$
$
(2.4 )
(12.5 )
(20.7 )
(39.7 )
$
143.5
$
$
$
7.02
6.90
0.69
0.44
$
0.59
28,095,210
28,650,448
26,851,341
27,869,533
26,082,114
26,557,151
ARGO GROUP
ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
Condensed Consolidated Statements of Cash Flows
(in millions)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Amortization and depreciation
Share-based payments expense
Excess tax expense from share-based payments arrangements
Deferred federal income tax provision (benefit), net
Net realized investment and other gains
Loss on disposal of fixed assets, net
Debt extinguishment costs
Impairment of intangible assets
Change in:
Receivables
Reserves for losses and loss adjustment expenses
Unearned premiums
Ceded reinsurance payable and funds held
Other assets and liabilities, net
Cash provided (used) by operating activities
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 (used) provided by investing activities
Cash flows from financing activities:
Proceeds from issuance of senior unsecured fixed rate notes, net
Payment on note payable
Redemption of trust preferred securities, net
Activity under stock incentive plans
Repurchase of Company’s common shares
Excess tax expense 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
Please see accompanying “Summary of Significant Accounting Policies” on page 16.
For the Years Ended December 31,
2012
2013
2014
$
52.3
$
143.2
$
183.2
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
$
39.6
23.3
(0.2 )
3.8
(71.3 )
0.2
—
—
86.7
(8.9 )
51.4
(246.4 )
(21.6 )
(0.2 )
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
37.2
19.6
(0.1 )
27.6
(94.0 )
—
—
3.4
256.7
(182.0 )
39.1
(163.9 )
3.7
130.5
1,585.0
(1,736.8 )
96.5
(1.1 )
(64.9 )
(121.3 )
—
(0.1 )
(18.0 )
4.6
(50.8 )
0.1
(18.2 )
(82.4 )
(3.2 )
(76.4 )
157.4
81.0
19
$
157.4
$
Annual Report 2014
Sha reholder Information
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
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
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 www.argolimited.com
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