Argo Group Reports Fourth Quarter and Full Year 2022 Results

Completed Strategic Alternatives Review; Entered into a Definitive Merger Agreement to be Acquired by Brookfield Reinsurance for Approximately $1.1 Billion

• Simplified Business Model: Completed sale of Argo Underwriting Agency Limited and its Lloyd's Syndicate 1200 on February 2, 2023, transforming Argo into a focused, pure-play U.S. specialty insurer.

• Further Strengthened and De-Risked Balance Sheet: Completed U.S. loss portfolio transfer. In the fourth quarter 2022, recognized an after-tax charge of approximately $100.0 million in connection with the transaction.

• Reduced Catastrophe Exposure: Total catastrophe losses were $9.4 million in the fourth quarter 2022. Full year 2022 total catastrophe losses of $44.0 million were more than 50% lower compared to the prior year.

Argo Group International Holdings, Ltd. (NYSE:ARGO) ("Argo" or the "company") today announced financial results for the three months and year ended December 31, 2022.

"2022 was a transformative year for the company," said Argo Executive Chairman and Chief Executive Officer, Thomas A. Bradley. "The strategic actions we have taken strengthened Argo and better position it to deliver strong returns moving forward. The Argo of today is markedly different from the Argo of only two years ago. We have streamlined the company to focus on our most profitable business lines, achieved targeted expense reductions, and continued to de-risk the balance sheet. At the same time, we have remained nimble in the marketplace - responding to the needs of customers and business partners. We are excited about our next chapter as part of Brookfield Reinsurance. We believe the merger transaction that we announced on February 8, 2023, will enhance our opportunities for growth, and scale Argo into a market-leading specialty insurer with capabilities across admitted and E&S markets. Lastly, I want to thank our leadership team and employees for their dedication over the past year as we worked through the strategic alternatives review process."

Consolidated Highlights

In connection with the close of the U.S. loss portfolio transfer (LPT), fourth quarter 2022 net and operating results reflect an after-tax charge of approximately $100.0 million, which includes commission and federal excise tax. On a pre-tax basis, the cost of the LPT includes $121.0 million of ceded premiums and $10.5 million in acquisition expenses, which have been accounted for in the company's U.S. segment results.

Consolidated - Excluding LPT Cost

Fourth Quarter 2022 Results - Consolidated

(All comparisons vs. fourth quarter 2021, unless noted otherwise)

Premiums

Gross written premiums of $644.5 million decreased $89.3 million, or 12.2%, primarily due to businesses the company has exited.

• Gross written premiums within the company's ongoing business¹ were broadly in line with the prior year fourth quarter.

Earned premiums of $350.5 million, decreased $135.7 million, or 27.9%, primarily attributable to premiums ceded in connection with the LPT. Excluding the ceded earned premiums associated with the LPT, earned premiums decreased $14.7 million, or 3.0%

• Earned premiums increased approximately 11.5% within the company's ongoing business reflecting business mix shift towards lines of business where the company retains more risk.

Underwriting

The combined ratio of 138.2% increased 15.8 percentage points, primarily due to lower net earned premiums driven by the cost of the LPT.

The loss ratio of 88.0% increased 0.9 percentage points, compared to 87.1% for the prior year fourth quarter.

• The current accident year, excluding catastrophes ("CAY ex-CAT") loss ratio of 75.9% increased 17.4 percentage points. Excluding the cost of the LPT, the CAY ex-CAT loss ratio for the fourth quarter 2022 was 56.4%, an improvement of 2.1 percentage points.
• Total catastrophe losses were $9.4 million or 2.7 percentage points on the loss ratio. In comparison, catastrophe losses in the prior year fourth quarter were $6.8 million or 1.4 percentage points on the loss ratio.
• Net adverse prior year reserve development was $33.1 million, or 9.4 percentage points on the loss ratio. In comparison, net adverse prior year reserve development in the fourth quarter 2021 was $132.3 million, or 27.2 percentage points on the loss ratio.

The CAY ex-CAT combined ratio was 126.1%, an increase of 32.3 percentage points compared to the prior year fourth quarter. Excluding the cost of the LPT, the CAY ex CAT combined ratio was 91.5%, an improvement of 2.3 percentage points from a year ago.

Expenses

The expense ratio of 50.2% increased 14.9 percentage points due to the cost of the LPT. Excluding the cost of the LPT, the expense ratio for the fourth quarter 2022 was 35.1%, an improvement of 0.2 percentage points year-over-year driven by lower general and administrative expenses.

Investment Income

Net investment income of $28.9 million decreased by $15.5 million. While investment income excluding alternatives, increased $8.4 million due to higher reinvestment rates, the reduction in investment income was attributable to a $23.9 million decrease in alternative investment income compared to the fourth quarter 2021. The company continues to hold a high quality, relatively short duration portfolio with an average credit quality of A+ and an average duration of 2.9 years, when including cash.

Earnings

Net loss attributable to common shareholders was $111.8 million, or $3.19 per diluted share, for the fourth quarter 2022, compared to a net loss attributable to common shareholders of $117.8 million, or $3.38 per diluted share for the fourth quarter 2021. Annualized return on average common shareholders' equity was (39.4%), compared to (28.3%) in the prior year fourth quarter.

• The net loss attributable to common shareholders in the fourth quarter 2022 included pre-tax net realized investment and other gains of $4.3 million, compared to $0.2 million of pre-tax net realized investment and other gains in the prior year fourth quarter.
• The net loss attributable to common shareholders in the fourth quarter 2022 also included $11.5 million in foreign currency exchange losses, compared to $2.8 million in foreign currency exchange gains in the fourth quarter of 2021.
• In addition, the net loss attributable to common shareholders in the fourth quarter 2022 included $17.6 million of non-operating expenses, which were mainly attributable to non-operating advisory fees. In comparison, the prior year fourth quarter reported $22.8 million in non-operating expenses.

Operating loss for the quarter was $94.5 million or $2.69 per diluted share, compared to an operating loss of $61.8 million or $1.77 per diluted share in the prior year fourth quarter. Annualized operating return on average common shareholders' equity was (33.3%), a decrease of 18.5 percentage points year-over-year.

Shareholders' Equity

Book value per common share was $31.06 as of December 31, 2022, a decrease of 7.9% from $33.72 on September 30, 2022. The decrease in book value per common share is largely attributable to a decrease in retained earnings for the quarter, partially offset by an improvement in accumulated other comprehensive income ("AOCI").

Completed Strategic Alternatives Review

On February 8, 2023, the company announced that it had entered into a definitive merger agreement to be acquired by Brookfield Reinsurance for approximately $1.1 billion, subject to conditions for closing, including but not limited to shareholder and regulatory approvals.

U.S. Operations Highlights

U.S. Operations - Excluding LPT Cost

Fourth Quarter 2022 Results - U.S. Operations

(All comparisons vs. fourth quarter 2021, unless noted otherwise)

Premiums

U.S. Operations gross written premiums of $463.9 million decreased $40.6 million, or 8.0%, primarily due to businesses the company has exited.

• Rates on average were up in the low-single digits for the fourth quarter 2022.
• Gross written premiums within the U.S. ongoing business² were in line with the prior year fourth quarter.

Earned premiums of $210.5 million decreased $120.8 million, or 36.5%, primarily attributable to the premiums ceded in connection with the LPT. Excluding the ceded earned premiums associated with the LPT, earned premiums were in line with the prior year fourth quarter.

• Earned premiums increased approximately 12.2% within the company's ongoing business reflecting business mix shift towards lines of business where the company retains more risk.

Underwriting

The loss ratio of 116.1% increased 18.0 percentage points. Excluding the cost of the LPT, the loss ratio for the fourth quarter was 73.7%, an improvement of 24.4 percentage points from the prior year fourth quarter.

• The CAY ex-CAT loss ratio of 96.8% increased 36.4 percentage points. Excluding the cost of the LPT, the CAY ex-CAT loss ratio was for the fourth 2022 was 61.5%, an increase of 1.1 percentage points from the fourth quarter 2021, reflecting the company's response to anticipated inflationary loss cost trends.
• Catastrophe losses were $4.0 million, or 1.9 percentage points on the loss ratio, compared to $3.2 million or 1.0 percentage points on the loss ratio in the prior year fourth quarter. Catastrophe losses in the fourth quarter 2022 were due to winter storm Elliot.
• Net adverse prior year reserve development was $36.6 million or 17.4 percentage points on the loss ratio. In comparison, net adverse development in the prior year fourth quarter was $121.6 million, or 36.7 percentage point on the loss ratio. The adverse development in the fourth quarter 2022 was primarily attributable to liability lines for accident years 2019 and prior in businesses the company has exited.

Expenses

The expense ratio of 57.0% increased 26.5 percentage points was primarily driven by the cost of the LPT. Excluding the cost of the LPT, the expense ratio for the fourth quarter 2022 was 33.1%, an increase of 2.6 percentage points year-over-year driven primarily by higher acquisition expenses resulting from reductions in proportional reinsurance and changes in business mix.

U.S. LPT Transaction

On November 9, 2022, the U.S. LPT transaction with a wholly-owned subsidiary of Enstar, covering a majority of the company's U.S. casualty insurance reserves, including construction, for accident years 2011 to 2019 was completed.

• Enstar's subsidiary is providing ground up cover of $746.0 million of reserves, and an additional $275.0 million of cover in excess of $821.0 million, up to a policy limit of $1,096.0 million. The company retained a loss corridor of $75.0 million up to $821.0 million.
• For the year ended December 31, 2022, the company exhausted the $75.0 million loss corridor.

International Operations Highlights

Fourth Quarter 2022 Results - International Operations

(All comparisons vs. fourth quarter 2021, unless noted otherwise)

Premiums

Gross written premiums of $180.4 million decreased $48.7 million, or 21.3% primarily due to the businesses the company has exited.

• Rates on average were up in the high-single digits for the fourth quarter 2022.

Earned premiums of $139.8 million decreased $14.9 million, or 9.6%.

Underwriting

The loss ratio of 45.9% increased 6.5 percentage points, compared to 39.4% in the prior year fourth quarter.

• The CAY ex-CAT loss ratio was 44.5%, an improvement of 10.0 percentage points.
• Catastrophe losses were $5.4 million, or 3.9 percentage points on the loss ratio, compared to $3.6 million, or 2.4 percentage points on the loss ratio in the prior year fourth quarter.
• Net favorable prior year reserve development was $3.5 million, which lowered the loss ratio by 2.5 percentage points. In comparison, the prior year fourth quarter had $27.0 million of net favorable development, which lowered the loss ratio 17.5 percentage points.

Expenses

The expense ratio of 35.7% improved 1.4 percentage points, driven by a $8.1 million reduction in general and administrative expenses.

Sale of Argo's Lloyd's Operation

On February 2, 2023, the company completed the previously announced sale of Argo Underwriting Agency Limited and its Lloyd's Syndicate to Westfield.

ABOUT ARGO GROUP INTERNATIONAL HOLDINGS, LTD.

Argo Group International Holdings, Ltd. (NYSE:ARGO) is an underwriter of specialty insurance products in the property and casualty market. Argo offers a full line of products and services designed to meet the unique coverage and claims-handling needs of businesses. Argo and its insurance subsidiaries are rated ‛A-' by Standard and Poor's. Argo's insurance subsidiaries are rated ‛A-' by A.M. Best. More information on Argo and its subsidiaries is available at www.argogroup.com.

FORWARD-LOOKING STATEMENTS

This press release and related oral statements may include forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements include all statements that do not relate solely to historical or current facts, and can be identified by the use of words such as "expect," "intend," "plan," "believe," "do not believe," "aim," "project," "anticipate," "seek," "will," "likely," "assume," "estimate," "may," "continue," "guidance," "growth," "objective," "remain optimistic," "improve," "progress," "path toward," "looking forward," "outlook," "trends," "future," "could," "would," "should," "target," "on track" and similar expressions of a future or forward-looking nature.

Such statements are subject to certain risks and uncertainties that could cause actual events or results to not occur or differ materially, including, but not limited to, recent changes in interest rates and inflation, the outcome of our exploration of strategic alternatives and our ability to realize the anticipated benefits of any actions taken in connection therewith, including that the company and Brookfield Reinsurance may be unable to complete their proposed transaction, the adequacy of our projected loss reserves, employee retention and changes in key personnel, the ability of our insurance subsidiaries to meet risk-based capital and solvency requirements, the outcome of legal and regulatory proceedings, investigations, inquiries, claims and litigation, and other risks and uncertainties discussed in our filings with the Securities and Exchange Commission (the "SEC"). For a more detailed discussion of such risks and uncertainties, see Item 1A, "Risk Factors" in Argo's Annual Report on Form 10-K and Form 10-K/A for the fiscal year ended December 31, 2021 and in other filings with the SEC. The inclusion of a forward-looking statement herein should not be regarded as a representation by Argo that its objectives will be achieved. Any forward-looking statements speak only as of the date of this press release. Argo undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You should not place undue reliance on any such statements.

NON-GAAP FINANCIAL MEASURES

In presenting the company's results, management has included and discussed in this press release certain non-generally accepted accounting principles ("non-GAAP") financial measures within the meaning of Regulation G as promulgated by the SEC. Management believes that these non-GAAP financial measures, which may be defined differently by other companies, better explain the company's results of operations in a manner that allows for a more complete understanding of the underlying trends in the company's business. However, these measures should not be viewed as a substitute for those determined in accordance with generally accepted accounting principles ("U.S. GAAP").

"CAY ex-CAT combined ratio" and the "CAY ex-CAT loss ratio" are internal measures used by the management of the company to evaluate the performance of its underwriting activity and represents the net amount of underwriting income excluding catastrophe related charges and the impact of changes to prior year loss reserves. Although this measure does not replace the GAAP combined ratio, it provides management with a view of the quality of earnings generated by underwriting activity for the current accident year.

"Operating income (loss)" is an internal performance measure used in the management of the company's operations and represents operating results after-tax (at an assumed effective tax rate of 19%) and preferred share dividends excluding, as applicable, net realized investment and other gains or losses, net foreign exchange gain or loss, non- operating expenses, and other similar non-recurring items. The company excludes net realized investment and other gains or losses, net foreign exchange gain or loss, non-operating expenses, and other similar non-recurring items from the calculation of operating income because these amounts are influenced by and fluctuate in part, by market conditions that are outside of management's control. In addition to presenting net income determined in accordance with U.S. GAAP, the company believes that showing operating income enables investors, analysts, rating agencies and other users of the company's financial information to more easily analyze our results of operations and underlying business performance.

"Annualized operating return on average common shareholders' equity" is calculated using operating income (loss) (as defined above and annualized in the manner described for net income (loss) attributable to common shareholders ("ROACE")) and average common shareholders' equity. In calculating ROACE, the net income attributable to common shareholders for the period is multiplied by the number of periods in a calendar year to arrive at annualized net income available to common shareholders. In addition to presenting ROACE determined in accordance with U.S. GAAP, the company believes that showing annualized operating return on average common shareholders' equity enables investors, analysts, rating agencies and other users of the company's financial information to more easily analyze our results of operations and underlying business performance.

"Operating income (loss) per common share (diluted)" is calculated using operating income (as defined above) and the weighted average common shares (diluted) for the current period. In addition to presenting net income (loss) per common share (diluted) in accordance with U.S. GAAP, the company believes that showing the operating income (loss) per common share (diluted) enables investors, analysts, rating agencies and other users of the company's financial information to more easily analyze our results of operations and underlying business performance.

"Underwriting income (loss)" is an internal performance measure used in the management of the company's operations and represents net amount earned from underwriting activities (net premium earned less underwriting expenses and claims incurred). Underwriting income is a financial measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information. Although this measure of profit (loss) does not replace net income (loss) computed in accordance with U.S. GAAP as a measure of profitability, management uses this measure of profit (loss) to focus our reporting segments on generating underwriting income.

"Book value per common share excluding AOCI" is total common shareholders' equity excluding AOCI, net of tax, included in shareholders' equity, divided by the number of common shares outstanding. In the opinion of the company's management, book value per common share excluding AOCI is useful in an analysis of a property casualty company's book value per share as it removes the effect of changing prices on invested assets (i.e., net unrealized investment gains (losses), net of tax), which do not have an equivalent impact on unpaid claims and claim adjustment expense reserves.

"Tangible book value per common share" is book value per share excluding the after-tax value of goodwill and other intangible assets divided by the number of common shares outstanding. In the opinion of the company's management, tangible book value per common share is useful in an analysis of a property casualty company's book value on a nominal basis as it removes certain effects of purchase accounting (i.e., goodwill and other intangible assets).

"Tangible book value per common share excluding AOCI" is book value per share excluding the after-tax value of goodwill and other intangible assets and AOCI, net of tax. In the opinion of the company's management, tangible book value per common share excluding AOCI is useful in an analysis of a property casualty company's book value per share as it removes certain aspects of purchase accounting (i.e., goodwill and other intangible assets) and the effect of changing prices on invested assets (i.e., net unrealized investment gains (losses), net of tax).

The "percentage change in book value per common share" includes (by adding) the effects of cash dividends paid per common share to the calculated book value per common share for the current period. This adjusted amount is then compared to the prior period's book value per common share to determine the period over period change. The company believes that including the dividends paid per common share allows users of its financial statements to more easily identify the impact of the changes in book value per common share from the perspective of investors.

Reconciliations of non-GAAP financial measures to their most directly comparable U.S. GAAP measures are included in the following tables and footnotes.

(financial tables follow)