Argo Group Reports Third Quarter 2023 Results

Focused On Optimizing Business For Profitable Growth

• Pending merger with Brookfield Reinsurance: The parties have received a majority of the required regulatory approvals. The merger agreement outside date for completing the transaction has been automatically extended from today to February 8, 2024, pursuant to the terms of the merger agreement, as all conditions to closing are satisfied other than receipt of the remaining required regulatory approvals. Both companies remain committed to closing the transaction as expeditiously as possible, and expect the transaction to close in 2023, subject to receipt of the remaining required regulatory approvals.

Argo Group International Holdings, Ltd. (NYSE:ARGO) ("Argo" or the "company") today announced financial results for the three and nine months ended September 30, 2023.

"We were pleased to receive a majority of the required regulatory approvals for the merger with Brookfield Reinsurance," said Argo Executive Chairman and Chief Executive Officer, Thomas A. Bradley. "As we wait to receive the remaining required regulatory approvals, we continue to work diligently with Brookfield Reinsurance on integration planning and anticipate an orderly transition for our customers and business partners once the transaction is completed.

"Argo's third quarter performance benefited from disciplined expense management and increased investment returns. We are encouraged by the progress of our ongoing efforts to optimize the business to deliver improved profitability moving forward and believe the company is well positioned to capitalize on its enhanced future growth prospects as part of Brookfield Reinsurance."

Consolidated Highlights

Third Quarter 2023 Results - Consolidated

(All comparisons vs. third quarter 2022, unless noted otherwise)

On February 3, 2023, the company completed the previously announced sale of Argo Underwriting Agency Limited and its Lloyd's Syndicate 1200 to Westfield. The financial highlights in this release include results for Argo Underwriting Agency Limited and its Lloyd's Syndicate 1200 up to the closing date.

Premiums

Gross written premiums of $528.3 million decreased $222.6 million, or 29.6%, primarily due to businesses the company has sold and exited.

• Gross written premiums within the company's ongoing business¹ decreased approximately 9.1% from the prior year third quarter, primarily due to proactive actions taken in certain lines to prioritize improving profitability, partially offset by growth in several other businesses.

Earned premiums of $342.7 million decreased $112.3 million, or 24.7%.

• Earned premiums increased approximately 0.5% 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 115.8% increased 14.7 percentage points, driven by a higher loss ratio.

The loss ratio of 82.0% increased 16.3 percentage points, compared to 65.7% for the prior year third quarter.

• The current accident year, excluding catastrophes ("CAY ex-CAT") loss ratio of 59.9% increased 1.9 percentage points.

• Total catastrophe losses were $24.7 million or 7.2 percentage points on the loss ratio. In comparison, catastrophe losses in the prior year third quarter were $23.4 million or 5.1 percentage points on the loss ratio.

• Net adverse prior year reserve development was $51.0 million, or 14.9 percentage points on the loss ratio. In comparison, net adverse prior year reserve development in the third quarter 2022 was $11.9 million, or 2.6 percentage points on the loss ratio.

The CAY ex-CAT combined ratio of 93.7% increased 0.3 percentage points from the prior year third quarter.

Expenses

The expense ratio of 33.8% improved 1.6 percentage points. This improvement was driven by the change in business mix resulting from the sale of Argo Underwriting Agency Limited and its Lloyd's Syndicate 1200.

Investment Income

Net investment income of $40.4 million increased by $6.4 million or 18.8% from the prior year third quarter. The increase was driven by higher interest rates and improved returns on alternative investments. The company continues to hold a high quality, relatively short duration portfolio with an average credit quality of AA- and an average duration of 2.2 years including cash and cash equivalents.

Earnings

Net loss attributable to common shareholders was $49.5 million, or $1.41 per diluted share, for the third quarter 2023, compared to a net loss attributable to common shareholders of $51.4 million, or $1.47 per diluted share for the third quarter 2022. The annualized return on average common shareholders' equity was (18.7%), compared to (16.5%) in the prior year third quarter.

• The net loss attributable to common shareholders in the third quarter 2023 included pre-tax net realized investment and other losses of $4.7 million, compared to $44.7 million of pre-tax net realized investment and other losses in the prior year third quarter.

• The net loss attributable to common shareholders in the third quarter 2023 included $5.1 million of non-operating expenses, which were mainly attributable to non-operating legal fees for the company's pending merger with Brookfield Reinsurance. In comparison, the prior year third quarter reported $11.0 million in non-operating expenses which were primarily driven by non-operating legal and advisory fees.

• In addition, the effective tax rate, calculated as the income tax provision divided by income before taxes, was (60.1%), compared to 7.6% in the prior year quarter. The effective tax rate in the third quarter 2023 reflects tax exposure related to the company's sharing of risk across its U.S. and Bermuda operations. Excluding this tax exposure, the effective tax rate for the third quarter 2023 was more aligned with statutory tax rates.

Operating loss for the third quarter 2023 was $21.1 million or $0.60 per diluted common share, compared to operating earnings of $15.5 million or $0.44 per diluted common share. The annualized operating return on average common shareholders' equity was (8.0%), compared to 5.0% in the third quarter 2022.

Shareholders' Equity

Book value per common share was $29.18 as of September 30, 2023, a decrease of 6.1% from $31.06 at year-end 2022.

U.S. Operations Highlights

Third Quarter 2023 Results - U.S. Operations

(All comparisons vs. third quarter 2022, unless noted otherwise)

Premiums

U.S. Operations gross written premiums of $462.9 million decreased $37.5 million, or 7.5%, primarily due to proactive actions taken in certain lines to prioritize improving profitability, partially offset by growth in several other businesses.

• While the company experienced low double-digit rate decreases in its commercial D&O business, the remaining portfolio achieved rate increases in the mid-single digits.

Earned premiums of $314.1 million decreased $15.2 million, or 4.6%. Within the company's U.S. ongoing business² earned premiums decreased approximately 1.4%.

Underwriting

The loss ratio of 78.6% increased 12.7 percentage points, compared to the prior year third quarter.

• The CAY ex-CAT loss ratio of 59.3% improved 0.4 percentage points, compared to 59.7% in the prior year third quarter.

• Catastrophe losses were $14.0 million, or 4.5 percentage points on the loss ratio, compared to $4.2 million or 1.3 percentage points on the loss ratio in the prior year third quarter. Catastrophe losses in the third quarter 2023 were mainly due to Tropical Storm Ophelia, Hurricane Idalia, and other U.S. storms.

• Net adverse prior year reserve development was $46.6 million or 14.8 percentage points on the loss ratio. In comparison, net adverse development in the prior year third quarter was $16.2 million, or 4.9 percentage points on the loss ratio. The adverse development in the third quarter 2023 was primarily attributable to businesses the company has exited and unfavorable loss experience in professional lines.

Expenses

The expense ratio was 33.3%, an increase of 2.0 percentage points mainly due to the decrease in earned premiums.

International Operations Highlights

Third Quarter 2023 Results - International Operations

(All comparisons vs. third quarter 2022, unless noted otherwise)

Premiums

Gross written premiums of $65.3 million decreased $184.8 million, or 73.9% from $250.1 million, and earned premiums of $28.5 million decreased $96.7 million, or 77.2% from $125.2 million. The reduction of premiums was primarily due to businesses the company has sold.

Underwriting

The loss ratio of 116.1% increased 50.8 percentage points, compared to 65.3% in the prior year third quarter.

• The CAY ex-CAT loss ratio was 66.3%, an increase of 12.8 percentage points. The third quarter 2023 reflects a different mix of business from 2022 due to businesses the company has sold and exited.

• Catastrophe losses were $10.7 million, or 37.5 percentage points on the loss ratio, compared to $19.2 million or 15.3 percentage points on the loss ratio in the prior year third quarter. Catastrophe losses in the third quarter 2023 were mainly due to Hawaii wildfires, Hurricane Idalia, Tropical Storm Ophelia, and other U.S. storms.

• Net adverse prior year reserve development was $3.5 million, which increased the loss ratio by 12.3 percentage points. In comparison, the prior year third quarter had $4.4 million of net favorable prior year reserve development, which lowered the loss ratio 3.5 percentage points. The net adverse development in the third quarter 2023 was primarily attributable to a reassessment of potential claims exposure in professional and casualty lines within the company's Bermuda operation.

Expenses

The expense ratio of 9.5% improved 28.0 percentage points due mainly to the reduction in the acquisition expense ratio and the change in business mix resulting from the sale of Lloyd's Syndicate 1200.

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 in two primary segments. 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 Part I, Item 1A, "Risk Factors" in Argo's Annual Report on Form 10-K for the fiscal year ended December 31, 2022, Part II, Item 1A, "Risk Factors" in Argo's Quarterly Report on Form 10-Q for the period ended June 30, 2023 and Argo's 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 (loss) 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)