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Argo Group (ARGO) Q4 Earnings and Revenues Miss, Down Y/Y

Argo Group International Holdings, Ltd. ARGO delivered fourth-quarter 2022 loss of $2.69 per share, wider than the Zacks Consensus Estimate of a loss of $1.62 and the year-ago loss of $1.77 per share.

The quarterly results reflected lower premiums due to premiums ceded in connection with the U.S. loss portfolio transfer (LPT) as well as lower net investment income.

Argo Group International Holdings, Ltd. Price, Consensus and EPS Surprise

 

 

Argo Group International Holdings, Ltd. price-consensus-eps-surprise-chart | Argo Group International Holdings, Ltd. Quote

Operational Update

Argo Group’s revenues dropped 28.5% year over year to $379.4 million. The downside can primarily be attributed to a decline in premiums and net investment income. The top line missed the Zacks Consensus Estimate by 24.5%.

Earned premiums declined 27.9% to $350.5 million attributable to premiums ceded in connection with the U.S. LPT. Of this, U.S. Operations contributed $210.5 million, down 36.5% primarily owing to the premiums ceded in connection with the LPT.  International operations contributed $139.8 million, down 9.6%.

Net investment income declined 34.9% year over year to $28.9 million due to alternative investment income.

Total expenses of Argo Group decreased 21.3% year over year to $522 million due to lower losses and a decline in adjustment expenses, general and administrative expenses, and non-operating expenses.

Catastrophe losses were $9.4 million in the quarter, wider than $6.8 million incurred in the year-ago quarter.

ARGO’s underwriting loss of $133.8 million widened from the year-ago loss of $109 million. The combined ratio deteriorated 1580 basis points (bps) to 138.2 due to lower net earned premiums driven by the cost of the LPT.

While the loss ratio deteriorated 90 bps to 88, the expense ratio deteriorated 1490 bps to 50.2 in the quarter.

Financial Update

Argo Group exited 2022 with cash and cash equivalents of $50.2 million, down from $146.1 million at 2021 end. Total investments dropped 31.4% to $3.7 billion at 2022 end.

As of Dec 31, 2022, debt was $399.1 million, down 12.4% from 2021-end level.

As of Dec 31, 2022, stockholders’ equity decreased 28.9% to $1.2 billion from the 2021-end level.

Book value was $31.06 per share, down 31.9% from 2021 end.

Annualized operating return on equity was 0.4% in 2022 compared with 2.5% in 2021.

Strategic Alternatives Review

On Feb 8, ARGO announced inking of a definitive merger agreement with Brookfield Reinsurance for approximately $1.1 billion, subject to closing conditions.

On Feb 2, Argo Group also completed the previously announced sale of Argo Underwriting Agency Limited and its Lloyd's Syndicate to Westfield.

Zacks Rank

Argo Group currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Some Other P&C Insurers

The Travelers Companies, Inc. TRV reported fourth-quarter 2022 core income of $3.40 per share, which matched the Zacks Consensus Estimate. However, the bottom line decreased 35% year over year.

Total revenues increased 7.5% from the year-ago quarter to $9.6 billion, primarily driven by higher premiums and fee income. The top line beat the Zacks Consensus Estimate by 0.2%.

Travelers' net written premiums increased 10% year over year to $8.8 billion, higher than our estimate of $8.6 billion. Catastrophe losses totaled $459 million pre-tax, wider than $36 million pre-tax in the prior-year quarter.

TRV witnessed an underwriting gain of $449 million, down 51.5% year over year.  The combined ratio deteriorated 650 bps year over year to 94.5.

The Progressive Corporation’s PGR fourth-quarter 2022 earnings per share of $1.50 beat the Zacks Consensus Estimate of $1.49 as well as our estimate of $1.34. PGR’s bottom line improved 42.9% year over year

Progressive's net premiums earned grew 11% to $12.9 billion and beat our estimate of $12.3 billion. The combined ratio —percentage of premiums paid out as claims and expenses — improved 80 bps from the prior-year quarter’s level to 93.9.

RLI Corp. RLI reported fourth-quarter 2022 operating earnings of $1.53 per share, beating the Zacks Consensus Estimate by 41.7%. The bottom line improved 26.4% from the prior-year quarter.

RLI's operating revenues were $329.5 million, up 19.4% year over year. The top line beat the Zacks Consensus Estimate by 0.4%.

Gross premiums written increased 14% year over year to $383.8 million. Underwriting income of $54 million increased 8.7%, primarily due to higher profitability of the Property segment. RLI’s combined ratio deteriorated 140 bps year over year to 82.1.

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