Argonaut Group, Inc. Announces 2005 Fourth Quarter and Full Year Results; Company Delivers Record 2005 Results Despite Impact of Multiple Hurricanes.SAN ANTONIO San Antonio (săn ăntō`nēō, əntōn`), city (1990 pop. 935,933), seat of Bexar co., S central Tex., at the source of the San Antonio River; inc. 1837. -- Argonaut Group, Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :AGII) today announced financial results for the three months and year ended Dec. 31, 2005. Highlights include the following: For the year ended Dec. 31, 2005 --Gross written premiums topped $1 billion for the first time in the Company's history; --Record levels also were achieved for net written and earned premiums Earned premium is the portion of an insurance written premium which is considered "earned" by the insurer, based on the part of the policy period that the insurance has been in effect, and during which the insurer has been exposed to loss. ; --Underwriting income increased to a record $9.3 million compared to $1.4 million in 2004; --Net income was $80.5 million, a 12.1 percent increase versus $71.8 million in 2004; --Total revenue of $786.2 million and operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. of $78.2 million set new highs, up from 2004 levels by 11.6 percent and 40.9 percent, respectively; --Cash flow from operations was $331.1 million compared to $122.9 million for 2004; --Book value increased 10.4 percent to $21.73 per fully diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share versus $19.68 per share at Dec. 31, 2004. For the quarter ended Dec. 31, 2005 --Record performances were set for gross written, net written and earned premiums; --Total revenue was at a record $212.4 million; --Argonaut Group's Excess and Surplus Lines, Select Markets and Public Entity segments delivered sub-90 percent combined ratios; --Net income was $25.4 million versus $26.2 million in the fourth quarter of 2004; --Operating income increased to $26.1 million, a 9.7 percent increase over the fourth quarter of 2004; Argonaut Group President and Chief Executive Officer Mark E. Watson III said, "Our excellent fourth quarter results helped Argonaut Group achieve a record-setting year. We are pleased with these results given the challenges the Company and our insureds experienced in 2005 from Hurricanes Katrina KATRINA Keeping All the Resources in New Orleans Alive KATRINA Krewe Aiding Trash Removal In the New Orleans Area , Rita and Wilma. "The Company had several notable achievements during 2005 -- we established a $1 billion milestone “Milemarker” redirects here. For the American indie rock band, see Milemarker (band). A milestone or kilometre sign is one of a series of numbered markers placed along a road at regular intervals, typically at the side of the road or in a median. in gross written premiums, resolved several major legacy issues that were a concern to shareholders, and demonstrated the strength and resilience resilience (r  ·zilˑ·yens),n of the Company by producing record results while absorbing ab·sorb tr.v. ab·sorbed, ab·sorb·ing, ab·sorbs 1. To take (something) in through or as through pores or interstices. 2. To occupy the full attention, interest, or time of; engross. the impact of several major hurricanes," said Watson. FINANCIAL RESULTS For the fourth quarter of 2005, Argonaut Group reported net income of $25.4 million or $0.76 per diluted common share on 33.2 million shares, which includes pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta operating income of $26.1 million, pre-tax realized gains Realized Gain A gain resulting from selling an asset at a price higher than the original purchase price. Notes: There may be tax consequences for a realized profit. on sales of investments of $1.6 million and $2.3 million of tax expense. This compares to net income of $26.2 million or $0.84 per diluted common share on 30.9 million shares, which includes pre-tax operating income of $23.8 million, realized gains on sales of investments of $2.4 million and no tax expense during the same three-month period in 2004. The Company believes operating income is another meaningful measure of Argonaut Group's performance, yet differs from net income under accounting principles generally accepted in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. (GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ) in that operating income excludes income tax benefit or expense and net realized investment gains and losses. For a reconciliation of operating income to GAAP net income for the three months and year ended Dec. 31, 2005 and 2004, respectively, please refer to the reconciliation table attached to this news release. Total revenue was at a record $212.4 million during the fourth quarter of 2005, up 13.9 percent from $186.5 million for the comparable quarter in 2004. Total revenue includes realized gains on the sales of investments, which were $1.6 million and $2.4 million for the fourth quarters of 2005 and 2004, respectively. Earned premiums for the three months ended Dec. 31, 2005 were a record $187.8 million compared to $165.6 million for 2004, or a 13.4 percent increase. The Group combined ratio for the fourth quarter of 2005 was 96.7 percent, versus 94.7 percent for the same three-month period in 2004. The Group combined ratio for the fourth quarter of 2005 included approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $1.7 million in hurricane hurricane, tropical cyclone in which winds attain speeds greater than 74 mi (119 km) per hr. Wind speeds reach over 190 mi (289 km) per hr in some hurricanes. losses, versus no hurricane impact in the fourth quarter of 2004. Additionally, the combined ratio for the fourth quarter of 2005 includes a $6.2 million charge related to an increase in the allowance for doubtful accounts Allowance for Doubtful Accounts An estimation made by a company and documented on its balance sheet for receivables that might go uncollected. Notes: It is standard practice for a company to have funds set aside for money that cannot be collected. associated with reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. balances recoverable in the run-off run-off n (in contest, election) → desempate m (= extra race); carrera de desempate run-off n (in contest, election) → segment. The combined ratios for Excess and Surplus Lines, Select Markets and Public Entity were 88.6 percent, 89.4 percent, and 81.4 percent, respectively. For the year ended Dec. 31, 2005, Argonaut Group reported net income of $80.5 million or $2.53 per diluted common share on 31.8 million weighted average shares, which included hurricane losses of approximately $15.3 million. This compares to net income in 2004 of $71.8 million or $2.33 per diluted common share, which included hurricane losses of approximately $19.5 million. Total revenue in 2005 was a record $786.2 million versus $704.2 million in 2004. Total revenue includes realized gains on sales of investments of $3.3 million and $5.2 million for the years ended Dec. 31, 2005 and Dec. 31, 2004, respectively. Earned premiums for 2005 were a record $699.0 million compared to $633.9 million in 2004, up 10.3 percent. The Group combined ratio for 2005 was 98.7 percent versus 99.8 percent in 2004. The Group combined ratio for 2005 and 2004 included hurricane losses of approximately $15.3 million and $19.5 million, respectively. The Group combined ratio exclusive of hurricane losses was 96.6 percent in 2005 and 96.7 percent in 2004. SEGMENT RESULTS Excess & Surplus Lines (E&S) -- For the fourth quarter of 2005, gross written premiums for E&S totaled $178.1 million, resulting in record pre-tax operating income of $21.6 million. This compares to gross written premiums of $105.6 million and operating income of $15.4 million in the fourth quarter of 2004. The combined ratio for the 2005 fourth quarter of 88.6 percent, versus 87.6 percent a year earlier, includes approximately $1.5 million in hurricane losses versus no hurricane losses in the comparable period of 2004. The E&S segment's combined ratio, exclusive of 2005 fourth quarter hurricane losses, was 87.3 percent. For the year ended Dec. 31, 2005, gross written premiums for E&S were a record $619.8 million, generating record operating income of $57.7 million and a combined ratio of 92.6 percent. This compares to gross written premiums of $421.2 million, operating income of $36.9 million and a combined ratio of 94.8 percent for 2004. E&S's combined ratios for 2005 and 2004 included $9.8 million and $16.9 million in hurricane losses, respectively. Select Markets -- During the fourth quarter, gross written premiums were a record $79.2 million generating record operating income of $9.3 million, compared to gross written premiums of $56.6 million and operating income of $5.0 million during the same period in 2004. The combined ratio for the 2005 fourth quarter of 89.4 percent includes $351,000 in hurricane losses, versus a combined ratio of 96.1 percent and no hurricane losses in the fourth quarter of 2004. For the year ended Dec. 31, 2005, gross written premiums for Select Markets were a record $250.3 million, generating record operating income of $26.5 million and a combined ratio of 93.5 percent. This compares to gross written premiums of $212.6 million, operating income of $15.9 million and a combined ratio of 96.7 percent during 2004. Select Markets' combined ratios for 2005 and 2004 included $2.5 million and 1.2 million in hurricane losses, respectively. Public Entity -- Gross written premiums for the 2005 fourth quarter were $12.0 million, generating operating income of $3.9 million, versus gross written premiums of $13.2 million and operating income of $1.8 million for the quarter ended Dec. 31, 2004. The combined ratio for the 2005 fourth quarter was 81.4 percent versus 95.5 percent a year earlier. For the year ended Dec. 31, 2005, gross written premiums for Public Entity were $67.0 million, generating record operating income of $9.4 million and a combined ratio of 92.3 percent. This compares to gross written premiums of $87.9 million, operating income of $3.4 million and a combined ratio of 98.2 percent for the year ended Dec. 31, 2004. Public Entity's combined ratios for 2005 and 2004 included $2.9 million and $1.4 million in hurricane losses, respectively. Risk Management -- Gross written premiums were $11.0 million for the three months ended Dec. 31, 2005, resulting in operating income of $5.5 million, compared to gross written premiums of $44.8 million and operating income of $8.3 million for the same period in 2004. For the fourth quarter, the combined ratio in this segment was 122.0 percent versus 99.8 percent a year earlier. For the year ended Dec. 31, 2005, gross written premiums for Risk Management were $118.6 million, generating operating income of $20.3 million and a combined ratio of 115.1 percent. For the year ended Dec. 31, 2004, gross written premiums were $181.7 million, generating operating income of $22.0 million and a combined ratio of 106.9 percent. As previously disclosed dis·close tr.v. dis·closed, dis·clos·ing, dis·clos·es 1. To expose to view, as by removing a cover; uncover. 2. To make known (something heretofore kept secret). in the third quarter of 2005, renewal rights to a majority of the business that comprised Risk Management were sold to XL America America [for Amerigo Vespucci], the lands of the Western Hemisphere—North America, Central (or Middle) America, and South America. The world map published in 1507 by Martin Waldseemüller is the first known cartographic use of the name. , Inc. The fourth quarter and year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. results reflect this transaction. CONFERENCE CALL Argonaut Group will conduct an investor conference call at 11:00 a.m. EST EST electroshock therapy. EST abbr. electroshock therapy (10:00 a.m. CST CST abbr. 1. Central Standard Time 2. convulsive shock treatment CST Central Standard Time Noun 1. ) on Wednesday Wednesday: see week. , Feb. 8, 2006. The conference call can be accessed by visiting Argonaut Group's investor relations Investor relations The process by which the corporation communicates with its investors. Web page at www.argonautgroup.com and clicking on "investor relations," or by telephone toll free at 866-831-6162 (pass code: 94605868). The international dial-in number for the conference call is 617-213-8852. A replay of the conference call will be available approximately one hour after the call's completion on Argonaut Group's investor relations Web page, or by telephone toll free at 888-286-8010 (pass code: 81973294). If calling from abroad, please access the conference call replay by dialing 617-801-6888. FORWARD-LOOKING STATEMENTS forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. DISCLOSURE This news release contains "forward-looking statements" which are made pursuant to the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provisions of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. The forward-looking statements are based on the Company's current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that actual developments will be those anticipated by the Company. Actual results may differ materially from those projected as a result of significant risks and uncertainties, including non-receipt of the expected payments, changes in interest rates, effect of the performance of financial markets on investment income and fair values of investments, development of claims and the effect on loss reserves, accuracy in projecting loss reserves, the impact of competition and pricing environments, changes in the demand for the Company's products, the effect of general economic conditions, adverse state and federal legislation, regulations and regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. investigations into industry practices, developments relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc existing agreements, heightened competition, changes in pricing environments, and changes in asset valuations. For a more detailed discussion of risks and uncertainties, see the Company's public filings made with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update any forward-looking statements. ABOUT ARGONAUT GROUP, INC. Headquartered in San Antonio, Argonaut Group, Inc. (NASDAQ:AGII) is a national underwriter underwriter n. a company or person which/who underwrites an insurance policy, issue of corporate securities, business, or project. (See: underwrite) UNDERWRITER, insurances. One who signs a policy of insurance, by which he becomes an insurer. of specialty A contract under seal. A specialty is a written document that has been sealed and delivered and is given as security for the payment of a specifically indicated debt. insurance products in niche niche: see ecology. niche Smallest unit of a habitat that is occupied by an organism. A habitat niche is the physical space occupied by the organism; an ecological niche is the role the organism plays in the community of organisms found in the areas of the property and casualty market, with approximately $3.4 billion in assets. Through its insurance subsidiaries, Argonaut Group offers a full line of high quality products and services designed to meet the unique coverage and claims handling needs of businesses in three primary segments: Excess and Surplus Lines, Select Markets, and Public Entity. Members of Argonaut Group include Colony colony, any nonself-governing territory subject to the jurisdiction of a usually distant country. The term is also applied to a group of nationals who settle in a foreign country or territory but retain political or cultural connections with their parent state. Group, Argonaut Specialty, Rockwood Rock´wood` n. 1. (Min.) Ligniform asbestus; also, fossil wood. Casualty, Great Central, Grocers Insurance, Trident Insurance Services, and Argonaut Insurance Company. Information on Argonaut Group and its subsidiaries is available at www.argonautgroup.com.
ARGONAUT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except per share amounts)
December 31,
2005 2004
---------- ----------
(unaudited)
Assets
Total investments $ 2,173.0 $ 1,783.9
Cash and cash equivalents 29.7 31.7
Accrued investment income 17.4 16.9
Receivables 736.5 847.3
Goodwill 106.3 106.3
Other assets 341.7 287.1
---------- ----------
Total assets $ 3,404.6 $ 3,073.2
========== ==========
Liabilities and Shareholders' Equity
Reserves for losses and loss adjustment
expenses $ 1,875.4 $ 1,607.5
Unearned premiums 475.8 390.8
Other liabilities 337.3 471.5
---------- ----------
Total liabilities 2,688.5 2,469.8
Total shareholders' equity 716.1 603.4
---------- ----------
Total liabilities and shareholders' equity $ 3,404.6 $ 3,073.2
========== ==========
Book value per common share - basic $ 23.48 $ 21.78
========== ==========
Book value per common share - diluted (a) $ 21.73 $ 19.68
========== ==========
(a) Book value per common share - diluted, includes the impact of the
Series A Mandatory Convertible Preferred Stock on an as if
converted basis.
ARGONAUT GROUP, INC.
FINANCIAL HIGHLIGHTS
ALL SEGMENTS
(in millions, except share and per share amounts)
Three Months Ended Twelve Months Ended
December 31, December 31,
--------------------- ---------------------
2005 2004 2005 2004
(unaudited) (unaudited)
Gross Written Premiums $ 280.3 $ 220.2 $ 1,055.7 $ 903.4
Net Written Premiums 202.3 162.9 769.4 669.5
Earned Premiums 187.8 165.6 699.0 633.9
Net Investment Income 23.0 18.5 83.9 65.1
Gains on Sales of
Investments 1.6 2.4 3.3 5.2
--------- --------- --------- ---------
Total Revenue 212.4 186.5 786.2 704.2
Losses and Loss Adjustment
Expenses 104.4 99.7 427.2 409.7
Underwriting, Acquisition
and Insurance Expense 77.3 57.1 262.5 222.8
Interest Expense 3.0 3.5 15.0 11.0
--------- --------- --------- ---------
Total Expenses 184.7 160.3 704.7 643.5
Income Before Tax 27.7 26.2 81.5 60.7
Income Tax Provision 9.4 8.9 26.1 12.8
Change in Deferred Tax
Valuation Allowance (7.1) (8.9) (25.1) (23.9)
--------- --------- --------- ---------
Net Income $ 25.4 $ 26.2 $ 80.5 $ 71.8
========= ========= ========= =========
Net Income:
From Operations $ 26.1 $ 23.8 $ 78.2 $ 55.5
From Sale of Investments 1.6 2.4 3.3 5.2
--------- --------- --------- ---------
Income Before Taxes 27.7 26.2 81.5 60.7
Income Tax Provision
(Benefit) 2.3 - 1.0 (11.1)
--------- --------- --------- ---------
Total Net Income: $ 25.4 $ 26.2 $ 80.5 $ 71.8
========= ========= ========= =========
Net Income per Common
Share (Basic): $ 0.86 $ 0.92 $ 2.73 $ 2.51
========= ========= ========= =========
Net Income per Common
Share (Diluted): $ 0.76 $ 0.84 $ 2.53 $ 2.33
========= ========= ========= =========
Weighted Average Common
Shares (000's):
Basic 30,151.3 27,681.0 28,611.4 27,638.5
========= ========= ========= =========
Diluted 33,238.0 30,900.0 31,750.7 30,792.3
========= ========= ========= =========
ARGONAUT GROUP, INC.
SEGMENT DATA
(in millions)
Three Months Ended Twelve Months Ended
December 31, December 31,
-------------------- ---------------------
2005 2004 2005 2004
(unaudited) (unaudited)
Excess & Surplus Lines
----------------------
Gross Written Premiums $ 178.1 $105.6 $ 619.8 $ 421.2
Net Written Premiums 127.1 79.0 451.3 309.6
Earned Premiums 112.5 79.1 374.9 305.1
Underwriting Income $ 12.8 $ 9.8 $ 27.7 $ 15.9
Net Investment Income 8.8 5.6 30.0 21.0
--------- ------- -------- --------
Operating Income Before
Taxes $ 21.6 $ 15.4 $ 57.7 $ 36.9
========= ======= ======== ========
Loss Ratio 57.8 % 59.7 % 61.6 % 65.4 %
Expense Ratio 30.8 % 27.9 % 31.0 % 29.4 %
---------- -------- --------- --------
GAAP Combined Ratio 88.6 % 87.6 % 92.6 % 94.8 %
========== ======= ========= ========
GAAP Combined Ratio
excluding Hurricane
Losses 87.3 % 87.6 % 90.1 % 90.0 %
========== ======= ========= ========
Select Markets
--------------
Gross Written Premiums $ 79.2 $ 56.6 $ 250.3 $ 212.6
Net Written Premiums 68.3 46.3 210.0 176.9
Earned Premiums 51.3 43.9 188.1 151.1
Underwriting Income $ 5.4 $ 1.8 $ 12.2 $ 4.9
Net Investment Income 3.9 3.2 14.3 11.0
--------- ------- -------- --------
Operating Income Before
Taxes $ 9.3 $ 5.0 $ 26.5 $ 15.9
========= ======= ======== ========
Loss Ratio 62.1 % 67.1 % 63.4 % 66.6 %
Expense Ratio 27.3 % 29.0 % 30.1 % 30.1 %
---------- ------- --------- --------
GAAP Combined Ratio 89.4 % 96.1 % 93.5 % 96.7 %
========== ======= ========= ========
GAAP Combined Ratio
excluding Hurricane
Losses 88.8 % 96.1 % 92.2 % 96.0 %
========== ======= ========= ========
Public Entity
-------------
Gross Written Premiums $ 12.0 $ 13.2 $ 67.0 $ 87.9
Net Written Premiums 9.1 6.7 50.8 67.6
Earned Premiums 13.6 17.1 59.3 61.7
Underwriting Income $ 2.5 $ 0.7 $ 4.5 $ 1.1
Net Investment Income 1.4 1.1 4.9 2.3
--------- ------- -------- --------
Operating Income Before
Taxes $ 3.9 $ 1.8 $ 9.4 $ 3.4
========= ======= ======== ========
Loss Ratio 39.9 % 62.4 % 55.8 % 64.7 %
Expense Ratio 41.5 % 33.1 % 36.5 % 33.5 %
---------- ------- --------- --------
GAAP Combined Ratio 81.4 % 95.5 % 92.3 % 98.2 %
========== ======= ========= ========
GAAP Combined Ratio
excluding Hurricane
Losses 81.8 % 95.5 % 87.6 % 96.2 %
========== ======= ========= ========
Risk Management
---------------
Gross Written Premiums $ 11.0 $ 44.8 $ 118.6 $ 181.7
Net Written Premiums (2.2) 30.9 57.3 115.4
Earned Premiums 10.4 25.5 76.7 116.0
Underwriting Income (Loss) $ (2.3) $ 0.2 $ (11.6) $ (7.9)
Net Investment Income 7.8 8.1 31.9 29.9
--------- ------- -------- --------
Operating Income Before
Taxes $ 5.5 $ 8.3 $ 20.3 $ 22.0
========= ======= ======== ========
Loss Ratio 19.9 % 52.5 % 60.1 % 62.1 %
Expense Ratio 102.1 % 47.3 % 55.0 % 44.8 %
---------- -------- --------- --------
GAAP Combined Ratio 122.0 % 99.8 % 115.1 % 106.9 %
========== ======= ========= ========
ARGONAUT GROUP, INC.
RECONCILIATION OF OPERATING INCOME TO NET INCOME
(in millions)
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------ -------------------
2005 2004 2005 2004
-------- -------- -------- ---------
(unaudited) (unaudited)
Operating income (loss)
Excess & Surplus Lines $ 21.6 $ 15.4 $ 57.7 $ 36.9
Select Markets 9.3 5.0 26.5 15.9
Public Entity 3.9 1.8 9.4 3.4
Risk Management 5.5 8.3 20.3 22.0
Run-off lines (6.2) - (12.5) -
Corporate & other (8.0) (6.7) (23.2) (22.7)
-------- -------- -------- --------
Total operating income 26.1 23.8 78.2 55.5
Net realized investment
gains 1.6 2.4 3.3 5.2
-------- -------- -------- --------
Total income before income
taxes 27.7 26.2 81.5 60.7
Provision (benefit) for
income taxes 2.3 - 1.0 (11.1)
-------- -------- -------- --------
Net income $ 25.4 $ 26.2 $ 80.5 $ 71.8
======== ======== ======== ========
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