Argonaut Group, Inc. Announces 2006 Second Quarter Results; Company Produced Second Quarter Records in Earned Premiums, Total Revenue and Underwriting Income.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 and six months ended June June: see month. 30, 2006. Highlights for the 2006 second quarter include the following: --Pre-tax 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. increased 33.5 percent to a record $32.3 million; --Net income was $23.4 million, which included income tax expense of $12.2 million, compared to second quarter 2005 net income of $23.7 million, which included a tax benefit of $0.1 million; --Underwriting income increased to $10.5 million versus $8.7 million in the second quarter of 2005; --Investment income rose 26.9 percent to $25.0 million compared to $19.7 million in the second quarter of 2005; --Earned premium increased 18.7 percent to $200.4 million versus $168.9 million for the same period in 2005; --Total revenues were $228.7 million compared to $188.0 million a year ago; --Gross written premiums for E&S and Select Markets increased 14.6 percent and 4.9 percent, respectively. Highlights for the first half of 2006 include the following: --Pre-tax operating income increased 34.2 percent to $63.5 million versus $47.3 million in last year's first six months; --Net income of $43.9 million included income tax expense of $22.9 million compared to first half 2005 net income of $49.7 million, which included a tax benefit of $1.1 million; --Underwriting income increased 27.2 percent over the first six months of 2005; --Gross written premiums for the first six months increased 12.0 percent over the same period last year; Earned premium 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. in the first half of 2006 was up 20.9 percent; --Cash flow from operations increased to $125.8 million in the first half of 2006 compared to $93.5 million for the same six-month period last year. Argonaut Group President and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. Mark E. Watson III said, "Our three primary business segments performed well and produced record underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. results in the second quarter. On a year-over-year basis, I am pleased with our top-line growth from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the , strong underwriting margins and increased cash flow. Our commitment to strong underwriting discipline and leadership within our niche markets A niche market also known as a target market is a focused, targetable portion (subset) of a market sector. By definition, then, a business that focuses on a niche market is addressing a need for a product or service that is not being addressed by mainstream providers. continued to serve us well, producing the best financial performance over six months in our Company's history." FINANCIAL RESULTS For the second quarter of 2006, Argonaut Group reported net income of $23.4 million or $0.69 per 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. common share on 33.8 million shares. This compares to 2005 second quarter net income of $23.7 million or $0.76 per diluted common share on 31.2 million shares. Comparability of net income in 2006 to 2005 was significantly impacted by the change in income tax expense. Net income for the three month period ended June 30, 2006 includes income tax expense of $12.2 million. Net income for the comparable three-month period in 2005 includes income tax benefits of $0.1 million. The benefits recorded in 2005 were related to the reduction of a previously established deferred tax valuation allowance. This valuation allowance was reduced to $0 in 2005. The change in valuation allowance did not impact cash paid related to income taxes during 2005 or 2006. 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 and six months ended June 30, 2006 and 2005, respectively, please refer to the reconciliation table attached to this news release. Pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta operating income for the quarter ended June 30, 2006 was $32.3 million, an increase of $8.1 million or 33.5 percent as compared to pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern operating income of $24.2 million for the comparable quarter in 2005. Total revenue was $228.7 million during the second quarter of 2006, compared to $188.0 million for the same period in 2005, or a 21.7 percent increase. Total revenue includes 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. and losses on the sales of investments, which included $3.3 million of gains and $0.6 million of losses, respectively, for the second quarters of 2006 and 2005. Earned premiums for the three months ended June 30, 2006 were $200.4 million compared to $168.9 million for the comparable quarter in 2005, or an 18.7 percent increase. The Group combined ratio for the second quarter of 2006 was 94.8 percent versus 94.9 percent for the same three-month period in 2005. All three primary business segments delivered strong underwriting income Underwriting income For an insurance company, the difference between the premiums earned and the costs of settling claims. , led by Public Entity reporting a combined ratio of 72.8 percent. For the six months ended June 30, 2006, Argonaut Group reported net income of $43.9 million or $1.30 per diluted common share, versus $49.7 million or $1.59 per diluted common share for the first half of 2005. Net income of 43.9 million includes tax expense of $22.9 million for the six months ended June 30, 2006, as compared to net income of $49.7 million, which included a tax benefit of $1.1 million for the same six-month period in 2005. See previous commentary relative to the Company's tax expense and the effect of the reduction in the deferred tax valuation allowance. Total revenue during the first half of 2006 was $453.3 million versus $371.8 million during the first six months of 2005. Total revenue includes realized gains of $3.3 million and $1.3 million for the six months ended June 30, 2006 and June 30, 2005, respectively. Earned premiums for the first six months of 2006 were $400.3 million compared to $331.0 million during the first half of 2005. SEGMENT RESULTS Excess & Surplus Lines (E&S) - For the second quarter of 2006, gross written premiums and operating income for E&S totaled $179.8 million and $23.3 million, respectively. This compares to gross written premiums of $156.9 million and operating income of $16.5 million in the second quarter of 2005. The combined ratio for the 2006 second quarter was 90.6 percent versus 88.7 percent for the same three-month period in 2005. For the six months ended June 30, 2006, gross written premiums for E&S were $357.8 million, generating operating income of $40.3 million and a combined ratio of 92.0 percent. This compares to gross written premiums of $257.7 million, operating income of $29.8 million and a combined ratio of 90.0 percent for the first half of 2005. Select Markets - During the second quarter, gross written premiums were $72.2 million and operating income totaled $6.2 million, compared to gross written premiums of $68.8 million and operating income of $6.2 million during the same period in 2005. The combined ratio for the 2006 second quarter was 95.8 percent versus 93.6 percent in the second quarter of last year. For the six months ended June 30, 2006, gross written premiums for Select Markets were $145.1 million, generating operating income of $13.3 million and a combined ratio of 94.9 percent. This compares to gross written premiums of $132.4 million, operating income of $12.0 million and a combined ratio of 94.4 percent during the first half of 2005. Public Entity - Gross written premiums for the 2006 second quarter were $8.4 million and operating income totaled $4.7 million, versus gross written premiums of $10.0 million and operating income of $2.1 million for the quarter ended June 30, 2005. For the second quarter, the combined ratio in this segment was 72.8 percent versus 94.9 percent for the same three-month period in 2005. For the six months ended June 30, 2006, gross written premiums for Public Entity were $26.2 million, generating operating income of $6.8 million and a combined ratio of 82.4 percent. This compares to gross written premiums of $28.2 million, operating income of $4.0 million and a combined ratio of 94.9 percent for the six-month period ended June 30, 2005. Risk Management - 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, the 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 remaining business activity for this segment reduced gross written premiums by $1.5 million for the three months ended June 30, 2006 and generated operating income of $4.6 million, compared to gross written premiums of $29.2 million and operating income of $7.4 million for the same period in 2005. For the six months ended June 30, 2006, Risk Management generated operating income of $13.4 million and a combined ratio of 122.0 percent. For the six months ended June 30, 2005, gross written premiums were $53.3 million, generating operating income of $14.3 million and a combined ratio of 104.0 percent. CONFERENCE CALL Argonaut Group will webcast an investor conference call at 10:00 a.m. EDT EDT abbr. Eastern Daylight Time EDT Eastern Daylight Time EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York EDT (9:00 a.m. CDT CDT abbr. Central Daylight Time CDT Central Daylight Time CDT n abbr (US) (= Central Daylight Time) → hora de verano del centro; (BRIT ) on Thursday Thursday: see week. , Aug. 3, 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 800-706-7741 (pass code: 29483898). The international dial-in number for the conference call is 617-614-3471. A replay of the conference call will be available approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 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: 38557103). 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 Global Select: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 over $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, 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)
June 30, December 31,
2006 2005
--------------- --------------
(unaudited)
Assets
Total investments $2,293.6 $2,173.0
Cash and cash equivalents 19.1 29.7
Accrued investment income 18.2 17.4
Receivables 718.1 736.5
Goodwill 106.3 106.3
Other assets 318.3 341.7
--------------- --------------
Total assets $3,473.6 $3,404.6
=============== ==============
Liabilities and
Shareholders' Equity
Reserves for losses and
loss adjustment expenses $1,965.5 $1,875.4
Unearned premiums 456.6 475.8
Other liabilities 308.6 337.3
--------------- --------------
Total liabilities 2,730.7 2,688.5
Total shareholders'
equity 742.9 716.1
--------------- --------------
Total liabilities and
shareholders' equity $3,473.6 $3,404.6
=============== ==============
Book value per common
share - basic $23.73 $23.48
=============== ==============
Book value per common
share - diluted (a) $22.33 $21.73
=============== ==============
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 Six Months Ended
June 30, June 30,
------------------ ------------------
2006 2005 2006 2005
(unaudited) (unaudited)
Gross Written Premiums $258.9 $264.9 $528.1 $471.6
Net Written Premiums 186.7 198.4 378.2 349.5
Earned Premiums 200.4 168.9 400.3 331.0
Net Investment Income 25.0 19.7 49.7 39.5
Gains (Losses) on Sales of
Investments 3.3 (0.6) 3.3 1.3
------- ------- ------- -------
Total Revenue 228.7 188.0 453.3 371.8
Losses and Loss Adjustment
Expenses 118.9 98.6 240.8 195.7
Underwriting, Acquisition and
Insurance Expense 71.0 61.6 139.4 119.5
Interest Expense 3.2 4.2 6.3 8.0
------- ------- ------- -------
Total Expenses 193.1 164.4 386.5 323.2
Income Before Tax 35.6 23.6 66.8 48.6
Income Tax Provision 12.2 8.0 22.9 15.9
Change in Deferred Tax
Valuation Allowance - (8.1) - (17.0)
------- ------- ------- -------
Net Income $23.4 $23.7 $43.9 $49.7
======= ======= ======= =======
Net Income (Loss):
From Operations $32.3 $24.2 $63.5 $47.3
From Sale of Investments 3.3 (0.6) 3.3 1.3
------- ------- ------- -------
Income Before Taxes 35.6 23.6 66.8 48.6
Income Tax Provision (Benefit) 12.2 (0.1) 22.9 (1.1)
------- ------- ------- -------
Total Net Income: $23.4 $23.7 $43.9 $49.7
======= ======= ======= =======
Net Income per Common Share
(Basic): $0.74 $0.83 $1.38 $1.74
======= ======= ======= =======
Net Income per Common Share
(Diluted): $0.69 $0.76 $1.30 $1.59
======= ======= ======= =======
Weighted Average Common
Shares:
Basic 31.3 28.0 31.2 27.9
======= ======= ======= =======
Diluted 33.8 31.2 33.8 31.1
======= ======= ======= =======
ARGONAUT GROUP, INC.
SEGMENT DATA
(in millions)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2006 2005 2006 2005
(unaudited) (unaudited)
Excess & Surplus Lines
------------------------
Gross Written Premiums $179.8 $156.9 $357.8 $257.7
Net Written Premiums 133.2 120.4 263.7 194.7
Earned Premiums 131.2 85.7 254.3 163.9
Underwriting Income $12.4 $9.6 $20.5 $16.4
Net Investment Income 10.9 6.9 19.8 13.4
-------- -------- -------- --------
Operating Income Before
Taxes $23.3 $16.5 $40.3 $29.8
======== ======== ======== ========
Loss Ratio 59.5 % 58.2 % 61.0 % 59.1 %
Expense Ratio 31.1 % 30.5 % 31.0 % 30.9 %
-------- -------- -------- --------
GAAP Combined Ratio 90.6 % 88.7 % 92.0 % 90.0 %
======== ======== ======== ========
Select Markets
--------------
Gross Written Premiums $72.2 $68.8 $145.1 $132.4
Net Written Premiums 51.3 50.2 98.5 95.7
Earned Premiums 51.9 46.4 105.8 94.4
Underwriting Income $2.0 $2.8 $5.3 $5.2
Net Investment Income 4.2 3.4 8.0 6.8
-------- -------- -------- --------
Operating Income Before
Taxes $6.2 $6.2 $13.3 $12.0
======== ======== ======== ========
Loss Ratio 66.7 % 64.8 % 66.0 % 65.0 %
Expense Ratio 29.1 % 28.8 % 28.9 % 29.4 %
-------- -------- -------- --------
GAAP Combined Ratio 95.8 % 93.6 % 94.9 % 94.4 %
======== ======== ======== ========
Public Entity
-------------
Gross Written Premiums $8.4 $10.0 $26.2 $28.2
Net Written Premiums 5.3 5.9 19.3 20.1
Earned Premiums 13.0 15.9 25.8 32.5
Underwriting Income $3.6 $0.9 $4.6 $1.7
Net Investment Income 1.1 1.2 2.2 2.3
-------- -------- -------- --------
Operating Income Before
Taxes $4.7 $2.1 $6.8 $4.0
======== ======== ======== ========
Loss Ratio 38.1 % 58.2 % 48.0 % 60.1 %
Expense Ratio 34.7 % 36.7 % 34.4 % 34.8 %
-------- -------- -------- --------
GAAP Combined Ratio 72.8 % 94.9 % 82.4 % 94.9 %
======== ======== ======== ========
Risk Management
---------------
Gross Written Premiums $(1.5) $29.2 $(1.0) $53.3
Net Written Premiums (3.1) 21.9 (3.3) 39.0
Earned Premiums 4.3 20.9 14.4 40.2
Underwriting Loss $(3.6) $(0.3) $(3.2) $(1.5)
Net Investment Income 8.2 7.7 16.6 15.8
-------- -------- -------- --------
Operating Income Before
Taxes $4.6 $7.4 $13.4 $14.3
======== ======== ======== ========
Loss Ratio 29.1 % 47.7 % 24.1 % 47.3 %
Expense Ratio 155.0 % 54.2 % 97.9 % 56.7 %
-------- -------- -------- --------
GAAP Combined Ratio 184.1 % 101.9 % 122.0 % 104.0 %
======== ======== ======== ========
ARGONAUT GROUP, INC.
RECONCILIATION OF OPERATING INCOME TO NET INCOME
(in millions)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2006 2005 2006 2005
(unaudited)
Excess & Surplus Lines $23.3 $16.5 $40.3 $29.8
Select Markets 6.2 6.2 13.3 12.0
Public Entity 4.7 2.1 6.8 4.0
Risk Management 4.6 7.4 13.4 14.3
Run-Off Lines - - - -
Corporate & Other (6.5) (8.0) (10.3) (12.8)
------------------- --------- ---------
Operating Income Before
Taxes 32.3 24.2 63.5 47.3
Gains (Losses) on Sales of
Investments 3.3 (0.6) 3.3 1.3
--------- --------- --------- ---------
Income Before Taxes 35.6 23.6 66.8 48.6
Income Tax Provision
(Benefit) 12.2 (0.1) 22.9 (1.1)
--------- --------- --------- ---------
Net Income $23.4 $23.7 $43.9 $49.7
========= ========= ========= =========
|
|
||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion