Argonaut Group Announces 2002 Fourth Quarter and Full Year Results.Business Editors SAN ANTONIO--(BUSINESS WIRE)--March 12, 2003 Argonaut Group, Inc. (Nasdaq:AGII) today announced financial results for the three months and year ended December December: see month. 31, 2002. Items of note for the fourth quarter and full year include: -- The Company's Excess & Surplus (E&S) segment reported an 88 percent increase in net earned premium and 105 percent increase in underwriting income for the fourth quarter of 2002 compared to the same period in 2001. For the quarter, the segment represented 55 percent of Argonaut Group's total net written premium. The GAAP combined ratios for the segment were 93.1 percent and 94.7 percent for the quarter and the year, respectively. -- Three of Argonaut Group's four business units reported combined ratios under 100 percent for the quarter. The GAAP combined ratio for core operations exclusive of Run-Off lines improved during the year to 108.7 percent compared to 130.4 percent for 2001. -- The Company strengthened asbestos reserves by $52.8 million in the fourth quarter. -- The Company established a partial valuation allowance of $71.9 million against its deferred tax asset. FINANCIAL RESULTS During the fourth quarter of 2002, Argonaut reported a net loss of $105.3 million or $4.88 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 21.6 million shares, compared to a net loss of $0.6 million or $0.03 per diluted share, for the same three-month period in 2001. The 2002 net loss was due to a $52.8 million strengthening of the asbestos asbestos, mineral asbestos, common name for any of a variety of silicate minerals within the amphibole and serpentine groups that are fibrous in structure and more or less resistant to acid and fire. reserves for run-off run-off n (in contest, election) → desempate m (= extra race); carrera de desempate run-off n (in contest, election) → lines in Argonaut Insurance Company described more fully in the Company's Form 8-K Form 8-K The form required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock. Form 8-K See 8-K. filed March 12, 2003, with the Securities and Exchange Commission, and the establishment of a partial valuation allowance of $71.9 million against Argonaut Group's deferred tax asset. The Company recorded the valuation allowance for deferred taxes based on Statement of Financial Accounting Standards No. 109, which establishes criteria criteria (krītēr´ē  ),n. for analyzing the recoverability of deferred taxes. However, the Company believes the deferred tax asset will be realized through future net income. For the fourth quarter, the Company reported a net operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. after tax of $112.7 million, compared to an operating loss of $3.0 million for the fourth quarter of 2001. The operating loss excludes gains on sales of investments, which totaled $7.4 million after tax during the fourth quarter of 2002 and $2.4 million after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. during the same period of 2001. Total revenue, which includes 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. , investment income and net gains on sales of investments, was $137.8 million during the fourth quarter of 2002, compared to $119.1 million for the same period in 2001. For the year ended Dec. 31, 2002, the Company reported a net loss of $87.0 million or $4.04 per diluted common share, compared to net income of $2.9 million or $0.13 per diluted share, during the same period in 2001. During 2002, total revenue was $457.9 million, versus revenue of $292.6 million during 2001. In the first half of 2003, Argonaut Insurance Company will reorganize re·or·gan·ize v. re·or·gan·ized, re·or·gan·iz·ing, re·or·gan·iz·es v.tr. To organize again or anew. v.intr. To undergo or effect changes in organization. its operations to concentrate on casualty and risk management solutions for upper-middle market accounts, which have been the historical core of its business. With the elimination of non-strategic businesses, Argonaut Insurance Company will reduce its workforce by 15 percent over the next two quarters and will incur To become subject to and liable for; to have liabilities imposed by act or operation of law. Expenses are incurred, for example, when the legal obligation to pay them arises. An individual incurs a liability when a money judgment is rendered against him or her by a court. a reorganization The process of carrying out, through agreements and legal proceedings, a business plan for winding up the affairs of, or foreclosing a mortgage upon, the property of a corporation that has become insolvent. charge of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $3 million in the first quarter of 2003. The reorganization will also have the effect of reducing operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. in the latter half of 2003 and in future years. In its refocused configuration, Argonaut Insurance Company is expected to produce less than 20 percent of the Group's gross written premium on a prospective basis. "The solid underlying performance of our core business was adversely affected by the strengthening of our asbestos reserves and deferred tax asset allowance," stated Mark E. Watson III, 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. of Argonaut Group, Inc. "Our E&S and Specialty Commercial lines continue to perform well. The Public Entity unit is emerging from a start-up Start-up The earliest stage of a new business venture. mode, and the focus of Argonaut Insurance Company on its insurance and risk management services should help return that unit to profitability." Argonaut Group's Board of Directors has suspended sus·pend v. sus·pend·ed, sus·pend·ing, sus·pends v.tr. 1. To bar for a period from a privilege, office, or position, usually as a punishment: suspend a student from school. payment of the Company's quarterly dividend beginning with the fourth quarter of 2002 to support the capital needs of profitable and growing business segments. In each of the first three quarters of 2002, the Company paid a $0.15 per share (approximately $3.3 million) quarterly dividend. For more information on the asbestos reserve study, related strengthening of reserves and a discussion on Argonaut Insurance Company's Risk Based Capital, refer to the full text of the Company's Report on Form 8-K which is available on the Company Web site at www.argonautgroup.com and included following the financial statements in this release. SEGMENT RESULTS Excess & Surplus Lines (E&S) -- 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. Insurance Group, which was acquired by Argonaut Group during the third quarter of 2001, specializes in 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. Excess and Surplus Lines of insurance. For the fourth quarter, net earned premiums for E&S lines were $52.8 million, generating underwriting income Underwriting income For an insurance company, the difference between the premiums earned and the costs of settling claims. of $3.6 million and a combined ratio of 93.1 percent. This is compared to net earned premiums of $28.1 million and underwriting income of $1.8 million for the same period in 2001. For the year ended Dec. 31, 2002, Colony reported net earned premiums of $152.3 million generating underwriting income of $8.1 million. For 2002, the combined ratio was 94.7 percent compared to 94.0 percent in 2001. The combined ratio includes expenses associated with the acquisition of renewal rights and certain other assets other assets Assets of relatively small value. For financial reporting purposes, firms frequently combine small assets into a single category rather than listing each item separately. of a SCOR SCOR Scientific Committee on Oceanic Research SCOR Supply Chain Operations Reference model SCOR Small Corporate Offering Registration SCOR Specialized Center of Research (White Plains, NY) SCOR Second Cousin Once Removed subsidiary, Fulcrum fulcrum: see lever. Insurance Company. Specialty Commercial Lines -- Rockwood Rock´wood` n. 1. (Min.) Ligniform asbestus; also, fossil wood. Casualty Insurance Company and Argonaut Great Central Insurance Company comprise Argonaut Group's Specialty Commercial Lines. During the fourth quarter, these companies contributed net earned premiums of $27.6 million and underwriting income of $0.3 million, compared to net earned premiums of $24.9 million and underwriting income of $2.8 million during the same period in 2001. For the fourth quarter, Argonaut's Specialty Commercial Lines reported a 99.0 percent combined ratio. For the year ended Dec. 31, 2002, these companies reported net earned premiums of $105.4 million and underwriting income of $0.3 million, compared to net earned premiums of $54.5 million and a loss of $1.7 million for the same period a year ago. For 2002, the combined ratio was 99.7 percent, down from 103 percent in 2001. Specialty Workers' Compensation workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. (Risk Management) -- Net earned premiums were $28.3 million for the three months ended Dec. 31, 2002, resulting in a net underwriting loss of $15.0 million, compared to net earned premiums of $46.9 million and a net underwriting loss of $15.3 million for the same period in 2001. For the fourth quarter, the combined ratio in this segment was 153.0 percent, versus 132.6 percent a year earlier. For the year ended Dec. 31, 2002, Argonaut Insurance reported net earned premiums of $109.2 million and an underwriting loss of $37.4 million compared to net earned premiums of $126.5 million and a loss of $57.1 million for the same period a year ago. For 2002, the combined ratio was 134.2 percent, down from 145.1 percent in 2001. The Company reports that the business written by the Specialty Workers' Compensation unit during the past two years is improving and reflects the Company's focus on underwriting discipline and risk management services. The unit was negatively impacted in the fourth quarter and year by adverse development in one large construction account written in 2000. Argonaut Insurance Company will withdraw from certain product lines within Specialty Workers' Compensation in a strategic effort to focus on those lines of business and market sectors that the Company believes offer the greatest potential for profitable growth. To more accurately reflect the business going forward the Company will begin referring to the "Specialty Workers' Compensation" business segment as "Risk Management" during the first quarter of 2003. Public Entity -- Trident Insurance Services underwrites Argonaut Group's Public Entity segment. Trident's net earned premiums for the fourth quarter were $4.8 million, versus $1.6 million for the same quarter in 2001. For the fourth quarter of 2002, Trident generated underwriting income of $0.2 million versus an underwriting loss of $0.1 million for the same period a year earlier. Trident's combined ratio during the fourth quarter was 96.2 percent, down from 106.2 percent during the same period a year earlier. For the year ended Dec. 31, 2002, Trident reported net earned premiums of $11.5 million and an underwriting loss of $0.3 million compared to net earned premiums of $4.1 million and a loss of $0.1 million for the same period a year ago. For 2002, the combined ratio was 102.3 percent versus 101.0 percent in 2001. Run-Off -- For the fourth quarter of 2002, the Company's Run-Off Operations incurred a pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta operating loss of $60.1 million. For the full year these operations incurred a pre-tax operating loss of $67.9 million. The loss for the year includes $59.8 million in reserve strengthening and a $7.2 million increase in 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. related to 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 this segment. 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 and regulations, 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, Texas “San Antonio” redirects here. For other uses, see San Antonio (disambiguation). San Antonio is the second most populous city in Texas, the third most populous metropolitan area in Texas, and is the seventh most populous city in the United States. As of the 2006 U.S. , 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 insurance products in niche areas of the property & casualty market. Through its operating subsidiaries An operating subsidiary is a business term frequently used within the United States railroad industry. In the case of a railroad, it refers to a company that is a subsidiary but operates with its own identity and rolling stock. , Argonaut Group offers high quality customer service in programs tailored to the needs of its customers' business and risk management strategies. Collectively, Colony Insurance, Rockwood Casualty Insurance Company, Argonaut Insurance Company, Argonaut Great Central, and Trident Insurance Services underwrite To insure; to sell an issue of stocks and bonds or to guarantee the purchase of unsold stocks and bonds after a public issue. The word underwrite has two meanings. a full line of products in four primary areas: Excess and Surplus, Specialty Commercial, Specialty Workers' Compensation, and Public Entity. Information on Argonaut Group and its subsidiaries is available at www.argonautgroup.com.
(Financials follow)
ARGONAUT GROUP INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except per share amounts)
December 31,
----------------------------
2002 2001
---------- ----------
Assets
Total investments $ 1,181.3 $ 1,153.2
Cash and cash equivalents 77.4 14.0
Accrued investment income 13.0 12.5
Receivables 691.7 444.4
Goodwill 105.7 102.4
Other assets 139.8 136.7
---------- ----------
Total assets $ 2,208.9 $ 1,863.2
========== ==========
Liabilities and Shareholders' Equity
Reserves for losses and loss adjustment
expenses $ 1,281.6 $ 1,147.8
Unearned premiums 284.9 163.7
Other liabilities 314.7 104.2
---------- ----------
Total liabilities 1,881.2 1,415.7
Total shareholders' equity 327.7 447.5
---------- ----------
Total liabilities and shareholders'
equity $ 2,208.9 $ 1,863.2
========== ==========
Book value per share $ 15.17 $ 20.75
========== ==========
ALL SEGMENTS
FINANCIAL HIGHLIGHTS
(in millions)
Three Months Ended Year Ended
December 31, December 31,
-------------------- --------------------
2002 2001 2002 2001
Gross Written Premiums $ 172.8 $ 99.6 $ 622.1 $ 271.7
Net Written Premiums 135.1 77.9 484.0 219.6
Earned Premiums 113.5 101.5 378.4 221.9
Net Investment Income 12.9 14.0 52.9 53.6
Gains on Sales of
Investments 11.4 3.6 26.6 17.1
--------- --------- --------- ---------
Total Revenue 137.8 119.1 457.9 292.6
Losses and Loss Adjustment
Expenses 139.5 81.8 334.6 189.7
Underwriting, Acquisition
and Insurance
Expenses 45.6 38.2 144.4 99.6
--------- --------- --------- ---------
Total Expenses 185.1 120.0 479.0 289.3
Income (Loss) Before Tax (47.3) (0.9) (21.1) 3.3
Income Tax Provision
(Benefit) 58.0 (0.3) 65.9 0.4
--------- --------- --------- ---------
Net Income $ (105.3) $ (0.6) $ (87.0) $ 2.9
========= ========= ========= =========
Net Income (Loss):
From Operations (112.7) (3.0) (104.3) (8.2)
From Sale of Investments 7.4 2.4 17.3 11.1
--------- --------- --------- ---------
Total Net Income: $ (105.3) $ (0.6) $ (87.0) $ 2.9
========= ========= ========= =========
Net Income (Loss) per
Common Share (Diluted):
From Operations $ (5.22) $ (0.14) $ (4.84) $ (0.38)
--------- --------- --------- ---------
From Sale of Investments $ 0.34 $ 0.11 $ 0.80 $ 0.51
--------- --------- --------- ---------
Total $ (4.88) $ (0.03) $ (4.04) $ 0.13
========= ========= ========= =========
Net Income (loss) per
Common Share (Basic): $ (4.88) $ (0.03) $ (4.04) $ 0.13
========= ========= ========= =========
Weighted Average Common
Shares (000's):
Basic 21,584.2 21,557.3 21,570.7 21,610.9
========= ========= ========= =========
Diluted 21,584.2 21,557.3 21,570.7 21,620.2
========= ========= ========= =========
ARGONAUT GROUP INC.
SEGMENT DATA
(in millions)
Three Months
Ended Year Ended
December 31, December 31,
----------------- -----------------
2002 2001 2002 2001
Excess & Surplus Lines:
--------------------------------
Gross Premiums Written $ 84.2 $ 38.8 $257.9 $ 50.5
Net Premiums Written 73.8 30.2 219.3 39.8
Premiums Earned 52.8 28.1 152.3 36.8
Underwriting Income 3.6 1.8 8.1 2.2
Loss Ratio 64.9 % 59.9 % 63.4 % 60.6 %
Expense Ratio 28.2 % 33.9 % 31.3 % 33.4 %
-------- -------- -------- --------
GAAP Combined Ratio 93.1 % 93.7 % 94.7 % 94.0 %
======== ======== ======== ========
Specialty Commercial:
--------------------------------
Gross Premiums Written $ 33.3 $ 27.5 $128.5 $ 64.2
Net Premiums Written 27.8 23.9 111.0 55.3
Premiums Earned 27.6 24.9 105.4 54.5
Underwriting Income (Loss) 0.3 2.8 0.3 (1.7)
Loss Ratio 75.2 % 65.3 % 70.9 % 73.8 %
Expense Ratio 23.8 % 23.6 % 28.8 % 29.2 %
-------- -------- -------- --------
GAAP Combined Ratio 99.0 % 88.9 % 99.7 % 103.0 %
======== ======== ======== ========
Specialty Workers Compensation:
--------------------------------
Gross Premiums Written $ 40.3 $ 29.6 $201.9 $144.3
Net Premiums Written 23.9 21.9 134.2 118.0
Premiums Earned 28.3 46.9 109.2 126.5
Underwriting Loss (15.0) (15.3) (37.4) (57.1)
Loss Ratio 97.3 % 111.4 % 86.5 % 102.2 %
Expense Ratio 55.7 % 21.2 % 47.7 % 42.9 %
-------- -------- -------- --------
GAAP Combined Ratio 153.0 % 132.6 % 134.2 % 145.1 %
======== ======== ======== ========
Public Entity:
--------------------------------
Gross Premiums Written $ 15.0 $ 3.7 $ 33.8 $ 12.7
Net Premiums Written 9.6 1.9 19.5 6.5
Premiums Earned 4.8 1.6 11.5 4.1
Underwriting Income (Loss) 0.2 (0.1) (0.3) (0.1)
Loss Ratio 72.7 % 70.5 % 70.3 % 72.8 %
Expense Ratio 23.5 % 35.7 % 32.0 % 28.2 %
-------- -------- -------- --------
GAAP Combined Ratio 96.2 % 106.2 % 102.3 % 101.0 %
======== ======== ======== ========
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 12, 2003
Argonaut Group, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 95-4057601
------------------------------- -------- -----------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
10101 Reunion Place, Suite 500
San Antonio, TX 78216
(Address of principal executive offices) (Zip code)
210.321.8400
(Registrant's telephone number including area code)
Not applicable
(Former name and former address, if changed since last report)
Item 5. Other Events Asbestos & Environmental Study Results Argonaut Insurance Company, a subsidiary of Argonaut Group, Inc. (the Company), has completed its previously announced study of asbestos and environmental (A&E) reserves and has strengthened its asbestos reserves by $52.8 million. The decision to strengthen asbestos reserves is the result of a comprehensive evaluation and review of exposure to asbestos claims, particularly in light of recent industry and litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. trends, actual claims experience, and actuarial analysis Actuarial Analysis The analysis of an investment's risk done by an actuary. Notes: A highly educated actuary will use statistics and historical data in an attempt to measure the risk of a particular investment. See also: Actuary, Life Insurance, Risk, Risk Averse by the Company's consulting and internal actuary actuary One who calculates insurance risks and premiums. Actuaries compute the probability of the occurrence of such events as birth, marriage, illness, accidents, and death. . Eliminated "and consultation with external auditors The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. ." Argonaut Insurance Company is exposed to asbestos liability at the primary level through claims filed against its direct insureds, as well as through its position as a reinsurer re·in·sure tr.v. re·in·sured, re·in·sur·ing, re·in·sures To insure again, especially by transferring all or part of the risk in a contract to a new contract with another insurance company. of other primary carriers. Argonaut Insurance Company's direct liability arises primarily from policies issued from the mid 1970s to early 1980s which pre-dated policy contract wording that excluded asbestos exposure. The majority of the policies were issued on behalf of small contractors or construction companies. The Company believes that the frequency and severity of asbestos claims for such insureds is typically less than that experienced for large, industrial manufacturing and distribution concerns. Argonaut Insurance Company also assumed risk as a reinsurer for a limited period of time, primarily for the period from 1970 to 1975. Argonaut Insurance Company reinsured risks on policies written by direct carriers. The reinsurance typically provided coverage for limits attaching at a relatively high dollar amount which are payable only after other layers of reinsurance are exhausted. Some of the claims now being filed on policies reinsured by Argonaut Insurance Company are on behalf of claimants who may have been exposed at some time to asbestos incorporated into buildings they occupied oc·cu·py tr.v. oc·cu·pied, oc·cu·py·ing, oc·cu·pies 1. To fill up (time or space): a lecture that occupied three hours. 2. To dwell or reside in. 3. , but who have no current medical problems resulting from such exposure. Additionally, lawsuits are being brought against businesses that were not directly involved in the manufacture or installation of materials containing asbestos. The Company believes that claims generated out of this population of claimants will likely be characterized char·ac·ter·ize tr.v. character·ized, character·iz·ing, character·iz·es 1. To describe the qualities or peculiarities of: characterized the warden as ruthless. 2. by high frequency but low severity, resulting in incurred losses generally lower than the asbestos claims filed over the past decade and that could be below Argonaut Insurance Company's attachment See attach a file. level. However, some uncertainty remains regarding the severity and frequency of future claims to the extent that other carriers and policyholders may not have provided notice of loss or addressed issues of coverage. Additional uncertainty is created by continued unfavorable trends in the insurance industry related to asbestos. All of these factors were considered as part of the decision to strengthen reserves in the fourth quarter of 2002. Although legislative reform for class action lawsuits class action lawsuit A lawsuit in which one party or a limited number of parties sue on behalf of a larger group to which the parties belong. For example, investors may bring a class action lawsuit against a brokerage firm that has actively promoted a tax , judicial and legislative actions imposing minimum proof requirements, and other tort-related reforms are possible in the near term, the study did not take these mitigating mit·i·gate v. mit·i·gat·ed, mit·i·gat·ing, mit·i·gates v.tr. To moderate (a quality or condition) in force or intensity; alleviate. See Synonyms at relieve. v.intr. To become milder. factors into account in evaluating the severity or frequency of claims. Argonaut Insurance Company's net A&E reserves for the last three years are shown below:
In Thousands 2002 2001 2000
--------------------------------------- --------- --------- ---------
Beginning reserves, net $130,659 $152,293 $164,533
--------------------------------------- --------- --------- ---------
Incurred Loss/LAE 61,440 (5,789) 9,118
--------------------------------------- --------- --------- ---------
Paid Losses 13,815 15,845 21,358
--------------------------------------- --------- --------- ---------
Ending Reserves, net 178,284 130,659 152,293
--------------------------------------- --------- --------- ---------
Survival ratio
--------------------------------------- --------- --------- ---------
1-yr 12.9 8.3 7.1
--------------------------------------- --------- --------- ---------
3-yr 10.5 8.7 9.6
--------------------------------------- --------- --------- ---------
Survival ratio excluding buy backs and
commutations
--------------------------------------- --------- --------- ---------
1-yr 13.3 11.8 14.5
--------------------------------------- --------- --------- ---------
3-yr 15.3 13.3 12.5
--------------------------------------- --------- --------- ---------
Survival ratio is defined as the number of years that existing reserves exist if the current level of average annual payments for the respective 1- or 3-year period is constant. Adverse Loss Development Reinsurance Coverage Effective December 31, 2002, Argonaut Insurance Company entered into an adverse loss development reinsurance contract placed with Inter To cross over boundaries; for example, internetwork means from one network to another. Contrast with intra. Ocean Reinsurance, Ltd. The coverage, which provides sub-limits for certain types of coverage, extends to the major casualty lines of business for Argonaut Insurance Company and its insurance subsidiaries. The reinsurance treaty Reinsurance Treaty (June 18, 1887) Secret agreement between Germany and Russia. Arranged by Otto von Bismarck after the collapse of the Three Emperors' League, it provided that each party would remain neutral if either became involved in a war with a third nation, and that covers workers' compensation, commercial multi-peril and general liability, and includes coverage for the asbestos and environmental claims. Of the $52.8 million increase to asbestos reserves, $40 million was ceded under the coverage and recorded as a deferred gain under generally accepted accounting practices (GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ). Statutory accounting rules differ from GAAP and treat the $40 million cession The act of relinquishing one's right. A surrender, relinquishment, or assignment of territory by one state or government to another. The territory of a foreign government gained by the transfer of sovereignty. CESSION, contracts. as a component of "Other Income" in the statutory income statement. As a result of the reserve strengthening, statutory surplus was reduced by $12.8 million on a pre-tax basis. Risk Based Capital The Company's insurance subsidiaries are subject to the Risk-Based Capital ("RBC RBC red blood cell. RBC or rbc abbr. red blood cell RBC, n See red blood cell count. RBC red blood cells; red blood (cell) count (see blood count). ") provisions as promulgated prom·ul·gate tr.v. prom·ul·gat·ed, prom·ul·gat·ing, prom·ul·gates 1. To make known (a decree, for example) by public declaration; announce officially. See Synonyms at announce. 2. by the National Association of Insurance Commissioners The National Association of Insurance Commissioners (NAIC) is an Internal Revenue Code Section 501(c)(3) non-profit organization which seeks to organize the regulatory and supervisory efforts of the various state insurance commissioners from around the United States. . RBC is designed to measure the capital adequacy of an insurer An individual or company who, through a contractual agreement, undertakes to compensate specified losses, liability, or damages incurred by another individual. An insurer is frequently an insurance company and is also known as an underwriter. based on the inherent specific risks of each insurer and is calculated annually. The RBC calculation yields a ratio of the total adjusted statutory capital of an insurance company to the minimum level of statutory required capital as calculated under the provisions of the RBC model. The RBC calculation takes into account: (1) asset risk, (2) credit risk, (3) underwriting risk, and (4) all other relevant risks. Growth in premiums written and loss reserves, together with a reduction in the amount of an insurance company's statutory surplus, can negatively affect RBC ratios. During the year ended December 31, 2002, the Company experienced growth in both premiums and loss reserves. Additionally, trends in the equity markets resulted in a reduction in the unrealized gains Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. in the investment portfolios of the insurance subsidiaries, thereby reducing adjusted statutory surplus. The RBC for The Insurers Model Act provides four levels of 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. activity if the RBC ratio yielded by the calculation falls below specified spec·i·fy tr.v. spec·i·fied, spec·i·fy·ing, spec·i·fies 1. To state explicitly or in detail: specified the amount needed. 2. To include in a specification. 3. minimums. At each of four successively suc·ces·sive adj. 1. Following in uninterrupted order; consecutive: on three successive days. 2. lower RBC ratios specified by statute statute, in law, a formal, written enactment by the authorized powers of a state. The term is usually not applied to a written constitution but is restricted to the enactments of a legislature. , increasing regulatory remedies become available, some of which are mandatory. The four levels are: (1) Company Action Level Event, (2) Regulatory Action Level Event, (3) Authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: Control Level Event, and (4) Mandatory Control Level Event. The Company's RBC was at the "Company Action Level Event" for the year ended December 31, 2002. At this level, the regulated 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. insurer is required to submit a Comprehensive Plan of Action to the regulatory body detailing the steps it is taking to raise the RBC ratio above the minimum specified by statute. The regulated insurer's independent auditors Independent Auditor An external auditor with a certified public accounting designation that qualifies him or her to provide an auditor's report. Notes: These auditors aren't affiliated with the company being audited. will review management's plans to mitigate mit·i·gate v. To moderate in force or intensity. mit  i·ga tion n. any adverse effects of
non-compliance with the minimum RBC requirement in order evaluate the
likelihood that regulatory actions could place in doubt the ability of
the Company to continue operations in its current configuration, thereby
requiring an explanatory ex·plan·a·to·ry adj. Serving or intended to explain: an explanatory paragraph. ex·plan paragraph related to this uncertainty in the report of independent auditors. Argonaut Insurance Company will be submitting its formal plan to the California Department of Insurance The California Department of Insurance (CDI), established in 1868, is the angency charged with overseeing the regulation of insurance regulations, enforcing statutes mandating consumer protections, educating consumers, and fostering the stability of insurance markets in the state detailing certain capital events, including the proposed sale of real estate and private equity transactions, expected to increase its statutory surplus prior to March 31, 2003 and has no reason to believe that any additional regulatory activity regarding RBC other than additional reporting requirements will be required prior to filing its annual RBC ratio for the calendar year 2003. FORWARD-LOOKING STATEMENTS Statements made in this filing are forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. and contain information about financial results, economic conditions, trends and known uncertainties. Words such as "believes," "expects," "may," "potential," "continued," "plans," "estimates," "anticipates," or similar words are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based on currently available financial, competitive and economic data and our current operating plans based on assumptions regarding future events. Our actual results could differ materially from those expected by our management. They are subject to various risks and uncertainties that could cause actual results to vary materially.
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of
1934, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned hereunto duly authorized:
ARGONAUT GROUP INC.
March 12, 2003 By: /s/ Mark E. Watson, III
-------------------------------------
Mark E. Watson, III
President (Principal Executive Officer)
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