Argonaut Group Announces 2004 Second Quarter Results; Company's First Two Quarters Produced Record Earned Premiums and Continued Profitable Growth.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:AGII) today announced financial results for the three months ended June June: see month. 30, 2004. Highlights for the 2004 second quarter include the following: --Earned premiums for the three months ended June 30, 2004 were a record $157.0 million. --The Company's consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). combined ratio was 96.7 percent versus 106.2 percent for the second quarter of 2003. --Underwriting income was $5.1 million versus an 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. loss of $8.8 million in the second quarter of 2003. --For the fourth consecutive quarter, all four of Argonaut Group's continuing business segments generated operating profits Operating profit (or loss) Revenue from a firm's regular activities less costs and expenses and before income deductions. operating profit See operating income. . Commenting on the Company's second quarter performance, Argonaut Group President and Chief Executive Officer Mark E. Watson III said, "We are pleased to report another solid quarter of financial results and consistent earnings. Each of our four business segments contributed to the Company's positive performance as they continue to deliver sequential One after the other in some consecutive order such as by name or number. operating improvements while expanding our presence in the markets we serve." Mr. Watson said, "As market dynamics change, we intend to maintain underwriting discipline over the longer term." During the second quarter, Argonaut Group completed three trust preferred offerings totaling $36.8 million in net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). , which will be used for additional capital for the Company's operating units operating unit A type of operating company that engages in transactions with outsiders and that is owned by another business. For example, in 1995 the stockholders of Capital Cities/ABC approved a $19 billion merger with the Walt Disney Company, whereupon . Additionally, A.M. Best Company reaffirmed its ratings of the Company's insurance subsidiaries during the second quarter. FINANCIAL RESULTS During the second quarter of 2004, Argonaut Group reported net income after tax of $17.9 million or $0.58 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 30.7 million shares. During the same quarter in 2003, Argonaut Group net income, which included a tax benefit of $9.4 million and pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta 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. of $7.7 million, was $19.7 million or $0.80 per diluted common share on 24.6 million shares. Second quarter 2004 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. , which the Company believes is another meaningful measure of Argonaut Group's performance, was $18.4 million versus operating income of $2.6 million for the same period in 2003. Operating income includes corporate, interest and other expenses, which during the second quarter of 2004 totaled $4.0 million versus $1.1 million for the second quarter of 2003. Operating income 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) in that operating income excludes income tax expense and net realized investment gains and losses. Operating income for the quarter ended June 30, 2004 excludes net realized investment losses of $0.5 million and income tax expense of $0. Operating income for the quarter ended June 30, 2003 excludes net realized investment gains of $7.7 million and income tax benefit of $9.4 million. Total revenue for the quarter was $172.2 million versus $165.9 million for the same period a year ago. 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. for the three months ended June 30, 2004, rose 8.4 percent to $157.0 million compared to $144.9 million during the 2003 second quarter. Total revenue includes realized gains/losses on sales of investments, which were a $0.5 million loss and $7.7 million gain for the second quarters of 2004 and 2003, respectively. For the three months ended June 30, 2004, the Company incurred no tax expense as the deferred tax valuation allowance was reduced to the extent tax expense was generated. For the three months ended June 30, 2003, Argonaut Group's income tax benefit was $9.4 million. At June 30, 2004, the net deferred tax asset, after considering the valuation allowance of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $36.8 million, was $45.7 million. The Company expects it will ultimately realize the deferred tax asset in the future and regularly evaluates the deferred tax asset valuation allowance. For the six months ended June 30, 2004, the Company reported net income after tax of $36.2 million or $1.18 per diluted common share on 30.7 million shares. During the same six-month period in 2003, Argonaut Group net income of $53.3 million or $2.31 per diluted common share included a $1.91 per share gain from sales of real estate and other investments. For the first six months of 2004, book value on a fully diluted basis increased 2.9 percent to $18.16 per share at June 30, 2004 versus $17.65 per share at Dec. 31, 2003. SEGMENT RESULTS Excess & Surplus Lines (E&S) - For the second quarter of 2004, gross written premiums for the E&S segment increased 11.1 percent to $110.4 million, generating operating income of $13.3 million, compared to gross written premiums of $99.4 million and operating income of $10.9 million for the same period in 2003. The GAAP combined ratio for the second quarter of 2004 was 88.9 percent versus 90.7 percent for the same period in 2003. Risk Management - For the second quarter of 2004, gross written premiums for the Risk Management segment were $41.5 million, generating operating income of $4.5 million, compared to gross written premiums of $53.1 million and an 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. of $8.7 million for the same period in 2003. The GAAP combined ratio for the second quarter of 2004 was 109.7 percent versus 143.0 percent for the same period in 2003. 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. Commercial Lines - For the second quarter of 2004, gross written premiums for the Specialty Commercial segment increased 52.0 percent, largely due to a renewal rights transaction, to $54.1 million and generated operating income of $3.7 million. This compares to gross written premiums of $35.6 million and operating income of $1.2 million for the same period in 2003. The GAAP combined ratio for the second quarter of 2004 was 96.8 percent versus 104.5 percent for the same period in 2003. Public Entity - For the second quarter of 2004, gross written premiums for the Public Entity segment were $15.6 million, generating operating income of $0.9 million, compared to gross written premiums of $11.4 million and operating income of $0.3 million for the same period in 2003. The GAAP combined ratio for the second quarter of 2004 was 96.1 percent versus 97.4 percent for the same period in 2003. CONFERENCE CALL Argonaut Group will webcast an investor conference call at 12:00 p.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 (11:00 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 ) Thursday Thursday: see week. , July July: see month. 29, 2004. The call will be accessible on Argonaut Group's investor relations Investor relations The process by which the corporation communicates with its investors. Web page, which can be found by visiting www.argonautgroup.com and clicking "investor relations." The conference call will also be available via telephone, at 800-901-5241 (pass code 45295608). Recorded replays of the conference call will be available on the web site, and by telephone at 888-286-8010 (pass code 17880531), beginning one hour after the call's completion. 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, 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 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. Argonaut Group's assets totaled approximately $2.9 billion at June 30, 2004. 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 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 Company, Rockwood Rock´wood` n. 1. (Min.) Ligniform asbestus; also, fossil wood. 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, Risk Management, and Public Entity. Information on Argonaut Group and its subsidiaries is available at www.argonautgroup.com.
ARGONAUT GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except per share amounts)
June 30, December 31,
2004 2003
---------- ------------
(unaudited)
Assets
Total investments $ 1,622.2 $ 1,553.2
Cash and cash equivalents 28.1 75.6
Accrued investment income 16.0 14.6
Receivables 824.9 781.1
Goodwill 106.3 105.7
Other assets 265.0 236.3
---------- ------------
Total assets $ 2,862.5 $ 2,766.5
========== ============
Liabilities and Shareholders' Equity
Reserves for losses and loss adjustment
expenses $ 1,509.9 $ 1,480.8
Unearned premiums 360.8 353.3
Other liabilities 436.2 393.2
---------- ------------
Total liabilities 2,306.9 2,227.3
Total shareholders' equity 555.6 539.2
---------- ------------
Total liabilities and shareholders'
equity $ 2,862.5 $ 2,766.5
========== ============
Book value per common share - basic $ 20.10 $ 19.54
========== ============
Book value per common share - diluted (a) $ 18.16 $ 17.65
========== ============
(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,
--------------------- ---------------------
2004 2003 2004 2003
(unaudited) (unaudited)
Gross Written Premiums $ 221.6 $ 199.5 $ 421.7 $ 373.5
Net Written Premiums 163.8 146.9 309.0 277.7
Earned Premiums 157.0 144.9 310.8 269.0
Net Investment Income 15.7 13.3 30.4 26.8
Gains (Losses) on Sales of
Investments (0.5) 7.7 2.0 63.7
--------- --------- --------- ---------
Total Revenue 172.2 165.9 343.2 359.5
Losses and Loss Adjustment
Expenses 96.3 101.5 192.3 188.8
Underwriting, Acquisition
and Insurance Expense 55.6 52.2 110.2 99.6
Interest Expense 2.4 1.9 4.5 4.1
--------- --------- --------- ---------
Total Expenses 154.3 155.6 307.0 292.5
Income Before Tax 17.9 10.3 36.2 67.0
Income Tax Provision 6.3 3.3 12.3 26.1
Change in Deferred Tax
Valuation Allowance (6.3) (12.7) (12.3) (12.4)
--------- --------- --------- ---------
Net Income $ 17.9 $ 19.7 $ 36.2 $ 53.3
========= ========= ========= =========
Net Income (Loss):
From Operations $ 18.4 $ 2.6 $ 34.2 $ 3.3
From Sale of Investments (0.5) 7.7 2.0 63.7
--------- --------- --------- ---------
Income Before Taxes 17.9 10.3 36.2 67.0
Income Tax Provision
(Benefit) - (9.4) - 13.7
--------- --------- --------- ---------
Total Net Income: $ 17.9 $ 19.7 $ 36.2 $ 53.3
========= ========= ========= =========
Net Income per Common
Share (Basic): $ 0.63 $ 0.89 $ 1.27 $ 2.44
========= ========= ========= =========
Net Income per Common
Share (Diluted): $ 0.58 $ 0.80 $ 1.18 $ 2.31
========= ========= ========= =========
Weighted Average Common
Shares (000's):
Basic 27,619.1 21,607.0 27,607.8 21,605.3
========= ========= ========= =========
Diluted 30,737.6 24,579.5 30,728.1 23,116.0
========= ========= ========= =========
ARGONAUT GROUP, INC.
SEGMENT DATA
(in millions, except ratios percentages)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
2004 2003 2004 2003
(unaudited) (unaudited)
Excess & Surplus Lines
----------------------
Gross Written Premiums $110.4 $ 99.4 $210.1 $184.1
Net Written Premiums 82.0 77.3 153.3 152.0
Earned Premiums 75.4 72.5 149.4 134.5
Underwriting Income $ 8.4 $ 6.8 $ 15.6 $ 11.3
Net Investment Income 4.9 4.1 9.6 7.5
------- -------- ------- -------
Operating Income Before
Taxes $ 13.3 $ 10.9 $ 25.2 $ 18.8
======= ======== ======= =======
Loss Ratio 59.1 % 60.3 % 59.6 % 61.1 %
Expense Ratio 29.8 % 30.4 % 30.0 % 30.5 %
------- -------- --------- -------
GAAP Combined Ratio 88.9 % 90.7 % 89.6 % 91.6 %
======= ======== ======= =======
Risk Management
---------------
Gross Written Premiums $ 41.5 $ 53.1 $ 84.6 $ 96.7
Net Written Premiums 24.8 31.5 51.3 51.3
Earned Premiums 32.5 35.6 66.9 64.1
Underwriting Loss $ (3.2) $ (15.3) $ (5.8) $(30.6)
Net Investment Income 7.7 6.6 14.7 13.9
------- -------- ------- -------
Operating Income (Loss)
Before Taxes $ 4.5 $ (8.7) $ 8.9 $(16.7)
======= ======== ======= =======
Loss Ratio 62.8 % 88.8 % 64.1 % 90.6 %
Expense Ratio 46.9 % 54.2 % 44.6 % 57.2 %
------- -------- --------- -------
GAAP Combined Ratio 109.7 % 143.0 % 108.7 % 147.8 %
======= ======== ======= =======
Specialty Commercial
--------------------
Gross Written Premiums $ 54.1 $ 35.6 $ 95.3 $ 70.0
Net Written Premiums 45.1 31.0 80.0 60.8
Earned Premiums 35.1 30.2 66.9 58.3
Underwriting Income (Loss) $ 1.1 $ (1.3) $ 1.2 $ (1.2)
Net Investment Income 2.6 2.5 5.1 4.7
------- -------- ------- -------
Operating Income Before
Taxes $ 3.7 $ 1.2 $ 6.3 $ 3.5
======= ======== ======= =======
Loss Ratio 65.9 % 75.1 % 65.9 % 72.4 %
Expense Ratio 30.9 % 29.4 % 32.2 % 29.7 %
------- -------- ------- -------
GAAP Combined Ratio 96.8 % 104.5 % 98.1 % 102.1 %
======= ======== ======= =======
Public Entity
-------------
Gross Written Premiums $ 15.6 $ 11.4 $ 31.7 $ 22.7
Net Written Premiums 11.9 7.1 24.4 13.6
Earned Premiums 14.0 6.6 27.6 12.1
Underwriting Income $ 0.6 $ 0.2 $ 1.1 $ 0.3
Net Investment Income 0.3 0.1 0.7 0.3
------- -------- ------- -------
Operating Income Before
Taxes $ 0.9 $ 0.3 $ 1.8 $ 0.6
======= ======== ======= =======
Loss Ratio 62.1 % 65.0 % 62.4 % 65.1 %
Expense Ratio 34.0 % 32.4 % 33.6 % 32.9 %
------- -------- --------- -------
GAAP Combined Ratio 96.1 % 97.4 % 96.0 % 98.0 %
======= ======== ========= =======
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