Argonaut Group to Issue Convertible Preferred Stock For Private Equity Investment Led by HCC Insurance Holdings.

Business Editors/Insurance Writers

SAN ANTONIO--(BUSINESS WIRE)--March 12, 2003

Argonaut Group Inc. (Nasdaq:AGII) announced today that it had signed a definitive agreement with HCC Insurance Holdings Inc. (NYSE:HCC) to lead a private placement of $58 million in new equity capital in the form of convertible preferred stock.

This investment will enable Argonaut to increase the statutory surplus of their insurance company subsidiaries and their Risk Based Capital.

The agreement calls for HCC to purchase at least $34.6 million of Argonaut Group preferred stock, which is convertible at the option of the holder at any time into Argonaut Group common stock (9.9% of the fully diluted outstanding shares) at a conversion price of $13.50 per share. The preferred stock will be automatically converted into Argonaut Group common stock after ten years. The preferred stock will initially pay a 7 percent dividend on a quarterly basis and is subject to certain adjustments based upon the Company's A.M. Best rating and Risk Based Capital level. Holders of the preferred stock will be entitled to vote on an as-converted basis on all matters submitted for the vote of the Argonaut Group common shareholders. Under the terms of the preferred stock, Argonaut Group has agreed to suspend payment of dividends on the Company's common stock for two years.

"We are excited to pursue this investment with HCC, which has an outstanding reputation in the property and casualty insurance industry," stated Mark E. Watson, III, President and Chief Executive Officer of Argonaut. "HCC's investment not only provides timely capital support, but also the opportunity to work with them on other mutually beneficial opportunities.

Stephen L. Way, Chairman and Chief Executive Officer of HCC said, "Mark Watson and his team have built a good business while having to successfully deal with legacy issues that they inherited". Mr. Way added, "We are very pleased to be an important part of the future of this specialty insurer."

Argonaut expects to close the transaction during the first quarter of 2003, subject to various closing conditions, including Argonaut Group's issuing a total of $58 million of preferred stock to HCC and other investors, the sale of certain real estate owned by Argonaut Group and customary closing conditions, including receipt of any required regulatory approvals.

Merrill Lynch & Co. acted as an advisor to Argonaut in the transaction.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy the preferred stock or the common stock issuable upon conversion of such preferred stock. Neither the preferred stock nor the shares of common stock issuable upon conversion of such preferred stock have been or will be registered under the Securities Act of 1933 or any state securities laws and may not be offered or sold in the United States absent such registration or an applicable exemption from such registration.

FORWARD-LOOKING STATEMENTS DISCLOSURE

This news release contains "forward-looking statements" which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act 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 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, Argonaut Group Inc. (Nasdaq:AGII) is a national underwriter of specialty insurance products in niche areas of the property & casualty market. Through its operating subsidiaries, 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 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.