Argo Group Begins Reorganization; Best Raises Peleus Re Ratings

The Bermuda-based Argo Group International Holdings, Ltd. (which includes Argonaut Insurance) announced that its U.S. and Bermuda subsidiaries will be restructured to create a new organizational platform for 2008.

“Under the new structure, all U.S. subsidiaries of Argo will be wholly owned by one intermediate U.S. holding company,” said the bulletin. “Argo will merge two intermediate Delaware holding companies: Argonaut Group, Inc., which owns the assets of the former U.S. publicly traded company by the same name, and PXRE Corporation, which owns Connecticut domiciled carrier PXRE Reinsurance Company, and will be the surviving entity in the merger. The unified U.S. holding company will go forward under the name Argonaut Group, Inc. and continue to be led by Dale H. Pilkington as president.”

Argo also said it “plans to amalgamate (merge) two of its Bermuda domiciled insurance companies, Peleus Reinsurance Ltd. and PXRE Reinsurance Ltd., into one Bermuda Class 4 general business insurer. With surplus of approximately of $1.3 billion, the combined Peleus Reinsurance Ltd. will continue to execute on Argo’s existing business plan for its Bermuda reinsurance operations under the leadership of Andrew Carrier as president.”

A.M. Best reacted to the decision with an announcement that it has upgraded Peleus Re’s financial strength rating to ‘A’ (Excellent) from ‘A-‘ (Excellent) and issuer credit rating (ICR) to “a” from “a-” and that it maintains a stable outlook on the reinsurer’s ratings.

Carrier indicated that he is “delighted to be joining Argo at a time when the company is upgrading its platform to support future growth and enhance profitability.”

Argo’s President and CEO Mark E. Watson III explained the decision to reorganize the Group came after “a careful examination of Argo’s combined holdings resulting from the merger of Argonaut Group, Inc. and PXRE Group Ltd.” He indicated that “additional opportunities for operational and financial efficiency can be unlocked through this reorganization,” as the new “structure also aligns our business to better fit the needs of Argo Group as an international organization and positions us well to prosper in today’s competitive marketplace.”

Best essentially said it had raised Peleus Re’s ratings for the same reasons Watson cited. Best added that it had also taken into account “Peleus’ experienced management team, prudent business plan and the expectation that all existing liabilities assumed from its announced amalgamation (merger) with PXRE Reinsurance Ltd. (PXRE) (Hamilton, Bermuda) will be run off in an orderly fashion. An analysis of current and pro-forma cash flows indicates that sufficient capital exists to support existing financial obligations.”

Best also noted that following the merger it has withdrawn the FSR of ‘B+’ (Good) and ICR of “bbb-” of PXRE.

In addition Best noted that the positive rating factors are partially offset “by the potential for additional adverse loss reserve development, although prior year loss reserves have been stable during calendar years 2006 and 2007.” Peleus Re is also “susceptible to high severity events” and “will be challenged by increased competition from both established companies and start-ups seeking to gain market share.”

Source: Argo Group – www.argolimited.com. and A.M. Best – www.ambest.com/ratings.

Topics USA Reinsurance