Despite gains in three of its four business segments, San Antonio-based Argonaut Group said it posted a $105.3 million net loss for the fourth quarter 2002 and an $87.0 million net loss for the year. The 2002 net loss was due to a $52.8 million strengthening of the asbestos reserves for run-off lines in Argonaut Insurance Company and the establishment of a partial valuation allowance of $71.9 million against Argonaut Group’s deferred tax asset. The company believes the deferred tax asset will be realized through future net income.
By comparison, Argonaut Group recorded an net loss of $0.6 million in the fourth quarter 2001 and net income of $2.9 million for the year 2001.
The company also announced it will sell off $58 million of convertible preferred stock, which Argonaut said will enable it to increase the statutory surplus of the insurance subsidiaries and the company’s Risk Based Capital. Argonaut signed an agreement with HCC Insurance, under which HCC will buy at least $34.6 million of preferred stock, convertible into Argonaut common stock at $13.50 per share.
For the year ended Dec. 31, 2002, total revenue was $457.9 million, versus revenue of $292.6 million during 2001. Total revenue for the fourth quarter 2002, which includes earned premiums, investment income and net gains on sales of investments, was $137.8 million compared to $119.1 million for the same period in 2001.
In the first half of 2003, Argonaut Insurance Company will reorganize 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 a reorganization charge of approximately $3 million in the first quarter of 2003. A company spokesperson told Reuters that the cutback would affect from 7 to 8 percent of its current workforce 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.
Three of the group’s business units posted gains in revenue and lowered combined ratios under 100 percent the fourth quarter 2002. In The GAAP combined ratio for Argonaut’s core operations exclusive of Run-Off lines improved during the year to 108.7 percent compared to 130.4 percent for 2001.
The Excess & Surplus (E&S) segment, led by Colony Insurance group, 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. Colony was acquired by Argonaut in the third quarter of 2001. For the fourth quarter, net earned premiums for E&S lines were $52.8 million, generating underwriting income 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 of a SCOR subsidiary, Fulcrum Insurance Company.
The company’s Specialty Commercial Lines segment, which includes Rockwood Casualty Insurance Company and Argonaut Great Central Insurance Company, reported net earned premiums of $27.6 million and underwriting income of $0.3 million for the fourth quarter 2002, 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.
Trident Insurance Services, which underwrites Argonaut Group’s Public Entity segment, had net earned premiums for the fourth quarter or $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.
The Specialty Workers’ Compensation unit, now called Risk Management, showed net earned premiums of $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 said the business written by the Specialty Workers’ Compensation unit during the past two years is improving and reflects Argonaut’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.
For the fourth quarter of 2002, the company’s Run-Off Operations incurred a pre-tax 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 related to reinsurance balances recoverable in this segment.
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