Best Affirms Argo Group International and Subs Ratings

June 21, 2011

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of Bermuda-based Argo Re Ltd. and its subsidiaries.

Best also affirmed the ICR of “bbb” and debt ratings of the parent holding company, the bermuda-based Argo Group International Holdings, Ltd. The outlook for all of the ratings is stable.

“These ratings consider Argo Group’s first quarter earnings announcement and take into account the group’s experienced management team, product expertise in niche focus areas and the strong historical operating performance at Argo Re’s subsidiaries,” Best noted. “Despite the $113 million of catastrophe losses included in the first quarter results, Argo Re remains very well capitalized.” Best said it “expects that Argo Re’s operating performance and capitalization will continue to support the ratings.

“The ratings also consider Argo Group’s first quarter 2011 conservative debt-to-capital ratio of 19.9 percent, strong interest coverage and the diversified insurance and reinsurance platform that Argo Re maintains. The U.S. specialty operations are managed holistically with respect to capital, investment strategy and market presence. Argo Re, as the lead insurer, maintains a growing book of unaffiliated, third-party reinsurance business and also assumes risk via quota share reinsurance agreements with its subsidiaries. Argo Group also has recently increased its participation in Syndicate 1200 from 61 percent to 67 percent.”

As partial offsetting factors Best cited “the highly competitive environment characterized by significant price competition and the effects from continued difficult economic conditions. These factors, coupled with the planned exit from certain business classes, have exerted pressure on Argo Group’s top line and expense ratio. In addition, management continues to work through integration issues at its Syndicate 1200 segment.”

Best summarized its rating action on Argo as follows: The FSR of A (Excellent) and ICRs of “a” has been affirmed for Argo Re Ltd. and its following subsidiaries:
* Argonaut Great Central Insurance Company
* Argonaut Insurance Company
* Argonaut Limited Risk Insurance Company
* Argonaut-Midwest Insurance Company
* Argonaut-Southwest Insurance Company
* Colony Insurance Company
* Colony National Insurance Company
* Colony Specialty Insurance Company
* Rockwood Casualty Insurance Company
* Select Markets Insurance Company
* Somerset Casualty Insurance Company

The following indicative debt ratings available under the shelf registration have been affirmed:
Argo Group International Holdings, Ltd.—
— “bbb” on senior unsecured debt
— “bbb-” on subordinated debt
— “bb+” on preferred stock

Argo Group Statutory Trust—
— “bb+” on preferred stock

Source: A.M. Best

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