Argonaut Group Ratings Raised; Outlook Stable

Standard & Poor’s Ratings Services announced it raised its counterparty credit rating on San Antonio-based Argonaut Group Inc. to “BBB-” from “BB+.”

At the same time, S&P raised its counterparty credit and financial strength ratings on Argonaut Group Inc.s operating insurance companies to “A-” from “BBB+.”

S&P also raised its preferred stock rating on Argonaut by two notches to “BB” from “B+.” The notching between the preferred stock rating and holding company counterparty credit rating was narrowed to two notches in accordance with our criteria for investment-grade ratings.

The outlook on Argonaut and its subsidiaries is stable.

“The upgrade reflects Argonauts improved and strong capitalization as of year-end 2004, improved earnings, improved competitive position, successful execution of its strategic focus on niche markets where it can excel, and a level of financial leverage supportive of the rating,” explained S&P credit analyst Jason Jones.

Partially offsetting these strengths are capital considerations and underwriting results that, while profitable, are not yet as strong as some of its competitors. S&P expects underwriting results to continue improving in 2005 with a combined ratio of 95 percent to 96 percent, driven by strong results in excess and surplus lines, lower expected catastrophe losses, and continued consistent underwriting profits from the Select Markets and Public Entity segments.

Premium growth is expected to slow in 2005 but should continue to benefit from the generally favorable pricing environment in casualty excess and surplus lines and the impact of past renewal rights transactions. Despite the strain of new business volume, capital adequacy is expected to remain strong, as earnings support growth. Holding company fixed-charge coverage is expected to improve to 7x in 2005 from an already strong 6x in 2004, and debt plus preferred financial leverage is expected to remain at roughly its year-end 2004 level of 21 percent.

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