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San Antonio-based Argonaut Group, Inc. announced financial results for the three months ended March 31.
First quarter highlights:
*The company’s Excess & Surplus Lines (E&S) segment reported a 107 percent increase in gross written premium and 172 percent increase in income before taxes for the first quarter of 2003 compared to the same period in 2002. For the quarter the segment represented 49 percent of Argonaut Group’s total gross written premium. The GAAP combined ratio for the segment was 92.6 percent for the quarter, compared to 97.5 percent in the same quarter a year ago;
*Three of the company’s four segments reported improved combined ratios, each under 100 percent, compared to the same quarter one year ago;
*Gross written premium increased by 42 percent over the same period one year ago to $173.9 million versus $122.8 million in the first quarter of 2002;
*Capital (shareholder’s equity) increased by $64.5 million in the quarter through issuance of mandatory convertible preferred stock, sale of real estate and earnings.
During the first quarter of 2003, Argonaut reported net income of $33.6 million or $1.55 per diluted common share on 21.6 million shares, which included a one-time $34.2 million (net of tax) or $1.58 per share gain from sales of select real estate holdings, compared to net income of $7.5 million or $0.34 per diluted share, for the same three-month period in 2002.
The company reported operating income(a) of $0.4 million or $0.02 per diluted common share, compared to net operating income of $2.2 million or $0.10 per diluted share for the same period in 2002. First quarter operating income was adversely affected by a $5.0 million strengthening of reserves for adverse development in lines of business that the company has previously announced it is exiting.
Additionally, the company incurred a $1.0 million restructuring charge for the previously announced reorganization of its Risk Management segment. The company expects to incur an additional charge of approximately $2.0 million over the next two quarters to complete the restructuring. Operating results exclude gains on sales of investments, including real estate, which totaled $33.2 million after tax during the first quarter of 2003 versus $5.3 million during the same period of 2002.
“The focus on our core competencies continues to help us build a solid foundation,” Mark Watson III, president and CEO of Argonaut Group, Inc., said “Our diversification and focus on underwriting discipline has positioned us to take advantage of favorable market conditions in the coming quarters.”
SEGMENT RESULTS
Excess & Surplus Lines (E&S) – For the first quarter of 2003, gross written premiums for E&S lines were $84.6 million, generating underwriting income before taxes of $7.9 million and a combined ratio of 92.6 percent. This is compared to gross written premiums of $40.9 million, income before taxes of $2.9 million and a combined ratio of 97.5 percent for the same period in 2002.
Risk Management (formerly Specialty Workers’ Compensation)- Gross written premiums were $43.6 million for the three months ended March 31, 2003, resulting in a pre-tax loss of $8.0 million, compared to gross written premiums of $47.2 million and a pre-tax loss of $1.3 million for the same period in 2002. For the first quarter, the combined ratio in this segment was 153.6 percent versus 133.5 percent a year earlier. The increase in combined ratio is primarily attributable to the restructuring charge and strengthening of reserves for adverse development in one large construction account in lines of business that the company has previously announced it is exiting.
Specialty Commercial Lines – During the first quarter of 2003, these companies contributed gross written premiums of $34.4 million and pre-tax income of $2.3 million, compared to gross written premiums of $29.8 million and a pre-tax income of $2.0 million during the same period in 2002. For the first quarter of 2003, the combined ratio was 99.5 percent versus 102.3 percent during the same period in 2002.
Public Entity – Gross written premiums for the first quarter of 2003 were $11.3 million versus $4.9 million for the same quarter in 2002. During the first quarter of 2003, Trident generated income before taxes of $0.3 million versus a loss of $0.1 million for the same period a year earlier. The segment’s combined ratio during the first quarter was 98.8 percent, down from 112.7 percent during the same period a year earlier.
(a) In addition to providing net income (loss), Argonaut Group provides operating income (loss) as the company believes that it is a meaningful measure of the profit or loss generated by our operating segments. Operating income (loss) differs from net income (loss) under accounting principals generally accepted in the United States (GAAP) in that the company excludes net realized investment gains and losses. Operating income (loss) does not replace net income (loss) as the GAAP measure of our results of operations. The company provides a reconciliation of our operating results to GAAP net income (loss) in the financial tables of this release.