Argonaut Sees 46% Increase in GWP for Q2

San Antonio-based Argonaut Group Inc. announced financial results for the three- and six-month periods ended June 30, 2003, noting that the group’s gross written premium during the second quarter increased to $199.5 million or 46 percent over the same period one year ago.

The company said other highlights include for the second quarter include:
*The group’s excess and surplus lines (E&S) segment reported a GAAP combined ratio of 90.7 percent versus a combined ratio of 97.7 percent for the second quarter of 2002.
*Cash flow generated from operations during the quarter totaled $47.1 million, bringing the six-month total to $74.2 million.
*Argonaut Group’s risk management segment increased its allowance for uncollectable accounts related to reinsurance balances receivable by $5.0 million.

During the second quarter of 2003, Argonaut Group reported net income after tax of $19.7 million or $0.80 per diluted common share on 24.6 million shares, compared to $6.1 million or $0.28 per diluted common share on 21.7 million shares for the same three-month period in 2002. Second quarter results included a tax benefit of $9.4 million primarily related to a reduction in the company’s deferred tax asset valuation allowance established in December 2002.

Net operating income(a) after tax increased to $12.0 million or $0.49 per diluted common share for the second quarter, compared to operating income of $2.3 million or $0.10 per diluted common share for the same period in 2002. Second quarter operating income was adversely affected by approximately $5.0 million related to an increase in the allowance for uncollectable accounts for reinsurance in the Risk Management segment. The company also incurred $646,000 of expense relating to the previously announced reorganization of its Risk Management segment. Operating income excludes gains on sales of investments, which totaled $7.7 million after tax during the second quarter. The consolidated combined ratio for the second quarter 2003 was 106.2 percent versus 112.1 percent for the same three-month period in 2002. Argonaut Group’s consolidated combined ratio net of the $5.6 million mentioned above was 102.3 percent.

For the second quarter, total revenue, which includes gains on sales of investments, was $165.9 million, compared to $103.7 million for the same period in 2002.

For the six months ended June 30, 2003, the company reported net income after tax of $53.3 million or $2.31 per diluted common share on 23.1 million shares, which included a $44.1 million (net of tax) or $1.91 per share gain from sales of investments, including $34.2 million from the sale of three real estate holdings during the first quarter, compared to $13.6 million or $0.63 per diluted common share on 21.7 million shares for the first six months of 2002, of which $9.1 million was attributable to realized gains. For the first six months of 2003, total revenue was $359.5 million, compared to $209.7 million during the first half of 2002.

Argonaut Group also reported the value of its invested assets rose 16 percent during the first half of 2003. At June 30, 2003, Argonaut Group’s book value per diluted common share was $17.48 versus $15.17 per diluted common share at December 31, 2002.

Excess & Surplus Lines — For the second quarter of 2003, gross written premiums for E&S lines totaled $99.4 million, generating underwriting income before tax of $6.8 million and a combined ratio of 90.7 percent. This is compared to gross written premiums of $49.8 million, underwriting income before taxes of $0.7 million and a combined ratio of 97.7 percent for the same period in 2002.

Risk Management — Gross written premiums were $53.1 million for the three months ended June 30, 2003, resulting in a pre-tax underwriting loss of $15.3 million, compared to gross written premiums of $52.6 million and a pre-tax underwriting loss of $9.0 million for the same period in 2002. For the second quarter, the combined ratio in this segment was 143.0 percent versus 135.6 percent a year earlier. The increase in combined ratio is attributable to $646,000 in restructuring expense in the Risk Management segment and approximately $5.0 million related to an increase in the allowance for uncollectable accounts related to reinsurance receivables. Risk Management’s combined ratio net of the $5.6 million transactions mentioned above was 127.1 percent.

Specialty Commercial Lines — During the second quarter, gross written premiums were $35.6 million resulting in a pre-tax underwriting loss of $1.3 million, compared to gross written premiums of $30.0 million and underwriting income of $0.1 million during the same period in 2002. The combined ratio for the second quarter of 104.5 percent, versus 99.8 percent a year earlier, was impacted by approximately $1.9 million in catastrophic losses resulting from storms that swept through 16 states in the South and Midwest during May 2003. Specialty Commercial’s combined ratio net of second quarter catastrophic losses was 98.3 percent.

Public Entity — Gross written premiums for the second quarter were $11.4 million, versus $4.2 million for the quarter ended June 30, 2002. The combined ratio of 97.4 percent generated pre-tax underwriting income of $0.2 million, versus a combined ratio of 109.4 percent and a pre-tax underwriting loss of $0.2 million during the same three-month period in 2002.