Argonaut Group Reports Strong Results for Q1 2005

San Antonio-based Argonaut Group Inc. announced financial results for the three months ended March 31, 2005, reporting increased income and lower combine ratio compared with the first quarter of 2004.

Highlights for the 2005 first quarter include:

• The Group combined ratio was 95.6 percent versus 97.9 percent during the first quarter of 2004;
• Operating income increased substantially to $23.1 million, a 46 percent increase over the first quarter of last year;
• Gross written, net written and earned premiums all exceeded year-ago first quarter levels;
• Cash flow from operations reached $53.6 million, up substantially from the $14.9 million reported in the first quarter a year ago;
• Book value increased to $19.94 per fully diluted share versus $19.68 per share at Dec. 31, 2004.

For the first quarter of 2005, Argonaut Group reported net income of $26.0 million, or $0.83 per diluted common share on 31.1 million shares, which includes pre-tax operating income of $23.1 million, pre-tax realized gains on sales of investments of $1.9 million and an income tax benefit of $1.0 million. This compares to 2004 first quarter net income of $18.3 million, or $0.60 per diluted common share on 30.7 million shares, which included pre-tax operating income of $15.8 million, realized gains on sales of investments of $2.5 million and no tax expense.

The company believes operating income is another meaningful measure of Argonaut Group’s performance. Operating income differs from net income under accounting principles generally accepted in the United States (GAAP) because it excludes income tax benefit or expense as well as net realized investment gains and losses. Operating income for the quarter ended March 31, 2005 excludes net realized investment gains of $1.9 million and an income tax benefit of $1.0 million. Operating income for the quarter ended March 31, 2004 excluded net realized investment gains of $2.5 million and no income tax expense or benefit. Operating income includes corporate, interest and other expenses, which during the first quarter of 2005 totaled $4.8 million versus $4.0 million for the first quarter of 2004.

Total revenue, which includes gains on sales of investments, was $183.8 million during the first quarter of 2005, compared to $171.0 million for the same period in 2004, or a 7.5 percent increase. Earned premiums for the three months ended March 31, 2005 were $162.1 million compared to $153.8 million for the comparable quarter in 2004, or a 5.4 percent increase. Total revenue includes realized gains on the sales of investments, which were $1.9 million and $2.5 million respectively for the first quarters of 2005 and 2004.

Segment results

• Excess & Surplus Lines (E&S) – For the first quarter of 2005, gross written premiums and operating income for E&S Lines totaled $100.8 million and $13.3 million, respectively. This compares to gross written premiums of $99.8 million and operating income of $11.9 million in the first quarter of 2004. The combined ratio for the 2005 first quarter was 91.4 percent, versus 90.3 percent for the same three-month period in 2004.
• Risk Management – Gross written premiums were $34.8 million for the three months ended March 31, 2005, and operating income was $7.6 million, compared to gross written premiums of $43.1 million and operating income of $4.3 million for the same period in 2004. For the first quarter of 2005, the combined ratio in this segment was 102.5 percent versus 107.8 percent a year earlier.
• Select Markets (fka Specialty Commercial) – During the first quarter, gross written premiums were $52.9 million and operating income totaled $5.1 million, compared to gross written premiums of $41.1 million and operating income of $2.7 million during the same period in 2004. The combined ratio for the first quarter of 2005 was 96.5 percent versus 99.6 percent in the first quarter last year.
• Public Entity – Gross written premiums for the first quarter were $18.2 million and operating income totaled $1.9 million, versus gross written premiums of $16.1 million and operating income of $0.9 million for the quarter ended March 31, 2004. For the first quarter of 2005, the combined ratio in this segment was 94.9 percent versus 96.0 percent during the same three-month period in 2004.