Argonaut Reports Loss, Reorg Plan

Argonaut Reports Loss, Reorg Plan

NU Online News Service, March 13, 2:20 p.m. EST?Argonaut Group Inc., which reported a $105.3 million net loss for its last quarter, announced a number of strategic initiatives and reorganizations, including cutting its workforce by 15 percent, or up to 70 jobs.

The San Antonio, Texas-based insurer said its fourth-quarter loss was due to a $52.8 million strengthening of asbestos reserves for its Argonaut Insurance Company's run-off lines as well as a write-down for the value of a deferred tax asset. During its fourth quarter a year ago, the company had posted a smaller loss of $600,000, or $0.03 per diluted share.

Argonaut said that during the first half of this year, the company will reorganize to focus on casualty and risk management solutions for upper-middle-market accounts, which have historically been the core of its business.

The reorganization effort will reduce the workforce by 15 percent over the next six months and will incur a charge of some $3 million in the first quarter of 2003.

"Our excess & surplus lines and specialty commercial lines continue to perform well," said Mark E. Watson III, president and chief executive officer at Argonaut, commenting on his company's latest financial results. "The public entity unit is emerging from a start-up mode, and the focus of Argonaut Insurance Company on its insurance and risk management services should help return that unit to profitability."

He continued that the "underlying performance of our core business was adversely affected by the strengthening of our asbestos reserves and deferred tax asset allowance."

To support the capital needs of growing business segments, the company also said its board of directors has suspended dividend payments beginning with the fourth quarter of 2002.

Furthermore, the company said it has signed an agreement with Houston-based HCC Insurance Holdings Inc., in which HCC will invest $58 million in Argonaut in the form of convertible stock.

This transaction, expected to close this month, will enable Argonaut to increase the statutory surplus of its subsidiaries and risk-based capital, Mr. Watson said.

"HCC's investment not only provides timely capital support, but also the opportunity to work with them on other mutually beneficial opportunities," he said.

Oldwick, N.J.-based insurance rater A.M. Best stated that despite the company's large net loss and its declining equity, it is keeping current financial strength ratings on Argonaut's insurance subsidiaries. Currently, Argonaut Insurance Group has Best financial strength ratings of "A" (Excellent) with a "negative" outlook.

"While Argonaut Group suffered a large net loss and shareholders' equity declined considerably in 2002, the results fell within the expectations A.M. Best contemplated when affirming the ratings in January," A.M. Best stated. "Despite significant erosion due to unrealized capital losses, statutory surplus remains supportive of the current financial strength ratings at year-end 2002. Additionally, operating profitability on ongoing business continues to improve."