Argo Group Merger Complete

Despite releasing two separate second-quarter income statements last night, executives of Argonaut Group and PXRE participated together in an earnings conference call signaling the completion of their merger.

The merged entity–Argo Group International Holdings, Ltd., which is now headquartered in Bermuda–also reported that Andrew Carrier, a 23-year reinsurance market veteran, is joining the firm to become president of Peleus Re, the company's reinsurance arm.

During the call, Mark Watson, who was formerly president and chief executive officer of Argonaut Group, and now holds those positions with Argo Group, said: “The combination of the two companies provides for a stronger balance sheet with total assets of over $5 billion, investment portfolio of $3.6 billion and shareholders equity of $1.3 billion.”

“This transaction should be viewed as both the acquisition of a new business segment [reinsurance] as well as the acquisition of a new strategic platform [in Bermuda] from which to expand our operations,” said Mr. Watson.

Looking to the future, he said Argo Group will continue to focus on excess-and-surplus lines business and specialty business through the excess & surplus and select markets divisions that now exist at Argonaut, adding a third unit devoted to international specialty.

He said he envisions that the third unit, which initially will be comprised of reinsurance business written in Peleus, will eventually participate in insurance market opportunities globally as well.

“We believe strong pricing currently in the property reinsurance market presents Peleus with near-term opportunities as it builds its portfolio. However, we will be cautious with property-catastrophe business,” he said.

Mr. Watson said Argo will seek to deploy its capital by pursuing mergers and acquisitions in the United States and other parts of the world, and also that the company plans to write more pro-rata reinsurance with business partners, which include general agents writing excess and surplus lines business.

For the quarter just completed, PXRE reported a net loss of $11.6 million with no meaningful in-force business left in the runoff of the prior property-catastrophe reinsurance operations, producing $7 million of negative earned premium adjustments and $1 million of unfavorable loss development.

Argonaut's second-quarter earnings fell to $21 million, or 61 cents per share, from $23.4 million, or 69 cents per share in last year's second quarter. This year's second-quarter figure included a $7 million charge related to compensation of key officers–accelerating the vesting of outstanding equity awards the executives held in Argonaut Group.

This non-cash expense item added 4.9 points to the combined ratio, which came in at 98.9. Excluding the expense, the resulting combined ratio of 94 was 0.8 points better than last year's.

In the quarter, Argonaut Group also reported a 7.5 percent jump in net written premiums to $200.7 million.

In conjunction with the announcement that Mr. Carrier will join the company as president of Peleus Re at the end of the year, Argo announced that Barbara Bufkin, currently in that role, will move to the position of senior vice president of corporate business development for Argo Group–a title she previously held at Argonaut.

Robert Myron, who was formerly chief financial officer of PXRE, will be CFO of Argo Group, while Argonaut's CFO Mark Haushill was named CFO of Argo's U.S. operations.

Jeff Radke, PXRE's former president and CEO, will serve as a consultant.

Mr. Carrier joins Argo Group after serving for seven years as the Active Underwriter for the Kiln Group's Catastrophe Syndicate 557 at Lloyd's.