Announcing financial results for the three- and nine-month periods ended Sept. 30, 2002, San Antonio-based Argonaut Group Inc. said for the third consecutive quarter, the group reported positive and improved operating results, with all four of the company’s business segments generating income from operations. In addition, the GAAP combined ratio for core operations exclusive of run-off lines improved during the third quarter to 101.1 percent, compared with a combined ratio of 133.9 percent in the same quarter of 2001.
The company’s Board of Directors also declared a regular quarterly cash dividend of $0.15 per common share, payable Dec. 3, 2002 to shareholders of record on Nov. 19, 2002.
Argonaut Group president and CEO Mark E. Watson III said the favorable pricing environment, particularly in the company’s excess and surplus lines operations, had a positive impact on Argonaut’s third quarter performance.
During the third quarter of 2002, Argonaut reported net income after tax of $4.7 million, or $0.22 per diluted common share, compared to $1.3 million or $0.06 per share for the same three-month period in 2001. Third quarter net operating income after tax increased $6.8 million year-over-year to $3.9 million, compared to an operating loss of $2.9 million for the same three-month period in 2001. Operating income excludes gains on sales of investments, which totaled $0.8 million after tax during the third quarter.
Total revenue, which includes gains on sales of investments, was $110.4 million during the third quarter of 2002, compared to $72.4 million for the same period in 2001. Third quarter results include an underwriting loss of $7.2 million for run-off lines of business primarily related to certain policies written in the late-1980s through early-1990s that did not exclude asbestos coverage. The company believes the policies to be limited in number and attributable to a specific underwriting office.
During the third quarter, Argonaut reduced the book value of its investment portfolio by $3.7 million, primarily due to write downs of certain common stock investments to reflect other than temporary declines in market value.
For the nine months ended Sept. 30, 2002, the company reported net income after tax of $18.3 million, or $0.84 per share, compared to $3.5 million, or $0.16 per share, for the first nine months of 2001. For the first three quarters of 2002, total revenue was 320.1 million versus $173.5 million during the same nine-month period in 2001.
Colony Insurance Group, which was acquired by Argonaut Group during the third quarter of 2001, specializes in underwriting excess and surplus lines of insurance. For the third quarter, net earned premiums for Argonaut’s E&S lines were $39.8 million, generating underwriting income of $3.0 million and a combined ratio of 92.6 percent. Net of Fulcrum, Colony’s results for the third quarter were $34.0 million in earned premiums, $3.9 million in underwriting income and a combined ratio of 88.7 percent. Fulcrum’s net earned premium for the third quarter was $5.8 million, resulting in an underwriting loss of $0.9 million and a combined ratio of 115.4 percent. Fulcrum’s underwriting loss for the quarter was impacted by underwriting expenses which included the full staffing of the operation that accompanied the renewal rights purchase earlier this year.
Rockwood Casualty Insurance Company and Argonaut Great Central Insurance Company comprise Argonaut Group’s specialty commercial insurance lines. During the third quarter, these companies contributed net earned premiums of $27.1 million and underwriting income of $0.5 million, compared to net earned premiums of $13.1 million and underwriting income of $0.3 million during the same period in 2001. For the third quarter, Argonaut’s specialty commercial lines reported a 98.0 percent combined ratio.
The Specialty Workers’ Compensation segment includes the results of Argonaut Insurance Company. Net earned premiums were $26.3 million for the three months ended Sept. 30, 2002, resulting in net underwriting loss of $3.6 million, compared to net earned premiums of $30.0 million and a net underwriting loss of $17.0 million for the same period in 2001. For the third quarter, the combined ratio in this segment was 112.9 percent, down from 156.7 percent a year earlier.
Trident Insurance Services underwrites Argonaut Group’s public entity segment. Trident’s net earned premiums for the third quarter were $3.0 million, versus $1.2 million for the quarter ended Sept. 30, 2001. For the third quarter of 2002, Trident broke even on an underwriting basis versus an underwriting loss of $0.4 million for the same period a year earlier. Trident’s combined ratio during the third quarter was 101.5 percent.
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