Susan Spivak - SVP Investor Relations Mark Watson - Chief Executive Officer Jay Bullock - Chief Financial Officer.

Bijan Moazami - Guggenheim Dan Farrell - Sterne Agee Ken Billingsley - Compass Point Amit Kumar - Macquarie.

Good morning and welcome to the Argo Group First Quarter Earnings 2014 Conference Call. All participants will be in listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Susan Spivak, Senior Vice President of Investor Relations. Please go ahead..

Thank you and good morning. Welcome to Argo Group's conference call for the first quarter 2014 results. Last night, we issued a press release on earnings which is available in the Investors section of our website at www.argolimited.com. With me on the call today is Mark Watson, Chief Executive Officer; and Jay Bullock, Chief Financial Officer.

We're pleased to review the company's results for the quarter as well as provide you with management's perspective on the business. As the operator mentioned, this conference call is being recorded. Following management's opening remarks, you will receive instructions on how to queue in to ask questions.

As a result of this conference call, Argo Group management may make comments that reflect their intentions, beliefs and expectations for the future.

Such forward-looking statements are qualified by the inherent risks and uncertainties surrounding future expectations generally and may materially differ from actual future results involving any one or more of such statements.

Argo Group undertakes no obligation to publicly update forward-looking statements as a result of events or developments subsequent to this conference call. For a more detailed discussion of such risks and uncertainties, please see Argo Group’s filings with the SEC.

With that I’m pleased to turn the call over to Mark Watson, Chief Executive Officer of Argo Group.

Mark?.

Thank you, Susan. Good morning everyone, and welcome to Argo Group’s first quarter 2014 earnings conference call. I’ll briefly share my thoughts regarding the highlights from the quarter after which Jay Bullock our CFO will add some color to the financial results. We look forward to responding to any questions you may have during the Q&A portion.

Overall 2014 is off to a strong start as we reported solid results in the quarter with net income up over 20% from the prior year. First quarter consolidated gross written premiums was up with $463 million an increase of 5.7% over the 2013 first quarter.

We begun the year with the same strategy that’s been our focus for the last several years that of maintaining underwriting discipline while strategically growing our most profitable businesses.

Having said that our EMS syndicate and international specialty businesses all experienced growth in the quarter and our commercial specialty business while flat for the quarter continues to make solid contributions from businesses like mining and Surety while making tangible progress returning under performing businesses to profitability.

For the group we posted a combined ratio of 95.5 for the first quarter of 2014 which is a 4 point improvement from 99.4 in the first quarter of 2013.

At March 31st our book value per share was $60.29, up 2.3% from $58.96 at December 31, 2013 and continuing into our 12th year a track record of growth and book value per share in excess of 10% inclusive of dividend.

As evidenced in their confidence in our businesses, the Board of Directors increased the quarterly dividend by 20% to $0.18 per share yesterday. During the quarter we repurchased 165,000 shares of stock at an average price of $45.37 for a total value of $7.5 million.

And subsequent to the quarter-end, we’ve continued to achieve -- we’ve continued to be active in the market for our stock, repurchasing another $3.2 million worth of our shares at an average price of just under $46.

As I’ve said in the past, we think our franchise is undervalued and view share repurchases at a discount to book value as a great investment. Capital management has been a key part of our strategy and over the last six years we’ve returned more than $330 million of capital to shareholders.

And we’ll continue to investment in our stock at these prices and return capital to shareholders, while importantly also staying focused on ways to build the Argo franchise which still remains our main priority. Let me briefly comment on each of our operating segments before turning the call over to Jay to discuss our financials in more detail.

Our Excess and Surplus Lines segment saw growth in premium of 9.7% in the first quarter with most of that growth coming from mature higher margin businesses. We continued to drive rate increases through the book with an average for the quarter of almost 2%, which is up 50 basis points from the average increase on the overall portfolio in 2013.

That overall number [maps] larger increases in certain lines where rates increases were quite substantial. For the quarter we posted an improvement in the combined ratio to 89.4 from 95.6 in the first quarter of 2013 and this year’s results included nearly $4 million of weather-related losses from the extreme cold this winter.

Also, prior year development continues to have a positive impact on our results in the (inaudible) as well. As we go through, Jay will [iterate] a little bit more of the results in just a minute, but let me just say that our E&S team is really doing a fantastic job of executing right now.

As mentioned, for our commercial specialty business, overall premium was flat in the quarter. We saw benefits from new product initiatives and strong renewal retention at Argo Insurance in addition to stronger production in commercial programs, as well as Rockwood, our mining business.

We are also pleased that our underwriting initiatives continued to improve performance in our financial results. Rate increases across the segment were 4.5% overall with higher increases in those lines that needed it the most.

The segments’ combined ratio was 101.5 in the first quarter this year compared to 98.6 a year ago reflecting large property losses and cat losses resulting from winter storms in the current accident year.

So, while results are not quite as good this quarter relative to the year ago, I actually think commercial specialty is in much better shape today in the mile of heart from where it was two years ago.

For international specialty, gross written premiums were up 6.4% in the first quarter driven by our operations in Bermuda and emerging markets business in Brazil. Our excess casualty business was up slightly year-over-year and achieved risk adjusted rate increases for the quarter. Our professional lines book had a strong start to the year as well.

And Argo written premium is relatively flat compared with the year ago. Here we rollout the benefit of new business opportunities in expanded lines which help offset rate reductions of 8% to 9% on the overall reinsurance portfolio. I won’t [blame] the point of view competition, because we're seeing the same thing as others in the market.

But remember, we buy far more reinsurance than we sell, which is a [mover] to our benefit again this quarter. Having said that, the segment’s combined ratio improved to 84.1% in the first quarter compared to 89.6% in the first quarter of last year. And finally, the results for Syndicate 1200 continued to show steady progress over the last two years.

Gross written premiums were up 6% in the 2014 first quarter compared to a year ago. Growth was primarily driven by opportunities in our property division, reflecting strong renewal retention and new business initiatives.

On an underwriting basis, the combined ratio improved to 86.7% from 93.3% last year, helped in part by prior year positive reserve development of close to $9 million for the segment, (inaudible) from our financial results of 2010. Moving to the investment portfolio, the performance was broadly in line with our expectations.

During the quarter, Argo's portfolio achieved a total return of just about 1%. Our investment grade bond portfolio modestly trailed comparable indices due to our conservative positioning with regard to duration and 31 basis point rally in the U.S. 10 treasury.

At quarter end, the duration of our fixed maturities was about 2.7 years, down from 2.8 years at December 31, 2013. We've also chosen to maintain fairly high cash balances. We believe the defensive posture continues to be appropriate given market pressures our interest rates as we wait for them to normalize.

Net investment income was $23.3 million in the first quarter. Our normalized book yields continued to compress given that market yields were below the portfolio book yield. The degree of the compression should slow as rates rise and we fund new investments and ramp up existing investments and certain strategies that generate meaningful income.

Investment income in the second half of the year should benefit from these strategies. As mentioned last quarter, the focus continues to be on total return versus net income. And of course what I really care about is growth in book value per share.

Having said that, we continue adding un-correlated alternative strategies which continue to enhance and diversify our portfolio. In the first quarter, we had $4 million in realized gains from our alternative strategies. The same capital would have most likely contributed $1.5 million in net investment income if it was not invested in alternatives.

We believe that building a low correlated portfolio, proven risk adjusted return managers will maximize shareholder value in the long run. And as I’ve mentioned before, it's the long run that’s our focus. So in summary, we're off to a very good start.

Our first quarter results demonstrate our focus on driving efficiency and improving performance through our platforms. The underwriting environment is increasingly more challenging but with our focus on specialty initiatives we're producing improved to more consistent results that should generate stable returns for our shareholders.

And with that, I'll turn the call over to our Chief Financial Officer, Jay Bullock..

Thanks, Mark and good morning everyone. I'll take everyone through some additional detail on the financials and then open it up for questions. This quarter's results represent a continued validation of our efforts to increase underwriting income, grow our most profitable business lines and achieve scales in some of our newer businesses.

In fact, we saw an increase in underwriting income at the group level, from $1.9 million in the prior year’s quarter to $14.5 million in the current quarter. I am optimistic these trends will continue. First, a few comments on the income statement.

You will note the growth in gross written premium and the growth in net earned premium were similar at between 6% and 7%. Net written premium however was down slightly in the period. This was a function of three things.

First, the latest version of our home earnings series of transactions is now accounted for exceeded premium rather than other reinsurance related expense. Second, a change in the accounting for certain average reinsurance contracts.

And finally an increase in our state funds business whereby we're providing funding capacity enhanced exceeding more of the gross written premium. Now that these have an impact on the upfront earnings pattern of our business.

In the quarter, we reported $11 million, $11.1 million of net realized gains in addition to the return on the strategy as Mark mentioned, the largest contributors to the net gain were from our equity portfolio gains and certain private equity investments.

On the loss side with more current accident year, we experienced overall favorable reserve development in the quarter representing our 12th consecutive quarter of overall positive reserve development.

Total prior year development for the group was $8.9 million in the quarter and the largest component to were continued strong results out of prior years in our excess and surplus lines business from contract and casualty lines and positive development out of several lines in Syndicate 1200, offset impart by a movement in reserves in the last year related to increased medical costs on over the accident years and our former risks management unit.

The table in the press release provides a full year breakdown. For the first quarter of 2014, the effective tax rate for the group was 5.8%.

The reduction of this number was largely a function of a greater proportion of income related to our Bermuda entities and the impact of the tax credit in our UK operation as a result of foreign exchange movements in the period. Turning briefly to the balance sheet.

The sum of investments in cash increased by approximately $31 million in the quarter a reflection of positive cash flow from recent growth in the business. For the quarter cash flow from operations was just over $40 million.

And we ended the quarter with the pre-tax unrealized gain position of $251 million down slightly from $253 million at year end 2013. Finally, on the balance sheet of additional note in the quarter was the decline in reinsurance recoverables and gross loss reserves.

This decline was a function of the completion of the reinsurance to close process on the 2009 and prior accident years on Syndicate 1200. These balanced have formally been carried on our balance sheet reflecting the original nature of the transaction structured as a whole account quarter share.

Operator that concludes our prepared remarks and we are now ready to take questions..

Thank you. We will now begin the question-and-answer session. (Operator Instructions). Our first question comes from Bijan Moazami of Guggenheim. Please go ahead..

Good morning Bijan Moazami, Guggenheim. In your commercial specialty line you have many insurance companies.

Could you qualify where are you having problem, where are you doing well in that segment and what is your long-term strategic plan for that some of those products?.

Well, I think the only of the segment that I didn’t referenced in my remark Bijan was Trident. Trident premium was down slightly for the quarter, that’s our public entity business. And we didn’t see any adverse reserve development from Trident for the quarter.

It doesn’t mean we won’t finish for the rest of the year, but I think we’ve kind of got it going in the right direction right now. We’ll know for sure on the 1st of July because that’s the big renewal date for public entities, many of them buy their insurance on that day.

But for the most part, I think commercial specialty is now heading in the right direction and our strategy is to keep on executing and staying focused on specific industries that we serve within that segment..

Okay.

There was also a very nice decrease in the overall expense ratio, I think some of the comments that Jay made, but did the [seeded] reinsurance cost or seeded premium pattern impact on the expense ratio?.

I think -- sorry Bijan, I forgot your question correctly. There were some changes in the period as to how we’re seeding premiums.

I think to answer your question most directly; we have made some changes to our reinsurance buying and some of the nature of the structures around our reinsurance that should ultimately [endure] benefit of underwriting income; i.e., we’re retaining more margin.

So, to the extent that that means we’re retaining more premiums, yes, on the same expense base it will have a modest impact. Most of the impact on the expense ratio however is really the result of the growth in the business that we’ve seen over the last 18 months now really starting to come through the earned premium line..

Yes. So, the benefits and I think we’ll see from the changes that we’re making to our reinsurance that I alluded to in my remarks are things; are amounts that will see flow through in the subsequent five or six quarters, it had very little impact in the first quarter; so we’d see more of that to come..

So overall 2.1 points of drop in the expense ratio, where should we thinking about expenses when you add corporate overhead back to it?.

Well, the overall expense ratio has includes the corporate expenses, Bijan..

I realize that, but in terms of the direction how much cost cuttings you have further to go before you get to some kind of run rate expenses?.

Yes. Look I think I can answer and I will answer your question in a moment, but let me ask you indirectly.

We have been focused on getting five points of underwriting margin into the business and we have been doing that to a combination of scale in the business and underwriting initiatives and I am not declaring victory, not for the markets either on that goal or even though it was really close to five points of underwriting margin in the quarter, one quarter doesn’t make the year.

That said, I expect contributions to margin both from continued improvement in underwriting decisions and from the expense ratio. So, I expected to see quarter-over-quarter to start moving down into the 38 range reported into the year and by next year to be contributing another 100 basis points to the combined ratio..

Okay. Thank you..

Our next question comes from Dan Farrell of Sterne Agee. Please go ahead..

Hi, and good morning. I was wondering if you could talk a little bit about your view of rate versus loss trend. I guess what I am trying to sort of get at, the overall rate seems to be slow a little bit, but you are putting through larger amounts of rate increases in certain lines where others don’t see as much.

And I am just wondering, if you're getting more in areas that you didn’t and does that contributed some continued loss ratio improvement across the book in your view?.

So, I would say that the improvement in the loss ratio has primarily been a function of risk selection over the last couple of years, that's first. Second, for the accounts that we deemed to be underperforming, we later eliminated them or added substantial rates to them. And if we couldn't get the rate then we just didn’t renew the account.

And in some cases, we're talking about 10%, in some cases we're talking about 20%. When you look at our average, our average increases, our loan because we still got very high margin business that unfortunately our competitors have figured out there is still little margin to give.

But overall, I'm pleased with the level of rate increase that we're getting when I look at where our portfolio is. So I think to summarize, again I think the loss ratio improvement is first coming from the difference in portfolio composition today versus a couple of years ago. Second, it’s followed by rate improvement..

That's very helpful. And then I was wondering if you could talk a little bit about the Syndicate business and that's an area in the past that you have talked about being able to continue to grow.

And I was wondering looking forward if you could expand on that a little bit and talk about some of the lines and some of the areas where you might be growing off of a lower base to expand your overall platform there? Thank you..

The bulk of the Syndicate continues to be property risk. Over the last two years, we’ve evolved that away from reinsurance and insurance to be exclusively insurance. And also we’ve evolved that away from a combination of both U.S. and non-U.S. risk to primarily U.S. risk. We think we're getting paid much better to focus on U.S.

insurance and then we let Argo Re, the Bermuda company, manage the reinsurance portfolio for the group.

There are still some opportunities and properties, but I think for the remainder of this year and in the near-term given the competitive nature of the property market, I think that we’ll continue our focus on other special -- some of our other specialty classes within this Syndicate.

I think we feel a lot of opportunities still in personal accidents and marine to just name a couple..

Okay. Thank you very much..

And it seems that there are no -- pardon me. Our next question comes from Ken Billingsley of Compass Point. Please go ahead..

Good morning. Just a couple of quick questions on share repurchases.

How much more do you have remaining on share repurchase authorization?.

Ken, I don’t have that number at my finger tips, but it’s well over $100 million, so we’ve got more than enough capacity. And I would simply say that the Board has show the willingness each time we’ve got also exhausting the prior authorization to….

And could you talk -- and I apologize if you did mention this before, but in the run-off segment, the reserve increase is about $5.5 million.

Can you just speak where that was coming from?.

Yes. The majority of it came from medical cost inflation on some quite all accident years. And it really -- well it's really less about actually medical cost inflation, it's really more about more salary expectations. People are leaving longer.

It’s a fairly small population and we have -- we took the opportunity in the quarter to put up a modest reserve for that..

And if you look at the reserves over the last 12 years, I forgot the exact number but we’ve had tens of millions of dollars as positive reserve increase on that portfolio. I should say reserve decrease on that portfolio over the last 12 years.

So, this was a trend that we've been looking at for a couple of quarters and though we might just want to top-up our reserves a little bit..

Very good. And then the last question I have is, and I know you talked about the difference between gross premium and net premiums written.

But could you talk, little more clarification on the retention levels across all the segments are down and how we should be looking at that going forward, because you're saying that the gross is up and the net should stay up.

But are we expecting that the net premium written is going to continue to be negative?.

Well, I think the point that Jay was making is that in the 2013 financial results, the way our cap on that was in place at the time was structured, it wasn't seeded premium whereas it was in 2014, so that accounts were part of it.

In actuality there is a couple of variations and Jay you can jump back into them, but we're actually retaining more risk now than we were before. Some of our programs where we don't keep much risk have grown and so that pushes the number a little bit as well..

Yes, I had -- those are the three elements and in one case. So I guess the point I was making Ken is that the retention levels, we have tweaked our retention levels every year for the last couple of years and taken the opportunity probably in the last two years to begin to move those up because we have got a broader more diversified portfolio.

What you are seeing in Q1 shouldn’t really be extrapolated into any sort of quarterly progression; it’s anomalous is my point and that’s sort of my point..

Yes, I would just add one more thing, while we should be taking more risk net as we can certainly handle the volatility, if reinsurance pricing continues to come down, as I have said in my opening remarks we are more of a buyer than a seller of reinsurance than we make to our buying again, but you can ask me about that later in the year..

Okay.

So would this -- based on what you are saying is it something that maybe kind of there is a seasonality factor what we may see with retention in that to gross maybe in the first quarter but normalized trends for the remaining part of the year?.

Correct, yes. I think if you look back and look at the retention levels from last year, you might see a slight decrease but not a material decrease..

Very good, congratulations on the quarter..

Thank you Ken..

Our next question comes from Amit Kumar of Macquarie. Please go ahead..

Thanks and good morning. I just joined in, so I apologize if I missed any of these.

Can you sort of talk about the international specialty growth? I think you might have alluded to that in the opening comments but maybe expand on that, I mean what the key drivers were?.

I am not sure that I have any singles to expand upon. We grew our Bermuda business slightly. As I said, Argo Re was kind of flat, we had some new initiatives that pushed up premium but rate increases declined premium and we continued to grow steadily in Brazil..

Got it. But the second question I have is on the run-off book.

Can you just remind us how much capital is backing that?.

Yes. That’s a not a number that we quantify very specifically, Bijan. I am sorry, Amit. Sorry..

Bijan?.

And it’s probably between a $100 and $150 million..

Okay.

That that’s very help -- I’m sorry?.

150..

Got it.

I guess the only other question I have is on the discussion on consolidation, where are you seeing the other discussions out in the marketplace, just wanted to sort of see if you had any updated thoughts as an acquirer or as an [acquiree] and has anything changed? I know your franchise, you put -- you fixed some of the issues you might have seen in the past, so it seems like a [scene] of franchise now; how should we think about that or has anything changed?.

No, nothing is changed. I’ve been an investor and member of the Board of Directors of this company for the last 15 years. I’ve been running it for the last 14. We’ve made -- I don’t know a dozen acquisitions along the way and I think we’ve taken what was a small regional franchise in the U.S.

and turned them to international specialty company and we’ve still got a long way to go..

Are there like any specific regions you feel could use that out or is it more organic in terms of growth from here?.

Well, Bijan excuse me Amit, we have always focused on organic growth but we’ve used M&A as a tool to supplement organic growth when we thought it could accelerate our market presence or product to what we are already doing..

Got it, okay thanks. And this is Bijan Kumar signing off..

There are no additional questions at this time. I would like to turn the conference back over to Mark Watson, CEO for any closing remarks..

I would like thank everyone for dialing in this morning. I know it’s pretty busy morning and thanks for accommodating the change in our schedule. We look forward to talking to you at the end of the second quarter. And I think, as I said we are off to a good start. And I am looking forward to telling you how we did for the first half of the year.

Thank you very much for your time..

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect..