Good day, and welcome to the Argo Group Fourth Quarter 2020 Earnings Conference Call. All participants will be in a listen-only mode. . Please note this event is being recorded. I would now like to turn the conference over to Brett Shirreffs. Please go ahead, sir..

Thanks and good morning. Welcome to Argo Group's conference call for the fourth quarter of 2020. After the market closed last night, we issued a press release on our earnings, which is available in the Investors section of our website at www.argogroup.com and was filed with the SEC. .

Good morning. And thank you for the introduction, Brett. Welcome to everyone on the call. The last 12 months have been a period of dramatic change for all of us as we have had to adapt to new ways of working and living. This has created a number of challenges and opportunities as we manage through this period.

Despite these challenges, and by embracing these opportunities, I'm proud of the Argo team's continued effective engagement with customers and producers, reinforcing our position as a go-to specialty insurer.

These challenges have not impacted our strategic focus or impeded progress as we have advanced on a number of our key objectives over the last 12 months. First, we streamlined and refreshed the senior leadership team with a number of new hires and internal promotions.

This work was capped off with Scott Kirk joining the team last week to take over the reins of CFO. We're excited about the experiences, perspective and leadership he will bring to Argo.

The leadership team today is better positioned than ever to serve the business under our refocused strategy and is simpler as we have been able to eliminate certain senior positions along with streamlining our strategy. The team is energized and we are excited about the opportunity we have for profitable growth in the current market environment.

Second, we executed on a number of transactions to exit underperforming or non-strategic businesses, and have focused our go-forward strategy on our primary strength, US focused specialty insurance.

These actions demonstrate our emphasis on deploying our time, resources, and capital to businesses that we believe can have strong returns and can meaningfully contribute to our bottom line. .

Thanks, Kevin. I'll spend a few minutes going over our results and then we'll take your questions. For the fourth quarter of 2020, Argo reported a net operating loss to common shareholders of $18.2 million or $0.52 per share, an improvement from last year's result of a loss of $2.15 per share.

For the full year, our operating loss was $0.64 per share compared to a loss of $0.90 per share in 2019..

. And the first question will come from Greg Peters with Raymond James..

I guess before I launch onto the couple of questions, I should just wish you the best, Jay. You've done a good job on behalf of the company, I know it's been tough times and good luck in your future. So, the first question is going to be a tough question, and your Board is not going to be happy with this.

But I know you said upfront, Kevin, that you – the Board is actively engaged, you guys are resetting everything. One of the observations I have is that the Argo board's compensation seems to be running at a much higher level than many of its peers. And I'm not sure I've seen anything out of the board looking at that.

I don't know what you can comment on that or not, but I just wanted to make that statement, see if there is any feedback..

We have engaged independent third parties to do overall review of the compensation for the board and they looked at it on a relative basis with our peers and that's where the compensation was reset. So, we used independents and advisors for best practices..

There has been a reset there, and so, I guess, that's a good thing. Lot of moving parts, you've announced disposals, you've announced reinsurance transactions. If I just look at your full-year 2020 numbers, so let's look at US first, $1.994 billion of gross written premium, $1.223 billion of net written premium. You talked about the grocery business.

How would the 2020 results look on a pro forma basis with all the changes you've made or is this kind of what we see is what we get for US? And the same question, of course, I would apply to the International, $1.2 billion of gross, $585 million of net, you've announced several transactions in that market.

If I look at 2020, how do these numbers look with all these adjustments, so I can use that as sort of a base just on top line to think about 2021 and 2022?.

That is a good question and we will certainly come back with more detail on that in the Investor Day. But I can tell you that some of the places where we're out of in terms of the size of those books, so if you think about cyber, which we were moving out at the end of the year at $6.8 million there.

And let's see, for the retail and grocery business, we ended the year at $30.1 million, but some of these things aren't going to – the earned premium will be there and the ability to get off some of these things is not always as easy as one thinks, right? We didn't sell the book. So, there may be some more written premium in there.

But you think about it as a baseline, that $30 million is going to be there. Greg, there's always a lot of reunderwriting that goes on. So, last year, we did a big reunderwriting of the property book, and to shrink the P&Ls, which obviously helped, but hurt us as well with what we still have left.

But we're still in the property business, right? And it's hard to quantify exactly how much of that went away as we write new stuff to get rates. So, I'm going to take that question on board and we'll come back with some specificity in a couple of weeks for you..

On the International side, do you want to give us any markers there or do...?.

I don't have the color right here for that, but we'll make sure we get that out. Thank you. Although, Greg, we did highlight in the third quarter call, the amount of gross and net premium that was coming out of the businesses that we were exiting. So, if you go back to that, it gives a sense of what those things were on an annual basis.

And again, there will be some that carries forward as we work our way out just due to timing where Ariel will be a little bit easier to figure out..

My second question then, I guess I'll let others ask questions, would just be on the International and the expense ratio in International. Clearly, your US operations are chugging along at reasonable expense ratios, but you look at – like for the full year International, the 43.4%. And it's just borderline of seeing how high these expense ratios are.

I'm sure it's driving you crazy.

But when I think about maybe not 2021, but when I think about 2022, 2023, what do you think the expense ratio on International should look like when you get finished with all the changes that you're going through?.

Again, I think we'll give more clarity on that on the 12th, but I will say that the expense ratio where it is right now, on the International segment, almost half of that $14 million came out of stuff that was related to actions we took there. And some of the things we got out of, consumed more overall expense in the organization.

So, some of the expense savings we'll see out of there are coming in a couple of years' time. We'll see some of the benefit in this year, but the majority would be in 2022 if that goes away. And again, we'll give you some good clarity on that on the 12th..

I guess I want to throw a question at Jay here.

When you think about the capital structure of the company, you mentioned the offering in the second half of last year, your top line is not growing, can you give us a sense of where or what the excess capital looks like for the consolidated company? And how do you think about that at least where we are based on how the numbers closed out the year-end?.

That too is a challenging question.

The reason it's a challenging question is excess capital is what I would call in the eye of the beholder, right? So, we pay a lot of attention to capital ratios as defined by the rating agencies and as defined by our regulators and trying to maintain what we would consider strong levels of capital against those ratios.

And that I think was even more important as we move through 2019 and through 2020 because of some of the external things that we were dealing with.

I guess the simple way to put it is, we look at our plans over the next several years and through both the capital that we have today and the capital that we generate internally, we've got the capital to meet the market opportunities that we see.

I don't think I want to quantify what would be an arbitrary – my word, an arbitrary measure of excess capital..

Well, I thought I'd try and get an answer. So anyways, best of luck..

. And our next question will come from Bob Farnam with Boenning & Scattergood..

I know, Kevin, you mentioned – with the expenses, you're still going to have some lingering costs.

Can you quantify how much going forward do you think that the expense ratio might still be higher than expected because of non-continuing expenses?.

Let me sort of dissect the question.

You're wondering, in 2021, what it might be if we're looking at a targeted end of 30 – 2022 to end at $36 million, is that roughly it?.

Yeah, I'm just trying to think – I know you say, it's not going to be linear, but I'm just still kind of curious how much of these costs might still be out there?.

I think it's fair to think about it being in sort of the mid $37 million to $38 million range for the full year this year. We'll get there, right.

Some of these things that come up, they may be lease buyouts, there is other things that occur that are worth it over the two-year period to do, but they may in a particular quarter be expensive or look expensive, right?.

Jay, I am not sure if this is a detail that you have, but you mentioned there were some Cat losses that were related to development from the third quarter.

Do you have an idea of how much of the fourth quarter's numbers came from the third quarter?.

On the natural catastrophes, Bob, about half were incurred in the fourth quarter and half were literally right at the end of the third quarter. That's on the natural catastrophes..

This concludes our question-and-answer session. I would like to turn the conference back over to Kevin Rehnberg for any closing remarks. Please go ahead, sir..

I would personally like to thank Jay. This is his last call as everybody knows, but we wish him well in his new endeavors and I appreciate the counsel and advice and partnership we've had as we worked together. I want to use the time to welcome Scott, again.

And he will be at some of the conferences that are occurring over the next couple of weeks, so people get a chance to interact with him. I thank the investors for your interest and continued support and all of our employees and all the other interested parties. So, thank you very much. Have a good day..

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