Good day, everyone, and welcome to the Argo Group Second Quarter 2021 Earnings Call. All participants will be in a listen-only mode. . Please note that this event is being recorded. I'd now like to turn the conference over to Brett Shirreffs, Head of Investor Relations. Please go ahead..

Thanks, and good morning. Welcome to Argo Group's conference call for the second quarter of 2021. 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.

Presenting on today's call is Kevin Rehnberg, Chief Executive Officer; and Scott Kirk, Chief Financial Officer. As the operator mentioned, this call is being recorded..

Good morning. Thank you for the introduction, Brett. Welcome to everyone on the call. I'm happy to be able to speak to everyone today about a strong quarter on many fronts. The key areas I will focus on during the call are our strong earnings, accelerating growth results, attractive market conditions and our progress on reducing volatility.

As we dive into these areas a little deeper, we will describe how we are delivering on objectives we laid out earlier this year. All of this is focused on our long-term financial objectives and creating value for shareholders. From an earnings perspective, we reported our best quarterly operating income in more than 10 years.

I'm pleased that we had strong contributions from both underwriting and investment results. Our loss ratio of 57.7% for the second quarter reflects lower catastrophe losses, favorable reserve development and an improved underlying loss ratio.

The underlying loss ratio improved modestly from the second quarter of 2020, even though prior year was a particularly tough comparison since like in the industry. We benefited from a significant reduction in claims frequency at the beginning of the pandemic.

If you look back to the second quarter of 2019, before the pandemic, our underlying loss ratio improved 370 basis points relative to that period. So I'm very pleased with the quarter's results and the overall progress. On the investment side, we reported very strong results with a significant contribution from our alternative investments.

we ended the quarter with 30% the positive year-over-year change in gross and net premiums. Gross premiums were up approximately 14% in the second quarter after adjusting for businesses sold or placed into run off over the last 12 months, including Ariel Re..

Hi. Thank you, Kevin, and good morning, everybody. As Kevin touched on, we reported strong earnings during the second quarter 2021 driven by continued improvement in our combined ratio in addition to a strong contribution from alternative investments.

Our operating EPS was $1.60 for the second quarter and marks the highest quarterly operating income in more than a decade with both underwriting and investments contributing to the results. Argos annualized operating return on common equity was 13.1%..

Thank you. And we'll now begin the question-and-answer session. Our first question today will come from Casey Alexander with Compass Point. Please go ahead..

Yes, hi, good morning. My question is related to the expense ratio were already answered, but just one question for Kevin.

In the segment of the business where you discuss increasing the attachment point and lowering the limit, what's happening to rate inside that business because if rate is staying the same while you're increasing the attachment point and lowering the limit, it sort of works as a de facto price increase, even though you're not getting an increase in rate, if I understand that correctly..

Yes, good morning, Casey. That is the.

I hate to say this, Kevin, but you're completely breaking up on us. I can't really understand any part of your answer..

Can you hear it now?.

You're still breaking up quite a bit. I'd tell you what, you guys can come back to me offline with the answer. That's the last of my questions. Thanks..

Great, thank you..

Thanks, Casey..

And our next question will come from Greg Peters with Raymond James. Please go ahead..

Yes, good morning. So just to pile on, Kevin. If you're calling in on a cellphone or wherever you're calling from, you're definitely fading in and out. It's virtually impossible to understand how you're answering. So maybe you can pivot the answer to someone else here.

But the question - the only question I will have today would be focused on just the legacy accident years where there have been prior period reserve development, of course, I'm speaking to the London, the Bermuda professional liability within domestic.

And I guess, what I'm looking for is, any color around our new claims, closed claims, open claims, unresolved claims, where we are in that spectrum, because clearly the stock is - there's concerns out there that there might be some more legacy charges at some point? So maybe you can help us to understand that. Thank you..

Scott, since I'm breaking up, do you want to take this? I'm going to try and dial in back in. Thanks..

Yes, thanks, and thanks, Greg. I mean, I'll go back to the fact that we have a robust reserving process. Clearly, we look back at all of the trends that are there.

I mean, yes, there are always going to be ups and downs across various lines and across various years, but the reality is that I think we remain very comfortable with our reserving position as it stands. I mean, I think that's the best way to answer that question..

Well, I mean, honestly, you didn't answer the question because - or just, the legacy reserves - the legacy accident years that resulted in all of the reserve charges, it's been several quarters since we've seen anything like that. But if we could have some - and maybe you don't have the information available right now.

But if we could have some information about just where we are with those legacy claims. Are we - are they - are we 90% away through the open claims? Are there no new claims on those accident years? Things like that would be very helpful, and I understand if you're not prepared to answer it right now.

But in the context of just gaining confidence on the go forward picture that would be very helpful. And that was my only point..

Okay, Greg. Look I get your point there. I mean, clearly - obviously, we have the RITC that was in there that we completed last year, I think that's for 2017 and prior-years. So there is greater certainty, certainly around those from our International business. But leave it with us and we'll come back to you for some greater clarity around those..

Yes, thank you. And on the RITC, I mean, you raised a good point, that's in there.

But is it capped out? I mean, one of the risks when we see things like that as you flow through the top of it on legacy and then it comes back to bite, I'm not sure if those accident years are completely closed out through the RITC or maybe I am misunderstanding it altogether..

Yes, look we can get you some details on that for sure and come back..

Got it. Thanks so much for your time. Congratulations on the quarter..

Yes, no problem. Yes, thanks, Greg. Appreciate it..

And our next question will come from Jeff Schmitt with William Blair. Please go ahead..

Hi. Good morning, everyone.

Could you talk about the COVID losses in the International book, they're around $5 million in the quarter? Are you seeing claims sort of continue to roll in from the pandemic or is that stopped and you're really just settling past claims at this point or is this sort of Delta emergence kind of resulting in some new claims? I mean, there's been restrictions put back on in various places.

So could you just help me think about think through that?.

Yes, it's Kevin.

Can you hear me all right now?.

Yes, yes..

Yes, okay. So apologize for that before. I'm now on a cellphone. I was not on a cellphone before. So as we did mention when we first started going through the COVID losses that we expected that they would decline by quarter, and the last two quarters have been relatively flat, which isn't surprising since the pandemic has taken longer.

These are things that are associated with our contingent liability book. And as an example, the things around the Olympics or concert, festivals that were moved out and moved on, some have been moved on, have been cancelled, some have moved on and people have unfortunately died, there is a number of things that have happened.

So we'll continue to see probably some very small numbers there. But like we said in the beginning, we expected it to decline. And it's only the further extend of the pandemic related to that book that we're seeing at this point..

Okay. And then the underlying loss ratio in International obviously down quite a bit, 51%, hasn't been that low in a long time.

Can you help us sort of quantify the drivers of that? I mean, how much of that's driven by the business mix changing? How much is really rate in excess of loss costs? And I guess, why not just play it safer there at this point until we get a little farther past the pandemic?.

Yes, those are - that's a good question. We've been re-underwriting that book since 2018 in some circumstances, right? So you're into the fourth year of underwriting actions and removal from completely getting out of certain lines.

So when it comes to playing it safer, we've got to be realistic about what the actual losses look like and what they are and the ratios range depending on the product lines. But we have gotten out of things that were significantly problematic for us and we've reduced our overall exposure.

So we're sort of highlighting the underwriting loss - underlying loss ratio and the improvement there in that book going back to the second half of last year where it started to get on an adjusted basis for what we were remaining into the low-50. So it's just in line with what we've been saying, and we're happy to see it continue..

Okay. Thanks for the answers..

And our next question will come from Matt Carletti with JMP. Please go ahead..

Thanks. Good morning. The larger picture question I was going to ask have been answered, I just have a couple kind of more specific questions relating to Syndicate 1200.

And those are; one, I was hoping you could tell us what the funds at Lloyd's requirements are? Just trying to sort through kind of the moving pieces there in terms of the moving mix of business as well as the increased retention.

And then also, where has that been running out a combined ratio basis either Q1, Q2 or six months whatever kind of metric you might have?.

All right, Matt. So on 1200, we are - as we mentioned, we took a larger retention last year. So we kept more of the business with less third-party and we're effectively keeping that business flat and expect to do so as we go forward.

But the underwriting results are improving as we continue to get rate through various lines and the market conditions remain favorable and we're exiting the businesses that we wanted to exit. So we feel good about where that's going at the moment..

You bet. Thank you..

Our next question will come from Ron Bobman with Capital Returns. Please go ahead..

Hi. Thanks a lot. Good report, and welcome to the call, Kevin. It's good to hear you, the back portion..

Thanks..

So you didn't really explicitly answer, Matt's - the last question about, is 1200 profitable from an underwriting perspective either on the half year or second quarter?.

Yes, it is on both. Sorry about that. It is on both..

Okay, okay..

Hang on, hang on, hang on, ex-Uri, right? The underlying stuff, right, so from a cat standpoint, Uri was costly there. But the underlying business ex-cat, we feel really good about it..

Okay. And then I had a question about the U.S. Insurance business.

What portion of that, I guess, from a GWP perspective comes by way of a program manager or underwriting manager?.

The percentage of total?.

Roughly, what percentage of those are coming through sort of some degree of delegated authority whether it's a program manager or....

Yes, all right. So we highlighted that in the Investor Update, and I don't remember off the top of my head right now. But what looks like it - where it looks like it has grown in the last year is because Trident moved from in-house to a program manager. So that would have been the large increase. And those are folks that worked here for years.

So we'll get you the exact numbers, but I believe it would be in line with what it was for us, where we highlighted it as a percentage in the Investor Update..

Okay..

It would be under what we've called specialty programs..

Okay. I'll circle back afterwards to getting the ballpark on that.

And do you have funds at Lloyd's figure for 1200?.

I don't have off the top of my head.

Scott, do you have that?.

Yes, yes and Ron, there's a couple of pieces to this, right, because there is like a 100% for the Syndicate always, our share of the Syndicate and you have to be careful of that because we don't have a 100% ownership. But look, I'll give you a ballpark. It's not going to be hugely different. It's around the £300 million to £350 million mark..

Okay. But you're 90% of the Syndicate now, right? Isn't that the....

Yes, for the '21 year, yes, but you do have a blend of ownership levels across the various years. So I would point you if you ever want to go and have a look at the Syndicate results, I think they're - we can - if they're not - well, I'll have to check whether they are out there. But I think it's around the £350 million..

Okay, no, I read the Lloyd's report, but I didn't see the FAL number in there.

And then the £300 million to £350 million ballpark that - the amount that covers really '18, '19, '20 and year-to-date '21, it's sort of supporting all of those years, right?.

That is correct. Yes, it does support all of those years..

Okay, got you. All right. Thanks for the help. I'm done. Thanks, guys..

And this will conclude our question-and-answer session. I'd like to turn the conference back over to Kevin Rehnberg for any closing remarks..

Yes, thanks everybody for your interest and support. Thanks to our employees and producers for continuing to do what you've been doing. And I would also welcome anyone on the call back for any pieces where I broke up earlier in the call, I apologize for that. I look forward to connecting with you soon. Thank you..

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time..