Argo Group International Holdings, Ltd. (NASDAQ:AGII) Q3 2018 Earnings Conference Call Transcript

Nov 06, 2018 • 10:00 am ET


Argo Group International Holdings, Ltd. (NASDAQ:AGII) Q3 2018 Earnings Conference Call Transcript


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Hello, and welcome to the Argo Group 2018 Third Quarter Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I now would like to turn the conference over to Susan Spivak Bernstein. Please go head, ma'am.

Susan Spivak Bernstein

Thank you, and let me add my good morning, and welcome to Argo Group's call for the third quarter of 2018. Last night, we issued a press release on earnings, which is available on the Investors section of our website at Presenting on the call today is Mark Watson, Chief Executive Officer; and Jay Bullock, Chief Financial Officer.

As the operator mentioned, this call is being recorded.

(Forward-Looking Cautionary Statements)

With that, I'll turn the call over to Mark Watson, Chief Executive Officer of Argo Group. Mark?

Mark Watson

Good morning, and I'd also like to welcome you to today's call on our third quarter 2018 earnings. As I reported last night, our third quarter 2018 adjusted operating income was $0.68 per diluted share versus a loss of $1.66 per share in the 2017 third quarter. And an adjusted operating earnings for the first 9 months of 2018 of $2.68 per diluted share compares to $0.15 per diluted share in the first 9 months of 2017.

We've all heard that expression, what a difference a year makes. And well, here so far this year we had one. Let me explain. For our industry, the third quarter is usually full of CAT activity from somewhere in the world, and Argo is no different. What is different is how we manage our volatility this year.

A year ago, we discussed the financial output of multiple reinsurance and retro retentions and how things would look differently in 2018 versus 2017. And fortunately, as we suspected last year, there's an obvious difference, and that is reduced volatility in an active catastrophe loss quarter with the important commonality of continued strong underlying performance, as evidenced by the core non-cap loss ratios.

Following the integration of Ariel Re, moving into the 2018 underwriting year, we're now using more capacity from the capital markets as well as restructuring our reinsurance program to reduce earnings volatility. And while it isn't necessarily something that you want to test, result in the third quarter of 2018 demonstrated that the changes we made are doing just what we said up to do. Protect our income statement and balance sheet from losses in a period of similar frequency to the third quarter of 2017 where industry results were impacted by several natural catastrophe loss events on a global basis.

Looking further into our results for 2018, you can see the benefits of the strategic growth in digital initiatives. In both the third quarter and first 9 months of 2018, the company grew overall premiums, but more importantly improved margins on both the calendar year and accident year basis, improved our expense ratio and generated an underwriting profit, despite high catastrophe loss activity in the quarter.

In terms of overall pricing adequacy for the group, year-to-date