NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The accompanying consolidated financial statements of Argo Group International Holdings, Ltd. (“Argo Group,” “we” or the “Company”) and its subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. The preparation of interim financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The major estimates reflected in our consolidated financial statements include, but are not limited to, reserves for losses and loss adjustment expenses; reinsurance recoverables, including the reinsurance recoverables allowance for doubtful accounts; estimates of written and earned premiums; reinsurance premium receivable; fair value of investments and assessment of potential impairment; valuation of goodwill and intangibles and our deferred tax asset valuation allowance. Actual results could differ from those estimates. Certain financial information that normally is included in annual financial statements, including certain financial statement footnotes, prepared in accordance with GAAP, is not required for interim reporting purposes and has been condensed or omitted. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission on February 24, 2017.
Effective February 6, 2017, we completed the acquisition of Maybrooke Holdings, S.A. (“Maybrooke”) and its direct subsidiaries, including Ariel Re. We have accounted for the acquisition in accordance with Accounting Standards Codification (“ASC”) 805, “Business Combinations,” and the purchase price has been preliminarily allocated to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. See Note 3, “Acquisition of Maybrooke,” for additional discussion regarding the acquisition and the related financial disclosures. The Consolidated Financial Statements as of and for the three months ended March 31, 2017 and the Notes to the Consolidated Financial Statements reflect the consolidated results of Argo Group and Maybrooke commencing on the date of acquisition.
The interim financial information as of, and for the three months ended, March 31, 2017 and 2016 is unaudited. However, in the opinion of management, the interim information includes all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results presented for the interim periods. The operating results for the interim periods are not necessarily indicative of the results to be expected for the full year. All significant intercompany amounts have been eliminated in consolidation.
During the first quarter of 2017, we evaluated and modified the presentation of our reportable segments to better reflect our new operating framework and management structure. Under this model, Argo Group’s chief operating decision maker – Mark E. Watson III, President and Chief Executive Officer – evaluates performance and allocates resources based on the review of the U.S. Operations and the International Operations. The U.S. Operations includes the former Excess & Surplus and Commercial Specialty reportable segments. The International Operations includes the former Syndicate 1200, International Specialty reportable segments, and the recently acquired Ariel Re business. (See Note 3, “Acquisition of Maybrooke” for details regarding Ariel Re.) The business unit that produces the risk and not the location of the underlying exposure is the primary characteristic in distinguishing operating and reportable segments. For example, a U.S. property exposure underwritten through our Syndicate platform would be included in International Operations. Consistent with prior periods, the Run-off Lines and Corporate segments include all other activity of Argo Group and are included in our consolidated financial results. Segment results for the three months ended March 31, 2016 have been reclassified to conform to the current presentation.
2.
|
Recently Issued Accounting Pronouncements
|
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-01, “Business Combination” (Topic 805). ASU 2017-01 clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance specifies the minimum inputs and processes required to meet the definition of a business. The guidance is effective for annual periods beginning after December 15, 2017, and interim periods within those periods, with early adoption permitted. We do not anticipate that this ASU will have a material impact on our financial results or disclosures.
7
In January 2017,
the
FASB issued ASU 2017-04,
“
Intangibles – Goodwill and Other
” (Topic 350).
ASU 2017-04 eliminates the requirement to calculate the
implied fair value of goodwill that is done in Step 2 of the current goodwill impairment test to measure a goodwill impairment loss. Instead, entities will record an impairment loss based on the excess of a reporting unit’s carrying amount over its fair va
lue
.
The guidance
will be applied prospectively and is effective for annual and interim impairment tests performed in period
s
beginning after December 15, 2019
. E
arly adoption is permitted for annual and interim goodwill impairment testing dates after Janu
ary 1, 2017. We do not anticipate that this ASU will have
a
material
impact
on our financial results or disclosures.
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments (Topic 230). ASU 2016-15 will reduce diversity in practice on how eight specific cash receipts and payments are classified on the statement of cash flows. The ASU will be effective for fiscal years beginning after December 15, 2017, including interim periods within those years. This ASU will have an impact on how we present the distributions received from equity method investees in our statement of cash flows. We have elected to adopt the cumulative earnings approach to classify distributions received from equity method investees, which we will adopt retrospectively. We anticipate that this ASU will have no net effect on our consolidated statements of cash flows, but will likely have an immaterial impact on the reclassification of specific cash receipts and payments within the statement.
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments” (Topic 326). ASU 2016-13 requires organizations to estimate credit losses on certain types of financial instruments, including receivables and available-for-sale debt securities, by introducing an approach based on expected losses. The expected loss approach will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The guidance requires a modified retrospective transition method and early adoption is permitted.
We are currently evaluating the impact that the adoption of the ASU will have on our financial results and disclosures, but do not anticipate that any such potential impact would be material.
In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” (Topic 718). ASU 2016-09 simplifies the accounting for share-based payment award transactions including income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows, and accounting for forfeitures. The ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. We have adopted this ASU as of January 1, 2017, and for presentation purposes, the incremental tax windfall or shortfall associated with these events will be classified as a cash inflow from operating activity as compared with a financing activity, as previously required. The impact to our financial statements was not material. Additionally, we have selected to continue estimating forfeitures based on historical patterns and will true-up the expenses upon vesting.
In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842). ASU 2016-02 requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Additionally, the ASU modifies current guidance for lessors' accounting. The ASU is effective for interim and annual reporting periods beginning on or after January 1, 2019, with early adoption permitted. We do not anticipate that this ASU will have a material impact on our results of operations, but we anticipate an increase to the value of our assets and liabilities related to leases, with no material impact to equity.
In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (Subtopic 825-10). ASU 2016-01 will require equity investments that are not consolidated or accounted for under the equity method of accounting to be measured at fair value with changes in fair value recognized in net income. This ASU will also require us to assess the ability to realize our deferred tax assets (“DTAs”) related to an available-for-sale debt security in combination with our other DTAs. The ASU will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. While we continue to evaluate the impact of this ASU, we anticipate the standard will increase the volatility of our consolidated statements of income, resulting from the remeasurement of our equity investments.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (Topic 606), which replaces most existing U.S. GAAP revenue recognition guidance and permits the use of either the retrospective or cumulative effect transition method. In August 2015, “Deferral of the Effective Date” (Topic 606), deferred the effective date of this guidance to interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted for fiscal years, and interim reporting periods within those years, beginning after December 15, 2016. Subsequently, in 2016, the FASB issued implementation guidance related to ASU 2014-09, including:
|
•
|
ASU 2016-08, “Principal versus Agent considerations (Reporting Revenue Gross versus Net)” (Topic 606), which is intended to provide further clarification on the application of the principal versus agent implementations;
|
|
•
|
ASU 2016-10, “Identifying Performance Obligations and Licensing” (Topic 606), which is intended to clarify the guidance for identifying promised goods or service in a contract with a customer;
|
8
|
•
|
ASU 2016-11, “Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff An
nouncements at the March 3, 2016 EITF Meeting” (Topic 605) & 815);
|
|
•
|
ASU 2016-12, “Narrow-Scope Improvements and Practical Expedients” (Topic 606), provides additional guidance for quantitative and qualitative disclosures in certain cases, and make 12 additional technical corrections and improvements to the new revenue standard.
|
While insurance contracts are excluded from this ASU, fee income related to our brokerage operations and management of the third-party capital for our underwriting Syndicate at Lloyd’s will be subject to this updated guidance. We continue to evaluate what impact this ASU will have on our financial results and disclosures and which adoption method to apply, but do not anticipate such impact being material based on the limited revenue streams subject to the ASU.
3.
|
Acquisition of Maybrooke
|
Effective February 6, 2017, we completed the acquisition of Maybrooke whereby we acquired all of the issued and outstanding capital stock of Maybrooke. The initial purchase price of $235.3 million was paid in cash from funds on hand and available under our credit facility (see Note 7, “Other Indebtedness”). The initial purchase price is subject to post-closing adjustments based on a final calculation of the purchase price, to be delivered to the seller within 90 days of closing.
Through the acquisition of Maybrooke, we acquired Ariel Re, a global underwriter of specialty insurance and reinsurance business written primarily through its Lloyd’s Syndicate 1910. Ariel Re provides Argo Group with a number of strategic advantages, including enhanced scale in its London- and Bermuda-based platforms.
The acquisition is being accounting for in accordance with ASC 805, “Business Combinations.” Purchase accounting, as defined by ASC 805, requires that the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. We are in the process of finalizing our determination of fair values, including an independent appraisal of certain assets and liabilities, including intangible assets. Therefore, a preliminarily allocation of the purchase price to the acquired assets, liabilities, and intangible assets is presented in the table below:
(in millions)
|
|
|
|
|
Assets:
|
|
|
|
|
Investments
|
|
$
|
318.6
|
|
Cash
|
|
|
152.2
|
|
Accrued investment income
|
|
|
0.2
|
|
Premiums receivable
|
|
|
175.0
|
|
Reinsurance recoverables
|
|
|
80.3
|
|
Current income taxes receivable
|
|
|
0.2
|
|
Deferred acquisition costs, net
|
|
|
9.8
|
|
Ceded unearned premiums
|
|
|
92.6
|
|
Other assets
|
|
|
10.6
|
|
Total assets
|
|
|
839.5
|
|
Liabilities:
|
|
|
|
|
Reserves for losses and loss adjustment expenses
|
|
|
197.0
|
|
Unearned premiums
|
|
|
152.5
|
|
Accrued underwriting expenses
|
|
|
24.4
|
|
Ceded reinsurance payable, net
|
|
|
145.0
|
|
Junior subordinated debentures
|
|
|
83.6
|
|
Deferred tax liabilities
|
|
|
8.6
|
|
Other liabilities
|
|
|
33.5
|
|
Total liabilities
|
|
|
644.6
|
|
|
|
|
|
|
Net assets acquired
|
|
|
194.9
|
|
Initial purchase price
|
|
|
235.3
|
|
Intangible assets
|
|
$
|
40.4
|
|
9
The fair value measurement period will continue into the second quarter of 2017, during which time we expect to finalize the valuation analyses. The excess of the purchase price over the fair value of the net assets acquired has been preliminarily allocate
d to intangible assets, which will be specifically identified and quantified during the second quarter of 2017. We did not record amortization expense related to the $40.4 million intangible assets during the first quarter of 2017 due to the intangible ass
ets having not yet been specifically identified. We anticipate recording both amortizable and non-amortizable identifiable intangible assets and goodwill upon the completion of the valuation analyses, including intangible assets relating to the Lloyd’s Syn
dicate 1910 stamp capacity (non-
amortizable), distribution networks (amortizable), and the Ariel Re tradename (amortizable). G
oodwill is calculated as the excess of the purchase price over the fair value of the net assets recognized, including identifiable
intangible assets.
We recognized approximately $2.5 million of transaction costs in the first quarter of 2017 related to the acquisition in our Consolidated Statements of Income, of which $2.2 million were reported in “Underwriting, acquisition and insurance expenses” and $0.3 million in “Interest expense” related to the borrowings under our credit facility to help fund the acquisition.
Maybrooke’s Contribution to Argo Group’s Revenue and Income
The following selected financial information summarizes the results of Maybrooke from the date of acquisition that have been included in our Consolidated Statement of Income:
(in millions)
|
|
|
|
|
Revenues
|
|
$
|
23.3
|
|
Net income
|
|
$
|
6.6
|
|
Unaudited Pro forma Results of Operations
The following unaudited pro forma financial information has been provided to present a summary of the combined results of Argo Group’s operations with Maybrooke’s as if the acquisition had occurred on January 1, 2016. The unaudited pro forma financial information is for informational purposes only and is not necessarily indicative of what the results would have been had the acquisition been completed at the date indicated above, as it may not include all necessary adjustments. Future changes to Maybrooke’s business, such as, but not limited to, the impact from underwriting decisions, changes in risk selection, or retention rates, could result in a material favorable or unfavorable impact on Argo Group’s future results of operations and financial position. The unaudited pro forma results for three months ended March 31, 2017 include favorable development from prior accident years of $6.7 million, including $6.2 million relating to one specific claim in January 2017. In addition, the $2.5 million of nonrecurring transaction costs directly attributable to the acquisition, as disclosed above, have also been removed from the unaudited pro forma results for the three months ended March 31, 2017 in the table below. The unaudited pro forma results for the three months ended March 31, 2016 include the benefits of higher net retention resulting in increased earned premiums and profitability for prior Lloyd’s years of account, partially offset by unfavorable development on claims from prior accident years.
|
|
For the Three Months Ended March 31,
|
|
(in millions, except per share data)
|
|
2017
|
|
|
2016
|
|
Pro forma revenues
|
|
$
|
443.7
|
|
|
$
|
439.2
|
|
Pro forma net income
|
|
|
47.0
|
|
|
|
43.4
|
|
Pro forma net income per share - basic
|
|
|
1.56
|
|
|
|
1.42
|
|
Pro forma net income per share - diluted
|
|
|
1.52
|
|
|
|
1.39
|
|
10
Composition of Invested Assets
The amortized cost, gross unrealized gains, gross unrealized losses and fair value of investments were as follows:
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
Fixed maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Governments
|
|
$
|
312.8
|
|
|
$
|
0.6
|
|
|
$
|
3.8
|
|
|
$
|
309.6
|
|
Foreign Governments
|
|
|
239.6
|
|
|
|
1.8
|
|
|
|
5.8
|
|
|
|
235.6
|
|
Obligations of states and political subdivisions
|
|
|
345.2
|
|
|
|
10.1
|
|
|
|
1.4
|
|
|
|
353.9
|
|
Corporate bonds
|
|
|
1,402.7
|
|
|
|
22.4
|
|
|
|
15.6
|
|
|
|
1,409.5
|
|
Commercial mortgage-backed securities
|
|
|
146.8
|
|
|
|
0.5
|
|
|
|
1.8
|
|
|
|
145.5
|
|
Residential mortgage-backed securities
|
|
|
191.8
|
|
|
|
3.2
|
|
|
|
1.9
|
|
|
|
193.1
|
|
Asset-backed securities
|
|
|
128.8
|
|
|
|
0.2
|
|
|
|
1.7
|
|
|
|
127.3
|
|
Collateralized loan obligations
|
|
|
261.8
|
|
|
|
4.2
|
|
|
|
5.2
|
|
|
|
260.8
|
|
Total fixed maturities
|
|
|
3,029.5
|
|
|
|
43.0
|
|
|
|
37.2
|
|
|
|
3,035.3
|
|
Equity securities
|
|
|
329.5
|
|
|
|
122.9
|
|
|
|
5.2
|
|
|
|
447.2
|
|
Other investments
|
|
|
548.0
|
|
|
|
7.5
|
|
|
|
0.1
|
|
|
|
555.4
|
|
Short-term investments
|
|
|
527.7
|
|
|
|
—
|
|
|
|
—
|
|
|
|
527.7
|
|
Total investments
|
|
$
|
4,434.7
|
|
|
$
|
173.4
|
|
|
$
|
42.5
|
|
|
$
|
4,565.6
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
Fixed maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Governments
|
|
$
|
275.1
|
|
|
$
|
0.6
|
|
|
$
|
4.5
|
|
|
$
|
271.2
|
|
Foreign Governments
|
|
|
244.2
|
|
|
|
1.1
|
|
|
|
8.0
|
|
|
|
237.3
|
|
Obligations of states and political subdivisions
|
|
|
375.7
|
|
|
|
8.9
|
|
|
|
1.8
|
|
|
|
382.8
|
|
Corporate bonds
|
|
|
1,316.9
|
|
|
|
23.3
|
|
|
|
19.5
|
|
|
|
1,320.7
|
|
Commercial mortgage-backed securities
|
|
|
154.9
|
|
|
|
0.4
|
|
|
|
1.6
|
|
|
|
153.7
|
|
Residential mortgage-backed securities
|
|
|
174.8
|
|
|
|
3.7
|
|
|
|
1.7
|
|
|
|
176.8
|
|
Asset-backed securities
|
|
|
127.6
|
|
|
|
0.1
|
|
|
|
2.1
|
|
|
|
125.6
|
|
Collateralized loan obligations
|
|
|
269.6
|
|
|
|
3.8
|
|
|
|
9.1
|
|
|
|
264.3
|
|
Total fixed maturities
|
|
|
2,938.8
|
|
|
|
41.9
|
|
|
|
48.3
|
|
|
|
2,932.4
|
|
Equity securities
|
|
|
335.2
|
|
|
|
117.9
|
|
|
|
5.7
|
|
|
|
447.4
|
|
Other investments
|
|
|
531.6
|
|
|
|
7.5
|
|
|
|
0.1
|
|
|
|
539.0
|
|
Short-term investments
|
|
|
405.5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
405.5
|
|
Total investments
|
|
$
|
4,211.1
|
|
|
$
|
167.3
|
|
|
$
|
54.1
|
|
|
$
|
4,324.3
|
|
Included in “Total investments” in our Consolidated Balance Sheets at March 31, 2017 and December 31, 2016 is $154.0 million and $131.9 million, respectively, of assets managed on behalf of the trade capital providers, who are third-party participants that provide underwriting capital to the operations of Syndicate 1200.
11
Contractual Maturity
The amortized cost and fair values of fixed maturity investments as of March 31, 2017, by contractual maturity, were as follows:
(in millions)
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
Due in one year or less
|
|
$
|
239.3
|
|
|
$
|
235.3
|
|
Due after one year through five years
|
|
|
1,297.8
|
|
|
|
1,303.3
|
|
Due after five years through ten years
|
|
|
612.4
|
|
|
|
616.6
|
|
Thereafter
|
|
|
150.8
|
|
|
|
153.4
|
|
Structured securities
|
|
|
729.2
|
|
|
|
726.7
|
|
Total
|
|
$
|
3,029.5
|
|
|
$
|
3,035.3
|
|
The expected maturities may differ from the contractual maturities because debtors may have the right to call or prepay obligations.
Other Invested Assets
Details regarding the carrying value and unfunded investment commitments of the other invested assets portfolio as of March 31, 2017 and December 31, 2016 were as follows:
March 31, 2017
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Carrying
Value
|
|
|
Unfunded
Commitments
|
|
Investment Type
|
|
|
|
|
|
|
|
|
Hedge funds
|
|
$
|
177.4
|
|
|
$
|
—
|
|
Private equity
|
|
|
178.6
|
|
|
|
95.5
|
|
Long only funds
|
|
|
191.7
|
|
|
|
—
|
|
Other investments
|
|
|
7.7
|
|
|
|
—
|
|
Total other invested assets
|
|
$
|
555.4
|
|
|
$
|
95.5
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Carrying
Value
|
|
|
Unfunded
Commitments
|
|
Investment Type
|
|
|
|
|
|
|
|
|
Hedge funds
|
|
$
|
180.9
|
|
|
$
|
—
|
|
Private equity
|
|
|
179.0
|
|
|
|
93.4
|
|
Long only funds
|
|
|
170.7
|
|
|
|
—
|
|
Other investments
|
|
|
8.4
|
|
|
|
—
|
|
Total other invested assets
|
|
$
|
539.0
|
|
|
$
|
93.4
|
|
The following describes each investment type:
|
•
|
Hedge funds:
Hedge funds include funds that primarily buy and sell stocks, including short sales, multi-strategy credit, relative value credit and distressed credit.
|
|
•
|
Private equity:
Private equity includes buyout funds, real asset/infrastructure funds, credit special situations funds, mezzanine lending funds and direct investments and strategic non-controlling minority investments in private companies that are principally accounted for using the equity method of accounting.
|
|
•
|
Long only funds:
Our long only funds include a fund that primarily owns international stocks and funds that primarily own investment-grade corporate and sovereign fixed income securities.
|
|
•
|
Other investments:
Other investments include participation in investment pools, foreign exchange currency forward contracts to manage our foreign currency exposure and a portfolio of foreign exchange currency forward contracts that are actively traded by an external currency manager for a total return strategy.
|
12
Unrealized Losses and Other-Than-Temporary Impairments
An aging of unrealized losses on our investments in fixed maturities, equity securities, other investments and short-term investments is presented below:
March 31, 2017
|
|
Less Than One Year
|
|
|
One Year or Greater
|
|
|
Total
|
|
(in millions)
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
Fixed maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Governments
|
|
$
|
193.0
|
|
|
$
|
3.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
193.0
|
|
|
$
|
3.8
|
|
Foreign Governments
|
|
|
144.8
|
|
|
|
5.8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
144.8
|
|
|
|
5.8
|
|
Obligations of states and political subdivisions
|
|
|
50.1
|
|
|
|
1.3
|
|
|
|
1.6
|
|
|
|
0.1
|
|
|
|
51.7
|
|
|
|
1.4
|
|
Corporate bonds
|
|
|
446.6
|
|
|
|
13.8
|
|
|
|
40.8
|
|
|
|
1.8
|
|
|
|
487.4
|
|
|
|
15.6
|
|
Commercial mortgage-backed securities
|
|
|
88.2
|
|
|
|
1.7
|
|
|
|
5.4
|
|
|
|
0.1
|
|
|
|
93.6
|
|
|
|
1.8
|
|
Residential mortgage-backed securities
(2)
|
|
|
101.2
|
|
|
|
1.9
|
|
|
|
8.5
|
|
|
|
—
|
|
|
|
109.7
|
|
|
|
1.9
|
|
Asset-backed securities
|
|
|
75.1
|
|
|
|
1.0
|
|
|
|
4.7
|
|
|
|
0.7
|
|
|
|
79.8
|
|
|
|
1.7
|
|
Collateralized loan obligations
|
|
|
92.4
|
|
|
|
5.0
|
|
|
|
3.9
|
|
|
|
0.2
|
|
|
|
96.3
|
|
|
|
5.2
|
|
Total fixed maturities
|
|
|
1,191.4
|
|
|
|
34.3
|
|
|
|
64.9
|
|
|
|
2.9
|
|
|
|
1,256.3
|
|
|
|
37.2
|
|
Equity securities
|
|
|
62.4
|
|
|
|
5.2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
62.4
|
|
|
|
5.2
|
|
Other investments
|
|
|
0.3
|
|
|
|
0.1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.3
|
|
|
|
0.1
|
|
Short-term investments
(1)
|
|
|
25.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25.0
|
|
|
|
—
|
|
Total
|
|
$
|
1,279.1
|
|
|
$
|
39.6
|
|
|
$
|
64.9
|
|
|
$
|
2.9
|
|
|
$
|
1,344.0
|
|
|
$
|
42.5
|
|
(1)
|
Unrealized losses less than one year are less than $0.1 million.
|
(2)
|
Unrealized losses one year or greater are less than $0.1 million.
|
December 31, 2016
|
|
Less Than One Year
|
|
|
One Year or Greater
|
|
|
Total
|
|
(in millions)
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
Fixed maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Governments
(2)
|
|
$
|
183.4
|
|
|
$
|
4.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
183.4
|
|
|
$
|
4.5
|
|
Foreign Governments
|
|
|
201.2
|
|
|
|
8.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
201.2
|
|
|
|
8.0
|
|
Obligations of states and political subdivisions
(1)
|
|
|
72.6
|
|
|
|
1.7
|
|
|
|
1.8
|
|
|
|
0.1
|
|
|
|
74.4
|
|
|
|
1.8
|
|
Corporate bonds
|
|
|
490.5
|
|
|
|
17.7
|
|
|
|
50.6
|
|
|
|
1.8
|
|
|
|
541.1
|
|
|
|
19.5
|
|
Commercial mortgage-backed securities
|
|
|
70.6
|
|
|
|
1.5
|
|
|
|
7.1
|
|
|
|
0.1
|
|
|
|
77.7
|
|
|
|
1.6
|
|
Residential mortgage-backed securities
(2)
|
|
|
87.5
|
|
|
|
1.7
|
|
|
|
4.4
|
|
|
|
—
|
|
|
|
91.9
|
|
|
|
1.7
|
|
Asset-backed securities
|
|
|
69.7
|
|
|
|
1.4
|
|
|
|
8.2
|
|
|
|
0.7
|
|
|
|
77.9
|
|
|
|
2.1
|
|
Collateralized loan obligations
|
|
|
122.5
|
|
|
|
8.6
|
|
|
|
16.9
|
|
|
|
0.5
|
|
|
|
139.4
|
|
|
|
9.1
|
|
Total fixed maturities
|
|
|
1,298.0
|
|
|
|
45.1
|
|
|
|
89.0
|
|
|
|
3.2
|
|
|
|
1,387.0
|
|
|
|
48.3
|
|
Equity securities
|
|
|
62.1
|
|
|
|
5.7
|
|
|
|
—
|
|
|
|
—
|
|
|
|
62.1
|
|
|
|
5.7
|
|
Other investments
|
|
|
0.3
|
|
|
|
0.1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.3
|
|
|
|
0.1
|
|
Short-term investments
|
|
|
4.8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4.8
|
|
|
|
—
|
|
Total
|
|
$
|
1,365.2
|
|
|
$
|
50.9
|
|
|
$
|
89.0
|
|
|
$
|
3.2
|
|
|
$
|
1,454.2
|
|
|
$
|
54.1
|
|
(1)
|
Unrealized losses less than one year are less than $0.1 million.
|
(2)
|
Unrealized losses one year or greater are less than $0.1 million.
|
We regularly evaluate our investments for other-than-temporary impairment. For fixed maturity securities, the evaluation for a credit loss is generally based on the present value of expected cash flows of the security as compared to the amortized book value. For structured securities, frequency and severity of loss inputs are used in projecting future cash flows of the securities. Loss frequency is measured as the credit default rate, which includes such factors as loan-to-value ratios and credit scores of borrowers. For equity securities and other investments, the length of time and the amount of decline in fair value are the principal factors in determining other-than-temporary impairment. We also recognize other-than-temporary losses on fixed maturity securities that we intend to sell.
We hold a total of 7,909 securities, of which 2,035 were in an unrealized loss position for less than one year and 149 were in an unrealized loss position for a period one year or greater as of March 31, 2017. Unrealized losses greater than twelve months on fixed maturities were the result of a number of factors, including increased credit spreads, foreign currency fluctuations and higher market yields relative to the date the securities were purchased, and for structured securities, by the performance of the underlying collateral,
13
as well. In considering whether an investment is other-than-temporarily impaired or not, we also considered that we do not intend to sell the
investments and it is unlikely that we will be required to sell the investments before recovery of their amortized cost bases, which may be maturity. In situations where we did not recognize other-than-temporary losses on investments in our equity portfoli
o, we have evaluated the near-term prospects of the investment in relation to the severity and duration of the impairment and based on that evaluation, have the ability and intent to hold these investments until a recovery of the cost basis. We do not cons
ider these investments to be other-than-temporarily impaired at March 31, 2017.
We recognized other-than-temporary losses on our fixed maturities and equity portfolio as follows:
|
|
For the Three Months Ended March 31,
|
|
(in millions)
|
|
2017
|
|
|
2016
|
|
Other-than-temporary impairment:
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
—
|
|
|
$
|
(1.1
|
)
|
Equity securities
|
|
|
(0.4
|
)
|
|
|
(0.6
|
)
|
Other-than-temporary impairment losses
|
|
$
|
(0.4
|
)
|
|
$
|
(1.7
|
)
|
Realized Gains and Losses
The following table presents our gross realized investment and other gains (losses):
|
|
For the Three Months Ended March 31,
|
|
(in millions)
|
|
2017
|
|
|
2016
|
|
Realized gains
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
$
|
7.1
|
|
|
$
|
6.4
|
|
Equity securities
|
|
|
15.7
|
|
|
|
19.3
|
|
Other investments
|
|
|
6.0
|
|
|
|
10.2
|
|
Short-term investments
|
|
|
0.2
|
|
|
|
0.2
|
|
Gross realized investment and other gains
|
|
|
29.0
|
|
|
|
36.1
|
|
Realized losses
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
|
(6.2
|
)
|
|
|
(8.4
|
)
|
Equity securities
|
|
|
(0.7
|
)
|
|
|
(6.1
|
)
|
Other investments
|
|
|
(7.0
|
)
|
|
|
(22.6
|
)
|
Short-term investments
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Other-than-temporary impairment losses on fixed
maturities
|
|
|
—
|
|
|
|
(0.6
|
)
|
Other-than-temporary impairment losses on equity
securities
|
|
|
(0.4
|
)
|
|
|
(1.1
|
)
|
Gross realized investment and other losses
|
|
|
(14.4
|
)
|
|
|
(38.9
|
)
|
Net realized investment and other gains (losses) before income taxes
|
|
|
14.6
|
|
|
|
(2.8
|
)
|
Income tax expense
|
|
|
(4.3
|
)
|
|
|
(1.2
|
)
|
Net realized investment and other gains (losses), net of income taxes
|
|
$
|
10.3
|
|
|
$
|
(4.0
|
)
|
The cost of securities sold is based on the specific identification method.
Changes in unrealized appreciation (depreciation) related to investments are summarized as follows:
|
|
For the Three Months Ended March 31,
|
|
(in millions)
|
|
2017
|
|
|
2016
|
|
Change in unrealized gains (losses)
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
$
|
12.6
|
|
|
$
|
38.9
|
|
Equity securities
|
|
|
5.3
|
|
|
|
(9.0
|
)
|
Other investments
|
|
|
—
|
|
|
|
0.6
|
|
Short-term investments
|
|
|
—
|
|
|
|
0.5
|
|
Net unrealized investment and other gains before
income taxes
|
|
|
17.9
|
|
|
|
31.0
|
|
Income tax expense
|
|
|
(4.6
|
)
|
|
|
(3.7
|
)
|
Net unrealized investment and other gains, net of
income taxes
|
|
$
|
13.3
|
|
|
$
|
27.3
|
|
14
Foreign Currency Exchange Forward Contracts
We entered into foreign currency exchange forward contracts to manage currency exposure on our Canadian dollar (“CAD”) investment portfolio, minimize negative impacts to our investment portfolio returns, manage currency exposure on certain Euro (“EUR”) denominated investments and gain exposure to a total return strategy which invests in multiple currencies.
These currency forward contracts are carried at fair value in our Consolidated Balance Sheets in “Other investments”. The realized and unrealized gains and losses are included in “Net realized investment and other (losses) gains” in our Consolidated Statements of Income.
The fair value of our foreign currency exchange forward contracts as of March 31, 2017 and December 31, 2016 was as follows:
(in millions)
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Operational currency exposure
|
|
$
|
2.5
|
|
|
$
|
—
|
|
Asset manager investment exposure
|
|
|
(0.7
|
)
|
|
|
0.7
|
|
Total return strategy
|
|
|
1.2
|
|
|
|
3.3
|
|
|
|
$
|
3.0
|
|
|
$
|
4.0
|
|
The following table represents our gross investment realized gains and losses on our foreign currency exchange forward contracts:
|
|
For the Three Months Ended March 31,
|
|
(in millions)
|
|
2017
|
|
|
2016
|
|
Realized gains
|
|
|
|
|
|
|
|
|
Operational currency exposure
|
|
$
|
2.0
|
|
|
$
|
2.8
|
|
Asset manager investment exposure
|
|
|
0.5
|
|
|
|
—
|
|
Total return strategy
|
|
|
3.1
|
|
|
|
6.7
|
|
Gross realized investment gains
|
|
|
5.6
|
|
|
|
9.5
|
|
Realized losses
|
|
|
|
|
|
|
|
|
Operational currency exposure
|
|
|
(2.2
|
)
|
|
|
(8.5
|
)
|
Asset manager investment exposure
|
|
|
(1.4
|
)
|
|
|
(3.6
|
)
|
Total return strategy
|
|
|
(1.9
|
)
|
|
|
(9.2
|
)
|
Gross realized investment losses
|
|
|
(5.5
|
)
|
|
|
(21.3
|
)
|
Net realized investment gains on foreign
currency exchange forward contracts
|
|
$
|
0.1
|
|
|
$
|
(11.8
|
)
|
|
|
|
|
|
|
|
|
|
Regulatory Deposits, Pledged Securities and Letters of Credit
(in millions)
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Securities on deposit for regulatory and other purposes
|
|
$
|
183.9
|
|
|
$
|
168.7
|
|
Securities pledged as collateral for letters of credit
|
|
|
37.6
|
|
|
|
35.9
|
|
Securities and cash on deposit supporting Lloyd’s business
|
|
|
396.8
|
|
|
|
161.8
|
|
Total restricted investments
|
|
$
|
618.3
|
|
|
$
|
366.4
|
|
Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability, or in the absence of a principal market, the most advantageous market. Market participants are buyers and sellers in the principal (or most advantageous) market that are independent, knowledgeable, able to transact for the asset or liability and willing to transfer the asset or liability.
15
Valuation techniques consistent with the market approach, income approach and/or cost approach are used to measure fair value. The inputs of these
valuation techniques are categorized into three levels.
|
•
|
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the reporting date. We define actively traded as a security that has traded in the past seven days. We receive one quote per instrument for Level 1 inputs.
|
|
•
|
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. We receive one quote per instrument for Level 2 inputs.
|
|
•
|
Level 3 inputs are unobservable inputs. Unobservable inputs reflect our own judgments about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances.
|
We receive fair value prices from third-party pricing services and our outside investment managers. These prices are determined using observable market information such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things. We have reviewed the processes used by the third-party providers for pricing the securities, and have determined that these processes result in fair values consistent with GAAP requirements. In addition, we review these prices for reasonableness, and have not adjusted any prices received from the third-party providers as of March 31, 2017. A description of the valuation techniques we use to measure assets at fair value is as follows:
Fixed Maturities (Available-for-Sale) Levels 1 and 2:
|
•
|
United States Treasury securities are typically valued using Level 1 inputs. For these securities, we obtain fair value measurements from third-party pricing services using quoted prices (unadjusted) in active markets at the reporting date.
|
|
•
|
United States Government agencies, non-U.S. Government securities, obligations of states and political subdivisions, credit securities and foreign denominated government and credit securities are reported at fair value using Level 2 inputs. For these securities, we obtain fair value measurements from third-party pricing services. Observable data may include dealer quotes, market spreads, yield curves, live trading levels, trade execution data, credit information and the security’s terms and conditions, among other things.
|
|
•
|
Asset and mortgage-backed securities and collateralized loan obligations are reported at fair value using Level 2 inputs. For these securities, we obtain fair value measurements from third-party pricing services. Observable data may include dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things.
|
Fixed Maturities (Available-for-Sale) Levels 1 and 2:
|
•
|
We own a $2.0 million term loan that is valued using unobservable inputs.
|
Equity Securities Level 1:
Equity securities are principally reported at fair value using Level 1 inputs. For these securities, we obtain fair value measurements from a third-party pricing service using quoted prices (unadjusted) in active markets at the reporting date.
Equity Securities Level 2:
We own interests in a mutual fund that is reported at fair value using Level 2 inputs. The valuation is based on the fund’s net asset value per share, at the end of each month. The underlying assets in the fund are valued primarily on the basis of closing market quotations or official closing prices on each valuation day.
Equity Securities Level 3:
We own certain equity securities that are reported at fair value using Level 3 inputs. The valuation techniques for these securities include the following:
|
•
|
Fair value measurements are obtained from the National Association of Insurance Commissioners’ Security Valuation Office at the reporting date.
|
|
•
|
Fair value measurements for an investment in an equity fund obtained by applying final prices provided by the administrator of the fund, which is based upon certain estimates and assumptions.
|
16
Other Investments Level 2:
Foreign regulatory deposits are assets held in trust in jurisdictions where there is a legal and regulatory requirement to maintain
funds locally in order to protect policyholders. Lloyd’s is the appointed investment manager for the funds. These assets are invested in short-term government securities, agency securities and corporate bonds and are valued using Level 2 inputs based upon
values obtained from Lloyd’s. Foreign currency future contracts are valued by our counterparty using market driven foreign currency exchange rates and are considered Level 2 investments.
Short-term Investments:
Short-term investments are principally reported at fair value using Level 1 inputs, with the exception of short-term corporate bonds reported at fair value using Level 2 inputs as described in the fixed maturities section above. Values for the investments categorized as Level 1 are obtained from various financial institutions as of the reporting date.
Transfers Between Level 1 and Level 2 Securities:
There were no transfers between Level 1 and Level 2 securities during the three months ended March 31, 2017.
Based on an analysis of the inputs, our financial assets measured at fair value on a recurring basis have been categorized as follows:
|
|
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
(in millions)
|
|
March 31, 2017
|
|
|
Level 1
(a)
|
|
|
Level 2
(b)
|
|
|
Level 3
(c)
|
|
Fixed maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Governments
|
|
$
|
309.6
|
|
|
$
|
279.0
|
|
|
$
|
30.6
|
|
|
$
|
—
|
|
Foreign Governments
|
|
|
235.6
|
|
|
|
—
|
|
|
|
235.6
|
|
|
|
—
|
|
Obligations of states and political subdivisions
|
|
|
353.9
|
|
|
|
—
|
|
|
|
353.9
|
|
|
|
—
|
|
Corporate bonds
|
|
|
1,409.5
|
|
|
|
—
|
|
|
|
1,407.5
|
|
|
|
2.0
|
|
Commercial mortgage-backed securities
|
|
|
145.5
|
|
|
|
—
|
|
|
|
145.5
|
|
|
|
—
|
|
Residential mortgage-backed securities
|
|
|
193.1
|
|
|
|
—
|
|
|
|
193.1
|
|
|
|
—
|
|
Asset-backed securities
|
|
|
127.3
|
|
|
|
—
|
|
|
|
127.3
|
|
|
|
—
|
|
Collateralized loan obligations
|
|
|
260.8
|
|
|
|
—
|
|
|
|
260.8
|
|
|
|
—
|
|
Total fixed maturities
|
|
|
3,035.3
|
|
|
|
279.0
|
|
|
|
2,754.3
|
|
|
|
2.0
|
|
Equity securities
|
|
|
447.2
|
|
|
|
444.7
|
|
|
|
2.1
|
|
|
|
0.4
|
|
Other investments
|
|
|
111.2
|
|
|
|
—
|
|
|
|
111.2
|
|
|
|
—
|
|
Short-term investments
|
|
|
527.7
|
|
|
|
511.6
|
|
|
|
16.1
|
|
|
|
—
|
|
|
|
$
|
4,121.4
|
|
|
$
|
1,235.3
|
|
|
$
|
2,883.7
|
|
|
$
|
2.4
|
|
(a)
|
Quoted prices in active markets for identical assets
|
(b)
|
Significant other observable inputs
|
(c)
|
Significant unobservable inputs
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
(in millions)
|
|
December 31, 2016
|
|
|
Level 1
(a)
|
|
|
Level 2
(b)
|
|
|
Level 3
(c)
|
|
Fixed maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Governments
|
|
$
|
271.2
|
|
|
$
|
228.0
|
|
|
$
|
43.2
|
|
|
$
|
—
|
|
Foreign Governments
|
|
|
237.3
|
|
|
|
—
|
|
|
|
237.3
|
|
|
|
—
|
|
Obligations of states and political subdivisions
|
|
|
382.8
|
|
|
|
—
|
|
|
|
382.8
|
|
|
|
—
|
|
Corporate bonds
|
|
|
1,320.7
|
|
|
|
—
|
|
|
|
1,318.7
|
|
|
|
2.0
|
|
Commercial mortgage-backed securities
|
|
|
153.7
|
|
|
|
—
|
|
|
|
153.7
|
|
|
|
—
|
|
Residential mortgage-backed securities
|
|
|
176.8
|
|
|
|
—
|
|
|
|
176.8
|
|
|
|
—
|
|
Asset-backed securities
|
|
|
125.6
|
|
|
|
—
|
|
|
|
125.6
|
|
|
|
—
|
|
Collateralized loan obligations
|
|
|
264.3
|
|
|
|
—
|
|
|
|
264.3
|
|
|
|
—
|
|
Total fixed maturities
|
|
|
2,932.4
|
|
|
|
228.0
|
|
|
|
2,702.4
|
|
|
|
2.0
|
|
Equity securities
|
|
|
447.4
|
|
|
|
444.9
|
|
|
|
2.1
|
|
|
|
0.4
|
|
Other investments
|
|
|
95.5
|
|
|
|
—
|
|
|
|
95.5
|
|
|
|
—
|
|
Short-term investments
|
|
|
405.5
|
|
|
|
375.1
|
|
|
|
30.4
|
|
|
|
—
|
|
|
|
$
|
3,880.8
|
|
|
$
|
1,048.0
|
|
|
$
|
2,830.4
|
|
|
$
|
2.4
|
|
(a)
|
Quoted prices in active markets for identical assets
|
(b)
|
Significant other observable inputs
|
(c)
|
Significant unobservable inputs
|
17
The fair value measure
ments in the tables above do not equal “Total investments” on our Consolidated Balance Sheets as they exclude certain other investments that are accounted for under the equity-method of accounting.
A reconciliation of the beginning and ending balances for the investments categorized as Level 3 are as follows:
Fair Value Measurements Using Observable Inputs (Level 3)
(in millions)
|
|
Corporate Bonds
|
|
|
Equity
Securities
|
|
|
Total
|
|
Beginning balance, January 1, 2017
|
|
$
|
2.0
|
|
|
$
|
0.4
|
|
|
$
|
2.4
|
|
Transfers into Level 3
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Transfers out of Level 3
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total gains or losses (realized/unrealized):
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in net income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Included in other comprehensive income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Purchases, issuances, sales, and settlements:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Issuances
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Sales
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Settlements
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Ending balance, March 31, 2017
|
|
$
|
2.0
|
|
|
$
|
0.4
|
|
|
$
|
2.4
|
|
Amount of total gains or losses for the year included
in net income (loss) attributable to the change in
unrealized gains or losses relating to assets still
held at March 31, 2017
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(in millions)
|
|
Corporate Bonds
|
|
|
Equity
Securities
|
|
|
Total
|
|
Beginning balance, January 1, 2016
|
|
$
|
—
|
|
|
$
|
0.7
|
|
|
$
|
0.7
|
|
Transfers into Level 3
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Transfers out of Level 3
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total gains or losses (realized/unrealized):
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in net income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Included in other comprehensive income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Purchases, issuances, sales, and settlements:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
2.0
|
|
|
|
—
|
|
|
|
2.0
|
|
Issuances
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Sales
|
|
|
—
|
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
Settlements
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Ending balance, December 31, 2016
|
|
$
|
2.0
|
|
|
$
|
0.4
|
|
|
$
|
2.4
|
|
Amount of total gains or losses for the year included in net
income (loss) attributable to the change in unrealized
gains or losses relating to assets still held at
December 31, 2016
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
At March 31, 2017 and December 31, 2016, we did not have any financial assets or financial liabilities measured at fair value on a nonrecurring basis or any financial liabilities on a recurring basis.
18
5.
|
Reserves for Losses and Loss Adjustment Expenses
|
The following table provides a reconciliation of reserves for losses and loss adjustment expenses (“LAE”):
|
For the Three Months Ended March 31,
|
|
(in millions)
|
2017
|
|
|
2016
|
|
Net reserves beginning of the year
|
$
|
2,180.2
|
|
|
$
|
2,133.3
|
|
Net Maybrooke reserves aquired
|
|
132.6
|
|
|
|
—
|
|
Add:
|
|
|
|
|
|
|
|
Losses and LAE incurred during current calendar
year, net of reinsurance:
|
|
|
|
|
|
|
|
Current accident year
|
|
215.7
|
|
|
|
194.8
|
|
Prior accident years
|
|
6.8
|
|
|
|
(3.2
|
)
|
Losses and LAE incurred during calendar year,
net of reinsurance
|
|
222.5
|
|
|
|
191.6
|
|
Deduct:
|
|
|
|
|
|
|
|
Losses and LAE payments made during current
calendar year, net of reinsurance:
|
|
|
|
|
|
|
|
Current accident year
|
|
27.4
|
|
|
|
24.8
|
|
Prior accident years
|
|
155.3
|
|
|
|
144.7
|
|
Losses and LAE payments made during current
calendar year, net of reinsurance:
|
|
182.7
|
|
|
|
169.5
|
|
Change in participation interest
(1)
|
|
(23.2
|
)
|
|
|
(42.3
|
)
|
Foreign exchange adjustments
|
|
3.6
|
|
|
|
(3.6
|
)
|
Net reserves - end of period
|
|
2,333.0
|
|
|
|
2,109.5
|
|
Add:
|
|
|
|
|
|
|
|
Reinsurance recoverables on unpaid losses and
LAE, end of year
|
|
1,247.3
|
|
|
|
1,032.0
|
|
Gross reserves - end of period
|
$
|
3,580.3
|
|
|
$
|
3,141.5
|
|
(1)
|
Amount represents decreases in reserves due to change in syndicate participation
|
Reserves for losses and LAE represent the estimated indemnity cost and related adjustment expenses necessary to investigate and settle claims. Such estimates are based upon individual case estimates for reported claims, estimates from ceding companies for reinsurance assumed and actuarial estimates for losses that have been incurred but not yet reported to the insurer. Any change in probable ultimate liabilities is reflected in current operating results.
The impact from the unfavorable (favorable) development of prior accident years’ loss and LAE reserves on each reporting segment is presented below:
|
For the Three Months Ended March 31,
|
|
(in millions)
|
2017
|
|
|
2016
|
|
U.S. Operations
|
$
|
(5.2
|
)
|
|
$
|
(2.9
|
)
|
International Operations
|
|
9.6
|
|
|
|
(1.7
|
)
|
Run-off Lines
|
|
2.4
|
|
|
|
1.4
|
|
Total unfavorable (favorable) prior-year development
|
$
|
6.8
|
|
|
$
|
(3.2
|
)
|
|
|
|
|
|
|
|
|
19
The following describes the primary factors behind each segment’s prior accident year reserve development for the three months ended
March 31, 2017 and 2016:
Three months ended March 31, 2017:
|
•
|
U.S. Operations:
Favorable development for workers compensation, commercial auto and commercial multi-peril lines, partially offset by unfavorable development in professional liability lines.
|
|
•
|
International Operations:
Unfavorable development in the liabilities lines primarily attributable to the impact of the change in discount rate used to calculate awards for personal injury claims (“U.K. Ogden rate”), and to the late reporting of Hurricane Matthew claims within property lines.
|
|
•
|
Run-off Lines:
Unfavorable development in risk management lines and other run-off lines.
|
Three months ended March 31, 2016:
|
•
|
U.S. Operations:
Favorable development within property and commercial automobile lines of business, partially offset by unfavorable development in
the general and products liability
lines.
|
|
•
|
International Operations:
Favorable development within the property lines.
|
|
•
|
Run-off Lines:
Unfavorable development
in run-off workers compensation and other run-off lines, partially offset by favorable development in the run-off reinsurance lines.
|
In the opinion of management, our reserves represent the best estimate of our ultimate liabilities, based on currently known facts, current law, current technology and assumptions considered reasonable where facts are not known. Due to the significant uncertainties and related management judgments, there can be no assurance that future favorable or unfavorable loss development, which may be material, will not occur.
6.
|
Junior Subordinated Debentures
|
Trust Preferred Debentures
Through a series of trusts, that are wholly-owned subsidiaries (non-consolidated), we issued debt. The debentures are variable with the rate being reset quarterly and subject to certain interest rate ceilings. Interest payments are payable quarterly. The debentures are all unsecured and are subordinated to other indebtedness. At March 31, 2017 and December 31, 2016, all debentures were eligible for redemption subject to certain terms and conditions at a price equal to 100% of the principal plus accrued and unpaid interest.
A summary of our outstanding junior subordinated debentures is presented below:
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue Date
|
|
Trust Preferred Pools
|
|
Maturity
|
|
Rate Structure
|
|
Interest Rate at March 31, 2017
|
|
|
Amount
|
|
Argo Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
05/15/2003
|
|
PXRE Capital Statutory Trust II
|
|
05/15/2033
|
|
3M LIBOR + 4.10%
|
|
|
5.14%
|
|
|
$
|
18.1
|
|
11/06/2003
|
|
PXRE Capital Trust VI
|
|
09/30/2033
|
|
3M LIBOR + 3.90%
|
|
|
5.05%
|
|
|
|
10.3
|
|
Argo Group US
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
05/15/2003
|
|
Argonaut Group Statutory Trust I
|
|
05/15/2033
|
|
3M LIBOR + 4.10%
|
|
|
5.14%
|
|
|
|
15.5
|
|
12/16/2003
|
|
Argonaut Group Statutory Trust III
|
|
01/08/2034
|
|
3M LIBOR + 4.10%
|
|
|
5.12%
|
|
|
|
12.3
|
|
04/29/2004
|
|
Argonaut Group Statutory Trust IV
|
|
04/29/2034
|
|
3M LIBOR + 3.85%
|
|
|
4.89%
|
|
|
|
13.4
|
|
05/26/2004
|
|
Argonaut Group Statutory Trust V
|
|
05/24/2034
|
|
3M LIBOR + 3.85%
|
|
|
4.90%
|
|
|
|
12.3
|
|
05/12/2004
|
|
Argonaut Group Statutory Trust VI
|
|
05/12/2034
|
|
3M LIBOR + 3.80%
|
|
|
4.95%
|
|
|
|
13.4
|
|
09/17/2004
|
|
Argonaut Group Statutory Trust VII
|
|
12/15/2034
|
|
3M LIBOR + 3.60%
|
|
|
4.73%
|
|
|
|
15.5
|
|
09/22/2004
|
|
Argonaut Group Statutory Trust VIII
|
|
09/22/2034
|
|
3M LIBOR + 3.55%
|
|
|
4.71%
|
|
|
|
15.5
|
|
10/22/2004
|
|
Argonaut Group Statutory Trust IX
|
|
12/15/2034
|
|
3M LIBOR + 3.60%
|
|
|
4.73%
|
|
|
|
15.5
|
|
09/15/2005
|
|
Argonaut Group Statutory Trust X
|
|
09/15/2035
|
|
3M LIBOR + 3.40%
|
|
|
4.53%
|
|
|
|
30.9
|
|
|
|
Total Outstanding
|
|
|
|
|
|
|
|
|
|
$
|
172.7
|
|
20
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue Date
|
|
Trust Preferred Pools
|
|
Maturity
|
|
Rate Structure
|
|
Interest Rate at December 31, 2016
|
|
|
Amount
|
|
Argo Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
05/15/2003
|
|
PXRE Capital Statutory Trust II
|
|
05/15/2033
|
|
3M LIBOR + 4.10%
|
|
|
5.00%
|
|
|
$
|
18.1
|
|
11/06/2003
|
|
PXRE Capital Trust VI
|
|
09/30/2033
|
|
3M LIBOR + 3.90%
|
|
|
4.90%
|
|
|
|
10.3
|
|
Argo Group US
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
05/15/2003
|
|
Argonaut Group Statutory Trust I
|
|
05/15/2033
|
|
3M LIBOR + 4.10%
|
|
|
5.00%
|
|
|
|
15.5
|
|
12/16/2003
|
|
Argonaut Group Statutory Trust III
|
|
01/08/2034
|
|
3M LIBOR + 4.10%
|
|
|
4.98%
|
|
|
|
12.3
|
|
04/29/2004
|
|
Argonaut Group Statutory Trust IV
|
|
04/29/2034
|
|
3M LIBOR + 3.85%
|
|
|
4.76%
|
|
|
|
13.4
|
|
05/26/2004
|
|
Argonaut Group Statutory Trust V
|
|
05/24/2034
|
|
3M LIBOR + 3.85%
|
|
|
4.77%
|
|
|
|
12.3
|
|
05/12/2004
|
|
Argonaut Group Statutory Trust VI
|
|
05/12/2034
|
|
3M LIBOR + 3.80%
|
|
|
4.79%
|
|
|
|
13.4
|
|
09/17/2004
|
|
Argonaut Group Statutory Trust VII
|
|
12/15/2034
|
|
3M LIBOR + 3.60%
|
|
|
4.56%
|
|
|
|
15.5
|
|
09/22/2004
|
|
Argonaut Group Statutory Trust VIII
|
|
09/22/2034
|
|
3M LIBOR + 3.55%
|
|
|
4.55%
|
|
|
|
15.5
|
|
10/22/2004
|
|
Argonaut Group Statutory Trust IX
|
|
12/15/2034
|
|
3M LIBOR + 3.60%
|
|
|
4.56%
|
|
|
|
15.5
|
|
09/15/2005
|
|
Argonaut Group Statutory Trust X
|
|
09/15/2035
|
|
3M LIBOR + 3.40%
|
|
|
4.36%
|
|
|
|
30.9
|
|
|
|
Total Outstanding
|
|
|
|
|
|
|
|
|
|
$
|
172.7
|
|
Maybrooke Junior Subordinated Debentures
Unsecured junior subordinated debentures with a principal balance of $91.8 million were assumed through the acquisition of Maybrooke (“the Maybrooke debt”). The Maybrooke debt is carried on our consolidated balance sheet at $83.6 million, which represents our initial estimate of the debt’s fair value, as required by accounting for business combinations under ASC 805 (see Note 3, “Acquisition of Maybrooke”). This fair value is subject to change based on finalizing the valuation of Maybrooke’s opening balance sheet during the second quarter of 2017. At March 31, 2017, the Maybrooke debt was eligible for redemption at par. Interest accrues on the Maybrooke debt based on a variable rate, which is reset quarterly. Interest payments are payable quarterly. A summary of the terms of the Maybrooke debt outstanding at March 31, 2017 is presented below:
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue Date
|
|
Maturity
|
|
Rate Structure
|
|
Interest Rate at March 31, 2017
|
|
|
Principal at March 31, 2017
|
|
|
Fair Value at March 31, 2017
|
|
9/15/2007
|
|
9/15/2037
|
|
3 month LIBOR + 3.15%
|
|
|
4.28%
|
|
|
$
|
91.8
|
|
|
$
|
83.6
|
|
Our Consolidated Balance Sheets includes various long-term debt instruments under the caption “Other indebtedness,” as detailed in the table below. Information regarding the terms and principal amounts of each of these debt instruments is also provided.
(in millions)
|
|
|
|
|
|
|
|
|
Debt Type
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Floating rate loan stock
|
|
$
|
54.7
|
|
|
$
|
54.8
|
|
Term loan
|
|
|
125.0
|
|
|
|
—
|
|
Other debt
|
|
|
0.6
|
|
|
|
0.6
|
|
Total other indebtedness
|
|
$
|
180.3
|
|
|
$
|
55.4
|
|
21
Floating Rate Loan Stock
This debt was assumed through the acquisition of Lloyd’s Syndicate 1200. These notes are unsecured. At March 31, 2017 and December 31, 2016, all notes were eligible for redemption subject to certain terms and conditions at a price equal to 100% of the principal plus accrued and unpaid interest. Interest on the U.S. Dollar and Euro notes is due semiannually and quarterly, respectively. A summary of the notes outstanding at March 31, 2017 and December 31, 2016 is presented below:
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue Date
|
|
Currency
|
|
Maturity
|
|
Rate Structure
|
|
Interest Rate at March 31, 2017
|
|
|
Amount
|
|
12/08/2004
|
|
U.S. Dollar
|
|
11/15/2034
|
|
6 month LIBOR + 4.2%
|
|
|
5.18%
|
|
|
$
|
6.5
|
|
09/06/2005
|
|
Euro
|
|
08/22/2035
|
|
3 month LIBOR + 4.0%
|
|
|
3.70%
|
|
|
|
12.7
|
|
10/31/2006
|
|
U.S. Dollar
|
|
01/15/2036
|
|
6 month LIBOR + 4.0%
|
|
|
4.98%
|
|
|
|
10.0
|
|
10/31/2006
|
|
Euro
|
|
11/22/2036
|
|
3 month LIBOR + 4.0%
|
|
|
3.70%
|
|
|
|
11.2
|
|
06/08/2007
|
|
Euro
|
|
09/15/2037
|
|
3 month LIBOR + 3.9%
|
|
|
3.58%
|
|
|
|
14.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
54.7
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue Date
|
|
Currency
|
|
Maturity
|
|
Rate Structure
|
|
Interest Rate at December 31, 2016
|
|
|
Amount
|
|
12/08/2004
|
|
U.S. Dollar
|
|
11/15/2034
|
|
6 month LIBOR + 4.2%
|
|
|
5.18%
|
|
|
$
|
6.5
|
|
09/06/2005
|
|
Euro
|
|
08/22/2035
|
|
3 month LIBOR + 4.0%
|
|
|
3.70%
|
|
|
|
12.8
|
|
10/31/2006
|
|
U.S. Dollar
|
|
01/15/2036
|
|
6 month LIBOR + 4.0%
|
|
|
4.98%
|
|
|
|
10.0
|
|
10/31/2006
|
|
Euro
|
|
11/22/2036
|
|
3 month LIBOR + 4.0%
|
|
|
3.70%
|
|
|
|
11.2
|
|
06/08/2007
|
|
Euro
|
|
09/15/2037
|
|
3 month LIBOR + 3.9%
|
|
|
3.58%
|
|
|
|
14.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
54.8
|
|
No principal payments have been made since the acquisition of Lloyd’s Syndicate 1200. The floating rate loan stock denominated in Euros fluctuates due to foreign currency translation. The outstanding balance on these
loans was $
38.2
million and
$38.3 million as of March 31, 2017 and December 31, 2016, respectively. The foreign currency translation adjustment is recorded in our Consolidated Statements of Income.
Borrowing Under Credit Facility
On March 3, 2017, each of Argo Group, Argo Group US, Inc., Argo International Holdings Limited and Argo Underwriting Agency Limited (the “Borrowers”) entered into a $325.0 million Credit Agreement (“New Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent. The New Credit Agreement replaced and terminated the previous $175.0 million Credit Agreement (“Prior Agreement”).
The New Credit Agreement provides for a $200.0 million revolving credit facility with a maturity date of March 3, 2022 unless extended in accordance with the terms of the New Credit Agreement. In addition, the New Credit Agreement includes a $125.0 million term loan borrowing, which Argo Group used to pay off in its entirety the $125.0 million borrowing drawn on January 31, 2017 under the Prior Agreement to help fund the acquisition of Maybrooke. Interest accrues based on a variable rate, which resets and is payable based on reset options selected by Argo Group pursuant to the terms of the New Credit Agreement. A summary of the terms of the outstanding balance at March 31, 2017 is presented below:
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue Date
|
|
Maturity
|
|
Rate Structure
|
|
Interest Rate at March 31, 2017
|
|
|
Amount
|
|
3/3/2017
|
|
3/3/2019
|
|
2 month LIBOR + 1.5%
|
|
|
2.40%
|
|
|
$
|
125.0
|
|
Borrowings under the New Credit Agreement may be used for general corporate purposes, including working capital, permitted acquisitions and letters of credit, and each of the Borrowers has agreed to be jointly and severally liable for the obligations of the other Borrowers under the New Credit Agreement.
The New Credit Agreement contains customary events of default. If an event of default occurs and is continuing, the Borrowers could be required immediately to repay all amounts outstanding under the New Credit Agreement. Lenders holding at least a majority of the loans and commitments under the New Credit Agreement could elect to accelerate the maturity of the loans and/or terminate the commitments under the New Credit Agreement upon the occurrence and during the continuation of an event of default.
22
Included in the New Credit Agreement is a provision that allows up to $200.0
million of the revolving credit facility to be used for LOCs, subject to availability. On March 3, 2017, the $0.2 million LOC outstanding under the Prior Credit Agreement was transferred to the New Credit Agreement. At March 31, 2017 and December 31, 2016
, there were no borrowings outstanding under the revolving portions of the credit facilities, and $0.2 million in LOCs against the New Credit Agreement and Prior Credit Agreement, respectively.
Other Debt
As part of the ARIS Title Insurance Corporation (“ARIS”) acquisition, at
March 31, 2017 and December 31, 2016
, we had a note payable for
$0.6
million. The note had a variable interest rate of 2.00% above 30-day LIBOR, with the variable interest rate being reset quarterly and subject to certain interest rate ceilings. Interest payments are payable quarterly. The note payable matures on April 1, 2019.
8.
|
Disclosures about Fair Value of Financial Instruments
|
Cash.
The carrying amount approximates fair value.
Investment securities and short-term investments
. See Note 4, “Investments,” for additional information.
Premiums receivable and reinsurance recoverables on paid losses.
The carrying value of current receivables approximates fair value. At March 31, 2017 and December 31, 2016, the carrying values of premiums receivable over 90 days were $17.3 million and $14.3 million, respectively. Included in “Reinsurance recoverables” in our Consolidated Balance Sheets at March 31, 2017 and December 31, 2016, are amounts that are due from trade capital providers associated with the operations of Syndicate 1200. Upon settlement, the receivable is offset against the liability which is included in “Ceded reinsurance payable, net” in our accompanying Consolidated Balance Sheets. At March 31, 2017 and December 31, 2016, the payable was in excess of the receivable. Of our reinsurance recoverables on paid losses, excluding amounts attributable to Syndicate 1200’s trade capital providers, at March 31, 2017 and December 31, 2016, the carrying values over 90 days were $9.8 million and $11.2 million, respectively. Our methodology for establishing our allowances for doubtful accounts includes specifically identifying all potential uncollectible balances regardless of aging. At March 31, 2017 and December 31, 2016, the allowance for doubtful accounts for premiums receivable was $3.1 million and $2.7 million, respectively, and the allowance for doubtful accounts for reinsurance recoverables on paid losses was $2.1 million and $2.1 million, respectively. Premiums receivable over 90 days were secured by collateral in the amount of $0.2 million and $0.1 million at March 31, 2017 and December 31, 2016, respectively. Reinsurance recoverables on paid losses over 90 days were secured by collateral in the amount of $0.3 million and $0.6 at March 31, 2017 and December 31, 2016, respectively.
Debt
. At March 31, 2017 and December 31, 2016, the fair value of our junior subordinated debentures, senior unsecured fixed rate notes and other indebtedness was estimated using appropriate market indices or quoted prices from external sources based on current market conditions.
A summary of our financial instruments whose carrying value did not equal fair value is shown below:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
(in millions)
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
Junior subordinated debentures
|
|
$
|
172.7
|
|
|
$
|
166.5
|
|
|
$
|
172.7
|
|
|
$
|
162.4
|
|
Senior unsecured fixed rate notes
|
|
|
139.5
|
|
|
|
141.7
|
|
|
|
139.5
|
|
|
|
139.3
|
|
Other indebtedness:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating rate loan stock
|
|
|
54.7
|
|
|
|
52.7
|
|
|
|
54.8
|
|
|
|
51.5
|
|
Note payable
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
0.6
|
|
On February 21, 2017, our Board of directors declared a quarterly cash dividend in the amount of $0.27 on each share of common stock outstanding. On March 15, 2017, we paid $8.3
million to our shareholders of record on March 3, 2017.
On February 16, 2016, our Board of Directors declared a quarterly cash dividend in the amount of $0.22 on each share of common stock outstanding. On March 15, 2016, we paid $6.2 million to our shareholders of record on March 1, 2016.
23
On May 3, 2016, our Board of Directors authorized the repurchase of up to $150.0 million of our common shares (“2016 Repurchase Authorization”). The 2016 Repurchase Authorization supersedes all the previous Repurchase Authorizations. As
of March 31, 2017, availability under the 2016 Repurchase Authorization for future repurchases of our common shares was $130.3 million.
We did not repurchase any common shares for the three months ended March 31, 2017.
10.
|
Accumulated Other Comprehensive Income (Loss)
|
A summary of changes in accumulated other comprehensive income (loss), net of taxes (where applicable) by component for the three months ended March 31, 2017 and 2016 is presented below:
(in millions)
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
Unrealized
Holding Gains
on Securities
|
|
|
Defined
Benefit
Pension
Plans
|
|
|
Total
|
|
Balance, January 1, 2017
|
|
$
|
(17.6
|
)
|
|
$
|
72.4
|
|
|
$
|
(7.1
|
)
|
|
$
|
47.7
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
0.6
|
|
|
|
24.3
|
|
|
|
—
|
|
|
|
24.9
|
|
Amounts reclassified from accumulated other
comprehensive income (loss)
|
|
|
—
|
|
|
|
(11.0
|
)
|
|
|
—
|
|
|
|
(11.0
|
)
|
Net current-period other comprehensive income (loss)
|
|
|
0.6
|
|
|
|
13.3
|
|
|
|
—
|
|
|
|
13.9
|
|
Balance at March 31, 2017
|
|
$
|
(17.0
|
)
|
|
$
|
85.7
|
|
|
$
|
(7.1
|
)
|
|
$
|
61.6
|
|
(in millions)
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
Unrealized
Holding Gains
on Securities
|
|
|
Defined
Benefit
Pension
Plans
|
|
|
Total
|
|
Balance, January 1, 2016
|
|
$
|
(21.6
|
)
|
|
$
|
40.0
|
|
|
$
|
(6.9
|
)
|
|
$
|
11.5
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
1.5
|
|
|
|
31.0
|
|
|
|
—
|
|
|
|
32.5
|
|
Amounts reclassified from accumulated other
comprehensive income (loss)
|
|
|
—
|
|
|
|
(3.7
|
)
|
|
|
—
|
|
|
|
(3.7
|
)
|
Net current-period other comprehensive income (loss)
|
|
|
1.5
|
|
|
|
27.3
|
|
|
|
—
|
|
|
|
28.8
|
|
Balance at March 31, 2016
|
|
$
|
(20.1
|
)
|
|
$
|
67.3
|
|
|
$
|
(6.9
|
)
|
|
$
|
40.3
|
|
The following table illustrates the amounts reclassified from accumulated other comprehensive income (loss) shown in the above tables that have been included in our Consolidated Statements of Income:
|
|
Three Months Ended March 31,
|
|
(in millions)
|
|
2017
|
|
|
2016
|
|
Unrealized gains and losses on securities:
|
|
|
|
|
|
|
|
|
Net realized investment gains
|
|
$
|
(16.2
|
)
|
|
$
|
(7.8
|
)
|
Provision for income taxes
|
|
|
5.2
|
|
|
|
4.1
|
|
Net of taxes
|
|
$
|
(11.0
|
)
|
|
$
|
(3.7
|
)
|
11
.
|
Net Income Per Common Share
|
The following table presents the calculation of net income per common share on a basic and diluted basis:
|
|
For the Three Months Ended March 31,
|
|
(in millions, except number of shares and per share amounts)
|
|
2017
|
|
|
2016
|
|
Net income
|
|
$
|
36.7
|
|
|
$
|
27.7
|
|
Weighted average common shares outstanding - basic
|
|
|
30,047,083
|
|
|
|
30,479,243
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Equity compensation awards
|
|
|
894,326
|
|
|
|
652,978
|
|
Weighted average common shares outstanding - diluted
|
|
|
30,941,409
|
|
|
|
31,132,221
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.22
|
|
|
$
|
0.91
|
|
Diluted
|
|
$
|
1.19
|
|
|
$
|
0.89
|
|
24
Excluded from the weighted average common shares outstanding calculation at March 31, 2017 and 2016 are 10,028,755 shares and 9,525,296 shares, respectively, which are held as treasury shares. The shares are excluded as of their repurchase date.
12.
|
Supplemental Cash Flow Information
|
Income taxes paid.
During the three months ended March 31, 2017, no income taxes were paid. We paid income taxes of $0.3 million during the three months ended March 31, 2016.
Income taxes recovered
. We recovered income taxes of $2.2 million and $0.3 million during the three months ended March 31, 2017 and 2016, respectively.
Interest paid was as follows:
|
|
For the Three Months Ended March 31,
|
|
(in millions)
|
|
2017
|
|
|
2016
|
|
Senior unsecured fixed rate notes
|
|
$
|
2.3
|
|
|
$
|
2.3
|
|
Junior subordinated debentures
|
|
|
2.9
|
|
|
|
1.8
|
|
Other indebtedness
|
|
|
0.8
|
|
|
|
0.8
|
|
Revolving credit facility
|
|
|
0.3
|
|
|
|
—
|
|
Total interest paid
|
|
$
|
6.3
|
|
|
$
|
4.9
|
|
13.
|
Share-based Compensation
|
The fair value method of accounting is used for share-based compensation plans. Under the fair value method, compensation cost is measured based on the fair value of the award at the measurement date and recognized over the requisite service period. We use the Black-Scholes model to estimate the fair values on the measurement date for share options and share appreciation rights (“SARs”). The Black-Scholes model uses several assumptions to value a share award. The risk-free rate of return assumption is based on the five-year U.S. Treasury constant maturity rate on the measurement date. The expected dividend yield is based on our history and expected dividend payouts. The expected award life is based upon the average holding period over the history of the incentive plan. The expected volatility assumption is based on the historical change in our stock price over the previous five years preceding the measurement date.
The following table summarizes the assumptions we used for the three months ended March 31, 2017 and 2016:
|
|
For the Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Risk-free rate of return
|
|
|
1.93
|
%
|
|
|
1.37
|
%
|
Expected dividend yields
|
|
1.63
|
|
|
|
1.62
|
%
|
Expected award life (years)
|
|
4.49
|
|
|
4.61
|
|
Expected volatility
|
|
|
18.70
|
%
|
|
|
19.64
|
%
|
Argo Group’s Long-Term Incentive Plans
In November 2007, our shareholders approved the 2007 Long-Term Incentive Plan (the “2007 Plan”), which provides for an aggregate of 4.5 million shares of our common stock that may be issued to executives, non-employee directors, and other key employees. As of May 2014, 1.46 million shares remained available for grant under the 2007 Plan. In May 2014, our shareholders approved the 2014 Long-Term Incentive Plan (the “2014 Plan”), which provides for an additional 2.8 million shares of our common stock to be available for issuance to executives, non-employee directors and other key employees. The share awards may be in the form of share options, SARs, restricted shares, restricted share awards, restricted share unit awards, performance awards, other share-based awards and other cash-based awards. Shares issued under this plan may be shares that are authorized and unissued or shares that we reacquired, including shares purchased on the open market. Share options and SARs will count as one share for the purposes of the limits under the incentive plans; restricted shares, restricted share units, performance units, performance shares or other share-based incentive awards which settle in common shares will count as 2.75 shares for purpose of the limits under the 2014 Plan.
25
Share options may be in the form of incentive share options, non-qualified share options and restorative options. Share options are required to have an exercise price that is not less than the market value on the date of grant. We are prohibited from repri
cing the options. The term of the share options cannot exceed seven years from the grant date.
Restricted Shares
A summary of restricted share activity as of March 31, 2017 and changes during the three months then ended is as follows:
|
|
Shares
|
|
|
Weighted-Average
Grant Date
Fair Value
|
|
Outstanding at January 1, 2017
|
|
|
702,030
|
|
|
$
|
42.69
|
|
Granted
|
|
|
162,361
|
|
|
$
|
64.35
|
|
Vested and issued
|
|
|
(123,163
|
)
|
|
$
|
42.15
|
|
Expired or forfeited
|
|
|
(20,080
|
)
|
|
$
|
48.72
|
|
Outstanding at March 31, 2017
|
|
|
721,148
|
|
|
$
|
47.49
|
|
The restricted shares vest over two to four years. Expense recognized under this plan for the restricted shares was $2.8 million and $1.7 million for the three months ended March 31, 2017 and 2016, respectively. Compensation expense for all share-based compensation awards is included in “Underwriting, acquisition and insurance expenses” in the accompanying Consolidated Statements of Income. As of March 31, 2017, there was $26.0 million of total unrecognized compensation cost related to restricted share compensation arrangements granted by Argo Group.
Stock-Settled SARs
In January 2016, we modified certain unvested cash-settled SARs, converting the awards into stock-settled SARs. We evaluated this modification under the terms of ASU 718 “Share Based Payments,” and determined that no additional expense resulted from the conversion. The expense for the stock-settled SARs will be amortized over the remaining vesting period.
A summary of stock-settled SARs activity as of March 31, 2017 and changes during the three months then ended is as follows:
|
|
Shares
|
|
|
Weighted-Average
Exercise Price
|
|
Outstanding at January 1, 2017
|
|
|
1,982,695
|
|
|
$
|
34.80
|
|
Exercised
|
|
|
(244,429
|
)
|
|
$
|
32.14
|
|
Expired or forfeited
|
|
|
(37,773
|
)
|
|
$
|
39.77
|
|
Outstanding at March 31, 2017
|
|
|
1,700,493
|
|
|
$
|
35.07
|
|
The stock-settled SARs vest over a one to four year period. Upon exercise of the stock-settled SARs, the employee is entitled to receive shares of our common stock equal to the appreciation of the stock as compared to the exercise price. Expense recognized for the stock-settled SARs was $0.7 million and $1.4
million for the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017, there was $6.5 million of total unrecognized compensation cost related to stock-settled SARs outstanding.
Cash-Settled SARs
A summary of cash-settled SARs activity as of March 31, 2017 and changes during the three months then ended is as follows:
|
|
Shares
|
|
|
Weighted-Average
Exercise Price
|
|
Outstanding at January 1, 2017
|
|
|
500,486
|
|
|
$
|
32.08
|
|
Exercised
|
|
|
(123,488
|
)
|
|
$
|
32.86
|
|
Expired or forfeited
|
|
|
(9,314
|
)
|
|
$
|
23.90
|
|
Outstanding at March 31, 2017
|
|
|
367,684
|
|
|
$
|
32.03
|
|
26
The cash-settled SARs vest over a one to four
year period. Upon exercise of the cash-settled SARs, the employee is entitled to receive cash payment for the appreciation in the value of our common stock over the exercise price. We account for the cash-settled SARs as liability awards, which require th
e awards to be revalued at each reporting period. Expense recognized for the cash-settled SARs was
$
1.4
million for the three months ended March 31, 2017. For the three months ended March 31, 2016, we recouped $0.3 million of expense, primarily related to
the conversion of certain cash-settled SARs. As of
March 31, 2017
, there was no unrecognized compensation cost related to cash-settled SARs outstanding.
14.
|
Underwriting, Acquisition and Insurance Expenses
|
Underwriting, acquisition and insurance expenses were as follows:
|
|
For the Three Months Ended March 31,
|
|
(in millions)
|
|
2017
|
|
|
2016
|
|
Commissions
|
|
$
|
61.2
|
|
|
$
|
57.1
|
|
General expenses
|
|
|
88.7
|
|
|
|
70.6
|
|
Premium taxes, boards and bureaus
|
|
|
7.4
|
|
|
|
6.6
|
|
|
|
|
157.3
|
|
|
|
134.3
|
|
Net deferral of policy acquisition costs
|
|
|
(3.7
|
)
|
|
|
(1.7
|
)
|
Total underwriting, acquisition and insurance expenses
|
|
$
|
153.6
|
|
|
$
|
132.6
|
|
The $18.1 million increase in general expenses for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016 includes the following items:
|
•
|
$4.4 million from Maybrooke’s operating expenses incurred from the date of acquisition through March 31, 2017;
|
|
•
|
$2.5 million of transaction costs related to the acquisition of Maybrooke incurred during the first quarter of 2017;
|
|
•
|
$4.0 million of restructuring and start-up costs incurred during the three months ended March 31, 2017 associated with the transition of certain infrastructure and application information technology functions to third party managed service providers as part of ongoing operating efficiency initiatives; and
|
|
•
|
A $1.9 million increase in expense for equity-related compensation, which was $4.9 million for the three months ended March 31, 2017, as compared to $3.0 million for the three months ended March 31, 2016.
|
The remaining increase was primarily attributable to higher personnel and other fixed costs incurred in our U.S. Operations segment to support the top line growth within the segment.
We are incorporated under the laws of Bermuda and, under current Bermuda law, are not obligated to pay any taxes in Bermuda based upon income or capital gains. We have received an undertaking from the Supervisor of Insurance in Bermuda pursuant to the provisions of the Exempted Undertakings Tax Protection Act, 2011, which exempts us from any Bermuda taxes computed on profits, income or any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, at least until the year 2035.
We do not consider ourselves to be engaged in a trade or business in the United States or the United Kingdom and, accordingly, do not expect to be subject to direct United States or United Kingdom income taxation.
We have subsidiaries based in the United Kingdom that are subject to the tax laws of that country. Under current law, these subsidiaries are taxed at the applicable corporate tax rates. Eight of the United Kingdom subsidiaries are deemed to be engaged in business in the United States, and therefore, are subject to United States corporate tax in respect of a proportion of their United States underwriting business only. Relief is available against the United Kingdom tax liabilities in respect of overseas taxes paid that arise from the underwriting business. Our United Kingdom subsidiaries file separate United Kingdom income tax returns.
We have subsidiaries based in the United States that are subject to United States tax laws. Under current law, these subsidiaries are taxed at the applicable corporate tax rates. Our United States subsidiaries file a consolidated United States federal income tax return.
We also have operations in Belgium, Switzerland, Brazil, France, Malta, Spain, Ireland, and Luxembourg, which also are subject to income taxes imposed by the jurisdiction in which they operate. We have operations in the United Arab Emirates, which are not subject to income tax under the laws of that country.
27
Our income tax provision includes the following components:
|
|
For the Three Months Ended March 31,
|
|
(in millions)
|
|
2017
|
|
|
2016
|
|
Current tax provision
|
|
$
|
—
|
|
|
$
|
1.5
|
|
Deferred tax provision related to:
|
|
|
|
|
|
|
|
|
Future tax deductions
|
|
|
6.1
|
|
|
|
2.9
|
|
Valuation allowance change
|
|
|
(0.1
|
)
|
|
|
1.0
|
|
Income tax provision
|
|
$
|
6.0
|
|
|
$
|
5.4
|
|
For the three months ended March 31, 2017 and 2016, pre-tax income (loss) attributable to our operations and the operations’ effective tax rates were as follows:
|
|
For the Three Months Ended March 31,
|
|
(in millions)
|
|
2017
|
|
|
2016
|
|
|
|
Pre-Tax
Income (Loss)
|
|
|
Effective
Tax
Rate
|
|
|
Pre-Tax
Income (Loss)
|
|
|
Effective
Tax
Rate
|
|
Bermuda
|
|
$
|
26.5
|
|
|
|
0.0
|
%
|
|
$
|
22.0
|
|
|
|
0.0
|
%
|
United States
|
|
|
24.0
|
|
|
|
26.9
|
%
|
|
|
23.3
|
|
|
|
23.7
|
%
|
United Kingdom
|
|
|
(6.9
|
)
|
|
|
6.7
|
%
|
|
|
(12.3
|
)
|
|
|
1.5
|
%
|
Belgium
|
|
|
—
|
|
(1)
|
|
0.0
|
%
|
|
|
—
|
|
(1)
|
|
0.0
|
%
|
Brazil
|
|
|
(0.8
|
)
|
|
|
0.0
|
%
|
|
|
(0.1
|
)
|
|
|
0.0
|
%
|
United Arab Emirates
|
|
|
—
|
|
(1)
|
|
0.0
|
%
|
|
|
—
|
|
(1)
|
|
0.0
|
%
|
Ireland
|
|
|
—
|
|
(1)
|
|
0.0
|
%
|
|
|
—
|
|
(1)
|
|
0.0
|
%
|
Malta
|
|
|
0.6
|
|
|
|
0.0
|
%
|
|
|
0.2
|
|
|
|
0.0
|
%
|
Luxembourg
|
|
|
(0.7
|
)
|
|
|
0.0
|
%
|
|
|
—
|
|
|
|
0.0
|
%
|
Switzerland
|
|
|
—
|
|
(1)
|
|
21.0
|
%
|
|
|
—
|
|
(1)
|
|
19.8
|
%
|
Total
|
|
$
|
42.7
|
|
|
|
14.1
|
%
|
|
$
|
33.1
|
|
|
|
16.2
|
%
|
(1)
|
Pre-tax income for the respective year was less than $0.1 million.
|
Our expected income tax provision computed on pre-tax income (loss) at the weighted average tax rate has been calculated as the sum of the pre-tax income (loss) in each jurisdiction multiplied by that jurisdiction’s applicable statutory tax rate. A reconciliation of the difference between the provision for income taxes and the expected tax provision at the weighted average tax rate is as follows:
|
|
For the Three Months Ended March 31,
|
|
(in millions)
|
|
2017
|
|
|
2016
|
|
Income tax provision at expected rate
|
|
$
|
7.2
|
|
|
$
|
5.8
|
|
Tax effect of:
|
|
|
|
|
|
|
|
|
Tax-exempt interest
|
|
|
(0.8
|
)
|
|
|
(0.9
|
)
|
Dividends received deduction
|
|
|
(0.5
|
)
|
|
|
(0.5
|
)
|
Valuation allowance change
|
|
|
(0.1
|
)
|
|
|
1.0
|
|
Other permanent adjustments, net
|
|
|
0.1
|
|
|
|
0.2
|
|
Adjustment for prior period
|
|
|
(0.7
|
)
|
|
|
(1.5
|
)
|
Adjustment for annualized rate
|
|
|
(0.7
|
)
|
|
|
—
|
|
Other foreign adjustments
|
|
|
0.8
|
|
|
|
—
|
|
Deferred tax rate reduction
|
|
|
—
|
|
|
|
(0.3
|
)
|
Foreign exchange adjustments
|
|
|
0.6
|
|
|
|
1.5
|
|
Foreign withholding taxes
|
|
|
0.1
|
|
|
|
0.1
|
|
Income tax provision
|
|
$
|
6.0
|
|
|
$
|
5.4
|
|
Income tax provision - Foreign
|
|
$
|
(0.5
|
)
|
|
$
|
(0.2
|
)
|
Income tax provision - United States, Federal
|
|
|
6.4
|
|
|
|
5.5
|
|
Income tax (benefit) provision - United States, State
|
|
|
—
|
|
|
|
—
|
|
Foreign withholding tax - United States
|
|
|
0.1
|
|
|
|
0.1
|
|
Income tax provision
|
|
$
|
6.0
|
|
|
$
|
5.4
|
|
28
O
ur net deferred tax assets (liabilities) are supported by taxes paid in previous periods, reversal of taxable temporary differences and recognition of future income. Management regularly evaluates the recoverability of the deferred tax assets and makes any
necessary adjustments to them based upon any changes in management’s expectations of future taxable income. Realization of deferred tax assets is dependent upon our generation of sufficient taxable income in the future to recover tax benefits that cannot
be recovered from taxes paid in the carryback period, generally two years for net operating losses and three years for capital losses for our United States operations. At March 31, 2017, we had a total net deferred tax liability of $17.0 million prior to a
ny valuation allowance.
Management has determined that a valuation allowance is required for a portion of the tax-effected net operating loss carryforward included as part of the United States consolidated group of $15.6 million generated from PXRE Corporation and for the tax-effected net operating loss carryforward of $1.0 million from ARIS. The valuation allowances have been established as Internal Revenue Code Section 382 limits the application of net operating loss and net capital loss carryforwards following an ownership change. The loss carryforwards available per year are $2.8 million as required by Internal Revenue Code Section 382.
Furthermore, due to cumulative losses since inception, management has concluded that a valuation allowance is required for the full amount of the tax-effected net operating losses generated by our Brazil and Malta entities.
Accordingly, a valuation allowance of $26.1 million is required as of March 31, 2017 of which $13.7 million relates to the PXRE Corporation and ARIS loss carryforwards, $8.6 million relates to Brazil operations, $2.7 million relates to Maybrooke, and $1.1 million relates to Malta operations. For the three months ended March 31, 2017, the valuation allowance was reduced by $0.2 million pertaining to PXRE Corporation and ARIS loss carryforwards, increased by $2.7 million pertaining to our Maybrooke acquisition and the related net operating loss carryforward, increased by $0.3 pertaining to our Brazil operations, and decreased by $0.2 million pertaining to our Malta operations.
Of the PXRE Corporation net operating loss carryforwards, $14.1 million will expire if not used by December 31, 2025 and $1.5 million will expire if not used by December 31, 2027. Of the ARIS loss carryforward, $0.2 million will expire if not used by December 31, 2027, $0.4 million will expire if not used by December 31, 2028 and $0.4 million will expire if not used by December 31, 2029.
For any uncertain tax positions not meeting the “more-likely-than-not” recognition threshold, accounting standards require recognition, measurement and disclosure in a company’s financial statements. We had no material unrecognized tax benefits as of March 31, 2017 and 2016. Our United States subsidiaries are no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2013. Our United Kingdom subsidiaries are no longer subject to United Kingdom income tax examinations by Her Majesty’s Revenue and Customs for years before 2014.
16.
|
Commitments and Contingencies
|
Argo Group’s subsidiaries are parties to legal actions incidental to their business. Based on the opinion of counsel, management believes that the resolution of these matters will not materially affect our financial condition or results of operations.
We have contractual commitments to invest up to $95.5 million related to our limited partnership investments at March 31, 2017. These commitments will be funded as required by the partnership agreements which can be called to be fulfilled at any time, not to exceed thirteen years.
17.
Segment Information
We are primarily engaged in underwriting property and casualty insurance and reinsurance. We have two ongoing reporting segments: U.S. Operations and International Operations. Additionally, we have a Run-off Lines segment for certain products that we no longer underwrite. See Note 1, “Basis of Presentation,” for information on the changes to our reporting segments that were effective beginning in the first quarter of 2017.
We consider many factors, including the nature of each segment’s insurance and reinsurance products, production sources, distribution strategies and the regulatory environment, in determining how to aggregate reporting segments.
In evaluating the operating performance of our segments, we focus on core underwriting and investing results before the consideration of realized gains or losses from the sales of investments. Realized investment gains are reported as a component of the Corporate and Other segment, as decisions regarding the acquisition and disposal of securities reside with the investment function and are not under the control of the individual business segments. Identifiable assets by segment are those assets used in the operation of each segment.
29
Revenue and income (loss) before income taxes for each segment were as follows:
|
|
For the Three Months Ended March 31,
|
|
(in millions)
|
|
2017
|
|
|
2016
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Earned premiums
|
|
|
|
|
|
|
|
|
U.S. Operations
|
|
$
|
221.2
|
|
|
$
|
206.6
|
|
International Operations
|
|
|
158.2
|
|
|
|
138.3
|
|
Run-off Lines
|
|
|
—
|
|
|
|
—
|
|
Total earned premiums
|
|
|
379.4
|
|
|
|
344.9
|
|
Net investment income (loss)
|
|
|
|
|
|
|
|
|
U.S. Operations
|
|
|
19.9
|
|
|
|
13.8
|
|
International Operations
|
|
|
6.6
|
|
|
|
6.1
|
|
Run-off Lines
|
|
|
2.1
|
|
|
|
2.2
|
|
Corporate and Other
|
|
|
1.9
|
|
|
|
(0.9
|
)
|
Total net investment income
|
|
|
30.5
|
|
|
|
21.2
|
|
Fee and other income
|
|
|
3.6
|
|
|
|
6.8
|
|
Net realized investment and other gains (losses)
|
|
|
14.6
|
|
|
|
(2.8
|
)
|
Total revenue
|
|
$
|
428.1
|
|
|
$
|
370.1
|
|
|
|
For the Three Months Ended March 31,
|
|
(in millions)
|
|
2017
|
|
|
2016
|
|
Income (loss) before income taxes
|
|
|
|
|
|
|
|
|
U.S. Operations
|
|
$
|
37.2
|
|
|
$
|
34.9
|
|
International Operations
|
|
|
8.3
|
|
|
|
17.7
|
|
Run-off Lines
|
|
|
(2.5
|
)
|
|
|
(1.4
|
)
|
Total segment income before taxes
|
|
|
43.0
|
|
|
|
51.2
|
|
Corporate and Other
|
|
|
(14.9
|
)
|
|
|
(15.3
|
)
|
Net realized investment and other gains (losses)
|
|
|
14.6
|
|
|
|
(2.8
|
)
|
Total income before income taxes
|
|
$
|
42.7
|
|
|
$
|
33.1
|
|
The table below presents earned premiums by geographic location for the three months ended March 31, 2017 and 2016. For this disclosure, we determine geographic location by the country of domicile of our subsidiaries that underwrite the business and not by the location of insureds or reinsureds from whom the business was generated.
|
|
For the Three Months Ended March 31,
|
|
(in millions)
|
|
2017
|
|
|
2016
|
|
Bermuda
|
|
$
|
25.6
|
|
|
$
|
28.1
|
|
Brazil
|
|
|
12.8
|
|
|
|
9.2
|
|
Malta
|
|
|
1.0
|
|
|
|
0.5
|
|
United Kingdom
|
|
|
118.8
|
|
|
|
100.5
|
|
United States
|
|
|
221.2
|
|
|
|
206.6
|
|
Total earned premiums
|
|
$
|
379.4
|
|
|
$
|
344.9
|
|
The following table represents identifiable assets:
|
|
|
|
(in millions)
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
U.S. Operations
|
|
$
|
4,057.1
|
|
|
$
|
3,961.2
|
|
International Operations
|
|
|
3,076.7
|
|
|
|
2,356.9
|
|
Run-off Lines
|
|
|
412.8
|
|
|
|
537.0
|
|
Corporate and Other
|
|
|
472.9
|
|
|
|
349.9
|
|
Total
|
|
$
|
8,019.5
|
|
|
$
|
7,205.0
|
|
Included in total assets at March 31, 2017 and December 31, 2016 are $
633.4
million and $630.4 million, respectively, in assets associated with trade capital providers.
30
18.
|
Senior Unsecured Fixed Rate Notes
|
In September 2012, Argo Group (the “Parent Guarantor”), through its subsidiary Argo Group US (the “Subsidiary Issuer”), issued $143,750,000 aggregate principal amount of the Subsidiary Issuer’s 6.5% Senior Notes due September 15, 2042 (the “Notes”). The Notes are unsecured and unsubordinated obligations of the Subsidiary Issuer and rank equally in right of payment with all of the Subsidiary Issuer’s other unsecured and unsubordinated debt. The Notes are guaranteed on a full and unconditional senior unsecured basis by the Parent Guarantor. The Notes may be redeemed, for cash, in whole or in part, on or after September 15, 2017, at the Subsidiary Issuer’s option, at any time and from time to time, prior to maturity at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued but unpaid interest on the principal amount being redeemed to, but not including, the redemption date.
In accordance with ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs” (Topic 835), we present the unamortized debt issuance costs in the balance sheet as a direct deduction from the carrying value of the debt liability. At March 31, 2017 and December 31, 2016, the Notes consisted of the following:
(in millions)
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Senior unsecured fixed rate notes
|
|
|
|
|
|
|
|
|
Principal
|
|
$
|
143.8
|
|
|
$
|
143.8
|
|
Less: unamortized debt issuance costs
|
|
|
(4.3
|
)
|
|
|
(4.3
|
)
|
Senior unsecured fixed rate notes, less unamortized debt
issuance costs
|
|
$
|
139.5
|
|
|
$
|
139.5
|
|
In accordance with Article 10 of SEC Regulation S-X, we have elected to present condensed consolidating financial information in lieu of separate financial statements for the Subsidiary Issuer. The following tables present condensed consolidating financial information at March 31, 2017 and December 31, 2016 and for the three months ended March 31, 2017 and 2016, of the Parent Guarantor and the Subsidiary Issuer. The Subsidiary Issuer is an indirect wholly-owned subsidiary of the Parent Guarantor. Investments in subsidiaries are accounted for by the Parent Guarantor under the equity method for purposes of the supplemental consolidating presentation. Earnings of subsidiaries are reflected in the Parent Guarantor’s investment accounts and earnings.
The Parent Guarantor fully and unconditionally guarantees certain of the debt of the Subsidiary Issuer. Condensed consolidating financial information of the Subsidiary Issuer is presented on a consolidated basis and consists principally of the net assets, results of operations and cash flows of operating insurance company subsidiaries.
31
CONDENSED CONSOLIDATING BALANCE SHEET
March 31, 2017
(in millions)
(Unaudited)
|
|
Argo Group
International
Holdings, Ltd
(Parent
Guarantor)
|
|
|
Argo Group US, Inc.
and Subsidiaries
(Subsidiary Issuer)
|
|
|
Other Subsidiaries
and Eliminations
(1)
|
|
|
Consolidating
Adjustments
(2)
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$
|
4.5
|
|
|
$
|
2,882.3
|
|
|
$
|
1,678.8
|
|
|
$
|
—
|
|
|
$
|
4,565.6
|
|
Cash
|
|
|
—
|
|
|
|
41.1
|
|
|
|
149.6
|
|
|
|
—
|
|
|
|
190.7
|
|
Accrued investment income
|
|
|
—
|
|
|
|
16.5
|
|
|
|
5.3
|
|
|
|
—
|
|
|
|
21.8
|
|
Premiums receivable
|
|
|
—
|
|
|
|
196.4
|
|
|
|
461.3
|
|
|
|
—
|
|
|
|
657.7
|
|
Reinsurance recoverables
|
|
|
—
|
|
|
|
1,374.0
|
|
|
|
53.0
|
|
|
|
—
|
|
|
|
1,427.0
|
|
Goodwill and other intangible assets, net
|
|
|
40.4
|
|
|
|
126.6
|
|
|
|
92.3
|
|
|
|
—
|
|
|
|
259.3
|
|
Deferred acquisition costs, net
|
|
|
—
|
|
|
|
66.0
|
|
|
|
89.1
|
|
|
|
—
|
|
|
|
155.1
|
|
Ceded unearned premiums
|
|
|
—
|
|
|
|
185.6
|
|
|
|
253.0
|
|
|
|
—
|
|
|
|
438.6
|
|
Other assets
|
|
|
10.1
|
|
|
|
173.7
|
|
|
|
119.9
|
|
|
|
—
|
|
|
|
303.7
|
|
Intercompany note receivable
|
|
|
—
|
|
|
|
50.7
|
|
|
|
69.3
|
|
|
|
(120.0
|
)
|
|
|
—
|
|
Investments in subsidiaries
|
|
|
2,090.8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,090.8
|
)
|
|
|
—
|
|
Total assets
|
|
$
|
2,145.8
|
|
|
$
|
5,112.9
|
|
|
$
|
2,971.6
|
|
|
$
|
(2,210.8
|
)
|
|
$
|
8,019.5
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves for losses and loss adjustment expenses
|
|
$
|
—
|
|
|
$
|
2,340.2
|
|
|
$
|
1,240.1
|
|
|
$
|
—
|
|
|
$
|
3,580.3
|
|
Unearned premiums
|
|
|
—
|
|
|
|
591.5
|
|
|
|
538.9
|
|
|
|
—
|
|
|
|
1,130.4
|
|
Funds held and ceded reinsurance payable, net
|
|
|
—
|
|
|
|
752.8
|
|
|
|
(100.7
|
)
|
|
|
—
|
|
|
|
652.1
|
|
Long-term debt
|
|
|
153.4
|
|
|
|
284.4
|
|
|
|
138.3
|
|
|
|
—
|
|
|
|
576.1
|
|
Current income taxes payable, net
|
|
|
—
|
|
|
|
6.3
|
|
|
|
1.7
|
|
|
|
—
|
|
|
|
8.0
|
|
Deferred tax liabilities, net
|
|
|
—
|
|
|
|
30.1
|
|
|
|
13.0
|
|
|
|
—
|
|
|
|
43.1
|
|
Accrued underwriting expenses and other liabilities
|
|
|
12.7
|
|
|
|
95.6
|
|
|
|
86.6
|
|
|
|
—
|
|
|
|
194.9
|
|
Due to affiliates
|
|
|
25.1
|
|
|
|
(2.8
|
)
|
|
|
2.8
|
|
|
|
(25.1
|
)
|
|
|
—
|
|
Intercompany note payable
|
|
|
120.0
|
|
|
|
10.0
|
|
|
|
(10.0
|
)
|
|
|
(120.0
|
)
|
|
|
—
|
|
Total liabilities
|
|
|
311.2
|
|
|
|
4,108.1
|
|
|
|
1,910.7
|
|
|
|
(145.1
|
)
|
|
|
6,184.9
|
|
Total shareholders' equity
|
|
|
1,834.6
|
|
|
|
1,004.8
|
|
|
|
1,060.9
|
|
|
|
(2,065.7
|
)
|
|
|
1,834.6
|
|
Total liabilities and shareholders' equity
|
|
$
|
2,145.8
|
|
|
$
|
5,112.9
|
|
|
$
|
2,971.6
|
|
|
$
|
(2,210.8
|
)
|
|
$
|
8,019.5
|
|
(1)
|
Includes all other subsidiaries of Argo Group International Holdings, Ltd. and all intercompany eliminations.
|
(2)
|
Includes all Argo Group parent company eliminations.
|
32
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2016
(in millions)
|
|
Argo Group
International
Holdings, Ltd
(Parent
Guarantor)
|
|
|
Argo Group US, Inc.
and Subsidiaries
(Subsidiary Issuer)
|
|
|
Other Subsidiaries
and Eliminations
(1)
|
|
|
Consolidating
Adjustments
(2)
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$
|
2.2
|
|
|
$
|
2,834.2
|
|
|
$
|
1,487.9
|
|
|
$
|
—
|
|
|
$
|
4,324.3
|
|
Cash
|
|
|
—
|
|
|
|
53.7
|
|
|
|
32.3
|
|
|
|
—
|
|
|
|
86.0
|
|
Accrued investment income
|
|
|
—
|
|
|
|
16.0
|
|
|
|
4.7
|
|
|
|
—
|
|
|
|
20.7
|
|
Premiums receivable
|
|
|
—
|
|
|
|
204.9
|
|
|
|
258.9
|
|
|
|
—
|
|
|
|
463.8
|
|
Reinsurance recoverables
|
|
|
—
|
|
|
|
1,348.4
|
|
|
|
37.2
|
|
|
|
—
|
|
|
|
1,385.6
|
|
Goodwill and other intangible assets, net
|
|
|
—
|
|
|
|
127.1
|
|
|
|
92.8
|
|
|
|
—
|
|
|
|
219.9
|
|
Deferred acquisition costs, net
|
|
|
—
|
|
|
|
63.5
|
|
|
|
75.6
|
|
|
|
—
|
|
|
|
139.1
|
|
Ceded unearned premiums
|
|
|
—
|
|
|
|
168.9
|
|
|
|
133.9
|
|
|
|
—
|
|
|
|
302.8
|
|
Other assets
|
|
|
8.7
|
|
|
|
168.0
|
|
|
|
86.1
|
|
|
|
—
|
|
|
|
262.8
|
|
Intercompany note receivable
|
|
|
—
|
|
|
|
50.2
|
|
|
|
(50.2
|
)
|
|
|
—
|
|
|
|
—
|
|
Investments in subsidiaries
|
|
|
1,834.4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,834.4
|
)
|
|
|
—
|
|
Total assets
|
|
$
|
1,845.3
|
|
|
$
|
5,034.9
|
|
|
$
|
2,159.2
|
|
|
$
|
(1,834.4
|
)
|
|
$
|
7,205.0
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves for losses and loss adjustment expenses
|
|
$
|
—
|
|
|
$
|
2,322.4
|
|
|
$
|
1,028.4
|
|
|
$
|
—
|
|
|
$
|
3,350.8
|
|
Unearned premiums
|
|
|
—
|
|
|
|
580.0
|
|
|
|
390.0
|
|
|
|
—
|
|
|
|
970.0
|
|
Funds held and ceded reinsurance payable, net
|
|
|
—
|
|
|
|
750.2
|
|
|
|
(206.5
|
)
|
|
|
—
|
|
|
|
543.7
|
|
Long-term debt
|
|
|
28.4
|
|
|
|
284.4
|
|
|
|
54.8
|
|
|
|
—
|
|
|
|
367.6
|
|
Current income taxes payable, net
|
|
|
—
|
|
|
|
8.5
|
|
|
|
(0.4
|
)
|
|
|
—
|
|
|
|
8.1
|
|
Deferred tax liabilities, net
|
|
|
—
|
|
|
|
17.6
|
|
|
|
6.5
|
|
|
|
—
|
|
|
|
24.1
|
|
Accrued underwriting expenses and other liabilities
|
|
|
13.7
|
|
|
|
92.0
|
|
|
|
42.3
|
|
|
|
—
|
|
|
|
148.0
|
|
Due to affiliates
|
|
|
10.5
|
|
|
|
1.8
|
|
|
|
(1.8
|
)
|
|
|
(10.5
|
)
|
|
|
—
|
|
Total liabilities
|
|
|
52.6
|
|
|
|
4,056.9
|
|
|
|
1,313.3
|
|
|
|
(10.5
|
)
|
|
|
5,412.3
|
|
Total shareholders' equity
|
|
|
1,792.7
|
|
|
|
978.0
|
|
|
|
845.9
|
|
|
|
(1,823.9
|
)
|
|
|
1,792.7
|
|
Total liabilities and shareholders' equity
|
|
$
|
1,845.3
|
|
|
$
|
5,034.9
|
|
|
$
|
2,159.2
|
|
|
$
|
(1,834.4
|
)
|
|
$
|
7,205.0
|
|
(1)
|
Includes all other subsidiaries of Argo Group International Holdings, Ltd. and all intercompany eliminations.
|
(2)
|
Includes all Argo Group parent company eliminations.
|
33
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2017
(in millions)
(Unaudited)
|
|
Argo Group
International
Holdings, Ltd
(Parent Guarantor)
|
|
|
Argo Group US, Inc.
and Subsidiaries
(Subsidiary Issuer)
|
|
|
Other Subsidiaries
and Eliminations
(1)
|
|
|
Consolidating
Adjustments
(2)
|
|
|
Total
|
|
Premiums and other revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earned premiums
|
|
$
|
—
|
|
|
$
|
130.9
|
|
|
$
|
248.5
|
|
|
$
|
—
|
|
|
$
|
379.4
|
|
Net investment (expense) income
|
|
|
(1.7
|
)
|
|
|
18.9
|
|
|
|
13.3
|
|
|
|
—
|
|
|
|
30.5
|
|
Fee and other income
|
|
|
—
|
|
|
|
2.8
|
|
|
|
0.8
|
|
|
|
—
|
|
|
|
3.6
|
|
Net realized investment and other gains
|
|
|
0.5
|
|
|
|
13.8
|
|
|
|
0.3
|
|
|
|
—
|
|
|
|
14.6
|
|
Total revenue
|
|
|
(1.2
|
)
|
|
|
166.4
|
|
|
|
262.9
|
|
|
|
—
|
|
|
|
428.1
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses
|
|
|
—
|
|
|
|
76.1
|
|
|
|
146.4
|
|
|
|
—
|
|
|
|
222.5
|
|
Underwriting, acquisition and insurance
expenses
|
|
|
8.4
|
|
|
|
58.2
|
|
|
|
87.0
|
|
|
|
—
|
|
|
|
153.6
|
|
Interest expense
|
|
|
0.3
|
|
|
|
4.3
|
|
|
|
1.3
|
|
|
|
—
|
|
|
|
5.9
|
|
Fee and other expense
|
|
|
—
|
|
|
|
3.4
|
|
|
|
0.7
|
|
|
|
—
|
|
|
|
4.1
|
|
Foreign currency exchange loss (gains)
|
|
|
—
|
|
|
|
0.1
|
|
|
|
(0.8
|
)
|
|
|
—
|
|
|
|
(0.7
|
)
|
Total expenses
|
|
|
8.7
|
|
|
|
142.1
|
|
|
|
234.6
|
|
|
|
—
|
|
|
|
385.4
|
|
(Loss) Income before income taxes
|
|
|
(9.9
|
)
|
|
|
24.3
|
|
|
|
28.3
|
|
|
|
—
|
|
|
|
42.7
|
|
Provision for income taxes
|
|
|
—
|
|
|
|
6.4
|
|
|
|
(0.4
|
)
|
|
|
—
|
|
|
|
6.0
|
|
Net (loss) income before equity in earnings of
subsidiaries
|
|
|
(9.9
|
)
|
|
|
17.9
|
|
|
|
28.7
|
|
|
|
—
|
|
|
|
36.7
|
|
Equity in undistributed earnings of subsidiaries
|
|
|
46.6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(46.6
|
)
|
|
|
—
|
|
Net income
|
|
$
|
36.7
|
|
|
$
|
17.9
|
|
|
$
|
28.7
|
|
|
$
|
(46.6
|
)
|
|
$
|
36.7
|
|
(1)
|
Includes all other subsidiaries of Argo Group International Holdings, Ltd. and all intercompany eliminations.
|
(2)
|
Includes all Argo Group parent company eliminations.
|
34
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2016
(in millions)
(Unaudited)
|
|
Argo Group
International
Holdings, Ltd
(Parent Guarantor)
|
|
|
Argo Group US, Inc.
and Subsidiaries
(Subsidiary Issuer)
|
|
|
Other Subsidiaries
and Eliminations
(1)
|
|
|
Consolidating
Adjustments
(2)
|
|
|
Total
|
|
Premiums and other revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earned premiums
|
|
$
|
—
|
|
|
$
|
119.9
|
|
|
$
|
225.0
|
|
|
$
|
—
|
|
|
$
|
344.9
|
|
Net investment (expense) income
|
|
|
(0.6
|
)
|
|
|
12.6
|
|
|
|
9.2
|
|
|
|
—
|
|
|
|
21.2
|
|
Fee and other income
|
|
|
—
|
|
|
|
5.2
|
|
|
|
1.6
|
|
|
|
—
|
|
|
|
6.8
|
|
Net realized investment and other gains (losses)
|
|
|
—
|
|
|
|
11.2
|
|
|
|
(14.0
|
)
|
|
|
—
|
|
|
|
(2.8
|
)
|
Total revenue
|
|
|
(0.6
|
)
|
|
|
148.9
|
|
|
|
221.8
|
|
|
|
—
|
|
|
|
370.1
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses
|
|
|
—
|
|
|
|
68.3
|
|
|
|
123.3
|
|
|
|
—
|
|
|
|
191.6
|
|
Underwriting, acquisition and insurance
expenses
|
|
|
5.2
|
|
|
|
47.6
|
|
|
|
79.8
|
|
|
|
—
|
|
|
|
132.6
|
|
Interest expense
|
|
|
0.3
|
|
|
|
3.9
|
|
|
|
0.6
|
|
|
|
—
|
|
|
|
4.8
|
|
Fee and other expense
|
|
|
—
|
|
|
|
6.2
|
|
|
|
0.3
|
|
|
|
—
|
|
|
|
6.5
|
|
Foreign currency exchange loss
|
|
|
—
|
|
|
|
—
|
|
|
|
1.5
|
|
|
|
—
|
|
|
|
1.5
|
|
Total expenses
|
|
|
5.5
|
|
|
|
126.0
|
|
|
|
205.5
|
|
|
|
—
|
|
|
|
337.0
|
|
(Loss) Income before income taxes
|
|
|
(6.1
|
)
|
|
|
22.9
|
|
|
|
16.3
|
|
|
|
—
|
|
|
|
33.1
|
|
Provision for income taxes
|
|
|
—
|
|
|
|
5.4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5.4
|
|
Net (loss) income before equity in earnings of
subsidiaries
|
|
|
(6.1
|
)
|
|
|
17.5
|
|
|
|
16.3
|
|
|
|
—
|
|
|
|
27.7
|
|
Equity in undistributed earnings of subsidiaries
|
|
|
33.8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(33.8
|
)
|
|
|
—
|
|
Net income
|
|
$
|
27.7
|
|
|
$
|
17.5
|
|
|
$
|
16.3
|
|
|
$
|
(33.8
|
)
|
|
$
|
27.7
|
|
(1)
|
Includes all other subsidiaries of Argo Group International Holdings, Ltd. and all intercompany eliminations.
|
(2)
|
Includes all Argo Group parent company eliminations.
|
35
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2017
(in millions)
(Unaudited)
|
|
Argo Group
International
Holdings, Ltd
(Parent Guarantor)
|
|
|
Argo Group US, Inc.
and Subsidiaries
(Subsidiary Issuer)
|
|
|
Other Subsidiaries
and Eliminations
(1)
|
|
|
Consolidating
Adjustments
(2)
|
|
|
Total
|
|
Net cash flows used in operating activities
|
|
$
|
(2.0
|
)
|
|
$
|
(14.7
|
)
|
|
$
|
(20.2
|
)
|
|
$
|
—
|
|
|
$
|
(36.9
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of investments
|
|
|
—
|
|
|
|
228.9
|
|
|
|
225.1
|
|
|
|
—
|
|
|
|
454.0
|
|
Maturities and mandatory calls of fixed
maturity investments
|
|
|
—
|
|
|
|
135.5
|
|
|
|
46.6
|
|
|
|
—
|
|
|
|
182.1
|
|
Purchases of investments
|
|
|
—
|
|
|
|
(446.5
|
)
|
|
|
(197.9
|
)
|
|
|
—
|
|
|
|
(644.4
|
)
|
Change in short-term investments and
foreign regulatory deposits
|
|
|
0.5
|
|
|
|
65.5
|
|
|
|
54.3
|
|
|
|
—
|
|
|
|
120.3
|
|
Settlements of foreign currency exchange
forward contracts
|
|
|
—
|
|
|
|
—
|
|
|
|
(2.8
|
)
|
|
|
—
|
|
|
|
(2.8
|
)
|
Acquisition of subsidiaries, net of cash and
cash equivalents acquired
|
|
|
(235.3
|
)
|
|
|
—
|
|
|
|
152.2
|
|
|
|
—
|
|
|
|
(83.1
|
)
|
Issuance of intercompany note, net
|
|
|
—
|
|
|
|
—
|
|
|
|
(120.0
|
)
|
|
|
120.0
|
|
|
|
—
|
|
Purchases of fixed assets and other, net
|
|
|
(0.1
|
)
|
|
|
18.7
|
|
|
|
(19.9
|
)
|
|
|
—
|
|
|
|
(1.3
|
)
|
Cash (used in) provided by investing activities
|
|
|
(234.9
|
)
|
|
|
2.1
|
|
|
|
137.6
|
|
|
|
120.0
|
|
|
|
24.8
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional long-term borrowings
|
|
|
125.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
125.0
|
|
Borrowing under intercompany note, net
|
|
|
120.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(120.0
|
)
|
|
|
—
|
|
Activity under stock incentive plans
|
|
|
0.2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.2
|
|
Payment of cash dividend to common
shareholders
|
|
|
(8.3
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8.3
|
)
|
Cash provided by (used in) financing activities
|
|
|
236.9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(120.0
|
)
|
|
|
116.9
|
|
Effect of exchange rate changes on cash
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.1
|
)
|
|
|
—
|
|
|
|
(0.1
|
)
|
Change in cash
|
|
|
—
|
|
|
|
(12.6
|
)
|
|
|
117.3
|
|
|
|
—
|
|
|
|
104.7
|
|
Cash, beginning of year
|
|
|
—
|
|
|
|
53.7
|
|
|
|
32.3
|
|
|
|
—
|
|
|
|
86.0
|
|
Cash, end of period
|
|
$
|
—
|
|
|
$
|
41.1
|
|
|
$
|
149.6
|
|
|
$
|
—
|
|
|
$
|
190.7
|
|
(1)
|
Includes all other subsidiaries of Argo Group International Holdings, Ltd. and all intercompany eliminations.
|
(2)
|
Includes all Argo Group parent company eliminations.
|
36
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2016
(in millions)
(Unaudited)
|
|
Argo Group
International
Holdings, Ltd
(Parent Guarantor)
|
|
|
Argo Group US, Inc.
and Subsidiaries
(Subsidiary Issuer)
|
|
|
Other Subsidiaries
and Eliminations
(1)
|
|
|
Consolidating
Adjustments
(2)
|
|
|
Total
|
|
Net cash flows from operating activities
|
|
$
|
5.6
|
|
|
$
|
23.3
|
|
|
$
|
22.5
|
|
|
$
|
—
|
|
|
$
|
51.4
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of investments
|
|
|
—
|
|
|
|
306.0
|
|
|
|
74.7
|
|
|
|
—
|
|
|
|
380.7
|
|
Maturities and mandatory calls of fixed
maturity investments
|
|
|
—
|
|
|
|
84.8
|
|
|
|
48.4
|
|
|
|
—
|
|
|
|
133.2
|
|
Purchases of investments
|
|
|
—
|
|
|
|
(364.1
|
)
|
|
|
(94.5
|
)
|
|
|
—
|
|
|
|
(458.6
|
)
|
Change in short-term investments and
foreign regulatory deposits
|
|
|
0.3
|
|
|
|
(34.6
|
)
|
|
|
(21.6
|
)
|
|
|
—
|
|
|
|
(55.9
|
)
|
Settlements of foreign currency exchange
forward contracts
|
|
|
—
|
|
|
|
—
|
|
|
|
(3.9
|
)
|
|
|
—
|
|
|
|
(3.9
|
)
|
Purchases of fixed assets and other, net
|
|
|
—
|
|
|
|
(10.9
|
)
|
|
|
(10.1
|
)
|
|
|
—
|
|
|
|
(21.0
|
)
|
Cash provided by (used in) investing activities
|
|
|
0.3
|
|
|
|
(18.8
|
)
|
|
|
(7.0
|
)
|
|
$
|
—
|
|
|
|
(25.5
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity under stock incentive plans
|
|
|
0.3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.3
|
|
Repurchase of Company's common shares
|
|
|
—
|
|
|
|
(19.0
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(19.0
|
)
|
Payment of cash dividend to common
shareholders
|
|
|
(6.2
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6.2
|
)
|
Cash used in financing activities
|
|
|
(5.9
|
)
|
|
|
(19.0
|
)
|
|
|
—
|
|
|
$
|
—
|
|
|
|
(24.9
|
)
|
Effect of exchange rate changes on cash
|
|
|
—
|
|
|
|
—
|
|
|
|
0.2
|
|
|
|
—
|
|
|
|
0.2
|
|
Change in cash
|
|
|
—
|
|
|
|
(14.5
|
)
|
|
|
15.7
|
|
|
|
—
|
|
|
|
1.2
|
|
Cash, beginning of year
|
|
|
—
|
|
|
|
88.8
|
|
|
|
32.9
|
|
|
|
—
|
|
|
|
121.7
|
|
Cash, end of period
|
|
$
|
—
|
|
|
$
|
74.3
|
|
|
$
|
48.6
|
|
|
$
|
—
|
|
|
$
|
122.9
|
|
(1)
|
Includes all other subsidiaries of Argo Group International Holdings, Ltd. and all intercompany eliminations.
|
(2)
|
Includes all Argo Group parent company eliminations.
|
Material Sale of Invested Asset
On April 28, 2017, Markel Corporation (“Markel”) announced that they had completed the acquisition of SureTec Financial Corp. (“SureTec). At March 31, 2017, we held 20% of the outstanding shares of SureTec which are included in “Other investments” in our Consolidated Balance Sheets with a fair value of $27.2 million at March 31, 2017. Subsequent to the balance sheet date and prior to the filing of this report on Form 10-Q, we have surrendered our capital holdings in SureTec and in the second quarter of 2017 will recognize a pre-tax gain on sale of approximately $16 million.
37