Argonaut Group Expands with Launch of Argonaut Specialty

May 19, 2005

Argonaut Group Inc. is expanding its commitment to the wholesale insurance market with the creation of a new company, Argonaut Specialty, which will target accounts that are somewhat larger than those currently handled by The Colony Group, Argonaut’s established excess and surplus lines carrier.

Argonaut Specialty is being headed by Kevin Brooks, a 37-year veteran of surplus lines and reinsurance underwriting and management, whose career has included serving as chief executive officer and president at General Star until 2001 and, prior to that, positions at Northstar Re and General Re.

Argonaut Specialty is using Colony Group paper and infrastructure while focusing on serving brokers with risks that run slightly larger than those that Colony itself traditionally handles.

“We think we can build on our knowledge and experience in surplus lines by offering a layer beyond Colony,” Brooks explained.

Brooks plans on establishing relationships with about 25 insurance brokers in the first year. Argonaut Specialty has already opened offices in New York, Chicago, Los Angeles and Atlanta and Brooks has recruited underwriters with surplus lines experience to serve these brokers.

“We’ve got 16 underwriters with an average of 20 years experience. They know surplus lines,” said Brooks.

Since the accounts for the new insurer will be slightly different from what Colony now handles, so will the source of this business, according to Mark Watson, Argonaut Group president and chief executive officer. Argonaut Specialty will target risks a bit larger than Colony’s and accept business only from brokers. Colony, on the other hand, will continue to work with both brokers and managing general agents.

“We want to respond to the needs of the brokers who have accounts that don’t fit at Colony. We decided that this was a good time in our evolution at Argonaut as well as a good time in the E&S marketplace, plus we had Kevin Brooks, one of the deans of the excess and surplus business, to help us do this right,” said Watson.

Argonaut Specialty will have a property unit for a wide array of accounts, with limits of $5 million up to $10 million. For casualty lines, the primary maximum limit will be $2 million, while the excess limit will be $10 million.

Through Colony, Argonaut focuses on small to medium-sized premium accounts, offering liability, property, product liability and environmental liability coverages to restaurants, artisan contractors, daycare centers, manufacturers and other businesses, as well as professional liability coverages for healthcare providers (other than physicians) and other professionals.

The launching of Argonaut Specialty is one in a series of actions in what has been a busy year for Watson and Argonaut.

In April, Argonaut bought the excess and surplus line of insurance from the Fireman’s Fund Insurance Co. in Novato, Calif. Argonaut acquired the renewal rights and certain operating assets of business currently underwritten by Interstate Insurance Group, a subsidiary of Fireman’s Fund.

In January, Argonaut’s Trident Insurance Services formed a partnership with Public Entities of America to sell government entity insurance coverage in Georgia.

Several months ago, Argonaut also penned an agreement to offer coverage for the fabricare industry, firms that operate professional cleaners. This deal is with Long Island, N.Y. insurance broker Irving Weber Associates Inc.

Earlier this month, Argonaut Group Inc. announced its financial results for the three months ended March 31, 2005 and reported a 42 percent jump in net income. Highlights for the 2005 first quarter included the following:

• The Group combined ratio was 95.6 percent versus 97.9 percent during the first quarter of 2004;
• Operating income increased substantially to $23.1 million, a 46 percent increase over the first quarter of last year;
• Gross written, net written and earned premiums all exceeded year-ago first quarter levels;
• Cash flow from operations reached $53.6 million, up substantially from the $14.9 million reported in the first quarter a year ago;
• Book value increased to $19.94 per fully diluted share versus $19.68 per share at Dec. 31, 2004.

“A strong underwriting performance was at the core of our positive first quarter financial results and gave us a solid start for 2005,” commented CEO Watson. “The recent renewal rights acquisition by our Excess and Surplus lines segment and the new strategic partnerships announced since January by our Select Markets and Public Entity segments will further extend our geographic reach and provide additional underwriting opportunities going forward.”

For the first quarter of 2005, Argonaut Group reported net income of $26.0 million. This compares to 2004 first quarter net income of $18.3 million.

Total revenue was $183.8 million during the first quarter of 2005, compared to $171.0 million for the same period in 2004.

The Excess & Surplus Lines segment for the first quarter reported gross written premiums and operating income totaling $100.8 million and $13.3 million, respectively. This compares to gross written premiums of $99.8 million and operating income of $11.9 million in the first quarter of 2004. The combined ratio for the 2005 first quarter was 91.4 percent, versus 90.3 percent for the same three-month period in 2004.

Gross written premiums reported by the Risk Management segment were $34.8 million for the three months ended March 31, 2005, and operating income was $7.6 million, compared to gross written premiums of $43.1 million and operating income of $4.3 million for the same period in 2004. For the first quarter of 2005, the combined ratio in this segment was 102.5 percent versus 107.8 percent a year earlier.

Select Markets or Specialty Commercial lines saw first quarter gross written premiums of $52.9 million and operating income totaling $5.1 million, compared to gross written premiums of $41.1 million and operating income of $2.7 million during the same period in 2004. The combined ratio for the first quarter of 2005 was 96.5 percent versus 99.6 percent in the first quarter last year.

Public Entity’s gross written premiums for the first quarter were $18.2 million and operating income totaled $1.9 million, versus gross written premiums of $16.1 million and operating income of $0.9 million for the quarter ended March 31, 2004. For the first quarter of 2005, the combined ratio in this segment was 94.9 percent versus 96.0 percent during the same three-month period in 2004.

Argonaut Group Inc., incorporated in November 1986, is a national underwriter of specialty insurance in niche areas of the property/casualty market with assets of approximately $3.1 billion. Headquartered in San Antonio, the company writes specialty insurance products in all 50 states on both an admitted and non-admitted basis. Its operating subsidiaries provide services in four primary areas: excess and surplus, specialty commercial, risk management and public entity.

In addition to Colony and Argonaut Specialty, its subsidiaries include Argonaut Insurance Company, which targets upper middle market and larger accounts with workers compensation, general and auto liability insurance and risk management services; Great Central, an Illinois-based insurer focusing on food and hospitality, retail and institutional risks; Grocers Insurance, insurance provider for grocery stores; Rockwood Casualty Insurance Company, which specializes in workers’ compensation and also writes general liability, commercial automobile, commercial property, and surety coverages in select states; and Trident Insurance Services, a managing general underwriter for commercial insurance programs for small to medium-sized public entities.