Argonaut Sees Record Earned Premium in 2Q

Argonaut Group Inc., based in San Antonio, announced financial results for the three months ended June 30, 2004, reporting that earned premiums for the quarter were a record $157 million.

The company’s consolidated GAAP combined ratio was 96.7 percent during the quarter versus 106.2 percent for the second quarter of 2003. Underwriting income was $5.1 million versus an underwriting loss of $8.8 million during the same period in 2003.

For the fourth consecutive quarter, all four of Argonaut Group’s continuing business segments generated operating profits.

Commenting on the company’s second quarter performance, Argonaut Group president and chief executive officer Mark E. Watson III said, “We are pleased to report another solid quarter of financial results and consistent earnings. Each of our four business segments contributed to the company’s positive performance as they continue to deliver sequential operating improvements while expanding our presence in the markets we serve.” He added that the company intends “to maintain underwriting discipline over the longer term.”

During the second quarter, Argonaut Group completed three trust preferred offerings totaling $36.8 million in net proceeds, which will be used for additional capital for the company’s operating units. Additionally, A.M. Best Company reaffirmed its ratings of the company’s insurance subsidiaries during the second quarter.

During the second quarter of 2004, Argonaut Group reported net income after tax of $17.9 million or $0.58 per diluted common share on 30.7 million shares. During the same quarter in 2003, Argonaut Group net income, which included a tax benefit of $9.4 million and pre-tax realized gains of $7.7 million, was $19.7 million or $0.80 per diluted common share on 24.6 million shares.

Second quarter 2004 operating income, which the company believes is another meaningful measure of Argonaut Group’s performance, was $18.4 million versus operating income of $2.6 million for the same period in 2003. Operating income includes corporate, interest and other expenses, which during the second quarter of 2004 totaled $4.0 million versus $1.1 million for the second quarter of 2003. Operating income differs from net income under accounting principles generally accepted in the United States (GAAP) in that operating income excludes income tax expense and net realized investment gains and losses. Operating income for the quarter ended June 30, 2004 excludes net realized investment losses of $0.5 million and income tax expense of $0. Operating income for the quarter ended June 30, 2003 excludes net realized investment gains of $7.7 million and income tax benefit of $9.4 million.

Total revenue for the quarter was $172.2 million versus $165.9 million for the same period a year ago. Earned premiums for the three months ended June 30, 2004, rose 8.4 percent to $157.0 million compared to $144.9 million during second quarter 2003. Total revenue includes realized gains/losses on sales of investments, which were a $0.5 million loss and $7.7 million gain for the second quarters of 2004 and 2003, respectively.

For the three months ended June 30, 2004, the company incurred no tax expense as the deferred tax valuation allowance was reduced to the extent tax expense was generated. For the three months ended June 30, 2003, Argonaut Group’s income tax benefit was $9.4 million. At June 30, 2004, the net deferred tax asset, after considering the valuation allowance of approximately $36.8 million, was $45.7 million. The company expects it will ultimately realize the deferred tax asset in the future and regularly evaluates the deferred tax asset valuation allowance.

For the six months ended June 30, 2004, the company reported net income after tax of $36.2 million or $1.18 per diluted common share on 30.7 million shares. During the same six-month period in 2003, Argonaut Group net income of $53.3 million or $2.31 per diluted common share included a $1.91 per share gain from sales of real estate and other investments.

For the first six months of 2004, book value on a fully diluted basis increased 2.9 percent to $18.16 per share at June 30, 2004 versus $17.65 per share at Dec. 31, 2003.

Excess & Surplus Lines (E&S) – For the second quarter of 2004, gross written premiums for the E&S segment increased 11.1 percent to $110.4 million, generating operating income of $13.3 million, compared to gross written premiums of $99.4 million and operating income of $10.9 million for the same period in 2003. The GAAP combined ratio for the second quarter of 2004 was 88.9 percent versus 90.7 percent for the same period in 2003.

Risk Management – For the second quarter of 2004, gross written premiums for the Risk Management segment were $41.5 million, generating operating income of $4.5 million, compared to gross written premiums of $53.1 million and an operating loss of $8.7 million for the same period in 2003. The GAAP combined ratio for the second quarter of 2004 was 109.7 percent versus 143.0 percent for the same period in 2003.

Specialty Commercial Lines – For the second quarter of 2004, gross written premiums for the Specialty Commercial segment increased 52.0 percent, largely due to a renewal rights transaction, to $54.1 million and generated operating income of $3.7 million. This compares to gross written premiums of $35.6 million and operating income of $1.2 million for the same period in 2003. The GAAP combined ratio for the second quarter of 2004 was 96.8 percent versus 104.5 percent for the same period in 2003.

Public Entity – For the second quarter of 2004, gross written premiums for the Public Entity segment were $15.6 million, generating operating income of $0.9 million, compared to gross written premiums of $11.4 million and operating income of $0.3 million for the same period in 2003. The GAAP combined ratio for the second quarter of 2004 was 96.1 percent versus 97.4 percent for the same period in 2003.