Overview of the Company’s Financial Performance

Argo Group International Holdings, Ltd. is a global insurance company that provides specialty insurance products and services. In 2023, the company was acquired by Brookfield Wealth Solutions Ltd. for $30 per share.

For the year ended December 31, 2024, the company reported a net loss of $158.6 million. This was driven by several factors:

• Net earned premiums were $1,089.8 million, with the majority coming from the Casualty and Specialty segments.
• Net investment income was $249.8 million, boosted by $69 million in accretion income from purchase accounting adjustments.
• Net investment and other gains were $20 million, including realized gains on fixed maturities and equity securities.
• Losses and loss adjustment expenses were $1,018.3 million, with a consolidated loss ratio of 93.4%. This included $254.9 million in unfavorable prior-year reserve development, primarily in the Casualty, Specialty and Run-off lines.
• Underwriting, acquisition and general expenses were $477 million, with a consolidated expense ratio of 43.8%.

Revenue and Profit Trends

The company’s results for the year ended December 31, 2024 are not directly comparable to prior periods due to the impact of the acquisition by Brookfield and the application of purchase accounting.

For the period January 1, 2023 through November 15, 2023 (Predecessor), the company reported a net loss of $220.9 million, compared to a net loss of $185.7 million for the full year 2022. This was driven by:

• A 29.6% decrease in net earned premiums, primarily due to the sale of certain international operations.
• A 6.5% decrease in net investment income, partially offset by higher interest rates.
• $22.7 million in net investment and other losses, an improvement from $115.3 million in losses in 2022.
• An 85.1% loss ratio, up from 67% in 2022, due to increased unfavorable prior-year reserve development.
• A 34.2% expense ratio, down from 38.6% in 2022, driven by the change in business mix from the international divestitures.

The company’s U.S. operations saw a decrease in gross written premiums of 18.7% for the Predecessor period, while the international operations had a 59.3% decrease, primarily due to the sale of certain businesses.

Analysis of Strengths and Weaknesses

Strengths:

• Diversified insurance business with a focus on specialty lines
• Strong investment portfolio with $4.1 billion in total invested assets
• Ability to generate investment income, including $249.8 million in 2024
• Access to additional liquidity through credit facilities and capital contributions

Weaknesses:

• Significant unfavorable prior-year reserve development, particularly in Casualty, Specialty and Run-off lines
• High consolidated loss ratio of 93.4% in 2024, driven by reserve strengthening
• Reliance on reinsurance, with $1.2 billion in letters of credit outstanding
• Ongoing legal proceedings related to the acquisition by Brookfield

The company’s primary challenge has been managing its loss reserves, particularly in long-tail casualty and specialty lines. The significant unfavorable prior-year reserve development has weighed heavily on profitability. The company will need to closely monitor emerging claims trends and refine its reserving processes to improve underwriting performance.

Additionally, the company faces uncertainty related to the ongoing legal proceedings regarding the acquisition. While the company intends to vigorously defend these matters, the ultimate outcome could have a material impact on the company’s financial position.

On the positive side, the company has a diversified insurance business, a strong investment portfolio, and access to additional liquidity. The capital contributions from Brookfield Wealth Solutions have also strengthened the company’s financial position. If the company can improve its underwriting discipline and resolve the legal issues, it may be able to return to profitability.

Outlook for the Future

The company’s future outlook is mixed. On one hand, the acquisition by Brookfield Wealth Solutions provides financial backing and strategic direction. The capital contributions and access to Brookfield’s resources could help the company address its operational and reserve challenges.

However, the significant unfavorable prior-year reserve development and ongoing legal proceedings create significant uncertainty. The company will need to focus on improving its underwriting, claims management, and reserving processes to restore profitability. Failure to do so could lead to further losses and potentially impact the company’s financial strength and competitive position.

Additionally, the company operates in a challenging insurance market, with factors such as inflation, interest rate changes, and evolving risk exposures that could impact future performance. Careful management of these external factors will be crucial.

Overall, the company faces a mix of opportunities and risks. With the support of its new parent company and a concerted effort to address its operational weaknesses, Argo Group may be able to return to profitability and growth. However, the path forward is not without significant challenges that will require diligent execution and oversight.