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Argo Group (AGII) Comes Up with Cat Loss Estimates for Q4

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Argo Group International Holdings, Ltd. recently unveiled its pre-tax catastrophe loss projections for the fourth quarter of 2016. The company expects to incur pre-tax catastrophe loss between $20 million and $25 million, net of reinsurance and reinstatement premiums. The insurer estimates the pre-tax cat loss to have primarily stemmed from Hurricane Matthew, the New Zealand earthquake and the late reporting of losses from prior-quarter catastrophes.

As a property and casualty insurer, Argo Group remains exposed to losses from natural disasters. This in turn adversely affects its underwriting results. The cat loss incurred will weigh on underwriting profitability and combined ratio in the fourth quarter. Argo Group’s combined ratio in the first nine months deteriorated 20 basis points year over year, while underwriting income decreased about 1.8%. Nonetheless, the company remains focused on improving its underwriting results, which together with solid alternative investment returns, should continue to drive book value per share higher.

Shares of Argo Group outperformed the Zacks categorized Property, Casualty and Title Insurance industry in the last three months. While Argo Group shares gained 10.9%, the industry saw an increase of 10.04%. The company did not witness any estimate revisions in the last 60 days.

The Zacks Consensus Estimate for Argo Group’s fourth-quarter earnings is currently pegged at 69 cents, which translates to a year-over-year decrease of 15%. We expect the estimates to move down as analysts incorporate the impact of catastrophe loss. Also, our proven model does not conclusively shows that the company is likely to beat on earnings. This is because though company’s favorable Zacks Rank #3 (Hold) increases predictive power of an earnings beat, its Earnings ESP of 0.00% makes prediction difficult.

Given that the property and casualty insurance industry is threatened by the vagaries of catastrophe, insurers regularly come up with their catastrophe loss estimates. The industry is likely to incur between $3 billion and $9 billion in loss in the fourth quarter. Recently, Cincinnati Financial Corporation (CINF - Free Report) projected pre-tax catastrophe loss between $75 million and $85 million for fourth quarter, while Alleghany Corporation estimated fourth-quarter catastrophe loss to be less than million $75 million. XL Group plc expects to incur pre-tax catastrophe loss of $245 million.

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