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Argo Group and its Units Receive Rating Action from A.M. Best

Y ACGL AGII NMIH

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Argo Group International Holdings, Ltd. (AGII - Free Report) and its units recently received rating action from credit rating giant, A.M. Best. The rating agency affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICRs) of “a” of Argo Re Ltd. and its affiliates.

In addition, the credit rating giant affirmed the Long-Term ICR of “bbb” and the Long-Term Issue Credit Ratings (Long-Term IR) of the parent holding company, Argo Group.

Concurrently, the rating agency affirmed the Long-Term ICR of “bbb” and the Long-Term IR of “bbb” on the 6.5% senior unsecured notes worth $143.75 million of Argo Group US, Inc. The senior unsecured notes – scheduled to mature in 2042 – are fully and unconditionally guaranteed by Argo Group. The outlook of the aforementioned credit ratings remained stable.

The ratings reiteration came on the back of Argo Re’s strong capitalization, sustained robust operational performance and solid enterprise risk management program. The ratings also account for the diversified insurance and reinsurance platforms within the Argo group of companies. The financial flexibility displayed by the parent, Argo Group, also contributed to the ratings.

On Nov 13, 2016, Argo Group inked an agreement to acquire Ariel Re for $235 million in cash. The buyout is expected to be completed during the first quarter of 2017, subject to closing conditions. Therefore, the potential impact of this buyout and the related integration plans were taken into account in the rating decision.

However, execution risks related to international expansion, especially the combination with Ariel Re, partially offset the positive rating factors. Also, Argo Group’s possible volatile underwriting results due to weather-related losses, along with intense competition and tough economic conditions that includes low investment yields, posed as dampeners.

Nonetheless, the ratings might witness upgrade if Argo Re’s underwriting and operating performance further strengthen with the simultaneous improvement in its risk-adjusted capital.

On the other hand, weak underwriting results owing to material adverse loss reserve development or outsized losses related to its industry peers, leading to a fall in risk-adjusted capital, will likely create downward pressure on the ratings. Moreover, these factors could also lead to the revision of the ratings outlook to negative.

Rating affirmations or upgrades from credit rating agencies play an important role in retaining investors’ confidence in the stock as well as maintaining credit worthiness in the market. Hence, it is expected that such ratings will help the company write more business, going forward.  

Currently, Argo Group carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks from the same space are Alleghany Corporation (Y - Free Report) , NMI Holdings, Inc. (NMIH - Free Report) and Arch Capital Group Ltd. (ACGL - Free Report) . Each of these stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alleghany Corporation deals with property and casualty reinsurance and insurance businesses in the U.S. and internationally. The company delivered positive surprises in three of the last four quarters, with an average beat of 20.52%.

NMI Holdings offers private mortgage guaranty insurance services in the U.S. The company delivered positive surprises in all of the last four quarters with an average beat of 62.80%.

Arch Capital offers property, casualty, and mortgage insurance and reinsurance products worldwide. It delivered positive surprises in all of the last four quarter with an average beat of 9.27%.

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