Argo Group International Holdings, Ltd.

Good day and welcome to the Argo Group fourth quarter 2020 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I will now like to turn the conference over to Brett Sheriffs. Please go ahead, sir.

Thanks and good morning. Welcome to Argo Group's conference call for the fourth quarter of 2020. After the market closed last night, we issued a press release on our earnings, which is available in the investor section of our website at www.argogroup.com and was filed with the SEC. Presenting on today's call is Kevin Renberg, Chief Executive Officer, and Jay Bullock, Chief Financial Officer. As the operator mentioned, this call is being recorded live. As a result of this conference call, Argo management may make comments that reflect their intentions, beliefs, and expectations for the future. Such forward-looking statements are qualified by the inherent risks and uncertainties surrounding future expectations generally and may materially differ from actual future results involving any one or more of such statements. Argo Group undertakes no obligation to publicly update forward-looking statements as a result of events or developments subsequent to this call. For a more detailed discussion of such risks and uncertainties, please see Argo Group's filings with the SEC. Also note that we will be referring to certain non-GAAP financial information. More information regarding the non-GAAP financial measures are provided within our earnings release. I will now turn the call over to Kevin Renberg, Chief Executive Officer of Argo Group.

Good morning, and thank you for the introduction, Brett. Welcome to everyone on the call. The last 12 months have been a period of dramatic change for all of us as we have had to adapt to new ways of working and living. This has created a number of challenges and opportunities as we manage through this period. Despite these challenges and by embracing these opportunities, I'm proud of the Argo team's continued effective engagement with customers and producers, reinforcing our position as a go-to specialty insurer. These challenges have not impacted our strategic focus or impeded progress as we have advanced on a number of our key objectives over the last 12 months. First, we streamlined and refreshed the senior leadership team with a number of new hires and internal promotions. This work was capped off with Scott Kirk joining the team last week to take over the reins of CFO. We're excited about the experiences, perspective, and leadership he will bring to Argonaut. The leadership team today is better positioned than ever to serve the business under our refocus strategy and as simpler as we have been able to eliminate certain senior positions along with streamlining our strategy. The team is energized and we are excited about the opportunity we have for profitable growth in the current market environment. Second, we executed on a number of transactions to exit underperforming or non-strategic businesses and have focused our go-forward strategy on our primary strength, U.S.-focused specialty insurance. These actions demonstrate our emphasis on deploying our time, resources, and capital to businesses that we believe can have strong returns and can meaningfully contribute to our bottom line. While there will be some lingering costs associated with these exits and transactions, these are necessary steps to achieve our desired outcome, which we believe will benefit our shareholders over time. Third, we announced a formal expense initiative with targets over the next two years. designed to drive a more efficient organization and expand underwriting margin. We plan to continue to invest in better systems and technology that will reduce manual processes and allow us to reduce staffing costs. We've already made progress on the moving expenses, and this is an area where Scott has valuable experience, so we're very excited for him to bring those best practices to Argo. Lastly, the reconstituted board of directors is highly engaged in providing invaluable counsel to the leadership team, In addition, there have been a number of governance policy and compensation enhancements led by the board, all to ensure our goals and targets are closely aligned with enhancing value for shareholders. These positive steps shouldn't be overshadowed by the impact COVID and a highly active catastrophe season had on our financial results for the year. We did not achieve our financial targets in 2020, but I'm pleased with the underlying strength in our underwriting results and confident in how we are positioned for the future. Our talent, underwriting expertise, and outstanding service will allow us to capitalize on the many market opportunities we are seeing today. During the fourth quarter, we continued to push for improved rate terms and conditions. For the third quarter in a row, we achieved double-digit rate increases, and pricing was above 10% in both our U.S. and international segments. And while terms and conditions are improving, we were able to reduce our average limits exposed in several business lines. For example, commercial D&O, we reduced our average limit exposed by approximately 15% in 2020 versus 2019. The reduction was even more dramatic in our U.S. and Bermuda excess casualty books, where average limits were down approximately 20% and 30%, respectively, during 2020. The combination of these actions by our underwriters will lead to more premium with less exposure at risk. We expect this produce better loss ratios as these changes earn through our results over the next several quarters and as claims are paid over the next few years. Importantly, market conditions have not shown any signs of cooling. The macro environment, including the pressure that lower interest rates is having on investment income, suggests that this momentum should continue, and we plan to deploy our capital where we find the best underwriting opportunities. In terms of growth, Our top line in the quarter continued to reflect our focus on strategic growth areas. Overall, gross premiums were up about 1% in the quarter. U.S. growth was 6.6%, while international declined 10.4%. In international, the top line result primarily reflects underwriting actions that have been underway for the past 12 to 18 months or longer. We are carefully growing where we have confidence in our results and pulling back or exiting in other areas. Excluding these businesses, such as the grocery and retail business in the U.S., our growth in the U.S. was over 10% in the fourth quarter, which we feel very good about. We achieved strong growth in lines where we have been adding talent and investing in underwriting tools, such as Casualty, Inland Marine, and Argo Pro. Premiums in all these businesses were up by more than 20% in the fourth quarter, and in some cases, well above that. We also saw encouraging submission trends in some of our focus growth areas. For example, casualty submissions were up 25% in the fourth quarter and only marine submissions were up more than 50%. Construction submission growth was also positive and had pockets of strength in the high single digits. These trends give us confidence in our growth outlook for 2021. As I mentioned, our financial results for the quarter were impacted by several natural catastrophe events, mainly U.S. windstorms and wildfires, as well as additional catastrophe losses associated with COVID No single natural catastrophe event was a surprise to us, but the frequency of events was significant. According to Swiss Re, 2020 was the fifth costliest year on record for the industry, including a record number of named storms in the U.S. One of our key initiatives in 2021 and beyond is to reduce our aggregate catastrophe exposure. This started with our sale of aerial reef and will continue with actions on our insurance portfolio as well. We are reducing property line sizes as well as exiting large property accounts in certain wildfire prone areas. Our goal is to reduce the volatility of our underwriting results and allocate our capital to businesses with more stable returns. This will be a gradual process as we see the impact of the actions over the next 18 to 24 months. The impact of catastrophes pushed us to an underwriting loss for the quarter and the year. However, on an underlying basis, there were some very positive signs. Our current accident year XCAT loss ratio improved by more than seven points from the prior year quarter. The fourth quarter of 2019 included some current accident year strengthening, so the full year comparison is more representative of the improvement at 3.4 points. The better result, which was seen in both the U.S. and international segments, was primarily related to rate and underwriting actions I spoke about a minute ago. The expense ratio improved 2.2 points in the fourth quarter to 40.1%. As we noted in our earnings release, there were a number of items related to strategic actions and other non-recurring items that added approximately three points to the expense ratio for the quarter and about one point for the full year. This total includes professional fees for transactions we announced during the quarter and severance costs to right-side some of our infrastructure platforms. These costs are part of our expense initiative we have discussed and are expected to lead to future savings as we continue to make progress on our expense targets. Some of the actions we took in the fourth quarter are important steps towards continued expense ratio improvement. We exited several businesses during the quarter, including the sale of Ariel Lee, pending sale of our Italian business, the runoff operations in Malta, and our US grocery and retail business. These decisions will allow us to exit certain high cost areas and focus our resources on better returning businesses. As I mentioned last quarter, our expense improvement will not be linear due to some of the extraordinary costs associated with our actions. Last week, we announced that we were hosting a virtual investor event on March 12th. We plan to use the time to dive deeper into our go-forward strategy and highlight certain businesses in a forum where we are not also trying to explain the movement of a single quarter. We look forward to clarifying what Argo looks like as we trade forward after a number of changes we have announced in recent months. We'll also give you some more detail on where we're heading with expenses and introduce additional members of the team. So please join us if you can. I'll now turn the call over to Jay to discuss our results in more detail.