Argo Group International Holdings, Ltd.

Good morning and welcome to the Argo Group first quarter 2021 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Brett Sheriffs, Head of Investor Relations. Please go ahead.

Thanks and good morning. Welcome to Argo Group's conference call for the first quarter of 2021. 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 Scott Kirk, Chief Financial Officer. As the operator mentioned, this call is being recorded. 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 in 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. I'm happy to be speaking with you again today, just about seven weeks since our investor update in March. A lot has happened since then, including a change in our outlook from AMBEST. We are pleased that AMBEST revised our outlook to stable, and we certainly believe that the actions we have taken demonstrate our commitment to producing better returns, becoming more efficient, and maintaining a strong balance sheet. We have the benefit of a few more data points since we last spoke, and our experience continues to suggest that the market remains strong and is likely to provide lots of opportunities for specialty carriers like Argo going forward. As you will see from the numbers, our strategic actions and expense focus are beginning to become evident in our underlying combined ratio results. Pricing, terms and conditions all have maintained momentum, and there are signs that parts of the economy are turning. This environment should allow us to grow in a disciplined manner while improving our margins. While our top line was impacted by business exits and re-underwriting actions, our strategic growth areas continue to produce strong growth and margin results. Excluding the impact of Ariel Re, our planned exits in Italy and Malta, and our U.S. grocery business, gross premiums were up approximately 6.5%. This is within the growth range that we outlined for the full year when we provided guidance in March. Both the U.S. and international segments contributed to this underlying growth picture, although it was impacted by our actions to reduce property exposure. I'll spend some more time on this in a few minutes. During our investor update, I highlighted six business units in the U.S., ArgoPro, Casualty, Construction, Environmental, Inland Marine, and Surety. These businesses represented 60% of our U.S. premium base during the first quarter and grew by more than 15% versus the prior year. Each of these six businesses units experienced positive rate increases during the first quarter, which is a great sign as we already have a track record of underwriting profitability for this group. In the first quarter, the combined ratio of these businesses was comfortably below 90% with minimal catastrophe losses. In international, our underlying growth was primarily related to strong rate increases in the mid teams on average. I'm also very pleased that our current accident year XCAT combined ratio of 93.4% improved by 250 basis points from the prior year quarter. This improvement was a result of both a better current accident year XCAT loss ratio and a lower expense ratio, which demonstrates solid execution against our priorities. I would note that the result was the lowest current accident year XCAT combined ratio we have reported in more than four years. This success is a function of our focus on deploying resources and capital to our highest returning businesses, a strategy that we have been very clear about over the last 18 months. We will continue to focus on improving this ratio through disciplined underwriting and appropriate expense management. One area of focus that we have discussed over the last couple of quarters is reducing volatility in our business, particularly property exposure. The most visible example of this was the sale of Ariel Re in November 2020. Ultimately, the sale of Ariel will remove quite a bit of volatility as our remaining exposure runs off. We have also managed to reduce the net exposure of our specialty property insurance business, During the first quarter, we aggressively reduced the size of our US property and contract binding books. In recent quarters, these two business units have contributed a significant portion of our catastrophe losses in the quarter. Premium for the specialty property business unit in our US segment was down more than 50%, and our US contract binding business was down more than 25%. We were disappointed with the level of catastrophe losses we experienced in the quarter. but we believe we are taking the right steps to produce better results with less volatility going forward. As we have noted previously, the actions we have taken over the last couple quarters will take time to play out. However, we expect to be in a better position before Atlantic hurricane season this year, as most U.S. property renewals happen prior to June or July. This includes a meaningful reduction in our remaining exposure to aerial reef. Based on the actions we have already executed and our plans for the rest of the year, we expect that if the same winter storm event were to happen again next year, our losses would be reduced by approximately 50%. As of April 1st, our modeled 1 in 250-year Florida PML was down 12% from year-end 2020, and by July 2nd, we expect it to be down 40% to approximately 4% of shareholders' equity, as we outlined during our investor update. While these actions will continue to impact our top line for the remainder of the year, we believe they are prudent decisions that will lead to better results and returns for our shareholders. Turning to the environment, rates were broadly consistent with last quarter. We saw a few businesses continue to experience accelerating rate increases, while a few pulled back slightly but remained positive. Overall, rates were up more than 10% on average across the group, This is the fourth consecutive quarter of rates being up 10% or more. In the US, we saw rate increases of just below 10%, while international was comfortably in the mid-teens. Additionally, we have continued to be successful in reducing limits and raising attachment points. Submission growth was another positive trend we saw in the quarter, excluding property and contract binding, where we are actively pulling back. Submissions were up modestly across our US operations, Looking closer at some of our focus growth areas, such as Argo Pro, Casualty, Inland Marine, and Charity, all these units experienced strong submission growth in the first quarter that was well above the segment average. Looking at data from April, submission trends have improved with overall submission growth in double digits, excluding property and contract binding. These trends give us confidence that we are offering products and services our insureds and brokers value and will provide us with the opportunity for growth going forward. regardless of market conditions. Another strategic focus I have spoken about in the past are our efforts to simplify and modernize Argo's platform. With this initiative, we aim to enhance our efficiency and ability to scale the business going forward. Central to this is having fully integrated systems, what we call the Argo One Platform. The goal is to be able to harness better data more quickly so our leadership can make dynamic and real-time informed decisions to manage their businesses. We expect this will result in improved customer service and lead to better growth and profitability over time as we are able to retire legacy systems and processes. We have partnered with industry standard companies like Duck Creek and Appian to create this integrated ecosystem. The Argo One platform will provide benefits across our business, including policy, billing, and claims administration, workflow management, distribution, submission intake, and marketing. We are initially rolling out these enhancements in the U.S. with Inland Marine as the first business unit to operate on the Argo One platform. We expect this deployment will be complete by the end of this year, 2021, with other business units coming onto the platform over time. This is a multi-year program that we are deploying across most of our U.S. business in the coming years. As this project moves forward, we will continue to provide progress reports and share some of the benefits that we are realizing. So while we are focused on reducing our expense ratio, it's also worth noting we are making meaningful investments into our operations. We are very excited about this strategic investment and expect it will allow us to continue to grow our business and improve efficiency. I will now turn the call over to Scott to discuss our results in more detail.