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A.M. Best Affirms Ratings of Argo Group International Holdings, Ltd. and Its Subsidiaries

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A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit ratings (ICR) of “a” of Argo Re Ltd. (Argo Re) (Hamilton, Bermuda) and its subsidiaries. A.M. Best has also affirmed the ICR and debt ratings of “bbb” of the parent holding company Argo Group International Holdings, Ltd. (Argo Group) (Hamilton, Bermuda) [NASDAQ:AGII]. Concurrently, A.M. Best has affirmed the ICR of “bbb” and the debt rating of “bbb” on $143.75 million 6.5% senior unsecured notes due 2042 of Argo Group US, Inc. (Argo US) (San Antonio, TX). These senior notes are fully and unconditionally guaranteed by Argo Group. The outlook for all ratings is stable.

The rating affirmations reflect Argo Re’s solid overall capitalization, historically strong operating performance, favorable reserve development and Argo Group’s demonstrated product expertise in niche focus areas. The ratings also consider Argo Group’s strong presence in the excess and surplus lines market, continuation of its underwriting strategy to eliminate under-performing accounts and its improved earnings during the first half of 2014. Also considered were the benefits to be garnered from additional management initiatives to improve overall operational efficiencies and reduce its worldwide property exposure, including its participation in the insurance linked securities (ILS) market. The ratings also consider Argo group’s conservative financial leverage (total debt-to-total capital), and the financial flexibility afforded as a publicly traded organization.

Partially offsetting these positive rating factors are the changes in executive leadership over the past two years, the execution risk associated with Argo Group’s expansion into emerging markets and new territories such as Brazil, along with Argo Group’s slightly elevated expense structure. A.M. Best recognizes that management has introduced a number of strategic measures to address these risk factors. Additional offsetting factors include competitive market pressures, low new money investment yields, and the lingering effects of a gradually recovering U.S. economy.

A.M. Best believes that Argo Re and its subsidiaries are well positioned at their current rating levels. Key drivers that could lead to a favorable change in the ratings or rating outlook over the long term would include consistent improvement in the underwriting and operating results of Argo Re encompassing Argo Group’s four core business segments – excess and surplus lines, commercial specialty, international specialty and Syndicate 1200. Downward pressure on the rating or a negative change in the rating outlook could result if there is a material deterioration in the organization’s underwriting or operating performance, material adverse loss reserve development or a significant decline in risk-adjusted capitalization.

For a complete listing of Argo Group International Holdings, Ltd. and its subsidiaries’ FSRs, ICRs and debt ratings, please visit http://www.ambest.com/press/100203ARGO.pdf.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Key insurance criteria reports utilized:

  • Catastrophe Analysis in A.M. Best Ratings
  • Rating Members of Insurance Groups
  • Risk Management and the Rating Process for Insurance Companies
  • Understanding BCAR for Property/Casualty Insurers
  • Understanding Universal BCAR – A.M. Best’s Capital Adequacy Ratio for Insurers
  • Equity Credit for Hybrid Securities
  • Insurance Holding Company and Debt Ratings

A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright (c) 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

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