Shares of Argo Group International Holdings, Ltd. (AGII) gained 1.8% to close at $52.69 following the rating affirmation by A.M. Best Co.
The credit rating agency reiterated the issuer credit rating (ICR) and debt ratings of “bbb” of Argo Group. Concurrently, A.M. Best affirmed the financial strength rating (FSR) of A (Excellent) and the ICR of “a” of Argo Re Ltd. and its subsidiaries. The ratings carry a stable outlook.
The affirmations came on the back of a solid operational track and favorable reserve development. Argo Re’s sturdy capitalization as well as Argo Group’s niche focus also led to the rating action. Other factors that influenced A.M. Best include the company’s solid presence in the excess and surplus lines market, efforts to write off under-performing accounts and improved profitability.
The rating agency also incorporated the expected benefits the company will enjoy from additional management initiatives to improve overall operational efficiencies as well as its low financial leverage and financial flexibility.
However, execution risk related to exposure in emerging markets and new territories such as Brazil, accelerating expenses, competition, low new money investment yields and leadership changes weigh on the positives. Nonetheless, Argo Group remains focused on mitigating the risks.
A.M. Best stated that the ratings can be upgraded if the company’ sustains its underwriting performance and improves its operations. However, the ratings would be subject to downgrade if underwriting or operating performance deteriorates, reserve development remains unfavorable and risk-adjusted capitalization falls.
Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence on the stock as well as maintaining credit worthiness in the market. On the other hand, rating downgrades adversely affect the business, apart from increasing the costs of future debt issuances. We believe that strong ratings will help Argo Group retain investor confidence and help it write more businesses going forward.
Argo Group currently sports a Zacks Rank #1 (Strong Buy). Investors interested in property and casualty insurers may consider Alleghany Corporation (Y), AmTrust Financial Services, Inc. (AFSI), and Aspen Insurance Holdings Ltd. (AHL). All these share the same Zacks Rank as Argo Group.
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