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AM Best Places Credit Ratings of Argo Group International Holdings, Ltd. and Its Subsidiaries Under Review With Negative Implications 

AM Best has placed under review with negative implications the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” of Argo Re Ltd. (Argo Re) (Pembroke, Bermuda) and its subsidiaries. AM Best also has placed under review with negative implications the Long-Term ICR of “bbb” and the Long-Term Issue Credit Ratings (Long-Term IR) of the parent, Argo Group International Holdings, Ltd. (Argo Group) (Pembroke, Bermuda) [NYSE: ARGO]. Additionally, AM Best has placed under review with negative implications the Long-Term ICR of “bbb” and the Long-Term IR of Argo Group US, Inc. (Argo US) (headquartered in San Antonio, TX). Argo US’ senior unsecured notes are fully and unconditionally guaranteed by Argo Group. (See below for a detailed listing of the companies and ratings.)

These actions take into consideration the sudden departure of Mark E. Watson III, Argo's chief executive officer, but more importantly, concerns related to a recent subpoena issued by the Securities and Exchange Commission (SEC) as it relates to the non-disclosure of certain compensation-related perquisites involving Argo and its departed CEO.

Mr. Watson's departure was disclosed in Argo's Form 8-K dated Nov. 5, 2019. The 8K also speaks to Mr. Watson’s replacement, Kevin J Rehnberg, becoming interim chief executive officer pending approval by Bermuda regulators.

AM Best affirmed Argo Group's ratings on Oct. 9, 2019, but was unaware that the SEC subpoena had been issued to Argo some time before this date. Once discovered, Argo management portrayed this inquiry to AM Best as non-material, and as a formal request for additional documentation.

The under review with negative implications status considers the serious nature of the aforementioned SEC inquiry and the diminished credibility among Argo stakeholders in light of the board’s actions to keep this inquiry confidential while undergoing an extensive internal investigation on compensation governance matters related to Argo and its former chief executive officer. Perhaps of most concern to AM Best are the pending conclusions of the SEC investigation and the potential for this inquiry to extend beyond Mr. Watson.

Also in question is the potential for further shareholder discontent, which could lend itself to management and board distraction, the emergence of class action lawsuits and renewed shareholder activist activity. Argo estimates that the cumulative amounts of the charges are not expected to be material and the company has put into escrow a portion of Mr. Watson's restricted shares to cover ultimate reimbursement costs as part of his separation agreement.

This action also highlights the importance of enterprise risk management (ERM), corporate governance and the role that management and the board play to ensure that a proper risk management framework is in place to protect against these types of issues.

The ratings are likely to remain under review pending follow up discussions with management and the conclusion of the SEC inquiry and its findings.

The FSR of A (Excellent) and the Long-Term ICRs of “a” have been placed under review with negative implications for Argo Re Ltd. and its following subsidiaries:

  • ArgoGlobal SE
  • Argonaut Great Central Insurance Company
  • Argonaut Insurance Company
  • Argonaut Limited Risk Insurance Company
  • Argonaut-Midwest Insurance Company
  • Argonaut-Southwest Insurance Company
  • ARIS Title Insurance Corporation
  • Colony Insurance Company
  • Peleus Insurance Company
  • Colony Specialty Insurance Company
  • Rockwood Casualty Insurance Company
  • Select Markets Insurance Company
  • Somerset Casualty Insurance Company

The following indicative Long-Term IRs available under various shelf registrations have been placed under review with negative implications:

Argo Group International Holdings. Ltd. –

-- “bbb” on senior unsecured debt
-- “bbb-” on subordinated debt
-- “bb+” on preferred stock

Argo Group US, Inc. –

-- “bbb” on senior unsecured debt
-- “bbb-” on subordinated debt

Argo Group Statutory Trust –

-- “bb+” on preferred stock

The following Long-Term IR has been placed under review with negative implications:

Argo Group US, Inc. –

-- “bbb” on $143.75 million 6.5% senior unsecured notes, due 2042

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global credit rating agency and information provider with an exclusive focus on the insurance industry. Visit www.ambest.com for more information.

Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

Contacts:

Daniel J. Ryan
Senior Director
+1 908 439 2200, ext. 5325
daniel.ryan@ambest.com

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