As Watson tells Reactions, the merger and acquisition (M&A) activity that has been prevalent throughout much of the insurance and reinsurance marketplace in recent years has been key to the building out of its business.
Argo itself has been active in M&A, acquiring Ariel Re earlier this year for a consideration of $235m, while it also acquired the renewal rights to OneBeacon’s lawyers’ professional liability business back in 2014.
The Ariel transaction, which was first announced in November last year, completed on February 6, 2017, gave Argo the opportunity to build out its London and Bermuda-based operations. Not only did the Ariel deal add complimentary lines of specialty business to Argo’s operations, but it also added to the firm’s capabilities in the reinsurance market.
The deal also handed Argo further diversification, both in terms of product and geography, thereby improving its ability to manage its operations through the shifting market cycles, the firm said at the time.
“It also adds new capabilities that can be leveraged throughout the entire organisation, including Ariel Re’s unique modelling and risk analysis tools, which will enhance Argo’s already robust underwriting analytics,” Argo added at the time.
It also brought in new staff, and the most notable of those were the appointments of Dominic Kirby as managing director of Argo Managing Agency – the company’s Lloyd’s outfit, and Ryan Mather being named global head of reinsurance.
Kirby was previously head of Ariel Re UK, and before that was a managing director at Torus Underwriting Management Ltd. Mather had been a founding member of Ariel Re back in 2005, and progressed to the role of group chief underwriter and CEO in 2016 prior to the firm’s acquisition by Argo.
“We picked up a terrific team with really good modelling systems, and took two small to medium-sized underwriters and turned it into a well-respected market in Bermuda,” Watson explains.
“And that’s just in reinsurance. With insurance, we picked up more property business, and so when you add up all the insurance talent we’ve acquired in Bermuda over time, just one person at a time as well as the addition of the Ariel Re team, we’ve become one of the largest markets in Bermuda for insurance, he adds.
M&A remains on Argo’s agenda, with the company able to use it to further its strategic business plan, Watson explains.
“The Ariel deal has made us one of the top underwriters in Bermuda. We did it because we saw the opportunity. The best defence is a strong offence, and it’s an offensive move and it meant we weren’t left behind as others were getting bigger,” Watson says.
“If you look at the majority of the acquisitions we’ve made, we’ve focused on unique, niche businesses. There are a number of acquisitions we’ve made like that, but they don’t get the press of the bigger ones. We’re always looking for those opportunities – we’re looking for talented individuals, we’re looking for talented teams of people and acquisitions. But in every case, there is something unique.”
While M&A is on Argo’s mind, Watson is well aware of the pitfalls that exist when such transactions are not completely thought through. With some businesses changing hands for multiples of their book value, the need to ensure that any acquisitions will integrate successfully has never been more important.
“You can pay a premium for something if you can leverage it and make it more than it has been, but if it’s just going to provide you with incremental growth, then you’ve given all of the upside to the seller,” explains Watson.
“The other thing you have to keep in mind is that the larger insurance companies – those that are $1bn-plus – are pretty complex companies in how they operate, and so integration is not easy. Cultural integration, systems integration, distribution management – none of it is easy to integrate. That’s the reason why most acquisitions fail to provide the benefits that were represented to be there when the deal was done.”
It is not just through the M&A activity that Argo has itself been involved in that has allowed it to grow its operations, Watson says.
Argo has also been able to take advantage of M&A elsewhere in the industry, picking up executives and teams that have become available owing to transactions involving other insurance and reinsurance companies.
“With all of the disruption that’s going on in our industry right now from the M&A activity and from restructuring, I think the best thing for our company is to keep executing our business plan, and I believe that we will have the opportunity to hire some very talented people as a result of that disruption. And we have already done that.”
Examples of this can be seen in the arrival of Frank Mike-Mayer, formerly of American International Group’s (AIG) commercial business; Jorge Luis Cazar Léon who joined from Chubb; Matt Harris, also previously of AIG; David Harris who had left Amlin; and Axel Schmidt who had been with Aviva.
Oscar Guerrero, like Mike-Mayer and Matt Harris, also joined Argo having previously been with AIG.
Most recently, Argo has hired Steve Eccles as the chief underwriting officer for its international business from Travelers Insurance.
“We’ve done exactly what we said we thought we could do which is go and recruit some of the very best people in the industry to build out our team…We’ve gone from being good internationally to having a really good team that we can now leverage over the next couple of years,” says Watson, adding: “We’ve also built a really deep bench in the US that we’re now pulling from, and we’re starting to see it in the financial results. The loss ratios that we’ve reported for the last few years have been top quartile. I would like to think that will continue and the opportunity for us now is
to take the platform of people and systems and really leverage it.”
The work that the senior management team has done in recent years to build out the company has allowed the business to develop into one that can challenge some of the very largest players in the industry, Watson believes.
“I love the size we’re at. We project an image in the marketplace that is equal to companies two, three or four times our size, and we very often go head to head with companies that are more than 10 times our size on an account by account basis,” Watson says.
“When you look at us on paper, we look much bigger than we are – we have broad product offering, good geographic spread and we can put out big limits when we need to and when our clients require it. It’s only when you look at our balance sheet that you realise the size of our equity base, and that’s intentional.”
As it stands, Argo continues to invest in its operations, with the company committing resources to technology.
This is taking the form of both the digitalisation of its existing operations in response to the realisation that the needs of the new digital economy are no longer being met.
Argo is also investing in insurtech, although as Watson explains, this is more for his firm’s own benefit rather than anything else. One example of this can be in its Protector product which was initially launched in Brazil under the Argo Seguros brand, but has now been updated and amended for the US market.
Elsewhere, clean and renewable energy is another area where Argo has been investing, with the company’s main operation based out in Hong Kong – close to where the bulk of the world’s solar panels are manufactured.