Who insured Princess Leia? Argo Group made more than $1B covering ‘weird stuff’

When “Star Wars” actress Carrie Fisher died at age 60 following a heart attack in December, Argo Group International Holdings had to pay up.

“We wrote an insurance policy for Disney because they were worried something might happen to Carrie Fisher and (she) wouldn’t get to do the last sequel of the new trilogy,” Argo CEO and President Mark E. Watson III said. “Well, guess what? Something happened to Carrie Fisher, and we just got through writing Disney a check.”

The insurer, which has its U.S. headquarters in San Antonio, doesn’t sell auto, home or life insurance, so it isn’t a household name like Allstate or State Farm. It has an international business that is widely known throughout the industry with corporate clients in 160 countries across the globe. The company has made more than $1 billion in profit over the last decade as a mid-sized player in a niche field insuring complex or hard-to-price risks other insurers won’t touch. It covers unusual professionals, places and events — like underwriting the risk that Fisher couldn’t perform in “Star Wars: Episode IX,” which is set for release in 2019.

Quirky risks, in fact, is Argo’s specialty.

If U2’s Bono or The Edge is too sick to perform a concert, Argo is on the hook to cover some of the band’s costs for canceling the show.

Argo insured a jockey recently killed during a horse race. It insured almost every oil and gas operator involved in the Deepwater Horizon explosion in 2010 in the Gulf of Mexico, losing about $25 million in paying out claims on that and other catastrophes in the second quarter that year.

The company also is a reinsurer, and covered some of the losses sustained by other insurance companies following recent earthquakes in New Zealand.

“We insure the largest companies in the world and the biggest risks in the world,” Watson said in a recent interview. “So when things go wrong, and you watch them on the television at night, chances are we’re involved in some way, usually writing a check to get a business back up and running again.”

With big policies, like Disney’s “contract protection” insurance policy on Fisher that paid out hundreds of millions of dollars, Argo often works with other insurance companies to provide coverage and share the risk so no one insurer is exposed to the entire loss.

Other types of policies Argo writes insurance for run the gamut of risk, from cyberattacks to disease-infected livestock to corporate executives accused of wrongdoing to bicycles thefts in Brazil.

“It’s a separate product that we offer the professionals we insure,” he said of the bike coverage in Brazil, where stolen bikes aren’t covered by a homeowner’s policy. The bikes generally range from $5,000 to $10,000. “We found it’s actually, on a percentage basis, the fastest growing part of the company right now.”

Like many insurance companies, Argo is based in Bermuda where the tax structure is more favorable to the industry. It employs 233 of its 1,300 employees in San Antonio. AIG, which has a shareholder value of around $57 billion, was the world’s ninth-largest property casualty insurer with $19.1 billion in premiums written, in 2015, according to the most recent data available from the Insurance Information Institute. By comparison, Argo last year had $2.2 billion in gross premiums, which is the amount of revenue expected to be collected over the life of all of its insurance policies before expenses.

Argo’s market value at almost $2 billion, however, has just about doubled over the last four years. Shares, which trade on the Nasdaq, closed $61.55 Thursday.

“I think you’ve seen (Argo) come from the bottom and move up to where it’s a credible player in the midstream,” said Donald Kramer, a longtime insurance industry executive who is chairman and owner of ILS Capital Management in Connecticut. “It’s not the best-run company. It’s not the highest-valued company. But if you’re a stockholder, you came out really well because they’ve taken it from what I consider a second-tier company into being a first-tier company.”

The company was founded in 1948 in California as Argonaut Group Inc., its name a nod to the state’s gold rush almost a century earlier. At the time of Argonaut’s formation, construction companies in the San Francisco Bay Area were having difficulty finding workers’ compensation insurance.

Watson, 53, made an unspecified initial investment in Argonaut in 1998 — a year after the San Antonio insurer he was working for as general counsel was sold for $240 million. The company, Titan Holdings, was founded by his father, Mark E. Watson Jr.

At the time of Watson’s investment in Argonaut, California was in the midst of a workers’ compensation quagmire following a 1996 court ruling that minimized the input of insurers on the treatment of injured workers. Many of Argonaut’s competitors went out of business.

“I had made (the) investment … thinking I could cajole the board into changing the strategy of the company,” he said, stressing that he was not an activist investor. “I would say I was agitating for change in a very polite way.”

Watson joined Argonaut’s board in 1999 and in 2000 he became CEO. That year, Argonaut lost $83 million on $209.9 million in revenue. Last year, it posted a profit of $146.7 million, or $4.75 a share, on almost $1.6 billion in revenue.

With Watson at the helm, Argonaut zeroed in on the specialty insurance market. He figured there wasn’t much competition and it’d be easier to generate profits.

Among Watson’s first big decisions was to move the company’s headquarters to San Antonio, where he was born. He didn’t want to duke it out with Silicon Valley tech companies for workers.

Under Watson’s command, the company has grown through acquisitions and a merger. A 2000 purchase gave it a foothold in offering casualty insurance to cities, counties and other public jurisdictions. A year later, it bought another company selling excess and surplus lines of insurance, which provides coverage to consumers for risks traditional underwriters won’t insure.

Argo became an international insurance business in 2007 when it merged operations with Bermuda-based PXRE Group. The combined businesses became known as Argo Group International Holdings because there already was an insurer named Argonaut in Bermuda.

Argo made Bermuda, where property and casualty insurance companies don’t have to pay U.S. federal taxes, its headquarters. But the deal had more to do with establishing a trading platform in Bermuda than saving on taxes, Watson said. He travels constantly and splits his personal life between Bermuda and San Antonio.

In 2008, Argo expanded its international presence when it acquired a London-based Lloyd’s insurer. Lloyd’s is a marketplace in London’s financial district where agents buy insurance for clients. Argo added another Lloyd’s insurer and reinsurer in February when it bought Ariel Re. Argo expects to crack the top 10 in that market next year.

“They’re a pretty innovative company,” said Dan Glaser, CEO and president of Marsh & McLennan Cos., a giant insurance broker based in New York. “They’re working on strategies like digital and improving the client experience.”

Gregory Case, CEO and president of Aon plc, a giant London-based risk adviser and insurance broker that does business with Argo, called Watson a “world-class specialty insurance strategist.” Case has known Watson for 12 years.

“This is a guy who … can kind of see ahead and recognize value before others do and he invests ahead of the market,” Case said. “He’s done that a few times and really built a platform that I think is very differentiating.”

Argo reported Watson received about $4 million in total compensation last year. He owns almost 996,000 Argo shares — or almost 3.3 percent of the company, a stake valued at about $61.3 million on Thursday.

Argo’s growth has allowed it to build up its management team by attracting senior executives from some big insurers,” Marsh & McLennan’s Glaser said.

“So from that standpoint, they punch well above their weight,” he added.

As in many industries, technology is shaking up the insurance business. In Argo’s U.S. casualty business, it credits technology with slashing the time it takes to underwrite a risk from 10 days to two. This has allowed it to more than double the monthly insurance quotes it makes to 1,600, Watson said on a May 4 conference call with analysts to discuss first-quarter results.

Argo earned $36.7 million, or $1.19 a share, on $428.1 million in revenue during the first quarter.

Meanwhile, “insurtech startup firms” which are using technology to try to disrupt the insurance industry, are a much-discussed “market force,” according to Watson. He sees similarities between them and companies from the dot-com era, but he said it will be a year or two before the industry learns how insurtech firms fare.

Another challenge facing Argo and the industry is weakness in insurance pricing because of increased competition in certain markets, particularly in London. At the same time, loss costs from claims are outpacing the rise in prices, said Arash Soleimani, a securities analyst with Keefe, Bruyette & Woods.

“How do you turn a profit in an environment where pricing is not improving?” Soleimani said. He has a “hold” rating on Argo.

While Argo has insured some “weird stuff,” Watson said, he conceded there’s one thing he’s lost his appetite for: satellites.

“We think the pricing has gotten so thin, that it’s just too hard” to make money, he said. “So many satellites have not made it into orbit. Now is probably not the best time to insure any more satellite losses.”