Room for improvement
But there is still a way to go and challenges to overcome in realizing his vision, Watson insists. Argo will continue to identify and establish itself in other key markets and product areas where the group has a demonstrable competitive advantage, he says. The company’s operating margins, while “good,” are only “about average” when compared to its peers – “which means there is plenty of room for improvement.”
He continues: “I would like us to go from being a well-respected participant in the market to being a well-respected market leader. I think in the markets in which we are investing today, there is a really good chance of that happening over the course of the next five years.”
There is no doubt that Argo is braced for the long haul. The group, which generated gross premium income of slightly less than $2.2 billion in 2016, showed its resilience during the first quarter of this year when its operating income result – although 25 percent down on the same period last year owing to adverse claims development as a result of Hurricane Matthew and the negative impact of the changes to the Ogden personal injury discount rate in the U.K. – was nevertheless well ahead of analysts’ forecasts.
Things looked even better for Argo by the second quarter of this year. The group’s operating income increased by slightly less than 49 percent as losses from catastrophes fell and Argo’s investment performance, enhanced over the past 18 months by the adoption of alternative investment strategies – including the buying and selling of a sizeable share in a surety company – saw the group’s investment income rise 30 percent over the first six months of this year in a very tough financial market environment.
But Watson, who was speaking to Insurance Day shortly before Hurricane Harvey made landfall in Texas, warns the financial results for the first half are no indicator of what those results are likely to look like at the end of the year for any global re/insurer with portfolios of business that are in any way catastrophe-exposed. The only certainty, he says, is results are either going to be a lot better or a lot worse than companies have planned for.
“Memories are short – and sometimes you come across the assumption in our industry that by the time we get to Monte Carlo, which supposedly happens toward the end of the Atlantic hurricane season, we should have a pretty good sense of what our financial results for the year will look like. Are they kidding?
“One year in Monte Carlo, people’s roofs got blown off their houses in Bermuda. Things happen during Monte Carlo. September 11 happened during Monte Carlo. And don’t forget that hurricanes Rita and Wilma happened after Monte Carlo, as did Hurricane Sandy,” he points out.
“In fact, this year, our expectation is of a busier wind season than over the past few years. And, because we have just completed the acquisition of Ariel Re, we have bought a little more reinsurance and retro cover than we otherwise would have.”