International specialty insurance and reinsurance firm Argo Group has pre-announced an estimated $32 million of fourth-quarter 2018 catastrophe losses, which the firms third-party capital providers will likely have taken a share of.
In addition, Argo has also revealed an expected $12 million of accident year losses to come for the fourth-quarter, which includes a number of discrete Marine and Energy claims.
Argo’s catastrophe loss estimate is pre-tax and the $32 million of expected losses are largely related to Hurricane Michael and the California Wildfires, the firm said.
The re/insurer also confirmed that its Q4 2018 catastrophe loss estimate is based on claims costs after ceded reinsurance recoverables and reinstatement premiums.
They also include losses linked to certain aggregate excess of loss reinsurance contracts that Argo had underwritten, the firm said, suggesting that the Q4 loss events have tipped some of these contracts into loss as other underwriters have experienced last year.
Argo CEO Mark E. Watson III commented on the losses, “Our estimate for catastrophe losses in the fourth quarter of 2018 again reflects the restructuring of our reinsurance program at the beginning of the year to reduce earnings volatility by incorporating a single retention for the combined reinsurance portfolios of Argo and the acquired Ariel Re, and also strategically increases our use of third-party capital.”
Argo has recently shifted its strategy to underwrite more risk on behalf of third-party investors, through quota shares and insurance-linked securities (ILS) structures, hence it’s possible some of these arrangements with investors will have helped to minimise the net Q4 catastrophe loss impact for the firm.
Argo also has its Harambee Re collateralised reinsurance sidecar in place, which it recently renewed for 2019, a vehicle that increases underwriting capacity for certain Argo business units, enabling it to provide an enhance product to its clients.
The Ariel Re team that Argo acquired has been steadily building out relationships with third-party investors and ILS players, originating risk for them in order to earn the fee income associated with underwriting and likely also profit shares.
As a result, it’s relatively safe to assume that Argo shared some of these gross Q4 catastrophe loss with investors through some of these arrangements and maybe even through the Harambee Re sidecar as well.