Argo only takes $25m catastrophe hit in Q3, third-party capital assists

International specialty insurance and reinsurance firm Argo has pre-announced $25 million of losses from third-quarter catastrophe events and given the firms shift towards originating risk for third-party investors it seems some of its capital partners will have taken a share of the firms gross losses.

Argo Group International Holdings, Ltd. said that the main catastrophe loss events during the quarter for the firm where hurricane Florence and typhoon Jebi, while other catastrophes and severe weather events also drove some of its losses during the period.

Argo’s estimate of $25 million is pre-tax and the firm said it includes claims costs net of its ceded reinsurance recoverables and reinstatement premiums, as well as losses related to certain aggregate excess of loss contracts.

Being net of its reinsurance recoverables suggests that Argo’s gross loss will, of course, have been higher.

How much higher is uncertain, but Argo has recently shifted strategy to underwrite more risk for third-party investors, through quota shares and insurance-linked securities (ILS) and it’s possible that some of its arrangements with investors will have helped to minimise the net catastrophe loss impact to the firm.

Argo has its Harambee Re collateralised reinsurance sidecar, having renewed it for 2018, which the firm says helps it to increase underwriting capacity for certain of its key 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.

This implies that the firm has shared some of the gross Q3 catastrophe loss with investors through some of these arrangements and maybe even through the Harambee Re sidecar as well.

CEO Mark E. Watson III confirmed this in his comments, by saying, “As we indicated following the catastrophe loss events in 2017, we restructured our reinsurance program for 2018 to incorporate a single retention that combined the reinsurance portfolios for Argo and the acquired Ariel Re, and we strategically increased our use of third-party capital. Our loss results for the third quarter of 2018 reflect these actions.”