Argo Group International Holdings Ltd. is warning that its 2019 fourth quarter will feature some “unacceptable” results, particularly a $114 million underwriting loss. Separately, there are also added expenses relating to the abrupt departure of controversial former CEO Mark Watson III.

The Bermuda-based specialty insurer and reinsurer announced in November that Watson was “retiring” after the U.S. Securities and Exchange Commission moved to investigate the company’s disclosures about executive compensation. Activist shareholder Voce Capital Management LLC first raised the issue early in 2019, alleging that Argo had excessive corporate expenses including corporate jet travel and luxury housing for Watson. Argo denied all accusations regarding lavish spending, though the company is now evaluating its compensation policies.

Argop said that the expected Q4 2019 underwriting red ink stems, in part, from prior accident year losses of $77 million, current accident year losses of $30 million, $3 million in catastrophe losses, and $12 million connected to job cuts and costs relating to its European business unit.

Argo issued the statement in advance of the Feb. 24, 2020 scheduled release of its Q4 2019 financial results.

Interim CEO Kevin Rehnberg said that the company is taking aggressive steps to improve things.

“Argo’s results for the 2019 fourth quarter and full year are clearly unacceptable,” Rehnberg said in prepared remarks. “The industry is experiencing rising claims severity in several lines of business. We have taken appropriate action to adjust our current and prior accident year loss ratios in response to these conditions and to specific information received in the quarter. We believe the actions taken strengthen our balance sheet and position us for a more profitable future.”

Separately, Argo also warned about a $16 million goodwill impairment relating to its European business unit, stemming from an ongoing strategic review and recent operating results.

In terms of Watson’s departure, Argo said there will be roughly $18 million in expenses “related to losses and impairments on certain long-lived assets that are held for sale, primarily a corporate aircraft and real estate properties; the cancellation of contracts related to certain sponsorships and marketing services; and to several costs associated with separation from Argo’s former CEO.”

In the wake of Watson’s departure and the executive compensation controversy that remains, there will also be $8 million in Q4 corporate expenses relating to the previously announced plan for independent directors to review governance and compensation issues, as well as a cooperation agreement with Voce addressing the matter.

Source: Argo Group