Argonaut Group, Inc. Announces 2006 Second Quarter Results
biz.yahoo.com
Wednesday August 2, 4:59 pm ET
Company Produced Second Quarter Records in Earned Premiums, Total Revenue and Underwriting Income
SAN ANTONIO--(BUSINESS WIRE)--Aug. 2, 2006--Argonaut Group, Inc. (NASDAQ:AGII) today announced financial results for the three and six months ended June 30, 2006.
Highlights for the 2006 second quarter include the following:
Pre-tax operating income increased 33.5 percent to a record $32.3 million;
Net income was $23.4 million, which included income tax expense of $12.2 million, compared to second quarter 2005 net income of $23.7 million, which included a tax benefit of $0.1 million;
Underwriting income increased to $10.5 million versus $8.7 million in the second quarter of 2005;
Investment income rose 26.9 percent to $25.0 million compared to $19.7 million in the second quarter of 2005;
Earned premium increased 18.7 percent to $200.4 million versus $168.9 million for the same period in 2005;
Total revenues were $228.7 million compared to $188.0 million a year ago;
Gross written premiums for E&S and Select Markets increased 14.6 percent and 4.9 percent, respectively.
Highlights for the first half of 2006 include the following:
Pre-tax operating income increased 34.2 percent to $63.5 million versus $47.3 million in last year's first six months;
Net income of $43.9 million included income tax expense of $22.9 million compared to first half 2005 net income of $49.7 million, which included a tax benefit of $1.1 million;
Underwriting income increased 27.2 percent over the first six months of 2005;
Gross written premiums for the first six months increased 12.0 percent over the same period last year; Earned premium in the first half of 2006 was up 20.9 percent;
Cash flow from operations increased to $125.8 million in the first half of 2006 compared to $93.5 million for the same six-month period last year.
Argonaut Group President and CEO Mark E. Watson III said, "Our three primary business segments performed well and produced record underwriting results in the second quarter. On a year-over-year basis, I am pleased with our top-line growth from continuing operations, strong underwriting margins and increased cash flow. Our commitment to strong underwriting discipline and leadership within our niche markets continued to serve us well, producing the best financial performance over six months in our Company's history."
FINANCIAL RESULTS
For the second quarter of 2006, Argonaut Group reported net income of $23.4 million or $0.69 per diluted common share on 33.8 million shares. This compares to 2005 second quarter net income of $23.7 million or $0.76 per diluted common share on 31.2 million shares. Comparability of net income in 2006 to 2005 was significantly impacted by the change in income tax expense. Net income for the three month period ended June 30, 2006 includes income tax expense of $12.2 million. Net income for the comparable three-month period in 2005 includes income tax benefits of $0.1 million. The benefits recorded in 2005 were related to the reduction of a previously established deferred tax valuation allowance. This valuation allowance was reduced to $0 in 2005. The change in valuation allowance did not impact cash paid related to income taxes during 2005 or 2006.
The Company believes operating income is another meaningful measure of Argonaut Group's performance, yet differs from net income under accounting principles generally accepted in the United States (GAAP) in that operating income excludes income tax benefit or expense and net realized investment gains and losses. For a reconciliation of operating income to GAAP net income for the three and six months ended June 30, 2006 and 2005, respectively, please refer to the reconciliation table attached to this news release. Pre-tax operating income for the quarter ended June 30, 2006 was $32.3 million, an increase of $8.1 million or 33.5 percent as compared to pretax operating income of $24.2 million for the comparable quarter in 2005.
Total revenue was $228.7 million during the second quarter of 2006, compared to $188.0 million for the same period in 2005, or a 21.7 percent increase. Total revenue includes realized gains and losses on the sales of investments, which included $3.3 million of gains and $0.6 million of losses, respectively, for the second quarters of 2006 and 2005. Earned premiums for the three months ended June 30, 2006 were $200.4 million compared to $168.9 million for the comparable quarter in 2005, or an 18.7 percent increase.
The Group combined ratio for the second quarter of 2006 was 94.8 percent versus 94.9 percent for the same three-month period in 2005. All three primary business segments delivered strong underwriting income, led by Public Entity reporting a combined ratio of 72.8 percent.
For the six months ended June 30, 2006, Argonaut Group reported net income of $43.9 million or $1.30 per diluted common share, versus $49.7 million or $1.59 per diluted common share for the first half of 2005. Net income of 43.9 million includes tax expense of $22.9 million for the six months ended June 30, 2006, as compared to net income of $49.7 million, which included a tax benefit of $1.1 million for the same six-month period in 2005. See previous commentary relative to the Company's tax expense and the effect of the reduction in the deferred tax valuation allowance. Total revenue during the first half of 2006 was $453.3 million versus $371.8 million during the first six months of 2005. Total revenue includes realized gains of $3.3 million and $1.3 million for the six months ended June 30, 2006 and June 30, 2005, respectively. Earned premiums for the first six months of 2006 were $400.3 million compared to $331.0 million during the first half of 2005.
SEGMENT RESULTS
Excess & Surplus Lines (E&S) - For the second quarter of 2006, gross written premiums and operating income for E&S totaled $179.8 million and $23.3 million, respectively. This compares to gross written premiums of $156.9 million and operating income of $16.5 million in the second quarter of 2005. The combined ratio for the 2006 second quarter was 90.6 percent versus 88.7 percent for the same three-month period in 2005.
For the six months ended June 30, 2006, gross written premiums for E&S were $357.8 million, generating operating income of $40.3 million and a combined ratio of 92.0 percent. This compares to gross written premiums of $257.7 million, operating income of $29.8 million and a combined ratio of 90.0 percent for the first half of 2005.
Select Markets - During the second quarter, gross written premiums were $72.2 million and operating income totaled $6.2 million, compared to gross written premiums of $68.8 million and operating income of $6.2 million during the same period in 2005. The combined ratio for the 2006 second quarter was 95.8 percent versus 93.6 percent in the second quarter of last year.
For the six months ended June 30, 2006, gross written premiums for Select Markets were $145.1 million, generating operating income of $13.3 million and a combined ratio of 94.9 percent. This compares to gross written premiums of $132.4 million, operating income of $12.0 million and a combined ratio of 94.4 percent during the first half of 2005.
Public Entity - Gross written premiums for the 2006 second quarter were $8.4 million and operating income totaled $4.7 million, versus gross written premiums of $10.0 million and operating income of $2.1 million for the quarter ended June 30, 2005. For the second quarter, the combined ratio in this segment was 72.8 percent versus 94.9 percent for the same three-month period in 2005.
For the six months ended June 30, 2006, gross written premiums for Public Entity were $26.2 million, generating operating income of $6.8 million and a combined ratio of 82.4 percent. This compares to gross written premiums of $28.2 million, operating income of $4.0 million and a combined ratio of 94.9 percent for the six-month period ended June 30, 2005.
Risk Management - As previously disclosed in the third quarter of 2005, the renewal rights to a majority of the business that comprised Risk Management were sold to XL America, Inc. The remaining business activity for this segment reduced gross written premiums by $1.5 million for the three months ended June 30, 2006 and generated operating income of $4.6 million, compared to gross written premiums of $29.2 million and operating income of $7.4 million for the same period in 2005.
For the six months ended June 30, 2006, Risk Management generated operating income of $13.4 million and a combined ratio of 122.0 percent. For the six months ended June 30, 2005, gross written premiums were $53.3 million, generating operating income of $14.3 million and a combined ratio of 104.0 percent. |
