Argo Group (NASDAQ:AGII) is taking a page from Aspen's (NYSE:AHL)
book; trying to leverage strong core underwriting across a somewhat
disjointed and sub-scale collection of operations. So far, it hasn't
been a bad plan as the company has seen its shares climb more than 100%
over the past three years, outdistancing larger players like Aspen, Allied World (NYSE:AWH), ACE (NYSE:ACE), and W. R. Berkley (NYSE:WRB) by rather healthy margins.
I
am starting to wonder, though, if it is going to get harder for Argo to
continue its path toward higher returns. The excess and surplus,
specialty, and reinsurance markets have gotten a lot more challenging of
late, with companies finding it more and more difficult to push higher
rates - an important part of Argo's drive to write more profitable
business upon renewal. I do still think that Argo can get its adjusted
ROE above 10% over the next five years, and there is about $5/share of
upside for every 1% improvement to long-term ROE, but the roughly 17%
move since my last update has captured a lot of the undervaluation that I saw at the time.
Read more here:
Argo Group Coming Along, But The Going's Tougher
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