Thursday, March 10, 2016

Seeking Alpha: Argo Group Making Steady Progress In Improving Its Business

On the whole, insurance is a pretty boring industry for most investors. It's the type of sector where surprises tend to skew to the negative and where management can't really change the business for the better in the scope of a year or two - there's no "one more thing" moment where a company introduces a new product that shifts market share almost overnight and changes the industry. That said, good management and steady self-improvement can do a lot, and the five-year stock returns of Argo Group (NASDAQ:AGII), Arch Capital (NASDAQ:ACGL), and W.R. Berkley (NYSE:WRB) are nothing to apologize for, as all of these well-run insurers have outdone the Nasdaq over that time period.

In my view, the story at Argo remains one of steady improvement. The company still needs to "grow into" its expense structure, but the company's underwriting performance remains strong. Weak pricing is a challenge within the property and casualty insurance sector, but Argo's focus on smaller clients helps shield it a bit from pricing pressure, while low reinsurance prices give the company the option to offload some risk at attractive prices.

I've liked Argo for a while now and the shares have done pretty well. I'm not as excited about the valuation, though, as I think it already incorporates a jump to 10% returns on equity in the coming years. To that end, while Argo does trade at a discount to many peers on a price/book value basis, it also generates lower returns and deserves at least some of that discount. I still like this business and the long-term prospects, but I'd probably rather buy Chubb (NYSE:CB) at a discount today than pay full value for Argo.

Continue here for the full article:
Argo Group Making Steady Progress In Improving Its Business

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