Argus Group, which has suffered a total of $144 million in losses over three years, took the unusual step of replying to a series of questions levelled by a concerned shareholder during the company’s Annual General Meeting.The insurer and pension provider’s bottom line has taken big hits from a number of failed investments in Bermuda and international companies, including Butterfield Bank and Northstar Group, along with non-performing investments in the hospitality sector (Tucker’s Point) and local mortgages plus indirect exposure to the Madoff fraud.Shareholder and retired chartered accountant Michael Hardy told The Royal Gazette yesterday he posed his more than 60 questions at the recent AGM because he was alarmed by the number of non-core investments by Argus that he knew nothing of and that had gone sour, resulting in millions of dollars in losses by Argus as well as rating cuts.Last March AM Best Co downgraded the financial strength rating of Argus for the second time in two years, citing a “significant decline” in the company’s capital position over the past two years. Argus’s dividend has been frozen since last July, and its shares dropped to under $5.Argus, which has assets of $1.6 billion under administration, itself has acknowledged the soured investments, but at the same time has assured it continued to deliver strong operating results in spite of the economic climate.In an interview yesterday with this paper, Argus CEO Alison Hill reiterated previous comments that management believed it had now reached a turning point in terms of being able to return to more ‘normal’ times for the group.She added that Argus “absolutely intended to bring the dividend back”.In a December 19 press release with regard to the company’s half-year results, she had stated: “This result, while disappointing, is viewed as a turning point marking the end of challenging legacy issues in the investment arena. The balance sheet now faces substantially less exposure to risks arising from non-core investments.”Ms Hill and chief financial officer David Pugh said Argus continued to “de-risk” the balance sheet “ in a measured and orderly fashion”.Despite Argus’s detailed responses last month to some of his 63 questions, Mr Hardy said: “The letter to shareholders did not answer my questions specifically or broadly, but pointed to reasons why they should not answer questions of this detailed nature.”He added: “The issues in question appear to have given rise to an over 80 percent fall in the book value of the company and were of such significance individually that the shareholders should receive explanations as to how these massive losses came about.“You will note that I have been asking similar questions since 2007 when Argus had a book value of $250 million, whereas today it is around $80 million.”Ms Hill, however, felt Argus had answered the questions as fully as it could.The late December letter to shareholders said: “Shareholders who attended our Annual General Meeting...will recall my giving an undertaking to answer in writing questions presented by one shareholder Mr Michael Hardy. Subsequent to the meeting, Mr Hardy presented 63 distinct questions, many of which were of a very technical nature, but focused on the following main areas of concern: AM Best reports on Bermuda Life lnsurance Company Limited and Somers lsles lnsurance Company Limited; certain accounting practices; Northstar Group Holdings Limited and its subsidiary Northstar Reinsurance lreland Limited; Butterfield Bank; Argus lnternational Life Bermuda Limited and the issue of potential conflicts of interest of AGH directors. I have set out below comments on each of Mr. Hardy’s areas of concern.”On Mr Hardy’s concern raised about accounting policies and actual value of assets, Ms Hill responded: “All of the Group’s real estate holdings are valued annually by professionally qualified valuers. Our new corporate headquarters building is almost fully occupied.“lntercompany balances between member companies of the Argus Group attract interest at rates based upon those obtainable from the local banks.”In relation to Mr Hardy’s many questions about the Northstar Group investment, including who championed it and whether due diligence was done, she responded: “Note 4 to the financial statements on page 19 of the 2011 Six-Month report to September 30, 2011 describes lnvestment...Included in lnvestment in associates is a 23.1 percent holding in Northstar Group Holdings Limited (NGH). NGH is a holding company, and its wholly owned subsidiary, Northstar Reinsurance lreland Limited (NRIL), transacted life reinsurance business with companies in the United States of America. No new treaties have been written since January 2006 and the remaining two treaties are closed to new business. NGH and NRIL have been actively considering several options with respect to the remaining treaties including the novation or recapture of one or both, or retaining the treaties and running the business off over time.“ln December 201 1, NGH and NRIL reached agreement with a third party to novate one treaty and recapture the second. NGH is now commencing an orderly windup of its affairs. There are various financial commitments due to NGH from other shareholders which are collateralised by various assets. These assets include holdings in hedge funds and equities, the valuation of which is inherently uncertain and, in the case of one major shareholder, very recent events have suggested the charged assets may realise values that will not be sufficient to satisfy their obligations. The ultimate distribution of capital to the Company is dependent on NGH collecting the amounts due.“Under the terms of the NGH shareholder agreement each shareholder is required to cover a shortfall arising from any shareholder’s inability to meet its obligations. Accordingly, Management has decided that the value of the investment in NGH should be treated as impaired to the extent that one shareholder is unlikely to meet its aforementioned obligation.“The Company’s proportionate share of this obligation is $11 million and this write down has been reflected in Share of earnings/(loss) of lnvestment in associates on the Condensed Consolidated Statement of Operations for the six months ended September 30, 2011.”The shareholder that’s seen as unlikely to meet it obligations in the Northstar investment is troubled reinsurer Gerova, which had offices in Bermuda.The NYSE halted trading in stock of Gerova last year and Forbes has reported that Dalrymple Finance LLC, an investment firm that was shorting the stock, in a report called Gerova a “shell game” and “repository for impaired, illiquid hedge fund assets, which are used for regulatory capital”.Argus has stressed there was no partnership or any agreement between Gerova and Argus, they both happened to be investors in Northstar.Gerova lost approximately $800 million in market capital in less than two months.On Mr Hardy’s questions about Argus’s stake in Butterfield Bank, Ms Hill wrote: “The Argus Group has held a significant holding in Butterfield Bank for many years. At one point Argus held over seven percent of the shares in the Bank. Today the Argus investment represents 1.3 percent of the Bank’s outstanding shares following the recapitalisation of the Bank two years ago, The original AGH investment was made in accordance with the AGH lnvestment Committee’s policy of investing in Bermuda-based companies with which we were familiar. This policy was supported by the Board of AGH.“The decline in the value of Butterfield Bank is unfortunate and has been felt throughout the Bermudian community. AGH is not and has never been privy to any information other than what has been available to all Butterfield Bank shareholders in the public domain. Similarly, AGH is constrained by the current illiquid market with respect to selling its shares.”And on Mr Hardy’s issues with Argus lnternational Life Bermuda, she responded: Note 23 (b) (iii) on page 55 of the 2011 Argus Annual Report points out that the acquisition of this company, formerly Tremont lnternational lnsurance Ltd., from the Tremont Group in December 2006 is subject to legal action in the Supreme Court of Bermuda brought by members of the Argus Group. lt is therefore inappropriate to comment publicly on this matter.”Argus is essentially in litigation with the company that sold it Tremont.Mr Hardy also raised concerns about potential conflicts of interests of Argus directors.Ms Hill responded: “It is a matter of public record that certain current and former directors of AGH are or have been directors of other public or private local companies including some of the lsland’s banks. ln addition to the requirements of AGH’s Bylaws and those of each of its subsidiaries, the guidelines adopted by the AGH Nominations & Governance Committee are based on prudent corporate standards. AGH has also adopted the lnsurance Code of Conduct, as promulgated by the BMA with respect to how potential conflicts of interest should be managed. lt continues to be the practice of the Argus Group that when conflicts arise in board meetings they are acknowledged and the relevant director does not participate in the discussion.”Ms Hill concluded the letter by saying: “The past four years have been the most challenging in the Argus Group’s history. I now believe that the worst of the difficulties which we have faced are behind us. We are fortunate in having a dedicated staff, a good franchise and a valuable brand in the countries in which we operate. We therefore remain optimistic about the future.”