The newest Bermudian international company Argo Group International Holdings was formed yesterday from a merger between Bermuda reinsurer PXRE and Texas-based insurance company Argonaut Group, writes Scott Neil.

It has combined assets of over $5 billion, an investment portfolio of $2.6bn, capital of $1.6bn and a debt-to-capital ratio of 22 percent.

The new company is being traded on the NASDAQ exchange and will have a business mix of 85 percent insurance and 15 percent reinsurance. A Bermuda reinsurance unit created by the merger, called Peleus Re, has already started writing business.

In a combined conference call covering PXRE and Argonaut Group's respective second-quarter results, Mark Watson III, president and chief executive officer of Argo Group, said of the new company: "In the near-term Argo Group looks much like Argonaut Group did before the merger, only now with an additional segment that has opportunities to underwrite business in Bermuda and other international opportunities, which initially will be reinsurance-related products but in future may include insurance as well."

He said it was intended to expand the Argo Group franchise and its insurance/reinsurance business. He said the group will be organised into three segments - excess and surplus lines, select markets and international speciality.

With concern in the financial markets about subprime mortgages and collaterised debt obligations (CDOs), Bob Myron, formerly chief financial officer for PXRE and now Argo Group CFO reported that, as of June 30, PXRE's subprime related mortgage investments total exposure was $8.6 million and all underlying holdings are "AAA" rated and none have been subjected to any recent agency rated actions. "None of our subprime holdings is from the 2006 vintage and only one of our holdings is from the 2005 vintage," he said.

Mr. Myron also confirmed PXRE has to date paid $644.6m in net claims relating to the 2005 hurricanes Katrina, Rita and Wilma, which represents 75 percent of the reinsurer's ultimate incurred losses from those events. A further $211m of net loss reserves is being held for future payouts with regard to the storms.

PXRE made a second-quarter loss of $11.6m, an expected result as the company reorganised for the merger.

The Argonaut Group reported a second-quarter profit of $21m compared to $23.6m last year. The subprime component of its mortgage securities as of June 30 included $72m of securities backed by subprime residential mortgages, representing less than three percent of its entire portfolio. Of those securities 99 percent are rated AAA and AA with $25m of those purchased in 2006. The group said it had never invested in CDOs or other mortgage securities.

Andrew Carrier, formerly on the executive management team for Kiln Group's Catastrophe Syndicate 557 at Lloyd's, is to take over as president of Argos Group's Peleus Re later this year.