When Argonaut Group president Mark Watson III arrives in Bermuda to head the merged Argonaut/ PXRE entity Argo Group later this year he will be among the youngest international CEOs on the Island.

He celebrates his 43rd birthday next month but his comparative youth has not prevented him from reaching the dizzy heights of heading a multi-billion dollar insurance and reinsurance underwriting concern. He’s been the boss man at Argonaut for the past seven years.

If all goes to plan the merger between Texas-based Argonaut and Bermuda’s PXRE will create a group with a combined market capitalisation of just over $1.6 billion.

Argo Group’s investment portfolio will grow to $3.7 billion, with total assets of over $5bn and combined reserves of $2.6bn on shareholder equity.

As big a responsibility as guiding all that capital is, Mr. Watson is looking forward to the new challenges and opportunities that will come from having the Argo Group holding company in Bermuda and a new reinsurance vehicle Peleus Re operating from Hamilton.

The reverse merger, which was reported in yesterday’s Royal Gazette, will see Argonaut assume a 73 percent control of the new holding company.

Underwriters from PXRE, which has been in a state of relative limbo in the reinsurance market since suffering heavy losses as a result of hurricanes Katrina, Rita and Wilma in 2005, are expected to start underwriting new business for Peleus Re within the next few weeks.

The total merger should be completed by the third quarter of this year assuming approvals are granted from both sets of shareholders and the various regulatory authorities in the US and Bermuda.

An idea to combine Argonaut’s US-based, predominantly insurance business with PXRE’s international reinsurance business was mooted before the hurricane body-blow suffered by PXRE in late 2005, which left it with record fourth quarter losses of $446.5m that year and led to a financial-strength ratings downgrade.

Explaining how the merger came to be, Mr. Watson said it had been an idea in his and PXRE boss Jeffrey Radke’s minds for a while. PXRE had been a reinsurer on-and-off for Argonaut for a number of years.

“It occurred to both of us that, from a capital management perspective and a strategic perspective, we were complementary to one another and that perhaps there was an opportunity to do something together,” said Mr. Watson.

But then the devastation of the 2005 hurricane season plunged PXRE into trouble.

“They became distracted on figuring out how to deal with that and unfortunately in the process lost their ratings.

“Once we got through all that ‘noise’ we concluded it was still a very complementary transaction for the companies,” said Mr. Watson.

His father and grandfather were both in the insurance business and before becoming Argonaut president at the age of 35, Mr. Watson was on the executive management team of another specialty US company Titan.

Interestingly he started out his career in New York representing UK and Bermudian reinsurers doing business in the US.

Argonaut is primarily a US insurance and casualty underwriter with around eight percent (around $80 million in 2006) of its business in reinsurance. It is expected the new Argo Group, which will include Peleus Re, will have a split of 85 percent insurance and 15 percent reinsurance.

That will make it very different from most of the neighbouring international businesses in Hamilton.

“Our business strategy is very different from most Bermudian reinsurance companies.

While our combined business will have a reinsurance component to it, it will be a very small part of the overall business plan,” said Mr. Watson.

“I would approximate that as 15 percent of the amount of premium we write as a group, and the remainder will be insurance. In a sense we are setting up shop down the street from our business partners not our competitors.”

Mr. Watson hopes to move himself and his family to Bermuda to head the new group. He does not expect more than half-a-dozen US personnel to relocate as PXRE — although having decreased its staff from 85 to 45 in the past year — has the underwriting team and infrastructure necessary to move Peleus Re forward.

Barbara Bufkin, a senior vice president with Argonaut, is slated to become president of Peleus Re.

The new holding company’s official name is Argo Group International Holdings Limited. It will be trade on the NASDAQ market under Argonaut Group’s present ticker.

Argonaut will remain the insurance brand name in the US.

AM Best yesterday gave an “A-” (excellent) financial strength rating to Peleus Re, which has been capitalised with $240m through PXRE and a future investment from Argonaut.

In a conference call yesterday morning, Mr. Watson said: “From an Argonaut perspective the best way to look at this transaction is an additional business segment to the three we already have. It is opportunity to underwrite business in Bermuda with property/catastrophe reinsurance.”

He said the rationale was that it presented a competitive position that the company did not have before and allows PXRE to get back into business, albeit in a different format than previously.

Mr. Watson said the diversification should give Argo Group more flexibility as market conditions change, adding: “One of best opportunities and challenges is how we plan to use the excess capital that is generated from PXRE.

“We hope to deploy the capital in the next 18 months. The real challenge is how to we generate additional underwriting capacity in the US and particularly abroad. I think it will allow us to take more risk net and be more select on business lines and focused on acquisitions going forward.”