AM Best is citing past issues with the Argo insurance group, but still has affirmed solid financial strength ratings and issuer credit ratings for the Bermuda company.

Best has affirmed the financial strength rating of A- (Excellent) and the long-term issuer credit ratings of “a-” (Excellent) of Argo Re Ltd and its subsidiaries on Pitts Bay Road.

The rating agency also affirmed the long-term ICR of “bbb-” (Good) and the long-term issue credit ratings of the parent, Argo Group International Holdings Ltd, of Pembroke, Bermuda.

Additionally, AM Best has affirmed the Long-Term ICR of “bbb-” (Good) and the Long-Term IR of Argo Group US Inc, headquartered in San Antonio, Texas.

The outlook of these ratings is stable.

The ratings reflect the Argo Group’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and marginal enterprise risk management.

Best said the ratings affirmation takes into consideration the group’s most recent fourth-quarter and full-year earnings announcement, the adverse reserve development reported in that quarter and its effects on the group’s risk-adjusted capitalisation, as measured by the Best Capital Adequacy Ratio.

The revised balance sheet strength assessment reflects the lower BCAR score, which no longer supports an assessment level of strongest.

But Best said: “Albeit weaker than expected earnings for the year, Argo Group’s results over the past five years are still considered adequate.

“Operating losses in 2021 were primarily related to material adverse loss reserve development in its general liability business, specifically related to construction defect claims from prior accident years. Excluding this charge, accident-year results were more in line with AM Best’s expectations.

“Prospectively, AM Best expects improved underwriting margins and reduced volatility as management continues to pursue a corporate strategy that focuses on its core specialty niche businesses while exiting non-core, sub-scale and/or unprofitable segments.

“At the same time, Argo’s exposure to property catastrophe risks is significantly lower. As a result, Argo’s current accident-year loss ratio continues to improve while expense ratio reduction targets are also being met.

“AM Best expects the group to take action to improve its risk-adjusted capitalisation in the near term while benefiting from increased earnings fundamentals.

“Argo Group’s ERM assessment remains at marginal but management has taken great strides in improving its governance, internal controls, communication and transparency over the past two years.

“Some of the initiatives introduced include significant changes to its board of directors, greater accountability, transparency and better engagement among its stakeholders.

“Argo also successfully addressed the material weakness in internal controls related to financial reporting, which were identified in its 10-K filing for year-end 2020. Material adverse reserve development in 2021 raises new concerns around emerging risk, risk identification and reserving practices.”