Basis of Presentation

9 Months Ended

Sep. 30, 2012

Basis of Presentation

1. Basis of Presentation

The accompanying consolidated financial statements of Argo Group International Holdings, Ltd. (“Argo Group,” “we” or the “Company”) and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. The preparation of interim financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The major estimates reflected in our consolidated financial statements include, but are not limited to, the reserves for losses and loss adjustment expenses, reinsurance recoverables, including the reinsurance recoverables allowance for doubtful accounts, estimates of written and earned premiums, reinsurance premium receivable, the fair value of investments, the valuation of goodwill and intangibles and our deferred tax asset valuation allowance. Actual results could differ from those estimates. Certain financial information that normally is included in annual financial statements, including certain financial statement footnotes, prepared in accordance with GAAP, is not required for interim reporting purposes and has been condensed or omitted. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission on February 29, 2012.

The interim financial information as of, and for the three and nine months ended, September 30, 2012 and 2011 is unaudited. However, in the opinion of management, the interim information includes all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results presented for the interim periods. The operating results for the interim periods are not necessarily indicative of the results to be expected for the full year. All significant intercompany amounts have been eliminated in consolidation. Certain amounts applicable to prior periods have been reclassified to conform to the presentation followed as of September 30, 2012.

Adoption of New Accounting Standard Update for Deferred Acquisition Costs

In October 2010, the Financial Accounting Standards Board (“FASB”) issued an accounting update that amends the guidance in the FASB Accounting Standards Codification Topic 944, entitled “Financial Services – Insurance.” The amendments in the update modify the definition of the types of costs incurred by insurance entities that can be capitalized in the acquisition of new and renewal contracts. On January 1, 2012, we retrospectively adopted this authoritative guidance, resulting in the consolidated financial statements being retrospectively adjusted for all periods presented in accordance with this amended guidance.

The effect of the retrospective adoption on individual financial statement line items in our Consolidated Balance Sheet was as follows:

	December 31, 2011
(in millions)	As Previously Reported		As Adjusted		Effect of Change
Reinsurance recoverables	$	1,143.5	$	1,144.1	$	0.6
Deferred acquisition costs, net		125.7		101.5		(24.2	)
Deferred tax liabilities, net		26.1		18.5		(7.6	)
Retained earnings		752.0		736.0		(16.0	)

The effect of the retrospective adoption on individual financial statement line items in our Consolidated Statements of Loss for the three and nine months ended September 30, 2011 was as follows:

	Three months ended September 30, 2011									Nine months ended September 30, 2011
(in millions, except per share data)	As Previously Reported			As Adjusted			Effect of Change			As Previously Reported			As Adjusted			Effect of Change
Underwriting, acquisition and insurance expenses	$	106.3		$	104.2		$	(2.1	)	$	315.9		$	314.7		$	(1.2	)
Loss before income taxes		(6.1	)		(4.0	)		2.1			(71.2	)		(70.0	)		1.2
Provision for income taxes		6.0			6.8			0.8			12.6			13.3			0.7
Net loss		(12.1	)		(10.8	)		1.3			(83.8	)		(83.3	)		0.5
Net loss per common share:
Basic	$	(0.44	)	$	(0.39	)	$	0.05		$	(3.06	)	$	(3.04	)	$	0.02
Diluted		(0.44	)		(0.39	)		0.05			(3.06	)		(3.04	)		0.02

There were no changes to net cash flows from operating, investing or financing activities in our Consolidated Statement of Cash Flow for the comparative period presented as a result of the adoption of this authoritative guidance. In this Form 10-Q, interim financial information for the three and nine months ended September 30, 2011 and balances at December 31, 2011 have been adjusted in accordance with the adoption of this authoritative guidance.