Statutory Accounting Principles

12 Months Ended

Dec. 31, 2019

Statutory Accounting Principles [Abstract]

Financial Information

The statutory capital and surplus for our principal operating subsidiaries was as follows:



Statutory capital and surplus ⁽¹⁾	December 31,
(in millions)	2019		2018
Bermuda	$	1,460.8	$	1,450.0
United Kingdom ⁽²⁾	443.1		357.3
United States	1,051.4		1,003.8

⁽¹⁾ Such amounts include ownership interests in affiliate insurance and reinsurance subsidiaries.

⁽²⁾Capital on deposit with Lloyd’s in U.S. dollars

The statutory net income (loss) for our principal operating subsidiaries was as follows:



Statutory net income (loss) ⁽¹⁾	For the Years Ended December 31,
(in millions)	2019			2018			2017
Bermuda	$	7.1		$	47.4		$	55.1
United Kingdom ⁽²⁾	(15.1		)	(9.5		)	(95.5		)
United States	196.1			110.8			57.0

⁽¹⁾ Such amounts include ownership interests in affiliate insurance and reinsurance subsidiaries.

⁽²⁾ In U.S. dollars

Dividends

As an insurance and reinsurance holding company, we are largely dependent on dividends and other permitted payments from our insurance and reinsurance subsidiaries to pay cash dividends to our shareholders, for debt service and for our operating expenses. The ability of our insurance and reinsurance subsidiaries to pay dividends to us is subject to certain restrictions imposed by the jurisdictions of domicile that regulate our insurance and reinsurance subsidiaries and each jurisdiction has calculations for the amount of dividends that an insurance and reinsurance company can pay without the approval of the insurance regulator.

The payment of dividends to our shareholders is governed by the Bermuda Companies Act of 1981, as amended, which permits the payment of dividends so long as (i) we are not, or would not be after the payment, unable to pay our liabilities as they become due and (ii) the realizable value of our assets is in excess of our liabilities after taking such payment into account. In light of these restrictions, we have no material restrictions on dividend payments that may be made to our shareholders at December 31, 2019.

Argo Re is the direct subsidiary of Argo Group, and therefore, has direct dividend paying capabilities to the parent.

As of December 31, 2019, Argo Re’s solvency and liquidity margins and statutory capital and surplus were in excess of the minimum levels required by the Insurance Act. As of December 31, 2019 and 2018, the minimum statutory capital and surplus required to be maintained by Argo Re was $242.9 million and $320.4 million, respectively.

Argo Re is generally prohibited from declaring or paying, in any financial year, dividends of more than 25% of its total statutory capital and surplus (as shown on its previous financial year’s statutory balance sheet) unless it files (at least seven days before payment of such dividends) with the Bermuda Monetary Authority (“BMA”) an affidavit signed by at least two directors (one of whom must be a Bermuda resident director if any of the insurer’s directors are resident in Bermuda) and the principal representative stating that it will continue to meet its solvency margin and minimum liquidity ratio. Argo Re may not reduce its total statutory capital by 15% or more, as set out in its previous year’s financial statements, unless it has received the prior approval of the BMA. Based on these regulatory restrictions, the maximum amount available for payment of dividends to Argo Group by Argo Re during 2019 without prior regulatory approval is $365.2 million.

In 2019 and 2018, Argo Re paid a cash dividend of $52.1 million and $36.5 million, respectively, to Argo Group. The proceeds of the dividends were used to repay intercompany balances related primarily to the funding of dividend and interest payments and other corporate expenses. In 2017, Argo Re did not pay a dividend to Argo Group.

Our U.S. insurance subsidiaries file financial statements prepared in accordance with statutory accounting principles prescribed or permitted by insurance regulatory authorities of the state in which they are underwriting business. The differences between statutory-based financial statements and financial statements prepared in accordance with GAAP vary between jurisdictions. The principal differences are that for statutory-based financial statements, deferred policy acquisition costs are not recognized, a portion of the deferred federal income tax asset is non-admitted, bonds are generally carried at amortized cost, certain assets are non-admitted and charged directly to surplus, a collectability allowance related to reinsurance recoverables is charged directly to surplus and outstanding losses and unearned premium are presented net of reinsurance.

As an intermediate insurance holding company, Argo Group U.S. is largely dependent on dividends and other permitted payments from its insurance subsidiaries to service its debt, fund operating expenses and pay dividends to Argo Ireland. Various state insurance laws restrict the amount that may be transferred to Argo Group U.S. from its subsidiaries in the form of dividends without prior approval of regulatory authorities. In addition, that portion of the insurance subsidiaries’ net equity that results from the difference between statutory insurance principles and GAAP would not be available for dividends.

In December 2019, Argo Group U.S. received an ordinary dividend in the amount of $30.0 million in cash from Rockwood. In December 2019, Argo Group U.S. received an ordinary dividend in the amount of $50.0 million in cash from Argonaut Insurance Company. In December 2018, Argo Group U.S. received an ordinary dividend in the amount of $20.0 million in cash from Rockwood. Argo Group U.S. did not receive dividends from its subsidiaries in 2017.

Argonaut Insurance Company is a direct subsidiary of Argo Group U.S. and is regulated by the Illinois Division of Insurance. During 2020, Argonaut Insurance Company may be permitted to pay dividends of up to $110.2 million without approval from the Illinois Division of Insurance. Rockwood, a direct subsidiary of Argo Group U.S., is regulated by the Pennsylvania Department of Insurance. Rockwood may be permitted to pay dividends of up to $13.0 million without approval from the Pennsylvania Department of Insurance during 2020. Each department of insurance may require prior approval for the payment of all dividends, based on business and regulatory conditions of the insurance companies.

Argo Underwriting Agency Ltd. (“AUA”) is our wholly-owned subsidiary through which we conduct the operations of Syndicates 1200 and 1910. Dividend payments from AUA to the immediate parent are not restricted by regulatory authority. Dividend payments will be subject to the earnings, operations, financial condition, capital and general business requirements of AUA.

During 2018 we realigned out internal ownership structure so that Ariel Corporate Member Ltd. (“ACML”) became a direct subsidiary of AUA. Prior to 2018, ACML had been a subsidiary of Maybrooke Holdings, S.A.

Certain assets of our subsidiaries are pledged to regulatory agencies, serve as collateral for letters of credit or are assigned as the assets of the trade capital providers of our Lloyd’s syndicate, and therefore, are not available funds that may be paid up as dividends to Argo Group. See Note 2, “Investments” and Note 18, “Segment Information” for further discussion.