Argonaut Subs Rated ‘A’

S&P assigned its “A” counterparty credit rating and FSR to the members of the Colony Intercompany Pool and to Argonaut Great Central Insurance Co. It also affirmed its “A” ratings on the members of the Argonaut Intercompany Pool. The outlook on all these companies is negative.

The members of the Colony Intercompany Pool and Argonaut Great Central Insurance Co. are core to their parent, San Antonio-based Argonaut Group Inc. The ratings reflect the companies’ (collectively referred to as Argonaut) strong capitalization, improved operating performance, increased diversification, strong distribution channels, and strong retention rates. Partially offsetting the positive factors is the capital strain associated with a growing book of business, loss-reserve volatility and execution risk from integrating a number of diverse acquisitions into existing operations.

Through its operating subsidiaries, Argonaut Group Inc. underwrites specialty insurance products in niche areas of the property/casualty market, especially in four primary areas: excess and surplus lines, specialty commercial, specialty workers’ compensation, and public entity.

Prior to September 2001, Argonaut enjoyed a strong market position, primarily as a specialty workers’ compensation writer. Recently, increasingly competitive pricing—along with deteriorating results within the workers’ compensation market, especially in California—has adversely affected the group’s overall business position. In 2001, the company began taking advantage of the hardening workers’ compensation market as well as reducing its California exposure. S&P views this as a positive step and expects the group to continue reducing its participation in the California workers’ compensation market.

Argonaut is expected to continue facing challenges as it attempts a return to historical underwriting profitability levels.