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Argonaut Group is a
national underwriter of specialty insurance products in niche areas of the property and
casualty market using its underwriting and claims expertise to generate a margin on
classes of business believed to be profitable
Financial
Property & Casualty Insurance
(AGII-NASDAQ Global Select)
Argonaut Group Inc.
10101 Reunion Place – Suite 500
San Antonio, TX 78216
Phone: 210-321-8400
Mark W. Haushill
Chief Financial Officer
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
September 28, 2006
BIO: Mark W. Haushill, Corporate Senior Vice President, Treasurer
and Chief Financial Officer
Mark Haushill is Senior Vice President, Treasurer, and Chief Financial Officer of Argonaut
Group, Inc. Mr. Haushill joined Argonaut Group December 2000 and in January 2001 was
appointed by the Board of Directors as Vice President, Treasurer, and CFO. Prior to
joining Argonaut, he was a member of USAA’s Capital Management and Treasury
Operations Division within Corporate Finance. In 1993, Mr. Haushill joined Titan Holdings,
Inc. and was named Vice President and Controller of Titan Holdings in January 1995. Prior
to Titan Holdings, he worked at KPMG from 1985 through January 1993, responsible for the
audits of financial services companies and SEC registrants. Mr. Haushill graduated from
Baylor University in Waco Texas with a BBA in Accounting in 1984, and he is a Certified
Public Accountant.
Company Profile: Headquartered in San Antonio, Argonaut
Group, Inc. (NASDAQ Global Select: AGII) is a national underwriter of specialty insurance
products in niche areas of the property and casualty market, with $3.5 billion in assets.
Through its insurance subsidiaries, Argonaut Group offers a full line of high quality
products and services designed to meet the unique coverage and claims handling needs of
businesses in three primary segments: Excess and Surplus, Select Markets, and Public
Entity. Members of Argonaut Group include Colony Group, Argonaut Specialty, Rockwood
Casualty, Great Central, Grocers Insurance, Trident Insurance Services, and Argonaut
Insurance Company.
CEOCFO: Mr. Haushill, will you tell us about your background
with the company?
Mr. Haushill: “I have been CFO for approximately five
years, joined the company in late 2000, and was appointed CFO in January 2001.”
CEOCFO: Will you tell us
about Argonaut?
Mr. Haushill: “Argonaut is a underwriter of specialty
products in the property and casualty insurance market. We insure smaller businesses in
niche industries such as dry cleaning and independent grocery stores. We use our
underwriting and claims expertise to generate a margin on classes of business we think are
profitable.”
CEOCFO: Will you tell us
the kinds of things that you would insure?
Mr. Haushill: “We insure a broad range of businesses
with a highly diversified portfolio of products. For example, we write workers
compensation policies for coal mining companies in Pennsylvania. Another example would be
liability policies for artisans and contractors as well as professional liability for
small nursing homes. We also specialize in writing liability and property policies for
small public entities, such as rural counties with populations of fewer than 250,000. As
you can see, we serve varied classes of businesses that are not homogenous.”
CEOCFO: Are you in all
fifty states?
Mr. Haushill: “Yes, we are in all 50 states.”
CEOCFO: Will you tell us
about the overall industry in each area, and are there many companies writing insurance in
these areas and how you have chosen what you are doing?
Mr. Haushill: ‘There are plenty of other insurance
companies competing for business across all of our product lines, but it’s difficult
to pinpoint one direct competitor in all of them. Why have we chosen what we do? Because
we have deep underwriting and claims expertise in the niche areas in which we choose to
operate, particularly for our size.”
CEOCFO: How do you reach
your potential customer?\
Mr. Haushill: “Primarily through our distribution
platform, whether it be through independent retail agents or wholesalers that tend to
aggregate the business. Our customer focus is two-fold; it is the insured and our
distribution partners.”
CEOCFO: You have had the
best six months in your history, what accounts for that?
Mr. Haushill: “Given our smaller size, it became
apparent several years ago that Argonaut Group needed to transition its underwriting
strategy to target higher margin market opportunities. That meant diversifying our product
portfolio and revenue stream and moving away from the highly competitive business then
dominated by the large insurance carriers. Our shift in business strategy coincided with
several opportunistic acquisitions that allowed us to pursue underserved markets comprised
of small- to medium-size businesses in a number of niche industries. As a result, Argonaut
Group now maintains market-leading positions in several niche areas including independent
grocery stores, restaurants, dry cleaners, Pennsylvania coalmines and other small
businesses. Additionally, our operations today are more nimble, which allow us to react
more swiftly to marketplace conditions throughout the cycle and make better decisions
about the business we pursue.”
CEOCFO: Have
acquisitions play an important role in growing the business?
Mr. Haushill: “Definitely! In 2001 we acquired a holding
company that vaulted us into the specialty arena. We acquired Colony Insurance Company in
Richmond, Virginia, and Rockwood Casualty Insurance Company in Rockwood Pennsylvania,
which is the operation that provides workers compensation for coal mining companies there.
Colony is an Excess & Surplus Lines insurer - they have been in that business for
about 15 years. There was about $120 million of gross written premium at Colony when we
acquired it. This year it will write about $600 million. That acquisition was the catalyst
that transformed Argonaut Group from being primarily a workers compensation carrier to a
specialist in E&S and a different line of workers compensation in Pennsylvania.
Subsequent to that, we made several other acquisitions, not stock deals but asset
purchases of books of business that further expand our reach either geographically or
through distribution. We have made acquisitions in Arizona, Denver, and Chicago, all of
which were asset deals that eliminated competition, expanded us geographically or expanded
our distribution platform.”
CEOCFO: Do you see this
as your continuing strategy going forward?
Mr. Haushill: “M&A (mergers and acquisitions) will
always be a part of what we do. We are a growth company and constantly looking for
expertise on the management and claims sides of the business.”
CEOCFO: Why should
customers be glad they are using Argonaut for their insurance?
Mr. Haushill: “It depends on which company you are
dealing with. As it pertains to Colony, we have become a formative market player in the
E&S marketplace. Through M&A, we have acquired some to the industry’s top
talent who have been in the business for many years – we fully expect to be over the
long term. We have a broad product offering where distribution partners may not be limited
in terms of what they can write with us. We have a broad product offering in Excess and
Surplus Lines and we are easy to do business with. From the perspective of other lines of
business that we write, our distribution partners and customers (the insured) like
partnering with Argonaut Group because we are interested in lowering the ultimate cost of
insurance, whether it be losses or safety control. Therefore, our customers really
consider us as partners in that overall objective.”
CEOCFO: Are there niches
where you would like to be now?
Mr. Haushill: “Yes. There are other lines of business we
think are attractive that we are not in. However, as I mentioned earlier, unless we have
seasoned insurance executives who understand the business, understand the claims
environment, understand the regulatory and the legal environment, we are willing to wait.
In other words, we will not pursue new lines of business without having the expertise.”
CEOCFO: What is the
financial picture of the company?
Mr. Haushill: “Our margins are better than they have
ever been. Our combined ratio is slightly below 95%, so we are making 5 points in terms of
margin from an underwriting perspective. However, as well as we’ve performed over the
last few years, we are confident we can improve. We think we can become more efficient in
terms of our general and administrative expenses, and our infrastructure is such where we
could write more business and not have to add infrastructure to support it.”
CEOCFO: How do you get
more efficient?
Mr. Haushill: “We certainly are searching for ways to
become more efficient through new technologies. Additionally, we want our agents and
distribution partners to consistently experience how easy it is to do business with
Argonaut Group, which will help streamline the underwriting process and ultimately bring
more business to our door.”
CEOCFO: Why should
potential investors be interested?
Mr. Haushill: “We are not generalists, but rather
specialists in certain niches of business. We are good at what we do. We are not a
commodity-driven, volume-based company; we are keenly focused on underwriting profit. We
are small enough to be flexible, meaning we can get in and out of business to the extent
that we determine it is profitable or not. We have an excellent management team and are
improving that team constantly. We are here to generate a 15% return on equity or better;
we are not there yet but that is what we are striving to achieve. We’re a long-term
player and will be here over the cycle aiming to provide consistent returns to our
shareholders. We are in the insurance business and our attention is not diverted to
ancillary businesses like others in the marketplace. We minimize risk on the asset side of
our balance sheet relative to our investment portfolio. We are conservative and I think
the balance sheet strength has improved each year.”
CEOCFO: What do people
not realize about the company?
Mr. Haushill: “People may not quite understand the
transformation of the company from what it was back in 2000, to what it is today. It is a
specialty insurance company that is nimble and able to react in the market place with a
strong management team. We have transformed the company from a virtual unknown to what it
is today. We have overcome being heavily weighted as a California workers-comp company
– that is not what we are today. I also think people need to understand that the
insurance business is a cyclical business and extremely competitive. With the hurricanes
over the last couple of years, I think that has changed the dynamics of the marketplace.
There has been a lot of capital that has gone to Bermuda increasing competition. Insurance
is complicated and it typically takes three to five years on casualty lines before you
really know what your true cost of goods sold will be.”
CEOCFO: Does the
investment community recognize Argonaut?
Mr. Haushill: “I think so. We currently are not trading
at a multiple consistent with some of our peers, although our multiple has improved
greatly. I think they recognize the accomplishments that have been made to date and I
think from here forward, we have to generate consistent returns to get multiple expansion
on stock price.”
CEOCFO: What should
people take away from this interview about Argonaut?
Mr. Haushill: “We are an underwriting organization; a
specialty underwriter. Our goal is to achieve an ROE of 15% or greater. We are a
specialist insurance carrier in virtually all 50 states, in just property and casualty,
not life and not personal lines. I would encourage people to look at our financial results
from 2001 to today; they have improved each year and each quarter.”
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