Argo (ARGO) Misleading Info About Reserves Securities Class Action

Argo Group International Holdings, Ltd. underwrites specialty insurance products, working with risk that is more complex than usual or more difficult to price. Having adequate reserves is therefore important for the company. This securities class action brings suit against Argo, along with five individuals, all current or former CEOs and CFOs of the company, alleging that the company made materially false and misleading statements about its reserves.

The class for this action is all those who bought or otherwise acquired Argo securities between February 13, 2018 and August 9, 2022 and were damaged thereby.

Argo’s US business is in the Excess and Surplus lines (E&S), the complaint says, “focusing on risks that the standard market is unwilling or unable to underwrite.” Because this specialty business is inherently risky, the complaint alleges, “investors valued the Company’s ability to properly reserve for losses. Therefore, any statements about Argo’s underwriting and reserve policies were highly material to investors.”

The complaint alleges Argo claimed to have a “prudent reserving philosophy” and had successfully managed its reserves over a long period of time. For example, the complaint quotes one of the former CEO defendants in 2018 as touting its thirteen-year record of “reserve redundancies.” However, the complaint alleges that statements like this were false and misleading.

According to the complaint, the company continued to praise its reserve development. Although it reported “a number of larger losses” in 2019, the complaint alleges its then-CEO “explained away a net unfavorable prior year reserve development of $22.3 million as ‘occasional volatility’ rather than a longer-term trend.”

It also dismissed reports of extravagant spending by its executives as “falsehoods,” although the complaint alleges that later that year a subpoena from the SEC led to an investigation of the perquisites enjoyed by executives. The result was the resignation of its CEO and “significant” payments to the SEC. Despite disappointing 2019 results, the company continued to present a positive view of its reserves in 2020 and 2021.

In reality, the complaint alleges, “(1) Argo’s reserves were wholly inadequate and its underwriting standards were not prudent as was represented; ([2]) Argo had dramatically changed its underwriting policies on certain U.S. construction contracts as far back as 2018; and ([3]) these policies were underwritten outside of the Company’s ‘core’ business including in certain states and for certain exposures that were far riskier than investors understood and that the Company no longer would service moving forward.”

In February 2022, the complaint alleges the company announced “$130 to $140 million worth of adverse prior year reserve development and non-operating charges.”

Between February and August 2022, as bad news continued to emerge, the complaint alleges, Argo’s stock lost over 60% of its value. Investors therefore had stock losses, which the complaint contends are related to the false or misleading image the company presented about tis reserves.

Article Type: Lawsuit
Topic: Securities
Tags: False or Misleading Information, Securities, Stock Losses