A prolonged proxy fight and allegations of excessive spending that led to the Argo Group CEO’s abrupt retirement in November have been followed in recent weeks by subsequent changes in the specialty insurer’s leadership and selling off part of its business.

But it’s unclear how a major turning point – a Securities and Exchange Commission investigation, opened in October into Argo’s executive compensation program – might affect the company going forward.

Mark Watson, Argo Group’s 20-year CEO, retired from the company in November, less than a month after Argo received a subpoena from the SEC. The board replaced Watson on Feb. 18 with Kevin Rehnberg, who had been serving as interim CEO.

An SEC representative declined to comment on the status of the investigation.

“We are closer to the finish … than we were six months ago,” Rehnberg told investors, analysts, and media members in a conference call Tuesday. “But the timeframe is not ours to decide.” Argo will be filing a proxy statement in the next couple of weeks, he said, that will provide more information.

Argo CEO Kevin Rehnberg

Watson’s departure less than four months ago did not satisfy Voce Capital Management, an activist hedge fund that started the proxy battle in late 2018 and later released a white paper chronicling what it described as Watson’s lavish lifestyle, the Argo board’s lack of oversight, and a “culture of indulgence.”

Argo Group, a international underwriter of specialty insurance and reinsurance products with gross written premiums of $3 billion, is based in Bermuda and has its offices in the IBC Centre in downtown San Antonio.

In August, the Argo board announced changes to the company’s executive compensation program, expanding the review period for performance awards from one year to three, and increasing the CEO’s stock ownership guideline from five times base salary to six times.

But the SEC launched an investigation into Argo board governance and executive compensation in October.

In late November, Voce, owner of approximately 5.6 percent of Argo’s shares, renewed its fight to persuade shareholders to vote out some of Argo’s leaders and replace them with its slate of directors. 

By early January, Argo had entered into a cooperation agreement with Voce, and soon after, Argo began announcing changes to its board, starting with the Feb. 7 appointment of Carol McFate, a retired Xerox Corp. executive.

McFate filled Watson’s former seat.

“We made a substantial investment in Argo because we believe it has significant untapped value that can be realized,” stated Daniel Plants, founder and chief investment officer of Voce. “The appointment of Carol McFate to the board, the addition of two other independent directors selected with Voce’s input, and the Company’s ongoing governance improvements, are substantive and positive developments that give us confidence in the new course that Argo has charted.”

Around the same time in February, Argo agreed to sell its Trident Public Risk Solutions brand and underwriting platform to Paragon Insurance Holdings. With the transaction expected to close in the coming months, Argo officials said it expects to report a pre-tax gain of $37 million related to the transaction.

“Paragon’s distribution reach will give Trident greater access to new markets in the public entity insurance marketplace, and Argo will be a strong partner in those endeavors,” stated Tim Carter, Argo’s executive vice president.

On Feb. 18, when Argo named Rehnberg its new CEO, the board also announced a quarterly cash dividend of 31 cents per share of the company’s common stock to be paid March 16.

The next day, on Feb. 19, the board then appointed a new board chairman, Thomas Bradley, to replace retiring chairman Gary Woods following Argo’s annual general meeting April 16, during which an election for two additional board nominees will be held.

Bernard Bailey, president of Paraquis Solutions, and Fred Donner, senior managing director at FTI Consulting, are new nominees to the board.

The nominations of both men, and McFate, were jointly agreed upon by Argo and Voce under the terms of the cooperation agreement.

The company released its fourth-quarter financial results on Monday. On Feb. 12, Argo had already notified investors it expected to report an underwriting loss of approximately $114 million for the fourth quarter of 2019, due to claims losses and higher operating expenses. But $8 million of that is attributed to costs related to Argo’s cooperation agreement with Voce Capital.

“Since being appointed interim CEO, I’ve been fully engaged with my teammates in reviewing operations and setting our game plan for 2020 and beyond. It’s a work in progress and it’s a positive story,” Rehnberg said Tuesday.

He said that Argo’s U.S. business segment achieved the highest fourth-quarter gross written premium in Argo’s history and the third highest quarter overall ever. But he added “we are clearly disappointed” in the company’s international segment, with gross written premiums declining in the fourth quarter, and roughly flat for the full year.

Rehnberg also said the company is focused on reducing expenses and has sold corporate aircraft, listed certain corporate real estate for sale, and canceled marketing and sponsorship contracts.

In a separation agreement with Watson, Argo agreed to pay its former CEO more than $1.75 million, according to the SEC filings.

Shari Biediger

Shari Biediger is the development beat reporter for the San Antonio Report.