Argo Group International Holdings, Ltd. (Form: 10-Q, Received: 05/08/2014 17:22:58)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-15259

ARGO GROUP INTERNATIONAL HOLDINGS, LTD.

(Exact name of registrant as specified in its charter)


Bermuda		98-0214719
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)


110 Pitts Bay Road		P.O. Box HM 1282
Pembroke HM08		Hamilton HM FX
Bermuda		Bermuda
(Address of principal executive offices)		(Mailing Address)

(441) 296-5858

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding (net of treasury shares) of each of the issuer’s classes of common shares as of April 28, 2014


Title		Outstanding
Common Shares, par value $1.00 per share		26,169,903

ARGO GROUP INTERNATIONAL HOLDINGS, LTD.

INDEX


		Page
PART I. Financial Information			3

Item 1.	Consolidated Financial Statements (unaudited)

	Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013		3

	Consolidated Statements of Income for the three months ended March 31, 2014 and 2013		4

	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2014 and 2013		5

	Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013		6

	Notes to Consolidated Financial Statements		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		32

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		41

Item 4.	Controls and Procedures		43

PART II. - Other Information			43

Item 1.	Legal Proceedings		43

Item 1A.	Risk Factors		43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		43

Item 3.	Defaults Upon Senior Securities		44

Item 4.	Mine Safety Disclosures		44

Item 5.	Other Information		44

Item 6.	Exhibits		45

	Signatures		46

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

ARGO GROUP INTERNATIONAL HOLDINGS, LTD.

CONSOLIDATED BALANCE SHEETS

(in millions, except number of shares and per share amounts)


	March 31, 2014			December 31, 2013 *
	(Unaudited)
Assets
Investments:
Fixed maturities, at fair value:
Available-for-sale (cost: 2014 - $2,739.0; 2013 - $2,760.1)	$	2,801.8		$	2,814.4
Equity securities, at fair value (cost: 2014 - $345.9; 2013 - $346.9)		530.3			534.3
Other investments (cost: 2014 - $399.7; 2013 - $377.4)		403.7			378.9
Short-term investments, at fair value (cost: 2014 - $382.7; 2013 - $351.6)		382.7			351.6

Total investments		4,118.5			4,079.2

Cash		149.5			157.4
Accrued investment income		25.0			25.7
Premiums receivable		371.1			348.4
Reinsurance recoverables		978.1			1,263.5
Goodwill		153.8			153.8
Intangible assets, net of accumulated amortization		84.7			86.0
Current income taxes receivable, net		10.4			0.0
Deferred acquisition costs, net		117.5			113.9
Ceded unearned premiums		251.9			196.3
Other assets		170.9			166.8

Total assets		$6,431.4			$6,591.0

Liabilities and Shareholders’ Equity
Reserves for losses and loss adjustment expenses	$	3,042.4		$	3,230.3
Unearned premiums		786.3			779.1
Accrued underwriting expenses		128.2			122.3
Ceded reinsurance payable, net		354.3			354.7
Funds held		37.8			43.7
Senior unsecured fixed rate notes		143.8			143.8
Other indebtedness		66.5			66.3
Junior subordinated debentures		193.3			193.3
Current income taxes payable, net		0.0			5.2
Deferred tax liabilities, net		34.2			28.7
Other liabilities		49.7			60.6

Total liabilities		4,836.5			5,028.0

Commitments and contingencies (Note 15)
Shareholders’ equity:
Common shares - $1.00 par, 500,000,000 shares authorized; 34,180,904 and 34,066,889 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively		34.2			34.1
Additional paid-in capital		829.5			827.3
Treasury shares (7,723,529 and 7,558,345 shares at March 31, 2014 and December 31, 2013, respectively)		(258.1	)		(250.6	)
Retained earnings		840.4			804.4
Accumulated other comprehensive income, net of taxes		148.9			147.8

Total shareholders’ equity		1,594.9			1,563.0

Total liabilities and shareholders’ equity		$6,431.4			$6,591.0

*	Derived from audited consolidated financial statements.

See accompanying notes.

ARGO GROUP INTERNATIONAL HOLDINGS, LTD.

CONSOLIDATED STATEMENTS OF INCOME

(in millions, except number of shares and per share amounts)

(Unaudited)


	For the Three Months
	Ended March 31,
	2014			2013
Premiums and other revenue:
Earned premiums	$	325.7		$	304.2
Net investment income		23.3			27.9
Net realized investment gains and other		11.1			9.5

Total revenue		360.1			341.6

Expenses:
Losses and loss adjustment expenses		182.5			170.5
Other reinsurance-related expenses		0.0			5.1
Underwriting, acquisition and insurance expenses		128.7			126.7
Interest expense		5.0			4.9
Fee expense, net		1.4			0.0
Foreign currency exchange gain		(0.2	)		(3.1	)

Total expenses		317.4			304.1

Income before income taxes		42.7			37.5
Provision for income taxes		2.5			4.8

Net income	$	40.2		$	32.7

Net income per common share:
Basic	$	1.52		$	1.20

Diluted	$	1.49		$	1.16

Dividend declared per common share:	$	0.15		$	0.14

Weighted average common shares:
Basic		26,514,481			27,247,009

Diluted		26,966,461			28,157,073


	For the Three Months
	Ended March 31,
	2014			2013
Net realized investment gains and other before other-than-temporary impairment losses	$	11.1		$	10.9
Other-than-temporary impairment losses recognized in earnings		0.0			(1.4	)
Other-than-temporary impairment losses on equity securities

Impairment losses recognized in earnings		0.0			(1.4	)

Net realized investment gains and other	$	11.1		$	9.5

See accompanying notes.

ARGO GROUP INTERNATIONAL HOLDINGS, LTD.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

(Unaudited)


	For the Three Months
	Ended March 31,
	2014			2013
Net income	$	40.2		$	32.7

Other comprehensive income:
Foreign currency translation adjustments		(0.2	)		0.0
Unrealized gains on securities:
Gains arising during the period		5.1			24.2
Reclassification adjustment for gains included in net income		(0.1	)		(0.7	)

Other comprehensive income before tax		4.8			23.5
Income tax provision related to other comprehensive income:
Unrealized gains on securities:
Gains arising during the period		3.8			10.4
Reclassification adjustment for gains included in net income		(0.1	)		0.1

Income tax provision related to other comprehensive income		3.7			10.5

Other comprehensive income, net of tax		1.1			13.0

Comprehensive income	$	41.3		$	45.7

See accompanying notes.

ARGO GROUP INTERNATIONAL HOLDINGS, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)


	For the Three Months
	Ended March 31,
	2014			2013
Cash flows from operating activities:
Net income	$	40.2		$	32.7
Adjustments to reconcile net income to net cash (used) provided by operating activities:
Amortization and depreciation		10.4			9.7
Share-based payments expense		4.4			8.6
Excess tax benefit from share-based payment arrangements		(0.1	)		0.0
Deferred income tax provision, net		1.1			3.0
Net realized investment and other gains		(11.1	)		(9.5	)
Change in:
Accrued investment income		1.7			3.4
Receivables		261.0			77.1
Deferred acquisition costs		0.0			(0.4	)
Ceded unearned premiums		(55.2	)		(37.3	)
Reserves for losses and loss adjustment expenses		(182.5	)		(17.8	)
Unearned premiums		3.3			7.1
Ceded reinsurance payable and funds held		(6.4	)		(133.2	)
Income taxes		(15.5	)		(0.7	)
Accrued underwriting expenses		6.7			2.2
Other, net		(14.4	)		(28.9	)

Cash provided (used) by operating activities		43.6			(84.0	)

Cash flows from investing activities:
Sales of fixed maturity investments		243.4			425.3
Maturities and mandatory calls of fixed maturity investments		78.4			115.1
Sales of equity securities		14.9			5.6
Sales of other investments		5.0			5.3
Purchases of fixed maturity investments		(290.4	)		(378.0	)
Purchases of equity securities		(7.5	)		(38.3	)
Purchases of other investments		(9.4	)		(26.5	)
Change in foreign regulatory deposits and voluntary pools		(9.0	)		(1.2	)
Change in short-term investments		(44.9	)		(5.2	)
Settlements of foreign currency exchange forward contracts		(1.4	)		(1.9	)
Purchases of fixed assets		(6.0	)		(4.2	)
Other, net		(18.1	)		(1.3	)

Cash (used) provided by investing activities		(45.0	)		94.7

Cash flows from financing activities:
Activity under stock incentive plans		0.8			1.3
Repurchase of Company’s common shares		(3.7	)		(12.9	)
Excess tax expense from share-based payment arrangements		0.1			0.0
Payment of cash dividends to common shareholders		(4.0	)		(3.7	)

Cash used by financing activities		(6.8	)		(15.3	)

Effect of exchange rate changes on cash		0.3			0.0

Change in cash		(7.9	)		(4.6	)
Cash, beginning of period		157.4			95.8

Cash, end of period	$	149.5		$	91.2

See accompanying notes.

ARGO GROUP INTERNATIONAL HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying consolidated financial statements of Argo Group International Holdings, Ltd. (“Argo Group,” “we” or the “Company”) and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. The preparation of interim financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The major estimates reflected in our consolidated financial statements include, but are not limited to, reserves for losses and loss adjustment expenses; reinsurance recoverables, including the reinsurance recoverables allowance for doubtful accounts; estimates of written and earned premiums; reinsurance premium receivable; fair value of investments and assessment of potential impairment; valuation of goodwill and intangibles and our deferred tax asset valuation allowance. Actual results could differ from those estimates. Certain financial information that normally is included in annual financial statements, including certain financial statement footnotes, prepared in accordance with GAAP, is not required for interim reporting purposes and has been condensed or omitted. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission on February 28, 2014.

The interim financial information as of, and for the three months ended, March 31, 2014 and 2013 is unaudited. However, in the opinion of management, the interim information includes all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results presented for the interim periods. The operating results for the interim periods are not necessarily indicative of the results to be expected for the full year. All significant intercompany amounts have been eliminated in consolidation. Certain amounts in prior years’ financial statements have been reclassified to conform to the current presentation.

10% Stock Dividend

On May 7, 2013, our Board of Directors declared a 10% stock dividend, payable on June 17, 2013, to shareholders of record at the close of business on June 3, 2013. As a result of the stock dividend, 2,447,839 additional shares were issued. Cash was paid in lieu of fractional shares of our common shares. All references to share and per share amounts in this document and related disclosures have been adjusted to reflect the stock dividend for all periods presented.

2. Recently Issued Accounting Standards

In February 2013, the Financial Accounting Standards Board (“FASB”) issued amendments to “Liabilities” (Topic 405) in order to resolve diversity in practice related to accounting for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. The amendments require an entity to measure the liability as the sum of (a) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and (b) any additional amount the reporting entity expects to pay on behalf of its co-obligors. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, but early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented for those obligations resulting from joint and several liability arrangements within the update’s scope that exist at the beginning of an entity’s fiscal year of adoption. The adoption of this amendment did not have a material impact on our financial results or disclosures.

In March 2013, the FASB issued an amendment to “Consolidation” (Topic 810) to resolve the diversity in practice related to the release of the cumulative translation adjustment into net income when a parent sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. The amendments in the update are effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2013, but early adoption is permitted. The amendments should be applied prospectively to derecognition events occurring after the effective date with no adjustment to prior periods. The adoption of this amendment did not have an impact on our financial results or disclosures.

In July 2013, the FASB issued amendments to “Income Taxes” (Topic 740) that will require the presentation of certain unrecognized tax benefits as reductions to deferred tax assets rather than liabilities in our Consolidated Balance Sheets when a net operating loss carryforward, similar tax loss or tax credit carryforward exists. The new standard requires adoption on a prospective basis in the first quarter of 2015; however, early adoption is permitted. We do not anticipate this update will have an impact on our financial results and disclosures.

In April 2014, the FASB issued amendments to “Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” The amended guidance requires that a disposal representing a strategic shift that has (or will have) a major effect on an entity’s financial results or a business activity classified as held for sale should be reported as discontinued operations. The amendments also expand the disclosure requirements for discontinued operations and add new disclosures for individually significant dispositions that do not qualify as discontinued operations. The amendments are effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2014. Early adoption is permitted only for disposals that have not been previously reported. We do not anticipate this update will have an impact on our financial results and disclosures.

3. Investments

Composition of Invested Assets

The amortized cost, gross unrealized gains, gross unrealized losses and fair value of investments as of March 31, 2014 and December 31, 2013 were as follows:


			Gross		Gross
March 31, 2014	Amortized		Unrealized		Unrealized		Fair
(in millions)	Cost		Gains		Losses		Value
Fixed maturities
USD denominated:
U.S. Governments	$	223.6	$	2.1	$	0.4	$	225.3
Non-U.S. Governments		70.4		0.7		0.7		70.4
Obligations of states and political subdivisions		504.2		23.2		4.3		523.1
Credit-Financial		455.9		15.8		1.3		470.4
Credit-Industrial		418.0		14.3		1.2		431.1
Credit-Utility		146.1		5.6		0.3		151.4
Structured securities:
CMO/MBS-agency ⁽¹⁾		200.1		8.9		1.1		207.9
CMO/MBS-non agency		18.4		1.0		0.0		19.4
CMBS ⁽²⁾		164.5		3.3		0.5		167.3
ABS-residential ⁽³⁾		6.3		0.3		0.4		6.2
ABS-non residential		147.3		0.6		0.1		147.8
Foreign denominated:
Governments		187.8		8.4		8.4		187.8
Credit		196.4		5.2		7.9		193.7

Total fixed maturities		2,739.0		89.4		26.6		2,801.8
Equity securities		345.9		186.3		1.9		530.3
Other investments		399.7		4.0		0.0		403.7
Short-term investments		382.7		0.0		0.0		382.7

Total investments	$	3,867.3	$	279.7	$	28.5	$	4,118.5


			Gross		Gross
December 31, 2013	Amortized		Unrealized		Unrealized		Fair
(in millions)	Cost		Gains		Losses		Value
Fixed maturities
USD denominated:
U.S. Governments	$	273.4	$	2.4	$	0.5	$	275.3
Non-U.S. Governments		60.9		0.3		1.0		60.2
Obligations of states and political subdivisions		563.7		22.9		8.8		577.8
Credit-Financial		426.3		15.4		1.8		439.9
Credit-Industrial		385.5		13.8		2.2		397.1
Credit-Utility		162.0		5.4		0.8		166.6
Structured securities:
CMO/MBS-agency ⁽¹⁾		219.4		9.2		1.7		226.9
CMO/MBS-non agency		19.4		0.8		0.0		20.2
CMBS ⁽²⁾		162.7		3.1		1.0		164.8
ABS-residential ⁽³⁾		6.8		0.3		0.5		6.6
ABS-non residential		116.8		0.5		0.1		117.2
Foreign denominated:
Governments		207.7		4.9		5.9		206.7
Credit		155.5		4.4		4.8		155.1

Total fixed maturities		2,760.1		83.4		29.1		2,814.4
Equity securities		346.9		188.6		1.2		534.3
Other investments		377.4		2.8		1.3		378.9
Short-term investments		351.6		0.0		0.0		351.6

Total investments	$	3,836.0	$	274.8	$	31.6	$	4,079.2

⁽¹⁾	Collateralized mortgage obligations/mortgage-backed securities (“CMO/MBS”).

⁽²⁾	Commercial mortgage-backed securities (“CMBS”).

⁽³⁾	Asset-backed securities (“ABS”).

Included in “Total investments” in our Consolidated Balance Sheets at March 31, 2014 and December 31, 2013 is $69.0 million and $87.3 million, respectively, of assets managed on behalf of the trade capital providers, who are third party capital participants that provide underwriting capital to our Syndicate 1200 segment.

Contractual Maturity

The amortized cost and fair values of fixed maturity investments as of March 31, 2014, by contractual maturity, were as follows:


	Amortized		Fair
(in millions)	Cost		Value
Due in one year or less	$	228.7	$	229.8
Due after one year through five years		1,267.4		1,286.2
Due after five years through ten years		533.0		561.7
Thereafter		173.3		175.5
Structured securities		536.6		548.6

Total	$	2,739.0	$	2,801.8

The expected maturities may differ from the contractual maturities because debtors may have the right to call or prepay obligations.

Unrealized Losses and Other-than-temporary Impairments

An aging of unrealized losses on our investments in fixed maturities, equity securities, other investments and short-term investments as of March 31, 2014 and December 31, 2013 is presented below:


	Less Than One Year					One Year or Greater				Total
March 31, 2014	Fair			Unrealized		Fair		Unrealized		Fair			Unrealized
(in millions)	Value			Losses		Value		Losses		Value			Losses
Fixed maturities
USD denominated:
U.S. Governments	$	34.6		$	0.4	$	0.0	$	0.0	$	34.6		$	0.4
Non-U.S. Governments		31.7			0.6		0.7		0.1		32.4			0.7
Obligations of states and political subdivisions ⁽²⁾		142.8			4.3		3.8		0.0		146.6			4.3
Credit-Financial ⁽²⁾		84.0			1.3		3.0		0.0		87.0			1.3
Credit-Industrial ⁽²⁾		90.8			1.2		2.1		0.0		92.9			1.2
Credit-Utility		18.9			0.2		1.3		0.1		20.2			0.3
Structured securities:
CMO/MBS-agency		39.5			0.6		5.5		0.5		45.0			1.1
CMBS		15.6			0.4		1.8		0.1		17.4			0.5
ABS-residential		0.0			0.0		3.6		0.4		3.6			0.4
ABS-non residential ⁽²⁾		59.2			0.1		1.0		0.0		60.2			0.1
Foreign denominated:
Governments		155.9			8.4		0.0		0.0		155.9			8.4
Credit		132.4			7.9		0.0		0.0		132.4			7.9

Total fixed maturities		805.4			25.4		22.8		1.2		828.2			26.6
Equity securities		29.4			1.9		0.0		0.0		29.4			1.9
Short-term investments ⁽¹⁾		2.6			0.0		0.0		0.0		2.6			0.0

Total	$	837.4		$	27.3	$	22.8	$	1.2	$	860.2		$	28.5


	Less Than One Year					One Year or Greater				Total
December 31, 2013	Fair			Unrealized		Fair		Unrealized		Fair			Unrealized
(in millions)	Value			Losses		Value		Losses		Value			Losses
Fixed maturities
USD denominated:
U.S. Governments	$	55.3		$	0.5	$	0.0	$	0.0	$	55.3		$	0.5
Non-U.S. Governments		36.3			1.0		0.0		0.0		36.3			1.0
Obligations of states and political subdivisions ⁽²⁾		154.6			8.8		3.1		0.0		157.7			8.8
Credit-Financial		88.7			1.7		2.4		0.1		91.1			1.8
Credit-Industrial		85.7			2.0		2.9		0.2		88.6			2.2
Credit-Utility		21.2			0.7		1.9		0.1		23.1			0.8
Structured securities:
CMO/MBS-agency		58.4			1.2		5.6		0.5		64.0			1.7
CMBS ⁽²⁾		24.2			1.0		1.1		0.0		25.3			1.0
ABS-residential		0.0			0.0		3.6		0.5		3.6			0.5
ABS-non residential ⁽²⁾		59.1			0.1		2.0		0.0		61.1			0.1
Foreign denominated:
Governments		170.5			5.9		0.0		0.0		170.5			5.9
Credit		125.3			4.8		0.0		0.0		125.3			4.8

Total fixed maturities		879.3			27.7		22.6		1.4		901.9			29.1
Equity securities		25.5			1.2		0.0		0.0		25.5			1.2
Other investments		(1.4	)		1.3		0.0		0.0		(1.4	)		1.3
Short-term investments ⁽¹⁾		4.5			0.0		0.0		0.0		4.5			0.0

Total	$	907.9		$	30.2	$	22.6	$	1.4	$	930.5		$	31.6

⁽¹⁾	Unrealized losses less than one year are less than $0.1 million.

⁽²⁾	Unrealized losses one year or greater are less than $0.1 million.

We hold a total of 5,914 securities, of which 1,215 were in an unrealized loss position for less than one year and 52 were in an unrealized loss position for a period one year or greater as of March 31, 2014. Unrealized losses greater than twelve months on fixed maturities were the result of a number of factors, including increased credit spreads, foreign currency fluctuations and higher market yields relative to the date the securities were purchased, and for structured securities, by the performance of the underlying collateral as well. We also considered that we do not intend to sell the investments and it is unlikely that we will be required to sell the investments before recovery of their amortized cost bases, which may be maturity. We do not consider these investments to be other-than-temporarily impaired at March 31, 2014.

We regularly evaluate our investments for other-than-temporary impairment. For fixed maturity securities, the evaluation for a credit loss is generally based on the present value of expected cash flows of the security as compared to the amortized book value. For structured securities, frequency and severity of loss inputs are used in projecting future cash flows of the securities. Loss frequency is measured as the credit default rate, which includes such factors as loan-to-value ratios and credit scores of borrowers. Loss severity includes such factors as trends in real estate values and proceeds at foreclosure. We also recognize other-than-temporary losses on our fixed maturity securities that we intend to sell.

We did not recognize any other-than-temporary losses on our fixed maturities portfolio for the three months ended March 31, 2014 and 2013, respectively. For equity securities and other investments, the length of time and the amount of decline in fair value are the principal factors in determining other-than-temporary impairment. We did not recognize any other-than-temporary losses for the three months ended March 31, 2014. We recognized other-than-temporary losses on our equity portfolio of $1.4 million for the three months ended March 31, 2013. In situations where we did not recognize other-than-temporary losses on investments in our equity portfolio, we have evaluated the near-term prospects of the investment in relation to the severity and duration of the impairment and based on that evaluation, have the ability and intent to hold these investments until a recovery of the cost basis.

Realized Gains and Losses

The following table presents the Company’s gross realized investment gains (losses) for the three months ended March 31:


	For the Three Months
	Ended March 31,
(in millions)	2014			2013
Realized gains
Fixed maturities	$	4.6		$	11.5
Equity securities		6.5			0.5
Other investments		12.7			11.1
Short-term investments		0.0			0.1

Gross realized investment gains		23.8			23.2
Realized losses
Fixed maturities		(3.5	)		(6.5	)
Equity securities		(0.1	)		0.0
Other investments		(4.9	)		(5.7	)
Short-term investments		(0.2	)		(0.1	)
Other assets		(4.0	)		0.0
Other-than-temporary impairment losses on equity securities		0.0			(1.4	)

Gross realized investment and other losses		(12.7	)		(13.7	)

Net realized investment gains and other	$	11.1		$	9.5

As of March 31, 2013, we hedged $1.7 million of certain holdings in non-U.S. Dollar denominated fixed maturity investments with $1.5 million of foreign exchange contracts. We did not have any fixed maturity investments hedged with foreign exchange contracts at March 31, 2014. The net realized effect on income was not significant for the three months ended March 31, 2013.

We also enter into foreign currency exchange forward contracts to manage currency exposure on losses related to global catastrophe events. These currency forward contracts are carried at fair value in our Consolidated Balance Sheets in “Other investments.” The realized and unrealized gains and losses are included in “Net realized investment gains and other” in our Consolidated Statements of Income. The notional amount of the currency forward contracts was $46.6 million and $73.7 million as of March 31, 2014 and 2013, respectively. The fair value of the currency forward contracts was a gain of $1.2 million and a loss of $0.6 million as of March 31, 2014 and 2013, respectively. For the three months ended March 31, 2014 and 2013, we recognized $2.3 million and $1.6 million in realized gains and $1.3 million and $2.3 million in realized losses, respectively, from the currency forward contracts.

Regulatory Deposits, Pledged Securities and Letters of Credit

At March 31, 2014, the amortized cost and fair value of investments on deposit with U.S. and various regulatory agencies for regulatory purposes were $197.9 million and $205.2 million, respectively. At December 31, 2013, the amortized cost and fair value of investments on deposit with U.S. and various regulatory agencies for regulatory purposes were $196.7 million and $203.4 million, respectively.

At March 31, 2014, investments with an amortized cost of $79.4 million and fair value of $80.4 million were pledged as collateral in support of irrevocable letters of credit in the amount of $51.3 million issued under the terms of certain reinsurance agreements in respect of reported loss and loss expense reserves.

At December 31, 2013, investments with an amortized cost of $96.6 million and fair value of $97.5 million were pledged as collateral in support of irrevocable letters of credit in the amount of $60.2 million issued under the terms of certain reinsurance agreements in respect of reported loss and loss expense reserves.

Our Corporate member’s capital supporting our Lloyd’s business consisted of the following:


	March 31,		December 31,
(in millions)	2014		2013
Fixed maturities, at fair value	$	251.3	$	250.7
Short-term investments, at fair value		0.0		0.1

Total securities pledged to Lloyd’s	$	251.3	$	250.8

Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability, or in the absence of a principal market, the most advantageous market. Market participants are buyers and sellers in the principal (or most advantageous) market that are independent, knowledgeable, able to transact for the asset or liability and willing to transfer the asset or liability.

Valuation techniques consistent with the market approach, income approach and/or cost approach are used to measure fair value. The inputs of these valuation techniques are categorized into three levels.

•

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the reporting date. We define actively traded as a security that has traded in the past seven days. We receive one quote per instrument for Level 1 inputs.

•

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. We receive one quote per instrument for Level 2 inputs.

•

Level 3 inputs are unobservable inputs. Unobservable inputs reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances.

We receive fair value prices from third-party pricing services and our outside investment managers. These prices are determined using observable market information such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things. We have reviewed the processes used by the third-party providers for pricing the securities, and have determined that these processes result in fair values consistent with GAAP requirements. In addition, we review these prices for reasonableness, and have not adjusted any prices received from the third-party providers as of March 31, 2014. A description of the valuation techniques we use to measure assets at fair value is as follows:

Fixed Maturities (Available-for-Sale) Levels 1 and 2:

•

United States Treasury securities are typically valued using Level 1 inputs. For these securities, we obtain fair value measurements from third-party pricing services using quoted prices (unadjusted) in active markets at the reporting date.

•

United States Government agencies, non-U.S. Government securities, obligations of states and political subdivisions, credit securities and foreign denominated securities are reported at fair value using Level 2 inputs. For these securities, we obtain fair value measurements from third-party pricing services. Observable data may include dealer quotes, market spreads, yield curves, live trading levels, trade execution data, credit information and the security’s terms and conditions, among other things.

•

CMO/MBS agency, CMO/MBS non-agency, CMBS, ABS residential and ABS non-residential securities are reported at fair value using Level 2 inputs. For these securities, we obtain fair value measurements from third-party pricing services. Observable data may include dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things.

Equity Securities Level 1: Equity securities are principally reported at fair value using Level 1 inputs. For these securities, we obtain fair value measurements from a third party pricing service using quoted prices (unadjusted) in active markets at the reporting date.

Equity Securities Level 2: We own interests in equity funds that are reported at fair value using Level 2 inputs. The valuations are based on the funds’ net asset value per share, determined weekly or at the end of each month. The underlying assets in the funds are valued primarily on the basis of closing market quotations or official closing prices on each valuation day.

Equity Securities Level 3: We own certain equity securities that are reported at fair value using Level 3 inputs. The valuation techniques for these securities include the following:

•

Fair value measurements are obtained from the National Association of Insurance Commissioners’ Security Valuation Office at the reporting date.

•

Fair value measurements for an investment in an equity fund obtained by applying final prices provided by the administrator of the fund, which is based upon certain estimates and assumptions.

Other Investments Level 2: Foreign regulatory deposits are assets held in trust in jurisdictions where there is a legal and regulatory requirement to maintain funds locally in order to protect policyholders. Lloyd’s is the appointed investment manager for the funds. These assets are invested in short-term government securities, agency securities and corporate bonds and are valued using Level 2 inputs based upon values obtained from Lloyd’s. Foreign currency future contracts are valued by our counterparty using market driven foreign currency exchange rates and are considered Level 2 investments.

Short-term Investments: Short-term investments are principally reported at fair value using Level 1 inputs, with the exception of short-term corporate bonds reported at fair value using Level 2 inputs as described in the fixed maturities section above. Values for the investments categorized as Level 1 are obtained from various financial institutions as of the reporting date.

Other Assets Level 3 : We had one reinsurance contract deemed a derivative in 2013. The fair values were estimated by management taking into account changes in the market for catastrophic bond reinsurance contracts with similar economic characteristics and potential recoveries from events preceding the valuation date. See Note 4 “Derivative Instruments” for related disclosures.

Transfers Between Level 1 and Level 2 Securities: There were no transfers between Level 1 and Level 2 securities during the three months ended March 31, 2014 or 2013.

Based on an analysis of the inputs, our financial assets measured at fair value on a recurring basis at March 31, 2014 and December 31, 2013 have been categorized as follows:


			Fair Value Measurements at Reporting Date Using
(in millions)	March 31, 2014		Level 1 ^(a)		Level 2 ^(b)		Level 3 ^(c)
Fixed maturities
USD denominated:
U.S. Governments	$	225.3	$	105.5	$	119.8	$	0.0
Non-U.S. Governments		70.4		0.0		70.4		0.0
Obligations of states and political subdivisions		523.1		0.0		523.1		0.0
Credit-Financial		470.4		0.0		470.4		0.0
Credit-Industrial		431.1		0.0		431.1		0.0
Credit-Utility		151.4		0.0		151.4		0.0
Structured securities:
CMO/MBS-agency		207.9		0.0		207.9		0.0
CMO/MBS-non agency		19.4		0.0		19.4		0.0
CMBS		167.3		0.0		167.3		0.0
ABS-residential		6.2		0.0		6.2		0.0
ABS-non residential		147.8		0.0		147.8		0.0
Foreign denominated:
Governments		187.8		0.0		187.8		0.0
Credit		193.7		0.0		193.7		0.0

Total fixed maturities		2,801.8		105.5		2,696.3		0.0
Equity securities		530.3		472.6		56.5		1.2
Other investments		127.2		0.0		127.2		0.0
Short-term investments		382.7		378.9		3.8		0.0

	$	3,842.0	$	957.0	$	2,883.8	$	1.2


			Fair Value Measurements at Reporting Date Using
(in millions)	December 31, 2013		Level 1 ^(a)		Level 2 ^(b)		Level 3 ^(c)
Fixed maturities
USD denominated:
U.S. Governments	$	275.3	$	143.8	$	131.5	$	0.0
Non-U.S. Governments		60.2		0.0		60.2		0.0
Obligations of states and political subdivisions		577.8		0.0		577.8		0.0
Credit-Financial		439.9		0.0		439.9		0.0
Credit-Industrial		397.1		0.0		397.1		0.0
Credit-Utility		166.6		0.0		166.6		0.0
Structured securities:
CMO/MBS-agency		226.9		0.0		226.9		0.0
CMO/MBS-non agency		20.2		0.0		20.2		0.0
CMBS		164.8		0.0		164.8		0.0
ABS-residential		6.6		0.0		6.6		0.0
ABS-non residential		117.2		0.0		117.2		0.0
Foreign denominated:
Governments		206.7		0.0		206.7		0.0
Credit		155.1		0.0		155.1		0.0

Total fixed maturities		2,814.4		143.8		2,670.6		0.0
Equity securities		534.3		476.7		56.3		1.3
Other investments		117.8		0.0		117.8		0.0
Short-term investments		351.6		347.0		4.6		0.0
Other assets		2.6		0.0		0.0		2.6

	$	3,820.7	$	967.5	$	2,849.3	$	3.9

^(a)	Quoted prices in active markets for identical assets

^(b)	Significant other observable inputs

^(c)	Significant unobservable inputs

The fair value measurements in the tables above do not agree to “Total investments” on our Consolidated Balance Sheets as they exclude certain other investments that are accounted for under the equity-method of accounting and include reinsurance contracts that are classified as “Other assets”.

A reconciliation of the beginning and ending balances for the investments categorized as Level 3 at March 31, 2014 and December 31, 2013 are as follows:

Fair Value Measurements Using Unobservable Inputs (Level 3)


(in millions)	Equity Securities			Other Assets			Total
Beginning balance, January 1, 2014	$	1.3		$	2.6		$	3.9
Transfers into Level 3		0.0			0.0			0.0
Transfers out of Level 3		0.0			0.0			0.0
Total gains or losses (realized/unrealized):
Included in net income (loss)		0.0			0.0			0.0
Included in other comprehensive income (loss)		0.0			0.0			0.0
Purchases, issuances, sales, and settlements
Purchases		0.0			0.0			0.0
Issuances		0.0			0.0			0.0
Sales		(0.1	)		0.0			(0.1	)
Settlements		0.0			(2.6	)		(2.6	)

Ending balance, March 31, 2014	$	1.2		$	0.0		$	1.2

Amount of total gains or losses for the year included in net income (loss) attributable to the change in unrealized gains or losses relating to assets still held at March 31, 2014	$	0.0		$	0.0		$	0.0

(in millions)	Equity Securities			Other Assets			Total
Beginning balance, January 1, 2013	$	1.8		$	6.9		$	8.7
Transfers into Level 3		0.0			0.0			0.0
Transfers out of Level 3		0.0			0.0			0.0
Total gains or losses (realized/unrealized):
Included in net income (loss)		0.1			0.0			0.1
Included in other comprehensive income (loss)		0.0			0.0			0.0
Purchases, issuances, sales, and settlements
Purchases		0.0			0.0			0.0
Issuances		0.0			0.0			0.0
Sales		(0.6	)		0.0			(0.6	)
Settlements		0.0			(4.3	)		(4.3	)

Ending balance, December 31, 2013	$	1.3		$	2.6		$	3.9

Amount of total gains or losses for the year included in net income (loss) attributable to the change in unrealized gains or losses relating to assets still held at December 31, 2013	$	0.0		$	0.0		$	0.0

At March 31, 2014 and December 31, 2013, we did not have any financial assets or financial liabilities measured at fair value on a nonrecurring basis or any financial liabilities on a recurring basis.

4. Derivative Instruments

Through our subsidiary Argo Re, Ltd. (“Argo Re”), we entered into a reinsurance contract with a special purpose reinsurance company that provided us with protection against certain severe catastrophe events and the occurrence of multiple significant catastrophe events during the same year. The contract entered into on December 28, 2011 and effective January 1, 2012, provided coverage of $100 million for hurricanes and earthquakes (including fire) in the U.S. and covered losses for the first and subsequent events on a per-occurrence basis over a 24-month coverage period. This contract expired in December 2013. Each event had an activation level, which, if attained, put the notes on risk for a subsequent event. Once the coverage had been activated, a second loss during the coverage period in excess of the loss trigger level resulted in a loss to the note holders. This transaction ignored the effects of inuring reinsurance, creating the remote possibility of a double recovery on covered events, and was therefore deemed to be a derivative.

We recorded the contract at fair value, and such fair value is included in “Other assets” in our Consolidated Balance Sheets with any changes in the value reflected in “Other reinsurance-related expenses” in our Consolidated Statements of Income. As there is no quoted fair value available for this derivative, the fair value was estimated by management taking into account changes in the market for catastrophe bond reinsurance contracts with similar economic characteristics and potential recoveries from events preceding the valuation date. Included in “Other reinsurance-related expenses” for the three months ended March 31, 2013 was $5.1 million, which was incurred due to the change in the fair value of the derivative, principally due to the passage of the transaction’s risk coverage term. Included in “Other assets” in our Consolidated Balance Sheets at December 31, 2013 was $2.6 million, which represented the fair value of the contract at that date. As the contract expired in December 2013, no such expense was incurred during the first quarter of 2014, nor was there an asset on our Consolidated Balance Sheets at March 31, 2014.

The special purpose reinsurance company that is the counterparty to this transaction is a variable interest entity under the provisions of Accounting Standards Codification (“ASC”) Topic 810-10, “Consolidation.” Argo Group is not the primary beneficiary of this entity and is therefore not required to consolidate it in our consolidated financial statements.

5. Reserves for Losses and Loss Adjustment Expenses

The following table provides a reconciliation of reserves for losses and loss adjustment expenses (“LAE”):


	For the Three Months Ended March 31,
(in millions)	2014			2013
Net reserves beginning of the year	$	2,107.6		$	2,110.9
Add:
Losses and LAE incurred during current calendar year, net of reinsurance:
Current accident year		191.4			175.0
Prior accident years		(8.9	)		(4.5	)

Losses and LAE incurred during calendar year, net of reinsurance		182.5			170.5

Deduct:
Losses and LAE payments made during current calendar year, net of reinsurance:
Current accident year		27.9			21.9
Prior accident years		150.1			159.7

Losses and LAE payments made during current calendar year, net of reinsurance		178.0			181.6

Add:
Change in participation interest ⁽¹⁾		24.7			10.4
Foreign exchange adjustments		1.7			(6.5	)

Net reserves - end of period		2,138.5			2,103.7
Add:
Reinsurance recoverables on unpaid losses and LAE, end of period		903.9			1,101.3

Gross reserves - end of period	$	3,042.4		$	3,205.0

⁽¹⁾	Amount represents (decrease) increase in reserves due to change in syndicate participation.

On December 31, 2012, Syndicate 1200 entered into a retroactive whole account quota share contract covering the 2009 and prior years of account. The counterparty was another syndicate within the Lloyd’s market. As a result of this transaction, reserves for losses and LAE at December 31, 2012 were net of $192.2 million ceded under this quota share agreement. Subject to a Split Reinsurance to Close arrangement previously approved by the Prudential Regulatory Authority, the liabilities assumed by the whole account quota share provider were legally transferred to that quota share provider on January 18, 2014, with an inception date of January 1, 2014.

Reserves for losses and loss adjustment expenses represent the estimated indemnity cost and related adjustment expenses necessary to investigate and settle claims. Such estimates are based upon individual case estimates for reported claims, estimates from ceding companies for reinsurance assumed and actuarial estimates for losses that have been incurred but not yet reported to the insurer. Any change in probable ultimate liabilities is reflected in current operating results.

Included in losses and LAE for the three months ended March 31, 2014 was $8.9 million in favorable prior years’ loss reserve development comprised of the following: $8.0 million of net favorable development in the Excess and Surplus Lines segment primarily caused by favorable development of $21.6 million in the general and products liability lines, partially offset by $9.4 million of unfavorable development in commercial automobile and $4.2 million of unfavorable development in property lines; $2.0 million of net unfavorable development in the Commercial Specialty segment, primarily driven by $6.7 million of unfavorable development in general liability due to increases in claim severity, offset by $4.3 million of favorable development in workers compensation and $1.1 million of favorable development in short-tail lines; $0.4 million of net unfavorable development in the International Specialty segment in our Brazil unit; $8.8 million of net favorable development in the Syndicate 1200 segment driven by favorable development in marine and energy lines, as well as favorable development in professional indemnity and general liability; $5.5 million of unfavorable development in the Run-off Lines segment primarily caused by $4.5 million of unfavorable development in workers compensation driven by increasing medical costs on older claims, as well as $1.0 million in asbestos liability on assumed business.

Included in losses and LAE for the three months ended March 31, 2013 was $4.5 million in favorable prior years’ loss reserve development comprised of the following: $5.2 million of net favorable development in the Excess and Surplus Lines segment primarily caused by favorable development of $5.9 million in the general and products liability lines and $3.3 million in commercial multi-peril liability, partially offset with $4.0 million of unfavorable development in commercial automobile; $1.1 million of net unfavorable development in the Commercial Specialty segment, primarily driven by $2.2 million of unfavorable development in general liability due to increases in claim severity offset by $1.0 million of favorable development in the surety line of business at Rockwood Casualty Insurance Company (“Rockwood”); $0.9 million of net unfavorable development in the International Specialty segment driven by $1.3 million of unfavorable development for the property catastrophe reinsurance unit, primarily due to crop losses, partially offset by $0.5 million of favorable casualty losses for professional lines; $2.2 million of net favorable development in the Syndicate 1200 segment driven by favorable development in property facultative and North American binder business; $0.9 million of unfavorable development in the Run-off Lines segment primarily related to commutations.

In the opinion of management, our reserves represent the best estimate of our ultimate liabilities, based on currently known facts, current law, current technology and assumptions considered reasonable where facts are not known. Due to the significant uncertainties and related management judgments, there can be no assurance that future loss development, favorable or unfavorable, will not occur.

6. Other Indebtedness

Borrowing Under Revolving Credit Facility

On March 7, 2014, the Borrowers entered into a $175.0 million Credit Agreement (“New Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent. The New Credit Agreement replaced and terminated the original $150.0 million Credit Agreement. The New Credit Agreement provides for a $175.0 million revolving credit facility with a maturity date of March 7, 2018 unless extended in accordance with the terms of the New Credit Agreement. Borrowings under the New Credit Agreement may be used for general corporate purposes, including working capital and permitted acquisitions, and each of the Borrowers has agreed to be jointly and severally liable for the obligations of the other Borrowers under the New Credit Agreement.

Revolving loans can either be designated as “ABR Borrowings” or “Eurocurrency Borrowings” at the time of borrowing by the Borrowers. “ABR Borrowings” will bear interest at a rate per annum equal to the greatest of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus ¹ ⁄ ₂ of 1% and (c) the Adjusted Eurocurrency Rate for a one month interest period plus 1%, plus an applicable margin of 0.375% to 1.25%. “Eurocurrency Borrowings” will bear interest at a rate per annum equal to LIBOR plus an applicable margin of 1.375% to 2.25%. The Adjusted Eurocurrency Rate for Eurocurrency borrowings in U.S. Dollars will be equal to LIBOR times a reserve percentage established in accordance with Regulation D of the U.S. Federal Reserve System.

The New Credit Agreement contains customary events of default. If an event of default occurs and is continuing, the Borrowers might be required immediately to repay all amounts outstanding under the New Credit Agreement. Lenders holding at least a majority of the loans and commitments under the New Credit Agreement may elect to accelerate the maturity of the loans and/or terminate the commitments under the New Credit Agreement upon the occurrence and during the continuation of an event of default.

Included in the New Credit Agreement is a provision that allows up to $17.5 million of the revolving credit facility to be used for letters of credit (“LOC’s”), subject to availability. On March 7, 2014, the $0.2 million LOC outstanding under the original $150.0 million Credit Agreement was transferred to the New Credit Agreement. As of March 31, 2014 and December 31, 2013, there were no borrowings outstanding and $0.2 million in LOC’s against the Credit Facility.

Other Debt

As part of the ARIS Title Insurance Corporation (“ARIS”) acquisition, at March 31, 2014 and December 31, 2013, we had a note payable for $0.8 million, of which $0.2 million was on a recourse basis. The note has a variable interest rate of 2.00% above 30-day LIBOR, with the variable interest rate being reset quarterly and subject to certain interest rate ceilings. The interest rate at December 31, 2012 was 2.21%. Interest payments are payable quarterly. The note payable matured pursuant to its terms on December 16, 2013. Interest accrued through the maturity date has been paid as scheduled, and the principal amount remains unpaid and outstanding as of March 31, 2014. The parties entered into negotiations to restructure this obligation on mutually acceptable terms in view of the fact that our investment in ARIS has yet to generate meaningful returns. An agreement was not reached by March 31, 2014, and the holder of the note has initiated proceedings to recover the unpaid principal.

7. Disclosures about Fair Value of Financial Instruments

Cash. The carrying amount approximates fair value.

Investment securities and short-term investments. See Note 3, “Investments,” for additional information.

Premiums receivable and reinsurance recoverables on paid losses. The carrying value of current receivables approximates fair value. At March 31, 2014 and December 31, 2013, the carrying values of premiums receivable over 90 days were $19.7 million and $9.8 million, respectively. Included in “Reinsurance recoverables” in our Consolidated Balance Sheets at March 31, 2014 and December 31, 2013, are amounts that are due from third party trade capital providers associated with the operations of Argo International. Upon settlement, the receivable is offset against the liability also reflected in our accompanying Consolidated Balance Sheets. At March 31, 2014 and December 31, 2013, the payable was in excess of the receivable. Of our reinsurance recoverable on paid losses, excluding amounts attributable to Argo International’s third party trade capital providers, at March 31, 2014 and December 31, 2013, the carrying values over 90 days were $15.1 million and $22.2 million, respectively. Our methodology for establishing our allowances for doubtful accounts includes specifically identifying all potential uncollectible balances regardless of aging. Any of the over 90 day balances, where collectability was deemed questionable, have been included in the allowances. At March 31, 2014 and December 31, 2013, the allowance for doubtful accounts for premiums receivable was $4.6 million and $4.5 million, respectively, and the allowance for doubtful accounts for reinsurance recoverables on paid losses was $2.2 million and $1.6 million, respectively. Premiums receivable over 90 days were secured by collateral in the amount of $0.5 million and $0.4 million at March 31, 2014 and December 31, 2013, respectively. Reinsurance recoverables on paid losses over 90 days were secured by collateral in the amount of $0.4 million and $0.3 million at March 31, 2014 and December 31, 2013, respectively.

At March 31, 2014 and December 31, 2013, the fair value of our Junior subordinated debentures, Senior unsecured fixed rate notes and Other indebtedness was estimated using appropriate market indices or quoted prices from external sources based on current market conditions.

A summary of our financial instruments whose carrying value did not equal fair value at March 31, 2014 and December 31, 2013 is shown below:


	March 31, 2014				December 31, 2013
(in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Junior subordinated debentures	$	193.3	$	155.8	$	193.3	$	155.5
Senior unsecured fixed rate notes		143.8		132.3		143.8		116.2
Other indebtedness:
Floating rate loan stock		65.7		53.0		65.5		52.7
Note payable		0.8		0.6		0.8		0.6

	$	403.6	$	341.7	$	403.4	$	325.0

8. Shareholders’ Equity

On February 18, 2014, our Board of Directors declared a quarterly cash dividend in the amount of $0.15 on each share of common stock outstanding. On March 17, 2014, we paid $4.0 million to our shareholders of record on March 3, 2014.

On February 15, 2013, our Board of Directors declared a quarterly cash dividend in the amount of $0.15 on each shares of common stock outstanding or $0.14 on each share outstanding adjusted for the 10% stock dividend. On March 15, 2013, we paid $3.7 million to our shareholders of record on March 1, 2013.

On November 13, 2007, our Board of Directors authorized the repurchase of up to $150.0 million of Argo Group’s common shares. On February 18, 2011, our Board of Directors authorized the repurchase of up to $150.0 million of our common shares (“2011 Repurchase Authorization”). The 2011 Repurchase Authorization superseded the November 13, 2007 repurchase program such that no further amounts could be repurchased under the repurchase program approved in 2007. On November 5, 2013, our Board of Directors authorized the repurchase of up to $150.0 million of our common shares (“2013 Repurchase Authorization”). The 2013 Repurchase Authorization supersedes the 2011 Repurchase Authorization such that no further amounts could be repurchased under the 2011 Repurchase Authorization. As of March 31, 2014, availability under the 2013 Repurchase Authorization for future repurchases of our common shares was $136.1 million.

For the three months ended March 31, 2014, we repurchased a total of 165,184 common shares for $7.5 million. A summary of activity from January 1, 2014 through March 31, 2014 follows.

For the three months ended March 31, 2014, there were no common shares repurchased on the open market. In 2014, we repurchased shares under Securities Exchange Act of 1934 Rule 10b5-1 trading plans as follows:


Date Trading	2014		Number of		Average Price of		Total Cost		Repurchase
Plan Initiated	Purchase Period		Shares Repurchased		Shares Repurchased		(in millions)		Authorization Year
12/17/2013		02/04/14-02/12/14		15,789	$	43.28	$	0.7		2013
03/18/2014		03/18/14-04/28/14		436,867	$	45.81	$	20.0		2013

9. Accumulated Other Comprehensive Income

In February 2013, the FASB issued Accounting Standards Update 2013-02 that amends ASC 220, “Comprehensive Income.” An entity is required to report the effect of significant reclassifications, by component, out of accumulated other comprehensive income on the respective line items in net income if the item is required under GAAP to be reclassified in its entirety in the same reporting period. Effective January 1, 2013, we adopted the update prospectively.

A summary of changes in accumulated other comprehensive income (loss), net of taxes (where applicable) by component for the three months ended March 31 is presented in the following tables:


(in millions)	Foreign Currency Translation Adjustments			Unrealized Holding Gains on Securities			Defined Benefit Pension Plans			Total
Beginning balance, January 1, 2014	$	(11.5	)	$	163.9		$	(4.6	)	$	147.8
Other comprehensive income before reclassifications		(0.2	)		1.3			0.0			1.1
Amounts reclassified from accumulated other comprehensive income		0.0			0.0			0.0			0.0

Net current-period other comprehensive income		(0.2	)		1.3			0.0			1.1

Ending balance, March 31, 2014	$	(11.7	)	$	165.2		$	(4.6	)	$	148.9


(in millions)	Foreign Currency Translation Adjustments			Unrealized Holding Gains on Securities			Defined Benefit Pension Plans			Total
Beginning balance, January 1, 2013	$	(8.7	)	$	204.1		$	(5.9	)	$	189.5
Other comprehensive income before reclassifications		0.0			13.8			0.0			13.8
Amounts reclassified from accumulated other comprehensive income		0.0			(0.8	)		0.0			(0.8	)

Net current-period other comprehensive income		0.0			13.0			0.0			13.0

Ending balance, March 31, 2013	$	(8.7	)	$	217.1		$	(5.9	)	$	202.5

The amounts reclassified from accumulated other comprehensive income shown in the above table have been included in the following captions in the Consolidated Statements of Income:


	For the Three Months
	Ended March 31,
(in millions)	2014			2013
Unrealized gains and losses on securities
Net realized investment gains	$	(0.1	)	$	(0.7	)
Provision for income taxes		0.1			(0.1	)

Net of taxes	$	0.0		$	(0.8	)

10. Net Income Per Common Share

The following table presents the calculation of net income per common share on a basic and diluted basis:


	For the Three Months
	Ended March 31,
(in millions, except number of shares and per share amounts)	2014		2013
Net income	$	40.2	$	32.7
Weighted average common shares outstanding - basic		26,514,481		27,247,009
Effect of dilutive securities
Equity compensation awards		451,980		910,064

Weighted average common shares outstanding - diluted		26,966,461		28,157,073

Net income per common share - basic	$	1.52	$	1.20

Net income per common share - diluted	$	1.49	$	1.16

Excluded from the weighted average common shares outstanding calculation at March 31, 2014 and 2013 are 7,723,529 shares and 6,785,438 shares, respectively, which are held as treasury shares. The shares are excluded as of their repurchase date. For the three months ended March 31, 2014, equity compensation awards to purchase 3,300 shares of common stock were excluded from the computation of diluted net income per common share as these instruments were anti-dilutive. These

instruments expire at varying times from 2014 through 2020. For the three months ended March 31, 2013, equity compensation awards to purchase 214,453 shares of common stock were excluded from the computation of diluted net income per common share as these instruments were anti-dilutive. These instruments expire at varying times from 2013 through 2015.

11. Supplemental Cash Flow Information

Income taxes paid. We paid income taxes of $15.6 million and $2.5 million during the three months ended March 31, 2014 and 2013, respectively.

Interest paid. Interest paid for the three months ended March 31, was as follows:


	For the Three Months
	Ended March 31,
(in millions)	2014		2013
Senior unsecured fixed rate notes	$	2.3	$	2.3
Junior subordinated debentures		2.0		1.9
Other indebtedness		0.9		0.9

Total interest paid	$	5.2	$	5.1

12. Share-based Compensation

The fair value method of accounting is used for equity-based compensation plans. Under the fair value method, compensation cost is measured based on the fair value of the award at the measurement date and recognized over the requisite service period. We use the Black-Scholes model to estimate the fair values on the measurement date for share options and share appreciation rights (“SARs”). The Black-Scholes model uses several assumptions to value a share award. The volatility assumption is based on the historical change in Argo Group’s stock price over the previous five years preceding the measurement date. The risk-free rate of return assumption is based on the five-year U.S. Treasury constant maturity rate on the measurement date. The expected award life is based upon the average holding period over the history of the incentive plan. The expected dividend yield is based on our history and expected dividend payouts. The following table summarizes the assumptions we used for the three months ended March 31, 2014 and 2013:


	2014			2013
Risk-free rate of return		1.74	%		0.80	%
Expected dividend yields		1.49	%		1.64	%
Expected award life (years)		4.85			5.07
Expected volatility		24.91	%		31.90	%

Argo Group’s 2007 Long-Term Incentive Plan

In November 2007, the shareholders of Argo Group approved the 2007 Long-Term Incentive Plan (the “2007 Plan”), which provides for an aggregate of 4.5 million shares of our common stock that may be issued to executives, non-employee directors and other key employees. The share awards may be in the form of share options, SARs, restricted shares, restricted share units, performance units, performance shares or other share-based incentive awards. Shares issued under this plan may be shares that are authorized and unissued or shares that we reacquired, including shares purchased on the open market. Share options and SARs will count as one share for the purposes of the limits under the 2007 Plan; restricted shares, restricted share units, performance units, performance shares or other share-based incentive awards which settle in common shares will count as 2.75 shares for purpose of the limits under the 2007 Plan.

Share options may be in the form of incentive share options, non-qualified share options and restorative options. Share options are required to have an exercise price that is not less than the market value on the date of grant. We are prohibited from repricing the options. The term of the share options cannot exceed seven years from the grant date. Options outstanding under this plan vested over a one to five year period, subject to continued employment. As of March 31, 2014, all options under this plan were fully vested. No expense related to these options was recognized for each of the three months ended March 31, 2014 and 2013, as such expenses were fully recognized in prior periods.

A summary of restricted share activity under the 2007 Plan as of March 31, 2014 and changes during the three months then ended is as follows:


				Weighted-Average
				Grant Date
	Shares			Fair Value
Outstanding at January 1, 2014		257,975		$	32.97
Granted		4,373		$	40.08
Vested and issued		(57,205	)	$	31.58
Expired or forfeited		(1,036	)	$	40.08

Outstanding at March 31, 2014		204,107		$	33.48

The restricted shares vest over two to four years. Expense recognized under this plan for the restricted shares was $0.7 million and $1.0 million for the three months ended March 31, 2014 and 2013, respectively. Compensation expense for all share-based compensation awards is included in “Underwriting, acquisition and insurance expense” in the accompanying Consolidated Statements of Income. As of March 31, 2014, there was $4.8 million of total unrecognized compensation cost related to restricted share compensation arrangements granted by Argo Group.

A summary of stock-settled SARs activity under the 2007 Plan as of March 31, 2014 and changes during the three months then ended is as follows:


				Weighted-Average
	Shares			Exercise Price
Outstanding at January 1, 2014		1,288,698		$	29.47
Granted		28,069		$	36.44
Exercised		(58,093	)	$	28.01
Expired or forfeited		(11,237	)	$	36.44

Outstanding at March 31, 2014		1,247,437		$	29.63

The stock-settled SARs vest over a one to four year period. Upon exercise of the stock-settled SARs, the employee is entitled to receive shares of our common stock equal to the appreciation of the stock as compared to the exercise price. Expense recognized for the stock-settled SARs was $0.6 million and $0.7 million for the three months ended March 31, 2014 and 2013, respectively. As of March 31, 2014, there was $3.3 million of total unrecognized compensation cost related to stock-settled SARs outstanding.

A summary of cash-settled SARs activity under the 2007 Plan as of March 31, 2014 and changes during the three months then ended is as follows:


				Weighted-Average
	Shares			Exercise Price
Outstanding at January 1, 2014		1,743,758		$	33.00
Granted		3,574		$	39.75
Exercised		(81,093	)	$	30.15
Expired or forfeited		(19,906	)	$	35.90

Outstanding at March 31, 2014		1,646,333		$	33.09

The cash-settled SARs vest over a one to four year period. Upon exercise of the cash-settled SARs, the employee is entitled to receive cash payment for the appreciation in the value of our common stock over the exercise price. We account for the cash-settled SARs as liability awards, which require the awards to be revalued at each reporting period. Expense recognized for the cash-settled SARs was $2.7 million and $6.5 million for the three months ended March 31, 2014 and 2013, respectively. As of March 31, 2014, there was $7.2 million of total unrecognized compensation cost related to cash-settled SARs outstanding.

Argo Group International Holdings Ltd. Deferred Compensation Plan for Non-Employee Directors

Until December 16, 2013, the non-employee members of our Board of Directors were entitled to participate in the Argo Group International Holdings, Ltd. Deferred Compensation Plan for Non-Employee Directors (“Directors Plan”), a non-funded and non-qualified deferred compensation plan. Under the Directors Plan, non-employee directors can elect each year to defer payment of 0%, 50% or 100% of their cash compensation payable during the next calendar year. While no further deferrals will be permitted under the Directors Plan from and after December 16, 2013, and certain amounts thereunder were paid out prior to the end of 2013, additional deferred amounts remain subject to the terms of the Directors Plan and will be paid out in accordance with the terms of the Directors Plan. Deferred amounts are credited with the interest earned at a rate of two percent above the prime commercial lending rate, to be reset each May 1. In addition, the Directors Plan calls for us to grant a match equal to 75% of the cash compensation amounts deferred in the form of “Stock Units,” which provide directors with the economic equivalent of stock ownership and are credited as a bookkeeping entry to each director’s “Stock Unit Account.” Each Stock Unit is valued at the closing price of our common stock on the national exchange on which it is listed as of the date credited for all purposes under the Directors Plan and fluctuates daily thereafter on that same basis. The Directors Plan provided for a Stock Unit Account to be established for each non-employee director upon their election to the Board and credits their account with an initial bookkeeping entry for 1,650 Stock Units. In conjunction with the termination of the Directors Plan, all cash balances and related interest for the years 2010 through 2013 were settled resulting in $1.9 million in cash payments for the year ended December 31, 2013. Remaining distributions from the Directors Plan will occur six months after the non-employee director ceases to be a member of the Board, the date on which a change in control (as defined in the Directors Plan) occurs or December 1, 2017, whichever comes first, and will be made in cash. The non-employee directors are responsible for all tax requirements on the deferred compensation and any related earnings. Under the Directors Plan, our recorded compensation expense was nil and $0.6 million for the three months ended March 31, 2014 and 2013, respectively. The period over period reduction in compensation expense is due to the aforementioned termination and partial payout of the cash deferral component of the Directors Plan.

Argonaut Group’s Amended and Restated Stock Incentive Plan

The historical Argonaut Group, Inc.’s Amended and Restated Stock Incentive Plan, as approved by the shareholders (the “Amended Plan”), provided for an aggregate of up to 6,250,000 shares of our common stock that may be issued to certain executives and other key employees. The stock awards were issued in the form of non-qualified stock options and non-vested stock. Grants under the Amended Plan have a legal life of seven to eleven years. As of March 31, 2014, all awards under this plan were fully vested. No expense related to these awards was recognized for each of the three months ended March 31, 2014 and 2013, as such expenses were fully recognized in prior periods.

13. Underwriting, Acquisition and Insurance Expenses

Underwriting, acquisition and insurance expenses were as follows:


	For the Three Months
	Ended March 31,
(in millions)	2014			2013
Commissions	$	54.9		$	51.9
General expenses		68.8			68.7
Premium taxes, boards and bureaus		6.6			6.8

		130.3			127.4
Net deferral of policy acquisition costs		(1.6	)		(0.7	)

Total underwriting, acquisition and insurance expenses	$	128.7		$	126.7

Included in general expenses for the three months ended March 31, 2014 and 2013, was $4.3 million and $8.6 million, respectively, in additional expense for our total equity compensation.

14. Income Taxes

We are incorporated under the laws of Bermuda and, under current Bermuda law, are not obligated to pay any taxes in Bermuda based upon income or capital gains. We have received an undertaking from the Supervisor of Insurance in Bermuda pursuant to the provisions of the Exempted Undertakings Tax Protection Act, 2011, which exempts us from any Bermuda taxes computed on profits, income or any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, at least until the year 2035.

We do not consider ourselves to be engaged in a trade or business in the United States or the United Kingdom and, accordingly, do not expect to be subject to direct United States or United Kingdom income taxation.

We have subsidiaries based in the United Kingdom that are subject to the tax laws of that country. Under current law, these subsidiaries are taxed at the applicable corporate tax rates. Six of the United Kingdom subsidiaries are deemed to be engaged in business in the United States, and therefore, are subject to United States corporate tax in respect of a proportion of their United States underwriting business only. Relief is available against the United Kingdom tax liabilities in respect of overseas taxes paid that arise from the underwriting business. Corporate income tax losses incurred in the United Kingdom can be carried forward, for application against future income, indefinitely. Our United Kingdom subsidiaries file separate United Kingdom income tax returns.

We have subsidiaries based in the United States that are subject to United States tax laws. Under current law, these subsidiaries are taxed at the applicable corporate tax rates. Our United States subsidiaries file a consolidated United States federal income tax return.

We also have operations in Belgium, Switzerland, Brazil, France, Malta, Spain and Ireland, which also are subject to income taxes imposed by the jurisdiction in which they operate. We have operations in the United Arab Emirates, which are not subject to income tax under the laws of that country.

Our income tax provision includes the following components:


	For the Three Months
	Ended March 31,
(in millions)	2014			2013
Current tax provision	$	1.4		$	1.8
Deferred tax provision related to:
Future tax deductions		30.2			2.4
Valuation allowance change		(29.1	)		0.6

Income tax provision	$	2.5		$	4.8

Our expected income tax provision computed on pre-tax income (loss) at the weighted average tax rate has been calculated as the sum of the pre-tax income (loss) in each jurisdiction multiplied by that jurisdiction’s applicable statutory tax rate. For the three months ended March 31, 2014 and 2013, pre-tax income (loss) attributable to our operations and the operations’ effective tax rates were as follows:


	For the Three Months Ended March 31,
(in millions)	2014						2013
	Pre-tax			Effective Tax			Pre-tax			Effective Tax
	income (loss)			Rate			income (loss)			Rate
Bermuda	$	21.9			0.0	%	$	16.1			0.0	%
United States		14.8			20.6	%		17.5			18.3	%
United Kingdom		7.3			-7.7	%		6.0			25.5	%
Belgium		0.0	⁽¹⁾		18.1	%		0.0	⁽¹⁾		-67.6	%
Brazil		0.0			0.0	%		(1.8	)		0.0	%
Dubai		(0.9	)		0.0	%		0.0			0.0	%
Malta		(0.4	)		0.0	%		(0.3	)		0.0	%
Switzerland		0.0	⁽¹⁾		-19.8	%		0.0	⁽¹⁾		24.5	%

Pre-tax income (loss)	$	42.7					$	37.5

⁽¹⁾	Pre-tax income for the respective period was less than $0.1 million.

A reconciliation of the difference between the provision for income taxes and the expected tax provision at the weighted average tax rate is as follows:


	For the Three Months
	Ended March 31,
(in millions)	2014			2013
Income tax provision at expected rate	$	4.7		$	6.7
Tax effect of:
Tax-exempt interest		(1.2	)		(1.4	)
Dividends received deduction		(0.6	)		(0.6	)
Valuation allowance change		(29.1	)		0.6
Other permanent adjustments, net		0.1			(0.9	)
Adjustment for annualized rate		0.8			0.4
United States state tax benefit		0.1			(0.2	)
PXRE Reinsurance capital loss carryforward		29.8			0.0
Foreign exchange adjustments		(2.2	)		0.2
Foreign withholding taxes		0.1			0.0

Income tax provision	$	2.5		$	4.8

Income tax (benefit) provision - Foreign	$	(0.6	)	$	1.6
Income tax provision - United States Federal		2.8			3.5
Income tax provision (benefit) - United States State		0.2			(0.3	)
Foreign withholding tax - United States		0.1			0.0

Income tax provision	$	2.5		$	4.8

We recognize potential accrued interest and penalties within our global operations in “Interest expense” and “Underwriting, acquisition and insurance expenses,” respectively, in our Consolidated Statements of Income.

Our net deferred tax assets (liabilities) are supported by taxes paid in previous periods, reversal of the taxable temporary differences and recognition of future income. Management regularly evaluates the recoverability of the deferred tax assets and makes any necessary adjustments to them based upon any changes in management’s expectations of future taxable income. Realization of deferred tax assets is dependent upon our generation of sufficient taxable income in the future to recover tax benefits that cannot be recovered from taxes paid in the carryback period, which is generally two years for net operating losses and three years for capital losses for our United States operations. At March 31, 2014, we had a total net deferred tax liability

of $7.0 million prior to any valuation allowance. Management has concluded that a valuation allowance is required for a portion of the tax effected net operating loss carryforward of $18.5 million from PXRE Corporation and for the tax effected net operating loss carryforward of $1.0 million from ARIS. The capital loss carryforward generated from the sale of PXRE Reinsurance Company expired on December 31, 2013. Of the PXRE Corporation loss carryforwards, $17.0 million will expire if not used by December 31, 2025 and $1.5 million will expire if not used by December 31, 2027. Of the ARIS loss carryforward, $0.2 million will expire if not used by December 31, 2027, $0.4 million will expire if not used by December 31, 2028 and $0.4 million will expire if not used by December 31, 2029. The valuation allowances have been established as Internal Revenue Code Section 382 limits the application of net operating loss and net capital loss carryforwards following an ownership change. The loss carryforwards available per year are $2.8 million as required by Internal Revenue Code Section 382. Further, due to cumulative losses since inception, management has concluded that a valuation allowance is required for the full amount of the tax effected net operating losses generated by our Brazil and Malta entities. Accordingly, a valuation allowance of $27.2 million is required as of March 31, 2014 of which $16.6 million relates to the PXRE Corporation and ARIS loss carryforwards, $8.8 million relates to Brazil operations and $1.8 million relates to Malta operations. For the three months ended March 31, 2014, the valuation allowance was reduced by $29.8 million pertaining to the expiration of the PXRE Reinsurance Company capital loss carryforward, reduced by $0.2 million pertaining to the PXRE Corporation and ARIS loss carryforwards, increased by $0.8 million pertaining to the Brazil operations and increased by $0.1 million pertaining to the Malta operations.

We had no material unrecognized tax benefits as of March 31, 2014 and 2013. Our United States subsidiaries are no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2010. Our United Kingdom subsidiaries are no longer subject to United Kingdom income tax examinations by Her Majesty’s Revenue and Customs for years before 2011.

15. Commitments and Contingencies

Argo Group’s subsidiaries are parties to legal actions incidental to their business. Based on the opinion of counsel, management believes that the resolution of these matters will not materially affect our financial condition or results of operations.

Argo Group has contractual commitments to invest up to $26.3 million related to its limited partnership investments at March 31, 2014. These commitments will be funded as required by the partnership agreements.

16. Segment Information

We are primarily engaged in writing property and casualty insurance and reinsurance. We have four ongoing reporting segments: Excess and Surplus Lines, Commercial Specialty, International Specialty and Syndicate 1200. Additionally, we have a Run-off Lines segment for certain products that we no longer write.

We consider many factors, including the nature of each segment’s insurance and reinsurance products, production sources, distribution strategies and the regulatory environment, in determining how to aggregate reporting segments.

In evaluating the operating performance of our segments, we focus on core underwriting and investing results before the consideration of realized gains or losses from the sales of investments. Intersegment transactions are allocated to the segment that initiated the transaction. Realized investment gains are reported as a component of the Corporate and Other segment, as decisions regarding the acquisition and disposal of securities reside with the investment function and are not under the control of the individual business segments. Identifiable assets by segment are those assets used in the operation of each segment.

Revenue and income (loss) before income taxes for each segment for the three months ended March 31, 2014 and 2013 were as follows:


	For the Three Months
	Ended March 31,
(in millions)	2014		2013
Revenue:
Earned premiums
Excess and Surplus Lines	$	117.4	$	105.1
Commercial Specialty		71.7		75.2
International Specialty		37.0		32.7
Syndicate 1200		99.3		90.9
Run-off Lines		0.3		0.3

Total earned premiums		325.7		304.2
Net investment income
Excess and Surplus Lines		9.3		10.9
Commercial Specialty		4.7		5.9
International Specialty		1.8		2.3
Syndicate 1200		3.7		2.8
Run-off Lines		2.5		2.8
Corporate and Other		1.3		3.2

Total net investment income		23.3		27.9
Net realized investment gains and other		11.1		9.5

Total revenue	$	360.1	$	341.6


	For the Three Months
	Ended March 31,
(in millions)	2014			2013
Income (loss) before income taxes
Excess and Surplus Lines	$	20.1		$	13.9
Commercial Specialty		1.7			5.7
International Specialty		6.8			4.8
Syndicate 1200		15.8			8.4
Run-off Lines		(5.9	)		(0.4	)

Total segment income before taxes		38.5			32.4
Corporate and Other		(6.9	)		(4.4	)
Net realized investment gains and other		11.1			9.5

Total income before income taxes	$	42.7		$	37.5

The table below presents earned premiums by geographic location for the three months ended March 31, 2014 and 2013. For this disclosure, we determine geographic location by the country of domicile of our subsidiaries that write the business and not by the location of insureds or reinsureds from whom the business was generated.


	For the Three Months
	Ended March 31,
(in millions)	2014		2013
Bermuda	$	24.4	$	25.8
Brazil		12.6		10.0
Malta		0.5		0.4
United Kingdom		98.9		87.0
United States		189.3		181.0

Total earned premiums	$	325.7	$	304.2

The following table presents our identifiable assets.


	March 31,		December 31,
(in millions)	2014		2013
Excess and Surplus Lines	$	2,310.1	$	2,252.2
Commercial Specialty		1,332.6		1,333.4
International Specialty		781.2		743.6
Syndicate 1200		1,390.9		1,638.8
Run-off Lines		556.1		555.9
Corporate and Other		60.5		67.1

Total	$	6,431.4	$	6,591.0

Included in total assets at March 31, 2014 and December 31, 2013 are $246.4 million and $386.8 million, respectively, in assets associated with trade capital providers.

17. Information Provided in Connection with Outstanding Debt of Subsidiaries

The following tables present condensed consolidating financial information at March 31, 2014 and December 31, 2013 and for the three months ended March 31, 2014 and 2013, for Argo Group (the “Parent Guarantor”) and Argo Group US (the “Subsidiary Issuer”). The Subsidiary Issuer is an indirect 100 percent-owned subsidiary of the Parent Guarantor. Investments in subsidiaries are accounted for by the Parent Guarantor under the equity method for purposes of the supplemental consolidating presentation. Earnings of subsidiaries are reflected in the Parent Guarantor’s investment accounts and earnings. The Parent Guarantor fully and unconditionally guarantees certain of the debt of the Subsidiary Issuer. Condensed consolidating financial information of the Subsidiary Issuer is presented on a consolidated basis and consists principally of the net assets, results of operations, and cash flows of operating insurance company subsidiaries.

CONDENSED CONSOLIDATING BALANCE SHEET

March 31, 2014

(in millions)


	Argo Group International Holdings, Ltd (Parent Guarantor)		Argo Group US, Inc. and Subsidiaries (Subsidiary Issuer)		Other Subsidiaries and Eliminations ⁽¹⁾			Consolidating Adjustments ⁽²⁾			Total
Assets
Investments	$	4.6	$	2,797.9	$	1,316.0		$	0.0		$	4,118.5
Cash		0.0		118.4		31.1			0.0			149.5
Accrued investment income		0.0		18.6		6.4			0.0			25.0
Premiums receivable		0.0		153.5		217.6			0.0			371.1
Reinsurance recoverables		0.0		1,165.9		(187.8	)		0.0			978.1
Goodwill and other intangible assets, net		0.0		136.9		101.6			0.0			238.5
Current income taxes receivable, net		0.0		5.6		4.8			0.0			10.4
Deferred acquisition costs, net		0.0		54.4		63.1			0.0			117.5
Ceded unearned premiums		0.0		106.8		145.1			0.0			251.9
Other assets		6.4		107.4		57.1			0.0			170.9
Due from affiliates		0.2		4.7		(4.7	)		(0.2	)		0.0
Intercompany note receivable		0.0		88.0		(88.0	)		0.0			0.0
Investments in subsidiaries		1,666.1		0.0		0.0			(1,666.1	)		0.0

Total assets	$	1,677.3	$	4,758.1	$	1,662.3		$	(1,666.3	)	$	6,431.4

Liabilities and Shareholders’ Equity
Reserves for losses and loss adjustment expenses	$	0.0	$	2,174.1	$	868.3		$	0.0		$	3,042.4
Unearned premiums		0.0		421.8		364.5			0.0			786.3
Funds held and ceded reinsurance payable, net		0.0		682.2		(290.1	)		0.0			392.1
Long-term debt		49.0		288.9		65.7			0.0			403.6
Deferred tax liabilities, net		0.0		27.6		6.6			0.0			34.2
Accrued underwriting expenses and other liabilities		14.2		97.0		66.7			0.0			177.9
Intercompany note payable		19.2		0.0		0.0			(19.2	)		0.0

Total liabilities		82.4		3,691.6		1,081.7			(19.2	)		4,836.5

Total shareholders’ equity		1,594.9		1,066.5		580.6			(1,647.1	)		1,594.9

Total liabilities and shareholders’ equity	$	1,677.3	$	4,758.1	$	1,662.3		$	(1,666.3	)	$	6,431.4

CONDENSED CONSOLIDATING BALANCE SHEET December 31, 2013 (in millions)
	Argo Group International Holdings, Ltd (Parent Guarantor)		Argo Group US, Inc. and Subsidiaries (Subsidiary Issuer)		Other Subsidiaries and Eliminations ⁽¹⁾			Consolidating Adjustments ⁽²⁾			Total
Assets
Investments	$	1.1	$	2,785.1	$	1,293.0		$	0.0		$	4,079.2
Cash		0.0		132.1		25.3			0.0			157.4
Accrued investment income		0.0		19.7		6.0			0.0			25.7
Premiums receivable		0.0		150.8		197.6			0.0			348.4
Reinsurance recoverables		0.0		1,145.9		117.6			0.0			1,263.5
Goodwill and other intangible assets, net		0.0		137.4		102.4			0.0			239.8
Current income taxes receivable, net		0.0		0.5		(0.5	)		0.0			0.0
Deferred acquisition costs, net		0.0		55.6		58.3			0.0			113.9
Ceded unearned premiums		0.0		88.2		108.1			0.0			196.3
Other assets		4.6		97.8		64.4			0.0			166.8
Due from affiliates		3.1		1.5		(1.5	)		(3.1	)		0.0
Intercompany note receivable		0.0		87.4		(87.4	)		0.0			0.0
Investments in subsidiaries		1,625.2		0.0		0.0			(1,625.2	)		0.0

Total assets	$	1,634.0	$	4,702.0	$	1,883.3		$	(1,628.3	)	$	6,591.0

Liabilities and Shareholders’ Equity
Reserves for losses and loss adjustment expenses	$	0.0	$	2,157.0	$	1,073.3		$	0.0		$	3,230.3
Unearned premiums		0.0		425.5		353.6			0.0			779.1
Funds held and ceded reinsurance payable, net		0.0		642.4		(244.0	)		0.0			398.4
Long-term debt		49.0		288.9		65.5			0.0			403.4
Current income taxes payable, net		0.0		8.9		(3.7	)		0.0			5.2
Deferred tax liabilities, net		0.0		22.8		5.9			0.0			28.7
Accrued underwriting expenses and other liabilities		15.4		98.2		69.3			0.0			182.9
Intercompany note payable		6.6		0.0		0.0			(6.6	)		0.0

Total liabilities		71.0		3,643.7		1,319.9			(6.6	)		5,028.0

Total shareholders’ equity		1,563.0		1,058.3		563.4			(1,621.7	)		1,563.0

Total liabilities and shareholders’ equity	$	1,634.0	$	4,702.0	$	1,883.3		$	(1,628.3	)	$	6,591.0

⁽¹⁾	Includes all other subsidiaries of Argo Group International Holdings, Ltd and all intercompany eliminations

⁽²⁾	Includes all Argo Group parent company eliminations

CONDENSED CONSOLIDATING STATEMENT OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(in millions)


	Argo Group International Holdings, Ltd (Parent Guarantor)			Argo Group US, Inc. and Subsidiaries (Subsidiary Issuer)			Other Subsidiaries and Eliminations ⁽¹⁾			Consolidating Adjustments ⁽²⁾			Total
Premiums and other revenue:
Earned premiums	$	0.0		$	112.0		$	213.7		$	0.0		$	325.7
Net investment income		(0.1	)		15.0			8.4			0.0			23.3
Net realized investment gains and other		0.0			11.5			(0.4	)		0.0			11.1

Total revenue		(0.1	)		138.5			221.7			0.0			360.1

Expenses:
Losses and loss adjustment expenses		0.0			72.5			110.0			0.0			182.5
Underwriting, acquisition and insurance expenses		6.0			46.3			76.4			0.0			128.7
Interest expense		0.6			3.8			0.7			(0.1	)		5.0
Fee expense, net		0.0			1.3			0.1			0.0			1.4
Foreign currency exchange gain		0.0			(0.1	)		(0.1	)		0.0			(0.2	)

Total expenses		6.6			123.8			187.1			(0.1	)		317.4

Income (loss) before income taxes		(6.7	)		14.7			34.6			0.1			42.7
Provision for income taxes		0.0			3.0			(0.5	)		0.0			2.5

Net (loss) income before equity in earnings of subsidiaries		(6.7	)		11.7			35.1			0.1			40.2
Equity in undistributed earnings of subsidiaries		46.9			0.0			0.0			(46.9	)		0.0

Net income	$	40.2		$	11.7		$	35.1		$	(46.8	)	$	40.2

⁽¹⁾	Includes all other subsidiaries of Argo Group International Holdings, Ltd. and all intercompany eliminations

⁽²⁾	Includes all Argo Group parent company eliminations

CONDENSED CONSOLIDATING STATEMENT OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2013

(in millions)


	Argo Group International Holdings, Ltd (Parent Guarantor)			Argo Group US, Inc. and Subsidiaries (Subsidiary Issuer)			Other Subsidiaries and Eliminations ⁽¹⁾			Consolidating Adjustments ⁽²⁾			Total
Premiums and other revenue:
Earned premiums	$	0.0		$	107.7		$	196.5		$	0.0		$	304.2
Net investment income		0.0			20.9			7.3			(0.3	)		27.9
Fee (expense) income, net		0.0			(0.3	)		0.3			0.0			0.0
Net realized investment gains and other		0.0			7.6			1.9			0.0			9.5

Total revenue		0.0			135.9			206.0			(0.3	)		341.6

Expenses:
Losses and loss adjustment expenses		0.0			64.3			106.2			0.0			170.5
Other reinsurance-related expenses		0.0			1.5			3.6			0.0			5.1
Underwriting, acquisition and insurance expenses		6.2			48.7			71.8			0.0			126.7
Interest expense		0.8			3.7			0.7			(0.3	)		4.9
Foreign currency exchange (gain) loss		(0.1	)		0.2			(3.2	)		0.0			(3.1	)

Total expenses		6.9			118.4			179.1			(0.3	)		304.1

Income (loss) before income taxes		(6.9	)		17.5			26.9			0.0			37.5
Provision for income taxes		0.0			3.2			1.6			0.0			4.8

Net income (loss) before equity in earnings of subsidiaries		(6.9	)		14.3			25.3			0.0			32.7
Equity in undistributed earnings of subsidiaries		39.6			0.0			0.0			(39.6	)		0.0

Net income	$	32.7		$	14.3		$	25.3		$	(39.6	)	$	32.7

⁽¹⁾	Includes all other subsidiaries of Argo Group International Holdings, Ltd. and all intercompany eliminations

⁽²⁾	Includes all Argo Group parent company eliminations

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(in millions)


	Argo Group International Holdings, Ltd (Parent Guarantor)			Argo Group US, Inc. and Subsidiaries (Subsidiary Issuer)			Other Subsidiaries and Eliminations ⁽¹⁾			Consolidating Adjustments ⁽²⁾			Total
Net cash flows from operating activities	$	(9.4	)	$	(11.2	)		64.2		$	0.0		$	43.6

Cash flows from investing activities:
Proceeds from sales of investments		0.0			163.3			100.0			0.0			263.3
Proceeds from maturities and mandatory calls of investments		0.0			51.3			27.1			0.0			78.4
Purchases of investments		0.0			(178.6	)		(128.7	)		0.0			(307.3	)
Change in short-term investments and foreign regulatory deposits		(0.9	)		(29.8	)		(23.2	)		0.0			(53.9	)
Settlements of foreign currency exchange forward contracts		0.9			0.0			(2.3	)		0.0			(1.4	)
Issuance of intercompany note, net		0.0			0.0			(12.5	)		12.5			0.0
Other, net		0.1			(5.1	)		(19.1	)		0.0			(24.1	)

Cash provided (used) by investing activities		0.1			1.1			(58.7	)		12.5			(45.0	)

Cash flows from financing activities:
Borrowings under intercompany note, net		12.5			0.0			0.0			(12.5	)		0.0
Activity under stock incentive plans		0.8			0.0			0.0			0.0			0.8
Repurchase of Company’s common shares		0.0			(3.7	)		0.0			0.0			(3.7	)
Excess tax expense from share-based payment arrangements		0.0			0.1			0.0			0.0			0.1
Payment of cash dividends to common shareholders		(4.0	)		0.0			0.0			0.0			(4.0	)

Cash provided (used) by financing activities		9.3			(3.6	)		0.0			(12.5	)		(6.8	)

Effect of exchange rate changes on cash		0.0			0.0			0.3			0.0			0.3

Change in cash		0.0			(13.7	)		5.8			0.0			(7.9	)
Cash, beginning of period		0.0			132.1			25.3			0.0			157.4

Cash, end of period	$	0.0		$	118.4		$	31.1		$	0.0		$	149.5

⁽¹⁾	Includes all other subsidiaries of Argo Group International Holdings, Ltd and all intercompany eliminations

⁽²⁾	Includes all Argo Group parent company eliminations

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2013

(in millions)


	Argo Group International Holdings, Ltd (Parent Guarantor)			Argo Group US, Inc. and Subsidiaries (Subsidiary Issuer)			Other Subsidiaries and Eliminations ⁽¹⁾			Consolidating Adjustments ⁽²⁾			Total
Net cash flows from operating activities	$	(0.5	)	$	2.7		$	(86.2	)	$	0.0		$	(84.0	)

Cash flows from investing activities:
Proceeds from sales of investments		0.0			199.0			237.2			0.0			436.2
Proceeds from maturities and mandatory calls of investments		0.0			86.7			28.4			0.0			115.1
Purchases of investments		0.0			(282.9	)		(159.9	)		0.0			(442.8	)
Change in short-term investments and foreign regulatory deposits		(2.2	)		28.6			(32.8	)		0.0			(6.4	)
Settlements of foreign currency exchange forward contracts		0.2			0.0			(2.1	)		0.0			(1.9	)
Issuance of intercompany note, net		0.0			(10.0	)		5.1			4.9			0.0
Other, net		0.0			(6.2	)		0.7			0.0			(5.5	)

Cash (used) provided by investing activities		(2.0	)		15.2			76.6			4.9			94.7

Cash flows from financing activities:
Borrowings under intercompany note, net		4.9			0.0			0.0			(4.9	)		0.0
Proceeds from issuance of senior unsecured fixed rate notes		1.3			0.0			(1.3	)		0.0			0.0
Activity under stock incentive plans		0.0			0.0			1.3			0.0			1.3
Repurchase of Company’s common shares		0.0			(12.9	)		0.0			0.0			(12.9	)
Payment of cash dividends to common shareholders		(3.7	)		0.0			0.0			0.0			(3.7	)

Cash provided (used) by financing activities		2.5			(12.9	)		0.0			(4.9	)		(15.3	)

Effect of exchange rate changes on cash		0.0			0.0			0.0			0.0			0.0

Change in cash		0.0			5.0			(9.6	)		0.0			(4.6	)
Cash, beginning of period		0.0			73.9			21.9			0.0			95.8

Cash, end of period	$	0.0		$	78.9		$	12.3		$	0.0		$	91.2

⁽¹⁾	Includes all other subsidiaries of Argo Group International Holdings, Ltd. and all intercompany eliminations

⁽²⁾	Includes all Argo Group parent company eliminations

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion and analysis of our results of operations for the three months ended March 31, 2014 compared with the three months ended March 31, 2013, and also a discussion of our financial condition as of March 31, 2014. This discussion and analysis should be read in conjunction with the attached unaudited interim Consolidated Financial Statements and notes thereto and Argo Group’s Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission (“SEC”) on February 28, 2014, including the audited Consolidated Financial Statements and notes thereto.

Forward Looking Statements

Management’s Discussion and Analysis of Financial Condition and Results of Operations, Quantitative and Qualitative Disclosures About Market Risk and the accompanying Consolidated Financial Statements (including the notes thereto) may contain “forward looking statements,” which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward looking statements are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that actual developments will be those anticipated by us. Actual results may differ materially as a result of significant risks and uncertainties, including non-receipt of expected payments, capital markets and their effect on investment income and fair value of the investment portfolio, development of claims and the effect on loss reserves, accuracy in estimating loss reserves, changes in the demand for our products, effect of general economic conditions, adverse government legislation and regulations, government investigations into industry practices, developments relating to existing agreements, heightened competition, changes in pricing environments and changes in asset valuations. For a more detailed discussion of risks and uncertainties, see our public filings made with the SEC. We undertake no obligation to publicly update any forward-looking statements.

Generally, it is our policy to communicate events that may have a material adverse impact on our operations or financial position, including property and casualty catastrophic events and material losses in the investment portfolio, in a timely manner through a public announcement. It is also our policy not to make public announcements regarding events that are believed to have no material adverse impact on our results of operations or financial position based on management’s current estimates and available information, other than through regularly scheduled calls, press releases or filings.

Consolidated Results of Operations

For the three months ended March 31, 2014, we reported net income of $40.2 million, or $1.49 per fully diluted share. For the three months ended March 31, 2013, we reported net income of $32.7 million, or $1.16 per fully diluted share.

The following is a comparison of selected data from our operations:


	Three Months Ended March 31,
(in millions)	2014			2013
Gross written premiums	$	463.1		$	438.2

Earned premiums	$	325.7		$	304.2
Net investment income		23.3			27.9
Net realized investment gains and other		11.1			9.5

Total revenue	$	360.1		$	341.6

Income before income taxes	$	42.7		$	37.5
Provision for income taxes		2.5			4.8

Net income	$	40.2		$	32.7

Loss ratio		56.0	%		57.0	%
Expense ratio		39.5	%		42.4	%

Combined ratio		95.5	%		99.4	%

The increase in consolidated gross written and earned premiums was primarily attributable to growth in our segments, excluding Commercial Specialty, resulting from our introduction of new products, increased renewals and moderate rate increases. Partially offsetting these increases were declines in gross written and earned premiums in the Commercial Specialty segment due to the planned exits from select lines.

Consolidated net investment income decreased for the three months ended March 31, 2014 as compared to the same period of 2013 due primarily to the continued reinvestment at market yields below the portfolio’s book yield and an increased focus on total portfolio returns relative to current income.

Consolidated net realized investment gains and other were $11.1 million and $9.5 million for the three months ended March 31, 2014 and 2013, respectively. The increase in net realized gains was primarily attributable to $5.9 million in realized gains from the targeted reduction in certain equity holdings and $2.4 million in realized gains for our equity method investments. Partially offsetting these net realized gains was a $3.9 million reduction for our fixed maturity portfolio and $4.0 million in realized losses resulting from the write down of an asset held for sale. Included in consolidated net realized investment gains and other for the three months ended March 31, 2013 were write-downs of approximately $1.4 million from the recognition of other-than-temporary impairments on certain of our investment securities. We did not recognize any other-than-temporary impairments on our investment portfolio for the three months ended March 31, 2014.

We have purchased foreign currency 90 day future forward contracts to manage currency exposure on losses related to selected catastrophe events. The term of these contracts gives us the flexibility to adjust the notional amount of the contracts based on payments made and changes in estimates of future losses. We do not apply hedge accounting to these contracts; as a result, all gains (losses) are recognized in net realized investment gains (losses). For the three months ended March 31, 2014, we recognized $1.0 million in realized gains from the currency forward contracts. Foreign currency exchange losses related to the loss reserves recorded for these events were $1.2 million for the three months ended March 31, 2014. For the three months ended March 31, 2013, we recognized $0.5 million in foreign currency exchange losses related to the loss reserves recorded for the events offset by $0.7 million in realized losses from the currency forward contracts. The foreign currency exchange losses related to these loss reserves and the realized gains (losses) from the currency forward contacts are reported under the Corporate and Other segment.

Consolidated losses and loss adjustment expenses were $182.5 million and $170.5 million for the three months ended March 31, 2014 and 2013, respectively. Included in losses and loss adjustment expenses for the three months ended March 31, 2014 and 2013 was $4.2 million and $1.9 million, respectively, in catastrophe losses attributable to United States storms. Included in losses and loss adjustment expenses for the three months ended March 31, 2014 and 2013 was $8.9 million and $4.5 million, respectively, of net favorable loss reserve development on prior accident years.

The following table summarizes the above referenced loss reserve development with respect to prior year loss reserves by line of business for the three months ended March 31, 2014.


(in millions)	2013 Net Reserves		Net Reserve Development (Favorable)/Unfavorable			Percent of 2013 Net Reserves
General liability	$	924.8	$	(14.1	)		-1.5	%
Workers compensation		337.7		2.2			0.7	%
Syndicate 1200 liability		172.9		(4.1	)		-2.4	%
Syndicate 1200 property		136.9		(1.8	)		-1.3	%
Commercial multi-peril		171.0		1.6			0.9	%
Commercial auto liability		167.0		9.5			5.7	%
Reinsurance—nonproportional assumed property		97.9		(0.2	)		-0.2	%
Syndicate 1200 specialty		35.6		(1.3	)		-3.7	%
All other lines		63.8		(0.7	)		-1.1	%

Total	$	2,107.6	$	(8.9	)		-0.4	%

In determining appropriate reserve levels for the three months ended March 31, 2014, we maintained the same general processes and disciplines that were used to set reserves at prior reporting dates. No significant changes in methodologies were made to estimate the reserves since the last reporting date; however, at each reporting date we reassess the actuarial estimate of the reserve for losses and loss adjustment expenses and record our best estimate. Consistent with prior reserve valuations, as

claims data becomes more mature for prior accident years, actuarial estimates were refined to weigh certain actuarial methods more heavily in order to respond to any emerging trends in the paid and reported loss data. While prior accident years’ net reserves for losses and loss adjustment expenses for some lines of business have developed favorably in recent years, this does not imply that more recent accident years’ reserves will also develop favorably; pricing, reinsurance costs, legal environment, general economic conditions including changes in inflation and many other factors impact management’s ultimate loss estimates.

When determining reserve levels, we recognize that there are several factors that present challenges and uncertainties to the estimation of net loss reserves. Examples of these uncertainties include changes to the reinsurance structure and potential increases in inflation. Our net retained losses vary by product and they have generally increased over time. To properly recognize these uncertainties, actuarial reviews have given significant consideration to the paid and incurred Bornhuetter-Ferguson (“BF”) methodologies. Compared with other actuarial methodologies, the paid and incurred BF methods assign smaller weight to actual reported loss experience, with the greatest weight assigned to an expected or planned loss ratio. The expected or planned loss ratio has typically been determined using various assumptions pertaining to prospective loss frequency and loss severity. In setting reserves at March 31, 2014, we continued to consider the paid and incurred BF methods for recent years.

Our loss reserve estimates gradually blend in the results from development and frequency/severity methodologies over time. For general liability estimates, our own loss experience is not deemed fully credible for several years after the end of an accident year. We rely primarily on the BF methods during that period. For property business, our loss reserve estimates also blend in the results from development and frequency/severity methodologies over time. For property lines, in contrast to general liability estimates, where loss reporting and claims closing patterns settle more quickly, we give greater weight to development methods starting at the end of the accident year.

For the Run-off Lines segment, in determining appropriate reserve levels, we maintained the same general processes and disciplines that were used to set reserves at prior reporting dates. No changes in key assumptions were made to estimate the reserves since the last reporting date.

Consolidated gross reserves for losses and loss adjustment expenses were $3,042.4 million (including $66.6 million of reserves attributable to Syndicate 1200 segment’s trade capital providers) and $3,205.0 million (including $132.0 million of reserves attributable to the Syndicate 1200 segment’s trade capital providers) as of March 31, 2014 and 2013, respectively. Management has recorded its best estimate of loss reserves at each date based on current known facts and circumstances. Due to the significant uncertainties inherent in the estimation of loss reserves, there can be no assurance that future loss development, favorable or unfavorable, will not occur.

As of March 31, 2013, we had in place a catastrophe bond transaction to provide reinsurance coverage for selected events. The catastrophe bond cover expired on December 31, 2013. In accordance with generally accepted accounting principles in the United States (“GAAP”), we accounted for this cover as derivatives, and as such, presented the financial statement impact in a separate line item, “Other reinsurance-related expenses” in our Consolidated Statements of Income. Other reinsurance-related expenses totaled $5.1 million for the three months ended March 31, 2013. There were no other reinsurance-related expenses for the three months ended March 31, 2014. As management viewed this coverage as reinsurance protection, we treated the financial statement effects of other reinsurance related expenses related to this cover as ceded premium for the purposes of calculating our loss, expense and combined ratios.

Consolidated underwriting, insurance and acquisition expenses were $128.7 million and $126.7 million for the three months ended March 31, 2014 and 2013, respectively. The decline in the consolidated expense ratio for 2014 as compared to 2013 was primarily attributable to reduced fixed costs as a percentage of earned premiums combined with an increase in ceding commission for our state funds program.

Consolidated interest expense of $5.0 million for the three months ended March 31, 2014 was consistent with the $4.9 million recognized for the three months ended March 31, 2013.

Consolidated foreign currency exchange gain was $0.2 million and $3.1 million for the three months ended March 31, 2014 and 2013, respectively. The changes in the foreign currency exchange gains/losses were due to fluctuations of the U.S. Dollar, on a weighted average basis, against the currencies in which we transact our business.

The consolidated provision for income taxes was $2.5 million and $4.8 million for the three months ended March 31, 2014 and 2013, respectively. The income tax provision represents the income tax expense associated with our operations based on the tax laws of the jurisdictions in which we operate. Therefore, the provision for income taxes represents taxes on net income for our United States, Ireland, Belgium, Brazil, Switzerland and United Kingdom operations. The income tax provision for the three months ended March 31, 2014 and 2013 was primarily attributable to our United States operations.

Segment Results

We consider many factors, including the nature of each segment’s insurance and reinsurance products, production sources, distribution strategies and regulatory environment, in determining how to aggregate reporting segments.

In evaluating the operating performance of our segments, we focus on core underwriting and investing results before consideration of realized gains or losses from the sales of investments. Intersegment transactions are allocated to the segment that initiated the transaction. Realized investment gains and losses are reported as a component of the Corporate and Other segment, as decisions regarding the acquisition and disposal of securities reside with the corporate investment function and are not under the control of the individual business segments. Although this measure of profit (loss) does not replace net income (loss) computed in accordance with GAAP as a measure of profitability, management uses this measure of profit (loss) to focus our reporting segments on generating operating income.

Since we generally manage and monitor the investment portfolio on an aggregate basis, the overall performance of the investment portfolio and related net investment income is discussed above on a consolidated basis under consolidated net investment income rather than within or by segment.

Excess and Surplus Lines

The following table summarizes the results of operations for the Excess and Surplus Lines segment:


	Three Months Ended March 31,
(in millions)	2014			2013
Gross written premiums	$	140.0		$	127.6

Earned premiums	$	117.4		$	105.1
Losses and loss adjustment expenses		64.9			58.6
Other reinsurance-related expenses		0.0			1.2
Underwriting, acquisition and insurance expenses		40.1			40.7

Underwriting income		12.4			4.6
Net investment income		9.3			10.9
Interest expense		(1.6	)		(1.6	)

Income before income taxes	$	20.1		$	13.9

Loss ratio		55.3	%		56.5	%
Expense ratio		34.1	%		39.1	%

Combined ratio		89.4	%		95.6	%

The increase in gross written and earned premiums for the three months ended March 31, 2014 as compared to the same period in 2013 was primarily attributable to increased underwriting activity and rate increases in virtually all lines. Gross written premiums for certain specialty casualty lines increased by $11.1 million. Partially offsetting these increases were reduced writings in the transportation unit, as we continued to exit unprofitable accounts.

Included in losses and loss adjustment expense for the three months ended March 31, 2014 was $1.8 million in catastrophe losses from winter storm activity in the United States. Offsetting these catastrophe losses was $8.0 million of net favorable loss reserve development on prior accident years primarily within the general and products liability lines of business, partially offset by unfavorable development in commercial automobile and property lines.

Included in losses and loss adjustment expense for the three months ended March 31, 2013 was $0.8 million in catastrophe losses and $5.2 million net favorable loss reserve development on prior accident years. The net favorable development was primarily attributable to favorable development in the general and products liability and commercial multi-peril liability lines of business, partially offset by unfavorable development in commercial automobile lines.

The decline in the expense ratios for the three months ended March 31, 2014 as compared to the same period in 2013 was primarily attributable to the increase in earned premiums without a corresponding increase to fixed overhead costs.

Commercial Specialty

The following table summarizes the results of operations for the Commercial Specialty segment:


	Three Months Ended March 31,
(in millions)	2014			2013
Gross written premiums	$	105.9		$	106.1

Earned premiums	$	71.7		$	75.2
Losses and loss adjustment expenses		47.7			47.5
Other reinsurance-related expenses		0.0			0.3
Underwriting, acquisition and insurance expenses		25.1			26.4

Underwriting (loss) income		(1.1	)		1.0
Net investment income		4.7			5.9
Interest expense		(0.8	)		(0.9	)
Fee expense, net		(1.1	)		(0.3	)

Income before income taxes	$	1.7		$	5.7

Loss ratio		66.6	%		63.4	%
Expense ratio		34.9	%		35.2	%

Combined ratio		101.5	%		98.6	%

The decline in gross written and earned premiums for the three months ended March 31, 2014 as compared to the same period ended 2013 was primarily due to reduced writings in our public entity units due to planned reductions as we exited unprofitable accounts and implemented underwriting initiatives, partially offset by increasing rates. Gross written premiums for our public entity unit declined to $17.6 million for the three months ended March 31, 2014 compared to $24.4 million for the same period in 2013. Partially offsetting these declines was increased gross written premiums in our coal mining and surety units.

Included in losses and loss adjustment expense for the three months ended March 31, 2014 was $1.4 million in catastrophe losses for winter storm activity in the United States. Included in losses and loss adjustment expenses for the three months ended March 31, 2014 was $1.2 million current accident year large property losses and net unfavorable loss reserve development on prior accident years, primarily attributable to unfavorable development in general liability and automobile liability lines, offset in part by favorable development in workers compensation and short-tail lines.

Included in losses and loss adjustment expenses for the three months ended March 31, 2013 was $1.1 million of catastrophe losses and $1.1 million of net unfavorable development on prior accident year loss reserves. The unfavorable development was primarily attributable to general liability lines due to increases in claim severity partially offset by favorable development in the surety line of business at Rockwood.

The decline in the expense ratio was primarily attributable to a $0.9 million increase in the ceding commission received on our state funds program, which reduced our acquisition expenses.

The increase in fee expense for the three months ended March 31, 2014 as compared to 2013 was primarily attributable to a shift of select functions from risk bearing activities to non risk-bearing activities, as we began to develop our fee-based business. As a result, the expenses associated with the fee-based operations have exceeded the income received for these activities, resulting in net fee expense for the three months ended March 31, 2014.

International Specialty

The following table summarizes the results of operations for the International Specialty segment:


	Three Months Ended March 31,
(in millions)	2014			2013
Gross written premiums	$	83.2		$	78.2

Earned premiums	$	37.0		$	32.7
Losses and loss adjustment expenses		18.8			15.6
Other reinsurance-related expenses		0.0			1.5
Underwriting, acquisition and insurance expenses		12.4			12.3

Underwriting income		5.8			3.3
Net investment income		1.8			2.3
Interest expense		(0.8	)		(0.8	)

Income before income taxes	$	6.8		$	4.8

Loss ratio		50.8	%		50.1	%
Expense ratio		33.3	%		39.5	%

Combined ratio		84.1	%		89.6	%

Gross written and earned premiums increased for the three months ended March 31, 2014 as compared to 2013 primarily as a result of modest growth in all lines. Gross written premiums for the property reinsurance lines were $48.3 million and $47.1 million for the three months ended March 31, 2014 and 2013, respectively. Gross written premiums for the excess casualty and professional lines unit were $15.7 million and $12.8 million for the three months ended March 31, 2014 and 2013, respectively. Gross written premiums for our Brazil operations were $20.1 million and $18.3 million for the three months ended March 31, 2014 and 2013, respectively.

Included in losses and loss adjustment expenses for the three months ended March 31, 2014 was $1.0 million in catastrophe losses for winter storm activity in the United States. Additionally, there was $0.4 million of net unfavorable development on prior accident year loss reserves primarily for our Brazil operations.

Included in losses and loss adjustment expenses for the three months ended March 31, 2013 was $0.9 million of unfavorable prior year loss development. This unfavorable loss development was primarily due to crop losses partially offset by favorable prior year loss development on the professional liability business. There were no catastrophe losses reported during the three months ended March 31, 2013.

The decline in the expense ratio for the three months ended March 31, 2014 as compared to 2013 was primarily attributable to acquisition expenses at our Brazil operations remaining constant while earned premiums increased as this platform gained traction in 2013 and continuing into 2014.

Syndicate 1200

The following table summarizes the results of operations for the Syndicate 1200 segment:


	Three Months Ended March 31,
(in millions)	2014			2013
Gross written premiums	$	133.6		$	126.1

Earned premiums	$	99.3		$	90.9
Losses and loss adjustment expenses		45.5			47.8
Other reinsurance-related expenses		0.0			1.6
Underwriting, acquisition and insurance expenses		40.6			35.5

Underwriting income		13.2			6.0
Net investment income		3.7			2.8
Interest expense		(0.8	)		(0.7	)
Fee (expense) income, net		(0.3	)		0.3

Income before income taxes	$	15.8		$	8.4

Loss ratio		45.8	%		53.5	%
Expense ratio		40.9	%		39.8	%

Combined ratio		86.7	%		93.3	%

In 2014, we decreased our direct participation in Syndicate 1200 to 69%, down from 79% in 2013. For the three months ended March 31, 2014 and 2013, the property division wrote $46.2 million and $37.1 million of gross written premiums, respectively. The increase in the property lines was primarily due to growth in our binder book and in property facultative lines. The casualty division wrote $43.9 million and $49.7 million of gross written premiums for the three months ended March 31, 2014 and 2013, respectively. The decrease in the casualty division was primarily attributable to a planned reduction within the general liability class. Gross written premiums for the marine and energy division increased to $15.8 million for the three months ended March 31, 2014 from $12.1 million for the same period ended 2013, due to growth in all lines. The specialty division wrote $22.1 million and $19.4 million for the three months ended March 31, 2014 and 2013, respectively. The increase in gross written premiums for 2014 as compared to 2013 was primarily attributable to growth in the personal accident lines and the introduction of a political risk line. Gross written premiums for the aerospace division declined to $5.7 million for the three months ended March 31, 2014 from $7.8 million for the same period in 2013 due to the planned reduction of the lines due to lack of profitability.

Losses and loss adjustment expenses are reported net of losses ceded to the trade capital providers. The Syndicate 1200 segment reported no catastrophe losses for the three months ended March 31, 2014 and 2013. Included in losses and loss adjustment expenses for the three months ended March 31, 2014 was a $2.8 million current accident year large property loss and net favorable prior year loss development of $8.8 million driven by several lines including professional indemnity and other liability lines, property, aviation and space, and marine specialty.

Losses and loss adjustment expenses for the three months ended March 31, 2013 included $2.0 million in current accident year losses resulting from a satellite loss. Partially offsetting these current accident year losses was $2.2 million favorable development in the Syndicate 1200 segment driven by favorable development in property facultative and North American binder business.

The increase in the expense ratio for the three months ended March 31, 2014 as compared to the same period in 2013 was primarily attributable to increased acquisition expenses due to a change in the business mix which began in the second half of 2013.

Fee (expense) income, net represents fees and profit commission derived from the management of third party capital for our underwriting syndicate at Lloyd’s. The increased fee expense, net for the three months ended March 31, 2014 was primarily due to timing differences in expenses incurred as compared to the revenues earned. The fee income, net for the three months ended March 31, 2013 was increased fees and commissions resulting from increased profitability within the syndicate.

Run-off Lines

The following table summarizes the results of operations for the Run-off Lines segment:


	Three Months Ended March 31,
(in millions)	2014			2013
Earned premiums	$	0.3		$	0.3
Losses and loss adjustment expenses		5.6			1.0
Underwriting, acquisition and insurance expenses		2.7			2.1

Underwriting loss		(8.0	)		(2.8	)
Net investment income		2.5			2.8
Interest expense		(0.4	)		(0.4	)

Loss before income taxes	$	(5.9	)	$	(0.4	)

Earned premiums for the three months ended March 31, 2014 and 2013 were primarily attributable to adjustments resulting from final audits, reinstatement premiums and other adjustments on policies previously underwritten.

Losses and loss adjustment expenses for the three months ended March 31, 2014 included $4.5 million of unfavorable development in our run-off risk management lines. The unfavorable development was the result of higher incurred medical expenses for our workers compensation policies primarily for accident years 1981 and prior and unfavorable development in asbestos liability resulting from commutations and settlements on assumed business.

Losses and loss adjustment expenses for the three months ended March 31, 2013 included $0.9 million in net unfavorable loss reserve development on prior accident years primarily attributable to unfavorable development related to commutations.

The following table represents a reconciliation of total gross and net reserves for the Run-off Lines. Amounts in the net column are reduced by reinsurance recoverable.


	Three Months Ended March 31,
(in millions)	2014						2013
(in millions)	Gross			Net			Gross			Net
Asbestos and environmental:
Loss reserves, beginning of the period	$	57.5		$	53.3		$	64.6		$	58.9
Incurred losses		1.0			1.0			0.7			0.7
Losses paid		(3.7	)		(3.3	)		(3.3	)		(2.9	)

Loss reserves—asbestos and environmental, end of period		54.8			51.0			62.0			56.7
Risk management reserves		266.7			176.2			266.6			186.9
Run-off reinsurance reserves		5.4			5.4			13.8			13.8
Other run-off lines		4.3			4.1			6.1			5.5

Total loss reserves—Run-off Lines	$	331.2		$	236.7		$	348.5		$	262.9

Underwriting, acquisition and insurance expenses for the Run-off Lines segment consists primarily of administrative expenses. The increase in underwriting expense for the three months ended March 31, 2014 as compared to the same period of 2013 was due to a $0.6 million increase in the allowance for doubtful accounts for certain reinsurance recoverable balances.

Liquidity and Capital Resources

The primary sources of our cash flows are premiums, reinsurance recoveries, proceeds from sales and redemptions of investments and investment income. The primary cash outflows are claim payments, loss adjustment expenses, reinsurance costs and operating expenses. Additional cash outflow occurs through payments of underwriting and acquisition costs such as commissions, taxes, payroll and general overhead expenses. Management believes that cash receipts from premiums, proceeds from investment sales and redemptions and investment income are sufficient to cover cash outflows in the foreseeable future. Should the need for additional cash arise, we believe we have access to additional sources of liquidity.

Cash provided (used) by operating activities can fluctuate due to timing difference in the collection of premiums and reinsurance recoveries and the payment of losses and expenses. For the three months ended March 31, 2014, net cash provided by operating activities was $43.6 million compared net cash used by operating activities of $84.0 million for the three months ended March 31, 2013. For 2014, cash provided by operating activities resulted from the closing of the Syndicate 1200 remaining whole account quota share contract covering segment loss reserves for 2009 and prior year of accounts and closing of the 2011 year of account. The use of cash in 2013 was primarily the result of the partial settlement of a whole account quota share contract covering the Syndicate 1200 segment loss reserves for the 2009 and prior year of account. The source of the cash used to settle this reinsurance payable was the sale of fixed maturity assets, and is included in the cash from investing activities section of our Consolidated Statements of Cash Flows.

For the three months ended March 31, 2014, net cash used by investing activities was $45.0 million compared to net cash provided by investing activities of $94.7 million for the three months ended March 31, 2013. The decrease in cash flows from investing activities from 2014 to 2013 was mainly the result of the sale of fixed maturity assets used to settle Syndicate 1200 reinsurance payable in 2013 and fewer sales of investments as the positive inflow of cash from operations assisted in meeting operational activities. As of March 31, 2014, $382.7 million of the investment portfolio were invested in short-term investments.

For the three months ended March 31, 2014 and 2013, net cash used by financing activities was $6.8 million and $15.3 million, respectively. During the three months ended March 31, 2014 and 2013, we repurchased approximately 0.2 million and 0.3 million shares of our common stock for a total cost of $7.5 million and $12.3 million, respectively. We paid dividends to our shareholders totaling $4.0 million and $3.7 million during the three months ended March 31, 2014 and 2013, respectively.

Revolving loans can either be designated as “ABR Borrowings” or “Eurocurrency Borrowings” at the time of borrowing by the Borrowers. “ABR Borrowings” will bear interest at a rate per annum equal to the greatest of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 1/2 of 1% and (c) the Adjusted Eurocurrency Rate for a one month interest period plus 1%, plus an applicable margin of 0.375% to 1.25%. “Eurocurrency Borrowings” will bear interest at a rate per annum equal to LIBOR plus an applicable margin of 1.375% to 2.25%. The Adjusted Eurocurrency Rate for Eurocurrency borrowings in U.S. Dollars will be equal to LIBOR times a reserve percentage established in accordance with Regulation D of the U.S. Federal Reserve System.

Included in the New Credit Agreement is a provision that allows up to $17.5 million of the revolving credit facility to be used for letters of credit (“LOC’s”), subject to availability. On March 7, 2014, the $0.2 million LOC outstanding under the original $150.0 million Credit Agreement was transferred to the New Credit Agreement. As of March 31, 2014, there were no borrowings outstanding and $0.2 million in LOC’s against the New Credit Agreement.

On May 5, 2014, our Board of Directors declared a quarterly cash dividend in the amount of $0.18 on each share of common stock outstanding payable to shareholders of record at the close of business on June 2, 2014 which will be paid on June 16, 2014.

On February 18, 2011, our Board of Directors authorized the repurchase of up to $150.0 million of our common shares. The 2011 Repurchase Authorization supersedes the November 13, 2007 repurchase authorization which also had authorized the repurchase of up to $150.0 million of our common shares. On November 5, 2013, our Board of Directors authorized the repurchase of up to $150.0 million of our common shares. The 2013 Repurchase Authorization supersedes the 2011 Repurchase Authorization such that no further amounts could be repurchased under the 2011 Repurchase Authorization. These shares are being held as treasury shares in accordance with the provisions of the Bermuda Companies Act 1981. As of March 31, 2014, availability under the 2013 Repurchase Authorization for future repurchases of our common shares was $136.1 million.

Refer to Part II, Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” in Argo Group’s Annual Report on Form 10-K for the year ended December 31, 2013 that Argo Group filed with the SEC on February 28, 2014 for further discussion on Argo Group’s liquidity.

Recent Accounting Standards and Critical Accounting Estimates

New Accounting Standards

The discussion of the adoption and pending adoption of recently issued accounting policies is included in Note 2, “Recently Issued Accounting Standards,” in the Notes to the Consolidated Financial Statements, included in Part I, Item 1—“Consolidated Financial Statements (unaudited).”

Critical Accounting Estimates

Refer to “Critical Accounting Estimates” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 that we filed with the SEC on February 28, 2014 for information on accounting policies that we consider critical in preparing our consolidated financial statements. These policies include significant estimates made by management using information available at the time the estimates were made. However, these estimates could change materially if different information or assumptions were used.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We believe that we are principally exposed to three types of market risk: interest rate risk, credit risk and foreign currency risk.

Interest Rate Risk

Our fixed investment portfolio is exposed to interest rate risk. Fluctuations in interest rates have a direct impact on the fair valuation of these securities. As interest rates rise, the fair value of our fixed maturity portfolio generally falls, and the converse is generally also true. We manage interest rate risk through an asset liability strategy that involves the selection of investments with appropriate characteristics, such as duration, yield, currency and liquidity that are tailored to the anticipated cash outflow characteristics of our liabilities. A significant portion of the investment portfolio matures each quarter, allowing for reinvestment at current market rates.

Credit Risk

We have exposure to credit risk primarily as a holder of fixed maturity investments, short-term investments and other investments. Our risk management strategy and investment policy is to primarily invest in debt instruments of high credit quality issuers and to limit the amount of credit exposure with respect to particular ratings categories and any one issuer.

As shown on the accompanying table, our fixed maturities portfolio is diversified among different types of investments. The securities are principally rated by one or more Nationally Recognized Statistical Rating Organizations, (i.e., Standard & Poor’s, Moody’s Investors Services, Inc., and Fitch Ratings, Ltd). If a security has two ratings, the lower rating is used, and if a security has three ratings, the middle rating is used in the preparation of this table. At March 31, 2014, our fixed maturities portfolio had a weighted average rating of A+, with 75.4% ($2.1 billion fair value) rated A or better and 34.6% ($969.1 million fair value) rated AAA. Our portfolio included 8.0% ($225.5 million fair value) of less than investment grade (BB+ or lower) fixed maturities at March 31, 2014.


	Fair		Fair		Fair		Fair
	Value		Value		Value		Value
(in millions)	AAA		AA		A		Other		Total
USD denominated:
U.S. Governments	$	224.6	$	0.0	$	0.0	$	0.7	$	225.3
Non-U.S. Governments		23.9		7.0		4.0		35.5		70.4
Obligations of states and political subdivisions		139.9		319.7		60.3		3.2		523.1
Credit-Financial		5.3		55.1		274.2		135.8		470.4
Credit-Industrial		5.4		9.6		102.0		314.1		431.1
Credit-Utility		0.0		11.5		25.6		114.3		151.4
Structured securities:
CMO/MBS-agency		207.9		0.0		0.0		0.0		207.9
CMO/MBS-non agency		2.6		9.6		1.4		5.8		19.4
CMBS		106.1		38.6		17.0		5.6		167.3
ABS-residential		0.3		0.0		0.0		5.9		6.2
ABS-non residential		129.4		1.4		1.2		15.8		147.8
Foreign denominated:
Governments		89.0		62.2		9.6		27.0		187.8
Credit		34.7		48.1		85.0		25.9		193.7

Total fixed maturities	$	969.1	$	562.8	$	580.3	$	689.6	$	2,801.8

We also hold a diversified investment portfolio of common stocks in various industries and market segments, ranging from small market capitalization stocks to large capitalization companies. Marketable equity securities are carried on our Consolidated Balance Sheets at fair value, and are subject to the risk of potential loss in fair value resulting from adverse changes in prices. At March 31, 2014, the fair value of our equity securities portfolio was $530.3 million.

Foreign Currency Risk

We have exposure to foreign currency risk in both our insurance contracts and our invested assets. Some of our insurance contracts provide that ultimate losses may be payable in various foreign currencies. Foreign currency exchange rate risk exists where we do not have cash or securities denominated in the currency for which we will ultimately pay the claims. Thus, we attempt to manage our foreign currency risk by seeking to match our liabilities under insurance and reinsurance polices that are payable in foreign currencies with cash and investments that are denominated in such currencies. In certain instances, we use foreign exchange forward and put option contracts to mitigate this risk. Due to the extended time frame for settling the claims plus the fluctuation in currency exchange rates, the potential exists for us to realize gains and/or losses related to foreign exchange rates. In addition, we may experience foreign currency gains or losses related to exchange rate fluctuations in operating expenses as certain operating costs are payable in currencies other than the U.S. Dollar. For the three months ended March 31, 2014, we recorded realized gains of $0.2 million from movements in foreign currency rates on our insurance operations. In addition, we recorded realized losses of $0.1 million from movements on foreign currency rates in our investment portfolio and realized gains of $1.0 million from our currency forward contracts. We had unrealized losses at March 31, 2014 of $3.5 million in movements in foreign currency rates in our investment portfolio, which is recorded in other comprehensive income. These gains are principally related to weakening of non-U.S. Dollar denominated investment exchange rates to the U.S. Dollar.

Item 4. Controls and Procedures

Argo Group, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of the end of the period covered by this report. In designing and evaluating these disclosure controls and procedures, Argo Group and its management recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective at the reasonable assurance level to ensure that information required to be disclosed by Argo Group in the reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

There were no changes in the internal control over financial reporting made during the quarter ended March 31, 2014 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We review our disclosure controls and procedures, which may include internal controls over financial reporting, on an ongoing basis. From time to time, management makes changes to enhance the effectiveness of these controls and ensure that they continue to meet the needs of our business activities over time.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Our subsidiaries are parties to legal actions incidental to their business. Based on the opinion of counsel, management believes that the resolution of these matters will not materially affect our financial condition or results of operations.

Item 1A. Risk Factors

See “Risk Factors” in the Argo Group Annual Report on Form 10-K for the year ended December 31, 2013 for a detailed discussion of the additional risk factors affecting us.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchase of Equity Securities

On November 13, 2007, our Board of Directors authorized the repurchase of up to $150.0 million of Argo Group’s common shares. On February 18, 2011, our Board of Directors authorized the repurchase of up to $150.0 million of our common shares (“2011 Repurchase Authorization”). The 2011 Repurchase Authorization supersedes the November 13, 2007 program such that no further amounts could be repurchased under the repurchase program approved in 2007. On November 5, 2013, our Board of Directors authorized the repurchase of up to $150.0 million of our common shares (“2013 Repurchase Authorization”). The 2013 Repurchase Authorization superseded the 2011 Repurchase Authorization such that no further amounts could be repurchased under the 2011 Repurchase Authorization.

From January 1, 2014 through March 31, 2014, we have repurchased a total 165,184 shares of our common shares for a total cost of $7.5 million. Since the inception of the repurchase authorizations through March 31, 2014, we have repurchased 7,723,529 shares of our common stock at an average price of $33.41 for a total cost of $258.1 million. These shares are being held as treasury shares in accordance with the provisions of the Bermuda Companies Act 1981. As of March 31, 2014, availability under the 2013 Repurchase Authorization for future repurchases of our common shares was $136.1 million.

The following table provides information with respect to shares of our common stock that were repurchased or surrendered during the three months ended March 31, 2014:


Period	Total Number of Shares Purchased (a)		Average Price Paid per Share (b)		Total Number of Shares Purchased as Part of Publicly Announced Plan or Program (c)		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plan or Program (d)
January 1 through January 31, 2014		0	$	0.0		0	$	143,617,883
February 1 through February 28, 2014		15,789	$	43.28		15,789	$	142,934,569
March 1 through March 31, 2014		168,343	$	45.56		149,395	$	136,123,591

Total		184,132	$	45.37		165,184

Employees are allowed to surrender shares to settle the tax liability incurred upon the vesting or exercise of shares under our various employees equity compensation plans. For the three months ended March 31, 2014, we received 18,948 shares of our common stock, with an average price paid per share of $45.35, that were surrendered by employees in payment for the minimum required withholding taxes. In the above table, these shares are included in columns (a) and (b), but excluded from columns (c) and (d). These shares do not reduce the number of shares that may yet be purchased under the repurchase plan.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Approval of 2014 Long-Term Incentive Plan

On May 6, 2014, Argo Group’s stockholders approved the adoption of the Argo Group International Holdings, Ltd. 2014 Long-Term Incentive Plan. The description of the material terms and conditions of the Argo Group International Holdings, Ltd. 2014 Long-Term Incentive Plan is set forth on pages 18 through 29 of Argo Group’s proxy statement on Schedule 14A filed with the Securities and Exchange Commission on March 7, 2014 and is incorporated herein by reference. The description of the material terms and conditions of the Argo Group International Holdings, Ltd. 2014 Long-Term Incentive Plan is qualified in its entirety by reference to Appendix I to Argo Group’s proxy statement on Schedule 14A filed with the Securities and Exchange Commission on March 7, 2014, which is incorporated by reference.

Submission of Matters to a Vote of Security Holders

The Company held its 2014 Annual General Meeting on May 6, 2014. At the 2014 Annual General Meeting, the Company’s shareholders (1) elected the Company’s three Class I director nominees to the Company’s board of directors, (2) approved the Company’s 2014 Long-Term Incentive Plan, (3) voted for the Company’s executive compensation on a non-binding, advisory basis, and (4) approved Ernst & Young LLP’s appointment as the Company’s independent auditors for the fiscal year ending December 31, 2014.

The results of each vote, including the number of abstentions and broker non-votes, are set forth below for each matter brought to a shareholder vote at the 2014 Annual General Meeting.


Director	For		Against		Abstentions		Broker Non-Votes
H. Berry Cash		22,636,579		590,435		18,658		1,646,488
John R. Power, Jr.		22,890,843		336,600		18,229		1,646,488
Mark E. Watson III		23,087,236		141,149		17,287		1,646,488

	For		Against		Abstentions		Broker Non-Votes
Approval of 2014 Long-Term Incentive Plan		17,500,976		5,723,686		21,010		1,646,488

	For		Against		Abstentions		Broker Non-Votes
Advisory Approval of Executive Compensation		22,914,608		120,672		210,392		1,646,488

	For		Against		Abstentions		Broker Non-Votes
Appointment of Independent Auditors		24,847,735		25,859		18,566		—

Item 6. Exhibits

A list of exhibits required to be filed as part of this report is set forth in the Exhibit Index of this Form 10-Q, which immediately precedes such exhibits, and is incorporated herein by reference.

EXHIBIT INDEX


Exhibit Number		Description

10.1		$175,000,000 Credit Agreement, dated as of March 7, 2014, among Argo Group International Holdings, Ltd., Argo Group US, Inc., Argo International Holdings Limited and Argo Underwriting Agency Limited, the Lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, Wells Fargo Bank, N.A., as syndication agent, and the other parties thereto (incorporated by reference to Exhibit 10.1 to the Current Report of Argo Group International Holdings, Ltd. on Form 8-K filed on March 10, 2014)

10.2		Form of Cash-Settled Share Appreciation Rights Agreement

10.3		Form of Stock-Settled Share Appreciation Right Agreement

10.4		Form of Restricted Share Agreement

10.5		Form of Restricted Share Unit Grant Agreement

12.1		Statements of Computation of Ratios of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Share Dividends

31.1		Rule 13a – 14(a)/15d – 14(a) Certification of the Chief Executive Officer

31.2		Rule 13a – 14(a)/15d – 14(a) Certification of the Chief Financial Officer

32.1+		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2+		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

This exhibit shall be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	ARGO GROUP INTERNATIONAL HOLDINGS, LTD.

May 8, 2014	By	/s/ Mark E. Watson III
		Mark E. Watson III
		President and Chief Executive Officer

May 8, 2014	By	/s/ Jay S. Bullock
		Jay S. Bullock
		Executive Vice President and Chief Financial Officer

Exhibit 10.2

SHARE APPRECIATION RIGHT AGREEMENT

This Share Appreciation Right Agreement (“Agreement”) is made as of <<DATE>> between ARGO GROUP INTERNATIONAL HOLDINGS, LTD. (the “Company”), and <<NAME>> (the “SAR Holder” or “Participant”).

R E C I T A L S

A. The Company’s [2007 // 2014] Long-Term Incentive Plan (the “Plan”) provides for the granting of cash awards denominated in share appreciation rights (“SARs”).

B. Pursuant to the Plan, the administration of the Plan has been delegated to the Compensation Committee of the Board of Directors of the Company (the “Committee”).

C. Pursuant to the Plan, the Committee has determined that it is in the best interests of the Company and its stockholders to grant a SAR to the SAR Holder covering <<# GRANTED>>Shares as defined herein, contingent upon satisfaction of performance criteria, if any, set forth in Exhibit A hereto, as an inducement to remain in the employ of the Company and as an incentive for increased effort during such service, and has approved the execution of this Agreement between the Company and the SAR Holder.

A G R E E M E N T

NOW, THEREFORE, the parties hereto agree as follows:

1. (a) The Company grants to the SAR Holder an SAR denominated solely for purposes of calculation in Common Shares of the Company’s stock (referenced as “Shares”) as follows: <<# GRANTED>>Shares (the “target grant” or “grant at target”) on the terms and conditions hereinafter set forth at a Grant Price of <<$PRICE>>per Share exercisable from time to time in accordance with the provisions of this Agreement during a period expiring on the seventh anniversary of the date of this Agreement (the “Expiration Date”)contingent upon achievement of performance goals and thresholds (the “Performance Matrix”), if any, set forth in Exhibit A hereto. The amount of the target grant may be adjusted upwards or downwards based on the criteria set forth in Exhibit A to determine the final amount of the award prior to issuance (the “adjusted grant”).

(b) Upon exercise of the SAR, the SAR Holder will be entitled to an amount of cash equal to the product of (x) and (y) where (x) equals the excess of the fair market value of a Share on the date of exercise over the Grant Price and (y) equals the number of Shares specified in the notice of exercise.

2. (a) Subject the criteria, if any, set forth in Exhibit A hereto, this SAR shall become vested and exercisable by the SAR Holder pursuant to the schedule set forth in subparagraph (b) below. In the event that the Performance Matrix criteria require adjustment of the target amount to zero, then this SAR shall be null and void as of such date and shall be of no further force and effect.

(b) The SAR Holder may not exercise this SAR prior to the first anniversary of the date of the Agreement. Thereafter, this SAR may be exercised with respect to the indicated percentage of Shares covered by the SAR on and after the respective anniversary dates (each, an “Anniversary Date”) of this Agreement as follows:


				Cumulative
Anniversary	Percentage			Percentage
Date	Exercisable			Exercisable
First		25	%		25	%
Second		25	%		50	%
Third		25	%		75	%
Fourth		25	%		100	%

At any time after the fourth anniversary date of this Agreement but no later than the Expiration Date, the SAR Holder may exercise all or any part (subject to the provisions of the following sentence) of this SAR which the SAR Holder theretofore failed to exercise. The foregoing limitations shall similarly apply to the transferees of the SAR Holder by will or by the laws of descent or distribution, so that said transferees shall be entitled (provided they act within twelve (12) months after the death of the SAR Holder but in no event later than the Expiration Date) to exercise all or any portion of this SAR, but with respect to which this SAR was not previously exercised. This SAR may be exercised during the lifetime of the SAR Holder only by the SAR Holder, or within twelve (12) months after his death by his transferees by will or the laws of descent or distribution, and not otherwise, regardless of any community property interest therein of the spouse of the SAR Holder, or such spouse’s successors in interest. If the spouse of the SAR Holder shall have acquired a community property interest in this SAR, the SAR Holder, or the SAR Holder’s permitted successors in interest, may exercise the SAR on behalf of the spouse of the SAR Holder or such spouse’s successors in interest, subject to the restrictions stated above.

(c) Notwithstanding the vesting schedule set forth in Section 2(b), all [rights // shares] subject to this SAR shall become immediately vested and exercisable [simultaneous with and contingent upon the occurrence of a Change in Control // if within twelve (12) months after the occurrence of a Change in Control, Participant’s employment is involuntarily terminated by the Company or any of its Subsidiaries for any reason other than Cause (as hereinafter defined) or Participant’s death or disability, or Participant’s voluntarily termination of his or her employment with the Company and all Subsidiaries for Good Reason within sixty (60) days after the occurrence of the event giving rise to such Good Reason]. For purposes of this Agreement, “Change in Control” shall have the meaning given to that term from time to time in the Plan.

4. The fair market value of a Common Share of the Company’s stock shall be determined for purposes of this Agreement by reference to the closing price of such share on the principal stock exchange on which the Common Shares are then listed or, if such shares are not then listed on an exchange, by reference to the closing price (if a National Market Issue) or the mean between the bid and asked price (if other over-the-counter issue) of a share as supplied by the National Association of Securities Dealers through NASDAQ (or its successor in function), in each case as reported by The Wall Street Journal , for the date on which the stock appreciation right is granted or exercised or if such day is not a business day, for the business day immediately preceding such date (or, if for any reason no such price is available, in such other manner as the Committee may deem appropriate to reflect the then fair market value thereof).

5. (a) If the SAR Holder ceases for any reason whatsoever to be an employee of the Company or a subsidiary corporation (as defined in Section 424(f) of the United States Internal Revenue Code of 1986, as amended (the “Code”)), for reasons other than a termination by the Company for Cause (defined below) or termination due to death or permanent disability (as defined in Section 22(e)(3) of the Code),this SAR shall become void and of no further force or effect as of the 30-day anniversary of the cessation of such employment; provided, however, that if such cessation of employment shall be due to the SAR Holder’s voluntary resignation with the consent of the Committee of the Board of Directors of the Company or such subsidiary corporation, expressed in the form of a written resolution, then, the SAR Holder may at any time within a period of three (3) months after the date he so ceases to be an employee of the Company or any such subsidiary corporation, and not thereafter, exercise the SAR granted hereby to the extent such SAR was exercisable by him on the date of such cessation of such employment. The employment of the SAR Holder shall be deemed to continue during any leave of absence which has been authorized by the Company, provided that no exercise of this SAR may take place during any such authorized leave of absence excepting only during the first three (3) months thereof. Notwithstanding the foregoing provisions of this Section 5(a), if the SAR Holder’s employment with the Company is terminated by the Company for Cause, this SAR shall become void and of no further force or effect as of the date of such termination of employment.

(b) Notwithstanding the vesting schedule set forth in Section 2(b), if the SAR Holder’s employment with the Company or a subsidiary corporation (as defined in Section 424(f) of the Code) is terminated as a result of the death or permanent disability (as defined in Section 22(e)(3) of the Code) of the SAR Holder, all rights subject to this SAR shall become immediately vested and exercisable and may be exercised within twelve (12) months after the date of such death or permanent disability. During the period after death, the SAR may, to the extent that it remained unexercised, be exercised by the person or persons to whom the SAR Holder’s rights under the SAR granted hereby shall pass by any reason of the death of the SAR Holder, whether by will or by the applicable laws of descent and distribution; provided, however, that in no event may the SAR granted hereby be exercised to any extent by anyone after the Expiration Date specified in Section 1 above.

(c) For purposes of this SAR, the term “Cause” shall be as defined in any existing employment, consulting or any other agreement between the SAR Holder and the Company or a subsidiary or an affiliate provided the SAR Holder is in fact terminated for cause pursuant to such agreement, or, in the absence of such an employment, consulting or other agreement, shall be defined as (i) the determination by the Company, that the SAR Holder has ceased to perform his duties to the Company, or a subsidiary or an affiliate (other than as a result of his incapacity due to physical or mental illness or injury), which failure amounts to an intentional and extended neglect of his duties to such party, (ii) the determination by the Company, that the SAR Holder has engaged or is about to engage in conduct materially injurious to the Company or a subsidiary or an affiliate, monetarily or

otherwise, (iii) the SAR Holder having been convicted of, or pleaded guilty or no contest to, a felony, (iv) conduct by SAR Holder that involves theft, fraud or dishonesty, (v) repeated instances of drug or alcohol abuse or unauthorized absences during scheduled work hours, or (vi) the failure of the SAR Holder to follow the lawful instructions of the Board or his direct superiors.

6. This SAR and the rights and privileges granted hereby shall not be transferred, assigned, pledged or hypothecated in any way, whether by operation of the law or otherwise, except by will or the laws of descent and distribution. Upon any attempt so to transfer, assign, pledge, hypothecate or otherwise dispose of this SAR or any right or privileges granted hereby contrary to the provisions hereof, this SAR and all rights and privileges contained herein shall immediately become null and void and of no further force or effect.

7. If the outstanding common shares of the Company are increased, decreased, changed into, or exchanged for a different number or kind of shares or securities of the Company through reorganization, recapitalization, reclassification, stock dividend, stock split or reverse stock split, or other similar transaction, an appropriate and proportionate adjustment (to be conclusively determined by the Board of Directors of the Company) shall be made in the number and kind of securities associated with this SAR, without change in the total price applicable to the unexercised portion of this SAR but with a corresponding adjustment in the price for each share or other unit of any security covered by this SAR.

Upon the dissolution or liquidation of the Company, or upon a reorganization, merger or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation, or upon the sale of substantially all the assets or more than 80% of the then outstanding stock of the Company to another corporation, this SAR shall terminate (except to the extent previously exercised, including, without limitation, giving effect to the acceleration provisions of Section 2 (c) hereof) unless express written provision be made in connection with such transaction for (i) the assumption of this SAR or the substitution therefore of a new SAR covering the stock of a successor employer corporation, or a parent or subsidiary thereof, with appropriate adjustments as to number and kind of rights and prices, such adjustments to be conclusively determined by the Board of Directors of the Company; (ii) the continuance of the Plan by such successor corporation in which event this SAR shall remain in full effect under the terms so provided; or (iii) the payment in cash or stock in lieu of and in complete satisfaction of this SAR.

Adjustments under this Section 7 shall be made by the Board of Directors, whose determination as to what adjustments shall be made, and the extent thereof shall be final, binding and conclusive. No fractional shares of stock shall be used in calculating the Shares for purposes of this SAR under the Plan on any such adjustment.

8. Confidential Information.

(a) The Company shall disclose to the Participant, or place the Participant in a position to have access to or develop, trade secrets or confidential information of the Company or its Affiliates (as defined below); and/or shall entrust the Participant with business opportunities of the Company or its Affiliates; and/or shall place the Participant in a position to develop business good will on behalf of the Company or its Affiliates.

(b) The Participant acknowledges that during his employment with the Company he occupies a position of trust and confidence and agrees that he shall treat as confidential and shall not, without prior written authorization from the Company, directly or indirectly, disclose or make known to any person or use for his own benefit or gain, the methods, process or manner of accomplishing the business undertaken by the Company or its Affiliates, or any non-public information, plans, formulas, products, trade secrets, marketing or merchandising strategies, or confidential material or information and instructions, technical or otherwise, issued or published for the sole use of the Company, or information which is disclosed to the Participant or in any acquired by him during his employment with the Company, or any information concerning the present or future business, processes, or methods of operation of the Company or its Affiliates, or concerning improvement, inventions or know how relating to the same or any part thereof, it being the intent of the Company, with which intent the Participant hereby agrees, to restrict him from disseminating or using for his own benefit any information belonging directly or indirectly to the Company which is unpublished and not readily available to the general public (collectively, “Confidential Information”).

(c) The confidentiality obligations set forth in (a) and (b) of this Section 8 shall apply during the Participant’s employment by the Company and indefinitely thereafter.

(d) All information, ideas, concepts, improvements, discoveries, and inventions, whether patentable or not, that are conceived, made, developed or acquired by the Participant, individually or in conjunction with others, during the Participant’s employment with the Company (whether during business hours or otherwise and whether on the premises of the Company or an Affiliate or otherwise) that relate to the business, products or services of the Company or any Affiliate shall be disclosed to the Board and are and shall be the sole and exclusive property of the Company or such Affiliate. Moreover, all documents, drawings, memoranda, notes, records, files, correspondence, manuals, models, specifications, computer programs, e-mail, voice mail, electronic data bases, maps and all other writings and materials of any type embodying any such information, ideas, concepts, improvements, discoveries and inventions are and shall be the sole and exclusive property of the Company. Upon termination of the Participant’s employment for any reason, the Participant promptly shall deliver the same, and all copies thereof, to the Company.

(e) If, during the Participant’s employment by the Company, the Participant creates any work of authorship fixed in any tangible medium of expression that is the subject matter of copyright (such as video tapes, written presentations, or acquisitions, computer programs, e-mail, voice mail, electronic data bases, drawings, maps, architectural renditions, models, manuals, brochures or the like) relating to the Company’s business, products or services, whether such work is created solely by the Participant or jointly with others (whether during business hours or otherwise and whether on the Company’s premises or otherwise), the Company shall be deemed the author of such work if the work is prepared by the Participant in the scope of the Participant’s employment.

9. Non-Solicitation

(a) For the purposes of this Section, the following words have the following meanings:

“control” when used with respect to any person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities, by contract or otherwise; and the terms of “affiliated”, “controlling” and “controlled” have meanings correlated to the foregoing.

ii. “Company Services” means any services (including but not limited to technical and product support, technical advice, underwriting and customer services) supplied by the Company or its Affiliates in the specialty property and/or casualty insurance business.

iii. “Confidential Information” has the meaning ascribed thereto in Section 8.

iv. “Customer” means any person or firm or company or other organization whatsoever to whom or which the Company supplied Company Services during the Restricted Period and with whom or which, during the Restricted Period: (x) the Participant had material personal dealings pursuant to his employment, or (y) any employee who was under the direct or indirect supervision of the Participant had material personal dealings pursuant to his or her employment.

v. “Prospective Customer” means any person or firm or company or other organization whatsoever with whom or which the Company or its Affiliates shall have had negotiations or material discussions regarding the possible distribution, sale or supply of Company Services during the Restricted Period and with whom or which during such period: (x) the Participant shall have had material personal dealings pursuant to his employment, or (y) any employee who was under the direct or indirect supervision of the Participant shall have had material personal dealings pursuant to his or her employment, or (z) the Participant was directly responsible in a client management capacity on behalf of the Company.

vi. “Restricted Employee” means any person who on the date of the Participant’s termination of employment by the Company was at the level of director, manager, underwriter or salesperson with whom the Participant had material contact or dealings in the course of his employment during the Restricted Period;

vii. “Restricted Period” means the period of twelve months ending on the last day of the Participant’s employment with the Company or, in the event that no duties were assigned to the Participant, the twelve months immediately preceding the last day on which the Participant carried out any duties for the Company.

(b) The Participant recognizes that, while performing his duties for the Company, he will have access to and come into contact with trade secrets and Confidential Information belonging to the Company and its Affiliates and will obtain personal knowledge of and influence over its or their customers and/or employees. The Participant therefore agrees that the restrictions set out in this Section 9 are reasonable and necessary to protect the legitimate business interests of the Company and its Affiliates both during and after the termination of his employment.

Participant, due to Disability, without the prior written consent of the Company, whether by himself, through his employers or employees or agents or otherwise, howsoever and whether on his own behalf or on behalf of any other person, firm, company or other organization directly or indirectly:

solicit business from or endeavor to entice away or canvass any Customer or Prospective Customer;

ii.

solicit or induce or endeavor to solicit or induce any Restricted Employee to cease working for or providing services to the Company, or hire any Restricted Employee.

(d) This Section 9 shall be for the benefit of the Company and each of its Affiliates and the Company reserves the right to assign the benefit of such provisions to any of its Affiliates, in addition such provisions also apply as though there were substituted for references to “the Company” references to each of its Affiliates in relation to which the Participant has in the course of his duties for the Company or by reason of rendering services to or holding office in such Affiliate: (x) acquired knowledge of its trade secrets or Confidential Information; or (y) had material personal dealings with its Customers or Prospective Customers; or (z) supervised directly or indirectly employees having material personal dealings with its Customers or Prospective Customers but so that references in this Section 9 to “the Company” shall for this purpose be deemed to be replaced by references to the relevant Affiliate. The obligations undertaken by the Participant pursuant to this Section 9 shall, with respect to each Affiliate of the Company, constitute a separate and distinct covenant and the invalidity or unenforceability of any such covenant shall not affect the validity or enforceability of the covenants in favor of any other Affiliate or the Company.

(e) While the covenants in this Section 9 (on which the Participant has had the opportunity to take independent advice, as the Participant hereby acknowledges) are considered by the parties to be reasonable in all the circumstances, it is agreed that if any such covenants, by themselves, or taken together, shall be adjudged to go beyond what is reasonable in all the circumstances for the protection of the legitimate interests of the Company or its Affiliates but would be adjudged reasonable if part or parts of the wording thereof were deleted, the relevant covenants or restrictions shall apply with such deletion(s) as may be necessary to make it or them valid and effective.

10. The SAR award granted hereby is subject to, and the Company and the Participant agree to be bound by, all of the terms and conditions of the Company’s [2007 // 2014] Long-Term Incentive Plan, as the same shall be amended from time to time in accordance with the terms thereof, but no such amendment shall adversely affect the Participant’s rights under this grant without the prior written consent of Participant. The terms of the Plan are incorporated into and form part of this Agreement.

11. Miscellaneous.

(a) No Representations or Warranties . Neither the Company nor the Committee or any of their representatives or agents has made any representations or warranties to the Participant with respect to the income tax or other consequences of the transactions contemplated by this Agreement, and the Participant is in no manner relying on the Company, the Committee or any of their representatives or agents for an assessment of such tax or other consequences.

(b) No Employment Guarantee . Nothing in this Agreement nor in the Plan nor in the making of the Award shall confer on the Participant any right to or guarantee of continued employment with the Company or any of its subsidiaries or in any way limit the right of the Company or any of its subsidiaries to terminate the employment of the Participant at any time.

(c) Necessary Acts . The Participant and the Company hereby agree to perform any further acts and to execute and deliver any documents which may be reasonably necessary to carry out the provisions of this Agreement.

(d) Binding Effect; Applicable Law . This Agreement shall bind and inure to the benefit of the Company and its successors and assigns, and the Participant and any heir, legatee, or legal representative of the Participant. This Agreement shall be interpreted under and governed by and constructed in accordance with the laws of Texas.

(e) Administration . The authority to manage and control the operation and administration of this Agreement shall be vested in the Committee, and the Committee shall have all powers with respect to this Agreement as it has with respect to the Plan. Any interpretation of the Agreement by the Committee and any decision made by it with respect to the Agreement are final and binding.


ARGO GROUP INTERNATIONAL HOLDINGS, LTD.

By

Its

SAR HOLDER

By

Print Name

Exhibit 10.3

SHARE APPRECIATION RIGHT AGREEMENT

R E C I T A L S

A. The Company’s [2007 // 2014] Long-Term Incentive Plan (the “Plan”) provides for the granting of equity awards using share appreciation rights (“SARs”).

B. Pursuant to the Plan, the administration of the Plan has been delegated to the Compensation Committee of the Board of Directors of the Company (the “Committee”).

C. Pursuant to the Plan, the Committee has determined that it is in the best interests of the Company and its stockholders to grant a SAR to the SAR Holder covering <<# GRANTED>> Shares as defined herein, contingent upon satisfaction of performance criteria, if any, set forth in Exhibit A hereto, as an inducement to remain in the employ of the Company and as an incentive for increased effort during such service, and has approved the execution of this Agreement between the Company and the SAR Holder.

A G R E E M E N T

NOW, THEREFORE, the parties hereto agree as follows:

1. (a) The Company grants to the SAR Holder an SAR denominated solely for purposes of calculation in Common Shares of the Company’s stock (referenced as “Shares”) as follows: <<# GRANTED>> Shares (the “target grant” or “grant at target”) on the terms and conditions hereinafter set forth at a Grant Price of <<$PRICE>> per Share exercisable from time to time in accordance with the provisions of this Agreement during a period expiring on the seventh anniversary of the date of this Agreement (the “Expiration Date”) contingent upon achievement of performance goals and thresholds (the “Performance Matrix”), if any, set forth in Exhibit A hereto. The amount of the target grant may be adjusted upwards or downwards based on the criteria set forth in Exhibit A to determine the final amount of the award prior to issuance (the “adjusted grant”).

(b) Upon exercise of the SAR, the SAR Holder will be entitled to an amount of Common Shares of the Company equal to the product of (x) and (y) where (x) equals the excess of the fair market value of a Share on the date of exercise over the Grant Price and (y) equals the number of Shares specified in the notice of exercise.


				Cumulative
Anniversary	Percentage			Percentage
Date	Exercisable			Exercisable
First		25	%		25	%
Second		25	%		50	%
Third		25	%		75	%
Fourth		25	%		100	%

3. Each exercise of this SAR shall be by means of a written notice of exercise delivered to the Company, specifying the number of Shares to which the exercise relates. The SAR Holder agrees to pay to the Company the minimum statutory withholding requirement arising in connection with the exercise of the SAR; and the Company shall have the right, without the SAR Holder’s prior approval or direction, to satisfy such withholding tax by withholding all or any part of the Shares that would otherwise be transferred and delivered to the SAR Holder, with any Shares so withheld to be valued at the fair market value of the Common Stock on the date of such withholding. Any Shares withheld to satisfy this obligation will not exceed the minimum statutory withholding requirement. The Participant, with the consent of the Company, may satisfy such withholding tax (i) in cash or certified or cashier’s check payable to the order of the Company, or (ii) by having the Company withhold Shares that would otherwise become Vested Shares, with any Shares so withheld to be valued at the fair market value of the Common Share on the date of such withholding, or any combination thereof.

5. (a) If the SAR Holder ceases for any reason whatsoever to be an employee of the Company or a subsidiary corporation (as defined in Section 424(f) of the United States Internal Revenue Code of 1986, as amended (the “Code”)), for reasons other than a termination by the Company for Cause (defined below) or termination due to death or permanent disability (as defined in Section 22(e)(3) of the Code), this SAR shall become void and of no further force or effect as of the 30-day anniversary of the cessation of such employment ; provided, however, that if such cessation of employment shall be due to the SAR Holder’s voluntary resignation with the consent of the Committee of the Board of Directors of the Company or such subsidiary corporation, expressed in the form of a written resolution, then, the SAR Holder may at any time within a period of three (3) months after the date he so ceases to be an employee of the Company or any such subsidiary corporation, and not thereafter, exercise the SAR granted hereby to the extent such SAR was exercisable by him on the date of such cessation of such employment. The employment of the SAR Holder shall be deemed to continue during any leave of absence which has been authorized by the Company, provided that no exercise of this SAR may take place during any such authorized leave of absence excepting only during the first three (3) months thereof. Notwithstanding the foregoing provisions of this Section 5(a), if the SAR Holder’s employment with the Company is terminated by the Company for Cause, this SAR shall become void and of no further force or effect as of the date of such termination of employment.

as (i) the determination by the Company, that the SAR Holder has ceased to perform his duties to the Company, or a subsidiary or an affiliate (other than as a result of his incapacity due to physical or mental illness or injury), which failure amounts to an intentional and extended neglect of his duties to such party, (ii) the determination by the Company, that the SAR Holder has engaged or is about to engage in conduct materially injurious to the Company or a subsidiary or an affiliate, monetarily or otherwise, (iii) the SAR Holder having been convicted of, or pleaded guilty or no contest to, a felony, (iv) conduct by SAR Holder that involves theft, fraud or dishonesty, (v) repeated instances of drug or alcohol abuse or unauthorized absences during scheduled work hours, or (vi) the failure of the SAR Holder to follow the lawful instructions of the Board or his direct superiors.

8. Neither the Participant nor any other person legally entitled to the benefits hereof shall be entitled to any of the rights or privileges of a stockholder of the Company in respect of any of the SAR at any time or for any purpose whatsoever.

9. Confidential Information.

(c) The confidentiality obligations set forth in (a) and (b) of this Section 9 shall apply during the Participant’s employment by the Company and indefinitely thereafter.

10. Non-Solicitation

(a) For the purposes of this Section, the following words have the following meanings:

i. “Affiliate” means, with respect to any individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind (each a “person”), any other person that directly or indirectly controls or is controlled by or under common control with such person. For the purposes of this definition, “control” when used with respect to any person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities, by contract or otherwise; and the terms of “affiliated”, “controlling” and “controlled” have meanings correlated to the foregoing.

iii. “Confidential Information” has the meaning ascribed thereto in Section 9.

(b) The Participant recognizes that, while performing his duties for the Company, he will have access to and come into contact with trade secrets and Confidential Information belonging to the Company and its Affiliates and will obtain personal knowledge of and influence over its or their customers and/or employees. The Participant therefore agrees that the restrictions set out in this Section 10 are reasonable and necessary to protect the legitimate business interests of the Company and its Affiliates both during and after the termination of his employment.

(c) The Participant hereby undertakes with the Company that he shall not during his employment with the Company and for the period of twelve months after he ceases to be employed by the Company for any reason, whether the termination is by the Company, by the Participant, due to Disability, without the prior written consent of the Company, whether by himself, through his employers or employees or agents or otherwise, howsoever and whether on his own behalf or on behalf of any other person, firm, company or other organization directly or indirectly:

solicit business from or endeavor to entice away or canvass any Customer or Prospective Customer;

ii.

solicit or induce or endeavor to solicit or induce any Restricted Employee to cease working for or providing services to the Company, or hire any Restricted Employee.

(d) This Section 10 shall be for the benefit of the Company and each of its Affiliates and the Company reserves the right to assign the benefit of such provisions to any of its Affiliates, in addition such provisions also apply as though there were substituted for references to “the Company” references to each of its Affiliates in relation to which the Participant has in the course of his duties for the Company or by reason of rendering services to or holding office in such Affiliate: (x) acquired knowledge of its trade secrets or Confidential Information; or (y) had material personal dealings with its Customers or Prospective Customers; or (z) supervised directly or indirectly employees having material personal dealings with its Customers or Prospective Customers but so that references in this Section 10 to “the Company” shall for this purpose be deemed to be replaced by references to the relevant Affiliate. The obligations undertaken by the Participant pursuant to this Section 10 shall, with respect to each Affiliate of the Company, constitute a separate and distinct covenant and the invalidity or unenforceability of any such covenant shall not affect the validity or enforceability of the covenants in favor of any other Affiliate or the Company.

(e) While the covenants in this Section 10 (on which the Participant has had the opportunity to take independent advice, as the Participant hereby acknowledges) are considered by the parties to be reasonable in all the circumstances, it is agreed that if any such covenants, by themselves, or taken together, shall be adjudged to go beyond what is reasonable in all the circumstances for the protection of the legitimate interests of the Company or its Affiliates but would be adjudged reasonable if part or parts of the wording thereof were deleted, the relevant covenants or restrictions shall apply with such deletion(s) as may be necessary to make it or them valid and effective.

11. The SAR award granted hereby is subject to, and the Company and the Participant agree to be bound by, all of the terms and conditions of the Company’s [2007 // 2014] Long-Term Incentive Plan, as the same shall be amended from time to time in accordance with the terms thereof, but no such amendment shall adversely affect the Participant’s rights under this grant without the prior written consent of Participant. The terms of the Plan are incorporated into and form part of this Agreement.

12. No Shares shall be issued and delivered unless and until there shall have been full compliance with all applicable requirements of the United States Securities Act of 1933, all applicable listing requirements of any national securities exchange on which shares of the same class are then listed and any other requirements of law or of any regulatory bodies having jurisdiction over such issuance and delivery.

13. Miscellaneous.


ARGO GROUP INTERNATIONAL HOLDINGS, LTD.

By

Its

SAR HOLDER

By

Print Name

Exhibit 10.4

RESTRICTED SHARE AGREEMENT

This Restricted Share Agreement is made as of the <<DATE>>, between ARGO GROUP INTERNATIONAL HOLDINGS, LTD. (the “Company”), and <<NAME>> (the “Participant”).

R E C I T A L S

A. The Company’s [2007 // 2014] Long-Term Incentive Plan (the “Plan”) provides for the granting of restricted share grants consisting of Common Shares of the Company.

B. Pursuant to the Plan, the administration of the Plan has been delegated to the Human Resources Committee of the Board of Directors of the Company (the “Committee”).

C. Pursuant to the Plan, the Committee has determined that it is in the best interest of the Company and its stockholders to make a restricted share grant to the Participant covering a defined amount of Common Shares (the “target grant” or “grant at target”) of the Company and has approved the execution of this Restricted Share Agreement (the “Agreement”) between the Company and the Participant, contingent upon achievement of performance goals and thresholds (the “Performance Matrix”), if any, set forth in Exhibit A hereto, as an inducement to remain in the employ of the Company and as an incentive for increased effort during such service, and has approved the execution of this Agreement between the Company and the Participant. The amount of the target grant may be adjusted upwards or downwards based on the criteria set forth in Exhibit A to determine the final amount of the award prior to issuance (the “adjusted grant”).

A G R E E M E N T

NOW, THEREFORE, the parties hereto agree as follows:

1. The Company hereby makes a restricted share grant to the Participant, on the terms and conditions hereinafter set forth, in the a target grant amount <<# GRANTED>>Common Shares (the “Shares”) of the Company, subject to the achievement of the performance matrix set forth in Exhibit A hereto, if any.

2. Participant shall not be deemed vested in or to have earned the Shares and shall not have any of the rights or privileges of a stockholder of the Company in respect of the Shares until such Shares have vested (such Shares being referred to as “Vested Shares”) as hereinafter provided. Until Shares become Vested Shares, the Company shall not issue certificates representing such Shares. The adjusted grant shall become Vested Shares according to the following schedule, provided that on each indicated date for vesting the Participant remains an employee of the Company or a subsidiary corporation (as defined in Section 424(f) of the United States Internal Revenue Code of 1986, as amended (the “Code”)):


				Cumulative
Anniversary	Percentage			Percentage
Date of Grant	Vested			Vested
First		25	%		25	%
Second		25	%		50	%
Third		25	%		75	%
Fourth		25	%		100	%

In the event that the Participant ceases for any reason (other than as indicated in Section 5 below) to be an employee of the Company or any subsidiary corporation of the Company prior to an indicated date for vesting, then all Shares which had not theretofore become Vested Shares shall automatically be forfeited and returned to the Company.

3. Notwithstanding the vesting [provisions // schedule] set forth in Section 2, all shares subject to this grant shall become [Vested Shares in full simultaneous with and contingent upon the occurrence of a Change in Control // immediately vested and exercisable if within twelve (12) months after the occurrence of a Change in Control, Participant’s employment is involuntarily terminated by the Company or any of its Subsidiaries for any reason other than Cause (as hereinafter defined) or Participant’s death or disability, or Participant’s voluntarily termination of his or her employment with the Company and all Subsidiaries for Good Reason within sixty (60) days after the occurrence of the event giving rise to such Good Reason]. For purposes of this Agreement, “Change in Control” shall have the meaning given to that term from time to time in the Plan.

4. Notwithstanding anything in this Agreement to the contrary, the Company shall have the right to repurchase Shares from the Participant by providing written notice to the Participant not less than ten (10) days prior to the date on which such Shares would otherwise become Vested Shares. The purchase price shall be paid in cash in an amount equal to the fair market value (as hereinafter defined) of the Shares to be repurchased on the date that such shares would otherwise become Vested Shares.

5. For purposes of this Agreement, the “fair market value” of a common share of the Company shall be determined by reference to the closing price of such share on the principal stock exchange on which the common shares of the Company are then listed or, if such shares are not listed on an exchange, by reference to the closing price (if a National Market Issue) or the mean between the bid and asked price (if other over-the-counter issue) of a share as supplied by the National Association of Securities Dealers through NASDAQ (or its successor in function), in each case as reported by The Wall Street Journal , on the applicable day, or if such day is not a business day, for the business day immediately preceding such date (or, if for any reason no such price is available, in such other manner as the Committee may deem appropriate to reflect the then fair market value thereof).

6. Notwithstanding the vesting provisions set forth in Section 2 of this Agreement, the Shares of the Participant shall become Vested Shares in full in the event that the Participant’s termination of employment is due to death or disability (within the meaning of Plan). In addition, for purposes of said Section 2, the employment of the Participant shall be deemed to continue during any leave of absence which has been authorized by the Company, unless the Committee makes a different or contrary determination.

7. No Shares shall be issued and delivered unless and until there shall have been full compliance with all applicable requirements of the United States Securities Act of 1933, all applicable listing requirements of any national securities exchange on which shares of the same class are then listed and any other requirements of law or of any regulatory bodies having jurisdiction over such issuance and delivery.

8. In connection with each vesting of Shares in accordance with this Agreement, or at any other time that the Company is required to make withholding under applicable tax law, the Company shall have the right to require Participant or Participant’s legal successor in interest to pay the Company the amount of taxes, if any, which the Company may be required to withhold with respect to such Shares. The Company shall have the right, without the Participant’s prior approval or direction, to satisfy such withholding tax by withholding all or any part of the Shares that would otherwise become Vested Shares, with any Shares so withheld to be valued at the fair market value of the Common Share on the date of such withholding. Any Shares withheld to satisfy this obligation will not exceed the minimum statutory withholding requirement. The Participant, with the consent of the Company, may satisfy such withholding tax (i) in cash or certified or cashier’s check payable to the order of the Company, or (ii) by having the Company withhold Shares that would otherwise become Vested Shares, with any Shares so withheld to be valued at the fair market value of the Common Share on the date of such withholding, or any combination thereof.

9. Shares that are the subject of this grant, and the rights and privileges pertaining thereto, shall not be transferred, assigned, pledged or hypothecated in any way, whether by operation of the law or otherwise, except by will or the laws of descent and distribution; provided , that the foregoing restriction on transfer shall cease to apply as and to the extent that the Shares become Vested Shares. Upon any attempt so to transfer, assign, pledge, hypothecate or otherwise dispose of Shares contrary to the provisions hereof, this Agreement and all rights and privileges contained herein shall immediately become null and void and of no further force or effect.

10. If the outstanding common shares of the Company are increased, decreased, changed into, or exchanged for a different number or kind of shares or securities of the Company through reorganization, recapitalization, reclassification, stock dividend, stock split or reverse stock split, or other similar transaction, an appropriate and proportionate adjustment (to be conclusively determined by the Committee) shall be made in the number and kind of securities subject to this Agreement.

Upon the dissolution or liquidation of the Company, or upon a reorganization, merger or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation, or upon the sale of substantially all the assets or more than 80% of the then outstanding stock of the Company to another corporation, this Agreement shall terminate (except to the extent shares have vested, including, without limitation, giving effect to the acceleration provisions of Section 3 hereof) unless express written provision be made in connection with such transaction for (i) the assumption of this Agreement or the substitution therefore of a new restricted share award covering the stock of a successor employer corporation, or a parent or subsidiary thereof, with appropriate adjustments as to number and kind of securities, such adjustments to be conclusively determined by the Committee; (ii) the continuance of the Plan by such successor corporation in which event this Agreement shall remain in full effect under the terms so provided; or (iii) the payment in cash or stock in lieu of and in complete satisfaction of the restricted stock award evidenced by this Agreement.

Adjustments under this Section 10 shall be made by the Committee, whose determination as to what adjustments shall be made, and the extent thereof shall be final, binding and conclusive. No fractional shares of stock shall be issued under the Plan on any such adjustment.

11. Neither the Participant nor any other person legally entitled to the benefits hereof shall be entitled to any of the rights or privileges of a stockholder of the Company in respect of any of the Shares unless and until a certificate or certificates representing such Shares shall have been actually issued and delivered to him.

12. Confidential Information.

a. The Company shall disclose to the Participant, or place the Participant in a position to have access to or develop, trade secrets or confidential information of the Company or its Affiliates (as defined below); and/or shall entrust the Participant with business opportunities of the Company or its Affiliates; and/or shall place the Participant in a position to develop business good will on behalf of the Company or its Affiliates.

b. The Participant acknowledges that during his employment with the Company he occupies a position of trust and confidence and agrees that he shall treat as confidential and shall not, without prior written authorization from the Company, directly or indirectly, disclose or make known to any person or use for his own benefit or gain, the methods, process or manner of accomplishing the business undertaken by the Company or its Affiliates, or any non-public information, plans, formulas, products, trade secrets, marketing or merchandising strategies, or confidential material or information and instructions, technical or otherwise, issued or published for the sole use of the Company, or information which is disclosed to the Participant or in any acquired by him during his employment with the Company, or any information concerning the present or future business, processes, or methods of operation of the Company or its Affiliates, or concerning improvement, inventions or know how relating to the same or any part thereof, it being the intent of the Company, with which intent the Participant hereby agrees, to restrict him from disseminating or using for his own benefit any information belonging directly or indirectly to the Company which is unpublished and not readily available to the general public (collectively, “Confidential Information”).

c. The confidentiality obligations set forth in (a) and (b) of this Section 12 shall apply during the Participant’s employment by the Company and indefinitely thereafter.

d. All information, ideas, concepts, improvements, discoveries, and inventions, whether patentable or not, that are conceived, made, developed or acquired by the Participant, individually or in conjunction with others, during the Participant’s employment with the Company (whether during business hours or otherwise and whether on the premises of the Company or an Affiliate or otherwise) that relate to the business, products or services of the Company or any Affiliate shall be disclosed to the Board and are and shall be the sole and exclusive property of the Company or such Affiliate. Moreover, all documents, drawings, memoranda, notes, records, files, correspondence, manuals, models, specifications, computer programs, e-mail, voice mail, electronic data bases, maps and all other writings and materials of any type embodying any such information, ideas, concepts, improvements, discoveries and inventions are and shall be the sole and exclusive property of the Company. Upon termination of the Participant’s employment for any reason, the Participant promptly shall deliver the same, and all copies thereof, to the Company.

e. If, during the Participant’s employment by the Company, the Participant creates any work of authorship fixed in any tangible medium of expression that is the subject matter of copyright (such as video tapes, written presentations, or acquisitions, computer programs, e-mail, voice mail, electronic data bases, drawings, maps, architectural renditions, models, manuals, brochures or the like) relating to the Company’s business, products or services, whether such work is created solely by the Participant or jointly with others (whether during business hours or otherwise and whether on the Company’s premises or otherwise), the Company shall be deemed the author of such work if the work is prepared by the Participant in the scope of the Participant’s employment.

13. Non-Solicitation

a. For the purposes of this Section, the following words have the following meanings:

iii. “Confidential Information” has the meaning ascribed thereto in Section 12.

b. The Participant recognizes that, while performing his duties for the Company, he will have access to and come into contact with trade secrets and Confidential Information belonging to the Company and its Affiliates and will obtain personal knowledge of and influence over its or their customers and/or employees. The Participant therefore agrees that the restrictions set out in this Section 13 are reasonable and necessary to protect the legitimate business interests of the Company and its Affiliates both during and after the termination of his employment.

c. The Participant hereby undertakes with the Company that he shall not during his employment with the Company and for the period of twelve months after he ceases to be employed by the Company for any reason, whether the termination is by the Company, by the Participant, due to Disability, without the prior written consent of the Company, whether by himself, through his employers or employees or agents or otherwise, howsoever and whether on his own behalf or on behalf of any other person, firm, company or other organization directly or indirectly:

solicit business from or endeavor to entice away or canvass any Customer or Prospective Customer;

ii.

solicit or induce or endeavor to solicit or induce any Restricted Employee to cease working for or providing services to the Company, or hire any Restricted Employee.

d. This Section 13 shall be for the benefit of the Company and each of its Affiliates and the Company reserves the right to assign the benefit of such provisions to any of its Affiliates, in addition such provisions also apply as though there were substituted for references to “the Company” references to each of its Affiliates in relation to which the Participant has in the course of his duties for the Company or by reason of rendering services to or holding office in such Affiliate: (x) acquired knowledge of its trade secrets or Confidential Information; or (y) had material personal dealings with its Customers or Prospective Customers; or (z) supervised directly or indirectly employees having material personal dealings with its Customers or Prospective Customers but so that references in this Section 13 to “the Company” shall for this purpose be deemed to be replaced by references to the relevant Affiliate. The obligations undertaken by the Participant pursuant to this Section 13 shall, with respect to each Affiliate of the Company, constitute a separate and distinct covenant and the invalidity or unenforceability of any such covenant shall not affect the validity or enforceability of the covenants in favor of any other Affiliate or the Company.

e. While the restrictions in this Section 13 (on which the Participant has had the opportunity to take independent advice, as the Participant hereby acknowledges) are considered by the parties to be reasonable in all the circumstances, it is agreed that if any such restrictions, by themselves, or taken together, shall be adjudged to go beyond what is reasonable in all the circumstances for the protection of the legitimate interests of the Company or its Affiliates but would be adjudged reasonable if part or parts of the wording thereof were deleted, the relevant restriction or restrictions shall apply with such deletion(s) as may be necessary to make it or them valid and effective.

14. The restricted share award granted hereby is subject to, and the Company and the Participant agree to be bound by, all of the terms and conditions of the Company’s [2007 // 2014] Long-Term Incentive Plan, as the same shall be amended from time to time in accordance with the terms thereof, but no such amendment shall adversely affect the Participant’s rights under this grant without the prior written consent of Participant. The terms of the Plan are incorporated into and form part of this Agreement.

15. Miscellaneous.

a. No Representations or Warranties . Neither the Company nor the Committee or any of their representatives or agents has made any representations or warranties to the Participant with respect to the income tax or other consequences of the transactions contemplated by this Agreement, and the Participant is in no manner relying on the Company, the Committee or any of their representatives or agents for an assessment of such tax or other consequences.

b. No Employment Guarantee . Nothing in this Agreement nor in the Plan nor in the making of the Award shall confer on the Participant any right to or guarantee of continued employment with the Company or any of its subsidiaries or in any way limit the right of the Company or any of its subsidiaries to terminate the employment of the Participant at any time.

c. Necessary Acts . The Participant and the Company hereby agree to perform any further acts and to execute and deliver any documents which may be reasonably necessary to carry out the provisions of this Agreement.

d. Binding Effect; Applicable Law . This Agreement shall bind and inure to the benefit of the Company and its successors and assigns, and the Participant and any heir, legatee, or legal representative of the Participant. This Agreement shall be interpreted under and governed by and constructed in accordance with the laws of Texas.

e. Administration . The authority to manage and control the operation and administration of this Agreement shall be vested in the Committee, and the Committee shall have all powers with respect to this Agreement as it has with respect to the Plan. Any interpretation of the Agreement by the Committee and any decision made by it with respect to the Agreement are final and binding.


ARGO GROUP INTERNATIONAL HOLDINGS, LTD.

By

Its

PARTICIPANT

By

Print Name

Exhibit 10.5

RESTRICTED SHARE UNIT GRANT AGREEMENT

This Restricted Share Unit Grant Agreement is made as of the <<DATE>>, between ARGO GROUP INTERNATIONAL HOLDINGS, LTD. (the “Company”), and <<NAME>> (the “Participant”).

R E C I T A L S

A. The Company’s [2007 // 2014] Long-Term Incentive Plan (the “Plan”) provides for the granting of restricted share units, which are contingent cash awards denominated in Share Units conditioned on the continued employment by the Participant through the date such Share Units vest subject to the terms and conditions stated herein.

B. Pursuant to the Plan, the administration of the Plan has been delegated to the Human Resources Committee of the Board of Directors of the Company (the “Committee”).

C. Pursuant to the Plan, the Committee has determined that it is in the best interest of the Company and its stockholders to make a restricted Share Unit grant to the Participant covering a defined amount of Share Units (the “target grant” or “grant at target”) of the Company and has approved the execution of this Restricted Share Unit Grant Agreement (the “Agreement”) between the Company and the Participant, contingent upon achievement of performance goals and thresholds (the “Performance Matrix”), if any, set forth in Exhibit A hereto, as an inducement to remain in the employ of the Company and as an incentive for increased effort during such service, and has approved the execution of this Agreement between the Company and the Participant. The amount of the target grant may be adjusted upwards or downwards based on the criteria set forth in Exhibit A to determine the final amount of restricted Share Units awarded (the “adjusted grant”).

A G R E E M E N T

NOW, THEREFORE, the parties hereto agree as follows:

1. The Company hereby makes a restricted Share Unit grant to the Participant, on the terms and conditions hereinafter set forth, in the a target grant amount <<# GRANTED>>Share Units, subject to the achievement of the performance matrix set forth in Exhibit A hereto and any downward or upward modification in connection with same, in which case the number of restricted Share Units shall be in the amount of the adjusted grant. The value of a restricted Share Unit granted hereunder shall be determined as of the date it becomes as Vested Share Unit and shall be equal to the Fair Market Value of a Common Share of the Company as defined in Section 5.

2. Participant shall not be deemed vested in or to have earned any portion of the restricted Share Units granted hereunder until such restricted Share Units have vested (such Share Units then being referred to as “Vested Share Units”) as hereinafter provided. The restricted Share Units comprising the target grant, or if modified comprising the adjusted grant, shall become Vested Share Units according to the following schedule, provided that on each indicated date for vesting the Participant remains an employee of the Company or a subsidiary corporation (as defined in Section 424(f) of the United States Internal Revenue Code of 1986, as amended (the “Code”)):


				Cumulative
Anniversary	Percentage			Percentage
Date of Grant	Vested			Vested
First		25	%		25	%
Second		25	%		50	%
Third		25	%		75	%
Fourth		25	%		100	%

In the event that the Participant ceases for any reason (other than as indicated in Section 5 below) to be an employee of the Company or any subsidiary corporation of the Company prior to an indicated date for vesting, then all Share Units which had not theretofore become Vested Share Units shall automatically be forfeited.

3. Notwithstanding the vesting [provisions // schedule] set forth in Section 2, all shares subject to this SAR shall become [Vested Share Units in full simultaneous with and contingent upon the occurrence of a Change in Control // immediately vested and exercisable if within twelve (12) months after the occurrence of a Change in Control, Participant’s employment is involuntarily terminated by the Company or any of its Subsidiaries for any reason other than Cause (as hereinafter defined) or Participant’s death or disability, or Participant’s voluntarily termination of his or her employment with the Company and all Subsidiaries for Good Reason within sixty (60) days after the occurrence of the event giving rise to such Good Reason]. For purposes of this Agreement, “Change in Control” shall have the meaning given to that term from time to time in the Plan.

4. As soon as practicable after the date a portion of the restricted Share Units become Vested Share Units, the Company shall pay to the Participant in cash an amount equal to the value of Vested Share Units, calculated pursuant to Section 1, less any amounts deducted for tax withholding; provided that the Participant is continuously employed with the Company through the date of payment. Upon the Participant’s receipt of the Company’s payment made under this Section 5, the corresponding number of restricted Share Units to which the payment relates shall be cancelled.

5. For purposes of this Agreement, the “Fair Market Value” of a Common Share of the Company shall be determined by reference to the closing price of such share on the principal stock exchange on which the common shares of the Company are then listed or, if such shares are not listed on an exchange, by reference to the closing price (if a National Market Issue) or the mean between the bid and asked price (if other over-the-counter issue) of a share as supplied by the National Association of Securities Dealers through NASDAQ (or its successor in function), in each case as reported by The Wall Street Journal , on the applicable day of vesting, or if such day is not a business day, for the business day immediately preceding such date (or, if for any reason no such price is available, in such other manner as the Committee may deem appropriate to reflect the then fair market value thereof).

6. Notwithstanding the vesting provisions set forth in Section 2 of this Agreement, the restricted Share Units of the Participant shall become Vested Share Units in full in the event that the Participant’s termination of employment is due to death or disability (within the meaning of Plan). In addition, for purposes of said Section 2, the employment of the Participant shall be deemed to continue during any leave of absence which has been authorized by the Company, unless the Committee makes a different or contrary determination.

7. No Common Shares of the Company’s stock shall be issued or delivered under this Agreement in lieu of cash payment.

8. In connection with each vesting of restricted Share Units in accordance with this Agreement, or at any other time that the Company is required to make withholding under applicable tax law, the Company shall have the right to require Participant or Participant’s legal successor in interest to pay the Company the amount of taxes, if any, which the Company may be required to withhold with respect to such Vested Share Units. The Company shall have the right, without the Participant’s prior approval or direction, to satisfy such withholding tax by withholding all or any part of the cash payment due with regard to Vested Share Units.

9. No Share Units that are the subject of this grant, nor any of the rights and privileges pertaining thereto, are capable of being be transferred, assigned, pledged or hypothecated in any way, whether by operation of the law or otherwise. Upon any attempt so to transfer, assign, pledge, hypothecate or otherwise dispose of any rights relating to the Share Units contrary to the provisions hereof, this Agreement and all rights and privileges contained herein shall immediately become null and void and of no further force or effect.

10. If the outstanding Common Shares of the Company are increased, decreased, changed into, or exchanged for a different number or kind of shares or securities of the Company through reorganization, recapitalization, reclassification, stock dividend, stock split or reverse stock split, or other similar transaction, an appropriate and proportionate adjustment (to be conclusively determined by the Committee) shall be made in the number Share Units subject to this Agreement.

Upon the dissolution or liquidation of the Company, or upon a reorganization, merger or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation, or upon the sale of substantially all the assets or more than 80% of the then outstanding stock of the Company to another corporation, this Agreement shall terminate (except to the as to Vested Share Units as of the date of such event, including, without limitation, giving effect to the acceleration provisions of Section 3 hereof) unless express written provision be made in connection with such transaction for (i) the assumption of this Agreement or the substitution therefore of a new restricted share unit award denominated in the stock of a successor employer corporation, or a parent or subsidiary thereof, with appropriate adjustments as to number and kind of securities, such adjustments to be conclusively determined by the Committee; (ii) the continuance of the Plan by such successor corporation in which event this Agreement shall remain in full effect under the terms so provided; or (iii) the payment in cash or stock in lieu of and in complete satisfaction of the restricted stock award evidenced by this Agreement.

Adjustments under this Section 10 shall be made by the Committee, whose determination as to what adjustments shall be made, and the extent thereof shall be final, binding and conclusive. No fractional Share Units shall be issued under the Plan on any such adjustment.

12. Confidential Information.

c. The confidentiality obligations set forth in (a) and (b) of this Section 12 shall apply during the Participant’s employment by the Company and indefinitely thereafter.

13. Non-Solicitation

a. For the purposes of this Section, the following words have the following meanings:

iii. “Confidential Information” has the meaning ascribed thereto in Section 12.

solicit business from or endeavor to entice away or canvass any Customer or Prospective Customer;

ii.

solicit or induce or endeavor to solicit or induce any Restricted Employee to cease working for or providing services to the Company, or hire any Restricted Employee.

14. The restricted Share Unit award granted hereby is subject to, and the Company and the Participant agree to be bound by, all of the terms and conditions of the Company’s [2007 // 2014] Long-Term Incentive Plan, as the same shall be amended from time to time in accordance with the terms thereof, but no such amendment shall adversely affect the Participant’s rights under this grant without the prior written consent of Participant. The terms of the Plan are incorporated into and form part of this Agreement.

15. Miscellaneous.


ARGO GROUP INTERNATIONAL HOLDINGS, LTD.

By

Its

PARTICIPANT

By

Print Name

Exhibit 12.1

ARGO GROUP INTERNATIONAL HOLDINGS, LTD.

STATEMENTS OF COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES

AND EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDENDS

(in millions, except ratios)


	Three Months Ended
	March 31,				Years Ended December 31,
	2014		2013		2013		2012		2011			2010		2009
Earnings:
Income (loss) before provision for income taxes	$	42.7	$	37.5	$	179.7	$	66.7	$	(61.9	)	$	121.9	$	139.1
Add:
Fixed charges		6.3		6.2		25.1		28.4		26.7			26.6		29.5

Total earnings	$	49.0	$	43.7	$	204.8	$	95.1	$	(35.2	)	$	148.5	$	168.6

Fixed charges:
Interest expense	$	5.0	$	4.9	$	20.2	$	23.7	$	22.1		$	22.9	$	25.7
Rental interest factor		1.3		1.3		4.9		4.7		4.6			3.7		3.8

Total fixed charges	$	6.3	$	6.2	$	25.1	$	28.4	$	26.7		$	26.6	$	29.5

Ratio of earnings to fixed charges		7.8:1		7.1:1		8.2:1		3.3:1		(a	)		5.6:1		5.7:1

^(a)	The coverage deficiency for the year ended December 31, 2011 is $61.9 million.

Exhibit 31.1

Rule 13a-14(a)/15d-14(a)

Certification of the Chief Executive Officer

I, Mark E. Watson III, President and Chief Executive Officer of Argo Group International Holdings, Ltd., certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Argo Group International Holdings, Ltd.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 8, 2014

/s/ Mark E. Watson III

Mark E. Watson III

President and Chief Executive Officer

Exhibit 31.2

Rule 13a-14(a)/15d-14(a)

Certification of the Chief Financial Officer

I, Jay S. Bullock, Executive Vice President and Chief Financial Officer of Argo Group International Holdings, Ltd., certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Argo Group International Holdings, Ltd.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 8, 2014

/s/ Jay S. Bullock

Jay S. Bullock

Executive Vice President and Chief Financial Officer

Exhibit 32.1

Certification of CEO Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Argo Group International Holdings, Ltd. (the “Company”) for the quarterly period ended March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Mark E. Watson III, as President and Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

* * *

Certified this 8 ^th day of May 2014.

/s/ Mark E. Watson III

Mark E. Watson III

President and Chief Executive Officer

Exhibit 32.2

Certification of CFO Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Argo Group International Holdings, Ltd. (the “Company”) for the quarterly period ended March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Jay S. Bullock, as Executive Vice President and Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002 that, to the best of his knowledge:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

* * *

Certified this 8 ^th day of May 2014.

/s/ Jay S. Bullock

Jay S. Bullock

Executive Vice President and Chief Financial Officer