Effective December 31, 2017, Ariel Reinsurance, Ltd. was merged into Argo Re (Note 2, “Acquisition of Maybrooke”). As of December 31, 2017, Argo Re’s solvency and liquidity margins and statutory capital and surplus were in excess of the minimum levels required by the Insurance Act. As of December 31, 2017 and 2016, the minimum statutory capital and surplus required to be maintained by Argo Re was $403.8 million and $362.1 million, respectively.
Argo Re is generally prohibited from declaring or paying, in any financial year, dividends of more than 25% of its total statutory capital and surplus (as shown on its previous financial year’s statutory balance sheet) unless it files (at least seven days before payment of such dividends) with the Bermuda Monetary Authority (“BMA”) an affidavit signed by at least two directors (one of whom must be a Bermuda resident director if any of the insurer’s directors are resident in Bermuda) and the principal representative stating that it will continue to meet its solvency margin and minimum liquidity ratio. Argo Re may not reduce its total statutory capital by 15% or more, as set out in its previous year’s financial statements, unless it has received the prior approval of the BMA. Based on these regulatory restrictions, the maximum amount available for payment of dividends to Argo Group by Argo Re during 2018 without prior regulatory approval is $382.4 million.
Argo Re did not pay dividend to Argo Group in 2017. In 2016 and 2015, Argo Re paid cash dividends to Argo Group of $41.0 million. The proceeds of the dividends were used to repay intercompany balances related primarily to dividend and interest payments and other corporate expenses.
Our U.S. insurance subsidiaries file financial statements prepared in accordance with statutory accounting principles prescribed or permitted by insurance regulatory authorities of the state in which they are domiciled. The differences between statutory-based financial statements and financial statements prepared in accordance with GAAP vary between jurisdictions. The principal differences are that for statutory-based financial statements, deferred policy acquisition costs are not recognized, a portion of the deferred federal income tax asset is non-admitted, bonds are generally carried at amortized cost, certain assets are non-admitted and charged directly to surplus, a collectability allowance related to reinsurance recoverables is charged directly to surplus and outstanding losses and unearned premium are presented net of reinsurance.
As an intermediate insurance holding company, Argo Group US is largely dependent on dividends and other permitted payments from its insurance subsidiaries to service its debt, fund operating expenses and pay dividends to Argo Ireland. Various state insurance laws restrict the amount that may be transferred to Argo Group US from its subsidiaries in the form of dividends without prior approval of regulatory authorities. In addition, that portion of the insurance subsidiaries’ net equity that results from the difference between statutory insurance principles and GAAP would not be available for dividends.
Argo Group US did not receive dividends from its subsidiaries in 2017.
In December 2016, Argo Group US received an ordinary dividend in the amount of $18.1 million in cash from Rockwood. In December 2016, Argo Group US received an ordinary dividend of $41.6 million from Argonaut Insurance Company. In March 2016, Argo Group US received an ordinary dividend of $35.0 million, in the form of $19.9 million in cash and $15.1 million in securities, from Colony.
Argo Group US did not receive dividends from its subsidiaries in 2015.
Argonaut Insurance Company is a direct subsidiary of Argo Group US and is regulated by the Illinois Division of Insurance. During 2018, Argonaut Insurance Company may be permitted to pay dividends of up to $87.3 million without approval from the Illinois Division of Insurance. Rockwood, a direct subsidiary of Argo Group US, is regulated by the Pennsylvania Department of Insurance. Rockwood may be permitted to pay dividends of up to $33.2 million without approval from the Pennsylvania Department of Insurance during 2018. Each department of insurance may require prior approval for the payment of all dividends, based on business and regulatory conditions of the insurance companies.
During 2016 we realigned our internal ownership structure so that Colony became a direct subsidiary of Argonaut Insurance Company. Prior to 2016, Colony had been a direct subsidiary of Argo Group US.
Argo Underwriting Agency Ltd. (“AUA”) and Ariel Corporate Member Ltd. (“ACML”) are our wholly-owned subsidiaries through which we conduct the operations of Syndicates 1200 and 1910, respectively. Dividend payments from AUA and ACML to their immediate parents are not restricted by regulatory authority. Dividend payments will be subject to the earnings, operations, financial condition, capital and general business requirements of AUA and ACML.
Certain assets of our subsidiaries are pledged to regulatory agencies, serve as collateral for letters of credit or are assigned as the assets of the trade capital providers of our Lloyd’s syndicate, and therefore, are not available funds that may be paid up as dividends to Argo Group. See Note 3, “Investments” and Note 19, “Segment Information” for further discussion.