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Compass Point: Argo Group to benefit from E&S market hardening

Compass Point analyst Bijan Moazami raised Argo Group International Holdings Ltd.'s shares to "buy" from "neutral" as he considers the company to be among the main beneficiaries of the hardening excess and surplus lines insurance market.

The U.S. E&S market will "significantly harden" in 2019, taking into account the difficulties currently faced by Lloyd's of London and American International Group Inc., Moazami wrote in a March 19 research note. Lloyd's and AIG subsidiary Lexington Insurance Co. write almost a third of the excess and surplus lines business. However, many syndicates decided to withdraw or reduce capacity in the market after Lloyd's logged significant losses in recent years. AIG also cut back as management claims it is not getting paid for its high insurance limits.

With these developments, Argo, through Colony Insurance Co. subsidiary, is poised take advantage of higher rates and improved growth opportunities as the E&S segment will likely expand significantly in the coming quarters, Moazami said.

Moazami raised his price target on the company to $85 from $70, reflecting higher earnings, quicker topline growth projections and lower required rate of return due to stronger reserves. He also increased his EPS estimates to $4.25 from $4.20 for 2019 and to $4.80 from $4.70 for 2020.