Argo: what next in Voce debacle?

Observers of the re/insurance industry have watched with amazement over the past nine months as a war of increasingly extraordinary rhetoric was exchanged between activist investor Voce Capital Management and insurer Argo, in which Voce owns approximately 5.8 percent.

In a nutshell, Voce was arguing that Argo could be run better and should curb some of what it called excessive expenditure in some areas, singling out Argo chief executive Mark Watson (pictured) for particular and often very personal criticism.

It wanted better oversight of the company and, to achieve this, had nominated five non-executive directors to sit on the Argo board, to keep an eye on things.

Argo’s consistent response to the lobbying was to point to its performance in recent years, during which time its stock price had performed well. It refuted the claims made by Voce.

Both sides needed to convince the rest of the investors of their case and all roads led to Argo’s annual general meeting (AGM) on May 24 at which investors would back one or the other.

In the end, the dispute was resolved in advance of that date when Voce was forced to withdraw its board nominations ahead of the AGM, after official state approval was revoked.

State matters
Voce in a statement on May 21 said it had sought and obtained regulatory approval from the relevant Departments of Insurance (DOIs) for its proxy solicitation at Argo despite the fact it “in no way constitutes ‘control’ of Argo by Voce”.

It said that every state—Illinois, New York, Ohio, Pennsylvania and Virginia—had granted approval.

“However, we have recently been advised by two states that they have now flip-flopped, at the 11th hour, revoking their prior approvals and casting doubt on our ability to proceed; Virginia became the second state to do so,” said the statement.

It claimed that Argo had played an “active role in lobbying the various DOIs” and that officials had reversed their “previously well-founded positions as a result of Argo’s misinformation”.

This is something Argo has denied.

Despite withdrawing its board nominations, Voce reiterated its call to shareholders to vote against Argo’s board nominees on the white proxy card, and said that it was “reviewing all available legal, regulatory and other options available to protect shareholder rights”.

In the event, Argo reported on May 24 that shareholders had voted overwhelmingly in favour of directors put forward by the company—and it looks as though that would have been the case anyway.

The re/insurer said that even before Voce withdrew its board proposals, the investor’s nominees “had received limited shareholder support”.

As early as May 20, Argo said, Sedgwick Browne, a director “targeted for removal by Voce” had gained support from shareholders holding more than 80 percent of the submitted proxies.

A similarly large proportion, almost 80 percent of the submitted proxies, had voted against the removal of Argo chairman Gary Woods, and more than 80 percent of the submitted proxies had voted against the removal of the other directors named by Voce.

Money matters
It was not all smooth running for Argo—one of the votes on executive compensation was a close-run thing.

The company said that based on preliminary votes, a non-binding advisory resolution on executive compensation received 50.53 percent of the votes in favour, with 49.47 percent against.

Woods said the board and management “value the conversations we have had with our shareholders in recent months regarding our strategy, governance, and plans for continuing to create shareholder value”.

“The company plans to maintain an active and productive dialogue with our shareholders,” he added.

In response to the narrowly won vote on compensation, he said: “We will work with our shareholders to fully understand the concerns that influenced the vote regarding the compensation of our executive officers and are committed to taking the necessary actions to address those concerns.

“Our board will carefully consider these results, as well as future shareholder input, in determining executive compensation going forward. We thank our shareholders for their continued feedback and support.”

More to come
At the time of writing, since the vote both sides have been quiet, but it seems unlikely that this will be the end of the matter.

At the end of April, Voce published a detailed plan explaining how, it claims, Argo could “unlock substantial shareholder value”.

In the documents, the investor shared an in-depth roadmap for the board.

Proposals include a “starter kit” of actions the board could “take immediately” to boost value and “instil a culture of accountability”, which the investor has repeatedly stated it believes is missing from the company’s leadership.

To improve allegedly “substandard return on equity (ROE)”, Voce urged the insurer to reduce expenses by $100 million to “allow Argo to earn a double-digit ROE”, which it said would be “significantly higher than its 10-year average ROE of 5.7 percent”.

It called for a thorough review of the insurer’s capital allocation and portfolio of businesses and even a potential divestiture of its international business, with an exit of underperforming lines and potential capital return.

It also claimed that there is 110 basis points (bps) of ROE opportunity from enhanced capital allocation and 220 bps from portfolio rationalisation.

Changes suggested by Voce “would allow Argo to achieve a ROE of over 13 percent”, the investor said, and these proposals “could result in a share price approximately 75 to 90 percent above its unaffected stock price on February 1, 2019”.

Argo responded at the time, an Argo spokesperson saying that “the numbers Voce principal J. Daniel Plants has put forward are fantasy”.

However, given the close call on investor compensation and the likelihood that Voce has not given up just yet, watch this space. Other re/insurers will also be watching the case with interest, given the increase in activist investors targeting the industry in recent times.