Argus Group Holdings Ltd. yesterday announced a net loss of $115.7 million for the year ending March 31, 2009 — the first annual loss in the company's 60-year history.

Chief executive officer Gerald Simons said earnings had been "severely impacted by this most difficult of financial climates from which none appear to be immune".

After the results were posted, credit rating agency AM Best said it had downgraded the financial strength rating of Argus and its operating subsidiaries to A- from A and revised the ratings outlook to negative from stable.

In the commentary on its action, AM Best cited the reduction in the company's capital position caused by the fall in asset values.

The net loss, which broke down to $5.53 per share, compared to net earnings of $15.48 million, or 74 cents per share, in the previous year.

Most of the losses booked by the insurer, pension provider and investment company stemmed from a $116.1 million fall in the fair value of its investments.

These losses were unrealised and the company believes the investments could start to recover value as financial markets stabilise.

An accounting rule change brought in last year meant these unrealised losses had to be accounted for in the net income column, leading to increased volatility in earnings, exacerbated by adverse market conditions.

In an interview with The Royal Gazette last night, Mr. Simons said Argus had, to some extent, been a victim of its own long-term success. "We are a company that has been successful for 50 years, so we've accumulated a huge investment account, so when investments went south in the way that they did over the last 18 months, then we suffered greatly," Mr. Simons said.

Mr. Simons made an analogy with real estate investments. Say Argus had invested in 500 properties that had each dropped in value from $1 million to $800,000, that would have created an unrealised loss of $100 million, he said.

And even though rents of $50 million were still coming in, the company would have had to book a net loss of $50 million.

"Our core businesses are still performing well and generating a positive cashflow, and that is why we have been able to maintain our quarterly dividend at 16 cents per share," Mr. Simons said.

Gross premiums written rose $8.3 million, or six percent, to $146.4 million, while claims and expenses rose $11.2 million, or 14.6 percent, to $75.6 million.

At Argus' current share price of $7.90, the 16 cents quarterly dividend gives an annualised yield of 8.1 percent.

The impact of indirect exposure to the Madoff fraud also caused Argus to make a $7.5 million write-down of the intangible value attributed to the acquisition of Tremont International Insurance Ltd (now renamed Argus International Life Bermuda Ltd.).

"The value we assigned to that acquisition was predicated on those businesses staying in place and the assets under management," Mr. Simons said. "We did not get what we thought we were paying for and that is the subject of our lawsuit against Tremont."

In its rating commentary, AM Best said it recognised "the recent financial market turmoil that has resulted in (Argus subsidiary) Bermuda Life Insurance Company's investment product values severely declining globally, causing operating performance to further erode as spreads on products have compressed in response to falling values in the investment markets".

As the major investor for Argus, BLIC was directly affected by the change in asset values within the group's portfolio, Best added, and Argus' capital position "does remain a concern as the global financial pressures continue to affect its portfolio".

Best's negative ratings outlook for Argus "reflects the influence of the recent financial market turmoil on Argus' overall operating position and the challenges it faces".

The agency added: "Given that the overall group is challenged by the recent investment market turmoil, these pressures are partially offset by each subsidiary's long-standing participation in the domestic insurance market in Bermuda and an experienced management team that integrates each subsidiary's role as part of Argus Group."

Mr. Simons said he did not expect the downgrade to have any practical impact on the group's operations. A-, "excellent" by Best's classification, was "not unlike the rating of other companies operating in this market", he added.

Argus "remains a very strongly capitalised company", the CEO said, with four times the amount of statutory capital required by Bermuda rules to operate its insurance businesses.

Shareholders' equity at year-end stood at $114.8 million, while Total General Fund Assets of the Argus Group reduced by $115 million in the year to $529 million. The group now has assets of $1.5 billion under its administration.