BEVERLY HILLS, Calif. (Reuters) – An activist hedge fund said on Tuesday that insurance company Argo Group International Holdings Ltd could double its return on equity if it cut $100 million in costs, including millions spent on corporate jets and housing for its chief executive.
Voce Capital Management LLC is asking Argo shareholders to install five new directors at the company’s annual meeting next month, saying the current board is responsible for a “culture of indulgence.”
Voce outlined its case in a securities filing, seen by Reuters, which is plans to file later on Tuesday.
Argo said it could not comment on any of the matters until it sees the filing.
Voce said that by eliminating $100 million in costs, including some $20 million that includes payments for corporate jets, sponsorship, CEO pay and housing, including a waterfront villa in Bermuda and a penthouse apartment in New York City, Argo’s return on equity could climb by 4.6 percent.
That would handily lift its 10-year average return on equity of 5.7 percent to double digits, Voce said.
The $250 million hedge fund, run by J. Daniel Plants, owns 5.6 percent of $2.4 billion Argo, which specializes in insurance and reinsurance products in property and casualty insurance. Voce announced plans to push for changes in February.
Now the hedge fund is ratcheting up pressure by naming five directors and laying out a 131-page plan on where to make changes.
Voce’s director candidates have global insurance and capital allocation expertise plus public company board experience. Voce proposes to replace five directors, including ones not up for re-election now, and called the current board weak.
Voce wants a combination of expense cuts, improved capital allocation and portfolio realignment, including possibly spinning off certain businesses.
Investors would reward such moves, Voce said, forecasting shares could climb as high as $126, compared with Tuesday’s closing price of $78.07. If nothing is done, the hedge fund said, the stock price could also drop, erasing gains made since Voce began pressuring Argo.
Voce also said the company’s Gulfstream 5 jet logged 584 flights in the last three calendar years to places where Argo CEO Mark E. Watson III has homes.
Reporting by Svea Herbst-Bayliss in Beverly Hills, Calif.; Editing by Matthew Lewis