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OneBeacon Insurance Group Ltd. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: July 27, 2012 07:09AM

OneBeacon Insurance Group Ltd. (OB) filed Quarterly Report for the period ended 2012-06-30. Onebeacon Insurance Group, Ltd. has a market cap of $1.24 billion; its shares were traded at around $12.69 with a P/E ratio of 26.6 and P/S ratio of 1.2. The dividend yield of Onebeacon Insurance Group, Ltd. stocks is 6.4%.



Highlight of Business Operations:

OneBeacon adopted ASU 2010-26 prospectively. As a result of adopting ASU 2010-26, $5.6 million of unamortized deferred acquisition costs as of January 1, 2012, primarily relating to a portion of profit sharing commission that had been deferred under prior guidance, have been determined to no longer be deferrable and will be recognized in expense over the original amortization period. During the three and six months ended June 30, 2012, $2.0 million and $4.4 million, respectively, of the $5.6 million of unamortized acquisitions costs as of January 1, 2012 was recognized in expense. If OneBeacon had followed ASU 2010-26 in 2011, $2.5 million and $4.3 million, respectively, of acquisition costs that had been deferred would have been recognized in expense during the three and six months ended June 30, 2011.

We ended the second quarter of 2012 with a book value per share of $11.86, reflecting an increase of 1.2% for the second quarter of 2012 and 6.3% through the six months ended June 30, 2012, including dividends (a quarterly dividend of $0.21 per share), on an internal rate of return basis. The growth in book value per share includes a 0.1% and 1.8% total return on invested assets for the three and six months ended June 30, 2012, respectively. The increase in the six months ended June 30, 2012 also includes a $13.6 million gain, net of transaction costs, as a result of the sale of OneBeacon Holdings (Luxembourg) S.à r.l. (OB Lux) to a subsidiary of White Mountains Insurance Group, Ltd. (White Mountains), with $14.0 million reflected as an increase to additional paid in capital and $0.4 million in transaction costs expensed through the statement of operations in the three months ended March 31, 2012. We reported comprehensive income attributable to OneBeacon’s common shareholders of $12.4 million and $56.6 million, respectively, in the three and six months ended June 30, 2012, compared to comprehensive income attributable to OneBeacon’s common shareholders of $15.5 million and $57.5 million, respectively, in the same periods of 2011. The decrease in the quarter and through the six months ended June 30, 2012 as compared to the prior year was primarily due to investment results, partially offset by a decrease in net other revenues (expense) relating to the adverse impact of the debt tender completed in April 2011 reflected in the results for the quarter and the six months ended June 30, 2011.

Our total revenues increased 7.0% to $284.3 million in the three months ended June 30, 2012, compared to $265.7 million in the three months ended June 30, 2011. The increase included a 13.9% increase in earned premiums related to several of our specialty businesses as described below. Net realized and unrealized investment (losses) gains decreased $22.9 million to $(11.9) million, compared to $11.0 million in the three months ended June 30, 2011. Net investment income decreased 25.1% to $14.0 million in the three months ended June 30, 2012 due to a 12.4% decline in average invested assets. The decline in average invested assets since June 30, 2011 was driven by the AutoOne Transaction, return of capital to shareholders, repurchases of debt and the run-off of reserves related to the commercial lines business which was exited via a renewal rights sale. Net other revenues (expenses) increased to $0.2 million in the three months ended June 30, 2012, compared to $(11.5) million in the three months ended June 30, 2011. During the three months ended June 30, 2011, we repurchased and retired $150.0 million aggregate principal of senior notes as a result of a cash tender offer, resulting in a $12.0 million loss.

Our total revenues increased 8.3% to $601.7 million in the six months ended June 30, 2012, compared to $555.7 million in the six months ended June 30, 2011. The increase was mainly due to a 12.6% increase in earned premiums related to several of our specialty businesses as described below. Net realized and unrealized investment gains decreased $16.2 million to $17.9 million, compared to $34.1 million in the six months ended June 30, 2011. Net investment income decreased 27.7% to $28.7 million in the six months ended June 30, 2011 due to a 12.6% decline in average invested assets. The decline in average invested assets since June 30, 2012 was driven by the AutoOne Transaction, return of capital to shareholders, repurchases of debt and the run-off of reserves related to the commercial lines business that was exited via a renewal rights sale. Net other revenues (expenses) increased $11.0 million to $0.3 million in the six months ended June 30, 2012, compared to $(10.7) million in the six months ended June 30, 2011. The six months ended June 30, 2011 included a $12.0 million loss related to the purchase of a portion of our senior notes, partially offset by $0.8 million in additional consideration for aggregate premium renewals exceeding $200 million related to the renewal rights agreement for our commercial lines business.

Our process to assess the reasonableness of the market prices obtained from the outside pricing sources covers substantially all of our fixed maturity investments and includes, but is not limited to, evaluation of model pricing methodologies, review of the pricing services’ quality control processes and procedures on at least an annual basis, comparison of market prices to prices obtained from different independent pricing vendors on at least an annual basis, monthly analytical reviews of certain prices and review of assumptions utilized by the pricing service for selected measurements on an ad hoc basis throughout the year. We also perform back-testing of selected purchases and sales activity to determine whether there are any significant differences between the market price used to value the security prior to purchase or sale and the actual purchase or sale price on at least an annual basis. Prices provided by the pricing services that vary by more than 5% and $1.0 million from the expected price based on the procedures are considered outliers. In circumstances where the results of our review process does not appear to support the market price provided by the pricing services, we challenge the price. If we cannot gain satisfactory evidence to support the challenged price, we rely upon our own pricing methodologies to estimate the fair value of the security in question.

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