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OneBeacon Insurance Group Ltd. Reports Operating Results (10-Q)

July 30, 2010 | About:
10qk

10qk

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OneBeacon Insurance Group Ltd. (OB) filed Quarterly Report for the period ended 2010-06-30.

Onebeacon Insurance Group Ltd. has a market cap of $1.51 billion; its shares were traded at around $15.91 with a P/E ratio of 12.9 and P/S ratio of 0.6. The dividend yield of Onebeacon Insurance Group Ltd. stocks is 5.3%.OB is in the portfolios of Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

Our GAAP combined ratios were 97.0% and 104.9% for the three and six months ended June 30, 2010, respectively, compared to 93.2% and 93.4% for the three and six months ended June 30, 2009, respectively. The increase in the combined ratio was primarily due to higher current accident year catastrophe losses and a number of non-catastrophe large losses as compared to the three and six months ended June 30, 2009. The three months ended June 30, 2010 included $9.8 million of current accident year catastrophe losses primarily related to severe wind and rainstorms in a number of states, compared to $3.4 million of current accident year catastrophe losses in the three months ended June 30, 2009. The six months ended June 30, 2010 included $54.1 million of current accident year catastrophe losses primarily related to the March Northeast U.S. storms and an increased frequency of catastrophe losses relative to the prior year period, compared to $6.1 million of current accident year catastrophe losses in the six months ended June 30, 2009. Total net written premiums decreased 30.9% in the three months ended June 30, 2010 to $343.9 million, compared to $497.9 million in the three months ended June 30, 2009. Total net written premiums decreased 26.0% in the six months ended June 30, 2010 to $715.4 million, compared to $967.3 million for the six months ended June 30, 2009. The decrease in net written premiums is due primarily to the renewal rights transaction described below and decreases in personal lines in both traditional personal lines and at AutoOne Insurance (AutoOne).

Our comprehensive net income attributable to OneBeacons common shareholders was $8.6 million in the three months ended June 30, 2010, compared to $134.4 million in the three months ended June 30, 2009. Change in other comprehensive income and loss items in the three months ended June 30, 2009 included a $7.4 million pre-tax ($4.8 million after tax) increase resulting from the settlement of our interest rate swap relating to the mortgage note. Net income attributable to OneBeacons common shareholders was $8.6 million in the three months ended June 30, 2010, compared to $128.2 million in the three months ended June 30, 2009.

Our total revenues decreased by 33.3% to $436.6 million in the three months ended June 30, 2010, compared to $654.8 million in the three months ended June 30, 2009. The decrease was mainly due to a $141.8 million decrease in net realized and unrealized investment (losses) gains to $(14.4) million, compared to $127.4 million in the three months ended June 30, 2009. Earned premiums decreased by 12.6% to $428.3 million primarily due to decreased earned premiums in personal lines and our non-specialty commercial lines which is included in run-off. Net investment income decreased by 30.7% to $25.0 million in the three months ended June 30, 2010, primarily due to increased investment in short-term investments in preparation for the Personal Lines Transaction. The three months ended June 30, 2010 also included a $1.2 million inflation adjustment related to our inflation indexed treasury securities as compared to a $2.6 million inflation adjustment related to these securities for the three months ended June 30, 2009. Net other (expenses) revenues decreased to $(2.3) million in the three months ended June 30, 2010, compared to $1.1 million in the three months ended June 30, 2009. The decrease was primarily due to a $10.3 million loss related to the purchase of a portion of our senior notes in the three months ended June 30, 2010. During the three months ended June 30, 2010, we repurchased and retired $174.6 million aggregate principal amount of senior notes, including $156.4 million as a result of a cash tender offer. The three months ended June 30, 2009 included a $7.4 million realized loss related to the settlement of the interest rate swap, offset by revenue from our non-insurance operations and a $1.9 million gain related to the purchase of a portion of our senior notes.

Our total expenses decreased by 9.4% in the three months ended June 30, 2010 to $430.3 million, compared to $474.9 million in the three months ended June 30, 2009. Other underwriting expenses decreased by 30.6% to $58.5 million in the three months ended June 30, 2010, reflective of the shrink in our book of business resulting from the Commercial Lines Transaction. Loss and LAE decreased by 5.0% to $261.9 million in the three months ended June 30, 2010, reflecting the change in our book of business resulting from the Commercial Lines Transaction, partially offset by higher current accident year catastrophe losses. Current accident year catastrophe losses were $9.8 million in the three months ended June 30, 2010, compared to $3.4 million in the three months ended June 30, 2009. Interest expense decreased by 21.8% to $7.9 million in the three months ended June 30, 2010, reflective of actions taken to reduce outstanding debt. Policy acquisition expenses and general and administrative expenses were essentially flat as compared to the prior year period as previously deferred acquisition costs are amortized and expensed.

Our total revenues decreased by 17.2% to $967.0 million in the six months ended June 30, 2010, compared to $1,168.0 million in the six months ended June 30, 2009. The decrease was mainly due to a 9.9% decrease in earned premiums primarily due to decreased earned premiums in our personal lines and our non-specialty commercial lines which is included in run-off. Net realized and unrealized investment gains decreased by $93.5 million to $28.0 million, compared to $121.5 million in the six months ended June 30, 2009. Net investment income decreased by 8.1% to $53.3 million in the six months ended June 30, 2010, primarily due to increased investment in short-term investments in preparation for the Personal Lines Transaction, partially offset by a $1.7 million inflation adjustment related to our inflation indexed treasury securities as compared to a $(4.6) million inflation adjustment related to these securities for the six months ended June 30, 2009. Net other revenues decreased by 60.0% to $4.2 million in the six months ended June 30, 2010, compared to $10.5 million in the six months ended June 30, 2009. The decrease was primarily due to a $10.8 million loss related to the purchase of a portion of our senior notes. The six months ended June 30, 2009 included a $4.4 million gain related to the purchase of a portion of our senior notes, offset by a $7.4 million realized loss related to the settlement of the interest rate swap.

Our total expenses increased by 0.7% in the six months ended June 30, 2010 to $956.4 million, compared to $949.3 million in the six months ended June 30, 2009. Loss and LAE increased by 5.7% to $595.6 million in the six months ended June 30, 2010, primarily due to higher current accident year catastrophe losses. Current accident year catastrophe losses were $54.1 million in the six months ended June 30, 2010, compared to $6.1 million in the six months ended June 30, 2009. Policy acquisition expenses increased by 1.9% to $196.6 million in the six months ended June 30, 2010, mainly due to the amortization of previously deferred acquisition costs within the non-specialty commercial lines business as a result of the Commercial Lines Transaction. Additionally, there were also changes in the overall mix of business and the mix of products offered within the businesses, partially offset by changes in the deferral rate of policy acquisition expenses to better align with the individual products within the respective businesses. General and administrative expenses increased by 20.8% to $14.5 million. These increases were partially offset by a 15.5% decrease in other underwriting expenses and a 19.0% decrease in interest expense in the six months ended June 30, 2010.

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