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

October 29, 2010 | About:
10qk

10qk

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OneBeacon Insurance Group Ltd. (OB) filed Quarterly Report for the period ended 2010-09-30.

Onebeacon Insurance Group Ltd. has a market cap of $1.32 billion; its shares were traded at around $13.89 with a P/E ratio of 14.8 and P/S ratio of 0.6. The dividend yield of Onebeacon Insurance Group Ltd. stocks is 6%.OB is in the portfolios of Chuck Royce of Royce& Associates.

Highlight of Business Operations:

Our GAAP combined ratios were 94.6% and 102.2% for the three and nine months ended September 30, 2010, respectively, compared to 97.2% and 94.7% for the three and nine months ended September 30, 2009, respectively. The decrease in the combined ratio for the three months ended September 30, 2010 was primarily due to lower catastrophe losses as compared to the three months ended September 30, 2009. The increase in the combined ratio for the ninth months ended September 30, 2010 was primarily due to higher current accident year catastrophe losses and a number of non-catastrophe large losses as compared to the nine months ended September 30, 2009. The three months ended September 30, 2010 included $(3.2) million of favorable development on current accident year catastrophe losses, compared to $17.5 million of current accident year catastrophe losses in the three months ended September 30, 2009. The nine months ended September 30, 2010 included $50.9 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 $23.6 million of current accident year catastrophe losses in the nine months ended September 30, 2009. Total net written premiums decreased 42.9% in the three months ended September 30, 2010 to $287.7 million, compared to $503.9 million in the three months ended September 30, 2009. Total net written premiums decreased 31.8% in the nine months ended September 30, 2010 to $1,003.1 million, compared to $1,471.2 million for the nine months ended September 30, 2009. The decrease in net written premiums for both periods was due primarily to the renewal rights transaction and the sale of our traditional personal lines business, both of which are described below.

As consideration, based upon the carrying value of the traditional personal lines business as of July 1, 2010, we received $166.6 million. The consideration represented the statutory surplus in the reciprocals (as consideration for surplus notes issued by the reciprocals), the combined GAAP equity in the insurance companies and attorneys-in-fact being sold, plus $32.5 million. For the nine months ended September 30, 2010, we recorded a total after tax net gain on the sale of $24.6 million that is comprised of $8.5 million included in net other revenues and $16.1 million included in the tax provision. Included in our second quarter financial statements was $5.6 million of the tax benefit related to the difference between the tax basis of the companies sold as part of the Personal Lines Transaction and the net asset value of those entities under GAAP. Our third quarter financial statements reflect the remaining $19.0 million of after tax net gain on the sale. The purchase price is subject to post-closing adjustments.

Our total revenues decreased by 37.2% to $408.2 million in the three months ended September 30, 2010, compared to $650.5 million in the three months ended September 30, 2009. The decrease was mainly due to a 35.5% decrease in earned premiums to $317.9 million primarily due to decreased earned premiums in personal lines and our non-specialty commercial lines which is included in run-off as a result of the transactions described above. Net realized and unrealized investment gains decreased 56.1% to $51.6 million, compared to $117.6 million in the three months ended September 30, 2009. Net investment income decreased by 37.2% to $21.6 million in the three months ended September 30, 2010, primarily due to lower investment yields and a reduction in invested assets as a result of the Personal Lines Transaction, repurchases of our senior notes and the special dividend. The three months ended September 30, 2010 also included no 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 September 30, 2009. Net other revenues increased to $17.1 million in the three months ended September 30, 2010, compared to $5.7 million in the three months ended September 30, 2009. The increase was primarily due to the $8.5 million net gain on the Personal Lines Transaction and the $3.7 million of additional consideration related to the Commercial Lines Transaction, both described above.

Our comprehensive income attributable to OneBeacons common shareholders was $95.3 million in the nine months ended September 30, 2010, compared to $277.1 million in the nine months ended September 30, 2009. Change in other comprehensive income and loss items in the nine months ended September 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. The impact was offset by a $7.4 million realized loss related to the settlement of the interest swap reflected in net other revenues. Net income attributable to OneBeacons common shareholders was $95.4 million in the nine months ended September 30, 2010, compared to $269.6 million in the nine months ended September 30, 2009.

Our total revenues decreased by 24.4% to $1,375.2 million in the nine months ended September 30, 2010, compared to $1,818.5 million in the nine months ended September 30, 2009. The decrease was mainly due to an 18.5% 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 as a result of the transactions described above. Net realized and unrealized investment gains decreased by 66.7% to $79.6 million, compared to $239.1 million in the nine months ended September 30, 2009. Net investment income decreased by 18.9% to $74.9 million in the nine months ended September 30, 2010, primarily due to lower investment yields, a reduction in invested assets as a result of the Personal Lines Transaction, repurchases of our senior notes and the special dividend, and an increased allocation to lower yielding short-term investments during the first six months of 2010 in preparation for the closing of the Personal Lines Transaction. These were partially offset by a $1.7 million inflation adjustment related to our inflation indexed treasury securities as compared to a $(2.0) million inflation adjustment related to these securities for the nine months ended September 30, 2009. Net other revenues increased by 31.5% to $21.3 million in the nine months ended September 30, 2010, compared to $16.2 million in the nine months ended September 30, 2009. The increase was primarily due to the $8.5 million net gain on the Personal Lines Transaction and the $3.7 million of additional consideration related to the Commercial Lines Transaction, both described above, partially offset by a $10.8 million loss related to the purchase of a portion of our senior notes. The nine months ended September 30, 2009 included a $5.4 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 decreased by 12.2% in the nine months ended September 30, 2010 to $1,269.4 million, compared to $1,445.7 million in the nine months ended September 30, 2009. Loss and LAE decreased by 10.0% to $775.5 million in the nine months ended September 30, 2010, reflective of the shrink in our book of business resulting from the Commercial Lines Transaction and the Personal Lines Transaction, partially offset by higher current accident year catastrophe losses and a number of non-catastrophe large losses. Current accident year catastrophe losses were $50.9 million in the nine months ended September 30, 2010, compared to $23.6 million in the nine months ended September 30, 2009. Other underwriting expenses decreased by 21.1% to $186.5 million and policy acquisition expenses decreased by 10.5% to $263.5 million in the nine months ended September 30, 2010, reflecting the change in our book of business resulting from the Commercial Lines Transaction and the Personal Lines Transaction. Interest expense decreased by 22.3% to $23.4 million in the nine months ended September 30, 2010, reflective of actions taken to reduce outstanding debt. These decreases were partially offset by a $1.6 million increase in general and administrative expenses to $20.5 million.

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10qk
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