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

May 01, 2009 | About:

OneBeacon Insurance Group Ltd. (OB) filed Quarterly Report for the period ended 2009-03-31.

ONEBEACON INSURANCE GROUP LTD.'s operating subsidiaries offer a range of specialty and segmented commercial and personal insurance products sold primarily through select independent agents. As one of the oldest property and casualty insurers in the United States OneBeacon traces its roots to 1831 and the Potomac Fire Insurance Company. Today OneBeacon's specialty insurance products are available countrywide and commercial and personal lines are offered in select geographic territories. OneBeacon's U.S. headquarters is in Canton Massachusetts. The company is publicly traded on the New York Stock Exchange under the symbol `OB`. OneBeacon Insurance Group Ltd. has a market cap of $1.11 billion; its shares were traded at around $11.62 with a P/E ratio of 7.8 and P/S ratio of 0.8. The dividend yield of OneBeacon Insurance Group Ltd. stocks is 7.2%.

Highlight of Business Operations:

We ended the first quarter of 2009 with a book value per share of $12.30 reflecting a 3.0% increase for the three months ended March 31, 2009, including dividends, and a 21.3% decrease from March 31, 2008, including dividends and adjusted for the economic defeasance of our mandatorily redeemable preferred stock. The increase includes a 0.5% total return on invested assets for the three months ended March 31, 2009. We reported comprehensive net income attributable to OneBeacons shareholders of $33.9 million in the three months ended March 31, 2009, compared to a comprehensive net loss attributable to OneBeacons shareholders of $25.5 million in the three months ended March 31, 2008. Our GAAP combined ratio was 93.6% for the three months ended March 31, 2009, compared to 100.1% for the three months ended March 31, 2008. The decrease in the combined ratio was primarily due to lower catastrophe and current accident year non-catastrophe losses in the three months ended March 31, 2009. The three months ended March 31, 2008 included $17.0 million of catastrophe losses primarily related to tornados in the southeastern United States. Total net written premiums increased 10.3% in the three months ended March 31, 2009 to $469.4 million, compared to $425.7 million in the three months ended March 31, 2008, driven primarily by premiums from our collector car and boat business that we began writing in the second quarter of 2008 and Entertainment Brokers International Insurance Services (EBI) which we acquired in the third quarter of 2008.

Our comprehensive net income attributable to OneBeacons shareholders was $33.9 million in the three months ended March 31, 2009, compared to a comprehensive net loss attributable to OneBeacons shareholders of $25.5 million in the three months ended March 31, 2008. Net income attributable to OneBeacons shareholders was $32.8 million in the three months ended March 31, 2009, compared to a net loss attributable to OneBeacons shareholders of $24.3 million in the three months ended March 31, 2008.

Our total revenues increased 13.1% to $513.2 million in the three months ended March 31, 2009, compared to $453.6 million in the three months ended March 31, 2008. The increase was mainly due to a $49.5 million decrease in net realized and unrealized investment losses to $5.9 million. Net other revenues increased 161.1% to $9.4 million in the three months ended March 31, 2009, compared to $3.6 million in the three months ended March 31, 2008. The increase was primarily due to management fee income related to EBI and a $2.5 million gain on extinguishment of debt related to the repurchase of a portion of our Senior Notes. The three months ended March 31, 2008 included a $1.0 million gain from the sale of one of our inactive licensed subsidiaries, Midwestern Insurance Company (MWIC) to National Guaranty Insurance Company. These increases were partially offset by a $28.2 million decrease in net investment income to $21.9 million in the three months ended March 31, 2009, principally due to a lower average invested asset base and lower investment yields. Contributing to the lower investment yields was a $(7.2) million inflation adjustment related to our inflation indexed treasury securities as compared to a $2.8 million inflation adjustment related to these securities for the three months ended March 31, 2008.

Our total expenses decreased 3.3% in the three months ended March 31, 2009 to $474.4 million, compared to $490.7 million in the three months ended March 31, 2008. Loss and LAE decreased by 4.3% to $288.0 million in the three months ended March 31, 2009, primarily due to lower current accident year catastrophe losses. Current accident year catastrophe losses were $2.6 million in the three months ended March 31, 2009, compared to $17.0 million in the three months ended March 31, 2008. In addition, favorable loss reserve development increased $2.2 million compared to the three months ended March 31, 2008, as described below. Interest expense decreased by 62.5%, primarily due to the interest expense related to the Berkshire Hathaway, Inc. (Berkshire) Preferred Stock (Berkshire Preferred Stock) which was redeemed in the second quarter of 2008. Partially offsetting these decreases were increased policy acquisition costs, other underwriting expenses and

general and administrative expenses. Policy acquisition expenses increased by 13.2% to $95.9 million in the three months ended March 31, 2009 mainly due to higher acquisition costs associated with our newer specialty lines businesses. Other underwriting expenses increased 3.7% to $72.7 million in the three months ended March 31, 2009. The three months ended March 31, 2008 included lower incentive compensation costs resulting from changes in assumptions on our long-term incentive compensation plans. General and administrative expenses increased 89.7% to $5.5 million primarily related to operating expenses of EBI.

Our GAAP combined ratio for the three months ended March 31, 2009 decreased to 93.6% from 100.1% for the three months ended March 31, 2008. The loss and LAE ratio decreased 7.1 points to 59.0% while the expense ratio increased 0.6 points to 34.6%. The decrease in the loss and LAE ratio was primarily due to a decrease in current accident year non-catastrophe and catastrophe losses. The three months ended March 31, 2009 included $2.6 million or 0.5 points of current accident year catastrophe losses. The three months ended March 31, 2008 included $17.0 million or 3.7 points of current accident year catastrophe losses, primarily related to severe weather in the southeastern United States. The three months ended March 31, 2009 included $14.8 million or 3.0 points of favorable loss reserve development. The favorable loss reserve development was primarily related to lower than expected severity on non-catastrophe losses on professional liability in specialty lines and commercial multi-peril in commercial lines, partially offset by adverse loss reserve development primarily related to an increased level of litigation activity resulting in higher litigation-related expenses as well as higher claim settlement costs with respect to New York personal injury protection litigation at AutoOne Insurance (AutoOne). Favorable loss reserve development was $12.6 million or 2.8 points in the three months ended March 31, 2008. The expense ratio increased due to higher policy acquisition expenses, as described above.

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