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

May 01, 2009 | About:
Geoff Gannon

White Mountains Insurance Group Ltd. (WTM) filed Quarterly Report for the period ended 2009-03-31.

White Mountains Insurance Group Ltd. is engaged in the business of property and casualty insurance and reinsurance. White Mountains Insurance Group Ltd. has a market cap of $1.79 billion; its shares were traded at around $201.93 with a P/E ratio of 246.2 and P/S ratio of 0.6. The dividend yield of White Mountains Insurance Group Ltd. stocks is 0.5%. White Mountains Insurance Group Ltd. had an annual average earning growth of 16.7% over the past 5 years.

Highlight of Business Operations:

OneBeacon ended the first quarter of 2009 with a book value per share of $12.30, which was a 3% increase from December 31, 2008, including dividends. OneBeacon reported a GAAP combined ratio of 94% for the first quarter of 2009 compared to 100% in the first quarter of 2008. Both periods included 3 points of net favorable loss reserve development, while the first quarter of 2009 had less than one point of catastrophe losses compared to 4 points of catastrophe losses in the first quarter of 2008, primarily related to tornados in the Southeastern United States. White Mountains Re reported a GAAP combined ratio of 80% for the first quarter 2009 compared to 94% for the first quarter 2008. Both periods experienced relatively benign weather and light catastrophe activity. The improved combined ratio in the first quarter of 2009 was driven by 3 points of favorable loss reserve development in the first quarter of 2009 compared to 12 points of adverse loss development in the first quarter of 2008. Esurance reported a GAAP combined ratio of 103% in the first quarter of 2009 compared to 113% in the first quarter 2008. This improvement was due mainly to selective rate increases in late 2007 and early 2008, as well as lower claims frequency resulting from less driving by insureds as a result of the recessionary environment and due to lower acquisition expenses. Operating income at AFI improved to $2 million in the first quarter of 2009 compared to less than $1 million the fourth quarter of 2008. White Mountains GAAP pre-tax total return on invested assets was -0.1% for the first quarter of 2009 compared to 0.3% for the first quarter of 2008. The total investment portfolio, excluding currency movements, managed a small positive return of 0.5%. Additionally, White Mountains results for the first quarter of 2009 included $40 million of unrealized foreign currency exchange losses reported as other comprehensive losses, resulting primarily from the strengthening of the U.S. dollar in comparison to the Swedish krona. This compares to $58 million of unrealized foreign currency exchange gains reported in the first quarter of 2008 resulting primarily from the weakening of the U.S. dollar in comparison to the Swedish krona.

Total net written premiums decreased to $992 million for the first quarter of 2009 compared to $1,016 million in the comparable 2008 period, as an increase at OneBeacon was more than offset by decreases at White Mountains Re and Esurance. OneBeacons net written premiums increased 10% to $469 million in the first quarter of 2009, driven primarily by premiums from its collector car and boat business that was started in the second quarter of 2008. White Mountains Res net written premiums decreased 14% to $309 million in the first quarter of 2009. A significant portion of the decline was in property catastrophe exposed business where White Mountains Re continues to reduce its net exposures. Esurances net written premiums decreased 7% to $214 million in the first quarter of 2009 as lower advertising spending and higher rates contributed to reduced new business sales volume.

White Mountains total revenues increased 3% to $967 million in the first quarter of 2009 compared to $938 million in the first quarter of 2008. Earned premiums were down 2% in the first quarter of 2009 compared to the first quarter of 2008, as increased earned premiums at OneBeacon were more than offset by decreases at White Mountains Re and Esurance. Net investment income decreased 48% to $61 million in the first quarter of 2009 compared to $117 million in the first quarter of 2008, due to lower overall portfolio yields, shifts in portfolio mix to lower risk, lower yield investments and a decrease in the overall invested asset base following the Berkshire Exchange. White Mountains reported net realized and unrealized investment losses of $23 million in the first quarter of 2009 compared to $118 million of such losses in the first quarter of 2008.

White Mountains total expenses decreased 12% to $918 million in the first quarter of 2009 compared to $1,040 million in the first quarter of 2008. Losses and LAE expenses decreased $96 million, or 15%, due primarily to lower catastrophe losses and adverse loss reserve development in the first quarter of 2009 as compared to the first quarter of 2008. Insurance and reinsurance acquisition expenses and other underwriting expenses in the first quarter of 2009 were flat on relatively level earned premiums.

White Mountains income tax expense (benefit) for the first quarter of 2009 and 2008 represented an effective tax rate of 25.4% and (31.8)%. For the three months ended March 31, 2009, White Mountains effective tax rates are different from the U.S. statutory rate of 35% primarily due to income generated in jurisdictions other than the United States. For the three months ended March 31, 2008, White Mountains effective tax rates are different from the U.S. statutory rate of 35% primarily due to income generated in jurisdictions other than the United States, withholding taxes, non-deductible dividends and accretion on the Berkshire Preferred Stock.

Read the The complete ReportWTM is in the portfolios of Tom Gayner of Markel Gayner Asset Management Corp, Bruce Berkowitz of Fairholme Capital Managment, Bruce Berkowitz of Fairholme Capital Managment, Dodge & Cox, Chris Davis of Davis Selected Advisers.

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