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

July 31, 2009 | About:

OneBeacon Insurance Group Ltd. (OB) filed Quarterly Report for the period ended 2009-06-30.

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 $1.17 billion; its shares were traded at around $12.3 with a P/E ratio of 7.8 and P/S ratio of 0.9. The dividend yield of OneBeacon Insurance Group Ltd. stocks is 6.8%.

Highlight of Business Operations:

We ended the second quarter of 2009 with a book value per share of $13.51, reflecting an 11.5% increase for the second quarter of 2009 and 14.7% growth through June 30, 2009, including dividends. The increase includes a 4.4% and 4.9% total return on invested assets for the three and six months ended June 30, 2009, respectively. We reported comprehensive net income attributable to OneBeacons shareholders of $134.4 million and $168.3 million in the three and six months ended June 30, 2009, respectively, compared to a comprehensive net income (loss) attributable to OneBeacons shareholders of $25.0 million and $(0.5) million in the same periods of 2008. Our GAAP combined ratios were 93.2% and 93.4% for the three and six months ended June 30, 2009, respectively, compared to 94.4% and 97.2% for the three and six months ended June 30, 2008, respectively. The decrease in the combined ratio was primarily due to lower current accident year catastrophe losses as well as higher favorable loss reserve development. The six months ended June 30, 2009 also included the impact of lower current accident year non-catastrophe losses. Total net written premiums decreased 6.0% in the three months ended June 30, 2009 to $497.9 million, compared to $529.6 million in the three months ended June 30, 2008. The decrease in net written premiums is due primarily to increased market competition in commercial lines and decreases in personal lines in both traditional personal lines, mainly due to the 30% homeowners quota share as described below, and lower premiums at AutoOne Insurance (AutoOne). Total net written premiums increased 1.3% in the six months ended June 30, 2009 to $967.3 million, compared to $955.3 million for the six months ended June 30, 2008. The increase in net written premiums was 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 $134.4 million in the three months ended June 30, 2009, compared to $25.0 million in the three months ended June 30, 2008. 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 shareholders was $128.2 million in the three months ended June 30, 2009, compared to $23.8 million in the three months ended June 30, 2008.

Our total revenues increased 28.8% to $654.8 million in the three months ended June 30, 2009, compared to $508.4 million in the three months ended June 30, 2008. The increase was mainly due to a $130.0 million increase in net realized and unrealized investment gains to $127.4 million. The increase in earned premium was due primarily to our specialty lines businesses, partially offset by a decrease in commercial lines and personal lines. These increases were partially offset by an $8.5 million decrease in net investment income to $36.1 million in the three months ended June 30, 2009, principally due to a lower average invested asset base and lower investment yields. Net other revenues decreased 57.7% to $1.1 million in the three months ended June 30, 2009, compared to $2.6 million in the three months ended June 31, 2008. The decrease was primarily due to $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 increased 0.5% in the three months ended June 30, 2009 to $474.9 million, compared to $472.6 million in the three months ended June 30, 2008. Loss and loss adjustment expenses (LAE) increased by 0.5% to $275.7 million in the three months ended June 30, 2009 compared to the three months ended June 30, 2008, due to the impact of higher current accident year non-catastrophe losses in commercial lines and personal lines, essentially offset by favorable loss reserve development, as described below. Policy acquisition expenses increased by 15.1% to $97.0 million in the three months ended June 30, 2009 mainly due to higher acquisition costs associated with our newer specialty lines businesses. Other underwriting expenses increased 6.4% to $84.3 million in the three months ended June 30, 2009. The three months ended June 30, 2008 included lower incentive compensation costs resulting from changes in assumptions on our long-term incentive compensation plans. General and administrative expenses increased 44.4% to $6.5 million primarily related to operating expenses of our non-insurance operations. Partially offsetting these increases was a decrease in interest expense. Interest expense decreased by 62.9%, 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.

Our comprehensive net income attributable to OneBeacons shareholders was $168.3 million in the six months ended June 30, 2009, compared to a comprehensive net loss attributable to OneBeacons shareholders of $0.5 million in the six months ended June 30, 2008. Change in other comprehensive income and loss items in the six 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 shareholders was $161.0 million in the six months ended June 30, 2009, compared to a net loss attributable to OneBeacons shareholders of $0.5 million in the six months ended June 30, 2008.

Our total revenues increased 21.4% to $1,168.0 million in the six months ended June 30, 2009, compared to $962.0 million in the six months ended June 30, 2008. The increase was mainly due to a $179.5 million increase in net realized and unrealized investment gains to $121.5 million. The increase in earned premium was due primarily to our specialty lines businesses, partially offset by a decrease in commercial lines and personal lines. Net other revenues increased 69.4% to $10.5 million in the six months ended June 30, 2009, compared to $6.2 million in the six months ended June 31, 2008. The increase was primarily due to revenues from our non-insurance operations and a $4.4 million gain related to the purchase of a portion of our senior notes, partially offset by a $7.4 million realized loss related to the settlement of the interest rate swap. These increases were partially offset by a $36.7 million decrease in net investment income to $58.0 million in the six months ended June 30, 2009, principally due to a lower average invested asset base and lower investment yields. Contributing to the lower investment yields was a $(4.6) million inflation adjustment related to our inflation indexed treasury securities as compared to a $7.1 million inflation adjustment related to these securities for the six months ended June 30, 2008.

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