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

October 30, 2009 | About:
10qk

10qk

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White Mountains Insurance Group Ltd. (WTM) filed Quarterly Report for the period ended 2009-09-30.

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 $2.72 billion; its shares were traded at around $307 with a P/E ratio of 28 and P/S ratio of 0.9. The dividend yield of White Mountains Insurance Group Ltd. stocks is 0.3%. White Mountains Insurance Group Ltd. had an annual average earning growth of 16.7% over the past 5 years.

Highlight of Business Operations:

White Mountains ended the third quarter of 2009 with an adjusted book value per share of $406, an increase of 7% and 15% for the three and nine months ended September 30, 2009, including dividends. White Mountains reported adjusted comprehensive income of $243 million and $469 million for the third quarter and first nine months of 2009, compared to adjusted comprehensive losses of $409 million and $426 million for the third quarter and first nine months of 2008. The 2009 results were driven primarily by strong investment results, foreign currency gains and improved underwriting results, as compared to the 2008 periods, which experienced significant investment and foreign currency losses.

OneBeacon ended the third quarter of 2009 with a book value per share of $14.44, an increase of 8% and 24% for the three and nine months ended September 30, 2009, including dividends. OneBeacon reported GAAP combined ratios of 97% and 95% for the third quarter and first nine months of 2009 compared to 100% and 98% for the third quarter and first nine months of 2008. The third quarter and first nine months of 2009 both included 4 points of net favorable loss reserve development compared to 4 points and 2 points in the third quarter and first nine months of 2008. White Mountains Re reported GAAP combined ratios of 79% and 82% for the third quarter and first nine months of 2009, compared to 127% and 111% for the third quarter and first nine months of 2008. Excluding the impact of a cession under a retrocessional reinsurance contract related to the 2001 accident year (see White Mountains Re discussion below), the combined ratios for the third quarter and first nine months of 2009 were 85% and 84%, respectively. Both 2009 periods benefited from lower catastrophe activity. Esurance reported GAAP combined ratios of 102% for both the third quarter and first nine months of 2009 compared to 102% and 107% for the third quarter and first nine months of 2008. Esurances loss ratio was 72% for both the third quarter and first nine months of 2009 compared to 73% and 77% in the third quarter and first nine months of last year. The expense ratio was 30% for both the third quarter and first nine months of 2009, compared with 29% for the third quarter and 30% for the first nine months of last year. Operating income at AFI was $1 million and $4 million in the third quarter and first nine months of 2009. White Mountains GAAP pre-tax total return on invested assets was 4.3% and 8.7% for the third quarter and first nine months of 2009, compared to -5.1% and -3.7% for the third quarter and first nine months of 2008. White Mountains fixed income portfolio outperformed its benchmarks in both 2009 periods, while the equity, convertible and other long-term investment portfolio lagged the S&P 500 return over the same periods, largely because of the portfolio mix, which is more heavily weighted toward convertibles and other long-term investments than common stocks.

Total net written premiums decreased to $880 million and $2,742 million for the third quarter and first nine months of 2009 compared to $955 million and $2,913 million in the comparable 2008 periods, as all three business segments reported reduced written premiums in the 2009 periods. OneBeacons net written premiums were $504 million for the third quarter and $1,471 million for the first nine months of 2009, decreases of 6% and 1% from the comparable periods of 2008, primarily due to competitive market conditions in personal auto and commercial lines, partially offset by increased written premiums across most specialty lines businesses. White Mountains Res net written premiums were $171 million for the third quarter and $672 million for the first nine months of 2009, decreases of 18% and 14% from the comparable periods of 2008. The decreases were primarily in the U.S. casualty line of business where pricing, terms, and conditions generally continue to not meet White Mountains Res underwriting standards, as well as reductions in the property catastrophe excess and credit lines of business. Esurances net written premiums decreased by 4% and 7% for the third quarter and first nine months of 2009, to $205 million and $599 million, respectively, when compared to the same periods in 2008. Despite the decreased premium, new policy sales and customer retention improved in the third quarter of 2009 compared to the same period in 2008.

White Mountains total revenues increased 95% to $1,203 million in the third quarter of 2009 compared to $618 million in the third quarter of 2008, primarily due to significant net unrealized and realized investment gains and foreign currency gains in other revenues during the third quarter of 2009 compared to significant losses from these sources in the third quarter of 2008. White Mountains reported net realized and unrealized investment gains of $171 million in the third quarter of 2009 compared to $430 million of net realized and unrealized investment losses in the third quarter of 2008. Earned premiums were down 4% in the third quarter of 2009 compared to the third quarter of 2008, as decreased earned premiums at White Mountains Re and Esurance were somewhat offset by an increase at OneBeacon. Net investment income decreased 37% to $66 million in the third quarter of 2009 compared to $106 million in the third 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. Other revenues increased to $64 million in the third quarter of 2009 from $6 million the third quarter of 2008, due primarily to a $67 million increase in foreign currency translation gains at White Mountains Re, which were $23 million in the third quarter of 2009 compared to $44 million of losses in the third quarter of 2008.

White Mountains total expenses decreased 14% to $944 million in the third quarter of 2009 compared to $1,100 million in the third quarter of 2008. Losses and LAE expenses decreased $154 million, or 22%, due primarily to lower catastrophe losses in 2009 and to favorable loss reserve development in the third quarter of 2009 as compared to adverse loss development in the third quarter of 2008. General and administrative expenses increased 17% to $71 million in the third quarter of 2009 compared to $61 million in the third quarter of 2008, primarily due to an increase in incentive compensation expense and costs related to the restructuring at White Mountains Re during the third quarter of 2009. Interest expense on debt decreased 16% to $17 million in the third quarter of 2009 compared to $20 million in the third quarter of 2008, primarily due to repurchases of OBH Senior Notes and the full repayment of the WTM Bank Facility and the Mortgage Note at OneBeacon.

White Mountains income tax expense (benefit) for the third quarter of 2009 represented an effective tax rate of 28.6%. The effective tax rate for the third quarter of 2008 was (31.5)%. For the third quarter of 2009 and 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.

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

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