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

October 30, 2009 | About:
10qk

10qk

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OneBeacon Insurance Group Ltd. (OB) filed Quarterly Report for the period ended 2009-09-30.

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 $1.23 billion; its shares were traded at around $12.91 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 6.6%.

Highlight of Business Operations:

We ended the third quarter of 2009 with a book value per share of $14.44, reflecting an 8.4% increase for the third quarter of 2009 and 24.0% growth through September 30, 2009, including dividends. The increase includes a 4.0% and 8.8% total return on invested assets for the three and nine months ended September 30, 2009, respectively. We reported comprehensive net income attributable to OneBeacons shareholders of $108.8 million and $277.1 million in the three and nine months ended September 30, 2009, respectively, compared to a comprehensive net loss attributable to OneBeacons shareholders of $(209.5) million and $(210.0) million in the same periods of 2008. The increase in comprehensive net income as compared to the prior year periods was due primarily to net realized and unrealized investment gains recognized in 2009 as described below. Our GAAP combined ratios were 97.2% and 94.7% for the three and nine months ended September 30, 2009, respectively, compared to 99.8% and 98.1% for the three and nine months ended September 30, 2008, respectively. The decrease in the combined ratio was primarily due to lower current accident year non-catastrophe and catastrophe losses. The nine months ended September 30, 2009 also included the benefit of higher favorable loss reserve development. Total net written premiums decreased 5.7% in the three months ended September 30, 2009 to $503.9 million, compared to $534.1 million in the three months ended September 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). These decreases were partially offset by an increase in net written premiums across most specialty lines businesses. Total net written premiums decreased by 1.2% in the nine months ended September 30, 2009 to $1,471.2 million for the reasons described above, compared to $1,489.4 million for the nine months ended September 30, 2008. The decrease was partially offset by an increase in specialty lines net written premiums driven primarily by 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 total revenues increased 299.6% to $650.5 million in the three months ended September 30, 2009, compared to $162.8 million in the three months ended September 30, 2008. The increase was mainly due to a $473.5 million increase in net realized and unrealized investment gains to $117.6 million. Net realized and unrealized investment losses for the three months ended September 30, 2008 reflected the impact of the significant declines and high volatility in the equity markets, the lack of liquidity in the credit markets and the widening of credit spreads. The increase in earned premiums was due primarily to our specialty lines businesses, partially offset by decreased earned premiums in commercial lines and personal lines. Net other revenues increased 29.5% to $5.7 million in the three months ended September 30, 2009, compared to $4.4 million in the three months ended September 30, 2008. The increase was primarily due to increased revenues from our non-insurance operations and a $1.0 million gain related to the purchase of a portion of our senior notes. These increases were partially offset by an $8.7 million decrease in net investment income to $34.4 million in the three months ended September 30, 2009, principally due to a lower average invested asset base. Included in net investment income for the three months ended September 30, 2009 was a $2.6 million inflation adjustment related to our inflation indexed treasury securities as compared to a $6.8 million inflation adjustment related to these securities for the three months ended September 30, 2008.

Our comprehensive net income attributable to OneBeacons shareholders was $277.1 million in the nine months ended September 30, 2009, compared to a comprehensive net loss attributable to OneBeacons shareholders of $210.0 million in the nine months ended September 30, 2008. 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. Net income attributable to OneBeacons shareholders was $269.6 million in the nine months ended September 30, 2009, compared to a net loss attributable to OneBeacons shareholders of $210.8 million in the nine months ended September 30, 2008.

Our total revenues increased 61.7% to $1,818.5 million in the nine months ended September 30, 2009, compared to $1,124.8 million in the nine months ended September 30, 2008. The increase was mainly due to a $653.0 million increase in net realized and unrealized investment gains to $239.1 million. Net realized and unrealized investment losses for the nine months ended September 30, 2008 reflected the impact of the significant declines and high volatility in the equity markets, the lack of liquidity in the credit markets and the widening of credit spreads experienced during the third quarter of 2008. The increase in earned premiums was due primarily to our specialty lines businesses, partially offset by decreased earned premiums in commercial lines and personal lines. Net other revenues increased 52.8% to $16.2 million in the nine months ended September 30, 2009, compared to $10.6 million in the nine months ended September 30, 2008. The increase was primarily due to increased revenues from our non-insurance operations and a $5.4 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 $45.4 million decrease in net investment income to $92.4 million in the nine months ended September 30, 2009, due to a lower average invested asset base and lower investment yields. Contributing to the lower investment yields was a $(2.0) million inflation adjustment related to our inflation indexed treasury securities as compared to a $13.9 million inflation adjustment related to these securities for the nine months ended September 30, 2008.

Our total expenses decreased 0.6% in the nine months ended September 30, 2009 to $1,445.7 million, compared to $1,454.7 million in the nine months ended September 30, 2008. Loss and LAE decreased by 1.9% to $861.9 million in the nine months ended September 30, 2009 due to lower current accident year catastrophe losses and higher favorable loss reserve development. Interest expense decreased by 55.3%, primarily due to the interest expense related to the 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 12.5% to $294.3 million in the nine months ended September 30, 2009 mainly due to higher acquisition costs associated with our newer specialty lines businesses. Other underwriting expenses increased 5.7% to $236.4 million in the nine months ended September 30, 2009. The nine months ended September 30, 2008 included lower incentive compensation costs resulting from changes in assumptions on our long-term incentive compensation plans. General and administrative expenses increased 30.3% to $18.9 million primarily related to increased operating expenses of our non-insurance operations.

Our GAAP combined ratio for the nine months ended September 30, 2009 decreased to 94.7% from 98.1% for the nine months ended September 30, 2008. The loss and LAE ratio decreased 4.6 points to 58.6% while the expense ratio increased 1.2 points to 36.1%. The decrease in the loss and LAE ratio was due to decreases in the current accident year non-catastrophe and catastrophe loss ratios and also higher favorable loss reserve development. The nine months ended September 30, 2009 included $23.6 million or 1.6 points of current accident year catastrophe losses. The nine months ended September 30, 2008 included $51.0 million or 3.7 points of current accident year catastrophe losses, mainly due to losses related to hurricanes Ike and Gustav primarily within our specialty and commercial lines, and winter weather in the southeastern United States experienced in commercial lines in the first quarter. The nine months ended September 30, 2009 included $53.3 million or 3.6 points of favorable loss reserve development primarily due to lower than expected severity on non-catastrophe losses related to professional liability in specialty lines and commercial multi-peril in commercial lines, partially offset by adverse loss reserve development primarily related to New York personal injury protection litigation at AutoOne. The nine months ended September 30, 2008 included $33.0 million or 2.4 points of favorable loss reserve development primarily due to lower than expected severity on non-catastrophe losses and favorable loss reserve development on a prior accident year catastrophe. The favorable non-catastrophe loss reserve development was primarily related to professional liability in specialty lines and package business in commercial lines partially offset by adverse loss reserve development at AutoOne and in run-off. The expense ratio increased due to higher policy acquisition expenses, as described above.

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