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

April 29, 2010 | About:

10qk

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OneBeacon Insurance Group Ltd. (OB) filed Quarterly Report for the period ended 2010-03-31.

Onebeacon Insurance Group Ltd. has a market cap of $1.56 billion; its shares were traded at around $16.44 with a P/E ratio of 8.6 and P/S ratio of 0.7. The dividend yield of Onebeacon Insurance Group Ltd. stocks is 5.1%.OB is in the portfolios of Chuck Royce of Royce& Associates.

Highlight of Business Operations:

Our GAAP combined ratio was 112.4% for the three months ended March 31, 2010, compared to 93.6% for the three months ended March 31, 2009. The increase in the combined ratio was primarily due to higher current accident year catastrophe losses, a number of non-catastrophe large losses and somewhat higher expenses as compared to the three months ended March 31, 2009. The three months ended March 31, 2010 included $44.3 million of current accident year catastrophe losses primarily related to the March Northeast U.S. storms, compared to $2.6 million of current accident year catastrophe losses in the three months ended March 31, 2009. The three months ended March 31, 2009 also included the benefit of slightly more favorable loss reserve development. Total net written premiums decreased 20.9% in the three months ended March 31, 2010 to $371.5 million, compared to $469.4 million in the three months ended March 31, 2009. The decrease in net written premiums is due primarily to the renewal rights transaction described below and decreases in personal lines both in traditional personal lines and at AutoOne Insurance (AutoOne). These decreases were partially offset by an increase in specialty lines net written premiums driven primarily by OneBeacon Professional Insurance (OBPI).

Commercial lines. On December 3, 2009, we sold the renewal rights to approximately $490 million in premiums from our non-specialty commercial lines business to The Hanover Insurance Group (The Hanover). The transaction included small commercial accounts and the non-specialty portion of the middle-market business, beginning with January 1, 2010 effective dates (the Commercial Lines Transaction). As consideration, we received $23.2 million, and will receive an additional 10% of premiums renewed in excess of $200 million for the first renewal period. We will continue to manage claims from business written prior to the Commercial Lines Transaction and for business written by The Hanover through June 30, 2010. The Hanover will reimburse us for our expenses incurred to provide the claims administration services.

Our comprehensive net income attributable to OneBeacons shareholders was $0.2 million in the three months ended March 31, 2010, compared to comprehensive net income attributable to OneBeacons shareholders of $33.9 million in the three months ended March 31, 2009. Net income attributable to OneBeacons shareholders was essentially break-even in the three months ended March 31, 2010, compared to net income attributable to OneBeacons shareholders of $32.8 million in the three months ended March 31, 2009.

Our total revenues increased 3.4% to $530.4 million in the three months ended March 31, 2010, compared to $513.2 million in the three months ended March 31, 2009. The increase was mainly due to a $48.3 million increase in net realized and unrealized investment gains to $42.4 million. Net investment income increased 29.2% to $28.3 million in the three months ended March 31, 2010, due to higher investment yields principally driven by a $0.5 million inflation adjustment related to our inflation indexed treasury securities as compared to a $(7.2) million inflation adjustment related to these securities for the three months ended March 31, 2009. These increases were partially offset by a 7.9% decrease in earned premiums primarily due to decreased earned premiums in personal lines and our non-specialty commercial lines which is included in run-off. Net other revenues decreased 30.9% to $6.5 million in the three months ended March 31, 2010, compared to $9.4 million in the three months ended March 31, 2009. The decrease was primarily due to a $0.5 million loss related to the purchase of a portion of our senior notes. The three months ended March 31, 2009 included a $2.5 million gain related to the purchase of a portion of our senior notes.

Our total expenses increased 10.9% in the three months ended March 31, 2010 to $526.1 million, compared to $474.4 million in the three months ended March 31, 2009. Loss and LAE increased 15.9% to $333.7 million in the three months ended March 31, 2010, primarily due to higher current accident year catastrophe losses. Current accident year catastrophe losses were $44.3 million in the three months ended March 31, 2010, compared to $2.6 million in the three months ended March 31, 2009. Policy acquisition

Our GAAP combined ratio for the three months ended March 31, 2010 increased to 112.4% from 93.6% for the three months ended March 31, 2009. The loss and LAE ratio increased 14.6 points to 73.6% while the expense ratio increased 4.2 points to 38.8%. The increase in the loss and LAE ratio was primarily due to an increase in current accident year catastrophe and non-catastrophe losses. The three months ended March 31, 2010 included $44.3 million or 9.8 points of current accident year catastrophe losses, as compared to $2.6 million or 0.5 points of current accident year catastrophe losses in the three months ended March 31, 2009. We also experienced a number of non-catastrophe large losses in our property and inland marine business within specialty lines and in our non-specialty commercial lines business in run-off. The three months ended March 31, 2010 included $6.0 million or 1.3 points of favorable loss reserve development, as compared to $14.8 million or 3.0 points of favorable loss reserve development in the three months ended March 31, 2009. The favorable loss reserve development was primarily related to lower than expected severity on non-catastrophe losses on professional liability lines, commercial package business and other general liability lines. The expense ratio increased primarily due to higher policy acquisition expenses, as described above, as well as a slight increase in other underwriting expenses.

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