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

April 29, 2010 | About:

10qk

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White Mountains Insurance Group Ltd. (WTM) filed Quarterly Report for the period ended 2010-03-31.

White Mountains Insurance Group Ltd. has a market cap of $3.13 billion; its shares were traded at around $356 with a P/E ratio of 16.6 and P/S ratio of 0.7. The dividend yield of White Mountains Insurance Group Ltd. stocks is 0.3%.WTM is in the portfolios of Tom Gayner of Markel Gayner Asset Management Corp, Chuck Royce of Royce& Associates, Murray Stahl of Horizon Asset Management, George Soros of Soros Fund Management LLC, Bruce Berkowitz of Fairholme Capital Management, Jim Simons of Renaissance Technologies LLC, Dodge & Cox.

Highlight of Business Operations:

OneBeacon ended the first quarter of 2010 with a book value per share of $14.82, which was flat for the three months ended March 31, 2010, including dividends. OneBeacon reported a GAAP combined ratio of 112% for the first quarter of 2010, compared to 94% for the first quarter of 2009. The increase in OneBeacons combined ratio was primarily due to 10 points of catastrophe losses, mostly from Northeast U.S. storms. In addition, non-catastrophe losses and slightly lower favorable loss reserve development and higher expenses in the first quarter of 2010 than in the first quarter of 2009 impacted OneBeacons combined ratio. White Mountains Re reported a GAAP combined ratio of 132% for the first quarter of 2010 compared to 80% for the first quarter of 2009. The higher combined ratio was primarily due to $122 million (57 points) of property catastrophe losses compared with $12 million (5 points) in the first quarter of last year. The 2010 losses included $110 million from the Chilean earthquake, based on a $10 billion estimate of total industry losses, which is at the high end of industry loss estimates, and $10 million from European windstorm Xynthia. Esurance reported an adjusted combined ratio of 106% for the first quarter of 2010 compared to 102% for the first quarter of 2009, as both the loss and LAE ratio and the expense ratio increased by 2 points. The higher loss ratio in the first quarter of 2010 was due to winter storms in the Northeast, a greater incidence of large injury claims and a decline in the average premium per policy on new business. The increase in the expense ratio was primarily due to increased marketing spending and higher compensation accruals. During the first quarter of 2010, Esurance began reporting its adjusted combined ratio, a non-GAAP financial measure. Esurances adjusted combined ratio includes referral fee revenue as a reduction of operating expenses in the calculation in order to better reflect the growing benefit of those fees, which partially offset the cost of Esurances advertising. See NON-GAAP FINANCIAL MEASURES on page 47.

Total net written premiums decreased 5% to $945 million in the first quarter of 2010 compared to $992 million in the first quarter of 2009. OneBeacons net written premiums decreased 21% to $372 million in the first quarter of 2010, reflecting the sale of the non-specialty Commercial Lines business beginning with January 1, 2010 renewal dates. Specialty Lines premiums increased by 13%, while Personal Lines premiums decreased by 15%. During the first quarter, OneBeacon announced a definitive agreement to sell its Traditional Personal Lines business to Tower Group, Inc. Net written premiums for the business being sold totaled approximately $420 million for the year ended December 31, 2009. The transaction is expected to close in the second quarter, pending regulatory approvals. White Mountains Res net written premiums increased 11% to $342 million in the first quarter of 2010, primarily due to increases in the trade credit and accident and health lines and the effects of foreign currency translation. Esurances net written premiums increased 8% to $231 million in the first quarter of 2010, due to both improved customer retention and higher new business sales.

White Mountains total revenues increased 8% to $1,044 million in the first quarter of 2010 compared to $967 million in the first quarter of 2009. White Mountains reported net realized and unrealized investment gains of $87 million in the first quarter of 2010 compared to $23 million of net realized and unrealized investment losses in the first quarter of 2009. Earned premiums were down 5% in the first quarter of 2010 compared to the first quarter of 2009 as decreases at OneBeacon and White Mountains Re were slightly offset by an increase at Esurance. Net investment income was flat at $61 million in both the first quarter of 2010 and 2009. Other revenues increased to $31 million in the first quarter of 2010 from $17 million the first quarter of 2009, due mainly to the net effect of the change in the fair value of WM Life Res variable annuity liabilities and the fair value of the related derivative contracts, which reduced other revenues by $3 million in the first quarter of 2010 compared to $33 million in the first quarter of 2009. Other revenues also included a $13 million gain from White Mountains Res acquisition of Central National in the first quarter of 2010. In addition, other revenues included $7 million of foreign currency translation losses at White Mountains Re in the first quarter of 2010 compared to $5 million of foreign currency translation gains reported in the first quarter of 2009.

White Mountains total expenses increased 17% to $1,071 million in the first quarter of 2010 compared to $918 million in the first quarter of 2009. Losses and LAE expenses increased $160 million, or 29%, due primarily to $166 million of catastrophe losses in the first quarter of 2010 from the Chilean earthquake and winter storms in the northeastern United States and Europe. General and administrative expenses decreased 11% to $45 million in the first quarter of 2010 compared to $51 million in the first quarter of 2009, primarily due to the deconsolidation of Tuckerman Fund II. Effective January 1, 2010, White Mountains adopted ASU 2009-17 and, as a result, no longer consolidates Tuckerman Fund II, which accounted for $12 million of general and administrative expenses in the first quarter of 2009. Excluding the effect of Tuckerman Fund II, general and administrative expenses increased by $6 million in the first quarter of 2010, due primarily to increased compensation accruals. Interest expense on debt decreased 14% to $16 million in the first quarter of 2010 compared to $19 million in the first quarter of 2009, primarily due to repurchases of OBH Senior Notes and the full repayment of the Mortgage Note at OneBeacon in the second quarter of 2009.

Commercial Lines. On December 3, 2009, OneBeacon sold the renewal rights to approximately $490 million in premiums from its 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, OneBeacon received $23 million and will receive an additional 10 percent of premiums renewed in excess of $200 million for the first renewal period. OneBeacon 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 OneBeacon for expenses incurred to provide the claims administrative services.

Personal Lines. On February 2, 2010, OneBeacon entered into a definitive agreement to sell its traditional personal lines business to Tower Group, Inc. (the Personal Lines Transaction). The transaction includes two insurance companies containing the personal lines business, and two attorneys-in-fact managing the reciprocal exchanges that write the personal lines business in New York and New Jersey. AutoOne is not being sold as part of this transaction. Net written premiums for the business being sold total approximately $420 million for the year ended December 31, 2009. As consideration, OneBeacon will receive an amount equal to the statutory surplus in the reciprocal exchanges (approximately $103 million at December 31, 2009, the GAAP equity in the insurance companies and attorneys-in-fact (approximately $45 million at December 31, 2009), plus $32.5 million. Pending receipt of applicable state regulatory approvals, the transaction is expected to close in the second quarter of 2010.

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