hite Mountains Reports Adjusted Book Value Per Share of $406, Up 7 percent in the Quarter

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Nov 06, 2009 (Close-Up Media via COMTEX) -- WTM | Quote | Chart | News | PowerRating -- White Mountains Insurance Group on October 30 reported an adjusted book value per share of $406 at September 30, an increase of 7 percent for the quarter and 15 percent for the first nine months of 2009, including dividends.

Ray Barrette, Chairman and CEO, commented, "We had another strong quarter. Investment gains led the way with a 4 percent total return. OneBeacon grew book value per share by 8 percent and had an improved combined ratio. White Mountains Re had excellent underwriting results, helped by continued low catastrophe claims. Esurance was profitable and made good progress in improving new business production. The Life Re business had a stable quarter. We have regained our financial flexibility and continue to maintain a strong balance sheet and strong capital position. I expect continued improvement as we remain disciplined in generally soft market conditions."

Adjusted comprehensive income was $243 million for the third quarter and $469 million for the first nine months of 2009, compared to adjusted comprehensive loss of $409 million and $426 million for the comparable 2008 periods. Net income for the third quarter was $160 million, compared to a net loss of $277 million, while net income was $370 million in the first nine months of 2009, compared to a net loss of $343 million.

OneBeacon

OneBeacon's book value per share increased 8 percent in the third quarter and 24 percent in the first nine months of 2009, including dividends. The GAAP combined ratio for the third quarter of 2009 was 97 percent compared to 100 percent for the third quarter of last year, while the GAAP combined ratio for the first nine months of 2009 was 95 percent compared to 98 percent for the first nine months of last year. The third quarter of 2009 included 4 points of catastrophe losses compared to 6 points of catastrophe losses in the third quarter of 2008. The third quarter and first nine months of 2009 each included 4 points of net prior year favorable loss reserve development compared to 4 points and 2 points of net prior year favorable loss reserve development in the third quarter and first nine months of last year.

Mike Miller, CEO of OneBeacon, said, "We are pleased with our third quarter results, which were driven by a solid 4 percent investment return and 97 percent combined ratio. We continued to profitably grow our Specialty Lines business, while persistent soft market conditions in Commercial Lines and a highly competitive personal auto market have led to continued premium declines in our Commercial and Personal Lines businesses. We remain focused on specialization, underwriting discipline and sound capital management."

Net written premiums were $504 million for the third quarter and $1,471 million for the first nine months of 2009, a decrease of 6 percent and 1 percent from the comparable periods of 2008. Specialty Lines premiums increased by 11 percent for the third quarter, with premium growth across most specialty businesses, and 23 percent for the first nine months, largely driven by the collector car business and Entertainment Brokers International, which was acquired in the third quarter of 2008. Personal Lines premiums decreased by 21 percent for the quarter and 17 percent for the first nine months, principally resulting from premiums ceded under a new quota share treaty designed to reduce property catastrophe exposure from homeowners business. Commercial Lines premiums decreased by 9 percent for the quarter and 8 percent for the first nine months of 2009, which reflects the continued competitive conditions.

White Mountains Re

White Mountains Re's GAAP combined ratio for the third quarter of 2009 was 79 percent compared to 127 percent for the third quarter of last year, while the GAAP combined ratio for the first nine months of 2009 was 82 percent compared to 111 percent for the first nine months of last year. Excluding the impact of a cession under a retrocessional reinsurance contract described below, the combined ratio for the third quarter and first nine months of 2009 was 85 percent and 84 percent. Both 2009 periods benefited from lower catastrophe activity. The third quarter of 2009 included 10 points of catastrophe losses, net of reinsurance and reinstatements, primarily from windstorm and flood losses in Europe, compared to 44 points in the third quarter of 2008, primarily from hurricane Ike and European hailstorms. The first nine months of 2009 included 7 points of catastrophe losses compared to 19 points of catastrophe losses in the first nine months of last year. The third quarter and first nine months of 2009 included 9 and 4 points of prior year favorable loss reserve development, primarily related to the cession described below, compared to 2 points and 11 points of unfavorable development in the third quarter and the first nine months of 2008. Gross written premiums declined 6 percent for the quarter and 8 percent for the nine months.

Allan Waters, CEO of White Mountains Re, said, "Our results are satisfying and benefited from the absence of hurricane losses this year. All of our underwriting centers are executing well in mostly soft market conditions. We continue to see a strong flow of submissions in all lines of business. Fundamentals are improving significantly in the aviation and credit lines. We are maintaining our pricing and risk selection discipline in the face of softening conditions in the casualty line. We successfully reorganized our Bermuda platform as a branch of Sirius and in the process contributed an additional $200 million of capital to Sirius. Our balance sheet is strong and we are well-positioned to react to new business opportunities as they emerge."

In the third quarter of 2009, White Mountains Re ceded $20 million of losses and $10 million of premiums under a retrocessional reinsurance contract related to the 2001 accident year. In addition, there were $7 million of interest charges on funds held under the contract. As a result, the total impact of the cession was to increase net pre-tax income by $3 million ($2 million after-tax).

Esurance

Esurance's GAAP combined ratio for both the third quarter and the first nine months of 2009 was 102 percent compared to 102 percent and 107 percent for the third quarter and first nine months of last year. The loss and LAE ratio was 72 percent for both the third quarter and first nine months of 2009 compared to 73 percent and 77 percent in the third quarter and first nine months of last year. The decreases in the loss and LAE ratio were largely due to the impact of selective rate adjustments made in late 2007 and early 2008 and lower claims frequency as a result of reduced driving. In the third quarter of 2009, Esurance had a slight increase in claim frequency, reversing the trend observed in the previous four quarters. The expense ratio was 30 percent for both the third quarter and first nine months of 2009, generally consistent with the third quarter and first nine months of last year.

Gary Tolman, CEO of Esurance, said, "Overall, the third quarter was satisfactory. We had another profitable quarter and Esurance's loss ratio remains on target despite an uptick in claim frequency. Esurance's new policy sales increased 20 percent compared to the third quarter of last year due to a higher percentage of shoppers buying policies. Answer Financial had a good quarter with growth in both revenue and operating profit."

Controlled premiums, which include policies sold by Answer Financial, were $296 million and $861 million in the third quarter and first nine months of 2009 compared to $298 million and $892 million in the third quarter and first nine months of last year. Gross premiums written by Esurance were $206 million in the third quarter and $600 million in the first nine months of 2009, a 4 percent and 7 percent decrease from the comparable periods of 2008. As of September 30, the Esurance segment had 765,000 policies-in-force, including 294,000 policyholders at Answer Financial. The Esurance segment added approximately 20,000 policies-in-force during the first nine months of 2009.

Other Operations

White Mountains' Other Operations segment's pre-tax net loss in the third quarter was $10 million compared to $16 million of pre-tax net loss in the third quarter of last year, while pre-tax loss was $86 million in first nine months of 2009 compared to $40 million in first nine months of last year. The decrease in pre-tax loss in the third quarter of 2009 compared to the third quarter of 2008 was primarily attributable to an increase in the value of the Company's investment in Symetra warrants and improved results at Life Re, partially offset by increased incentive compensation expenses. The increase in pre-tax loss in the first nine months of 2009 compared to the first nine months of 2008 was primarily attributable to Life Re and increased incentive compensation expenses, partially offset by an increase in the value of the Company's investment in Symetra warrants.

Life Re reported $4 million in pre-tax income and $54 million in pre-tax losses in the third quarter and the first nine months of 2009 compared to $14 million and $24 million of pre-tax losses in the third quarter and first nine months of 2008. The pre-tax losses from Life Re for both nine month periods and the third quarter of 2008 resulted from the effect of volatile market conditions on Life Re's derivative assets and liabilities. In addition, the Life Re results for the nine months ended 2009 include $22 million of losses from surrender assumption revisions made in the second quarter of 2009. White Mountains continues to explore options to limit the cost of running off these contracts.

During the third quarter of 2009, White Mountains repaid the $200 million outstanding balance on its revolving credit facility, lowering its debt to total capital ratio to 20 percent as of September 30.

Investment Activities

The GAAP total return on invested assets for the third quarter and first nine months of 2009 was 4.3 percent and 8.7 percent, including 1.2 percent and 1.6 percent from currency gains, compared to -5.1 percent and -3.7 percent, including -0.9 percent and -1.6 percent from currency losses, for the third quarter and first nine months of last year. Net investment income was $66 million and $205 million in the third quarter and first nine months of 2009, down from $106 million and $334 million in the third quarter and first nine months of last year. The decline in both periods was primarily 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. In addition, net investment income in the third quarter and first nine months of 2009 was reduced by $7 million as a result of interest charges on funds held under the previously described retrocession at White Mountains Re.

Manning Rountree, President of White Mountains Advisors, said, "Our total investment portfolio had nice results for the quarter and first nine months, led by continued strong performance in corporate bonds and aided by a tailwind from dollar weakening. Measured in local currencies, our fixed income portfolio was up 2.3 percent in the quarter and 6.7 percent in the first nine months, compared with Barclays U.S. Intermediate Aggregate returns of 3.2 percent and 5.9 percent. Our move into corporate bonds early this year continued to pay off with a return of 5.8 percent in the quarter and 16.4 percent in the first nine months. Our structured product portfolio also performed well, up 3.1 percent in the quarter and 8.1 percent in the first nine months, despite deteriorating economic conditions. The aggregate fixed income portfolio remains short, liquid and high quality. Our equity, convertible and alternative asset portfolio was up 8.7 percent in the third quarter and 9.7 percent in the first nine months, lagging the S&P 500 return over the same periods, as expected given the defensive positioning of the portfolio."

Additional Information

During the first quarter of 2009, White Mountains adopted FAS No. 160, Noncontrolling Interests-an amendment to ARB 51 ("FAS 160) (subsequently superceded by Accounting Standards Codification Topic 810-10). As a result, White Mountains has changed the presentation of its financial statements for prior periods to conform to the required presentation, as follows: noncontrolling interests (previously referred to as "minority interests) are now presented on the balance sheets within equity, separate from White Mountains' common shareholders' equity, and the portion of net income, extraordinary items and comprehensive income attributable to White Mountains' common shareholders and the noncontrolling interests are presented separately on the consolidated statements of operations and comprehensive income. The adoption of FAS 160 did not impact White Mountains' common shareholders' equity or adjusted book value per share.

White Mountains is a Bermuda-domiciled financial services holding company traded on the New York Stock Exchange and the Bermuda Stock Exchange under the symbol WTM. Additional financial information and other items of interest are available at the Company's website located at www.whitemountains.com. The Company urges shareholders to refer to that document for more complete information concerning White Mountains' financial results.

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