White Mountains Group: “Great Start To Year”

April 29, 2013

Bermuda-based White Mountains Insurance Group, Ltd. today [Apr. 29] reported adjusted book value per share of $606 at March 31, 2013, up 3.3% for the first quarter of 2013, including dividends.

White Mountains is a Bermuda-domiciled financial services holding company with business interests in property and casualty insurance and reinsurance.

Ray Barrette, Chairman and CEO, said,  “On the financial side, we had a great start to the year. Our investment and underwriting results were excellent. Our investment portfolio returned 1.4 percent. OneBeacon grew book value by 6.9 percent per share, with an 88 percent combined ratio and a $15 million after-tax gain on the sale of Essentia.

“Sirius Group’s combined ratio was 81 percent and it booked a $7 million gain on a Solutions transaction. BAM guaranteed $867 million of primary municipal bond issues in the quarter and passed the $1 billion mark in April, an encouraging start. We repurchased 140,000 shares at $564 per share.”

Adjusted comprehensive income was $117 million in both the first quarter of 2013 and the first quarter of last year, while net income attributable to common shareholders was $120 million in the first quarter of 2013 compared to $94 million in the first quarter of last year.

OneBeacon

OneBeacon’s book value per share increased 6.9 percent for the first quarter of 2013, including dividends. The first quarter results include the $15 million after-tax gain recorded from the sale of Essentia Insurance Company announced in October 2012. OneBeacon’s GAAP combined ratio was 88% for the first quarter of 2013 compared to 89 percent for the first quarter last year. There was 1 point of favorable loss reserve development in each period.

Mike Miller, CEO of OneBeacon, said, “I am very pleased with our strong start to the year. While net written premiums were down due to our exit from the collector car and energy businesses, we grew our ongoing businesses by 2%. We are making progress on the sale of the runoff business that we expect to close later this year. As we look out into the year, our newer segments are well positioned to make contributions, our balance sheet remains strong and we continue to look for new opportunities.”

Net written premiums were $265 million in the first quarter of 2013, a decrease of 13 percent from the first quarter of last year. Excluding the $42 million of net written premiums in the first quarter of last year from the exited collector car and energy businesses, net written premiums increased 2%.

Sirius Group

Sirius Group’s GAAP combined ratio was 81 percent for the first quarter of 2013 compared to 84% for the first quarter of last year. The decrease is primarily due to improved property, accident and health, and marine current accident year underwriting results. Catastrophe losses did not meaningfully impact the combined ratio in either period. Unfavorable loss reserve development of two points for the first quarter of 2013 was primarily due to a late reported agricultural claim related to the 2012 US drought. Loss reserves developed favorably by three points for the first quarter of last year.

Allan Waters, CEO of Sirius Group, said, “Our satisfying 81% combined ratio for the quarter reflects low catastrophe activity and improved accident and health results. Written premiums were off a bit in accident and health and agriculture as we remain focused on the bottom line. Property catastrophe capacity continues to abound, especially for US risks where we expect increasing pressure on rates as the year progresses. White Mountains Solutions continued their strong performance booking a $7 million gain on the purchase of American Fuji.”

In the first quarter of 2013, gross written premiums decreased three percent [four percent in local currencies] to $452 million and net written premiums decreased five percent [six percent in local currencies] to $334 million, driven by a decrease in the accident and health line, partially offset by increased property business.

HG Global/BAM

For the first quarter of 2013, HG Global reported pre-tax income of $10 million, mostly interest income on the BAM surplus notes, while BAM reported pre-tax losses of $18 million, driven by interest expense on the BAM surplus notes and operating expenses. GAAP requires White Mountains to consolidate BAM’s results in its financial statements. However, since BAM is a mutual insurance company that is owned by its members, BAM’s results do not affect White Mountains’ adjusted book value per share and are attributed to non-controlling interests.

Bob Cochran, Chairman of BAM, said, “We’re off to a strong start. The response to BAM has been terrific from investors, underwriters and broker-dealers. Our market share of insured new municipal bond issues grew from 20 percent in January to 53 percent in February and March, and our insured portfolio topped $1 billion in early April. We’re now licensed in 39 states and the District of Columbia, and we expect to be licensed in the remaining 11 states over the next few months.”

Other Operations

White Mountains’ Other Operations segment reported pre-tax income of $11 million in the first quarter of 2013 compared to $14 million in the first quarter of last year.

Higher net realised and unrealised investment gains were more than offset by a decrease in the value of the Symetra warrants, lower net investment income and higher incentive compensation expenses, which were driven by the 10 percent increase in White Mountains’ share price during the first quarter of 2013. White Mountains’ Other Operations segment reported net realised and unrealised investment gains of $35 million in the first quarter of 2013 compared to $15 million in the first quarter of last year. The value of White Mountains’ investment in Symetra warrants decreased $4 million in the first quarter of 2013 compared to an increase of $11 million in the first quarter of last year. Net investment income decreased to $5 million in the first quarter of 2013 from $10 million in the first quarter of last year, primarily due to a lower invested asset base. WM Life Re reported pre-tax losses of $7 million in both the first quarter of 2013 and the first quarter of last year.

Investment in Symetra Common Shares. During the first quarter of 2013, White Mountains recorded $9 million in equity in earnings from its investment in Symetra’s common shares, which increased the value of the investment in Symetra’s common shares used in the calculation of White Mountains’ adjusted book value per share to $17.06 per Symetra common share at March 31, 2013. This compares to Symetra’s quoted stock price of $13.41 and Symetra’s book value per common share excluding unrealized gains and losses from its fixed maturity investment portfolio of $19.40.

Share Repurchases. White Mountains repurchased a total of 140,224 of its common shares during the first quarter for $79 million at an average share price of $564, which was 93% of White Mountains’ adjusted book value per share of $606 at March 31, 2013.

Investment Activities

The GAAP total return on invested assets for the first quarter of 2013 was 1.4 percent, which included 0.4 percent of currency losses, compared to 2.0 percent for the first quarter of last year, which included 0.4 percent of currency gains.

Manning Rountree, president of White Mountains Advisors, said, “Investments posted a solid first quarter. The total portfolio was up 1.4 percent. In local currencies, the fixed income portfolio was up 0.4 percent, outperforming the Barclay’s Intermediate Aggregate Bond Index in a choppy interest rate environment. Our value-oriented equity portfolio was up 7.1 percent, trailing the strong move up in the broader market. The US dollar strengthened in the quarter to three and a half year highs against most major currencies, generating a significant headwind and reducing returns by 0.4 percent.”

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