White Mountains Reports Quarterly Increase
White Mountains Insurance Group, Ltd reported an adjusted book value per share of $667 at June 30, 2014, up 1.7 percent for the second quarter of 2014 and up 4.0 percent for the first six months of 2014, including dividends.
Ray Barrette, Chairman and CEO, commented, “It was a bit of a mixed quarter except for Sirius Group reporting another strong result with an 81% combined ratio. OneBeacon grew book value 2.3 percent despite reporting a 99 percent combined ratio driven by a few large claims.
“BAM guaranteed $2.2 billion in par value, up more than 70 percent from last year’s second quarter, though the pricing has deteriorated quite a bit. Our investment portfolio gained 1.5 percent but we trailed our benchmarks in a strong up quarter for both stocks and bonds.”
A spokesperson said, “Adjusted comprehensive income was $68 million in the second quarter of 2014 compared to an $8 million adjusted comprehensive loss in the second quarter of last year. Adjusted comprehensive income was $156 million in the first six months of 2014 compared to $108 million in the first six months of last year.
“Net income attributable to common shareholders was $96 million in the second quarter and $191 million in the first six months of 2014, compared to $26 million and $147 million in the second quarter and first six months of last year.
“OneBeacon’s book value per share increased 2.3% for the second quarter and 6.6% for the first six months of 2014, including dividends. OneBeacon’s GAAP combined ratio was 99% for the second quarter of 2014 compared to 94% for the second quarter of last year, while the GAAP combined ratio was 94% for the first six months of 2014 compared to 91% for the first six months of last year.
“The combined ratios for the second quarter and first six months of 2014 reflect higher loss ratios, driven by an elevated level of large loss activity, partially offset by lower expense ratios.
“There were 3 points and 1 point of unfavorable loss reserve development in the second quarter and first six months of 2014 compared to one point of favorable loss reserve development in each period last year.”
Mike Miller, CEO of OneBeacon, said, “We had a tough quarter driven by a few large claims coming from current and prior years. We are confident that the underlying book continues to perform well. For six months, we reported a 94% combined ratio and 6.6 percent growth in book value per share.
“Market conditions are increasingly competitive, but we are well-positioned and focused on profitability. Premiums were up 20%, principally due to new crop premiums and growth in our newer Programs and Surety business units.
“Excluding these new businesses, our premium growth through June 30 is up 6 percent over the first half of last year. We expect to close the runoff sale in the second half of the year.”
“Net written premiums were $296 million in the second quarter and $607 million in the first six months of 2014, increases of 20 percent and 19 percent from last year. The increase reflects particularly strong growth in OneBeacon’s newer units – OneBeacon Program Group, OneBeacon Surety Group and OneBeacon Crop Insurance.
“Excluding the $36 million and $65 million increase in net premiums written for these new businesses, premiums grew 5% and 6% for the second quarter and first six months of 2014.
“Sirius Group’s GAAP combined ratio was 81 percent for the second quarter of 2014 compared to 79 percent for the second quarter of last year, while the GAAP combined ratio was 77 percent for the first six months of 2014 compared to 80% for the first six months of last year.
“The combined ratios for the 2014 periods benefited from lower catastrophe losses compared to the 2013 periods, while the 2013 periods benefited from profit commissions earned on European property retrocessional treaties. The second quarter of 2014 included 6 points [$12 million] of catastrophe losses, primarily from storms and floods in Europe, compared to 16 points [$35 million] of catastrophe losses in the second quarter of last year, primarily from flood losses in Europe.
“The first six months of 2014 included 3 points [$14 million] of catastrophe losses compared to 9 points [$37 million] in the first six months of last year. The combined ratios for the second quarter and the first six months of last year included 9 points and 5 points of profit commissions from European property retrocessional treaties.
“Favorable loss reserve development was 3 points [$6 million] and 4 points [$16 million] in the second quarter and first six months of 2014 and was primarily due to reductions in property loss reserves, including reductions for prior period catastrophe losses, compared to 7 points [$14 million] and 2 points [$10 million] in the second quarter and first six months of 2013.”
Allan Waters, CEO of Sirius Group, said, “Our 77 percent combined ratio for the first six months was a strong start to 2014, assisted by low catastrophe activity. Sirius Group’s adjusted book value per share grew 6 percent over the first six months.
“Written premiums are off only 3 percent from prior year-to-date, reflecting Sirius Group’s strong global position while maintaining underwriting discipline in a highly competitive environment.”
“In the second quarter of 2014, gross written premiums decreased 8 percent to $239 million and net written premiums decreased 9 percent to $187 million, reflecting primarily decreases in property catastrophe excess business. In the first six months of 2014, gross and net written premiums decreased 3 percent, to $691 million and $521 million, also reflecting primarily decreases in property catastrophe excess business.
“In the second quarter of 2014, BAM guaranteed $2.2 billion of municipal bonds, $2.1 billion of which were in the primary market, up more than 70% from the second quarter of last year. As of June 30, 2014, BAM’s total claims paying resources were $582 million on total insured par, including policies priced but not yet closed, of $8.4 billion.
“HG Global reported pre-tax income of $5 million and $10 million in the second quarter and first six months of 2014 compared to pre-tax income of $8 million and $18 million in the second quarter and first six months of last year. The decrease in both periods was driven by lower interest income on the BAM surplus notes.
“White Mountains reported $8 million and $17 million of GAAP pre-tax losses relating to BAM in the second quarter and first six months of 2014 compared to GAAP pre-tax losses of $27 million and $45 million in the second quarter and first six months of last year.
“The improvement in both periods was due to lower interest accruals on the surplus notes and better mark-to-market results from BAM’s investment portfolio. BAM’s affairs are managed on a statutory accounting basis, and it does not report stand-alone GAAP financial results.
“BAM’s statutory net loss was $8 million in the second quarter of 2014 and $7 million in the second quarter of last year. As a mutual insurance company that is owned by its members, BAM’s results do not affect White Mountains’s adjusted book value per share.
“However, White Mountains is required to consolidate BAM’s results in its GAAP financial statements and its results are attributed to non-controlling interests.”
Seán W. McCarthy, CEO of BAM, said, “BAM had its most productive quarter yet both in terms of par insured and the number of transactions, guaranteeing 247 primary- and secondary-market transactions with a par value of $2.2 billion. We benefited from increased interest in bond insurance among investors, particularly as Puerto Rico’s credit situation is prompting a reassessment of municipal exposures.
“Through June 30, the volume of insured primary-market transactions has increased nearly 30%, even as overall bond sales declined 17 percent. In this environment, investors see value in BAM’s guaranty because the company only insures municipal debt, applies low limits on its exposure to any single risk, and has no exposure to below-investment-grade borrowers.
“We also see increasing awareness of and appreciation for BAM’s industry-leading commitment to improve financial disclosure and transparency through the publication of Obligor Disclosure Briefs – credit summaries of each transaction that are posted on our website and available to everyone in the market.”
“White Mountains’s Other Operations segment reported pre-tax income of $4 million in the second quarter of 2014 and a pre-tax loss of $8 million in the first six months of 2014, compared to a $10 million pre-tax loss in the second quarter and $1 million of pre-tax income in the first six months of last year.
“White Mountains’s Other Operations segment reported net realized and unrealized investment gains of $29 million and $42 million in the second quarter and first six months of 2014, compared to net realized and unrealized investment losses of $7 million in the second quarter of last year and net realized and unrealized gains of $28 million in the first six months of last year.
“WM Life Re reported break-even results in the second quarter and $3 million of losses in the first six months of 2014 compared to $3 million and $9 million of losses in the second quarter and first six months of last year.
“The Other Operations segment also included gains of $15 million and $11 million in the second quarter and first six months of last year from increases in the value of White Mountains’s investment in Symetra warrants prior to their exercise in June 2013.
“During the second quarter and first six months of 2014, White Mountains recorded $12 million and $26 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’s adjusted book value per share to $19.17 per Symetra common share at June 30, 2014.
“This compares to Symetra’s quoted stock price of $22.74 and Symetra’s book value per common share, excluding unrealized gains [losses] from its fixed maturity portfolio, of $21.04.
“The GAAP total return on invested assets was 1.5 percent and 2.6 percent for the second quarter and first six months of 2014, which included 0.1 percent of currency losses in both periods. This compared to -0.8 percent and 0.6 percent for the second quarter and first six months of last year, which included 0.2 percent and 0.6 percent of currency losses.”
Manning Rountree, President of White Mountains Advisors, said, “The total portfolio was up 1.5 percent for the quarter. Absolute returns were solid. Relative returns were weak. Our short-duration fixed income portfolio returned 0.9%, lagging the Barclay’s Intermediate Aggregate index return as interest rates fell in the quarter.
“The equity portfolio was up 3.7 percent in the quarter, lagging the S&P 500. USD strengthening, in particular against the SEK, reduced returns by 0.1 percent in the quarter.”
