White Mountains reports $277m net loss in 3Q
By Tania Theriault
After a "difficult" third quarter, White Mountains Insurance Group reported that a net loss of $277 million on Friday. This compared to a net gain of $111 million in the third quarter of 2007.
The company adjusted its book value downward 9 percent to $405 per share at September 30,2008, including dividends.
"As I stated in our October 13, 2008 pre-announcement, this was a difficult quarter," said group CEO Ray Barrette.
"Our investment performance was the driving factor in our book value decline, with a -5 percent total return on invested assets, including a 15 percent drop in our equity and convertible security investments.
"Underwriting results in the quarter were mixed. OneBeacon's combined ratio was acceptable at 100 percent, including six points of catastrophe losses. White Mountains Re's combined ratio of 127 percent, including 44 points of catastrophe losses, was in line with our expectations given the level of cat activity around the world. Esurance showed much improvement with a 102 percent combined ratio, including one point of catastrophe losses."
The company said that adjusted comprehensive net loss for the third quarter of 2008 was $409 million, compared to $161 million of adjusted comprehensive net income in the third quarter of last year.
Bermuda-based White Mountains said declining equity markets, credit spreads on fixed income securities and the strengthening of the US dollar against the Euro and Swedish Krona contributed to continued losses in its investment portfolio.
Among the group's subsidiaries, OneBeacon's adjusted book value per share decreased by 13 percent in the quarter. The GAAP combined ratio for the third quarter of 2008 was 100 percent compared to 84 percent, while the GAAP combined ratio for the first nine months of 2008 was 98 percent compared to 93 percent. During the quarter, OneBeacon completed a study of its asbestos and environmental (A&E) exposures. Based on the results of the study, OneBeacon increased its best estimate of incurred losses ceded to National Indemnity Company (NICO) by $83 million to $2.2 billion. This best estimate is within the $2.5 billion limit provided by the NICO cover. Due to the NICO Cover, there was no impact to income or equity from the change in estimates.
Net written premiums were $534 million for the third quarter and $1,489 million for the first nine months, an increase of 4 percent from each of the comparable periods of 2007. Speciality Lines premiums increased by 41 percent and 35 percent, largely driven by the new collector car and boat business, while Commercial Lines premiums decreased by 7 percent and 2 percent, and Personal Lines premiums decreased by 10 percent and 11 percent in the third quarter and the first nine months of 2008 versus the comparable periods of 2007.
White Mountains Re took a fairly hard hit in catastrophe losses $112 million net of reinsurance and reinstatements, which include $87 million from Hurricane Ike and $22 million from European hailstorms. In the third quarter of last year, catastrophe losses were $22 million.
Allan Waters, CEO of White Mountains Re, said: "While we are never happy to incur catastrophe losses, they are a part of our business. The manageable size of our Ike loss relative to White Mountains Re's capital base reflects the substantial repositioning of our North American property book over the past two years.
"Despite the financial markets' turmoil, our balance sheet remains strong. Perhaps the tumult will trigger some improvement in upcoming renewal rates."
Gross written premiums were down 14 percent for the quarter while net written premiums were down 6 percent. The largest decline was in the casualty line of business.
White Mountains has been pleased with the performance of Esurance this year, however.
"Esurance's loss ratio was 73 percent and 77 percent for the third quarter and first nine months of 2008 compared to 84 percent and 80 percent for the comparable periods in 2007. Selective rate increases and lower claims frequency have offset rising severity costs in 2008," the company said.
"I am pleased with the significant improvement in our underwriting results compared to last year," said Gary Tolman, Esurance CEO. "We have achieved a meaningful decline in both our loss and expense ratios. However, our top line growth continues to slow due to a decline in shopping for personal auto insurance. As a result, we have reduced our marketing spend.
"We are making good progress in leveraging our Answer Financial relationship, leading to increases in total revenues and a better shopping experience for our customers."
Total revenues for the first nine months of 2008, which include revenues from Answer Financial, were $653 million, an 11 percent increase from the first nine months of last year.
White Mountains also report that the company had received a ruling from the US Internal Revenue Service on the exchange with Warren Buffett's Berkshire Hathaway and expected that deal to close on Friday.
