White Mountains Reports Adjusted Book Value Per Share Of $574
HAMILTON, Bermuda, Oct. 30, 2012 /PRNewswire/ -- White Mountains Insurance Group, Ltd. (NYSE: WTM) reported an adjusted book value per share of $574 at September 30, 2012, which was up 1.6% for the quarter and 6.0% for the first nine months, including dividends.
Ray Barrette, Chairman and CEO, commented, "It was a productive quarter. Solid investment and underwriting results more than offset the GAAP book loss on the sale of the OneBeacon runoff business. Please read my October 18, 2012 letter to shareholders for more insight into that sale. Both OneBeacon and Sirius had nice underwriting results, aided by low catastrophe losses. Despite significant U.S. crop losses, Sirius reported an 88% GAAP combined ratio. We completed a thorough reserve review at Sirius and concluded that reserves there remain in good shape. Investment returns were good in both fixed income and equities. BAM is off to a nice start, establishing good trading spreads on its first policy versus both an Assured Guaranty wrap and an uninsured issuance. Our balance sheet is strong with significant undeployed capital and we are actively pursuing opportunities."
Adjusted comprehensive income was $59 million and $173 million in the third quarter and first nine months of 2012, compared to adjusted comprehensive loss of $98 million and $58 million in the third quarter and first nine months of last year. Net income attributable to common shareholders was $19 million and $139 million in the third quarter and first nine months of 2012, compared to net loss attributable to common shareholders of $16 million and $32 million in the third quarter and first nine months of last year.
OneBeacon's book value per share decreased 5.6% for the third quarter of 2012 and increased 0.5% for the first nine months of 2012, including dividends. During the third quarter of 2012, OneBeacon recorded $101 million in after-tax GAAP losses related to the sale of its runoff business. These losses are presented in discontinued operations and are composed of a $92 million after-tax loss on sale and a $9 million after-tax loss related to a reduction in the workers compensation loss reserve discount rate on reserves being transferred as part of the sale. OneBeacon's GAAP combined ratio was 95% for the third quarter of 2012 compared to 94% for the third quarter of last year, while the GAAP combined ratio was 93% for the first nine months of 2012 compared to 95% for the first nine months of last year. Both the quarter and first nine month results benefited from lower catastrophe losses partially offset by lower favorable loss reserve development. The expense ratio was 39% for the third quarter of 2012 compared to 36% for the third quarter of 2011. The increase was driven by higher incentive compensation expenses and employee costs associated with building new specialty businesses in the third quarter of 2012. Catastrophe losses were 2 points in both the third quarter and first nine months of 2012 compared to 5 points in the comparable periods of last year. Favorable loss reserve development was 1 point in the third quarter and first nine months of 2012 compared to 2 points in the comparable periods of last year.
Mike Miller, CEO of OneBeacon, said, "The big news of the quarter was the agreement to sell the runoff business. This is the final step in our transformation into a pure Specialty company. The loss on sale is in line with the economics of running off those liabilities over time. Our solid Specialty underwriting results and strong premium growth for the quarter and first nine months of 2012 are tangible evidence supporting our strategy. We are well positioned to generate strong returns and accelerate the growth in the value of our company going forward."
OneBeacon recently announced it has entered into a definitive agreement to terminate its exclusive underwriting arrangement with Hagerty Insurance Agency. In connection with this agreement, OneBeacon also agreed to sell its wholly owned insurance subsidiary Essentia Insurance Company ("Essentia"). OneBeacon anticipates recording a $23 million pre-tax gain on the sale ($15 million after tax) upon closing the transaction. The sale is subject to regulatory approvals and is expected to close during the first quarter of 2013. The termination of the agency agreement will be effective as of the close date of the Essentia sale.
Net written premiums were $335 million and $930 million in the third quarter and first nine months of 2012, an increase of 13% from both comparable periods of 2011. A change in the method of estimating written premiums associated with the A.W.G. Dewar tuition reimbursement insurance product resulted in approximately $9 million in net written premiums being recorded in the third quarter of 2012 that, under the prior method, would have been recorded in the fourth quarter. Excluding this change in estimate, premiums for the three and nine months ended September 30, 2012 would have increased 9% and 12%.
Sirius Group's GAAP combined ratio was 88% for the third quarter of 2012 compared to 89% for the third quarter of last year, while the GAAP combined ratio was 85% for the first nine months of 2012 compared to 104% for the first nine months of last year. The combined ratio for the third quarter of 2012 included 19 points ($45 million) of losses from Sirius Group's agricultural line of business, primarily as a result of the drought in the Midwestern United States. These loss estimates are subject to change as the harvest and crop yields are not yet finalized. Additionally, the combined ratio for the third quarter of 2012 included 3 points ($6 million) of catastrophe losses, mainly due to windstorm losses in the United States, compared to 11 points ($25 million) for the third quarter of last year, mainly as a result of Hurricane Irene. The combined ratio for the first nine months of 2012 included 2 points ($14 million) of catastrophe losses compared to 27 points ($188 million) for the first nine months of last year. The combined ratio for the first nine months of 2012 also included 7 points from the aforementioned agricultural losses. Favorable loss reserve development was 3 points in the third quarter of 2012 compared to 9 points in the third quarter of last year. Favorable loss reserve development was 2 points for the first nine months of 2012 compared to 5 points for the first nine months of last year. With the completion of a ground-up asbestos reserve study in the quarter, Sirius Group increased asbestos loss reserves by $33 million. This increase was more than offset by reductions in liability and property loss reserves. In addition, in the third quarter of 2012, Sirius Group realized a gain of $15 million on the sale of its interest in International Medical Group, a managing general underwriter in the medical and travel business.
Allan Waters, CEO of Sirius Group, said, "Our good results in the quarter continue a strong year. They reflect several moving parts. Large crop losses from the U.S. drought were offset by a quiet windstorm season, and continuing good news from liability and property loss reserves offset an asbestos reserve increase. Through nine months gross written premiums increased 8% in local currencies, consistent with our plan to grow in property and accident and health this year. However, a continuing abundance of capital in the (re)insurance industry will likely serve to temper future property rate improvement and will keep other lines competitive."
Gross written premiums increased 2% for the third quarter of 2012 from the third quarter of last year (3% in local currencies) as increases in the accident and health and property lines of business were offset by decreases in trade credit. Net written premiums increased 5% (6% in local currencies).
White Mountains' Other Operations segment reported pre-tax income of $7 million and pre-tax loss of $1 million in the third quarter and first nine months of 2012 compared to $45 million and $92 million of pre-tax loss in the third quarter and first nine months of last year. The improvement in the third quarter was primarily driven by better investment results and lower mark-to-market losses from the Symetra warrants, partially offset by higher incentive compensation expenses and higher losses from WM Life Re. The improvement in the nine-month period was primarily driven by better investment results and a mark-to-market gain from the Symetra warrants compared to a loss in the first nine months of last year, partially offset by higher losses from WM Life Re. WM Life Re reported pre-tax losses of $3 million and $14 million in the third quarter and first nine months of 2012 compared to a $1 million pre-tax gain and a $10 million pre-tax loss in the third quarter and first nine months of 2011.
HG Global and BAM. During the third quarter of 2012, White Mountains capitalized HG Global Ltd. ("HG Global") with approximately $600 million to fund Build America Mutual Assurance Company ("BAM"), a newly formed mutual bond insurer. As of September 30, 2012, White Mountains owned 97% of HG Global's preferred equity and 89% of its common equity. HG Global provided the initial capitalization of BAM through the purchase of approximately $500 million of BAM surplus notes. HG Global also provides 15%-of-par, first loss reinsurance protection for policies underwritten by BAM. For the third quarter of 2012, HG Global reported pre-tax income of $5 million, which was driven by $8 million of interest income on the BAM surplus notes, partially offset by startup and operational costs. For the third quarter of 2012, BAM reported $18 million in pre-tax losses that were driven by $8 million of interest expense on the BAM surplus notes and startup and operational costs. 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 and not White Mountains, BAM's results do not affect White Mountains' adjusted book value per share as they are attributed to noncontrolling interests.
Symetra. The value of White Mountains' investment in Symetra warrants decreased $4 million in the third quarter of 2012 and increased $14 million in the first nine months of 2012 compared to a decrease of $25 million and $29 million in the third quarter and first nine months of last year. During the third quarter and first nine months of 2012, White Mountains recorded $8 million and $25 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 $16.32 per Symetra common share at September 30, 2012, compared to Symetra's quoted stock price of $12.30 and Symetra's book value per common share excluding unrealized gains and losses from its fixed maturity investment portfolio of $18.76.
The GAAP total return on invested assets was 2.8% and 4.3% for the third quarter and first nine months of 2012, which included 0.6% and 0.4% of currency gains. This compared to a GAAP total return of -1.5% and 1.7% for the third quarter and first nine months of last year, which included -1.2% and -0.2% of currency losses.
Manning Rountree, President of White Mountains Advisors, said, "Investments performed well in the third quarter. The total portfolio was up 2.8%. Dollar weakening provided a nice tailwind, boosting returns by 0.6%. Our fixed income portfolio returned 1.5% in local currencies, a good result. Our value-oriented equity portfolio was up 5.2% in the quarter, in line with our expectations. Our Prospector managed separate accounts were up 6.8% in the quarter, outperforming the S&P 500 Index. We continue to add equity investments opportunistically."
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. White Mountains filed its Form 10-Q with the Securities and Exchange Commission today and urges shareholders to refer to that document for more complete information concerning its financial results.
This earnings release includes two non-GAAP financial measures that have been reconciled to their most comparable GAAP financial measures. White Mountains believes these measures to be more relevant than comparable GAAP measures in evaluating White Mountains' financial performance.
Adjusted book value per share is a non-GAAP financial measure which is derived by expanding the calculation of GAAP book value per share to exclude equity in net unrealized gains (losses) from Symetra's fixed maturity portfolio, net of applicable taxes, from book value. In addition, the number of common shares outstanding used in the calculation of adjusted book value per share are adjusted to exclude unearned restricted common shares, the compensation cost of which, at the date of calculation, has yet to be amortized. The reconciliation of adjusted book value per share to GAAP book value per share is included on page 7.
Adjusted comprehensive income (loss) is a non-GAAP financial measure that excludes the change in equity in net unrealized gains (losses) from Symetra's fixed maturity portfolio, net of applicable taxes, from comprehensive income (loss) attributable to White Mountains' common shareholders. The reconciliation of adjusted comprehensive income (loss) to GAAP comprehensive income (loss) attributable to White Mountains' common shareholders is included on page 8.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This earnings release may contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included or referenced in this release which address activities, events or developments which we expect or anticipate will or may occur in the future are forward-looking statements. The words "will," "believe," "intend," "expect," "anticipate," "project," "estimate," "predict" and similar expressions are also intended to identify forward-looking statements. These forward-looking statements include, among others, statements with respect to White Mountains':
- change in adjusted book value per share or return on equity;
- business strategy;
- financial and operating targets or plans;
- incurred loss and loss adjustment expenses and the adequacy of its loss and loss adjustment expense reserves and related reinsurance;
- projections of revenues, income (or loss), earnings (or loss) per share, dividends, market share or other financial forecasts;
- expansion and growth of our business and operations; and
- future capital expenditures.
These statements are based on certain assumptions and analyses made by White Mountains in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors believed to be appropriate in the circumstances. However, whether actual results and developments will conform to our expectations and predictions is subject to a number of risks and uncertainties that could cause actual results to differ materially from expectations, including:
- the risks associated with Item 1A of White Mountains' 2011 Annual Report on Form 10-K and Item 1A in Part II of White Mountains' September 30, 2012 Quarterly Report on Form 10-Q;
- claims arising from catastrophic events, such as hurricanes, earthquakes, floods, fires, terrorist attacks or severe winter weather;
- the continued availability of capital and financing;
- general economic, market or business conditions;
- business opportunities (or lack thereof) that may be presented to it and pursued;
- competitive forces, including the conduct of other property and casualty insurers and reinsurers;
- changes in domestic or foreign laws or regulations, or their interpretation, applicable to White Mountains, its competitors or its customers;
- an economic downturn or other economic conditions adversely affecting its financial position;
- recorded loss reserves subsequently proving to have been inadequate;
- actions taken by ratings agencies from time to time, such as financial strength or credit ratings downgrades or placing ratings on negative watch;
- other factors, most of which are beyond White Mountains' control.