Best Affirms White Mountains and Subsidiaries Ratings

December 1, 2008

A.M. Best Co. has affirmed the financial strength ratings (FSR) and issuer credit ratings (ICR) of selected subsidiaries of the Bermuda-based White Mountains Insurance Group, Ltd., including the FSRs of ‘A’ (Excellent) and the ICRs of “a” of the U.S. operating company OneBeacon Insurance Group.

Best also affirmed the FSRs of ‘A-‘ (Excellent) and the ICRs of “a-” of the U.S. operating company, San Francisco-based Esurance Insurance Group.

In addition Best has affirmed the ICR of “bbb” of White Mountains, and the ICR of “bbb” and the various debt ratings of OneBeacon Insurance Group, Ltd., which is domiciled in Bermuda.

The outlook for all of the ratings is stable. For a complete list of White Mountains Insurance Group, Ltd.’s FSRs, ICRs and debt ratings go to:

Best said: “White Mountains’ ratings reflect its conservative adjusted financial leverage (debt plus preferred stock-to-total capital, adjusted for equity credit) of 23 percent at September 30, 2008 (26 percent pro forma for the exchange with Berkshire Hathaway), its financial flexibility, as well the steps taken to improve earnings at its various operating entities.

“On a consolidated basis, the group’s operating earnings have improved over a five-year period, leading to generally favorable return measures when considering realized capital gains. However, return measures turned negative in 2008 due to significant realized and unrealized capital losses, principally generated as a result of reduced market valuations on the group’s common stock portfolio. Such losses have negatively impacted surplus through 2008.

“An additional offsetting rating factor is the negative impact of storm losses in three of the past five years on consolidated operating results, principally through its White Mountains Re Group, Ltd. (White Mountains Re) (Hamilton, Bermuda) operations.”

Best also explained that “OneBeacon’s ratings reflect the reasonable financial leverage of its parent, OneBeacon Ltd., (35 percent as of September 30, 2008), which is well supported by the earnings of its insurance operations, as well as the risk-adjusted capitalization (as measured by Best’s Capital Adequacy Ratio) and operating earnings of OneBeacon. OneBeacon’s balance sheet is enhanced by virtue of significant reinsurance protection on asbestos and environmental (A&E) and other mass tort liabilities.

“Still, surplus in 2008 has been negatively impacted from the volatility in the financial markets. This led to both a reduction in surplus on the year as well as negative overall return measures when including the impact of realized and unrealized capital losses. Nonetheless, OneBeacon’s five-year returns have improved since its acquisition by White Mountains, driven by expansion into specialty niches, improved pricing prior to 2007 and favorable accident year development on the book of business written since the acquisition. Underwriting results remained profitable in 2008 despite an increase in storm losses.”

Best added that “Esurance’s ratings reflect that company’s strong market niche as an on-line purveyor of personal auto insurance, consolidated risk-adjusted capitalization that supports its rating level, direct pure loss ratios that are largely in line with its peer composite and the ongoing support of its ultimate parent, White Mountains.

“Offsetting these positive rating factors is Esurance’s historically high rate of growth (which has abated somewhat during 2008), significant reinsurance dependence and historical operating results that are less favorable than its peer group. Furthermore, Esurance incurred a modest level of prior year reserve development in 2007, which also hampered earnings during the prior year. Esurance’s significant dependence on reinsurance is driven by its 85 percent quota share agreement with two White Mountains Re affiliates.”

Source: A.M. Best –

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