Friday, August 8, 2008

White Mountains Insurance (WTM) Analyst Day - Review of OneBeacon

White Mountains Insurance (WTM) held its annual analyst meeting on June 17, and I finally got around to listening to the webcast. The URL is here if you want to listen yourself. I have written two previous posts on the meeting:

Reserve Issue and Barrette Speaks.

OneBeacon Presentation

OneBeacon (OB) is a publicly traded company that is 75.1% owned by WTM. Mike Miller, the President and Chief Executive Officer of OneBeacon, said that since the partial IPO in November 2004, book value for the company has grown by 22%. The book value in the first quarter of 2008 was down 1% due to a flat investment return. The combined ratio in the quarter was 100%, which was good considering that the first quarter is typically its most challenging.

Book value growth in 2008 will not reach the 17% growth achieved in 2007, due to a “softening insurance marketplace…well as a choppy investment climate.”

Miller showed a chart of net written premiums and the combined ratio for OneBeacon for the last five years, showing a decline in net written premiums from $2.4 billion to $1.8 billion from 2004 to 2007. The combined ratio also declined from 99% to 93% over the same time period.

Miller says this was the result of a repositioning of the company and the book to one that was more specialized in focus, and “a significant amount of effort went into making sure that our $2 billion book of business roughly that we have is a book of business that we believe in that we understand general line dynamics and results in.”

OneBeacon, which focuses on specialty commercial lines, started seven new business segments since 2005, and has a personal lines business in eight Northeastern states. “We don’t have a nationwide personal lines business; we are focused in New England region. It’s a book of business that we’ve had since the inception of OneBeacon in 2001. It’s a book of business we know, we understand, the agents know who we are.”

Miller indicated that any expansion from this region was unlikely. “To consider going nationwide with a personal lines business we would bring little to distinguish ourselves and would not be a good use of your capital.”

Miller also said that the personal lines business has become more “challenged” and competitive the last year and a half, but that OneBeacon has been “holding our own in the Northeast and more importantly we have a consistent level of profitability in that Northeastern book of business.”

OneBeacon has tried to manage capital well and paid a special dividend of $190 million in the first quarter of 2008, and has repurchased 4% of the outstanding shares of the company over the last year.

My Comments:

It’s always been amazing to me how every insurance company proclaims as loudly as possible that they won’t write unprofitable business during a soft market, yet somehow the industry collectively does write it. Also, OneBeacon is performing a review of its reserves and balance sheet in the third quarter, and let’s hope that they don’t find any reserve skeletons in its closet like White Mountains Re did.

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