Bermuda-based White Mountains Insurance Group, Ltd. ended 2002 with a fully converted tangible book value per share of $259, a 15 percent increase for the year. The company’s comprehensive net income for 2002 was $290 million (excluding $660 million of deferred credits brought into income by an accounting change) compared to a loss of $302 million in 2001.
CEO Ray Barrette said, “We are pleased with our results in all areas of the company. Our book value grew nicely thanks to solid investment performance and major underwriting improvements at both OneBeacon and Folksamerica. We finished the year with a strong balance sheet. Our reserves are in good shape, we are comfortable with the level and structure of our debt, and our investment portfolio is rock solid. We expect strong performances in all our businesses in 2003.”
OneBeacon’s trade ratio on core operations, which is comprised of personal and commercial lines business in the Northeast and specialty businesses, was 98 percent for 2002 compared to 116 percent for 2001. Net written premiums on core operations were $1.8 billion in 2002 and in 2001, as price increases were offset by reductions in volume necessary to re-underwrite the book and reduce exposure to catastrophe claims.
The trade ratio on OneBeacon’s total business, including non-core/run-off business, was 109 percent for 2002 compared to 120 percent for 2001. Net written premiums on OneBeacon’s total business were down to $2.5 billion in 2002 from $3.5 billion in 2001 as premiums from non-core operations continue to run-off as desired.
During the 2002 fourth quarter, OneBeacon completed a detailed study on its non-A&E reserves based on recent trends in loss development and reconstructed supplemental historical claims information. As a result, OneBeacon strengthened reserves by $57 million pre-tax. Reserves for accident years 2000 and prior were increased by $97 million, while reserves for accident year 2001 were reduced by $40 million due in large part to favorable development on losses from the Sept. 11 disaster. Reserves for A&E exposures are covered by a $2.5 billion reinsurance cover purchased by OneBeacon on June 1, 2001 from National Indemnity (NICO), a Berkshire Hathaway company, rated A++ by A.M. Best. During the 2002 fourth quarter, OneBeacon also recognized an after-tax gain of $23 million as a result of the curtailment of its pension plan and retiree health benefits.
John Cavoores, president of OneBeacon, noted, “Our 2002 core trade ratio of 98 percent reflects the effects of the operating improvements we have made, as well as favorable weather conditions and a hardening market. We achieved price increases of roughly 20 percent in both commercial and personal lines during 2002. Our 2002 commercial lines trade ratio of 103 percent is significantly better than our 2001 trade ratio (ex-Sept. 11) of 114 percent; however, it fell short of our target due to the effects of large losses and a significant decrease in our premium base. Personal lines, which includes AutoOne, our New York personal automobile LAD division, had a nice year with a 98 percent trade ratio, which represents a big improvement over our 2001 trade ratio of 110 percent. Specialty lines had another outstanding year with a 90 percent trade ratio and significant premium growth.”
Net written premiums for commercial, personal and specialty lines were approximately $450 million, $1.1 billion and $280 million in 2002 versus $680 million, $860 million and $220 million in 2001.
Folksamerica’s statutory combined ratio, adjusted for the effects of retroactive reinsurance, was 99 percent for 2002 compared to 120 percent for 2001. Net written premiums increased 48 percent from $459 million in 2001 to $679 million in 2002.
Steve Fass, CEO of Folksamerica, added that, “2002 was the year all our hard work and commitment to maintaining both balance sheet and underwriting discipline through the prolonged soft market paid off. In 2002, rates were up by an average of 30 percent, commissions were reduced and terms and conditions improved. Based on a very good January renewal season, we believe the hard market will continue into 2003. You can count on us to be active participants.”
WMU, White Mountains’ underwriting manager specializing in the placement of international property excess reinsurance, had a successful first year of operations, generating underwriting fees of $44 million and comprehensive net income of $33 million. Most of this income was generated through WMU’s consulting contract with Olympus Re, its main third party customer.
White Mountains’ other insurance and reinsurance operations consist of Esurance, Fund American Re and the International American Group. Underwriting losses for the 2002 and 2001 periods primarily consist of Esurance’s after-tax operating losses during its start up and development stage. Losses in 2002 also include European flood losses at Fund American Re of $4 million.
Montpelier had a successful first full year of operations in the international reinsurance marketplace. White Mountains’ interest consists of warrants and common equity that give the company a 21% economic interest in Montpelier on a fully converted basis.
Realized and unrealized gains (losses) include losses on White Mountains’ interest rate swap contracts of $31 million and $3 million in the years ended Dec. 31, 2002 and 2001. These contracts were entered into to achieve a fixed rate on the credit facility established in conjunction with the acquisition of OneBeacon in 2001.
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