OneBeacon Insurance Group, Ltd.'s (OneBeacon) renewal rights sale transaction for the majority of its commercial lines business to The Hanover Insurance Group, Inc. (Hanover) does not affect the ratings on OneBeacon, its subsidiaries or its parent company White Mountains Insurance Group, Ltd (White Mountains; 75.4% ownership of OneBeacon) and its subsidiaries, according to Fitch Ratings. The Rating Outlook remains Negative.
OneBeacon announced yesterday that it sold the renewal rights on the majority of its commercial lines business to Hanover, effective Jan. 1, 2010. This consists of small and middle market business totaling about $490 million of direct premiums, with OneBeacon electing to retain its larger middle market specialty businesses that have been managed and reported within its commercial lines segment. Going forward, OneBeacon expects its business mix to be approximately 2/3 specialty lines and 1/3 personal lines.
This transaction is consistent with Fitch's view of White Mountains' and OneBeacon's strategy of investing in businesses in which management has the knowledge and experience that will enable them to operate profitably and increase value. As such, the company will sell at a profit those businesses that either do not fit within the core operations of the company or still have value to other companies/buyers as entities or renewal rights in excess of White Mountains' assessment of their value.
Furthermore, management continually evaluates the best use of its financial resources and actively manages and deploys its capital with an opportunistic approach. Fitch believes that management has, overall, been successful with its disciplined operating and investing strategy. The transaction will free up capital that previously supported the business writings, providing financial flexibility that OneBeacon could use to support additional specialty lines businesses, debt reduction, dividends or share repurchases. However, Fitch expects that OneBeacon will continue to maintain a level of insurance company capitalization that is consistent with the current ratings, particularly to support OneBeacon's run off of reserves associated with the renewal rights business.
Financial leverage has improved with debt-to-total-capital ratios of 20% and 31% for White Mountains and OneBeacon, respectively, at Sept. 30, 2009 (including accumulated other comprehensive income), down from 28% and 38%, respectively, at Dec. 31, 2008. This decline reflects both the growth in shareholders' equity of 23% and 19% for White Mountains and OneBeacon, respectively, thus far in 2009, in addition to debt reductions of $312 million for White Mountains and $112 million for OneBeacon through the first nine months of 2009.
The Negative Outlook reflects Fitch's view that near-term conditions in the financial markets continue to have the potential to cause volatility within operating results. If the company suffers significant losses, the ratings could be lowered. However, if White Mountains is able to continue to improve its operating earnings and generate consistent internal capital growth in the near to intermediate term, the Outlook could be revised to Stable.
Fitch currently rates White Mountains and its subsidiaries as follows:
White Mountains Insurance Group, Ltd.
--Issuer Default Rating (IDR) 'BBB+'.
OneBeacon U.S. Holdings, Inc.
--IDR 'BBB+';
--$607 million 5.875% due May 15, 2013 'BBB'.
White Mountains Re Group, Ltd.
--IDR 'BBB+';
--$400 million 6.375% due March 20, 2017 'BBB';
--$250 million perpetual non-cumulative preference shares 'BBB-'.
OneBeacon Insurance Group and their members IFS 'A':
Atlantic Specialty Insurance Company
AutoOne Insurance Company
AutoOne Select Insurance Company
Camden Fire Insurance Association (The)
Employers' Fire Insurance Company (The)
Essentia Insurance Company
Homeland Insurance Company of New York
Massachusetts Homeland Insurance Company
Northern Assurance Company of America (The)
OneBeacon America Insurance Company
OneBeacon Insurance Company
OneBeacon Lloyd's of Texas
OneBeacon Midwest Insurance Company
Pennsylvania General Insurance Company
Traders & General Insurance Company
York Insurance Company of Maine
--Insurer Financial Strength (IFS) 'A'.
White Mountains Reinsurance Company of America
--IFS 'A-'.
Sirius International Insurance Corporation
--IFS 'A-'.
The Rating Outlook is Negative.
Additional information is available at www.fitchratings.com.
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Contacts:
Fitch Ratings, New York
Brian C. Schneider, CPA, CPCU,
+1-312-606-2321 (Chicago)
Gretchen K. Roetzer, +1-312-606-2327
(Chicago)
Media Relations:
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com
