White Mountains Continues Strong Growth in Book Value

Bermuda-based White Mountains Insurance Group, Ltd. ended the second quarter of 2003 with a fully converted tangible book value per share of $281, an annualized increase of 18 percent (including dividends) from $259 at year-end.

The company’s comprehensive net income for the second quarter of 2003 was $163 million, compared to $137 million in the second quarter of 2002. For the first six months of 2003, comprehensive net income was $254 million compared to $756 million in the comparable 2002 period, which included $660 million of income resulting from a change in accounting principles.

CEO Ray Barrette said, “We are building shareholder value at a good clip in every one of our businesses: insurance, reinsurance and investments. With insurance markets remaining disciplined, we expect strong performance to continue for the foreseeable future.”

Pre-tax income for the quarter was $124 million compared to a loss of $13 million in the same quarter last year. For the first six months, pre-tax income was $270 million compared to a loss of $22 million in the first six months of last year.

OneBeacon
OneBeacon’s pre-tax income for the second quarter of 2003 was $139 million, well above the prior year’s second quarter, which was $33 million. The GAAP combined ratio was 98 percent for the second quarter of 2003 compared to 109 percent for the second quarter of 2002. This includes the cost of incentive compensation, which amounted to 5 points on the combined ratio in the quarter, due to substantially improved results on a smaller book and a higher stock price.

For the first six months of 2003, OneBeacon’s pre-tax income was $278 million with a GAAP combined ratio of 98 percent. For the comparable period of 2002, pre-tax income was $41 million with a GAAP combined ratio of 109 percent.

John Cavoores, president of OneBeacon, noted, “I am very pleased with our operating performance in the second quarter. The GAAP combined ratio for our core operations was 92 percent, which more than offset some adverse results in our shrinking non-core business. Personal lines and specialty lines continue to deliver solid results, each with combined ratios of 91%, while we saw a big improvement in commercial lines, which reported a combined ratio of 96 percent. While the overall business is still shrinking as planned, we are seeing good growth from specialty lines, personal lines is on plan and, for the first time since June 2001, our commercial business grew over prior year for the months of May and June.”

Net written premiums for the second quarter of 2003 were $485 million, down from $687 million in the second quarter of 2002. Net written premiums on core operations, which are comprised of personal and commercial lines business in the Northeast and specialty business, were $445 million compared to $533 million in the second quarter of 2002. Net written premiums for the first six months of 2003 were $980 million, down from $1.4 billion in the first six months of 2002. Net written premiums on core operations were $895 million in the first six months of 2003, compared to $1.1 billion in the first six months of 2002.

Reinsurance
Pre-tax income for White Mountains’ Reinsurance segment was $63 million for the second quarter of 2003, more than double the $25 million for the second quarter of 2002. For the first six months of 2003, pre-tax income was $109 million versus $55 million in the comparable prior year period.

Folksamerica’s GAAP combined ratio was 95 percent in the second quarter of 2003, compared to 100 percent in the second quarter of 2002. Folksamerica’s net written premiums increased 23 percent from the second quarter of 2002 to the second quarter of 2003, while gross written premiums increased 46 percent. Folksamerica’s GAAP combined ratio was 94 percent for the first six months of 2003, compared to 95 percent for the first six months of 2002 (101 percent when excluding a reduction in reinsurance recoverable allowance originally established in connection with the PCA Property & Casualty Insurance Company acquisition). Net written premiums increased 42 percent from the first six months of 2002 to the first six months of 2003, while gross written premiums increased 55 percent. During June of 2003, A.M. Best upgraded its financial strength rating for Folksamerica to “A” (“Excellent”).

Steve Fass, CEO of Folksamerica, said, “Folksamerica had another great quarter with all underwriting divisions contributing to our financial performance. In addition, Folksamerica was very pleased that A.M. Best upgraded our financial strength rating during the quarter. The upgrade is particularly significant in today’s environment of heightened concerns about the financial strength of our industry. To our brokers and customers, this upgrade reaffirms our position as a lead reinsurer and as one of the strongest reinsurers in the industry.”

White Mountains’ reinsurance segment consists of Folksamerica, White Mountains Underwriting, Ltd. (“WMU”), Fund American Re, and White Mountains’ investment in Montpelier.

Other Operations
White Mountains’ other operations segment reported a pre-tax loss of $78 million for the second quarter of 2003, compared to a pre-tax loss of $71 million for the second quarter of 2002. Year to date, the pre-tax loss was $117 million versus a pre-tax loss of $118 million in the first six months of 2002. The other operations segment losses for each period was principally the result of financing, purchase accounting and compensation expenses at the holding company level.

At the May 2003 board meeting, performance shares previously issued to Jack Byrne and other non-management directors were terminated early in light of the proposed independence standards for directors. The payments approved by the board are reflected in the second quarter results.