Fitch Affirms White Mountains’ Ratings

<p><location value="LU/us.il.chicgo" idsrc="xmltag.org">CHICAGO</location>--(BUSINESS WIRE)-- Fitch Ratings has affirmed all Issuer Default Ratings (IDRs), debt and Insurer Financial Strength (IFS) ratings for White Mountains Insurance Group, Ltd. (White Mountains) and its holding company subsidiaries and property/casualty insurance subsidiaries, including OneBeacon Insurance Group, Ltd.'s subsidiaries (OneBeacon; 75.5% ownership by White Mountains) and <org>Sirius International Group, Ltd.</org> (<org>Sirius Group</org>; f/k/a <org value="ACORN:3931621098" idsrc="xmltag.org">White Mountains Re Group, Ltd.</org>) and its subsidiaries. A full rating list is shown below. The Rating Outlook is Stable. </p><p> Fitch's rating rationale for the affirmation of White Mountains' ratings reflects the company's low financial leverage, favorable financial flexibility and opportunistic business approach. The ratings also reflect the company's sizable levels of run-off reserves and asbestos and environmental (A&E) exposure and net loss posted thus far in 2011. </p><p> Fitch's rating action also follows White Mountains' recent announcement of the reorganization and rebranding of its global reinsurance business under <org>Sirius Group</org>, expected to be completed in the fourth quarter of 2011. Fitch views the potential restructuring as favorably providing additional support for the group rating approach that Fitch currently applies to the company. </p><p> Fitch considers White Mountains' reinsurance operations to be a core business, separate from the core primary property/casualty operations of OneBeacon. As a result, Fitch applies a group approach separately to each core business. This results in the assignment of group ratings to White Mountains' wholly and majority owned insurers, with the reinsurance IFS ratings of <org>Sirius International Insurance Corporation and Sirius America Insurance Company</org> at 'A-' and the primary property/casualty IFS ratings of OneBeacon's insurance subsidiaries at 'A'. </p><p> Fitch believes that White Mountains uses a modest amount of financial leverage, with a debt-to-total-capital ratio of 13.7% at <chron>June 30, 2011</chron>, down from 16.1% at <chron>Dec. 31, 2010</chron>. This reduction was driven by <money>$150 million</money> in repurchases of OneBeacon's outstanding debt. Common shareholders' equity has been flat in recent periods as the company has generally returned its recent earnings to shareholders through common share repurchases and dividends. </p><p> White Mountains continually evaluates the best use of its financial resources and actively manages and deploys its capital with an opportunistic approach. Most recently, White Mountains agreed to sell <org value="ACORN:3362501411" idsrc="xmltag.org">Esurance</org> and Answer Financial to The Allstate Corporation, expected to close in the fall of 2011. In addition, several transactions over the past few years have accelerated OneBeacon's strategy of focusing on specialty lines businesses. Favorably, these transactions free up capital that previously supported the business writings, providing additional financial flexibility to the company. </p><p> White Mountains posted a net loss of <money>$17 million</money> for the first six months of 2011, as the company was impacted by losses from natural catastrophes. <org>Sirius Group</org> posted a 112% combined ratio for the first six months of 2011, compared to a 113% in the first six months of 2010, as each period was significantly impacted by catastrophe losses of 36 points. Losses thus far in 2011 were driven by the Japanese earthquake and tsunami and the <location value="LC/nz" idsrc="xmltag.org">New Zealand</location> earthquake, while the first half 2010 losses were primarily from the Chilean earthquake. </p><p> OneBeacon posted a combined ratio of 95% for the first six months of 2011, which included three points of favorable loss reserve development and four points of catastrophe losses primarily related to winter storms and U.S. tornados. This is improved from a combined ratio of 104% for the first six months of 2010, which also included three points of favorable loss reserve development, but a higher six points of catastrophe losses. </p><p> Key rating drivers that could lead to a downgrade include significant adverse loss reserve development, future earnings that are significantly below industry levels, sizable deterioration in insurance subsidiary capitalization, debt-to-total capital maintained above 30%, failure to return to operating earnings-based interest and preferred dividend coverage levels of at least 3 times (x) to 5x and additional A&E losses for OneBeacon significantly above the remaining <money>$320 million</money> available limit under the <money>$2.5 billion</money><org value="ACORN:2075933622" idsrc="xmltag.org">National Indemnity Company</org> cover. </p><p> Key rating drivers that could lead to an upgrade include improvement in operating results in line with higher rated peers, overall flat to favorable loss reserve development, debt-to-total capital maintained below 20% and improvement in insurance subsidiary capitalization. </p><p> Fitch affirms the following ratings with a Stable Outlook: </p><p> White Mountains Insurance Group, Ltd. </p><p> --Issuer Default Rating (IDR) at 'BBB+'. </p><p><org>OneBeacon U.S. Holdings, Inc.</org></p><p> --IDR at 'BBB+'; </p><p> --<money>$420 million</money> 5.875% due <chron>May 15, 2013</chron> at 'BBB'. </p><p> Sirius <org value="ACORN:150973939" idsrc="xmltag.org">International Group, Ltd.</org> (f/k/a <org value="ACORN:3931621098" idsrc="xmltag.org">White Mountains Re Group, Ltd.</org>) </p><p> --IDR at 'BBB+'; </p><p> --<money>$400 million</money> 6.375% due <chron>March 20, 2017</chron> at 'BBB'; </p><p> --<money>$250 million</money> perpetual non-cumulative preference shares at 'BB+'. </p><p> OneBeacon Insurance Group and Their Members: </p><p><org>Atlantic Specialty Insurance Company</org></p><p><org>AutoOne Insurance Company</org></p><p><org>AutoOne Select Insurance Company</org></p><p><org>Camden Fire Insurance Association</org> (The) </p><p><org>Employers' Fire Insurance Company</org> (The) </p><p><org>Essentia Insurance Company</org></p><p><org>Homeland Insurance Company of New York</org></p><p><org>Northern Assurance Company of America</org> (The) </p><p><org>OneBeacon America Insurance Company</org></p><p><org value="ACORN:1357167501" idsrc="xmltag.org">OneBeacon Insurance Company</org></p><p><org>OneBeacon Midwest Insurance Company</org></p><p><org>Pennsylvania General Insurance Company</org></p><p><org value="ACORN:1044989736" idsrc="xmltag.org">Traders & General Insurance Company</org></p><p> --IFS at 'A'. </p><p><org>Sirius International Insurance Corporation</org></p><p> --IFS at 'A-'. </p><p><org>Sirius America Insurance Company</org> (f/k/a <org>White Mountains Reinsurance Company of America</org>) </p><p> --IFS at 'A-'. </p><p> Fitch has withdrawn the following rating as the entity was dissolved and liquidated effective <chron>June 30, 2011</chron>: </p><p> OneBeacon Lloyd's of <location value="LS/us.tx" idsrc="xmltag.org">Texas</location></p><p> --IFS at 'A'. </p><p> Additional information is available at '<a href="http://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.fitchratings.com&esheet=6863727&lan=en-US&anchor=www.fitchratings.com&index=1&md5=ca97610feda8af448e37f6e188cbc3d9">www.fitchratings.com</a>'. </p><p><org>Applicable Criteria and Related Research</org>: </p><p> --'Insurance Rating Methodology' (<chron>March 31, 2011</chron>); </p><p> --'Non-Life Insurance Rating Methodology' (<chron>March 31, 2011</chron>); </p><p> --'Insurance Industry: Global Notching Methodology and Recovery Analysis' (<chron>March 31, 2011</chron>); </p><p> --'Fitch's Approach to Rating Insurance Groups' (<chron>Dec. 14, 2010</chron>). </p><p><org>Applicable Criteria and Related Research</org>: </p><p> Insurance Rating Methodology </p><p><a href="http://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.fitchratings.com%2Fcreditdesk%2Freports%2Freport_frame.cfm%3Frpt_id%3D614266&esheet=6863727&lan=en-US&anchor=http%3A%2F%2Fwww.fitchratings.com%2Fcreditdesk%2Freports%2Freport_frame.cfm%3Frpt_id%3D614266&index=2&md5=cf3000f17d9d9a88931cf53a2eb43cbf">http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=614266</a></p><p> Non-Life Insurance Rating Methodology </p><p><a href="http://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.fitchratings.com%2Fcreditdesk%2Freports%2Freport_frame.cfm%3Frpt_id%3D604366&esheet=6863727&lan=en-US&anchor=http%3A%2F%2Fwww.fitchratings.com%2Fcreditdesk%2Freports%2Freport_frame.cfm%3Frpt_id%3D604366&index=3&md5=e4b944445949a70a436efc221c5a6fd1">http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=604366</a></p><p> Insurance Industry: Global Notching Methodology and Recovery Analysis </p><p><a href="http://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.fitchratings.com%2Fcreditdesk%2Freports%2Freport_frame.cfm%3Frpt_id%3D614265&esheet=6863727&lan=en-US&anchor=http%3A%2F%2Fwww.fitchratings.com%2Fcreditdesk%2Freports%2Freport_frame.cfm%3Frpt_id%3D614265&index=4&md5=adbfe5c9039c22e53af631477fb84ba2">http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=614265</a></p><p> Fitch's Approach to Rating Insurance Groups </p><p><a href="http://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.fitchratings.com%2Fcreditdesk%2Freports%2Freport_frame.cfm%3Frpt_id%3D586765&esheet=6863727&lan=en-US&anchor=http%3A%2F%2Fwww.fitchratings.com%2Fcreditdesk%2Freports%2Freport_frame.cfm%3Frpt_id%3D586765&index=5&md5=5ee9cf2843b87d22db1b9743b91f1598">http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=586765</a></p><p> ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: <a href="http://cts.businesswire.com/ct/CT?id=smartlink&url=HTTP%3A%2F%2FFITCHRATINGS.COM%2FUNDERSTANDINGCREDITRATINGS&esheet=6863727&lan=en-US&anchor=HTTP%3A%2F%2FFITCHRATINGS.COM%2FUNDERSTANDINGCREDITRATINGS&index=6&md5=c102978c53fe239258adb40690eaab25">HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS</a>. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '<a href="http://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2FWWW.FITCHRATINGS.COM&esheet=6863727&lan=en-US&anchor=WWW.FITCHRATINGS.COM&index=7&md5=e4b5cf61f4b771c302e911c841926815">WWW.FITCHRATINGS.COM</a>'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. </p><p><img alt="" src="http://cts.businesswire.com/ct/CT?id=bwnews&sty=20110915006730r1&sid=acqr4&distro=nx" /><span class="bwct31415" /></p><p><org value="ACORN:1942178792" idsrc="xmltag.org">Fitch, Inc.</org><br />Primary Analyst<br /><person>Brian C. Schneider</person>, CPA, CPCU, ARe, +1-312-606-2321<br />Senior Director<br /><location>70 W. Madison Street</location><br /><location value="LU/us.il.chicgo" idsrc="xmltag.org">Chicago, IL</location> 60602<br />or<br />Secondary Analyst<br /><person>Gretchen K. Roetzer</person>, +1-312-606-2327<br />Director<br />or<br />Committee Chairperson<br />R. <person>Andrew Davidson</person>, CFA, +1-312-368-3144<br />Senior Director<br />or<br />Media Relations<br /><person>Brian Bertsch</person>, +1-212-908-0549<br /><a href="mailto:[email protected]">[email protected]</a></p><p>Source: Fitch Ratings</p>