White Mountains Reports 13% Growth In Book Value For 2003
HAMILTON, Bermuda, Feb. 3 /PRNewswire-FirstCall/-- White Mountains Insurance Group, Ltd. ended 2003 with a fully converted tangible book value per share of $291, an increase of 13% (including dividends) from $259 at the end of 2002. Pre-tax income for 2003 was $372 million compared to $119 million in 2002. For the fourth quarter of 2003, pre-tax income was $64 million compared to $60 million in the prior year.
During the fourth quarter, White Mountains announced the following pending and completed acquisitions:
- Renewal Rights to the Treaty Business of CNA Reinsurance;
- Atlantic Specialty, the Commercial Insurance Business of Atlantic Mutual;
- Sierra Insurance Group, a runoff insurance company, from Sierra Health Services;
- Sirius Insurance Group, an international reinsurance operation, from ABB Holdings, Ltd.
CEO Ray Barrette said, "We had a solid year in 2003. We achieved terrific underwriting results in all of our ongoing businesses and earned nice returns on our investment portfolio. The drag from runoff operations shaved 2-3 percentage points from our book value growth, but this drag should essentially be over. In the fourth quarter, we were able to carefully capitalize on unique opportunities in each one of our businesses. All these transactions will add significant value for our shareholders and will be financed internally. In addition, Atlantic Specialty and Sirius International will clearly enhance our insurance and reinsurance operations, respectively."
OneBeacon
OneBeacon's pre-tax income for 2003 was $420 million compared to $200 million in 2002. The GAAP combined ratio was 98% for 2003 compared to 107% in 2002.
For the fourth quarter of 2003, OneBeacon's pre-tax income was $111 million with a GAAP combined ratio of 95%. For the comparable period of 2002, pre-tax income was $60 million with a GAAP combined ratio of 101%.
John Cavoores, CEO of OneBeacon, said, "We were operating on all cylinders in 2003. The GAAP combined ratio for core operations was 90% for the year. Core premiums are growing again and we are no longer writing non-core premiums. The addition of Atlantic Specialty, coupled with the introduction of new segmented personal insurance products and strong profit and growth in our specialty operations, gives OneBeacon terrific momentum going into 2004."
Net written premiums on core operations for 2003 were $1.9 billion, compared to $2.0 billion in 2002. Net written premiums on core operations for the fourth quarter of 2003 were $453 million, up 9% compared to $414 million in the same period last year. Net written premiums for 2003 were $2.0 billion, down from $2.5 billion in 2002. Net written premiums for the fourth quarter of 2003 were $465 million, down from $485 million in the fourth quarter of 2002.
Reinsurance
Pre-tax income for White Mountains' Reinsurance segment was $193 million for 2003, an increase of 16% over the $166 million recorded in 2002. For the fourth quarter of 2003, pre-tax income was $66 million versus $46 million in the comparable period of 2002.
Folksamerica's GAAP combined ratio was 95% in 2003, compared to 100% in 2002. Folksamerica's net written premiums increased 31% in 2003 to $889 million, while gross written premiums increased 46% to $1.4 billion. Folksamerica's GAAP combined ratio was 97% for the fourth quarter of 2003, compared to 100% for the fourth quarter of 2002. Net and gross written premiums increased 13% and 22%, respectively, in the fourth quarter compared to the fourth quarter of 2002.
Steve Fass, CEO of Folksamerica, said, "Overall, it was an outstanding year for Folksamerica. Underwriting results and premiums reached record levels. We also completed the renewal rights transaction with CNA Re and, through Folksamerica Re Solutions, negotiated the acquisition of Sierra Health Services. We expect these transactions to add to our economic value in 2004 and beyond."
White Mountains' Reinsurance segment consists of Folksamerica, Folksamerica Re Solutions, White Mountains Underwriting, Fund American Re, and White Mountains' investment in Montpelier.
Other Operations
White Mountains' Other Operations segment reported a pre-tax loss of $240 million for the full year 2003, compared to a pre-tax loss of $246 million in 2002. For the fourth quarter, the pre-tax loss was $112 million versus a pre- tax loss of $47 million in the comparable period 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. All results reported by the Company reflect the full cost of all compensation plans.
Investment Activities
John Gillespie, President of White Mountains Advisors, said, "We successfully navigated through a volatile year in the bond market and capitalized on a rising equity tide. In 2003, our equities and our fixed income portfolios both performed better than broadly accepted benchmarks. Our strategy continues to be to keep our bond portfolio duration relatively short at about three years and accumulate equities when we perceive value opportunities."
White Mountains' 2003 pre-tax income included $163 million of realized gains compared to $156 million in 2002. For the fourth quarter of 2003, realized gains were $49 million compared to $39 million last year. After-tax unrealized gains were $76 million in 2003 compared to $204 million in 2002. There were less unrealized gains in 2003 relative to 2002 primarily due to the increase in interest rates in 2003, versus the decline in rates in 2002.
Changes in Accounting Principles
During the fourth quarter of 2003, the FASB issued Staff Position No. 150- 3 ("FSP 150-3") deferring the adoption of SFAS 150 for certain mandatorily redeemable financial instruments. In this latest pronouncement, the FASB requires companies that were required to adopt SFAS 150 for such instruments in the third quarter of 2003 to reverse the effects of adoption in the fourth quarter of 2003. As a result, White Mountains recorded a $90 million gain as a cumulative effect of a change in accounting principles in the fourth quarter to reverse the effects of the $90 million charge recorded in the third quarter 2003 to adopt SFAS 150. Neither the adoption of SFAS 150 nor its subsequent reversal impacted fully converted tangible book value per share as the Company has always carried the Berkshire Preferred Stock at its full $300 million redemption value in computing its fully converted tangible book value per share.
Additional Information
White Mountains is a Bermuda-domiciled financial services holding company traded on the New York Stock Exchange and the Bermuda Stock Exchange under the symbol WTM. Additional financial information and other items of interest are available at the Company's website located at www.whitemountains.com. The Company expects to file its Form 10-K with the Securities and Exchange Commission on or before Monday, March 15, 2004 and urges shareholders to refer to that document for more complete information concerning White Mountains' financial results.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
The information contained in this earnings release may contain "forward- looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included or referenced in this release which address activities, events or developments which we expect or anticipate will or may occur in the future are forward-looking statements. The words "will", "believe," "intend," "expect," "anticipate," "project," "estimate," "predict" and similar expressions are also intended to identify forward-looking statements. These forward-looking statements include, among others, statements with respect to White Mountains':
- growth in book value per share or return on equity;
- business strategy;
- financial and operating targets or plans;
- incurred losses and the adequacy of its loss and loss adjustment expense reserves;
- projections of revenues, income (or loss), earnings (or loss) per share, dividends, market share or other financial forecasts;
- expansion and growth of our business and operations; and future capital expenditures.
These statements are based on certain assumptions and analyses made by White Mountains in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors believed to be appropriate in the circumstances. However, whether actual results and developments will conform with our expectations and predictions is subject to a number of risks and uncertainties that could cause actual results to differ materially from expectations, including:
- the failure of White Mountains to complete any or all of its recently announced acquisitions or, if White Mountains completes any such acquisition, the failure of any or all of such completed acquisitions to add value or to enhance White Mountains' business;
- claims arising from catastrophic events, such as hurricanes, earthquakes, floods or terrorist attacks;
- the continued availability of capital and financing;
- general economic, market or business conditions;
- competitive forces, including the conduct of other property and casualty insurers and reinsurers
- changes in domestic or foreign laws or regulations applicable to White Mountains, its competitors or its clients;
- an economic downturn or other economic conditions, such as changes in foreign currency exchange rates, adversely affecting its financial position;
- loss reserves established subsequently proving to have been inadequate; and
- other factors, most of which are beyond White Mountains' control.
Consequently, all of the forward-looking statements made in this earnings release are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by White Mountains will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, White Mountains or its business or operations. White Mountains assumes no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or otherwise.
WHITE MOUNTAINS INSURANCE GROUP, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions, except share amounts)
December 31, December 31,
2003 2002
Assets
Fixed maturity investments, at
fair value $6,248.1 $6,669.1
Short-term investments, at fair
value 1,546.6 1,790.6
Common equity securities, at fair
value 513.6 275.0
Other investments 239.2 164.7
Total investments 8,547.5 8,899.4
Reinsurance recoverable on unpaid
losses 3,473.8 4,071.9
Reinsurance recoverable on paid
losses 121.7 159.8
Insurance and reinsurance premiums
receivable 779.0 830.5
Investments in unconsolidated
insurance affiliates 515.9 399.9
Deferred acquisition costs 233.6 244.9
Ceded unearned premiums 185.3 163.9
Accounts receivable on unsettled
investment sales 9.1 160.8
Other assets 1,105.1 1,102.5
Total assets $14,971.0 $16,033.6
Liabilities
Loss and loss adjustment expense
reserves $7,728.2 $8,875.3
Unearned insurance and reinsurance
premiums 1,409.4 1,514.4
Debt 743.0 793.2
Accounts payable on unsettled
investment purchases 371.6 495.2
Preferred stock subject to
mandatory redemption 194.5 -
Funds held under reinsurance
treaties 211.9 262.4
Other liabilities 1,333.2 1,285.3
Total liabilities 11,991.8 13,225.8
Convertible preference shares - 219.0
Minority interest - preferred
stock of subsidiaries - 180.9
Common shareholders' equity
Common shares and paid-in surplus 1,407.1 1,129.3
Retained earnings 1,286.4 1,071.9
Accumulated other comprehensive
income, after tax:
Unrealized gains on investments 286.0 210.2
Unrealized foreign currency
translation losses (.3) (3.5)
Total common shareholders'
equity 2,979.2 2,407.9
Total liabilities, convertible
preference shares, minority
interest
and common shareholders' equity $14,971.0 $16,033.6
Common shares outstanding (000's) 9,007 sh 8,351 sh
Common and equivalent shares
outstanding (000's) 10,782 sh 10,806 sh
WHITE MOUNTAINS INSURANCE GROUP, LTD.
FULLY CONVERTED TANGIBLE BOOK VALUE PER
COMMON AND EQUIVALENT SHARE
(Unaudited)
December 31, September 30, December 31,
2003 2003 2002
Book value per share
numerators (in millions of
dollars):
Common shareholders' equity $2,979.2 $2,794.6 $2,407.9
Proceeds from assumed
exercise of outstanding
Warrants 300.0 300.0 300.0
Benefits to be received from
share obligations under
employee benefit plans 7.0 7.5 8.8
Remaining adjustment of
subsidiary preferred stock
to face value (125.5) (41.2) (139.1)
Book value per share numerator 3,160.7 3,060.9 2,577.6
Conversion of convertible
preference shares to Common
Shares - - 219.0
Unamortized goodwill (20.3) (17.8) -
Fully converted tangible book
value per common and
equivalent share numerator $3,140.4 $3,043.1 $2,796.6
Book value per share
denominators (in thousands of
shares):
Common Shares outstanding 9,007.2 9,002.4 8,351.4
Common Shares issuable upon
exercise of outstanding
Warrants 1,724.2 1,724.2 1,714.3
Share obligations under
employee benefits plans 50.6 55.4 61.9
Book value per share
denominator 10,782.0 10,782.0 10,127.6
Conversion of convertible
preference shares to Common
Shares - - 678.0
Fully converted tangible book
value per common and
equivalent share denominator 10,782.0 10,782.0 10,805.6
Book value per share $293.15 $283.90 $254.52
Fully converted tangible book
value per common and
equivalent share $291.27 $282.24 $258.82
WHITE MOUNTAINS INSURANCE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(millions, except per share amounts)
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
2003 2002 2003 2002
Revenues:
Earned insurance and
reinsurance
premiums $791.3 $840.1 $3,137.7 $3,576.4
Net investment
income 71.8 81.4 290.9 366.0
Net realized gains
on investments 48.6 39.3 162.6 156.0
Other revenue 51.2 40.7 215.4 113.7
Total revenues 962.9 1,001.5 3,806.6 4,212.1
Expenses:
Loss and loss
adjustment expenses 503.6 627.7 2,138.1 2,638.2
Insurance and
reinsurance
acquisition
expenses 154.7 184.2 611.6 806.3
Other underwriting
expenses 107.6 54.0 363.3 403.9
General and
administrative
expenses 98.3 43.0 201.8 92.7
Accretion of fair
value adjustment to
loss and loss
adjustment expense
reserves 10.1 14.2 48.6 79.8
Interest expense on
debt 11.5 18.8 48.6 71.8
Interest expense -
dividends and
accretion on
preferred stock
subject to
mandatory
redemption 13.1 - 22.3 -
Total expenses 898.9 941.9 3,434.3 4,092.7
Pretax income 64.0 59.6 372.3 119.4
Tax provision (22.4) (10.4) (127.6) (11.7)
Net income before
minority interest,
equity in earnings
of unconsolidated
affiliates,
accounting changes
and extraordinary
items 41.6 49.2 244.7 107.7
Dividends and
accretion on
subsidiary
preferred stock to
face value - (10.5) (21.5) (40.9)
Equity in earnings
of unconsolidated
affiliates 15.1 6.2 57.4 14.0
Net income before
accounting changes
and extraordinary
items 56.7 44.9 280.6 80.8
Cumulative effect of
changes in
accounting
principles 89.8 - - 660.2
Excess of fair value
of acquired net
assets over cost - - - 7.1
Net income 146.5 44.9 280.6 748.1
Net change in
unrealized gains on
investments 31.7 17.0 75.8 203.7
Net change in
foreign currency
gains (losses) 2.2 (.7) 3.2 (1.4)
Comprehensive net
income $180.4 $61.2 $359.6 $950.4
Computation of net
income available to
common shareholders:
Net income $146.5 $44.9 $280.6 $748.1
Redemption value
adjustment and
dividends -
convertible
preference shares - (19.4) (49.5) (19.4)
Net income available
to common
shareholders $146.5 $25.5 $231.1 $728.7
Basic earnings per
common share:
Net income before
accounting changes
and extraordinary
items $6.30 $3.09 $26.48 $7.47
Net income 16.28 3.09 26.48 88.61
Diluted earnings per
common share:
Net income before
accounting changes
and extraordinary
items $5.57 $2.78 $23.63 $6.80
Net income 14.52 2.78 23.63 80.75
WHITE MOUNTAINS INSURANCE GROUP, LTD.
YTD SEGMENT INCOME STATEMENT
(in millions)
For the Year Ended December 31, 2003
OneBeacon Reinsurance Other Total
Revenues:
Earned insurance and
reinsurance premiums $2,183.4 $922.6 $31.7 $3,137.7
Net investment income 233.9 54.2 2.8 290.9
Net realized gains (losses)
on investments 127.1 40.3 (4.8) 162.6
Other revenue 90.5 75.5 49.4 215.4
Total revenues 2,634.9 1,092.6 79.1 3,806.6
Expenses:
Loss and loss adjustment
expenses 1,493.8 620.4 23.9 2,138.1
Insurance and reinsurance
acquisition expenses 394.9 197.0 19.7 611.6
Other underwriting expenses 258.7 61.0 43.6 363.3
General and administrative
expenses 67.6 19.6 114.6 201.8
Accretion of fair value
adjustment to loss and lae
reserves - - 48.6 48.6
Interest expense on debt 0.3 2.0 46.3 48.6
Interest expense -
dividends and accretion on
preferred stock
subject to mandatory
redemption - - 22.3 22.3
Total expenses 2,215.3 900.0 319.0 3,434.3
Pretax income (loss) $419.6 $192.6 $(239.9) $372.3
For the Year Ended December 31, 2002
OneBeacon Reinsurance Other Total
Revenues:
Earned insurance and
reinsurance premiums $2,870.9 $675.8 $29.7 $3,576.4
Net investment income 314.0 52.7 (0.7) 366.0
Net realized gains (losses)
on investments 113.0 88.3 (45.3) 156.0
Other revenue 14.4 53.6 45.7 113.7
Total revenues 3,312.3 870.4 29.4 4,212.1
Expenses:
Loss and loss adjustment
expenses 2,131.3 478.8 28.1 2,638.2
Insurance and reinsurance
acquisition expenses 629.1 161.1 16.1 806.3
Other underwriting expenses 329.2 42.4 32.3 403.9
General and administrative
expenses 22.4 20.6 49.7 92.7
Accretion of fair value
adjustment to loss and lae
reserves - - 79.8 79.8
Interest expense - 2.0 69.8 71.8
Total expenses 3,112.0 704.9 275.8 4,092.7
Pretax income (loss) $200.3 $165.5 $(246.4) $119.4
WHITE MOUNTAINS INSURANCE GROUP, LTD.
QTD SEGMENT INCOME STATEMENT
(in millions)
For the Three Months Ended December 31, 2003
OneBeacon Reinsurance Other Total
Revenues:
Earned insurance and
reinsurance premiums $524.9 $258.1 $8.3 $791.3
Net investment income 60.6 14.2 (3.0) 71.8
Net realized gains on
investments 14.9 30.3 3.4 48.6
Other revenue 33.0 18.8 (0.6) 51.2
Total revenues 633.4 321.4 8.1 962.9
Expenses:
Loss and loss adjustment
expenses 324.7 173.5 5.4 503.6
Insurance and reinsurance
acquisition expenses 93.5 55.8 5.4 154.7
Other underwriting expenses 77.9 17.6 12.1 107.6
General and administrative
expenses 26.5 8.5 63.3 98.3
Accretion of fair value
adjustment to loss and lae
reserves - - 10.1 10.1
Interest expense on debt 0.3 0.5 10.7 11.5
Interest expense - dividends
and accretion on preferred
stock
subject to mandatory
redemption - - 13.1 13.1
Total expenses 522.9 255.9 120.1 898.9
Pretax income (loss) $110.5 $65.5 $(112.0) $64.0
For the Three Months Ended December 31, 2002
OneBeacon Reinsurance Other Total
Revenues:
Earned insurance and
reinsurance premiums $629.5 $203.0 $7.6 $840.1
Net investment income 70.0 9.6 1.8 81.4
Net realized gains (losses) on
investments 14.5 25.6 (0.8) 39.3
Other revenue 3.6 15.2 21.9 40.7
Total revenues 717.6 253.4 30.5 1,001.5
Expenses:
Loss and loss adjustment
expenses 467.9 149.3 10.5 627.7
Insurance and reinsurance
acquisition expenses 126.5 44.4 13.3 184.2
Other underwriting expenses 41.6 11.1 1.3 54.0
General and administrative
expenses 21.2 2.1 19.7 43.0
Accretion of fair value
adjustment to loss and lae
reserves - - 14.2 14.2
Interest expense on debt - 0.5 18.3 18.8
Total expenses 657.2 207.4 77.3 941.9
Pretax income (loss) $60.4 $46.0 $(46.8) $59.6
WHITE MOUNTAINS INSURANCE GROUP, LTD.
SUMMARY OF GAAP RATIOS AND PREMIUMS
(Unaudited)
Year Ended December 31, 2003
OneBeacon
Total Total Folks-
Personal Commercial Specialty Core (1) america
GAAP Ratios
Loss and LAE 61% 61% 59% 60% 68% 67%
Expense 26% 34% 32% 30% 30% 28%
Total Combined 87% 95% 91% 90% 98% 95%
Dollars in millions
Net written premiums $942.2 $426.7 $499.9 $1,868.8 $2,004.0 $889.2
Earned insurance
premiums $975.4 $432.0 $487.4 $1,894.8 $2,183.4 $844.3
Year Ended December 31, 2002
OneBeacon
Total Total Folks-
Personal Commercial Specialty Core (1) america
GAAP Ratios
Loss and LAE 70% 67% 62% 68% 74% 70%
Expense 26% 33% 32% 29% 33% 30%
Total Combined 96% 100% 94% 97% 107% 100%
Dollars in millions
Net written premiums $1,092.1 $454.6 $449.7 $1,996.4 $2,522.8 $678.7
Earned insurance
premiums $1,015.5 $527.4 $420.1 $1,963.0 $2,870.9 $620.5
Three Months Ended December 31, 2003
OneBeacon
Total Total Folks-
Personal Commercial Specialty Core (1) america
GAAP Ratios
Loss and LAE 61% 55% 55% 58% 62% 68%
Expense 33% 40% 34% 35% 33% 29%
Total Combined 94% 95% 89% 93% 95% 97%
Dollars in millions
Net written premiums $240.2 $98.6 $114.0 $452.8 $464.7 $225.1
Earned insurance
premiums $240.5 $111.1 $126.0 $477.6 $524.9 $229.9
Three Months Ended December 31, 2002
OneBeacon
Total Total Folks-
Personal Commercial Specialty Core (1) america
GAAP Ratios
Loss and LAE 57% 53% 66% 58% 74% 72%
Expense 26% 32% 30% 27% 27% 28%
Total Combined 83% 85% 96% 85% 101% 100%
Dollars in millions
Net written premiums $214.6 $92.1 $107.7 $414.4 $484.6 $199.7
Earned insurance
premiums $257.8 $115.9 $114.1 $487.8 $629.5 $177.0
(1) Includes results from Non-core operations.
SOURCE White Mountains Insurance Group, Ltd.
02/03/2004
CONTACT: David Foy for White Mountains, 203-453-1681
(WTM)