OneBeacon Affirmed

A.M. Best Co. has affirmed the financial strength rating of “A” (Excellent) of the insurance subsidiaries of OneBeacon Insurance Group. A.M. Best also affirmed the indicative shelf registration ratings for Fund American Companies Inc. These affirmations follow the completion of A.M. Best’s annual rating review of the group’s balance sheet and operating results.

These ratings reflect OneBeacon’s excellent capitalization, strong agency franchise and prospective earnings capacity, which is enhanced by the availability of significant reinsurance protection on the group’s asbestos and environmental (A&E) losses as well as other significant mass tort liabilities and improved operating fundamentals. The positive implications of OneBeacon’s ownership by White Mountains Insurance Group Ltd., its strengthened management team, as well as the refocused business strategy and improved balance sheet quality were also influences.

These positive rating factors are offset by OneBeacon’s subpar historical earnings, stemming largely from loss development on business acquired with its 1998 merger with General Accident. Sizable operating losses were generated by extraordinary reserving actions taken at the time of the 1998 merger and again in 2000 and 2001. Those, along with restructuring charges and World Trade Center losses in 2001, contributed to a reduction in statutory policyholders’ surplus of 36 percent during the past two years. Moreover, the financial leverage (debt plus preferred stock to total capital) of White Mountains is relatively high at 38 percent. However, management intends to refinance $260 million of the company’s debt during the latter half of 2002 with funds raised either through a public offering of White Mountains’ common stock or by exercising an option to issue common stock directly to the holder of the debt, thus providing for reduced financial leverage and additional flexibility in the parent’s capital structure.

A.M. Best believes the series of actions taken by the new management team to minimize prior year loss development, stabilize investment earnings and improve underwriting performance will result in greater earnings potential for OneBeacon. The rating outlook is stable.

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Topics AM Best